The State of New York Ex Rel Vinod Khurana et al v. Spherion Corp, No. 1:2015cv06605 - Document 96 (S.D.N.Y. 2018)

Court Description: OPINION & ORDER re: 91 MOTION for Entry of Judgment under Rule 54(b) filed by The State of New York Ex Rel Vinod Khurana, The City of New York Ex Rel Vinod Khurana, Vinod Khurana. For the reasons stated above, Plaintiff' ;s motion for certification of the Court's Orders as final judgments under Rule 54(b) is DENIED. The Clerk of Court is respectfully directed to terminate the motion docketed at ECF No. 91. SO ORDERED. (Signed by Judge John F. Keenan on 6/20/2018) (anc)

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The State of New York Ex Rel Vinod Khurana et al v. Spherion Corp Doc. 96 Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 1 of 16 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------X THE STATE OF NEW YORK EX REL : VINOD KHURANA and DISTRICT COURT : UNITED STATES THE CITY OF NEW SOUTHERN DISTRICT OF NEW YORK : YORK EX REL VINOD KHURANA, : -----------------------------------------------------------x Plaintiffs, In re FANNIE MAE 2008 SECURITIES : : -against: LITIGATION : : : SPHERION CORP. (N/K/A SFN GROUP, : : INC.), : -----------------------------------------------------------x Defendant. : ---------------------------------X USDC SDNY DOCUMENT ELECTRONICALLY FILED DOC #: _________________ DATE FILED: 6/20/2018 No. 15 Civ. 7831 (PAC) 08 Civ. 6605 (JFK) 09 MD 2013 (PAC) OPINION & ORDER OPINION & ORDER APPEARANCES HONORABLE PAUL A. CROTTY, United States District Judge: FOR PLAINTIFF/RELATOR VINOD KHURANA: David E. Kovel, Esq. 1 David A. Bishop, Esq. KIRBY McINERNEY LLP The early years of this decade saw a boom in home financing which was fueled, among FOR DEFENDANT SPHERION CORP.: other things, by low interest rates and lax credit conditions. New lending instruments, such as Mark J. Hyland, Esq. Rita M. Glavin, Esq. subprime mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans) Thomas Ross Hooper, Esq. SEWARD & KISSEL LLP kept the boom going. Borrowers played a role too; they took on unmanageable risks on the FOR THE CITY OF NEW YORK: assumption that the market would continue to rise and that refinancing options would always be Zachary W. Carter, Esq. Gail Rubin, Esq. available in Krishnan, Esq.discipline was lacking in the system. Mortgage originators did Sabita the future. Lending Lilia Toson, Esq. not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the CORPORATION COUNSEL OF THE CITY OF NEW YORK JOHNoriginators sold their loans into the secondary mortgage market, often as securitized packages F. KEENAN, United States District Judge: known as mortgage-backed securities(“Plaintiff”) moves the Court Plaintiff Vinod Khurana (“MBSs”). MBS markets grew almost exponentially. 2006, the demand for for entry of pursuant But then the housing bubble CivilInProcedure 54(b) housing dropped abruptly to Federal Rule of burst. thisand home prices began to fall. InOrdersthe changing housing market, banksqui tamtheir Court’s Opinions and light of dismissing Plaintiff’s modified lending practices and Plaintiff leave to amend his qui tam refinancing. claims and denying became unwilling to refinance home mortgages without claims— dated November 10, 2016 and April 21, 2017, respectively 1 Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint, dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true. 1 1 Dockets.Justia.com Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 2 of 16 (together, the “Orders”)—as final judgments, and to stay litigation of Plaintiff’s remaining retaliation claims pending the appeal from the Orders. For the reasons stated below, Plaintiff’s motion is denied. I. A. Background Factual Background The Court presumes familiarity with the factual background of this case that was laid out extensively in the Orders. ECF Nos. 70, 86.) (See Briefly stated, Plaintiff is a former employee of Defendant Spherion Corp. (“Spherion”), a company that provided quality assurance services over CityTime—a project started by the Office of Payroll Administration (the “OPA”) in 1998 to automate time-keeping and payroll functions for New York City employees. (Second Amended Complaint ¶¶ 9, 13 [hereinafter SAC].) Science Applications International Corporation (“SAIC”) took over as the prime contractor on CityTime in 2002 and Spherion was engaged to perform certain quality assurance functions over SAIC. (Id. ¶¶ 14-15, 22.) Spherion hired Mark Mazer and Scott Berger as consultants on CityTime and they began work on the project in 2005. (Id. ¶¶ 3, 31.) In 2006, SAIC’s prime contract was amended from a fixed-price contract to a fixed-price level-of-effort contract, which significantly increased the amount of compensable consulting staffing on the project. (Id. ¶ 18.) 