Defense Introduces Schwab Ruling on “Lights”

October 23, 2005 11:37 am by Gene Borio

Some difficult issues were raised in late September when the Defense filed a praecipe directing Judge Kessler’s attention to a recent decision in a Brooklyn Federal courthouse.

The little-noted Schwab case, filed May 11, 2004 before Judge Jack B. Weinstein*, has many similarities to the DOJ case.

1. A civil RICO action, it was filed on behalf of smokers allegedly deceived by the industry’s “light” cigarette claims–one of the DOJ’s 7 pillars of fraud.

2. The Defendants in Schwab are the major Defendants in the DOJ suit.

3. Schwab seeks disgorgement of profits, and a prohibition on descriptors such as “light,” “mild”, etc.

4. Schwab faces many of the same tricky issues of civil RICO proof–establishment of an “enterprise,” etc.

(With such strong similarities between the cases, and with the Schwab suit being handled by top litigator Michael Hausfeld** and a crackerjack legal team at Cohen, Milstein, Hausfeld & Toll, you would expect the plaintiffs’ lawyers would be sharing documents, strategies and information at a furious pace, wouldn’t you? Right. We’ll get to that later.)

In a September 22 ruling, Judge Weinstein dealt the Schwab plaintiffs a severe blow by granting defendants’ motion for partial summary judgement on equitable relief. In doing so, he disallowed disgorgement of profits, as well as any limitation of descriptors.

The Joint Defendants in the DOJ case felt Judge Weinstein’s decision supported their own arguments so well on the use of descriptors and on “corrective communications” in regards to low-tar cigarettes, that they submitted his full Memorandum and Order “for consideration by this court.” The Defense’s praecipe specifically quotes this section of the Order:

“Any limitation on the use of the descriptor ‘lights’ is best left to government regulation by the Federal Trade Commission or legislation since the government now substantially controls warnings on cigarette packaging and advertising.”

The pitch that FTC regulation is so complete, so thorough, so all-encompassing that it preempts (alleged) fraud was not a successful argument in Judge Kessler’s court. However, Defense hit a home run with it in Judge Weinstein’s..

It was especially startling to read Judge Weinstein’s argument that the WHO’s Framework Convention on Tobacco Control deals adequately with this issue. He cites art. 11(1)(a) of the FCTC, which covers the signatories’ duties to regulate package labeling, including the use of “light” descriptors. Judge Weinstein wrote,

“The United states, along with 167 other nations, has signed the Convention, though it has yet to ratify it.”

Well, the DOJ, of course, didn’t much care for this filing. In its response, it noted that Judge Weinstein’s ruling was “unpublished”(!), and pointed out sections of the court record wherein Judge Kessler had ruled differently on the issues, for example,

“even though the FTC has exclusive jurisdiction [to enforce] the FTCA, the statute has never been interpreted to give the agency exclusive jurisdiction over advertising or marketing conduct.”

I’m sure Judge Kessler is well aware of Judge Weinstein, and has great respect for him. However, I doubt she will find this ruling at all compelling. This may be a filing that will more impress those Appelate Judges who come later.

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* Judge Weinstein, 83, is a noted jurist who made headlines last year when he audaciously attempted to engineer an Uber-settlement of all tobacco liability cases. His effort ultimately failed.

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LONGEST FOOTNOTE IN HISTORY

**The unique-tie-loving Hausfeld, 58, is too rich a character for me to do justice for here. Even his own law firm’s bio hardly hints at his depths (www.cmht.com/attorneys_ha…).

Suffice to say, for this context, he appears to be a smart, dedicated and almost visionary legal consumer advocate. He is consistently considered among the top lawyers in the country, and for good reason: he has been successful in many high-profile cases of national and international import, including the Exxon Valdez oil spill, Texaco’s discrimination against black employees, the Ford/Bridgestone tire failures, the Swiss banks’ holding of stolen Holocaust assets. Apparently unsuccessful was the 2001 suit against Japan over Asian “comfort women” forced into sexual slavery before and during World War II.

