AB 51 at a Crossroad: Can California Employers Still Compel Employees to Arbitrate Disputes?

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California Assembly Bill 51 (“AB 51”) has been in the news because it imposes a far-reaching ban on California employers requiring employees to arbitrate employment disputes. AB 51 was set to take effect on January 1, 2020, but its effect was temporarily stopped by a court injunction issued by U.S. District Judge Kimberly Mueller on December 30, 2019, in a lawsuit filed by the U.S. and California Chambers of Commerce. A fuller hearing on whether the court will extend the injunction is set for January 10, 2020. If the injunction is extended, AB 51 will remain in limbo as long as that case remains pending, and very possibly permanently.

AB 51, if it is allowed to take effect, would have far-reaching implications for California employers who use arbitration agreements for resolution of disputes with employees. AB 51 was signed into law by Governor Gavin Newsom on October 10, 2019, and applies to “contracts for employment entered into, modified, or extended on or after January 1, 2020.” The law prohibits any person from requiring applicants and employees, as a condition of employment, continued employment, or the receipt of any employment-related benefit, to waive any rights, forum, or procedure established by the California Fair Employment and Housing Act (“FEHA”) and the California Labor Code.

The Impact of AB 51
Although AB 51 was originally promoted to target the #MeToo movement and was characterized as a anti-sexual harassment law, because many sexual harassment claims against employers have been kept from public view by resolutions in private arbitrations rather than public court proceedings. But the new law covers much more than just sexual harassment claims. In practical effect, AB 51 would prohibit most employers from requiring employees to sign mandatory arbitration agreements for nearly all types of employment law claims, including any discrimination claims covered under FEHA and for any claims brought under the California Labor Code. AB 51 also precludes employers from threatening, retaliating or discriminating against, or terminating any job applicant or employee for refusing to consent to arbitration or any other type of waiver of a judicial “right, forum, or procedure” for violation of the FEHA or the Labor Code.

Nor can employers avoid AB 51 by having a standard arbitration agreement that requires applicants or employees to “opt out” to avoid. The law effectively prohibits employers from using voluntary opt-out clauses to avoid the reach of the bill. New California Labor Code Section 432.6(c) states that “an agreement that requires an employee to opt out of a waiver or take any affirmative action in order to preserve their rights is deemed a condition of employment.”

In addition, new Government Code Section 12953 states that any violation of the various provisions in AB 51 will be an unlawful employment practice, subjecting the employer to a private right of action under FEHA. Although this will presumably require an employee to exhaust the administrative remedy under FEHA, this provision would nevertheless lead to further exposure for California employers who utilize arbitration agreements with their employees. Importantly, however, AB 51 explicitly does not apply to post-dispute settlement agreements or negotiated severance agreements.

Federal Preemption of AB 51?
Generally, the Federal Arbitration Act, 9 U.S.C. § 1, et seq., (“FAA”) preempts state laws like AB 51 that attempt to regulate or restrict arbitration agreements. Under the FAA, a state may not pass or enforce laws that interfere with, limit, or discriminate against arbitration, and state laws attempting to interfere with arbitration have repeatedly been struck down by the U.S. Supreme Court as preempted by the FAA. AB 51, however, expressly states that it does not invalidate a written arbitration agreement that is otherwise enforceable under the FAA. Proponents of AB 51 argue that it is not preempted by the FAA because it only impacts “mandatory” arbitration agreements and does not affect “voluntary” agreements.

Impending Court Challenges
Many questions surrounding the validity and application of AB 51 remain unanswered. Therefore, legal challenges on the ground that AB 51 is preempted by the FAA were inevitable. On December 6, 2019, the U.S. and California Chambers of Commerce filed a complaint in the U.S. District Court for the Eastern District of California, alleging that AB 51 is preempted by the FAA. The complaint seeks a permanent injunction to halt enforcement of AB 51 until its legality is determined. The January 10, 2020 hearing of the preliminary injunction may give strong indication which way the Court will turn on the issue for the time being, but the ultimate determination will likely take years to wend its way through the Ninth Circuit Court of Appeal and perhaps the U.S. Supreme Court.

