Recent Texas Cases of Interest to Cities

Note: Included cases are from March 11 through April 10, 2019.

Employment Contracts: City of Denton v. Rushing, No. 17-0336, 2019 WL 1212188 (Tex. Mar. 15, 2019). This is an interlocutory appeal from an order denying a plea to the jurisdiction in a breach of contract case. The Texas Supreme Court reversed the denial and dismissed the case.

Rushing, Patterson, and Marshall were employees of the City of Denton Utilities Department. All three employees worked uncompensated, on-call shifts between 2011 and 2015. Policy 106.06 of the City of Denton’s Policies and Procedures Manual defines the rights and responsibilities of an on-call employee. On-call time was listed as uncompensated. In 2013, the city manager modified Policy 106.06 and defined an explicit pay schedule for on-call time. These amendments were not approved by the city council. The employees sued the city asserting Policy 106.06 was a unilateral contract and they were entitled to payment of on-call time dating back to 2011. The court of appeals held the city manager’s policy adjustments equated to a unilateral contract and immunity is waived under Texas Local Government Code Section 271.152. The Texas Supreme Court granted review.

The Texas Supreme Court first held interpreting Policy 106.06 to be a unilateral contract conflicts with the disclaimer in the manual that nothing in the manual “in any way” constitutes terms of a contract of employment. Further, Policy 106.06 is a provision of a policies and procedures manual, not the adoption of a contract by ordinance. Although city ordinances may create enforceable contracts, the court held it has not previously determined a city’s policies and procedures manual can create an enforceable contract. The court reversed and rendered a decision for the city.*

Contracts: Hays St. Bridge Restoration Grp. v. City of San Antonio, No. 17-0423, 2019 WL 1212578 (Tex. Mar. 15, 2019).This is a breach of contract case where the Texas Supreme Court held the waiver of immunity found in Texas Local Government Code Section 271.151–.160 (as it existed at the time the contract was executed) also applied to specific performance.

The Hays Street Bridge is a historic cultural landmark in San Antonio. In the 1980s, when the city closed the bridge and Union Pacific Railroad sought to demolish it, a group of citizens formed the restoration group to save the bridge. The city obtained a $2.89 million federal grant administered by the Texas Department of Transportation to fund restoration and the restoration group promised, through a memorandum of understanding (MOU), to match any funds for restoration. Over the next decade, the group raised and transferred to the city more than $189,000 in cash and arranged for significant in-kind donations. In 2012, the city adopted an ordinance authorizing the sale of the property to Alamo Beer Company as part of an economic-incentive package. The restoration group sued, alleging the transfer would breach the city’s promise in the MOU to use the funds for repair of the bridge. For its breach of contract claim, the restoration group sought only specific performance. The trial court ordered specific performance, but the court of appeals reversed holding the city was immune. The Texas Supreme Court granted review.

Citing its recent holding in Wasson Interests v. City of Jacksonville (Wasson II), the court held the MOU was of a governmental nature and not proprietary. The MOU was made to support the city-state funding agreement for restoration of the bridge and revitalization of the surrounding area. Under the Wasson II four-part test, only the first factor (mandatory vs. discretionary) leans towards proprietary. As a result, the city maintains immunity unless waived. Section 271.152 of the Local Government Code “waives” the city’s immunity, but that waiver is limited by the provisions found in other portions of the law. Local Government Code Section 271.153 limits damages, not remedies. Damages equate to money and specific performance equates to equitable remedies. Since the waiver is not limited by Section 271.153 on the subject of specific performance, such relief is a remedy encompassed within the waiver.*

Employment: Hillman v. Nueces Cty., No. 17-0588, 2019 WL 1231341 (Tex. Mar. 15, 2019). This is an employment related suit where the Texas Supreme Court held the county was immune from a suit brought by a former assistant district attorney.

Hillman, a former assistant district attorney, filed suit alleging that the county wrongfully terminated his employment because he allegedly refused his supervisor’s order to withhold exculpatory evidence from a criminal defendant charged with intoxicated assault. Specifically, a witness statement noting the defendant was not intoxicated at the time of the assault. Hillman was terminated for failing to follow instructions, presumably related to the disclosure. Hillman sued. The trial court dismissed the case and the court of appeals affirmed. Hillman filed the petition for review.

