KSB

Judge Somers

09-05079 Speth et al v. Postel et al (Doc. # 48) - Document Text

SO ORDERED.
SIGNED this 03 day of February, 2010.


________________________________________
Dale L. Somers
UNITED STATES BANKRUPTCY JUDGE

OPINION DESIGNATED FOR ON-LINE USE AND FOR PRINT PUBLICATION
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In Re:

LEIGH ANN KOKSAL,
a/k/a Uncommon Market, LLC
a/k/a 46 UncommonMarket.com,

DEBTOR.

STEVEN L. SPETH, Trustee,

PLAINTIFF,

v.
JAMIE LYNN POSTEL and
BERNIE LUMBRERAS, solely in her
capacity as Clerk of the Eighteenth
Judicial District Court, Sedgwick County,
Kansas,

DEFENDANTS.

CASE NO. 09-10146
CHAPTER 7

ADV. NO. 09-5079

Case 09-05079 Doc# 48 Filed 02/03/10 Page 1 of 15


MEMORANDUM OPINION AND ORDER GRANTING
DEFENDANT JAMIE LYNN POSTEL'S
MOTION FOR JUDGMENT ON THE PLEADINGS AS TO COUNT I
AND DENYING THE MOTION AS TO COUNTS II AND III.


The matter under advisement is Jamie Lynn Postel’s Motion for Judgment on the
Pleadings, Pursuant to Rule 7012(b) (hereafter “Motion”).1 The Plaintiff Trustee, Steven Speth,
appears by Timothy J. King, of Speth & King. Defendant Jamie Lynn Postel (hereafter “Postel”)
appears by Joseph H. Cassell and Nicholas R. Grillot of Redmond & Nazar, L.L.P. There are no
other appearances.

Debtor’s petition for relief under Chapter 7 was filed on January 26, 2009. The Trustee
filed this adversary proceeding on May 7, 2009.2 The amended complaint was filed with leave
of Court on August 1, 2009, against Defendants Postel and Bernie Lumbreras, in her capacity as
Clerk of the District Court of Sedgwick County, Kansas. The Chapter 7 Trustee seeks to recover
for the estate a cash bond filed on May 14, 2007, in the amount of $125,000 in the office of the
Clerk of the District Court of Sedgwick County, Kansas, in the matter of Jamie Lynn Postel v.
Leigh Ann Koksal, Case No. 07-CV-0071. In the Amended Complaint, the Trustee alleges that
the bond is property of the estate under 11 U.S.C. § 541. In Count I, he asserts that Postel has no
rights in or to the cash bond, in Count II he alleges that the clerk should turnover the bond
pursuant to 11 U.S.C. § 543, and in Count III he alleges, in the alternative, if the cash bond is not

1 Doc. 36.

2 By Memorandum Opinion and Order Denying Defendants’ Motions to Dismiss, filed on
September 14, 2009, the Court denied the motions of Postel and Bernie Lumbreras, in her capacity as
Clerk of the Sedgwick County, Kansas District to dismiss. Doc. 32.

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property of the estate and became property of Postel, that the transfer to Postel was preferential
under 11 U.S.C. § 547. The Court has jurisdiction.3

On September 24, 2009, Postel filed her Motion. She contends that she is entitled to
judgment based upon the face of the pleadings, comprised of the amended complaint4 and
Postel’s answer, to which certified copies of relevant state court pleadings are attached.5
According to Postel, this record establishes that the Debtor had no interest in the bond on the
date of filing. The Trustee responds that the Motion should be denied because factual issues
remain as to the conditions of the bond and what motions are required in state court for its
disbursement.
FINDINGS OF FACT.