What Should Employers Do In Response to AB 51?
As this challenge to AB 51 makes its way through the courts, employers with ongoing arbitration agreements (or those interested in implementing arbitration programs) face a difficult choice starting in 2020: Play it safe and strike all mandatory arbitration agreements, or maintain the status quo until the litigation plays out. There is no one-size-fits-all approach that will work for every employer.

Employers currently using arbitration agreements should consider either staying the course based on the assumption that AB 51 will be held preempted by the FAA and therefore unenforceable, or suspending their arbitration programs until more clarity on AB 51 is provided. Employers implementing arbitration programs after January 1, 2020 should consider including in their arbitration agreements specific language to conform with Labor Code 432.6 and emphasizing the voluntary nature of the agreement.

The attorneys at Conkle, Kremer & Engel remain vigilant on employment law developments to advise businesses on all aspects of employee legal relations, including updates on the use of arbitration agreements as uncertainty looms.

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Manufacturers, Distributors and Reps Must Be Familiar with California’s Sales Rep Act

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Independent sales representatives are a vital part of many industries, from beauty products and electronics to simple plumbing materials like tankless water heater valves.  Independent sales reps often develop considerable expertise in both the customer base in their territories and their manufacturers’ or distributors’ products, while saving resources that the principal can better use toward product development and customer service after the sale.  Conkle, Kremer & Engel attorneys have extensive experience on behalf of both representatives and manufacturers/distributors/importers in strengthening those agency-principal relationships, and resolving commission, territorial or termination disputes when they arise.

In California, there is a relatively little-known statute that governs certain contractual requirements and responsibilities in a principal-sales representative relationship, called the Independent Wholesale Sales Representatives Contractual Relations Act (the “Sales Rep Act”) (California Civil Code § 1738.10).  The Sales Rep Act can be a powerful tool for sales reps, particularly because it offers the possibility of treble damages and attorney fees awards when the representative prevails.  For example, CK&E was counsel for a sales rep who was cheated out of his earned commissions by a principal who denied that it had ever agreed to pay those commissions.  After a jury trial, the sales rep received a jury award of $2.1 million that was then trebled to $6.2 million, plus attorney fees, after CK&E showed that the Sales Rep Act was properly applied in the situation at hand.  When the judgment was affirmed on appeal, that case became one of the most important published California court decisions about the correct application of the Sales Rep Act.   (Reilly v. Inquest Technology, 218 Cal. App. 4th 536 (2013)).

But like many powerful tools, the Sales Rep Act can be hazardous to either side when it is misapplied.  For sales representatives, distributors, manufacturers and importers alike, it is critically important to understand the requirements and potential effects of various factors to both the application and exceptions to the Sales Rep Act.  For example, in a recent matter, CK&E attorneys Eric S. Engel and Evan Pitchford represented a Southern California importer-distributor of plumbing parts that was sued by a terminated sales rep who sought treble damages for commissions claimed owed, plus attorney fees, under the Sales Rep Act.  CK&E was able to demonstrate in a pretrial motion that the sales rep had engaged in prohibited sales of certain parts to a purchaser who did not qualify under the Sales Rep Act.  Those sales precluded the sales rep from claiming the benefits of the Sales Rep Act, and limited the sales rep to just ordinary contract damages at most.  After the Court agreed that the claim under the Sales Rep Act was not available for this sales rep, the lawsuit was quickly settled.

These two examples demonstrate that intimate knowledge of how the Sales Rep Act operates is crucial for both sides of disputes between sales representatives and importers, manufacturers and distributors.  If you are an independent sales representative, distributor, or manufacturer that is facing commission, territorial or termination disputes, you would be well served to consult with counsel who is familiar with the very precise requirements of the Independent Wholesale Sales Representatives Contractual Relations Act (California Civil Code § 1738.10).