Hillman essentially brings a Sabine Pilot cause of action, which allows suit against an employer for terminating an employee who refused to perform an illegal act. However, historically, sovereign/governmental immunity is not waived for a Sabine Pilot cause of action. The court declined to abrogate or clarify the lack of waiver. Alternatively, Hillman asserted immunity was waived under the Michael Morton Act (2017 legislative changes to Texas Code of Criminal Procedure § 39.14(h) on criminal discovery and disclosure). However, the Act does not address governmental immunity. It serves obvious purposes separate and apart from any wrongful-termination issues. Finally, Hillman requested the court abrogate the immunity doctrine. The court held that having existed for more than 600 years, the governmental-immunity doctrine is “an established principle of jurisprudence in all civilized nations.” Although courts defer to the legislature to waive immunity, the judicial branch retains the authority and responsibility to determine whether immunity exists in the first place, and to define its scope. To hold that governmental immunity does not apply to Sabine Pilot claims, the court would have to trespass across the boundary between defining immunity’s scope (a judicial task) and waiving it (a legislative task). It declined to do so.

The concurring opinion agreed with the majority opinion, but Justice Guzman wrote separately to emphasize, to the legislature, more is required if the purposes behind the Michael Morton Act are to have a full impact. But she agreed such additional actions must come from the legislature.*

Contracts: Rosenberg Dev. Corp. v. Imperial Performing Arts, Inc., No. 17-0660, 2018 WL 7572497  (Tex. March 8, 2019). The Texas Supreme Court holds type B economic development corporations are not entitled to governmental immunity in breach of contract cases.

Rosenberg Development Corporation (RDC) is a type B economic development corporation created by the City of Rosenberg. RDC executed a contract with Imperial Performing Arts, Inc. (Imperial), a nonprofit organization for performance and visual art activities, including reopening a local arts center and theater. However, the reopening and renovations exceeded the agreed amounts more than ten fold. RDC and Imperial filed suit and counterclaims. The immunity issue addressed the breach of contract claims. RDC filed a plea to the jurisdiction, which was denied as to Imperial’s contract claim, and was affirmed by the court of appeals. RDC filed for discretionary review.

The threshold issue for the court was whether RDC—a city’s statutorily authorized corporate creation—is immune from suit under the common law even though RDC is neither a sovereign entity nor a political subdivision of the state. The Development Corporation Act (Title 12, Subtitle C1, Texas Local Government Code) authorizes cities to create EDC corporations. The court analyzed the Act, its purpose, and its language. The court noted that for the purpose of interlocutory appeals, the RDC qualifies given the specific definition in the Texas Tort Claims Act. The court then noted the Development Corporation Act does not speak to governmental immunity directly, but in Section 505.106, the legislature declared that: (1) a Type B corporation is “not liable for damages arising from the performance of a governmental function of a Type B corporation or the authorizing municipality”; and (2) “[f]or purposes of Chapter 101, Civil Practice and Remedies Code, a Type B corporation is a governmental unit and the corporation’s actions are governmental functions.” Notably, however, an economic development corporation “is not a political subdivision or a political corporation for purposes of the laws of this state . . .” and the legislature has forbidden cities from bestowing on the corporation any “attributes of sovereignty.” As to the RDC’s argument, it obtains statutory immunity from suit and liability, the court held “[b]ecause section 505.106 merely purports to limit the remedies available when economic development corporations perform governmental functions, we need not consider whether the Legislature can confer immunity by statute or only waive it.”  Where the governing statutory authority demonstrates legislative intent to grant an entity the “nature, purposes, and powers” of an “arm of the State government,” that entity is a government unit unto itself and is entitled to assert immunity in its own right. The court analyzed cases where governmental self-insurance risk pools have been determined to be governmental entities and determined what is required to qualify as a governmental unit unto itself. While promoting and developing business enterprises and job training is a public purpose merely engaging in such an act does not, ipso facto, make the actor a governmental unit. The common-law rule of immunity is exclusively for the judiciary to define, and in doing so, the court does not just consider whether the entity performs governmental functions, but also the “nature and purposes of immunity.” Granting immunity to an EDC is not necessary to satisfy the political, pecuniary, and pragmatic policies underlying the immunity doctrines. Further, the legislature simply did not grant these entities “powers of government” to perform essential governmental functions or activities. Also, since the Act already limits liability and damages exposure, the fiscal analysis used to determine if an entity is governmental is not applicable. Ultimately, the court held “that the Legislature did not authorize municipalities to create economic development corporations as distinct governmental entities entitled to assert immunity in their own right.”