So if Mr. Hausfeld is such a spectacularly successful hot-shot lawyer and dedicated humanitarian, why hasn’t the DOJ made some use of his expertise, and consulted with him on the progress of both their efforts? Especially since he seems to have offered DOJ his collaboration.

I hesitate to hazard a guess on this. Granted, the lack of communication seems almost nutty on its face, but the DOJ’s suit is wildly complex, and on one level I can understand the impulse to control the deluge of input. I can also understand that relations between lawyers do sometimes get prickly.

Still, considering the importance of this case for the nation–not to mention for the Administration and the Department of Justice–wouldn’t you pull out all the stops, and get all the help you can?

I’m sure the DOJ will not talk about this, but I can give you some idea of Mr. Hausfeld’s position. The following is from “JUDGE JACK B. WEINSTEIN, TORT LITIGATION, AND THE PUBLIC GOOD — A ROUNDTABLE DISCUSSION TO HONOR ONE OF AMERICA’S GREAT TRIAL JUDGES ON THE OCCASION OF HIS 80TH BIRTHDAY”

(Yes, the same Honorable Jack B. Weinstein, Senior Judge, United States District Court for the Eastern District of New York, who ruled on the Schwab case.)

The event was held on Judge Weinstein’s birthday, November 9, 2001, at the Subotnick Center at Brooklyn Law School, NY.

Mr. Hausfeld is speaking:

I think the frustration in getting that cooperation and the benefits that you could receive in that cooperation are somewhat highlighted by a present case that we have, where there is both a government component and a private civil component. The government has filed its lawsuit against the tobacco companies, essentially piggybacking some of the concepts that were brought by the states but also invoking a RICO claim.38

The public health aspects were dismissed but the RICO claim was maintained.39 And the theory in the RICO claim was that there should be a disgorgement because there was a fraud perpetrated on smokers—that the smokers paid for cigarettes that they otherwise obviously maybe would not have otherwise purchased. And the cigarette companies or the tobacco companies should disgorge their ill-gotten gains.

We filed a case on behalf of the smokers, and the government said to us, “What are you doing in this case?” and we said, “Well, we represent the smokers.” And basically, they said, “Well, no matter what happens, if we recover, you are going to want a piece of what we recover.” And we came to them and said, “Well, you are basically acting as parens patriae for all the smokers, but you haven’t brought the cases parens patriae and you can’t. So, what gives you the right to recover the ill-gotten gains that were paid for by smokers, when there are smokers who can recover in their own right?” Putting that aside, we said to them, “Look, the cases are in the same court and they involve many of the same issues. Don’t you think we should coordinate so that we could minimize duplication and maximize efficiency and strengthen the unity in presenting a single case.” They absolutely refused.

So, the government is now proceeding at its own pace, in its own litigation style and mode, while we are proceeding on our pace which now as we presented before the judge is actually quicker than the government’s pace, so that we can be ready for trial before the government can.

And then what happens? Many of the motions that we now have pending will decide issues that the government has to face.

Would it not have been better to coordinate the resolution of those issues, as opposed to either one trying it without the benefit of the other?

These are the practical problems, I think, that are facing coordination and one in which there should be more of. But I do not have a solution on how to make that occur.

The following doesn’t concern either case directly, but speaks to Mr. Hausfeld’s orientation:

He is speaking in response to a statement by Sheila L. Birnbaum, Esq., Skadden, Arps, Slate, Meagher & Flom, LLP:

I hear you, Professor, when you talk about deterrents, and whether or not the bar and judiciary are the appropriate mechanisms to impose or at least even oversee risk management.

But I say to you from a practical experience, there are a group of people out there who feel they are perfectly capable to exercise risk management and have. And that is the corporations. They will sit there and they will make the determination as to whether or not with the foreknowledge that there is a risk involved, to take that risk.

I remember in the congressional hearings when they were asking the chairman of Exxon whether or not they foresaw the possibility that there would be a disaster of the magnitude of the Exxon Valdez and he said, yes, and we determined to take the risk.

Well, that’s very nice, except the people that paid for that risk weren’t asked if they were willing to assume that risk.

