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Royal Indemnity Co. v. Apex Oil Co.: CIVIL PROCEEDURE - no error abstaining from declaratory judgment suit; but stay, not dismiss; remand

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 06-3454
___________
Royal Indemnity Company, *
individually and as successor by *
merger with Royal Insurance *
Company of America, *
formerly known as Royal Globe *
Insurance Company, *
*
Appellant, **
v. * Appeals from the United States
* District Court for the
Apex Oil Company, Inc. * Eastern District of Missouri.
individually and as successor in *
interest to Clark Oil and Refining *
Corporation; Ace Insurance *
Company, of Illinois, as *
successor in interest to INA *
Insurance Company of Illinois; *
Central National Insurance *
Company of Omaha; Maryland *
Casualty Company, as successor *
in interest to American General *
Insurance Company; National Union *
Fire Insurance Company of Pittsburgh; *
TIG Insurance Company, successor in *
interest to International Insurance *
Company, successor in interest to *
International Insurance Company, *
*
Appellees. *
-2-
___________
No. 06-3461
___________
Royal Indemnity Company, *
individually and as successor by *
merger with Royal Insurance *
Company of America, *
formerly known as Royal Globe *
Insurance Company, *
*
Plaintiff, *
*
v. **
Apex Oil Company, Inc. *
individually and as successor in *
interest to Clark Oil and Refining *
Corporation; Ace Insurance *
Company, of Illinois, as *
successor in interest to INA *
Insurance Company of Illinois; *
Central National Insurance *
Company of Omaha; Maryland *
Casualty Company, as successor *
in interest to American General *
Insurance Company; National Union *
Fire Insurance Company of Pittsburgh; *
TIG Insurance Company, successor in *
interest to International Insurance *
Company, *
*
Defendants, *
*
v. *
*
-3-
National Union Fire Insurance Company *
of Pittsburgh, *
*
Third Party Plaintiff - *
Appellant, **
Corroon & Black of Missouri, Inc.; *
Frank B. Hall & Co. of Missouri, Inc., *
*
Third Party Defendants - *
Appellees. **
___________
No. 06-3469
___________
Royal Indemnity Company, *
individually and as successor by *
merger with Royal Insurance *
Company of America, *
formerly known as Royal Globe *
Insurance Company, *
*
Plaintiff, *
*
v. **
Apex Oil Company, Inc. *
individually and as successor in *
interest to Clark Oil and Refining *
Corporation; Ace Insurance *
Company, of Illinois, as *
successor in interest to INA *
Insurance Company of Illinois; *
Central National Insurance *
Company of Omaha; Maryland *
-4-
Casualty Company, as successor *
in interest to American General *
Insurance Company; National Union *
Fire Insurance Company of Pittsburgh; *
TIG Insurance Company, successor in *
interest to International Insurance *
Company, *
*
Defendants, *
*
------------------------------ *
*
TIG Insurance Company, successor *
in interest to, *
*
Cross-Claimant - Appellant, *
*
v. **
Apex Oil Company, Inc., *
*
Cross-Defendant - Appellee. *
________________
Submitted: October 19, 2007
Filed: January 2, 2008
________________
Before LOKEN, Chief Judge, GRUENDER and BENTON, Circuit Judges.
________________
GRUENDER, Circuit Judge.
Royal Indemnity Company brought this action pursuant to 28 U.S.C. §§ 2201
and 2202, to seek a declaration of the rights and obligations of Royal Indemnity
Company, various other insurance companies and Apex Oil Company, Inc. (“Apex”),
1The Honorable Carol E. Jackson, Chief Judge, United States District Court for
the Eastern District of Missouri.
-5-
under certain insurance policies Royal Indemnity Company and the other insurance
companies issued to Apex. For the reasons discussed below, we affirm the district
court’s1 decision to abstain, but we vacate the dismissal order and remand so that the
court can instead enter an order staying the proceedings.
I. BACKGROUND
Between May 2003 and April 2005, the State of Illinois, the United States, and
a group of individuals filed five separate lawsuits (“the underlying suits”) against
Apex in state and federal courts in Illinois based on the actions of Apex and its
predecessor companies in releasing contaminants into the soil surrounding its oil
refinery in Hartford, Illinois. Royal Indemnity Company defended Apex on the
majority of the underlying suits. On August 5, 2005, Apex brought suit against
multiple insurers in the Circuit Court of Madison County, Illinois (“the Illinois
lawsuit”), seeking a declaration of the parties’ rights and responsibilities with respect
to the Hartford soil contamination under policies the insurance companies had issued
to Apex.
