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Home > Publications > 2009 Mid-Year Update on E-Discovery Cases

2009 Mid-Year Update on E-Discovery Cases

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Sanctions Cases Double Over 2008; Courts Continue to Press for Cooperation; E⁃discovery Trends in Criminal and Constitutional Law

A comprehensive review of more than sixty federal and state court opinions addressing e-discovery issued during the first five months of 2009 reveals a dramatic increase in the frequency with which courts consider and apply sanctions.  In part, the increase in sanctions reflects solidifying legal standards governing when a potential litigant must preserve electronic evidence.  These opinions also reflect a continuing effort by the courts to urge litigants and their counsel to cooperate in e-discovery matters, and to sensibly and proportionately develop e-discovery protocols.  

Highlights of 2009 to date include:

These cases also provide guidance regarding the mechanics of e-discovery, such as the use of search terms, and the clawback of inadvertently produced privileged documents under Federal Rule of Evidence 502.  A notable decrease in the number of cases involving disputes over the format of e-discovery productions suggests that standards and uniformity are developing and becoming commonly understood and utilized. 

The opinions to date also show courts continuing to address the role of electronic discovery in cases involving governmental entities.  Several recent decisions apply e-discovery rules to the government in its capacity as a litigant.  See, e.g., SEC v. Collins & Aikman Corp., 256 F.R.D. 403, 418 (S.D.N.Y. 2009) ("When a government agency initiates litigation, it must be prepared to follow the same discovery rules that govern private parties."); Washington v. Dingman, 202 P.3d 388 (Wash. 2009) (reversing criminal conviction where the state failed to provide the defendant with hard drive image in a file format his attorney could readily use).  The opinions also reflect how emerging technology continues to present novel questions of constitutional law under the First, Fourth and Fifth Amendments.  Selected significant decisions are discussed below.

I.  E-Discovery and Private Litigants:  The Rise of Sanctions, Solidifying Legal Standards, and Ongoing Sources of Dispute

One of the most striking themes of this year's opinions addressing e-discovery is the increased frequency with which courts have imposed sanctions on litigants and counsel.  Making sense of this trend requires a careful review of the sanctions opinions and the issues about which litigants engaged in e-discovery most often argue.

A.  A Proliferation of Sanctions Opinions

Of the sixty-one reported electronic discovery opinions that courts issued during the first five months of 2009, more than half (52%) involved the consideration of sanctions.  In twenty-two (36%) of these opinions, courts imposed some form of sanction, almost always as a result of the spoliation of evidence.  Compared to a study of e-discovery opinions issued during the first ten months of 2008 by Kroll Ontrack, these figures represent a two-fold increase in the proportion of e-discovery opinions in which courts consider and a two-fold increase in the proportion of e-discovery opinions that impose sanctions.[1] 

Fees and costs are the most common form of sanctions in these cases.  A recent series of orders in Keithley v. Homestore.com, Inc. illustrates that such fees and costs can impose substantial burdens even on litigants who win on the underlying merits.  Despite the Keithley defendants' previous victory on a motion for summary judgment, Judge LaPorte (N.D. Cal.) ordered them to pay $283,000 in fees as a sanction for their systematic failure to preserve and produce relevant electronic evidence.  2009 WL 816429 (N.D. Cal. Jan. 7, 2009).  Added to previous similar awards, the Keithley defendants ultimately bore more than $650,000 of the plaintiffs' legal expenses and costs. 

In twelve other opinions, courts awarded costs and fees associated with bringing motions to compel or motions for sanctions, and, in some cases, the expenses of resolving problems caused by the responding party's alleged conduct.  See Clearvalue Inc. v. Pearl River Polymers Inc., 560 F.3d 1291 (Fed. Cir. 2009) (awarding costs and fees of $121,107.38); Oz Optics v. Kakimoglu, 2009 WL 1017042 (Cal. Ct. App. Apr. 15, 2009) (upholding $90,000 award); Technical Sales Assoc. v. Ohio Star Forge Co., 2009 WL 728520 (E.D. Mich. Mar. 19, 2009) (awarding $17,786.25); Bank of Mongolia v. M&P Global Financial Services, 2009 WL 1117312 (S.D. Fla. Apr. 24, 2009) (awarding $3,400).[2] 

In Bray & Gillespie, one of the more notable costs and fees opinions, the defendant bore the costs of additional discovery ordered by the court for its failure to properly disclose and produce relevant data.  The court went further and ordered the costs and fees associated with the plaintiff's motion for sanctions to be born jointly and severally by the individual outside attorney and his law firm after it found the attorney acted in bad faith and misrepresented the circumstances surrounding the discovery failures to the court.  Bray & Gillespie at *22-*23. 

