Zaber vs. City of Dubuque_Franchise Fee Litigation Settlement AgreementTHE CITY OF
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Masterpiece on the Mississippi
Dubuque
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2007 • 2012 • 2013
TO: The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: J. Thomas Zaber vs. City of Dubuque (Franchise Fee Litigation) Judgment
Bond
DATE: May 2, 2014
City Attorney Barry Lindahl is recommending settlement of the Franchise Fee Litigation
J. Thomas Zaber vs. City of Dubuque. I support Barry's recommendation. I also want
to thank Barry, outside counsel Ivan Webber, and City staff for all of their great work on
this lawsuit. Should the City Council approve the settlement, and subsequently the
court approve the settlement, the City would need to provide the funds by January 2,
2015, or six months after court approval, whichever is later. For the purpose of these
discussions, I am estimating that cost at $2.7 million.
A state law change in 2013 allows a city to hold a citizen referendum to exceed the 5%
legislative cap on the Utility Franchise Fee by as much as 2.5%, which would put the
fee at 7.5% on a temporary basis while the damages are paid/financed. Des Moines
had a 5% fee and had an adverse judgment, so in March 2014, Des Moines voters
passed a referendum to go to 7.5%. The referendum passed with 85.3% of the vote. I
believe Des Moines is going to issue a Judgment Bond and use this revenue source as
repayment. The City of Dubuque is in a different position because the Utility Franchise
Fee is currently at 3%.
The City of Dubuque has some options:
1. Pay for the $2.7 million out of reserves and/or canceling of Capital Improvement
projects. I do not believe this is a viable option because it would unreasonably
deplete reserves, exposing the City to a lower bond rating and much higher risk if
anything unexpected happened and the City reserves were needed. Generally,
the City maintains a reserve of 10% of the general fund operating budget, with a
policy to increase that to 20% over time.
2. The City could issue a Judgment Bond to pay the $2.7 million. To borrow $2.7
million for 10 years is estimated at $375,000 per year. (The City could issue the
debt for a longer term than 10 years.) To pay the Judgment Bond the City has
several choices:
• Since this is a continuing annual expense, depending on one-time
sources of revenue, like canceling CIP projects, does not help. The
City could make general fund operating budget cuts that are recurring,
like eliminating positions.
• The City could raise property taxes through the Fiscal Year 2016
budget process. The Fiscal Year 2015 budget process projected for
Fiscal Year 2016 a 3.68% ($70.56) property tax increase impact on the
average homeowner. This included a projection of $145,000 to begin
debt payments on a Judgment Bond. As mentioned, the payments are
projected at $375,000 per year. The additional $230,000 would be an
increase of 0.78% ($5.72) property tax impact on the average
homeowner (a property tax rate increase of 1.41 % ($0.16618), for a
total impact on the average homeowner of an increase of 4.46%
($76.28).
• The City currently has a 3% Utility Franchise Fee on electricity and
natural gas. The state statutory limit is 5%. The limit stated in the City
of Dubuque Gas and Electric Franchise Agreements is 3%. The City
could ask Alliant Energy, Maquoketa Valley Electric and Black Hills
Energy to agree to amend the Franchise Agreements to allow for a 5%
fee, the statutory limit. To pay the debt, the City would need to
increase the Franchise Fee about .5% to 3.5%. Should the City
choose this option, it would take a public hearing, but no referendum.
Citizens could submit a petition through the reverse referendum
process and force a referendum.
I agree with Barry's opinion that the City should settle this lawsuit. I believe the City
should pay for the costs by issuing a Judgment Bond and that the City should pay the
10 years of debt service by increasing the 3% Utility Franchise Fee.
I respectfully recommend Mayor and City Council approval to request Alliant Energy,
Maquoketa Valley Electric and Black Hills Energy to agree to amend the Franchise
Agreements to allow for a 5% Utility Franchise Fee.
MCVM:jh
cc: Barry Lindahl, City Attorney
Mic ael C. Van Milligen
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THE CITY OF
DUB E MEMORANDUM
Masterpiece on the Mississippi
BARRY LINDAHL
CITY ATTORNEY
To: Mayor Roy D. Buol and
Members of the City Council
DATE: May 2, 2014
RE: J. Thomas Zaber vs. City of Dubuque (Franchise Fees Litigation)
The purpose of this memorandum is to recommend approval of the attached Settlement
Agreement.