On March 22, 2006, Royal Indemnity Company initiated this lawsuit by filing
a complaint in federal court pursuant to the Declaratory Judgment Act, 28 U.S.C. §§
2201 and 2202, “seeking adjudication of the parties’ rights and obligations under
certain insurance policies.” In its complaint, Royal Indemnity Company also sought
a declaration of the rights and responsibilities of the parties based on claims of
equitable contribution, subrogation, unjust enrichment and/or equitable estoppel for
the costs Royal Indemnity Company incurred in defending Apex as well as attorneys’
fees, costs and interest. In this lawsuit, Royal Indemnity Company named Ace
Insurance Company of Illinois; Central National Insurance Company of Omaha;
2For the sake of simplicity, we refer to all three appellants as Royal throughout
this opinion. Although the three appellants entered the lawsuit at different times, the
district court used the same rationale in dismissing the appellants’ claims and crossclaims
against Apex, and the three use the same arguments in their efforts to prove
that abstention is inappropriate in this lawsuit.
-6-
Maryland Casualty Company, as successor in interest to American General Insurance
Company; National Union Fire Insurance Company of Pittsburgh, PA; and TIG
Insurance Company as defendants. In the course of this lawsuit, National Union and
TIG Insurance Company filed separate cross-complaints against Apex, and National
Union interpleaded Corroon & Black of Missouri, Inc., and Frank B. Hall & Co. of
Missouri, Inc., as third-party defendants.
On May 19, 2006, Apex amended its complaint in the Illinois lawsuit to name
as defendants the same entities who are parties to this lawsuit. Apex then filed a
motion to dismiss this lawsuit as duplicative of the Illinois lawsuit. The Illinois
lawsuit remains active, although two of the defendants, National Union and Corroon
& Black, have filed motions to dismiss, which were still pending before the Illinois
state court at the time this appeal was submitted. The district court granted Apex’s
motions to dismiss Royal Indemnity Company’s initial complaint and National
Union’s and TIG’s cross-claims, dismissing all claims without prejudice under the
abstention doctrine of Wilton v. Seven Falls Co., 515 U.S. 277 (1995). The district
court found that the Illinois lawsuit and this lawsuit were parallel, that the claim was
essentially one for declaratory judgment, and that it had the discretion to abstain from
this lawsuit under Wilton and Brillhart v. Excess Insurance Co. of America, 316 U.S.
491 (1942).
Royal Indemnity Company, National Union and TIG (collectively “Royal”)2
appeal the dismissal, claiming the district court erred in finding that it could abstain
under Wilton and Brillhart. Royal requests that we either find that the abstention test
articulated in Wilton and Brillhart does not apply or, in the alternative, that we remand
-7-
so the district court can enter an order staying these proceedings instead of dismissing
this lawsuit. We affirm the district court’s decision to abstain, but we vacate the
dismissal and remand for the district court to enter an order staying the proceedings
in this lawsuit.
II. DISCUSSION
Although rare, federal courts may sometimes refrain from exercising
jurisdiction over a case properly filed in federal court. “The doctrine of abstention,
under which a District Court may decline to exercise or postpone the exercise of its
jurisdiction, is an extraordinary and narrow exception to the duty of a District Court
to adjudicate a controversy properly before it.” County of Allegheny v. Frank
Mashuda Co., 360 U.S. 185, 188 (1959). In Colorado River Water Conservation
District v. United States, 424 U.S. 800, 817 (1976), the Supreme Court noted that
federal courts have a “virtually unflagging obligation . . . to exercise the jurisdiction
given them.” Under the standard articulated in Colorado River, a federal court should
only abstain from a case in which there are parallel state proceedings for “exceptional
circumstances.” Id. at 813 (quoting County of Allegheny, 360 U.S. at 188-89).