Also, these same companies will then measure what the economic loss is. They take that risk as opposed to proceeding on an individual basis through separate litigation to literally protract the ability of each individual victim to receive justice, as opposed to right now saying, “Okay, I made a mistake. I am going to offer restitution or disgorgement or compensation to those that I hurt en masse because there was a mass wrong.”

They will make that determination if we don’t. So rather than deterrents in risk management, I look at this as a matter of accountability. If we permit companies or individuals to assume the right to basically take the risk or avoid the risk—a risk that they don’t pay unless they are held accountable—if we don’t impose through the judicial system the concept of accountability, then what do we do other than foster lawlessness? People then can act the way they want, take whatever risk they want to impose on others, and then have no liability other than through a political system which is set up to hear conflicting interests of special groups or an administrative body which is principally set up to establish sets of minimum standards or sets of rules of minimum behavior.

Are you really saying that because you don’t like the quality of the justice that’s available through the judicial system then there should be no system?

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LINKS:

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Judge Weinstein’s Partial Summary Judgment Order in Schwab (9/22/05)

JD on Schwab Order (9/26/05)

DOJ Response to Schwab order (9/28/05)

Schwab, et al. v. Philip Morris USA, Inc., et al., Civil Action No. 04-1945 (E.D.N.Y) (Original complaint — (McLaughlin v. Philip Morris, et. al. 5/11/04):
www.cmht.com/pdfs/LightCi…

Schwab 2nd Amended Complaint:
www.tobacco-on-trial.com/…

CMH&T On the Schwab suit:
www.cmht.com/cases_lightc…

“The government is primarily seeking to recover Medicare payments it has incurred as a result of the fraud. By contrast, our clients’ case seeks to force the companies to refund to consumers the ill-gotten gains arising from the companies’ deceptive activities. In short, the government is protecting its interests and we are protecting those of consumers.”
–Herbert E. Milstein, senior partner of Cohen, Milstein, Hausfeld & Toll, P.L.L.C.

Judge Weinstein’s Birthday Roundtable:
www.brooklaw.edu/students…

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Judge Weinstein’;s Partial Summary Judgment Order in Schwab (9/22/05)

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK

BARBARA SCHWAB et al., individually and on behalf of all others similarly situated,

Plaintiffs,

V.

PHILIP MORRIS USA, INC. et aL, Defendants. Civil Action No. CV 04-1945

MEMORANDUM AND ORDER ON DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT ON PLAINTIFFS’ CLAIMS FOR EQUITABLE RELIEF

JACK B. WEINSTEIN, Senior District Judge:

In this civil RICO action for damages based on mail fraud, plaintiffs primarily seek money damages. They also seek equitable relief in the form of (1) disgorgement of profits and (2) an order eliminating the use of “lights” as a descriptor on packaging and in advertisements defendants for some of their cigarette brands.

Defendants move for partial summary judgment on these claims. As explained more at the oral argument on September 12 and 13, 2005, the motion is appropriate.

Disgorgement of profits would duplicate damages–particularly as trebled-based upon claimed overpayments by plaintiffs and would thus be inequitable. Any limitation on the use of the descriptor “lights” is best left to government regulation by the Federal Trade Commission or legislation since the government now substantially controls warnings on cigarette packaging and advertising. C.f., e.g., World Health Organization Framework Convention on Tobacco Control, art. 11(1)(a) (states party to the Convention agree to take measures to ensure that “tobacco product packaging and labeling do not promote a tobacco product by any means that are false,

**———————————————————

misleading, deceptive or likely to create an erroneous impression about its characteristics, health effects, hazards or emissions, including any term, descriptor, trademark, figurative or any other .1: sign that directly or indirectly creates the false impression that a particular tobacco product is less harmful than other tobacco products. These may include terms such as ‘low tar’, ‘light’, ‘ultra-light’, or ‘mild’”). The United States, along with 167 other nations, has signed the Convention, though it has yet to ratify it.

The motion for partial summary judgment dismissing plaintiffs’ claims for equitable relief is granted.