Franchise Fee Background
Since at least 1873, the Iowa Code has given Iowa cities the authority to grant
franchises to utilities to use the public rights-of-way. Cities also have the authority to
impose franchise fees for such use. Until 2010, the Iowa Code did not limit the amount
or basis of franchise fees. However, earlier Iowa supreme court cases indicated that a
city's authority to impose a franchise fee was limited to the reasonable costs of
regulating, supervising, or enforcing the franchise.
The Iowa General Assembly adopted the Home Rule amendment in 1968. The
amendment provided:
Municipal corporations are granted home rule power and authority,
not inconsistent with the laws of the general assembly, to determine their
local affairs and government, except that they shall not have power to levy
any tax unless expressly authorized by the general assembly.
The rule or proposition of law that a municipal corporation
possesses and can exercise only those powers granted in express words
is not a part of the law of this state.
Since there is no law of the general assembly that limits franchise fees, a municipal
ordinance providing for franchise fees based on a percentage of gross revenues would
not be "inconsistent with the laws of the general assembly", and therefore earlier Iowa
court opinions limiting franchise fees to the costs of regulating, supervising, or enforcing
the franchise would not be "a part of the law" of Iowa.
OFFICE OF THE CITY ATTORNEY DUBUQUE, IOWA
SUITE 330, HARBOR VIEW PLACE, 300 MAIN STREET DUBUQUE, IA 52001-6944
TELEPHONE (563) 583-4113 / FAX (563) 583-1040 / EMAIL balesq@cityofdubuque.org
Franchise fees are typically based on a percentage of gross revenue of the franchisee.
For example, the federal Cable Act of 1984 authorized cable franchise fees not to
exceed 5% of gross revenue. The City of Dubuque has been collecting 5% fees on
cable services based on gross revenue since at least 1984.
In 1994, the City of Dubuque renewed its gas and electric franchises. Both agreements
authorized the City Council to impose franchise fees not to exceed 3% of gross
revenues of the sales of gas and electricity. The franchise agreements, including and
the right to impose franchise fees, were approved by the citizens at an election.
However, the city council did not impose any franchise fees on gas and electricity sales
until 2003 when it imposed a 2% fee.
Franchise Fee Litigation: Kragnes 1
The City of Des Moines has had franchise fees based on gross revenue since 1960. In
2005 Linda Kragnes filed a class action lawsuit against the City of Des Moines claiming
that Des Moines' franchise fees were illegal taxes. The Polk County District Court
agreed with Kragnes. On appeal, the Iowa supreme court in a 2006 opinion, agreed with
the District Court and rejected Des Moines' home rule argument, holding that "any
franchise fee charged by a city must be reasonably related to the city's administrative
expenses in the exercise of its police power. These expenses include the reasonable
costs of inspecting, licensing, supervising, or otherwise regulating the activity the city is
franchising." Thus, under the Kragnes rule, "a city has the authority to assess a
franchise fee expressed as a percentage of the gross receipts derived from the utility's
sale of its services to the public, so long as the charge is reasonably related to the cost
of activity that is being franchised."
The supreme court did not elaborate on what "costs" a city is entitled to recover. The
supreme court sent the case back to the district court to determine whether Des Moines'
fees exceeded its costs.
Zaber v. City of Dubuque
J. Thomas Zaber filed his class action lawsuit against the City of Dubuque in 2006
alleging, like Kragnes, that the city's gas, electric and cable franchise fees were illegal
taxes. Very shortly after the Polk County ruling in Kragnes, the City of Dubuque retained
Springsted International, a consulting firm specializing in infrastructure costs, to conduct
a study to determine the city's "costs of inspecting, licensing, supervising, or otherwise
regulating" the gas and electric utilities. Because the supreme court had not provided
specific guidance in Kragnes as to what those costs were, we were left to speculate as
to what costs to include in the study. Springsted's preliminary report in 2006 indicated
that the city's franchise fees were roughly equivalent to the costs of regulating the
utilities, based again on what we believed those "costs" might include.
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The Zaber case was essentially on hold while the Kragnes case was being litigated in
the courts.