Chief Justice Hecht wrote separately only to point out the highly unusual features of a Type B economic development corporation. While he agreed an EDC is not a governmental unit by itself, an EDC is not liable for damages arising from the performance of its governmental functions for purposes of the Texas Tort Claims Act (TTCA). Since the TTCA only waives immunity, he opines an EDC has immunity from suit and liability for tort claims. In dicta, the Chief Justice noted that since an EDC’s expenditures must be approved by its city, a judgment against an EDC in any circumstance may not be enforceable.*

Employment Discrimination: DeFrancesco v. Memorial Vills. Police Dep’t, No. 01-17-00660-CV, 2019 WL 1388006 (Tex. App.—Houston [1st Dist.] Mar. 28, 2019) (mem. op.). This is a race and age discrimination case.  Memorial Villages Police Department (MVPD) terminated DeFrancesco, an officer. After MVPD terminated him, he brought a lawsuit alleging race and age discrimination. MVPD filed a plea to the jurisdiction and a motion for summary judgment, arguing that the trial court lacked subject-matter jurisdiction because he failed to state a viable retaliation claim. 

DeFrancesco claimed MVPD officers harassed him because of his Hispanic heritage, but whether he has Hispanic heritage was in dispute. He identified as “white” while employed at the Houston Police Department (HPD) until HPD settled a lawsuit brought by and on behalf of African-American and Hispanic officers. After that lawsuit, he identified himself as “Hispanic” on an application for promotion to sergeant.  Additionally, he has a history of voicing racially derogatory criticisms of Hispanic people on social media. 

The record also showed that DeFrancesco had complained about his female supervisor, Rebecca Sosa, and another supervisor which resulted in complaints about DeFrancesco to MVPD. DeFrancesco received a written reprimand for those issues.  DeFrancesco hired an attorney who notified MVPD of his complaints of age and race discrimination, but provided no facts. After that letter, DeFrancesco had additional disciplinary issues and was put on administrative leave. Another of DeFrancesco’s attorneys provided a second letter with no details after he was put on administrative leave. Eventually, the police chief met with DeFrancesco, counseled him on the issues that had come up with his performance, and took him off administrative leave.  DeFrancesco continued to have performance issues, which ultimately resulted in his termination. 

The First Court of Appeals only reached the first issue, which was DeFrancesco’s claim that the trial court improperly granted the plea to the jurisdiction on the grounds that DeFrancesco failed to allege a TCHRA violation. The court first found that the vague letters from DeFrancesco’s attorneys, which did not provide details of the alleged discrimination, did not give rise to a protected activity. Further, the court did not find any protected activity when DeFrancesco complained to two supervisors about the behavior of others because he did not base the others’ actions on his race or age, but instead on DeFrancesco’s perception that others were jealous or intimidated by him because he had better credentials, experience, and education. His conversations did not indicate he believed he was being mistreated because of his race or age. 

Because the evidence conclusively demonstrated that DeFrancesco did not engage in a protected activity, the appellate court found that DeFrancesco did not state a claim for discrimination and that the trial court properly granted MVPD’s plea to the jurisdiction and motion for summary judgment. 

Texas Tort Claims Act: City of Houston v. Hussein, No. 01-18-00683-CV, 2019 WL 1246417 (Tex. App.—Houston [1st Dist.] Mar. 19, 2019) (mem. op.).  This is a Texas Tort Claims Act (TTCA) case where the City of Houston claimed it was entitled to immunity for rendering emergency services. The First Court of Appeals determined that the emergency response exception to the TTCA did not apply. Therefore, the city did not retain sovereign immunity. 

Obeid’s daughter called 911 after Obeid complained of chest pains and thought she was having a heart attack. EMS responded and transported Obeid and her daughter to the hospital. While en route, Obeid requested to go to a different hospital to which she had previously been. When the ambulance driver exited the tollway to take Obeid to her requested hospital, he exited through a “cars only” lane. The bottom of the ambulance struck the tollbooth lane, causing injuries to Obeid and her daughter. Obeid and her daughter brought suit against the city alleging negligence and respondeat superior.  The city filed a summary judgment motion based on the emergency response exception. 