SO ORDERED

[signed] Jack B. Weinstein

Dated: September 22, 2005

Brooklyn, New York

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JD on Schwab Order (9/26/05)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

Plaintiff,

v.

PHILIP MORRIS USA INC. (f/k/a ) PHILIP MORRIS INCORPORATED), et al.,

Defendants.

Civil Action No. 99-CV-2496 (GK)

Next Scheduled Court Appearance: None

JOINT DEFENDANTS’ PRAECIPE REGARDING RECENT RULING SUBMITTED IN SUPPORT OF THE POST-TRIAL BRIEF OF JOINT DEFENDANTS

In their post-trial brief, Joint Defendants raise various legal arguments in opposition to the Government’s remedy requests for corrective communications relating to low-tar cigarettes and a ban on the use of brand descriptors for low-tar cigarettes. See, e.g., Post-Trial Brief of Joint Defendants at 193-195, 199-202. In further support of these arguments, Joint Defendants herewith submit the attached Memorandum and Order on Defendants’ Motion for Summary Judgment on Plaintiffs’ Claims for Equitable Relief issued on September 22, 2005 in Schwab, et al. v. Philip Morris USA, Inc., et al., Civil Action No. 04-1945 (E.D.N.Y). In this Memorandum Opinion and Order, the court granted a motion for summary judgment made by many of the same Defendants in this action on, inter alia, the plaintiffs’ request for “an order eliminating the use of ‘lights’ as a descriptor on packaging and in advertisements by defendants for some of their cigarette brands.” Memorandum Opinion and Order at 1. In doing so, the court stated: “Any limitation on the use of the descriptor ‘lights’ is best left to government regulation by the Federal Trade Commission or legislation since the government now substantially controls warnings on cigarette packaging and advertising.” Id.

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Accordingly, Joint Defendants herewith submit the attached Memorandum Opinion and Order for consideration by this Court.

DATED: September 27, 2005 Respectfully submitted,

/s/ Matthew A. Campbell for _______________

Timothy M. Broas (D.C. Bar No. 391145)

WINSTON & STRAWN LLP

1700 K Street, N.W.

Washington, D.C. 20006-3817

Telephone: (202) 282-5000

Fax: (202) 282-5100

Dan K. Webb

Thomas J. Frederick

WINSTON & STRAWN LLP

35 West Wacker Drive

Chicago, Illinois 60601-9703

Telephone: (312) 558-5600

Fax: (312) 558-5700

Theodore V. Wells, Jr. (D.C. Bar No.

468934)

James L. Brochin (D.C. Bar No. 455456)

PAUL, WEISS, RIFKIND, WHARTON &

GARRISON LLP

1285 Avenue of the Americas

New York, New York 10019-6064

Telephone: (212) 373-3000

Fax: (212) 757-3990

Attorneys for Defendants

Altria Group Inc. and Philip Morris USA Inc

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/s/ Matthew A. Campbell for _______________

Robert F. McDermott (D.C. Bar No. 261164)

Peter J. Biersteker (D.C. Bar No. 358108)

Jonathan M. Redgrave (D.C. Bar No. 474288)

JONES DAY

51 Louisiana Avenue, N. W.

Washington, D.C. 20001-2113

Telephone: (202) 879-3939

Fax: (202) 626-1700

Robert C. Weber

Paul G. Crist

JONES DAY

North Point

901 Lakeside Avenue

Cleveland, Ohio 44114-1190

Telephone: (216) 586-3939

Fax: (216) 579-0212

Attorneys for Defendant

R. J. Reynolds Tobacco Company

/s/ Matthew A. Campbell for _______________

David E. Mendelson (D.C. Bar No. 471863)

KIRKLAND & ELLIS LLP

655 15th Street, N.W., Suite 1200

Washington, D.C. 200005

Telephone: (202) 879-5000

Fax: (202) 879-5200

David M. Bernick

Stephen R. Patton

Renee D. Honigberg

KIRKLAND & ELLIS LLP

200 East Randolph Drive, Suite 5900

Chicago, Illinois 60601

Telephone: (312) 861-2000

Fax: (312) 861-2200

Attorneys for Defendant

Brown & Williamson Tobacco Holdings, Inc.