Franchise Fee Litigation: Kragnes II
In a subsequent hearing following the Kragnes I appeal, the Polk County district court
disallowed a number of Des Moines' costs, which included many of the costs which
were part of the Springsted analysis. On appeal from the decision, the Iowa supreme
court elaborated on the costs that could be recovered by a city as a franchise fee,
allowing some of the costs that the Polk County District Court disallowed but still
rejecting many of the costs that had originally been relied upon by Springsted. Following
that 2012 opinion, Springsted updated its report and concluded that the City of Dubuque
had collected franchise fees in excess of costs by around $2M.
Action in the General Assembly
While the franchise fees cases were pending, in 2010 the Iowa general assembly
authorized cities to collect cable franchise fees of 5% without regard to the cost of
regulating the utilities, thus abrogating the Kragnes rule. The cable legislation also was
made retroactive. Zaber challenged the constitutionality of the retroactivity provision of
the law, but the District Court for Dubuque County agreed with Dubuque that the statute
was constitutional. On appeal, the Iowa supreme court upheld that decision.
As a result of that change in the law, Zaber's cable fee challenge was dismissed from
the case, removing some $3M in cable fees from the lawsuit.
In 2010 the Iowa general assembly also authorized gas and electric franchise fees not
to exceed 5% without regard to the cost of regulating the utilities. However, the
legislature did not make that legislation retroactive, a matter which did not go unnoticed
by the Iowa supreme court in Kragnes II. The court said that the legislature "declined to
shield the City from the financial impact" of claims like Zaber's. Had the legislature
made the gas and electric legislation retroactive, we would not be here today.
Back to Zaber
After the Iowa supreme court's ruling clarifying what costs are recoverable by a city as
franchise fees, the Zaber case has proceeded toward a June 2, 2014 trial date.
An interim ruling by the Dubuque County District Court sided with the City's argument
that Zaber was not entitled to prejudgment interest on his claims, effectively eliminating
a $700,000 claim from the lawsuit.
The parties anticipate a two-week jury trial. The costs of the trial alone would be
significant. Although the city's evidence will show franchise fees in excess of costs of
around $2M, we anticipate Zaber's evidence will show a $6M excess of fees.
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Regardless of the result of the trial, it is anticipated one or both of the parties would
appeal to the appellate courts.
Although we continue to respectfully disagree with the Kragnes decision as it applies to
this case, it is the law of Iowa. For the past eight years, the City Attorney's Office and
our retained counsel from the Ahlers Law Firm have attempted within the limits of the
law to eliminate or at least minimize the potential adverse result of this case.
Based on the risks and costs of a trial, the costs and further delay of likely appeals, the
City Attorney's Office and our retained counsel have concluded that it is in the best
interest of the City to settle the case.
The Proposed Settlement
The relief requested by Zaber in the lawsuit is essentially a refund to the class of gas
and electric customers of the franchise fees that exceed the costs the city was
authorized to collect between 2005 and 2009 when the law was changed.
The parties have reached a tentative settlement which includes the following terms:
• $2.6M will be put into an escrow account by the City of Dubuque to fund the
franchise fee refund process;
• The very significant issues of what the claims process will be and what
happens to unclaimed funds after the claims period is closed are preserved
for determination by the court; the parties reserve the right to appeal the
court's rulings on those issues;
• Attorney's fees will be paid out of the $2.6M fund.
• A claims administrator will be hired to administer the notice and disbursement
of payments (claims process). The costs associated with settlement
administration are estimated to be approximately $100,000. These costs will
be paid by the City in addition to the settlement fund.
The City has until January 2, 2015, or six (6) months after Court approval of the
Settlement Agreement, whichever is later, to deposit the money into an escrow account.
The Claims Process
If the City Council approves the proposed Settlement Agreement, it will be presented to
the District Court for Dubuque County for approval. The court will give the required
notices and hold appropriate hearings to allow interested persons to object to the
settlement. If the Settlement Agreement is approved, the parties will appoint a
Settlement Administrator to determine eligibility of customers for refund payments and
make payments to class members.
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I recommend that the City Council approve the attached Settlement Agreement.
BAL:tls
Attachment
cc: Michael C. Van Milligen, City Manager
Ivan Webber, Esq.
Jim Wainwright, Esq.