2 With access to Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 3 of 16 additional consultant funding, Mazer used his position to award lucrative contracts to companies controlled by friends or family members in exchange for kickbacks. (Id. ¶ 19.) Plaintiff claims that, in his position as a load performance tester, he began noticing performance problems with the CityTime software in late 2004. (Id. ¶ 29.) From 2004 to 2005, Plaintiff alleges that he told individuals at the Financial Information Services Agency (“FISA”) on multiple occasions that the program would not support the number of users required and that Mazer and Berger had told him they knew the project was going to fail. (Id. ¶ 32.) Plaintiff claims that “on numerous occasions” he also told Spherion representatives about “serious problems” with CityTime, but Spherion “continued with the project as if those problems did not exist” and continued billing the City of New York (the “City”) without taking any action to remove Mazer and Berger. (Id. ¶¶ 34, 36.) Further, Plaintiff alleges that he “personally witnessed or developed knowledge of various other examples of suspicious or outright fraudulent conduct,” including billing the CityTime contract for services that were prohibited, unnecessary, or not provided. (Id. ¶ 45.) Plaintiff claims that he was retaliated against and ultimately terminated in May 2007 for communicating to Spherion and FISA that performance was poor and the project was failing. (Id. ¶ 58.) 3 Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 4 of 16 In early 2009, Plaintiff drafted a “detailed complaint memorializing his direct knowledge of the fraud,” mailed it to the New York City Department of Investigations (“DOI”), and posted it online as a CNN “iReport.” (Id. ¶ 62.) Plaintiff claims that after sending the DOI complaint he “went on an extensive campaign to call as much public attention as possible to the fraud,” including posting an “extensive series of comments on articles on the New York Daily News website that exposed the inner-workings of the CityTime contract in great detail.” (Id. ¶ 63.) Plaintiff alleges that he met with DOI investigators in “December 2010 and thereafter” and provided “a full accounting of his knowledge and experiences on the CityTime project.” (Id. ¶ 64.) The New York news media began publishing articles discussing problems with CityTime in 2004, with increased frequency in 2009 and 2010. (See Hyland Aff. Ex. 9.) The project also received scrutiny from public officials, including the New York City Council and the Office of the Comptroller. (See Hyland Aff. Exs. 20, 22.) On December 15, 2010, the U.S. Attorney’s Office for the Southern District of New York and the DOI jointly unsealed a 35-page criminal complaint (the “Criminal Complaint”) and announced charges against six individuals connected to CityTime, including Mark Mazer and Scott Berger. (See Hyland Aff. Exs. 7, 8.) On March 8, 2012, SAIC signed a 4 Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 5 of 16 deferred prosecution agreement (the “DPA”) with the U.S. Department of Justice, under which SAIC admitted to having defrauded the City and agreed to a civil forfeiture of $500 million, with the majority of the funds intended to repay the City (the “SAIC Settlement”). (See Krishnan Decl. Exs. A, O, P.) Plaintiff brought this action on behalf of the City and the State of New York (the “State”), alleging that Spherion is liable under the New York False Claims Act (“NYS FCA”) and the New York City False Claims Act (“NYC FCA”) for the submission of false claims to the City. Plaintiff advances four theories on which he claims Spherion is liable under the NYS FCA