U.S. Supreme Court Reaffirms that Only “Humans and Corporations,” Not Unincorporated Entities Like a Trust, May Assert Their Own Citizenship for Purposes of Federal Diversity Jurisdiction

In a unanimous March 7, 2016 opinion authored by Justice Sotomayor, Americold Realty Trust v. Congra Foods, Inc., et al., , the U.S. Supreme Court affirmed an oft-confused holding relating to diversity jurisdiction: the citizenship of any non-incorporated artificial entity is determined by considering all of the entity’s “members,” not of the state where the entity is formed.

Americold removed its lawsuit to the federal district court in Kansas, which resolved the lawsuit on its merits.  On appeal, however, after supplemental briefing ordered sua sponte by the Court, the Tenth Circuit found that Americold, as an unincorporated real estate investment trust, or REIT, was a citizen of the states of its members.   The Supreme Court granted certiorari to resolve a circuit split regarding the citizenship of unincorporated entities.

Affirming the Tenth Circuit, Supreme Court reiterated its “oft-repeated rule” that diversity jurisdiction in a suit by or against an entity depends on the citizenship of all of its members.  Individuals are citizens of the states in which they reside.  The Supreme Court created an early exception in the 19th century—one which was later codified by Congress:  based on the tradition of treating corporations as separate juridical “persons,” corporations are considered to be citizens of their state of incorporation, and, Congress later added, also of the state where it has its principal place of business. 28 U.S.C. § 1332(c).

This exception was never expanded to unincorporated entities, whose citizenship, the Court reaffirmed, is determined based on the citizenship of its “members.”   The Court previously identified the members of a joint-stock company (as its shareholders), the members of a partnership (as its partners), and the members of a union (as the workers affiliated with it).  With respect to a REIT, the Court found that because Americold is not a corporation, it possesses its members’ citizenship.  Looking at the law of the REIT’s state of organization, Maryland, the court held that, “for purposes of diversity jurisdiction, Americold’s members include its shareholders.”  The Court also found that the entity’s membership cannot be restricted to its trustees simply because the entity “happens to call itself a trust.”

Absent action by Congress, one must consider to look at the citizenship of the members of various unincorporated entities such as LLCs and Trusts, to determine the existence of federal diversity jurisdiction.

For more information regarding federal diversity jurisdiction or the Court’s decision in Americold, please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group at keinhorn@genovaburns.com, or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com.

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U.S. Supreme Court to Alabama: Full Faith and Credit Must Be Given to Out-of-State Adoption

In a unanimous, per curiam opinion in V.L. v. E.L., the U.S. Supreme Court has reversed the Supreme Court of Alabama’s refusal to enforce a Georgia adoption order.  V.L. and E.L., two women, were involved in a 25-year relationship. E.L. gave birth to three children over the course of several years. The couple rented a house in Georgia and formalized the relationship between the children by V.L. petitioning for an order of adoption.  A Georgia court entered a judgment of adoption and recognized that V.L. and E.L. were the legal parents of the children.

After V.L. and E.L. ended their relationship in 2011, V.L. sued in Alabama arguing that E.L. had denied her access to the children.  The Supreme Court of Alabama however, refused to recognize the Georgia judgment as valid, reasoning that Georgia law precluded Georgia’s courts from recognizing two legal parents after one parent consented to the adoption.  The case was decided in the context of a broader political controversy brewing over Alabama state courts’ refusal to grant marriage certificates to same-sex couples in the face of the U.S. Supreme Court’s ruling last year in Obergefell v. Hodges

After staying the Alabama Supreme Court’s judgment in December, the U.S. Supreme Court took three months and six pages to summarily reverse the judgment.  Although a state need not afford full faith and credit to another state’s judgment if that state’s courts did not have subject matter jurisdiction, the Supreme Court reasoned, “[t]hat jurisdictional inquiry . . . is a limited one.”  The state court must only look to see “[i]f the judgment on its face appears to be a record of a court of general jurisdiction, such jurisdiction over the cause and the parties is to be presumed unless disproved by extrinsic evidence, or by the record itself.” Slip. Op. at 3 (quotations and citations omitted).  Because under Georgia law, the state superior court has exclusive jurisdiction over adoption matters, the Supreme Court held, Alabama courts were required to enforce the Georgia judgment.  Whether the Georgia judge erred in applying Georgia adoption law did not strip that court of jurisdiction.