In June, 2002, Debtor and Postel entered into a nonexclusive licensing agreement for
Debtor to market Postel’s artwork. After problems arose, Postel terminated the arrangement. On
April 11, 2005, Postel sued Debtor in Richland County, Ohio Court of Common Pleas for
copyright infringement, fraud, and conversion. The trial court granted a default judgment on
September 14, 2005. Debtor did not appear at the damage hearing, and a judgment of $506,000

3 This Court has jurisdiction pursuant to 28 U.S.C. § 157(a) and §§ 1334(a) and (b) and the
Standing Order of the United States District Court for the District of Kansas that exercised authority
conferred by § 157(a) to refer to the District’s Bankruptcy judges all matters under the Bankruptcy Code
and all proceedings arising under the Code or arising in or related to a case under the Code, effective July
10, 1984. A complaint to determine property of the estate, for turnover of property to the estate, and to
recover preferential transfers is a core proceeding which this Court may hear and determine as provided in
28 U.S.C. § 157(b)(2)(A), (E), and (F). There is no objection to venue or jurisdiction over the parties.

4 Doc. 27.

5 Doc. 35.

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was recommended. The trial court adopted the recommendation in a judgment filed on June 16,

On January 5, 2007, counsel for Postel filed an Affidavit of Foreign Judgment in the
District Court of Sedgwick County, Kansas. The matter was assigned Case No. 07CV0071.7 A
certified copy of the Ohio Judgment Entry on Magistrate Decision in a Civil Case was attached
to the affidavit.8 On May 10, 2007, in Case no. 07CV0071 the Kansas district court heard the
Debtor’s motion for protective order and to quash deposition, and for a stay of proceedings.9
The order dated May 14, 2007, includes the following findings: That Debtor’s only non-exempt
assets were slightly more that $131,000 cash; that the cash would be subject to execution by
Postel but for a stay ordered by the Kansas court; that it was likely that the Ohio court within 60
to 90 days would rule on the rule 60(b) motion, which had been filed by Debtor on April 14,
2007, in the Ohio court to vacate the Ohio judgment;10 that the Debtor’s motions for protective
order and to quash subpoena and for stay would be granted provided that Debtor post a cash
bond pursuant to K.S.A. 60-3004(b); that enforcement of Postel’s foreign judgment would be
stayed pending posting of such cash bond, and should the bond be posted, thereafter until further
order of this court; that if Debtor should fail to post the cash bond, execution should issue
forthwith; that if the Ohio court has not ruled on Debtor’s motion to vacate the default judgment

6 See Doc. 35-2.
7 Doc. 11-2.
8 Doc. 11-1.
9 Doc. 35-3.
10 Doc. 35-2.


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within 90 days, the parties may appear for further proceedings; and if the Ohio court vacated

Postel’s default judgment within the 90 days, Debtor’s cash bond shall be subject to exoneration

upon motion and order by the court.11 A Supersedeas Bond (hereafter "Bond") was filed in May

14, 2007. It recites that, pursuant to the court’s order and K.S.A. 60-3004(b), Debtor tenders and

deposits $125,000 Cash Bond for the benefit of Postel. As to the conditions, the Bond states:

The condition of the above obligation is such by virtue of the order
of this court entered the 14th day of May, 2007, pursuant to
defendant’s motion for protective order and to quash deposition
and motion for stay of execution proceedings, as a result of the
entry of the judgment on January 18, 2007 in favor of plaintiff and
against defendant in the amount of $509,495.00.

Debtor’s rule 60(b) motion was denied by the Ohio court on December 28, 2007, and a notice of

appeal to the Court of Appeal for Richmond County, Ohio was filed on January 7, 2008.12 On

January 11, 2008, Postel filed in the District Court of Sedgwick County a motion to transfer

supersedeas bond from the clerk of the Sedgwick County District Court to the clerk of Court of

Common Pleas of Richmond County, Ohio.13 The motion was denied. The court ruled in part:

 . . . the bond currently posted by Defendant and the corresponding
Protective Order in this Court shall continue through the appeals
process (as long as both the Ohio trial Court and appellant court do
not deny defendant’s Application/Motion for a stay in Ohio) and
shall not be released to either party until the appeal process is
exhausted at which time the Court will address the appropriate
motions by the parties for the dispensation of the held funds.14

11 Id.

12 Doc. 41-1.
13 Id.


14 Doc. 41-2.

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The Court of Appeal for Richland County, Ohio Fifth Appellate District affirmed the
judgment on January 16, 2009. Thereafter, Debtor had 45 days to seek discretionary review by
the Ohio Supreme Court.15 Debtor filed for relief under Chapter 7 on January 26, 2009, before
expiration of the time to seek review, and the record contains no evidence that timely review has
been sought. The judgment of Postel against Debtor is a final judgment.
ANALYSIS.