In five cases through May 2009, courts awarded adverse inferences.  See Arista Records LLC v. Usenet.com, Inc., 608 F. Supp. 2d 409 (S.D.N.Y. 2009); Smith v. Slifer Smith & Frampton, 2009 WL 482603 (D. Colo. Feb. 25, 2009); Jones v. Hawley, 2009 WL 63000 (D.D.C. Jan. 12, 2009) (Facciola, J.); Beard Research, Inc. v. Kates, 2009 WL 1515625 (Del. Ch. May 29, 2009); Triton Construction Co. v. Eastern Shore Electrical Services, Inc., 2009 WL 1387115 (Del. Ch. May 18, 2009).  In one case a court declared a party's patents unenforceable, the equivalent to a dismissal.  Micron Technology, Inc. v. Rambus, Inc., 255 F.R.D. 135, 151 (D. Del. Jan. 9, 2009). And, in one case the court dismissed the plaintiff's claims, and awarded an adverse inference on the defendant's cross claims.  Kvitka v. Puffin Co., 2009 WL 385582 (M.D. Pa. Feb. 13, 2009).  

While dismissals and adverse inferences remain confined to cases in which a litigant's discovery misconduct is so egregious that "the very integrity of the litigation process has been impugned," courts' growing willingness to apply such sanctions seems to reflect a broadening judicial impatience with litigants who do not carefully fulfill their e-discovery obligations.  See Micron Technology, Inc., 255 F.R.D. at 151. 

B.  Greater Clarity Regarding the Duty to Preserve.

Sanctions are becoming more common as legal precedent coalesces around the point at which a duty to preserve electronic evidence is triggered.  One of the more common descriptions is "[a]s soon as a potential claim is . . . identified, a party is under a duty to preserve evidence which it knows, or reasonably should know, is relevant to the future litigation."  Micron Technology, Inc., 255 F.R.D. at 148.  In most e-discovery opinions, a party reasonably knows of litigation when a complaint is filed.  However, evaluating a party's duty to preserve is intensely fact specific, and the triggering of that duty can fall along a time line up to the filing of a complaint (and in some cases, even beyond the filing of a complaint).[3] 

Under certain circumstances, the duty to preserve might be triggered well before the filing of a complaint.  Phillip M. Adams & Assoc's. is an infringement case regarding a patented solution to a problem with an NEC floppy disk controller.  The controller was widely used in most brands of personal computer.  Phillips at *1.  The plaintiff developed a software solution to the problem, patented it, licensed it widely, and aggressively pursued potential infringers.  Id at*1-*2.  The plaintiff sent a letter to the defendant in early 2005 claiming it was infringing on his patents.  Plaintiff then filed a complaint in January 2007. 

It became clear through the discovery process that the defendant was unable to produce documents from a particularly relevant period (2000 – 2002) because it had failed to preserve them.  The defendant claimed it had no duty to preserve because it did not know if impending litigation until at least 2005 when it received plaintiff's letter.  The court disagreed, stating that the problem with the NEC disk controller was widely known and discussed in the trade and popular press, and that in 1999 a large computer manufacturer, Toshiba, settled a class action lawsuit stemming from the defect for $2.1 billion.  Several other cases involving the controller were filed throughout 2000 and 2001.  "Throughout this entire time, computer and component manufacturers [such as the defendant] were sensitized to the [defect] issue."  Id at *11.  Because of this, the court found that the defendant should have known litigation was likely as far back as 1999, and sanctioned it for failing to preserve documents from that time.  Id at *16. 