The unanimity of the Supreme Court’s decision is a reminder that the diverse views of the various “laboratories of democracy”  does not permit one state to ignore a valid court order entered in another.

For more information regarding the Full Faith and Credit Clause or the Court’s decision in V.L. v. E.L., please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group at keinhorn@genovaburns.com, or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com.

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Federal Circuit Gives Samsung Another Victory Against Apple In The Smartphone Patent War

Update: On March 21, 2016, the U.S. Supreme Court granted Samsung’s certiorari petition regarding a separate patent (a design patent and related trade dress registration for the design elements of the iPhone).  The Court agreed to review a limited question regarding the types of damages available in such cases: “Where a design patent is applied to only a component of a product, should an award of infringer’s profits be limited to those profits attributable to the component?”

In another twist of fortunes in the long-running smartphone patent war between Apple and Samsung, the U.S. Court of Appeals for the Federal Circuit has once again overturned Apple’s patent infringement jury verdict – this time for $119.6 Million – against Samsung. The Court left intact Samsung’s small $158,400 verdict against Apple.

The case was initially filed by Apple in February 2012, in the United States District Court for the Northern District of California, alleging that Samsung infringed eight of Apple’s patents used on the iPhone. Not to be outdone, Samsung countersued alleging that Apple had infringed eight of its patents used in Samsung’s Android smartphones.

After a series of trial rulings and appeals, the parties conducted a 13-day trial and the jury awarded $119.6 million to Apple based on a finding that Samsung had infringed Apple’s “structures,” “slide to unlock,” and “autocorrect” patents. Samsung was not nearly as successful, with the jury awarding it a mere $158,400 in damages for the infringement of its “camera systems” patent.

Though Apple won the trial court battle, on appeal, the Federal Circuit has granted ultimate victory to Samsung, finding that Apple’s “slide to unlock” and “autocorrect” patents were invalid (and therefore not patentable) because the evidence indicated that the inventions would have been “obvious” to a person having ordinary skill in the art, in light of the publically available information at the time the inventions were made. The Court also reversed the jury’s decision that Samsung had infringed Apple’s “structures” patent based on a technical finding that the patent required the use of a “analyzer server” and Apple failed to present sufficient evidence to allow a jury to conclude that the Samsung software met this “analyzer server” limitation. Apple has a small chance of turning the wheel of fortune back if an en banc Federal Circuit agrees to hear the case or if the U.S. Supreme Court agrees to grant certiorari.

As this case demonstrates, fortunes can be won and lost on appeal and, as such, it is critically important to evaluate the strengths and weaknesses of each case even after a jury verdict is rendered.

For more information regarding patent litigation and appeals or the Court’s Federal Circuit’s decision, please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group at keinhorn@genovaburns.com, or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com.

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New Jersey Legislature Looking At Changes to Consumer Contract Disputes

The New Jersey Assembly’s Consumer Affairs Committee recently advanced several bills that would increase consumer protections in arbitration disputes. If passed into law, these bills would change the landscape for consumer disputes in the State and require companies to revisit their standard consumer contracts and arbitration practices.

The bills would prohibit companies from inserting language in consumer contracts requiring arbitration outside of New Jersey; bar neutral arbitrators or arbitration companies from ordering a losing party to pay the legal fees of the prevailing party; and bar arbitrators that have a financial interest in either party from presiding over the parties’ arbitration. A separate bill would restrict the use of “payment assurance” devices on vehicles designed to disable the ignition if the owner falls behind on payments, which could significantly impact the car sales industry in New Jersey.