The First Court of Appeals determined that the driver was responding to an emergency situation because Obeid was experiencing a life-threatening situation, required transportation to a hospital as quickly as possible, and believed she needed urgent medical assistance. However, the court determined there was a fact issue because the ambulance did not use lights and sirens for the transport to the hospital and the ambulance driver changed routes to go to a different hospital. Further, the police report did not check the box in the crash report indicating the ambulance was “on emergency.”  Therefore, the evidence presented a fact issue as to whether the ambulance was still responding to an emergency while transporting Obeid to the hospital.

The court also determined that the facts alleged did not present a health care liability claim requiring an expert report. The appellate court affirmed the trial court’s denial of summary judgment.

Texas Citizens Participation Act: Weber v. Fernandez, No. 02-18-00275-CV, 2019 WL 1395796 (Tex. App.—Fort Worth Mar. 28, 2019) (mem. op.).  The Second Court of Appeals determined that the trial court should have granted the appellants’ Texas Citizens Participation Act motion to dismiss in part. 

The case involves a former city councilmember, Fernandez, and a current city councilmember. Fernandez was a former city councilmember who pleaded guilty to theft and resigned from city council. Fernandez then petitioned to recall a current councilmember, Janie Joplin. In the ensuing political issues for the recall, Weber, Elam, and Palmer (the defendants) all made comments about Fernandez, including saying he was a “convicted criminal,” “convicted robber,” and “known thief,” among others.

The Second Court of Appeals initially determined the statements were made in connection with a matter of public concern because they were made during a political contest (the recall). The court also determined that Fernandez was still a public figure because he was a former councilmember, had only resigned less than one year before at the time the allegedly defamatory statements were made, and was involved in the political campaign to recall Joplin.  Because of his status as a public figure, he had to show that the defamatory statements were made with actual malice.  

The court found some of the statements to be false (like the statements about robbery), but found that Fernandez had failed to establish that the defendants made the statements with knowledge that the statements were false or with reckless disregard of whether they were true or not. The only evidence Fernandez put forward to show actual malice was that the defendants did not take the statements down for at least one month after they had been served with a cease-and-desist letter. The court determined that evidence was insufficient to establish malice. The court also reasoned although the statements regarding robbery were not substantially true, the legal distinctions between robbery and theft are likely too technical to be known by reasonable people of ordinary intelligence.  Because of this, Fernandez needed, and failed, to show that the defendants actually knew the difference between the two offenses and still alleged he had committed robbery. The court also noted that failure to investigate fully, without more, is not evidence of actual malice. The court reversed the trial court’s denial of the defendants’ motion to dismiss.

The Second Court of Appeals also analyzed Fernandez’s conspiracy claims although it was not addressed in the defendants’ motion or brief and determined that it required dismissal because it alleged that the defendants engaged in a conspiracy to defame him.

Finally, the court noted that the defendants did not address Fernandez’s claims for intentional infliction of emotional distress. Although Fernandez’s allegations were not particularly detailed, the court affirmed the trial court’s denial of the motion to dismiss because the allegations involved actions independent of the defamatory conduct. 

Contracts: Haltom City Econ. Dev. Corp. v. Flynn, No. 02-18-00145-CV, 2019 WL 1284906 (Tex. App.—Fort Worth Mar. 21, 2019) (mem. op.). This is a breach of contract case where the Fort Worth Court of appeals upheld the denial of an economic development corporation’s plea to the jurisdiction.

Haltom City Economic Development Corporation (HCEDC) and Flynn entered into a contract for services. When Flynn believed the HCEDC did not properly pay the amounts owed under the contract, he sued. The HCEDC filed a plea to the jurisdiction, which was denied. The HCEDC appealed.