and NYC FCA. First, Plaintiff contends that Spherion is vicariously liable under its contract with the OPA for Mazer’s and Berger’s acts in “steering billable work to their own entities then inflating and falsifying timesheets” (the “vicarious liability claims”). Second, Plaintiff alleges that Spherion submitted false claims to the City because it “failed to provide quality assurance services” as required by its contract with the OPA (the “quality assurance claims”). Third, Plaintiff asserts that Spherion is liable because it violated the conflict of interest provision of its contract with the OPA by employing Mazer and Berger (the “conflict of interest claims”). Fourth, Plaintiff alleges that Spherion is liable for engaging in certain false 5 Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 6 of 16 billing practices (the “false billing claims”). Plaintiff also alleges claims for retaliation under the NYS FCA and NYC FCA. A. Procedural History On March 31, 2011, Plaintiff brought this action in New York State Supreme Court. On April 22, 2013, the State filed a Notice of Election in New York Supreme Court, declining to file a complaint against any of the defendants named in Plaintiff’s action or to intervene in the action. (See “Notice of Election by the State of New York,” Notice of Removal Ex. A, ECF No. 1-1 at 103-104 (filed Aug. 20, 2015).) On March 4, 2015, the City filed under seal a Notice of Election in New York Supreme Court declining to intervene in Plaintiff’s action or convert it to a civil enforcement action. (See “Notice of Election to Decline Intervention by the City of New York,” Notice of Removal Ex. A, ECF No. 1-1 at 106-108 (filed Aug. 20, 2015).) On July 13, 2015, Plaintiff filed a second amended complaint (“SAC”). On August 20, 2015, Spherion removed the case to this Court. (See Notice of Removal, ECF No. 1 (filed Aug. 20, 2015).) On October 9, 2015, Spherion moved to dismiss the SAC pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b) for failure to state a claim and failure to plead fraud with particularity. On November 10, 2016, the Court granted in part Spherion’s motion to dismiss as to Plaintiff’s qui tam claims. (See Op. & Order, ECF No. 70 (filed Nov. 10, 2016).) 6 First, the Court dismissed Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 7 of 16 Plaintiff’s vicarious liability claims as barred by the public disclosure bars of the NYS FCA and NYC FCA because Plaintiff does not qualify as an original source. (Id. at 34.) Second, the Court dismissed Plaintiff’s quality assurance claims and conflict of interest claims for failure to state claims under the NYS FCA and NYC FCA. (Id. at 38-39.) Third, the Court dismissed Plaintiff’s false billing claims for failing to comply with the heightened pleading standard of Rule 9(b). (Id. at 42.) The Court denied Spherion’s motion to dismiss Plaintiff’s retaliation claims. (Id. at 49.) The Court dismissed Plaintiff’s qui tam claims without prejudice, but noted that it would only allow amendment if Plaintiff could demonstrate that he is “capable of curing the deficiencies in his qui tam claims and that justice requires granting leave to amend.” (Id.) On January 8, 2016, Plaintiff moved for a relator’s share of the SAIC Settlement. (See Mot. for Relator’s Share, ECF No. 47 (filed Apr. 15, 2016).) On March 28, 2017, the Court denied Plaintiff’s motion, finding that absent a valid qui tam action, Plaintiff is not entitled to a relator’s share. (See Op. & Order, ECF No. 84 (filed Mar. 28, 2017).) On December 12, 2016, Plaintiff moved for leave to file a Third Amended Complaint (“TAC”). (Mot. for Leave to File TAC, ECF No. 72 (filed Dec. 12, 2016).) Plaintiff contended that the TAC contained “newly alleged information” from documentary 7 Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 8 of 16 discovery produced by the City that was unavailable when he filed the SAC. On April 21, 2017, the Court denied Plaintiff leave to amend and dismissed Plaintiff’s qui tam claims with prejudice, finding that the proposed TAC did not remedy the deficiencies identified in the Court’s November 10, 2016 Order. (See Op. & Order, ECF No. 86 (filed Apr. 21, 2017).) On August 18, 2017, Plaintiff moved pursuant to Rule 