The bills have several steps in the legislative process before being enacted into law and are likely to be amended to address business concerns. However, companies doing business in New Jersey should be aware that lawmakers are scrutinizing consumer contracts and reconsider any such form contracts.

For more information regarding consumer contracts and the arbitration process, please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group at keinhorn@genovaburns.com, or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com.

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In-House Counsel May View “Outside Counsel Only” Documents

A federal magistrate judge in Trenton has allowed in-house counsel for a New Jersey corporation to view discovery documents designated for “outside counsel eyes only.” The ruling in Sanofi-Aventis U.S. LLC v. Breckenridge Pharmaceutical, Inc., Nos. 15-289 & 15-1836, relates to a pair of patent infringement lawsuits filed by Sanofi-Aventis against Breckenridge Pharmaceutical Inc. regarding a prostate cancer treatment drug.

The parties’ stipulated confidentiality order did not specify whether Breckenridge’s in-house litigation counsel, Robert Vroom, would be permitted to review discovery designated as “outside counsel eyes only.” Sanofi objected to permitting Vroom access to the documents, contending that Vroom, one of only four in-house attorneys at Breckenridge, reported to the company’s general counsel, who was also vice president of corporate strategy.

The Court disagreed with Sanofi after conducting a “case-by-case inquiry” to determine whether an in-house lawyer engages in competitive decision-making that could pose a risk of protected information being inadvertently disclosed, required by a 1984 decision from the Federal Circuit Court of Appeals, U.S. Steel v. United States. The Court held that sufficient measures were put in place to separate Vroom from his peers and competitive decision-making so as to entitle him to review the discovery items at issue.

The Court found significant Breckenridge’s decision to create the position of “litigation counsel” to permit in-house counsel to function as an outside attorney. Vroom, the Court concluded, did not engage in the decision-making process for pricing, product design, patent prosecution or deciding when to seek FDA approval for production of a drug and he does not have access to Breckenridge’s network drives, reducing the risk of inadvertent disclosure to the company.

The Court’s order included some protections to further ensure that competitively sensitive information is not disclosed to Breckenridge. Breckenridge was ordered to maintain separate computer facilities for Vroom, who is not permitted to review, store or access any information designated as “outside counsel eyes only” while at any Breckenridge facility.

For more information on discovery confidentiality orders or the implications of the decision in Sanofi-Aventis U.S. LLC v. Breckenridge Pharmaceutical, Inc., please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group at keinhorn@genovaburns.com, or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com

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Third Circuit Blows Whistle on Suit Challenging Super Bowl Ticket Lottery

A panel of the Third Circuit Court of Appeals has affirmed the dismissal of a class-action lawsuit that sought to challenge the method by which the National Football League distributed tickets to last year’s Super Bowl XLVIII, held at MetLife Stadium in the New Jersey Meadowlands. In finding that the plaintiffs lacked standing to sue in federal court, the panel’s opinion in Finkelman v. NFL, No. 15-1435, serves as a warning to plaintiffs, appellants, and district courts alike that a party’s standing must be addressed before a court can reach the merits of that party’s claims.

The named plaintiffs relied on an obscure and rarely litigated provision of the New Jersey Consumer Fraud Act called the “Ticket Law,” which generally prohibits event organizers from withholding more than 5% of tickets from sale to the general public. The Ticket Law was meant to prevent event organizers from favoring privileged insiders to the detriment of the general public. According to the complaint, approximately 99% of all tickets to Super Bowl XLVIII went to NFL teams or other League insiders like broadcast networks or media sponsors and only 1% of tickets were made available for purchase by the general public through a lottery system. Neither of the two named plaintiffs entered the NFL’s ticket lottery: one named plaintiff, Josh Finkelman, purchased tickets in the resale market at an alleged $1,200 mark-up, and the other, Ben Hoch-Parker, decided not to purchase any tickets when faced with the high ticket prices on the resale market.