The HCEDC is a Type B economic development corporation (EDC). Section 505.106(b) of the Texas Local Government Code provides that for purposes of the Texas Tort Claims Act, a Type B EDC “is a governmental unit and the corporation’s actions are governmental functions.” Section 505.106(a) provides that EDCs “are not liable for damages arising from the performance of a governmental function of a Type B [EDC] or the authorizing municipality.” The Local Government Code specifically prohibits a city from “delegate[ing] to [an EDC] any of the [city’s] attributes of sovereignty, including the power to tax, the power of eminent domain, and the police power.” Tex. Loc. Gov’t Code § 501.010. The statute specifies that an EDC “is not a political subdivision . . . for purposes of the laws of this state.” Id. § 501.055(b). Citing to Rosenberg Dev. Corp. v. Imperial Performing Arts, Inc. (summary found above), the court held that EDCs “are not governmental entities in their own right and therefore are not entitled to governmental immunity.”  Essentially, they may only get liability protection in relation to tort claims, not contract claims. As a result, the plea was properly denied.*

Governmental Immunity: Holms v. West Travis Cty. Pub. Util. Agency, No. 03-17-00584-CV, 2019 WL 1141870 (Tex. App.—Austin Mar. 13, 2019) (mem. op.).  This case involves a claim of waiver of governmental immunity against West Travis County Public Utility Agency (“WTCPUA”), a public utility agency that provides retail water service.

After receiving normal water bills for over a year, Holms’ water bill increased to $401.63 and remained higher than normal for several months. He contacted WTCPUA to inquire about those bills but nevertheless paid them. After making several billing inquiries, WTCPUA’s general manager visited Holms’ residence, examined the water meter, and replaced it with a new one. Holms asserted that thereafter the bills returned to normal, but WTCPUA refused to issue him a credit for the alleged over-billing. Holmes initially complained to the Public Utility Commission (PUC), but the PUC determined that it lacked jurisdiction over WTCPUA. Thereafter, Holmes sued WTCPUA and the general manager for breach of contract, tort, and deceptive trade practices, seeking monetary damages, including a refund for over-payments made due to excessive water bills. 

WTCPUA filed a plea to the jurisdiction asserting governmental immunity. The court granted the plea and dismissed Holmes’ claims with prejudice. Subsequently, Holms filed a motion for reconsideration and for a new trial, and amended his pleadings, without leave of the court, adding additional claims. He also filed an interlocutory appeal arguing that the county court at law erred in granting the plea to the jurisdiction and dismissing his claims because: (1) WTCPUA is not a governmental entity entitled to immunity; (2) WTCPUA’s enabling statute is silent as to immunity and thus immunity is waived; (3) various statutory waivers of immunity apply to WTCPUA; (4) WTCPUA is being sued for “proprietary” functions to which immunity does not apply; (5) WTCPUA is permitted to sue its customers, and therefore, customers should be permitted to sue WTCPUA; and (6) dismissing his claims violates his due-process and equal protection rights. Holms also asserted that trial court erred in dismissing his claims with prejudice without allowing him an opportunity to amend to cure any jurisdictional defect in his pleadings.

The court first addressed whether governmental immunity was waived.  The court found that, as a public utility agency, WTCPUA is a political subdivision, and, therefore, is immune from suit absent a clear and unambiguous legislative waiver of immunity. The court also rejected Holms’ argument that governmental immunity does not apply because WTCPUA’s enabling legislation is silent as to immunity. The court also found that the Texas Tort Claims Act, the Local Government Contract Claims Act, and the Uniform Declaratory Judgment Act were inapplicable to Holms’ claims. Additionally, the court determined that the provision of water services is expressly classified as a governmental function, and not a proprietary one. Further, the court found that WTCPUA had not waived its immunity from suit because it had not joined into the litigation process by asserting its own affirmative claims for monetary relief. Finally, the court found that Texas and federal courts have held that governmental immunity violates neither due process nor equal protection. 

The court then addressed whether the trial court erred in dismissing Holms’ claims with prejudice without allowing him to amend his pleadings to cure any jurisdictional defect. Generally, a plaintiff is entitled to amend his pleadings before his claims are dismissed with prejudice, except where the pleadings are incurably defective with respect to jurisdiction. The court concluded that none of the bases Holms had offered to support a waiver of immunity conferred jurisdiction on the facts alleged. Accordingly, the court affirmed the trial court’s order.

Workers’ Compensation Retaliation: Ellis v. Dallas Area Rapid Transit, No. 05-18-00521-CV, 2019 WL 1146711 (Tex. App.—Dallas March 13, 2019) (mem. op.). This is a case involving the interpretation of legislative enactments regarding the governmental immunity doctrine and the anti-retaliation provision of the Texas Workers’ Compensation Act (Act).