4

/s/ Matthew A. Campbell for _______________

Edward C. Schmidt (D.C. Bar No. 199315)

Matthew D. Schwartz (D.C. Bar No. 436619)

THOMPSON COBURN LLP

1909 K Street, N.W.

Suite 600

Washington, D.C. 20006

Telephone: (202) 585-6900

Fax: (314) 552-7597

J. William Newbold

Michael B. Minton

Richard P. Cassetta (D.C. Bar No. 457781)

THOMPSON COBURN LLP

One US Bank Plaza, Suite 3500

St. Louis, Missouri 63101-1693

Telephone: (314) 552-6000

Fax: (314) 552-7597

Gene E. Voigts

Richard L. Gray

SHOOK, HARDY & BACON LLP

2555 Grand Blvd.

Kansas City, Missouri 64108-2613

Telephone: (816) 474-6550

Fax: (816) 421-2708

Attorneys for Defendant

Lorillard Tobacco Company

/s/ Matthew A. Campbell for _______________

Bruce G. Sheffler

David L. Wallace

CHADBOURNE & PARKE LLP

30 Rockefeller Plaza, 34th Floor

New York, New York 10112-0219

Telephone: (212) 408-5100

Attorneys for Defendant

British American Tobacco (Investments)

Limited (f/k/a British-American Tobacco

Company Limited)

5

/s/ Matthew A. Campbell for _______________

Steven Klugman

Steven S. Michaels

DEBEVOISE & PLIMPTON LLP

9 1 9 Third Avenue

New York, New York 10022

Telephone: (212) 909-6000

J. William Newbold

Michael B. Minton

Richard P. Cassetta (D.C. Bar No. 457781)

Jason A. Wheeler

THOMPSON COBURN

One US Bank Plaza, Suite 3500

St. Louis, Missouri 63101-1693

Telephone: (314) 552-6000

Attorneys for Defendant

The Council for Tobacco Research-U.S.A.,

Inc.

/s/ Matthew A. Campbell for _______________

James A. Goold

COVINGTON & BURLING

120 1 Pennsylvania Avenue, N. W.

Washington, D.C. 20004-2401

Telephone: (202) 662-6000

Attorneys for Defendant

The Tobacco Institute, Inc.

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DOJ Response to Schwab order (9/28/05)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

Plaintiff,

and

TOBACCO-FREE KIDS ACTION FUND, AMERICAN CANCER SOCIETY, AMERICAN HEART ASSOCIATION, AMERICAN LUNG ASSOCIATION, AMERICANS FOR NONSMOKERS’ RIGHTS, and NATIONAL AFRICAN AMERICAN TOBACCO PREVENTION NETWORK

Intervenors,

v.

PHILIP MORRIS USA INC. (f/k/a ) PHILIP MORRIS INCORPORATED), et al.,

Defendants.

Civil Action No. 99-CV-2496 (GK)

Next Scheduled Court Appearance: None Scheduled

_______________________________________

UNITED STATES’ RESPONSE TO JOINT DEFENDANTS’ PRAECIPE REGARDING RECENT RULING

On September 27, 2005, Joint Defendants filed a praecipe bringing to the Court’s attention an unpublished two-page memorandum and order issued on September 22, 2005 by Judge Weinstein in Schwab, et al. v. Philip Morris USA, Inc., et al., Civil Action No. 04-1945 (E.D.N.Y.), granting summary judgment in favor of defendants on private plaintiffs’ request for “an order eliminating the use of ‘lights’ as a descriptor on packaging and in advertisements by defendants for some of their cigarette brands.” Joint Def. Praecipe at 1 (internal citations and quotations omitted) (R. 5680). Joint Defendants reference the “Government’s remedy requests for corrective communications relating to low-tar cigarettes and a ban on the use of brand