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CKE Publishes on Restraints of Trade Affecting Manufacturers’ Sales Reps

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Conkle, Kremer & Engel represents commissioned sales representatives (“reps”) and manufacturers or distributors (often termed “principals”) who contract with them.  Often, contracts drafted by manufacturers or distributors include post-termination non-competition clauses that can be problematic in several respects.  California generally disallows non-competition clauses as unlawful restraints of trade, but it is often possible to have effective trade secret agreements that can substantially restrict a former representatives from working with competitors.  Further, reps and principals often work across state lines, and many states allow post-termination non-competition terms that are “reasonable” in scope.  Principals and reps must be conscious of which state’s law controls their agreement, and the state venue in which any dispute would be determined by a court or arbitrator.  To help reps and principals understand issues that they face, CK&E attorney Eric S. Engel contributed an article to the October 2016 edition of Agency Sales Magazine, published by the Manufacturers’ Agents National Association (MANA).  The October 2016 article, Limiting the Risks of Restraint of Trade, is the first of two parts addressing the enforceability of restraints of trade in various states, and methods to assure that a favorable venue is available if a dispute arises. Next month’s article will focus on the intersection of restraints of trade and trade secret protection.

 

 

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The Conkle Firm Helps Electronics Business Owners Strenghten Their Hands at ERA SoCal Event

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Conkle, Kremer & Engel attorney Eric Engel was pleased to have been invited for a return engagement to present to the Electronic Representatives Association for Southern California, at the ERA SoCal Owners’ Forum in Carlsbad on April 6, 2016.  ERA is the international association of professional manufacturers representatives firms and electronics industry manufacturers who use independent sales reps.  ERA’s member firms sell more than $40 billion annually in electronics products for thousands of manufacturers in industries ranging from consumer to military and aerospace.  ERA SoCal is one of the most proactive chapters in ERA, covering Central California through Los Angeles, Orange and San Diego counties, and extending into Southern Nevada and Mexico.  ERA SoCal sponsors frequent events to promote, educate and protect manufacturer’s representatives.

The theme of this ERA SoCal roundtable forum was “Strengthening Your Hand,” and featured Eric’s presentation on ways that business owners can improve their contracts, business relations and collection rates.  The focus was on avoiding disputes that can lead to litigation, and being prepared to present a strong hand if a dispute does arise.

The open forum included many thoughtful questions and comments by business owners, who shared their industry experiences and challenges they have faced.  In addition to outlining important terms that should be included in written contracts, discussion also concerned the application of the Independent Wholesale Sales Representatives Contractual Relations Act, California Civil Code §§ 1738.10 et seq., a “pro-representative” law in California that requires manufacturers to have a signed written contract with sales reps, and provide written accountings with every payment of commissions.  When a manufacturer willfully fails to comply with requirements of the Act, the sales rep agency is entitled to “treble damages” – three times the unpaid commissions – plus attorney fees.

Eric has handled commission matters for many years, and was lead trial attorney in Reilly v. Inquest Technology.  The Reilly case was the first precedent in California that enforced the full remedy of treble damages under the Act, resulting in $2.1 million jury verdict becoming a judgment for $6.2 million, plus attorney fees and interest.  ERA and its partner organization, Manufacturers’ Agents National Association (MANA), were important sponsors of the Act and similar legislation enacted in about 36 other states to protect the rights of independent wholesale sales representatives.  CK&E is proud to be able to help sales representatives create contracts that protect their rights to be paid for their services, and to help them enforce their rights when disputes arise.

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Conkle Firm Article Explains Special Protections for Sales Representatives

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The Conkle firm published an article in the June 30, 2015 edition of the Electronics Representatives Association Southern California’s member newsletter to explain to ERASoCal members the special protections that California law provides for independent wholesale sales representatives.  Among other points, the article describes the requirements for a signed written contract, the types of information that manufacturers and distributors are required to provide to their independent sales reps, and the potential for treble damages (three times the actual damages) plus attorney’s fees for violations.