The District Court found that Finkelman (but not Hoch-Parker) had standing to bring the suit, but then dismissed the complaint on its merits, reasoning that the Ticket Law only applied to tickets that are intended for release to the general public – i.e., the 1% – all of which were released.

The Third Circuit agreed that Hoch-Parker’s failure to buy any Super Bowl tickets deprived him of Article III standing, but vacated the District Court’s judgment on the merits, concluding that Finkelman too lacked standing because he never entered the Super Bowl ticket lottery. Thus, the Third Circuit held, Finkelman could not claim that his inability to obtain face-price Super Bowl tickets was traceable to the NFL’s conduct.

“Many of us have felt the disappointment of wanting to attend a concert or athletic event only to discover that the event has sold out,” the Finkelman opinion laments, but “Article III requires more.” In other words, as in the NFL, with Article III standing, there is a difference between being “hurt” and being “injured.”

For more information on federal Article III standing or the implications of Finkelman v. NFL, please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group at keinhorn@genovaburns.com, or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com

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Federal Circuit Strikes Down Federal Ban on Disparaging Marks as Unconstitutional

In a landmark ruling that departs from decades-old precedent, on December 22, 2015, the U.S. Court of Appeals for the Federal Circuit held that the Lanham Act’s prohibition of “disparaging marks” violates the First Amendment’s guarantee of free speech. In re Simon Shiao Tam, Case No. 2014-1203 (Fed. Cir. Dec. 22, 2015). The decision is sure to be discussed by the Court of Appeals for the Fourth Circuit next year when it decides whether it was lawful for the United States Patent and Trademark Office (USPTO) to cancel registration of the marks owned by the NFL’s Washington Redskins, on the basis that the REDSKINS mark is disparaging to Native Americans.

The decision by the Federal Circuit involved the USPTO’s denial of trademark registration to an “Asian-American dance-rock band,” for their band name, THE SLANTS, a name the band intended to “reclaim” and “take ownership” of Asian stereotypes. Reasoning that the proposed mark was “likely disparaging to ‘persons of Asian descent,’” the USPTO denied federal trademark registration under the disparagement provision found in § 2(a) of the Lanham Act. A panel of three Federal Circuit judges affirmed, citing Circuit precedent that had rejected the constitutional argument on the grounds that the USPTO’s “refusal to register a mark under § 2(a) does not bar the applicant from using the mark, and therefore does not implicate the First Amendment.”

Sitting en banc, a divided Federal Circuit vacated the panel’s holding, overruled its prior precedent, and invalidated the disparagement provision, holding that the restriction cannot survive any of the levels of scrutiny applied to different types of restrictions on private speech. Starting with the premise that § 2(a) is a content and viewpoint-discriminatory regulation of speech, the Federal Circuit rejected the government’s arguments why the provision should not be subjected to strict scrutiny, an exacting standard that the government conceded the provision could not survive.

Citing the Federal Circuit’s prior precedent, the government contended that strict scrutiny does not apply because the Lanham Act does not prohibit expressive speech, but rather regulates commercial speech since the putative registrant is “free to name his band as he wishes and use this name in commerce.” Rebuffing this argument, the Federal Circuit found that federal trademark registration “bestows truly significant and financially valuable benefits upon markholders,” such as the right of exclusive nationwide use and the ability to recover treble damages for willful infringement, the denial of which creates a “serious disincentive to adopt a mark which the government may deem offensive or disparaging,” thus chilling private speech.

If trademark registration constitutes regulation of commercial speech, the Court held, the restriction would then be subjected to intermediate scrutiny, and even under that less exacting standard, the disparagement provision is still unconstitutional because the only interest the government has in prohibiting disparaging trademarks is its “disapproval of the message,” an interest that is not “legitimate” for First Amendment purposes.