A. Postel’s contentions.
Defendant Postel seeks a judgment on the pleadings based upon the following
contentions: That as of the date of filing, Debtor had no interest in the Cash Bond such that it is
not included in the estate under 11 U.S.C. § 541; that there is no basis for turnover from a
custodian under 11 U.S.C. § 542; and that the Trustee has waived his preference claim. The
Trustee responds that whether his complaint should be dismissed cannot be determined based
upon the pleadings because the Kansas district court has not issued any orders regarding
distribution of the Cash Bond, and such orders will go to the ultimate issue of the Debtor’s
ownership of the Cash bond.

B. On the Date of Filing, the Estate had a contingent interest in the Cash Bond.
Resolving the differences between the positions of the parties requires the Court to first
address the question of the estate’s interest in the Cash Bond under § 541. That section defines
property of the estate as comprised of “all legal or equitable interests of the debtor in property as
of the commencement of the case.” Congress has generally left the determination of property

15 Ohio S. Ct. Pract. R II, § 1(A)(3) and § 2 (A)(1)(a).
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rights in the assets of a bankrupt's estate to state law.16 “Thus, whatever rights a debtor has in
property at the commencement of the case continue in bankruptcy-no more, no less. Section 541
‘is not intended to expand the debtor's rights against others more than they exist at the
commencement of the case.’ ”17 Section 541 includes contingent interests, such as interests the
right to which might be finalized post-petition.18

The Court therefore looks to Kansas law to determine the estate’s interest in the Cash
Bond. The Bond was ordered pursuant to K.S.A. 60-3004(b) as a condition for stay of
enforcement of the Ohio judgment following its registration in Sedgwick County District Court.
That statute provides that the “Court shall stay enforcement of the foreign judgment for an
appropriate period, upon requiring the same security for satisfaction of the judgment which is
required in this state subject to the provisions of subsection (d) of K.S.A. 60-2103... .” The later
statute, which addresses appellate practice, provides that when an appellant desires a stay on
appeal, the appellant may present to the district court for its approval a supersedeas bond
“conditioned for the satisfaction of the judgment in full together with costs, interest, and
damages for delay, ...” Hence, in Kansas, as in other jurisdictions, a supersedeas bond provides
security in the event the judgment whose effectiveness is set aside during an appeal is later
affirmed; it protects the creditor’s ability to collect the judgment, if the judgment is affirmed.19
Although K.S.A. 60-2103 reads as if a bond supporting a stay of execution must have a surety, it

16 Butner v. U.S., 440 U.S. 48, 54 (1979).

17 Moody v. Amoco Oil Co., 734 F.2d 1200, 1213 (7th Cir. 1984), quoting H.R. Rep. No. 595,

95th Cong., 1st Sess., reprinted in 1978 U.S. Code Cong. & Ad. News 5787.

18 Williamson v. Jones (In re Montgomery), 224 F.3d 1193, 1195 (10th Cir. 2000).

19 See 4 C.J.S. Appeal and Error §§ 518 and 531.

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is common practice for the judgment debtor to provide a bond secured in a different manner,
such as by a letter of credit, property, or cash.