54(b) for entry of the Orders as final judgments and to stay proceedings on his retaliation claims during the pendency of the appeal of the Orders. II. A. Discussion Legal Standard Rule 54(b) provides that “[w]hen an action presents more than one claim for relief . . . or when multiple parties are involved,” a district court “may direct entry of a final judgment as to one or more, but fewer than all, claims or parties only if the court expressly determines that there is no just reason for delay.” Fed. R. Civ. P. 54(b). “The determination of whether to grant Rule 54(b) certification is committed to the discretion of the district court and will be set aside only for an abuse of discretion.” Hogan v. Consolidated Rail Corp., 961 F.2d 1021, 1025 (2d Cir. 1992). The district court’s discretion, however, is to be exercised sparingly in light of the “‘historic federal policy against 8 Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 9 of 16 piecemeal appeals.’” Curtiss–Wright Corp. v. General Electric Co., 446 U.S. 1, 8 (1980) (quoting Sears, Roebuck & Co. v. Mackey, 351 U.S. 427, 438 (1956)). Certification under Rule 54(b) should be granted only “where there are “interest[s] of sound judicial administration and efficiency to be served, or . . . where there exists some danger of hardship or injustice through delay which would be alleviated by immediate appeal.” Hogan, 961 F.2d at 1025 (internal quotation marks and citations omitted). B. Analysis Neither Spherion nor the City1 dispute that the first two requirements of the 54(b) standard are met: multiple claims are present and at least one claim has been finally decided within the meaning of 28 U.S.C. § 1291. Thus, the only issue that remains is whether there is “no just reason for delay.” To determine whether there are no just reasons for delay, a district court “must take into account judicial administrative interests as well as the equities involved.” Curtiss-Wright, 446 U.S. at 8. “The exercise of this discretion is guided by considerations such as the institutional efficiency of the district and appellate courts, as well as any ‘undue hardship’ 1 The City submitted a Memorandum of Law in Opposition to Plaintiff’s motion for certification under Rule 54(b). (See City’s Mem. of L. in Opp’n to Pl.’s Mot. for Entry of Final Judgment Under Rule 54(b), ECF No. 94 (filed Sept. 20, 2017).) 9 Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 10 of 16 that the parties may have to suffer absent an immediate appeal.” L-7 Designs, Inc. v. Old Navy, LLC, 964 F. Supp. 2d 299, 317 (S.D.N.Y. 2013). Courts in this Circuit have held that certification under Rule 54(b) is appropriate either to serve judicial administration and efficiency or where there is some danger of unusual hardship or injustice through delay. See In re Gentiva Sec. Litig., 2 F. Supp. 3d 384, 387 (E.D.N.Y. 2014) (“In other words, to prevail on a Rule 54(b) certification motion, the moving party must satisfy one of these two prongs.”); In re Vivendi Universal, S.A., Sec. Litig., 02 CIV. 5571(RJH), 2012 WL 362028, at *4 (S.D.N.Y. Feb. 6, 2012) (“[E]ven though the Court has determined that judicial efficiency will not be served by certifying a partial appeal here, the plaintiffs could still prevail on the motion if they are able to demonstrate prejudice . . . of such a character as to ‘offset’ the Court’s efficiency conclusion.”). Plaintiff has not shown that certification is appropriate under Rule 54(b) to serve judicial administration and efficiency or that there is some danger of undue hardship or injustice through delay. Plaintiff argues that equitable considerations demonstrate no just reason for delay for several reasons including (1) Plaintiff would suffer hardship through delay because both Plaintiff and the Government stand to gain a large recovery for Plaintiff’s qui tam claims, (2) this action has been pending for 10 Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 11 of 16 over six years, (3) there is significant public interest in an immediate appeal, (4) Plaintiff suffered the economic hardship of joblessness, and (5) any further delay would impose undue hardship resulting from “an expensive and duplicative trial” if the Second Circuit were to reverse either Order after the retaliation claims are resolved. (Pl.’s Mem. of L. in Supp. of Mot. for Entry of Final Judgment Pursuant to Rule 54(b) at 6-8, ECF No. 92 (filed Sept. 20, 2017) [hereinafter Pl.’s Mem.].) First, regarding the argument that further delay would work an undue hardship because both Plaintiff and the Government stand to gain a large recovery for Plaintiff’s qui tam claims, a district court may find that there is no just reason for delay “where a plaintiff might be prejudiced by a delay in recovering a monetary award.” Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 16 (2d Cir. 1997). However, the Court has dismissed Plaintiff’s qui tam claims with prejudice and denied Plaintiff’s motion for a relator’s share. Plaintiff has not been awarded any judgment or monetary recovery for his qui tam claims, thus, he is not prejudiced by any delay in payment. In both cases Plaintiff cites in support of this argument, Curtiss-Wright and Ginett, the district courts entered monetary judgments in favor of plaintiffs, and the appellate courts affirmed the district courts’ decisions to enter final judgments under Rule 54(b) because further delay in receiving 11 Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 12 of 16 the adjudged payment would work undue hardship on the plaintiffs. See Curtiss–Wright, 446 U.S. at 6 (affirming district court decision that plaintiff would suffer severe daily financial loss from nonpayment of $19 million judgment because current interest rates were higher than statutory prejudgment rate); Ginett v. Computer Task Group, Inc., 962 F.2d 1085, 1097 (2d Cir. 1992) (affirming district court’s decision to enter final judgment after granting plaintiff’s claim for severance pay). Second, as to Plaintiff’s argument that public interest weighs in favor of certifying the Orders as final judgments, Plaintiff has failed to show how public interest would support an immediate appeal in this action, rather than the ordinary progression of Plaintiff’s claims. Indeed, both the City and New York State declined to intervene in this action and the Court has dismissed Plaintiff’s qui tam claims. Third, the “economic hardship of joblessness” that Plaintiff allegedly suffered due to his retaliatory discharge would not be alleviated by granting Rule 54(b) certification because Plaintiff’s interlocutory appeal would only address his qui tam claims. Fourth, the fact that this litigation has been pending for six years would only be exacerbated by an immediate appeal, as discussed below. Fifth, and finally, Plaintiff’s argument that any further delay would impose undue hardship resulting 12 Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 13 of 16 from “an expensive and duplicative trial” if the Second Circuit were to reverse either Order after the retaliation claims are resolved is without merit. The mere potential for duplicative trials should not, by itself, result in 54(b) certification, except “in the infrequent harsh case.” In re Bayou Hedge Fund Litig., No. 06 CV 3026 (CM), 2007 WL 2363622, at *6 (S.D.N.Y. Aug. 16, 2007). For example, some courts have granted certification under Rule 54(b) to avoid “duplicative trials” in cases with multiple defendants, some of whom have been dismissed from the action. See, e.g., Grand River Enters. Six Nations, Ltd. v. Pryor, 425 F.3d 158, 165 (2d Cir. 2005) (finding “danger of hardship or injustice” in further delay where district court dismissed antitrust claim against thirty non-New York defendants and “it would make no sense to try the antitrust count against New York State alone if the dismissals of the other states or the other claims turned out to be in error”). However, other courts have denied motions under Rule 54(b), even in cases with multiple defendants. See, e.g., In re Bayou Hedge Fund Litig., 2007 WL 2363622, at *6 (denying Rule 54(b) motion where some defendants had been dismissed because “the so-called hardship of duplicative trials will arise in every multiple party suit in which one of the defendants is dismissed but must await the finality of its release until the liability of the remaining defendants has been determined and judgment has been entered”). 