However, the test articulated in Colorado River for a federal court to abstain
when there are parallel state proceedings does not apply to actions under the
Declaratory Judgment Act. See Wilton, 515 U.S. at 286. Federal courts have more
discretion to abstain in an action when a party seeks relief under the Declaratory
Judgment Act. See Wilton, 515 U.S. at 286-87; Brillhart, 316 U.S. at 494-95. This
broader discretion arises out of the Declaratory Judgment Act’s language that a court
“may declare the rights and other legal relations of any interested party seeking such
declaration.” 28 U.S.C. § 2201(a) (emphasis added). The Supreme Court has noted
that it has “repeatedly characterized the Declaratory Judgment Act as ‘an enabling
Act, which confers a discretion on the courts rather than an absolute right upon the
litigant.’” Wilton, 515 U.S. at 287 (quoting Public Serv. Comm’n of Utah v. Wycoff
-8-
Co., 344 U.S. 237, 241 (1952)). In emphasizing the uniqueness of the Declaratory
Judgment Act, the Court commented that its “textual commitment to discretion, and
the breadth of leeway we have always understood it to suggest, distinguish the
declaratory judgment context from other areas of the law in which concepts of
discretion surface.” Id. at 286-87. Therefore, in a declaratory judgment action, a
federal court has broad discretion to abstain from exercising jurisdiction even if there
are no exceptional circumstances as articulated in Colorado River. See Scottsdale Ins.
Co. v. Detco Indus., Inc., 426 F.3d 994, 997 (8th Cir. 2005).
According to Brillhart, for a district court to have discretion to abstain in a
proceeding under the Declaratory Judgment Act, the parallel state court proceeding
must present “the same issues, not governed by federal law, between the same
parties,” and the court must evaluate “whether the claims of all parties in interest can
satisfactorily be adjudicated in that proceeding, whether necessary parties have been
joined, whether such parties are amenable to process in that proceeding, etc.”
Brillhart, 316 U.S. at 495. After considering these factors, a federal court may abstain
from the proceeding because “[o]rdinarily it would be uneconomical as well as
vexatious for a federal court to proceed in a declaratory judgment suit where” a
parallel state court proceeding is pending. Id.
We review a district court’s decision to abstain for abuse of discretion, giving
underlying legal decisions plenary review. Cedar Rapids Cellular Tel., L.P. v. Miller,
280 F.3d 874, 878 (8th Cir. 2002).
Royal argues that the district court erred in applying the Wilton and Brillhart
abstention doctrine and instead should have applied the “exceptional circumstances”
test articulated in Colorado River. However, unlike Colorado River, this lawsuit
involves a declaratory judgment action. Apex, therefore, claims that the district court
correctly relied upon Wilton and Brillhart to govern its abstention analysis. Royal
responds by arguing that Royal Indemnity Company’s claims for contribution,
-9-
subrogation, unjust enrichment and equitable estoppel are independent from its claims
for declaratory judgment, and the existence of these claims causes Wilton and
Brillhart to be inapplicable and requires instead that we analyze the decision to abstain
under the test articulated in Colorado River. Royal thus concludes that the
circumstances here are not so exceptional as to allow a federal court to abstain and
that we should therefore reverse the district court and remand for this lawsuit to
proceed on the merits.
However, the fact that Royal Indemnity Company seeks monetary damages in
addition to declaratory relief does not require a federal court automatically to apply
the exceptional circumstances test articulated in Colorado River. The Declaratory
Judgment Act allows a court to grant any “further necessary or proper relief based on”
its declaratory judgment decree. 28 U.S.C. § 2202. A court has discretion to grant
further necessary or proper relief in declaratory judgment actions; consequently, a
court may still abstain in a case in which a party seeks damages as well as a
declaratory judgment so long as the further necessary or proper relief would be based
on the court’s decree so that the essence of the suit remains a declaratory judgment
action. See, e.g., Horne v. Firemen’s Ret. Sys. of St. Louis, 69 F.3d 233, 236 (8th Cir.