Going forward, In re Tam is likely to have an immediate effect on other Circuits’ decisions when faced with similar issues, such as the Fourth Circuit’s future decision in the REDSKINS case. Moreover, the Federal Circuit hinted in a footnote that the decision may affect the other provisions of the Lanham Act that regulate expressive speech, such as the provision that permits the government to deny registration of a mark determined to be “immoral” or “scandalous.” The Government will almost certainly ask the Supreme Court to review the decision, but until the Supreme Court takes up the case, the USPTO will be barred from rejecting marks determined to be “disparaging.”

For more information on the Lanham Act or implications of In re Simon Shiao Tam, please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group, at keinhorn@genovaburns.com.

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Supreme Court Reiterates the FAA’s Preemptive Authority

On Monday, the United States Supreme Court in DIRECTV, Inc. v. Imburgia, 577 U.S. ___, No. 14-462, slip op. at 1 (Dec. 14, 2015), doubled down on its previous holdings that the Federal Arbitration Act (“FAA”) preempts state law judicial interpretations that do not place arbitration contracts “on an equal footing with all other contracts.” Imburgia is the Supreme Court’s latest rebuke of state courts that are hostile to arbitration clauses and class-arbitration waivers, and signals to lower courts that they may not utilize state contract law principles to interpret arbitration provisions so as to end-run the mandates of the FAA.

In 2005, the California Court of Appeal held in Discover Bank v. Superior Court that class-arbitration waivers were unenforceable in “consumer contract[s] of adhesion” that “predictably involve[d] small amount of damages” and met certain other criteria (known as the Discover Bank rule). In 2011, the Supreme Court decided AT&T Mobility LLC v. Concepcion, which held that the FAA preempts state law that bars enforcement of arbitration agreements if such agreements do not permit parties to utilize class-action procedures in arbitration or in court, thus invalidating the Discover Bank rule. The Supreme Court found that the Discover Bank rule stood as an “obstacle to the accomplishment and execution of the full purposes and objectives” of the FAA.

Compounding on its holding in Concepcion, the Supreme Court in Imburgia declared that Section 2 of the FAA preempts state law interpretation of a contract’s arbitration provision based on a rule that the state’s courts had applied only in the arbitration context, concluding that such a ruling “does not rest ‘upon such grounds as exist . . . for the revocation of any contract.’”

In Imburgia, Petitioner DIRECTV, Inc. entered into a service agreement with customers containing an arbitration provision governed by the FAA that provided for a class-arbitration waiver reading: “if the ‘law of your state’ makes the waiver of class arbitration unenforceable, then the entire arbitration provision ‘is unenforceable.’” Following a class action brought by Respondents in California state court, DIRECTV moved to compel arbitration, which was denied by the trial court. The California Court of Appeal affirmed, holding that the “law of your state” language in the arbitration provision meant that that the parties had agreed that California’s Discover Bank rule would govern, notwithstanding the holding of Concepcion.

The Supreme Court, by a 6-3 vote, reversed and remanded, finding that because such an interpretation of the arbitration clause was “unique, restricted to that field,” and because “California courts would not interpret contracts other than arbitration contracts the same way,” the interpretation was impermissible as preempted by the FAA. Going forward, the Supreme Court has made explicit that arbitration agreements, and specifically class-arbitration waivers, should be enforced by state courts—even in the face of a state’s former invalidation of such waivers. Imburgia stands as the latest in a series of pro-arbitration rulings under Chief Justice Roberts, and instructs states that its courts may not use novel interpretations of state contract law to intrude on otherwise valid arbitration agreements.

For more information on the FAA or implications of DIRECTV, Inc. v. Imburgia, please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group, at keinhorn@genovaburns.com.

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Mandatory Arbitration Undercutting Consumer Rights?