The case law concerning the interest of a judgment debtor’s bankruptcy estate in a
supersedeas bond posted prepetition during the pendency of an appeal has arisen in many
different procedural and factual contexts. One of the early and often cited cases is Mid-Jersey
National Bank,20 decided in 1975 and controlled by the Bankruptcy Act of 1898. In that case,
summary judgment was entered against a borrower who appealed and posted a certificate of
deposit in lieu of a supersedeas bond. The borrower filed for relief under the Bankruptcy Act
while the appeal was pending. The question was whether relief from stay was required for the
appeal to continue. Because under the Act the bankruptcy stay applied only to proceedings
which could divest the debtor of property over which the bankruptcy proceedings had
jurisdiction, the court defined the question as whether the certificate of deposit is property of the
debtor subject to the exclusive jurisdiction of the bankruptcy court. The court held that the bond
was not property of the borrower’s bankruptcy estate but was a trust fund held in custodia legis
by the district court that rendered the judgment. The Tenth Circuit has not addressed the issue of
rights in a supersedeas bond when the judgment debtor who posted the bond files for bankruptcy
relief during the appeal.21

20 Mid-Jersey Nat’l Bank v. Fidelity-Mortgage Investors, 518 F.2d 640 (3rd Cir. 1975).

21 The Tenth Circuit in Grubb v. Federal Deposit Ins. Corp., 833 F.2d 222 (10th Cir. 1988), a
case concerning the insolvency of a national bank, found Mid-Jersey highly persuasive, and held that a
judgment debtor by agreeing to a bond and depositing a certificate of deposit with the clerk “in essence
transformed the underlying unsecured debt [the judgment] into a secured debt by agreeing that the bond
would . . . secure payment of ‘all judgments, orders and accruals thereon.” Id., 833 F.2d at 226. The
certificate could therefore not be recovered by the receiver as an asset of the bank.

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Mid-Jersey was followed in Carter Baron Drilling,22 an opinion of the Colorado District
Court controlled by the Code. Postel relies on Carter Baron Drilling. In that case, a judgment
was entered in favor of Badger against National, and National deposited a cashier’s check with
the clerk, who cashed the check and treated the funds as a supersedeas bond. National filed for
bankruptcy relief in December, 1985. Postpetition the judgment was affirmed by the Tenth
Circuit. Baron sought turnover of the bond from the court in which the judgment had been
rendered and the bond posted. In defense, National contended turnover should not be ordered
because the cash bond was part of the bankruptcy estate. The court found the case similar to
Mid-Jersey and ruled the funds held by the court in custodias legis as a supersedeas bond were
not an asset or property of National’s estate. But it also noted that the “only possible interest
retained by a judgment debtor in such funds is, therefore, a contingent reversionary interest
based upon the possibility that the trial court’s judgment would be reversed on appeal”23 and that
any contingent reversionary interest National had to the funds terminated when the Tenth Circuit
affirmed the judgment against National. 24

22 Carter Baron Drilling v. Excel Energy Corp., 76 B.R. 172 (D. Colo. 1987).

23 Id., 76 B.R. at 174.

24 Other decisions controlled by the Code have followed Mid-Jersey, but they involved factual
circumstances different from this case. For example, in Moran v. Johns-Manville Sales Corp., 28 B.R.
376 (D.N.D. Ohio 1983) the issue was whether after a judgment against the debtor was affirmed the stay
of § 362 barred a plaintiff from recovery of her judgment against the debtor by enforcement of the bond
posted by a commercial surety. The court held it did not, since the bond was not property of the estate.
Recovery was sought after the judgment was affirmed, and the liability to be enforced was against a
commercial surety, not cash deposited by the Debtor. In Gnidovec v. Alwan (In re Alwan Bros. Co.,
Inc.), 105 B.R. 886 (Bankr. C.D. Ill. 1989) the court found Mid-Jersey to be both persuasive and
controlling, but then held the bond in the form of real property was excluded from the estate only in part,
the extent needed to satisfy a compensatory judgment claim.

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The Trustee relies upon Celotex,25 a case arising under the Code but where the
supersedeas bond was posted by a commercial surety. The bankruptcy court had previously
lifted the stay to allow appeals of personal injury claims against the debtor to proceed. A
remaining issue before the court was whether the supersedeas bonds issued by commercial
sureties posted by the debtor to obtain stays pending appeals were property of the bankruptcy
estate subject to the automatic stay and therefore not available to the plaintiffs if their cases were
affirmed. The court held that if at the time of filing the petition the appellate process had not
been concluded, the debtor still had an interest in the supersedeas bond for purposes of § 541,
subject to the interest being divested if the debtor was unsuccessful once the appellate process is
completed.26 This conclusion was supported by the desirable result that the bond be protected by
the stay during the appellate process and as providing a rationale basis for the estate’s acquisition
of property if any of the bonds were released during the bankruptcy because a judgment was
reversed. The holding of Mid-Jersey was distinguished based upon the fact that it was decided
before enactment of the Code with its more expansive definition of property of the estate and
automatic stay.