1995) (finding that “the essence of [Horne’s] suit [was] one for declaratory judgment”
when he sought a declaratory judgment, an injunction to prevent his employers from
removing him from his job, emotional distress damages and attorneys’ fees). While
Royal Indemnity Company seeks monetary damages in addition to a declaratory
judgment, those damages can all be characterized as “further necessary or proper
relief” that Royal Indemnity Company seeks based on the requested declaratory
judgment. The damages Royal Indemnity Company seeks are not independent of the
requested declaratory judgment, but are closely linked with it. The prayer for relief
in Royal Indemnity Company’s complaint seeks:
A. Under Count I [a claim for declaratory relief regarding Apex],
declaring that Royal [Indemnity Company] is not required to defend
and/or indemnify Apex Oil in the Illinois Action;
-10-
B. Under Count II [the claim for equitable contribution, subrogation,
and/or unjust enrichment], declaring that Royal [Indemnity Company]
is entitled to contribution from the Defendant Insurers for their portion
of Apex Oil’s defense costs in the [underlying suits] to be determined by
the Court;
C. Under Count III [the claim for equitable estoppel], declaring that
ACE, Central National and National Union are equitably estopped from
denying Apex Oil a defense and/or indemnity in the [underlying suits];
D. Under Count IV [a claim for declaratory relief regarding the other
insurers], declaring the rights and responsibilities of the Parties in
connection with the [underlying suits], including a declaration that Royal
[Indemnity Company] has no obligation to continually defend and/or
indemnify Apex Oil in the [underlying suits], or in the alternative,
declaring that any defense and/or indemnity obligations owed to Apex
Oil in connection with the [underlying suits] must be apportioned
between and among the insurance policies issued by Royal [Indemnity
Company] and all Defendant Insurers and/or Apex Oil itself;
E. Awarding attorneys’ fees, costs and interest and such other and
further relief as this Court may be [sic] necessary and proper.
If the district court were to reject Royal Indemnity Company’s claims under the
Declaratory Judgment Act, it could not recover on the claims for contribution,
subrogation, unjust enrichment and equitable estoppel. According to the prayer for
relief in its complaint, Royal Indemnity Company generally seeks declarations of the
rights and responsibilities of the various parties involved in the lawsuit. However, it
also seeks contribution from the other insurance companies for the portion of Apex’s
defense costs “to be determined by the Court.” Such contribution, however, would
clearly arise out of the district court’s determination of the rights and responsibilities
of the various insurers and, therefore, would clearly constitute “further necessary or
proper relief” based on the declaratory judgment. The only other monetary damages
Royal Indemnity Company explicitly requests in the complaint are attorneys’ fees,
costs and interest, all of which are also “further necessary or proper relief” based on
the requested declaratory judgment. Therefore, as in Horne, we believe the essence
of this lawsuit is one for declaratory judgment.
3In explicitly requiring that an injunction be in good faith for Brillhart not to
apply, Cedar Rapids was clearly referring to an exception noted in Black Sea
Investment, Ltd. v. United Heritage Corp., 204 F.3d 647, 652 (5th Cir. 2000). In
Black Sea, the Fifth Circuit explained that generally when a party seeks both
declaratory and injunctive relief, the test articulated in Colorado River controls and
“the only potential exception to this general rule applies when a party’s request for
injunctive relief is either frivolous or is made solely to avoid application of the
Brillhart standard.” Id. Based on Cedar Rapids’s reliance on Black Sea, we conclude
that a “good faith” injunction is one that is not frivolous or made solely to avoid
application of Wilton and Brillhart. Therefore, Wilton and Brillhart may not apply
when a party seeks a good faith injunction as well as declaratory relief, but a party
cannot avoid application of the Wilton and Brillhart abstention standard merely by
artfully pleading manufactured claims for injunctive relief.
-11-
In Horne, this court concluded that Horne’s “suit [was] most aptly characterized
as one for declaratory judgment; that is, for a declaration of his rights with respect to
his continued employment with any additional relief based on the court’s decree”
when he sought a declaratory judgment, an injunction to prevent his employers from
removing him from his job, unspecified emotional distress damages and attorneys’
fees in a duplicative federal action. 69 F.3d at 236. Because “the essence of his suit
[was] one for declaratory judgment,” and Brillhart governs a district court’s decision
to abstain from a declaratory judgment action, we affirmed the district court’s decision
to abstain. Id. In Cedar Rapids, conversely, we reversed the district court’s decision
to abstain because, in addition to a declaratory judgment, the appellants sought
injunctive relief to prevent the Iowa Attorney General from enforcing an Iowa law
against them which they claimed was preempted by the Federal Communications Act.