Ellis, a former bus driver, filed suit against his former employer, the Dallas Area Rapid Transit (DART), alleging workers’ compensation retaliation.  He asserted that after he sustained an on-the-job injury, DART harassed, discriminated against, and fired him because he filed, in good faith, a worker’s compensation claim, hired a lawyer to represent him in his claim, and instituted or cause to be instituted an employment retaliation proceeding under Chapter 451 of the Labor Code. DART filed a plea to the jurisdiction against Ellis’ Chapter 451 retaliation claim, asserting governmental immunity. Following a hearing, the trial court granted the plea and dismissed the retaliation claim. Ellis appealed.

The court first looked at the legislative history of the interplay between governmental immunity and workers’ compensation retaliation. In 1995, the Texas Supreme Court concluded that a political subdivision’s immunity from workers’ compensation retaliation claims had been clearly and unambiguously waived by Chapter 504 of the Labor Code, which made Chapter 451 applicable to political subdivisions. Critical to the court’s determination was a provision in the 1989 and 1993 versions of the Public Subdivisions Law that required an employee to elect between an action for workers’ compensation retaliation and a claim under the Whistleblower Act. The court concluded that if the legislature had not intended a waiver of immunity, it would not have required an employee to elect between an action barred by immunity and one not barred. A decade later, the legislature amended Chapter 504 providing that nothing in the chapter waives sovereign immunity or creates a new cause of action. As a result, the Texas Supreme Court concluded that there was no longer a clear and unambiguous waiver of immunity to effectuate a waiver. Effective September 1, 2017, after Ellis filed his lawsuit, Chapter 504 was again amended to provide damage limitations on the liability of political subdivisions for workers’ compensation retaliation claims brought by their employees.  At the same time, Chapter 451 was amended to expressly allow first responders to seek relief under the chapter and in such instances sovereign and governmental immunity was waived and abolished to the extent of liability created by the chapter.

Applying the legislative enactments to Ellis’s workers’ compensation retaliation claim, the court concluded that the 2017 legislative amendments to Chapters 504 and 451 did not clearly and unambiguously waive governmental immunity for Ellis’ claim. Accordingly, the district court’s order granting the plea and dismissing the case was affirmed.

Substandard Building: Harker Heights Condos., LLC v. City of Harker Heights, No. 13-17-00234-CV, 2019 WL 1388739 (Tex. App.—Corpus Christi Mar. 28, 2019) (mem. op.). In this case the Thirteenth Court of Appeals affirmed the granting of the City of Harker Heights’ plea to the jurisdiction dismissing a claim for injunctive relief to prevent the demolition of a building.

Harker Heights Condominiums, LLC (HHC) owns property on which thirty-three condominium units sit and that are leased to low income residents in need of housing. The city inspected the property, found defects, and ordered repair. The inspector found substandard conditions rising to such a level as to pose substantial danger to life, health and property. The city’s building and standards commission ordered certain properties be repaired within ninety days or be demolished. HHC was able to bring one unit up to code, but was not able to timely repair the remaining units. After the city awarded a demolition contract, HHC sued to prevent destruction of the units. An initial temporary injunction was granted. After HHC added a claim for violating the Texas Open Meetings Act (TOMA) the city filed a plea to the jurisdiction which was granted. HHC appealed.

Texas law permits cities to establish commissions to consider violations of ordinances related to public safety. The Local Government Code provides for judicial review of any decision of a building and standards commission panel, but the “district court’s review shall be limited to a hearing under the substantial evidence rule.” To appeal an order of a building and standards commission, an aggrieved party must file a verified petition in district court within thirty days of the commission’s order. HHC waited eighty days. HHC asserted the “decision” was actually the city council decision to award the demolition contract, not the commission’s decision. However, the city’s award was merely the granting of a contract, not an order outlined in Chapter 214 of the Local Government Code. The court noted that even if the HHC injunctive relief were interpreted to be a proper petition for review under Chapter 214, it was nonetheless untimely. This untimely filing also means HHC’s TOMA suit is untimely as holding otherwise would subject the commission order to impermissible collateral attack. The plea was properly granted.

*Indicates case summaries taken largely from the work of the Law Offices of Ryan Henry, PLLC, and reprinted with permission from Ryan Henry.  To sign up for the firm’s blog, go to www.rshlawfirm.com.

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