13 Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 14 of 16 Other courts have held that “certification may be appropriate where an expensive and duplicative trial could be avoided if, without delaying prosecution of the surviving claims, a dismissed claim were reversed in time to be tried with other claims.” Building Indus. Fund. v. Local Union No. 3 Int’l Brotherhood of Elec. Workers, 992 F. Supp. 162, 191 (E.D.N.Y. 1996) (internal quotation marks and citation omitted). However, even if the Second Circuit reversed the Court’s dismissal of the qui tam claims, there is no indication that a trial on Plaintiff’s qui tam claims would be duplicative of a trial on his retaliation claims. See, e.g., TADCO Const. Grp. Corp. v. Dormitory Auth. of New York, No. 08-CV-73 KAM JMA, 2012 WL 3011735, at *6 (E.D.N.Y. July 23, 2012) (denying motion for certification under Rule 54(b) because “any second trial would be minimally duplicative because most of the remaining” claims had no relation to underlying facts of dismissed claims). Indeed, Plaintiff argues that his qui tam and retaliation claims are distinct: “the two sets of claims ‘involve at least some different questions of fact and law and could be separately enforced.’” (Pl.’s Mem. at 9 (quoting Advanced Magnetics, 106 F.3d at 22).) Plaintiff also argues that judicial administrative interests demonstrate no just reason for delay because (1) Plaintiff’s qui tam and retaliation claims are distinct and 14 Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 15 of 16 separable; (2) if the qui tam claims are to be reinstated, it is more efficient for that reinstatement to occur in time for trial on both claims; and (3) a reversal of either Order by the Second Circuit would facilitate a settlement, offsetting any possibility that an appellate court would face the same issues on a subsequent appeal. (Pl.’s Mem. at 9-11.) First, the mere fact that allowing the Second Circuit to rule on the dismissed claims may increase the possibility of settlement could be made in many cases in which there has been a partial dismissal and “does not provide a basis to enter a partial judgment.” Carpenter v. City of New York, 984 F. Supp. 2d 255, 272 (S.D.N.Y. 2013). Second, granting Plaintiff’s motion for Rule 54(b) certification and staying Plaintiff’s retaliation claims while the appeal is pending would not “expedit[e] a final resolution to this case.” Correspondent Servs. Corp. v. J.V.W. Inv. Ltd., 232 F.R.D. 173, 176 (S.D.N.Y. 2005). Rather, it would further delay the resolution of Plaintiff’s retaliation claims, which, as Plaintiff repeatedly points out, have been pending for over six years. Finally, “[n]ot all final judgments on individual claims should be immediately appealable, even if they are in some sense separable from the remaining unresolved claims.” Novick v. AXA Network, LLC, 642 F.3d 304, 310 (2d Cir. 2011) (quoting Curtiss–Wright, 446 U.S. at 8). “It does not normally advance the interests of sound judicial administration 15 Case 1:15-cv-06605-JFK-OTW Document 96 Filed 06/20/18 Page 16 of 16 or efficiency to have piecemeal appeals that require two (or more) three-judge panels to familiarize themselves with a given case in successive appeals from successive decisions on issues." Id. at 311 (internal quotation marks and citation omitted). The interests of judicial economy weigh against allowing for a piecemeal interlocutory appeal on Plaintiff's qui tam claims, which the Court has twice held insufficient, and further delaying resolution of Plaintiff's retaliation claims, which are based on events that took place over a decade ago. Accordingly, Plaintiff has failed to show how the interest of judicial efficiency requires that the Court "short-circuit the normal progression of this case." Sea Trade Co. v. FleetBoston Fin. Corp., No. 03 CIV. 10254 (JFK), 2009 WL 4 6 6 710 2, at * 2 ( S . D. N . Y. Dec . 9, 2 0 0 9) . CONCLUSION For the reasons stated above, Plaintiff's motion for certification of the Court's Orders as final judgments under Rule 54(b) is DENIED. The Clerk of Court is respectfully directed to terminate the motion docketed at ECF No. 91. SO ORDERED. Dated: New York, New York June /_o, 2018 16 United States District Judge

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