This Court finds the reasoning of the Celotex court persuasive. This Court declines to
follow Mid-Jersey and Carter Baron Drilling for three reasons. First, Mid-Jersey arose before
enactment of the Code and the issue before the court was whether the limited stay then codified,
which had the purpose of preventing a creditor from defeating the jurisdiction of the bankruptcy
court over the debtor’s property, precluded considering the merits of the appeal. The Third

25 In re Celotex, 128 B.R. 478 (Bankr. M.D. Fla. 1991).
26 Id., 128 B.R. at 482,
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Circuit has held that Mid-Jersey’s analysis of the automatic stay is inapplicable to the Code,27
and several courts have questioned the validity of its analysis of property of the estate.28 Under
the Code, the fact that a debtor's property is in custodias legis does not remove it from the
bankruptcy estate.29 Because of its reliance on Mid-Jersey, the Court declines to adopt the
holding of Carter Baron Drilling, but does note that the opinion recognized that a bankruptcy
estate may have a contingent interest in a bond posted by the debtor if bankruptcy relief is sought
before the appeal is resolved. Second, the effect of bankruptcy on a bond posted by a debtor
arose in Carter Baron Drilling, as it did in Mid-Jersey, not in the bankruptcy court but in the
court which had required the bond and in whose registry the bond was held. The question
presented in both cases was whether the bond should be released to the judgment creditor after
affirmance of the judgment. That is not the issue before this Court. Here the question is not
whether the cash bond should be distributed to Postel, but whether Debtor had an interest in the
Cash Bond on the date of filing. Third, neither Mid-Jersey nor Carter Baron Drilling expressly
relied upon the terms of the bond and the related orders of the court approving the bond when
analyzing the property interests of the debtor.

 As stated above, property interests under § 541 are determined by reference to state law.
Examination of the state law property interests in the Cash Bond show that Debtor had
contingent interest on the date of filing. In this case, the District Court of Sedgwick County

27 Borman v. Raymark Industries, Inc., 946 F.2d 1031, 1035 (3rd Cir. 1991)
28 See Id., 946 F.2d at 1034 (discussing cases questioning Mid-Jersey’s analysis of property of the


estate).
29 See In re Alternate Fuels, Inc.,2009 WL 1298447 (Case no. 09-20173, Bankr. D. Kan. May 8,

2009).
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when approving the Bond as a condition for staying execution of the Ohio judgment held that the
bond would be subject to exoneration upon motion and order of the court if the default judgment
was not vacated within the time limits set by the court. Later, when there was an appeal to the
Ohio Court of Appeals, the court held that the bond “shall not be released to either party until the
appeal process is exhausted at which time the Court will address the appropriate motions by the
parties for the dispensation of the held funds.”30 These orders clearly recognize that the Debtor
had a contingent interest in the bond on the date of filing, when the appeal process was not
complete.

The Court therefore holds that the Debtor had an interest in the Cash Bond on the date of
filing, subject to being divested if the judgment of the Ohio court in favor of Postel was affirmed.
On the date of filing, the appellate process was almost complete. The Court of Appeals had
affirmed, but the Debtor still had a right to seek review by the Ohio Supreme Court. Under the
orders of the Sedgwick County District Court, Debtor had a contingent right to “dispensation of
the funds” until the appeal process was complete. When the bankruptcy was filed, the Debtor’s
rights were transferred to the estate. The Motion to dismiss is denied as to the assertion that the
estate had no interest in the bond on the date of filing.