New Jersey businesses may face increased litigation if proposed legislation to bar mandatory arbitration clauses in consumer contracts is made law. The proposed bill – recommended for passage by the Assembly Consumer Affairs Committee on February 5 – stems from the increasing frequency with which contracts contain provisions that make it difficult or impossible for consumers to pursue remedies for various claims such as misrepresentations, deception, fraud, negligence or breach of contract. This legislation would change the current law in New Jersey – the Truth in Consumer Contract, Warranty and Notice Act – to prohibit companies and businesses from requiring consumers to sign these “take it or leave it contracts” which waive or limit their rights to seek assistance of the courts, and instead require claims arising from these contracts to be resolved through arbitration.

If passed, consumers would be entitled to pursue their claims under the Consumer Fraud Act, the Lemon Law or any other federal or state consumer protection law in court, as well as have the right to bring a complaint within the six-year statute of limitations. In a further effort to protect consumers’ rights, an individual agreeing to waive of any of these rights would only be permitted to do so upon the advice of counsel. In addition, any contract containing a provision requiring a consumer to waive any legal rights – in violation of the new law – could be declared null and void, and entitle consumers to a $100 fee, plus damages and counsel fees.

A number of business groups, including the New Jersey Chamber of Commerce and the New Jersey Business and Industry Association, are opposing the bill, claiming that it runs afoul of the Federal Arbitration Act which encourages arbitration as a valuable litigation tool. However, supporters of the proposed legislation believe the “troubling trend” of companies’ required arbitration clauses in their standard contracts only serves to support companies at the cost of consumers. The proposed bill will make its way to the New Jersey Assembly next for approval and if received, will go before the Senate. Until then, businesses dealing with the public can rest assured that the preferred method of arbitration remains king. However, if the bill becomes law, companies will have to analyze any arbitration language in their consumer contracts.

For more information, please contact Kathleen Barnett Einhorn, Director of the Complex Commercial Litigation Practice Group of Genova Burns, at KEinhorn@genovaburns.com.

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Public’s Interest in Records of Police Shooting Trumps OPRA’s Ongoing Investigation Exception

The public’s right to access government documents garnered additional support in New Jersey last week when a state trial court ruled that law enforcement records related to the police shooting of a black man who allegedly rammed officers with his vehicle must be immediately released in unredacted form to the public.

The Open Public Records Act, N.J.S.A. 47:1A-1 et seq. (“OPRA”), generally allows members of the public to inspect government records upon request. However, there are many specific categories of documents to which the government does not have to grant public access. These categories fall outside of OPRA’s definition of the term “government records,” and include records pertaining to an ongoing investigation by a public agency if disclosure of the records is “detrimental to the public interest.”

The records at issue here concern the fatal shooting of a black, 23-year-old Newark resident, who was shot by police when he allegedly struck a police car with his SUV after police had surrounded his vehicle to conclude a four-minute police pursuit. The Attorney General’s Office initiated an investigation into the shooting that day, and issued a press release. Within days of the shooting, North Jersey Media Group (“NJMG”) filed OPRA requests with the New Jersey State Police, the Bergen County Police, and the local police departments of Lyndhurst, North Arlington, and Rutherford, seeking records such as use-of-force reports, arrest reports, and various audio and video recordings. The police departments, citing the Attorney General’s investigation among other reasons, either refused to produce the records or produced redacted records after a delay.

Ruling on a complaint filed by NJMG seeking release of the records under OPRA and the common law, the court held, among other things, that the police departments’ refusal to produce the records at issue disregarded the statutorily-defined duties and public policy of OPRA.

Notably, the court made clear that the ongoing-investigation exemption under OPRA, which requires that disclosure be detrimental to the public interest, did not apply in light of the heightened need for public access to information related to police interaction with the public after highly publicized incidents in Ferguson (MO), Staten Island, and Brooklyn. Additionally the court ruled that the police departments had a common law obligation to disclose the records, and that the departments had waived the right to produce redacted records by failing to seek judicial review to determine whether they could withhold or redact the records in the first instance.

For more information on OPRA, please contact Kathleen Barnett Einhorn, Director of the Complex Commercial Litigation Practice Group, at KEinhorn@genovaburns.com.

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