280 F.3d at 877-79. We noted that “Brillhart applies to declaratory judgment actions
generally, but not to actions that, like this one, involve good faith claims for injunctive
relief.”3 Id. at 879. Royal argues that Cedar Rapids limits Horne and that Cedar
Rapids applies here because Royal Indemnity Company seeks not only declaratory
relief but also claims for contribution, subrogation, unjust enrichment and equitable
estoppel. However, we do not agree that Cedar Rapids controls in this lawsuit.
Because Royal Indemnity Company does not seek an injunction, Cedar Rapids does
not prevent a federal court from abstaining from this lawsuit.
-12-
Royal also argues that the Ninth Circuit’s decisions in Government Employees
Insurance Co. v. Dizol, 133 F.3d 1220 (9th Cir. 1998) (en banc), and United National
Insurance Co. v. R & D Latex Corp., 242 F.3d 1102 (9th Cir. 2001), support its claims
that Wilton and Brillhart do not apply here. However, not only are these cases not
binding precedent for us, they are easily distinguishable. In Dizol, the Ninth Circuit
stated that abstention was inappropriate when a complaint included other claims such
as bad faith, breach of contract, breach of fiduciary duty and recission. 133 F.3d at
1225. Those claims were entirely separate and distinct from the claim for declaratory
judgment and thus could not be deemed “further necessary or proper relief” based on
the sought-after declaratory judgment claim. Thus, Wilton and Brillhart would clearly
be an inappropriate basis for abstention in those circumstances. In R & D Latex, the
Ninth Circuit noted that one of the claims, a request for monetary relief, was
essentially a claim for breach of contract. 242 F.3d at 1112. The Ninth Circuit found
that the claim for monetary relief was “independent of the request for declaratory
relief.” Id. at 1114. Here, Royal Indemnity Company’s claims for monetary relief are
not independent of the request for declaratory judgment, but qualify as further
necessary or proper relief under the Declaratory Judgment Act. Thus, Dizol and R &
D Latex simply do not apply to our analysis.
Therefore, because the essence of this lawsuit is one for declaratory judgment
and because the Wilton and Brillhart abstention analysis applies to claims for
declaratory judgment, we hold that the district court correctly determined that the
Wilton and Brillhart abstention standard applied. We now must address whether the
district court abused its discretion in applying the factors presented in Wilton and
Brillhart when it reached its conclusion that it could abstain. As discussed above, for
a district court to have discretion to abstain in a proceeding under the Declaratory
Judgment Act, the state court proceeding must present “the same issues, not governed
by federal law, between the same parties,” and the federal court must evaluate
“whether the claims of all parties in interest can satisfactorily be adjudicated in that
proceeding, whether necessary parties have been joined, whether such parties are
amenable to process in that proceeding, etc.” Brillhart, 316 U.S. at 495.
-13-
Here, analyzing the factors presented in Brillhart and Wilton, we conclude that
the district court did not abuse its discretion in finding that it had discretion to abstain
from hearing this lawsuit. The Illinois lawsuit and this lawsuit both seek a declaration
of the rights and responsibilities of the parties under the insurance policies regarding
the underlying lawsuits against Apex. Royal argues that this lawsuit presents a
separate issue because it seeks monetary damages as well as relief under the
Declaratory Judgment Act. As discussed above, however, that is incorrect because we
find this lawsuit to be, in essence, an action for a declaratory judgment. Therefore,
the issues in both proceedings are the same.
The issues to be resolved in both the Illinois lawsuit and this lawsuit involve the
application of state insurance law. Federal law does not govern the underlying issues
of the Illinois lawsuit or this lawsuit. Therefore, this factor does not disqualify the
federal court from abstaining under Wilton and Brillhart. See Brillhart, 316 U.S. at
495. See also Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26
(1983) (finding that if federal law governs the federal action, that “must always be a
major consideration weighing against surrender”).