C. The estate’s interest in the Cash Bond is subject to the terms of the Bond as established
by the orders of the Sedgwick County District Court, and that court, not this Court, is the
proper forum to determine the estate’s interest.
The time for Debtor to file for review of the Ohio court of appeal’s affirmance of the
judgment has now expired. It is tempting for this Court to hold that forfeiture of the estate’s
contingent interest in Cash Bond has occurred, since the amount deposited is less than the

30 Doc. 41-2, p.3.

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amount of the judgment. However, the Court declines to make such a ruling. As stated in the
order of the Sedgwick County District Court,

. . . the bond currently posted by Defendant and the corresponding

Protective Order in this Court shall continue through the appeals

process (as long as both the Ohio trial Court and appellant court do

not deny defendant’s Application/Motion for stay in Ohio) and

shall not be released to either party until the appeal process is

exhausted at which time the Court will address the appropriate

motions by the parties for the dispensation of the held funds.31
The District Court of Sedgwick County is the proper forum to address the “appropriate motions
by the parties for the dispensation” of the held funds.

Since the estate’s interest in the Cash Bond is property of the estate, § 362(a)(3) applies.
It precludes “any act to obtain property of the estate or of property from the estate or to exercise
control over property of the estate.” The Court therefore requests a party in interest to move for
relief from stay to allow all proceedings as required under the terms of the Bond, the orders of
the District Court of Sedgwick County, and Kansas law to determine the interests of the parties
to the Cash Bond.

D. The Court grants Motion as to Count I of the Amended Complaint.
As stated above, in the amended complaint, the Trustee alleges three counts. Count I
prays for a finding that Postel has no interest in the bond. As stated above, the Court rules based
upon the pleadings that the estate had a property interest in the Cash Bond on the date of filing.
However, the estate did not have all rights to the Cash Bond to the exclusion of Postel. For the
same reasons that the estate had a contingent interest, the pleadings demonstrate that Postel also
had a contingent interest in the Cash Bond on the date of filing. Under the orders of the District

31 Doc. 41-2.

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Court of Sedgwick County if the judgment was affirmed, Postel was required to file a motion
praying for an order that the Cash Bond be released to her. The Trustee's claim asserted in
Count I that Postel had no interest in the Cash Bond on the date of filing is denied.

E. The Motion is denied as to Count II of the Amended Complaint.
Count II is for turnover of the Cash Bond pursuant to § 543, turnover of property by a
custodian. The pleadings are insufficient to determine whether any portion of the Cash Bond
should be turned over to the Trustee by the Clerk of the District Court. Until the District Court
of Sedgwick County rules on the interests of the parties to the Cash Bond, the amount of funds,
if any, to which the estate is entitled is not known.

F. The Motion is denied as to Count III of the Amended Complaint.
Count III is for recovery of a preference to the extent the Cash Bond became property of
Postel. In the Motion, Postel asserts this count should be dismissed because the Trustee has
waived the claim, based upon his responses to Postel’s memoranda. The Court finds that the
actions of the Trustee relied upon by Postel are insufficient to establish waiver.
CONCLUSION.

For the foregoing reasons, the Court grants Postel’s Motion as to Count I and denies the
Motion as to Counts II and III. As to Count I, on the date of filing, both the Debtor and Postel
had contingent interests in the Cash Bond. Whether the estate's contingent interest has been
forfeited because the Ohio judgment has been affirmed and no more appeals are permitted is a
matter that should be determined by the Sedgwick County District Court, after relief from stay is
granted pursuant to a motion to be filed by a party in interest. The Motion is denied as to Count
II since the pleadings are insufficient for a determination of whether the estate has a right to a

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portion of the Cash Bond which should be turned over by the Clerk of the District Court. The
Motion is denied as to Court III because the pleadings do not establish that the Trustee has
waived his preference claim.

The foregoing constitute Findings of Fact and Conclusions of Law under Rules 7052 and
9014©) of the Federal Rules of Bankruptcy Procedure which make Rule 52(a) of the Federal
Rules of Civil Procedure applicable to this matter. A judgment based upon this ruling will be
entered on a separate document as required by Federal Rule of Bankruptcy Procedure 9021 and
Federal Rule of Civil Procedure 58.

IT IS SO ORDERED.

###

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