Other courts have also affirmed that a duty to preserve might attach before the filing of a complaint.  See, e.g., Beard Research v. Kates, 2009 WL 1515625 (Del. Ch. May 29, 2009) (finding that the duty to preserve certainly attached when the complaint was filed, but that "arguably" a former employee's duty to preserve may have attached when he gave presentation to competitor while seeking employment disclosing confidential information);  Micron v. Rambus, 255 F.R.D. 135 (D. Del. 2009) (patent holder's duty to preserve triggered when it developed litigation strategy against potential infringers well before filing complaint).

In other circumstances, the duty to preserve may not attach, at least for certain kinds or sources of data, until the filing of discovery requests.  In Arista Records LLC v. Usenet.com, Inc. the Southern District of New York imposed substantial monetary sanctions and an adverse inference to punish the defendant's manipulation of usage data needed to calculate damages. 608 F. Supp. 2d 409 (S.D.N.Y. 2009). 

Arista Records concerned the presence of copyrighted music on Usenet's servers, which users could download.  Data about users' downloading activity on the Usenet site existed in server usage logs.  The data on these logs is ephemeral, because data regarding usage was kept for only a limited amount of time and then overwritten.  When the Arista plaintiffs served a discovery request seeking a series of one-hour "snap shots" from the logs reflecting the number of music downloads from the defendant's servers, Usenet temporarily disabled public access to the servers, wiping out much of the usage data, and deleted music files so as to artificially deflate usage statistics.  These actions made any subsequent usage data collection efforts futile since the service disruptions induced many Usenet users to permanently switch to other sources of illegal music downloads.  Recognizing that Usenet "may not have had an obligation to preserve such evidence until placed on notice that Plaintiffs considered it relevant and were requesting it," the court nevertheless concluded that Usenet had a duty to preserve the data when it was put on notice through a discovery request that the ephemeral data was sought.  Id. at 431. 

These opinions demonstrate that the analysis regarding when a duty to preserve attaches is fact specific.  The duty is most usually triggered upon the filing of a complaint, but may also trigger earlier.  In rarer cases, it may also attach after a complaint is filed, upon notice that a particular source or kind of data is being sought.

One interesting theme emerging from the duty-to-preserve opinions is the use of e-discovery offensively.  Typically, a party establishes a data preservation protocol in order to defend or shield itself from accusations of discovery shortcomings and potential sanctions resulting from them.  However, a party that is conversant in e-discovery can also use it to assail an opposing party if it fails to meet its obligations.  A party that has its electronic house in order is a formidable opponent over the party that doesn't.  In Micron Technology, Inc. v. Rambus, Inc., Rambus developed a valuable new technology and patented it.  It then developed an aggressive strategy against potential infringers, forcing them into licensing agreements or, failing that, facing litigation.  Rambus' "document retention policy was discussed and adopted within the context of [this] litigation strategy." 255 F.R.D. at 150.  Micron, which suspected it would soon become the next target of a Rambus infringement action, carefully monitored the actions brought by Rambus, and discovered that there were potential inadequacies in Rambus' document retention practices.  Going on the offensive, Micron sought a declaratory judgment that Rambus' patents were not enforceable against it.  After considering a series of failures to preserve and produce evidence by Rambus, the Delaware District Court concluded that any sanction less than the invalidation of the patents would be "impractical, bordering on meaningless." Id. at 151.  The success of Micron's offensive e-discovery strategy may prove a harbinger of cases to come.  A properly prepared litigant can use e-discovery as a sword, as well as a shield.  

C.  Cooperation

As courts continue to define the scope of preservation and production requirements, they increasingly urge parties to act "in a manner consistent with the spirit of cooperation, openness, and candor owed to fellow litigants and the court and called for in modern discovery."  Sentis Group, Inc. v. Shell Oil Co., 559 F.3d 888, 891 (8th Cir. 2009).  Citing the Sedona Conference Cooperation Proclamation, several courts have recently recognized that "the best solution in the entire area of electronic discovery is cooperation among counsel."  William A. Gross Construction Associates v. American Manufacturers Mutual Insurance Co., 256 F.R.D. 134, 136 (S.D.N.Y. 2009); see also SEC v. Collins & Aikman Corp., 256 F.R.D. 403, 415 (S.D.N.Y. 2009) (citing the Sedona Conference Cooperation Proclamation); Technical Sales Associates v. Ohio Star Forge Co., 2009 WL 728520 at *4 (E.D. Mich. March 19, 2009) (same). 