The article was written by Conkle, Kremer & Engel attorney Eric S. Engel and CK&E’s summer law clerk Ryan Fisher, a student at University of California, Irvine Law School.  CK&E is proud to be a member of ERASoCal, which is a trade association of independent manufacturers sales representative firms in Southern California’s vibrant electronics industry.  Eric has significant experience in sales commission claims, and he was lead trial counsel in the case that resulted in the first published decision in California applying the special protections of Civil Code Section 1738.10 et seq., including treble damages and attorney fees for unpaid sales commissions: Reilly v Inquest Court of Appeal Decision, Case No. G046291 (July 31, 2013)

 

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Prove It! Conkle Firm Attorney Publishes National Article

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Conkle, Kremer & Engel attorney Eric S. Engel has extensive experience in matters affecting manufacturers, distributors and sales representatives.  From drafting and negotiating contracts between principals and agents to litigating disputes over such matters as commissions and trade secrets, Eric brings deep knowledge of the dynamics of the independent commissioned sales relationships to the benefit of clients across a wide range of industries.  Among his achievements is leading the trial team to a jury trial verdict and judgment of $6.2 million in treble damages against a manufacturer who cheated a commissioned sales representative.  The judgment was fully upheld on appeal in the precedent-setting decision of Reilly v. Inquest Technology, Inc., 218 Cal. App. 4th 536 (2013).

Eric has been recognized as a “Rep Savvy Attorney” by the Manufacturers & Agents National Association (MANA).  Rep Savvy Attorneys are acknowledged for their acumen in handling disputes involving principals and agents concerning independent commissioned sales relationships.  In that role, Eric is pleased to offer his legal insight through legal articles published in MANA’s monthly magazine, Agency Sales, which receives national distribution.  Most recently, Eric wrote an article on preserving evidence to support your claims and defenses when a dispute arises:  Prove It!  Why Reps and Principals Need to Keep the Evidence, Agency Sales Magazine, May 2015

The Prove It! article focuses on the need to document the significant events that arise in parties’ commercial relationships, starting with a signed written contract that correctly states the terms of the parties’ agreement in a straightforward manner.  Then, events during performance, such as exceptions to the contractual terms and issues in obtaining performance by the other party, should be documented in plain and clear English by email or even by good old letters or faxes.  Documents that were created during the relationship should be carefully saved – a document that once existed but cannot be located can be as bad or worse than a document that never existed in the first place, as it raises the potential for spoliation of evidence penalties that can be very serious.  The Prove It! article is written for agents and principals, but the information contained in the article can be applied to almost any commercial situation.

CK&E attorneys are well versed in commercial disputes of all types and are ready to help you document your position and maintain good records of what you documented, so that you can position yourself as strongly as possible if a dispute arises.

 

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The Conkle Firm Participates in MANA Attorney Forum in Chicago

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Conkle, Kremer & Engel attorney Kim Sim participated in the annual Manufacturers’ Agents National Association (MANA) Attorney Forum in Chicago in September 2014.  The MANA Attorney Forum is an annual event for “rep-savvy” attorneys from across the country to meet and discuss legal issues and developments in the law that uniquely affect independent manufacturer’s representatives.

This year’s Attorney Forum covered a wide range of topics including conflicts of interest for sales representatives who represent competing lines, aspects of international law that impact sales representative relationships, successor companies and liability, valuation of rep firms, differences in manufacturers’ representative laws among states, ownership of customer lists and the recent amendment to the Minnesota Commission Protection Act.

CK&E regularly represents manufacturers’ representatives with respect to disputes relating to commissions, including a 2011 victory on behalf of its sales representative client that resulted in the published decision Reilly v. Inquest Technology, in which the Court of Appeal affirmed a $6.2 million judgment in favor of the sales representative under special California laws protecting sales representatives.  CK&E is proud to be a member of MANA and is honored to be recognized by the leading association of manufacturers and agents as specialists in the area of rep law.