F:\USERS\isteckle\Lindahl\Zaber, J. Thomas vs. City\MayorCouncil_RecommendApprovalOfSettlement_050214.doc
01017014-1\10422-073
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RESOLUTION NO 145-14
APPROVING A SETTLEMENT AGREEMENT IN J. THOMAS ZABER, ET. AL V. CITY
OF DUBUQUE, IOWA, IOWA DISTRICT COURT FOR DUBUQUE COUNTY, CASE
NO. CVCV054663
WHEREAS, J. Thomas Zaber, on behalf of himself and all others similarly
situated filed an action in the Iowa District Court for Dubuque County against the City of
Dubuque seeking the refund of certain franchise fees collected by the City of Dubuque;
and
WHEREAS, the parties have engaged in settlement discussions which have
resulted in a proposed Settlement Agreement, a copy of which is attached hereto; and
WHEREAS, the City Council has determined that the approval of the Settlement
Agreement is in the best interest of the City of Dubuque.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF DUBUQUE, IOWA:
Section 1. The Settlement Agreement is approved on behalf of the City of
Dubuque. The Mayor, City Clerk and the City's legal counsel are authorized to execute
the Settlement Agreement.
Section 2. The City Manager, City Attorney, and the City's legal counsel are
hereby authorized to take all necessary actions to execute the Settlement Agreement
Passed, approved and adopted this 5th' day of May, 014
Roy D. B;, ol, Mayor
Attest:
Kevin(S. Firnstahl, City Clerk
F:\USERS\tsteckle\Lindahl\Zaber, J. Thomas vs. City\Resolution ApprovingSettlementAgreement_050514.doc
IN THE IOWA DISTRICT COURT FOR DUBUQUE COUNTY
J. THOMAS ZABER, on behalf of himself
and all others similarly situated,
Plaintiff,
v.
CITY OF DUBUQUE, IOWA,
Defendant.
Case No. CVCV054663
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT is entered into as of May , 2014, by and
between Plaintiff, J. Thomas Zaber ("Zaber") (individually and on behalf of the Class (as
defined below)) and Defendant, City of Dubuque ("City"). (The Plaintiff, the Class and the City
are collectively referred to as the "Parties").
I. THE LITIGATION
On September 5, 2006, Zaber, a utility customer, commenced this lawsuit (the "Action")
in the Iowa District Court for Dubuque County (the "Court") seeking to recover City franchise
fees that he was charged on his utility bill. On August 24, 2007, the Court certified the Class
and appointed Lane & Waterman LLP as Class Counsel. The parties have engaged in settlement
discussions that have resulted in the terms and conditions of this Settlement.
II. DEFENDANT'S DENIAL OF WRONGDOING
Defendant has denied, and continues to deny, all of the claims alleged by Plaintiff and
the Class in this Action. Nonetheless, Defendant has concluded that the further defense of this
Action will be protracted and expensive and it is desirable that the Action be fully and finally
settled in the manner and upon the terms and conditions set forth in this Settlement. Defendant
1
has taken into account the uncertainty and risks inherent in any litigation, especially in
complex cases, and has determined itis desirable and beneficial that this Action be settled upon
the terms and conditions set forth in this Settlement.
III. CLAIMS OF PLAINTIFF AND THE BENEFITS OF SETTLEMENT
Plaintiff believes that the claims asserted in this Action have merit. However, Class
Counsel recognizes and acknowledges the expense and length of continued proceedings to
prosecute this Action against the Defendant through trial and appeal. Class Counsel also has
taken into account the uncertain outcome and the risk of any litigation, especially in complex
cases such as this Action, and is mindful of the inherent problems of proof and possible
defenses. Class Counsel believes that the settlement set forth in this Settlement confers
considerable benefits upon the Class and eliminates the risk of no recovery or a much smaller
recovery. Based on its evaluation, Plaintiff, upon advice of Class Counsel, has determined that
the settlement set forth in the Settlement is in the best interest of the Class.
IV. TERMS OF SETTLEMENT
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among
Plaintiff, the Class and Defendant, by and through their respective counsel, that, subject to final
court approval, the Action and the Claims shall be finally and fully compromised, settled and
released, and that the Action be dismissed with prejudice, upon and subject to the terms and
conditions of the Settlement, as provided herein:
1. DEFINITIONS
Unless defined elsewhere in the Settlement, the capitalized terms in this Settlement shall
have the follo
ng definitions:
1.1. "Attorneys' Fees and Expenses" means the amounts set forth in Section
2
8.1, subject to final court approval.