D.  Privilege Disputes

Clawing back documents inadvertently produced privileged documents is another common theme of 2009 e-discovery opinions.  Typically, when a party produces a privileged document, the privilege is waived.  But a court may determine that the privilege is not waived under certain circumstances.  The reasonableness of a party's discovery conduct plays a significant role in the waiver determination.  When assessing reasonableness, the court will look to the precautions the producing party put in place to prevent the disclosure.  In SEC v. Badian, 2009 WL 222783 (S.D.N.Y. Jan. 26, 2009), the court denied the motion of a third party seeking the return of privileged documents stating, "there is no basis for me to conclude that there were precautions [to prevent the disclosure], let alone whether they were reasonable."  SEC at *3.  The party also has to act reasonably in seeking the return of the documents.  In Brookdale University Hospital & Medical Center v. Health Ins. Plan of Greater N.Y., 2009 WL 393644 (E.D.N.Y. Feb. 13, 2009) the court held that the party seeking return of the documents delayed an unreasonable length of time before seeking their return (more than a year). 

The new Federal Rule of Evidence 502 that went into effect in September 2008, aims to resolve many of the longstanding disputes over how to handle the inadvertent disclosure of privileged documents, and courts have begun to consider how to apply it.  In Heriot v. Byrne, the Northern District of Illinois interpreted Rule 502 as a matter of first impression and developed a test for resolving issues of inadvertent production of privileged documents.  Under this test, when a court applies FRE 502(b) it is "free to consider any or all of the five Judson factors."  2009 WL 742769 at *7 (N.D. Ill. Mar. 20, 2009); see Judson Atkinson Candies, Inc. v. Latini-Hophberger Dhimantec, 529 F.3d 371, 388 (7th Cir. 2008) (listing relevant factors as "(1) the reasonableness of the precautions taken to prevent disclosure; (2) the time taken to rectify the error; (3) the scope of the discovery; (4) the extent of the disclosure; and (5) the overriding issue of fairness").  In passing Rule 502, Congress instructed that courts should apply it to then-pending cases insofar as doing so is "just and practicable." Pub. L. No. 110-322, § 1(c). 

Surprisingly, relatively few litigants are taking advantage of a Rule 502(d) order.  Rule 502(b) protects a party from waiving privilege when it inadvertently produces privileged documents under certain circumstances.  When a court considers whether a privilege is waived, it will look to the reasonable of the producing party's conduct to prevent and detect production.  However, under 502(d), the parties may agree to an inadvertent production protocol, or if they do not agree, a party may seek a protocol independently, which the court will enter as an order.  If a privileged document is produced, the privilege is not waived in the current or any other litigation if the producing party complies with the 502(d) order.  There is no requirement that the court evaluate the reasonableness of the producing party's conduct.  This potentially provides a wider scope of protection than that of 502(b).  It is important to note that the parties' agreement should be entered as an order to get the full protection of 502(d).  As 502(e) notes, an agreement absent an order provides waiver protection only for the current litigation.  As counsel becomes more proficient in working under the new Rule, it is likely that 502(d) orders will become more common.

E.  Search Terms

Search terms were also a source of dispute during the first five months of 2009, with Magistrate Judge Peck of the Southern District of New York issuing a "wake-up call to the Bar . . . about the need for careful thought, quality control, testing, and cooperation with opposing counsel."  William A. Gross Construction Associates v. American Manufacturers Mutual Insurance Co., 256 F.R.D. 134, 134 (S.D.N.Y. 2009).  Where litigants sought to search their opponent's computer system using search terms that would have potentially returned virtually all documents, the court ordered them to develop a new set of search terms through collaboration with opposing counsel.  The William A. Gross court was harshly critical of the practice of "designing keyword searches in the dark, by the seat of the pants, without adequate . . . discussion with those who wrote the emails." Id. at 135.  Thus, Judge Peck has joined others, such as Magistrate Judges Paul Grimm of the District of Maryland and John Facciola of the District of D.C. in urging the bar to become more adept at formulating search terms.  And, as Judge Peck succinctly put, "Of course, the best solution in the entire area of electronic discovery is cooperation among counsel."  Id. at 136.  