Published in MANA’s Agency Sales Magazine:
MANA Attorney Forum 2014

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The Conkle Firm Sponsors ERA SoCal Charity Golf Tourney for Operation Homefront

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On August 4, 2014, Conkle, Kremer & Engel was a proud sponsor of the ERA SoCal Second Annual Charity Golf Tournament at Alisa Viejo Country Club, for the benefit of Operation Homefront.

A great time was had by all participants in a wide2014_ERA_Golf_Ball_Drop  variety of events, some of which were not dependent on golf skills – like the helicopter ball drop.  Participants enjoyed cocktails, dinner and a presentation by Operation Homefront California, which provides emergency financial and other assistance to the families of our service members and wounded warriors.  Operation Homefront operates nationwide with 23 chapters serving 50 states with over 33,000 volunteers and more than 105,000 families served thus far.

2014_ERA_Operation_Homefront

Electronics Representatives Association (ERA) is a trade association of professional manufacturers representative firms serving the high tech industry for the benefit of sales reps, distributors and manufacturers.  ERA SoCal has chosen Operation Homefront to be the beneficiary of its Second Annual Charity Golf Tournament.  CK&E is pleased to be an associate member of the Southern California chapter, ERA SoCal.

 

 

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You Shook Hands – But Do You Have a Deal?

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Courts have held that, in business negotiations, “Handshakes are significant. When people shake hands, it means something.”  Unfortunately, they have also held that when people shake hands, “several meanings are possible.”

In Rennick v. O.P.T.I.O.N. Care, the Ninth Circuit Court of Appeal considered a party’s contention that a deal was struck when, after months of discussion and a 4-hour negotiating session, the parties “got up and circulated around the room and shook hands with each other on having made the deal.”  The Rennick case observed that a jury could reasonably find that “the handshake was confirmation of a contract, or that it was an expression of friendship and the absence of ill will after a day of hard bargaining.”  So, given the uncertainty of its meaning, should we stop shaking hands when discussing business?  Of course not.  Indeed, the Court noted that, “By custom, it is a rude insult to reject an outstretched hand in most circumstances, and to do so at the end of a long business meeting would likely prevent a future deal.”

The issue of the parties’ intent upon shaking hands is not a small one.  In August 2014, Charles Wang, the owner of the New York Islanders was sued by a hedge fund manager who claimed that the parties had shaken hands on a deal to buy the NHA hockey team for $420 million, and that Wang had breached their agreement by demanding more money.  The frustrated purchaser sued to either enforce an apparently unsigned 70-page agreement to conclude the sale of the team, or recover a $10 million break up fee that he claims was among the terms agreed upon with a handshake.

Courts struggle with this kind of issue, with or without handshakes.  In contract disputes, courts try to enforce the parties’ expressed intentions. For example, where the parties clearly express that they do not intend to be bound until they sign a formal written contract, courts will try to honor that intention by finding that no contract exists unless a written agreement was fully signed.  Indeed, negotiating parties usually can express almost any manner of requirement before an agreement becomes enforceable.  Quentin Tarantino’s civil war era film Django Unchained featured a climactic scene in which the odious character Calvin Candie extorted Dr. King Schultz into signing an outrageous contract, and then insisted that the signed contract was meaningless unless Dr. Schultz also shook his hand.  As a general point of law that was a doubtful proposition even in Mississippi in 1858, but if the parties had been careful to express that intention in their written agreement it probably would have been an enforceable prerequisite to the validity of the contract.

In reality, too often there is no such clear delineation.  If the parties do not eliminate such possibilities by an express statement of their intentions, oral expressions or an exchange of emails or text messages might create an enforceable agreement.  That is because, when the parties aren’t careful about expressing their intentions, courts are left to divine whether the parties intended an agreement with or without signatures on paper.  Courts consider testimony about what was said and evidence of what was written and the activities that took place before, during and after the time of the purported agreement to draw conclusions about what the parties’ intentions really were. Often, the parties’ contemporaneous correspondence is the most important evidence of whether the parties intended to have a binding agreement immediately, or whether the parties intended only to express their good will or intention to negotiate further.