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descriptors for low-tar cigarettes” and quote Judge Weinstein’s statement that “[a]ny limitation on the use of the descriptor ‘lights’ is best left to government regulation by the Federal Trade Commission or legislation since the government now substantially controls warnings on cigarette packaging and advertising.” Id. Prior rulings of this Court are contrary to Judge Weinstein’s ruling and hold that these remedies sought by the United States are not within the exclusive jurisdiction of the FTC or reserved to another branch of government. In denying Joint Defendants’ Motion for Partial Summary Judgment on Advertising, Marketing, Promotion, and Warning Claims, this Court explicitly held that, “the FTC is [] not vested with exclusive jurisdiction over the over the Government’s advertising, marketing, promotion and warning claim” and noted that “even though the FTC has exclusive jurisdiction [to enforce] the FTCA, the statute has never been interpreted to give the agency exclusive jurisdiction over advertising or marketing conduct.” United States v. Philip Morris Inc., 263 F. Supp. 2d 72, 78, 81 (D.D.C 2003); see also, United States v. Philip Morris Inc., 310 F. Supp 2d 68, 71 (D.D.C. 2004) (denying Defendants’ Motion for Summary Judgment on the Grounds that the Governments’ RICO Claims Violate Separation of Powers; “Defendants’ argument in this Motion that the RICO claims infringe on powers reserved exclusively to Congress fails for similar reasons [as their prior motion on advertising, marketing and warning claims]”); United States v. Philip Morris Inc., 316 F. Supp 2d 19, 25 (D.D.C. 2004) (granting United States’ Motion for Partial Summary Judgment Regarding Defendants’ Affirmative Defenses that the RICO claims and Sought Relief are Prohibited by the Tenth Amendment and Separation of Powers and that Defendants are not Jointly and Severally Liable for any Disgorgement Ordered by the Court “for the same reasons that Defendants’ Separation of Powers Motion was denied”).

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Dated: September 28, 2005

Washington, D.C.

Respectfully submitted,

PETER D. KEISLER

Assistant Attorney General

/s/ Sharon Y. Eubanks

SHARON Y. EUBANKS (D.C. Bar # 420147)

Director, Tobacco Litigation Team

/s/ Stephen D. Brody

STEPHEN D. BRODY (D.C. Bar # 459263)

Deputy Director, Tobacco Litigation Team

/s/ Michelle Gluck

MICHELLE GLUCK

Senior Trial Attorney, Tobacco Litigation Team

/s/ Carolyn I. Hahn

CAROLYN I. HAHN

Trial Attorney, Tobacco Litigation Team

Torts Branch, Civil Division

United States Department of Justice

Post Office Box 14524

Washington, D.C. 20044-4524

Telephone: (202) 616-4185

Attorneys for Plaintiff

United States of America

One Response to “Defense Introduces Schwab Ruling on “Lights””

  1. tobacco observer Says:

    >>The pitch that FTC regulation is so complete, so thorough, so all-encompassing that it preempts (alleged) fraud was not a successful argument in Judge Kessler’s court.

    As indeed it should not be. If that is indeed what tobacco argued in Judge Weinstein’s courtroom, I’m shocked that he bought it; especially given his long term adversarial stance towards the Tobacco industry.

    Please correct me if I am wrong, but I believe Tobacco’s argument in the DOJ case (as opposed to Weinsteins) was that since the labelling of cigarettes is regulated by direct Congressional mandate via the FTC, Judge Kessler lacks the jurisdiction to overturn that regulation with RICO remedies. IE: She can’t just wave her pen and undo an entirely Federal regulatory framework just because the Tobacco companies appear likely to violate the RICO act in the future.

    I know not whether or not that argument carried any weight with Judge Kessler, but it does make a sort of sense from a separation of powers perspective.

    In a related vein, with the DCCA’s ruling on civil RICO remedies now the immuteable law of this case until after the first appeal on its merits, I think we should see a decision by Judge Kessler on Tobacco’s motion for partial summary judgment on the smoking cessation remedy fairly soon. Whatever that decision is, it will arguably be the most important single decision in this case since the DCCA’s.

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