II.  What's Good for the Goose is Good for the Government Gander …

Several of the 2009 opinions discuss e-discovery obligations of governmental entities.  This theme is evident in the increasing number of criminal cases involving e-discovery issues.  See, e.g., State v. Dingman, 202 P.3d 388 (Wash. 2009) (reversing criminal conviction where the state failed to provide the defendant with hard drive image in a file format his attorney could readily use); State v. Rivas, 905 N.E. 2d 618 (Ohio 2009) (refusing to allow defendant to access police computer files where he could not make a prima facie showing that a copy of those files was not consistent with the original content).  But the most notable 2009 cases involving the government were when the government acted as a civil litigant. 

A.  E-Discovery and Government as Civil Litigant

Judge Shira Scheindlin held in SEC v. Collins & Aikman Corp. that "[w]hen a government agency initiates litigation, it must be prepared to follow the same discovery rules that govern private parties."  256 F.R.D. 403, 418 (S.D.N.Y. 2009).  The SEC argued that a government agency should be able to unilaterally restrict the scope of a search based on assertions of "undue burden" and limited public resources.  Judge Scheindlin characterized this argument as "patently unreasonable" and emphasized that the SEC "is not entitled to special consideration concerning the scope of discovery, especially when it voluntarily initiates an action."  Id. at 414.  Construing the government's asserted deliberative process privilege narrowly, the Collins & Aikman court found that for purposes of electronic discovery courts should generally treat the SEC like any other civil litigant.

The Massachusetts District Court will confront a similar set of issues when it decides Abbott Laboratories' motion for a finding of spoliation in In re Pharmaceutical Industry Average Wholesale Price LitigationSee Abbott Laboratories, Inc.'s Memorandum in Support of Its Motion for a Finding of Spoliation and for Sanctions, In re Pharmaceutical Industry Average Wholesale Price Litigation, No. 01-CV-12257-PBS (D. Mass. June 4, 2009).  Abbott's motion alleges that the Department of Justice kept its investigation "under seal for more than eleven years, conducting one-sided discovery against Abbott, but did nothing to preserve evidence in its own possession or control."  Id. at 1. 

Among the missing data, Abbott claims that the government failed to properly preserve relevant Centers for Medicare & Medicaid Services emails sent prior to September 2005.  According to Abbott's motion, "CMS changed its email program, but made no effort to retain relevant emails.  The result was a massive destruction of potentially relevant emails."  Id. at 4.  To the extent that Abbott is able to substantiate these claims, the Massachusetts District Court's opinion may become a companion to Collins & Aikman: where Collins & Aikman admonishes the government for its failure to produce, this opinion may very well admonish the government for its failure to preserve. 

B.  E-Discovery and the Constitutional Scope of Government Power

Emerging technologies and e-discovery rules continue to present novel questions about the scope of government power, and constitutional protections regarding electronic information.  As courts confront these questions they are adapting legal doctrines to reflect new realities even while protecting core constitutional principles.  Several cases involving the First, Fourth and Fifth Amendments are particularly noteworthy:

  • In Independent Newspapers, Inc. v. Brodie, the Maryland Court of Appeals wrote about the importance of anonymous speech and the right of internet bloggers to remain anonymous pursuant to the First Amendment.  The court required a significant showing, holding that "before a defamation plaintiff can obtain the identity of an anonymous defendant through the compulsory discovery process he must support his defamation claim with facts sufficient to defeat a summary judgment motion."  966 A.2d 432, 445 (Md. 2009).  Because their complaint could not sufficiently plead that anonymous online forum posts were defamatory, plaintiffs could not compel a newspaper who controlled the online blog to reveal the identities of the authors.  The court observed that "anonymity or pseudonymity [is] a part of the Internet culture" and concluded that its approach best balanced the need for discovery with "the interest in having anonymous works enter the marketplace of ideas."  Id. at 425, 428-29.
  • Maldonado v. Barceloneta examined, apparently for the first time, what kind of communication a message placed on someone's social networking page is, and what constitutional protections the author should receive.  The court concluded this type of message is neither a blog (which is viewable by anyone who views the blog and thus is protected First Amendment speech) nor an e-mail (that is a private communication among the correspondents) but "a hybrid of the two."  2009 WL 636016 at *2 (D.P.R. Mar. 11, 2009).  The Maldonado court held that such messages are not entitled to First Amendment protection because, like emails, "messages sent to a user's [social networking] inbox are not publicly viewable."  Id.  Thus the message was not in the public domain for constitutional purposes.
  • In People v. Weaver, the New York Court of Appeals held that police violated the New York State Constitution (and suggested, without deciding, that they also violated the Fourth Amendment) when they placed a GPS device on the undercarriage of the defendant's van and traced his movements for sixty-five days without a warrant.  12 N.Y. 3d 433, No. 53 (N.Y. May 12, 2009).  Noting that "the determinative issue remains open as a matter of federal constitutional law," the court emphasized that under the state constitution "the great popularity of GPS technology for its many useful applications, may not be taken simply as a massive, undifferentiated concession of personal privacy to agents of the state." Id. slip op. at 12, 15.  "GPS is a vastly different and exponentially more sophisticated" form of tracking technology than [other] courts have considered in the past.  Id. slip op. at 9.  Because the "[c]onstant, relentless tracking of anything is now not merely possible but entirely practicable," courts must confront "potentially doctrine-forcing" changes in surveillance technology.  Id. slip op. at 7, 9.
  • In re Grand Jury Subpoena to Sebastien Boucher held that the Fifth Amendment's Self-Incrimination Clause did not protect a grand jury target's right to refuse to provide the password to an encrypted hard drive to which he had already briefly given the government access.  2009 WL 424718 (D. Vt. Feb. 19, 2009).  Because the suspect had shown government officials some of the child pornography on his computer when he was arrested, "the existence and location of the documents [were] known to the government."  Id. at *3.  Since the government was not seeking to offer the files for purposes of authentication, "'no constitutional rights [were] touched.'"  Id. at *3 (quoting Fisher v. United States, 425 U.S. 391, 411 (1976)).

Conclusion

From the upswing in sanctions to new constitutional questions, e-discovery continues to be an important and rapidly developing area of law.  While several major themes characterize this year's opinions thus far, their enduring lesson is that litigants and their counsel need to adapt in a period of rapid technological and legal change.  


 [1]  Year In Review: Courts Unsympathetic To Electronic Discovery Ignorance Or Misconduct, Kroll Ontrack, Dec. 2, 2008 available at http://www.krollontrack.com/news-releases/?getPressRelease=61208

 [2]  In each of the following cases, the amount of costs and fees awarded will be determined by later proceedings:  Covad Comm's v. Revonet, 2009 WL 1472345 (D.D.C. May 29, 2009); Trustees of Chicago Plastering v. Elwood, 2009 WL 1444436 (N.D. Ill. May 20, 2009); Preferred Care Partners, Inc. v. Humana, Inc. 2009 WL 982460 (S.D. Fla. Apr. 9, 2009); Phillip M. Adams & Assocs. v. Dell, 2009 WL 910801 (D. Utah Mar. 30, 2009); Anthropologie v. Forever 21, 2009 WL 690239 (S.D.N.Y. Mar. 13, 2009); Bray & Gillespie Mgm't., 2009 WL 546429 (M.D. Fla. Mar. 4, 2009); Smith v. Slifer Smith & Frampton, D. Colo. Feb. 25, 2009); Beard Research v. Kates, 2009 WL 1515625 (Del. Ch. May 29, 2009). 

 [3]  The Sedona Conference Commentary on Legal Holds: The Trigger & The Process is a useful guide to the duty to preserve.  Available at
http://www.thesedonaconference.com/dltForm?did=Legal_holds.pdf

Gibson, Dunn & Crutcher LLP

This article was prepared by Michael F. Flanagan, with special thanks to Brian W. Barnes for his significant assistance.  

The Electronic Data Discovery Initiative ("EDDI") is a task force at Gibson, Dunn & Crutcher LLP dedicated to issues of e-discovery and records management.  If you have any questions regarding this material, or how to address e-discovery in one of your matters, please contact the Gibson Dunn attorney with whom you work, or any of the following:

Gareth T. Evans - Los Angeles (213-229-7734, gevans@gibsondunn.com)
Michael F. Flanagan - Washington, D.C. (202-887-3599, mflanagan@gibsondunn.com)

Farrah Pepper - New York (212-351-2426, fpepper@gibsondunn.com) 

© 2009 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

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