The parties to both the Illinois lawsuit and this lawsuit were the same at the time
this appeal was submitted. All the necessary parties have been joined in the Illinois
lawsuit, and their claims can be adjudicated in the Illinois state court. Royal notes that
National Union and Corroon & Black have filed motions to dismiss in the Illinois
lawsuit and argues that if those motions are granted, the parties to the two lawsuits
will not be identical and the court should not be able to invoke the Wilton and
Brillhart abstention doctrine. However, at the time this appeal was submitted, the
Illinois state court had not granted those motions. Thus, for the purposes of this
lawsuit and the abstention analysis, the parties are the same. If the Illinois state court
eventually grants those motions to dismiss, the parties to the lawsuits will not be
identical and the abstention analysis may be different. However, we decline to
speculate on how the Illinois state court might rule with respect to the motions to
dismiss. Therefore, on the record as presented to us, the parties to the two lawsuits
are identical.
-14-
Finally, Royal argues that the district court erred in failing to analyze the choice
of law and forum non conveniens considerations in deciding to abstain. However, the
Supreme Court has never used choice of state law or forum non conveniens as factors
in analyzing an abstention under Wilton and Brillhart, and Royal cites only one
unpublished decision from the Southern District of New York in which those factors
have been considered. See Reliance Ins. Co. of Illinois v. Multi-Fin. Secs. Corp., 1996
WL 61763, at *4-5 (S.D.N.Y. 1996) (unpublished) (finding, among other factors, that
choice of law and forum non conveniens supported the court’s decision to abstain).
This unpublished, nonbinding case does not persuade us that we are required to
consider choice of law and forum non conveniens, particularly because Reliance
merely stated that “choice of law and forum non conveniens factors also support
abstention” and did not hold that a court must consider those factors in determining
whether abstention was appropriate. Id.
Were we to consider choice of law and forum non conveniens in determining
whether to abstain under Wilton and Brillhart, these considerations would not compel
us to refrain from abstaining in this lawsuit. Even if the choice of law analysis led to
choosing Missouri law, the Illinois state court is perfectly capable of applying
Missouri state law in its case. See Morris B. Chapman & Assocs. v. Kitzman, 739
N.E.2d 1263, 1268 (Ill. 2000) (upholding the application of Missouri law in an action
for attorneys’ fees filed in Madison County). Even if we were to consider the issue
of forun non conveniens, we would not find the Illinois state court inconvenient
because Madison County is located very close to the district court for the Eastern
District of Missouri, because the underlying lawsuits were filed in Illinois and because
the insured property is located in Illinois. Thus, we reject Royal’s argument that
choice of law and forum non conveniens compel us to refrain from abstaining in this
lawsuit.
Thus, we affirm the district court’s decision to apply the Wilton and Brillhart
abstention standard, and after considering the appropriate Wilton and Brillhart factors,
we hold that the district court did not abuse its discretion in abstaining from this
lawsuit to allow the parallel state court action to proceed.
4Because we remand so that the district court can enter a stay in this lawsuit, we
need not address Royal’s argument that in dismissing this lawsuit the district court
abused its discretion under Quackenbush v. Allstate Insurance Co., 517 U.S. 706
(1996).
-15-
However, we vacate the dismissal order and remand so that the district court
can enter instead a stay of proceedings. As courts have noted, “where the basis for
declining to proceed is the pendency of a state proceeding, a stay will often be the
preferable course, because it assures that the federal action can proceed without risk
of a time bar if the state case . . . fails to resolve the matter in controversy.” Wilton,
515 U.S. at 288 n.2. See also Int’l Ass’n of Entrepreneurs of Am. v. Angoff, 58 F.3d
1266, 1271 (8th Cir. 1995); Hart and Wechsler’s The Federal Courts and the Federal
System 1193 (5th ed. 2003) (discussing the distinction between a stay and a
dismissal). As the Supreme Court has concluded, an order staying an action “does not
constitute abnegation of judicial duty. On the contrary, it is a wise and productive
discharge of it. There is only postponement of decision for its best fruition.”
Louisiana Power & Light Co. v. City of Thibodaux, 360 U.S. 25, 29 (1959). Here, the
Illinois state court could potentially grant the motions to dismiss of Corroon & Black
and National Union, leading to different parties in each lawsuit and perhaps creating
non-parallel proceedings. Therefore, because of the potential for non-parallel
proceedings, because of potential statutes of limitations issues and because of the
preference for stays, we remand so that the district court can enter a stay rather than
a dismissal in this lawsuit.4
III. CONCLUSION
Accordingly, we affirm the district court’s decision to abstain, but we vacate its
dismissal order and remand for entry of a stay.
______________________________
 

 
 
 

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