To avoid unnecessary disputes, a cautious businessperson should make a point to express clearly his or her intentions.  The best approach is to plan ahead and be as clear as possible in a written expression as to when the deal is considered enforceable.  The Conkle law firm counsels and represents businesses in negotiations to achieve those ends, or in disputes that can arise when the businesses handled negotiations themselves and come to Conkle, Kremer & Engel attorneys only after things did not turn out as intended.

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The Conkle Firm Helps MANA Evict Domain Name Cybersquatter

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What do you do when someone else has taken your trademark and used it in an Internet domain name?  Just accept it, even if they’re offering competing products and services?  Do you have to go to court and file a trademark infringement lawsuit?  Fortunately, these questions all have the same answer: No.   You don’t have to accept it, and there are faster and less expensive ways to force the cybersquatter to give up the infringing domain name.

CK&E recently demonstrated this by helping its client, the Manufacturers’ Agents National Association (commonly known as MANA) defeat a cybersquatter and force the squatter to transfer the “manaonline.com” domain name to MANA.

All domains ending in a generic Top Level Domain (gTLD) – such as .com, .org or .net – are automatically subject to ICANN’s Uniform Domain Name Dispute Resolution Policy, an streamlined arbitration process referred to as UDRP.  UDRP provides an efficient method for a trademark owner to resolve its rights to a domain name that uses a substantial part of the trademark or is otherwise confusingly similar to the trademark.  Instead of going to court to sue for trademark infringement, the business owner can file a complaint online with one of several authorized arbitration providers, such as the National Arbitration Forum (NAF) or the Arbitration and Mediation Center of the World Intellectual Property Organization (WIPO).  Through a process that is conducted entirely online, these arbitration providers are empowered to force a domain name registrar to transfer a domain to its rightful owner.  This is especially useful if the cybersquatter is in some remote offshore location and cannot be reached by regular legal process, because the domain name registrars are always available and can be directed to transfer the domain name.

To force the transfer of a domain through UDRP, the business owner must show:  (1) the domain name is confusingly similar to a trademark owned by the business;  (2) the current registrant has no rights or legitimate interests in the domain name; and  (3) the domain name has been registered and is being used in bad faith.

In the case in which CK&E helped MANA, another company called “Dvlpmnt Marketing” based out of Saint Kitts and Nevis, in the Caribbean, had registered the “manaonline.com” domain name – which was essentially identical to MANA’s “manaonline.org”   Dvlpmnt had used the domain name to park a webpage featuring “pay-per-click” links to other websites offering services competing with those offered by MANA.  Dvlpmnt owns tens of thousands of domains, and has been the subject of several NAF and WIPO proceedings in the past.

CK&E attorney Zachary Page initiated a Complaint with NAF on behalf of MANA, charging Dvlpmnt with cybersquatting by registering and maintaining in bad faith, and with no legitimate rights, the manaonline.com domain name that was confusingly similar to MANA, whose genuine website is found at manaonline.org.  The different gTLD extensions, .com and .org, are legally insignificant in the UDRP process – effectively, the domain names were regarded as identical.  After the UDRP hearing, the NAF Panel held:

“Considering the totality of the circumstances present here—including the similarity between the disputed domain name and Complainant’s domain name, and the content of the website to which the disputed domain name resolves—the Panel infers that Respondent was aware of Complainant when it registered the domain name and that Respondent is using the domain name in a manner intended to exploit confusion with Complainant’s website and service mark.  These inferences are indicative of bad faith.”

Manufacturers’ Agents National Association v. Domain Administrator / DVLPMNT MARKETING, INC., National Arbitration Forum Claim Number FA1404001553434

A successful UDRP claimant generally has a choice to have the domain registration cancelled or to have the domain name transferred to the claimant.  It is almost always better to have the domain name transferred, so that it cannot be taken by another cybersquatter in the future.  CK&E is proud to have helped its client, MANA, successfully force the cybersquatter to transfer the manaonline.com domain name to MANA.

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