1.2. "Court Ordered Process" - The parties are not in agreement as to the
process to be utilized to determine whether a class member will receive a refund, but agree to
submit the question to the Court and will request the Court to decide the process to be used prior
to holding a final fairness hearing as provided herein and the Rules of Civil Procedure. The
Court Ordered Process shall be utilized by the Settlement Administrator to administer and
distribute the Settlement Fund to the Class Members.
1.3. "Class" means all Persons, including without limitation, natural persons
and corporate or other entities, who were gas or electric utility customers who paid franchise fees
to Interstate Power Company (Alliant Energy Company), Peoples Natural Gas (Aquila, Black
Hills Corporation) and Maquoketa Valley Electric Cooperative for the period between
September 5, 2001 and May 25, 2009. For purposes of this definition, a Person includes the
heirs, successors and assigns to any Person who paid franchise fees during the period identified
above.
1.4. "Class Member" means a Person who falls within the definition of the
Class set forth in Section 1.3.
1.5. "City Counsel" means Ahlers & Cooney, P.C.
1.6. "Class Counsel" means Lane & Waterman LLP.
1.7. "Cy Pres Recipient" means such charitable institutions as hereafter may be
determined by the Court to be appropr
ate recipients.
1.8. "Effective Date" means two (2) business days after both of the following
have occurred: (i) The Court has entered the Final Order and Judgment; and (ii) the Judgment
has become Final.
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1.9. "Escrow Account" means an escrow account established by Plaintiff's
Class Counsel and City Counsel at Dubuque Bank & Trust.
1.10. "Escrow Agent" means the entity that shall perform the escrow duties as
set forth in this Settlement Agreement. The Escrow Agent shall be determined by the Parties.
The Escrow Agent is and shall be subject to the Court's oversight.
1.11. "Fairness Hearing" means the hearing set by the Court in the Preliminary
Approval Order to consider whether the settlement is fair, reasonable and adequate and to hear
any objections.
1.12. "Final" means (a) if no appeal from the Final Order and Judgment is filed,
the expiration of the time for the filing of any appeal; (b) if an appeal from the Final Order and
Judgment is filed, the date on which all appeals therefrom, including motions for rehearing and
petitions for writ of certiorari, or any other form of review, have been finally disposed of in a
manner that affirms the Final Order and Judgment, or the date of dismissal of any appeal the
expiration of the time for filing a petition for writ of certiorari or the denial of any such motion
or petition for writ.
1.13. "Final Order and Judgment" means the proposed Order and Judgment
substantially in the form of Exhibit "D" attached hereto, to be entered by the Court approving
and ordering the implementation of this Settlement and all of its terms and conditions in all
material respects in conformity herewith.
1.14. "Net Settlement Fund" means the Settlement Fund plus any interest or
investment income earned by the Settlement fund, less (i) the costs of Taxes; (ii) Tax Expenses;
(iii) Class Counsel's Attorneys' Fees and Expenses; and (iv) Plaintiffs Incentive Award.
1.15. "Notice to the Class" or "Notice" means both the notice to be mailed to
4
Class Members equivalent in all material respects to the form attached as Exhibit "B" and the
Publication Notice as defined in Section 1.20.
1.16. "Person" means an individual, corporation, limited liability corporation,
professional corporation, limited liability partnership, partnership, limited partnership,
association, joint stock company, estate, legal representative, trust, unincorporated association,
government or any political subdivision or agency thereof, and any business or legal entity and
their spouse, heirs, predecessors, successors, representatives, or assignees.
1.17. "Petition" means the Petition and all amendments thereto filed in the
Action.
1.18. "Plaintiff Incentive Award" means the amount set forth in Section 8.1,
subject to final Court approval.
1.19. "Preliminary Approval Date" means the date on which the Preliminary
Approval Order is entered by the Court.
1.20. "Preliminary Approval Order" means an Order equivalent in all material
respects to the form attached hereto as Exhibit "A."
1.21. "Publication Notice" means the form of notice equivalent in all material
respects to the form attached hereto as Exhibit "C" to be submitted for publication to newspaper
and on the Internet, as described in this Settlement.
1.22. "Released Claims" means any and all claims for relief for causes of action,
suits, petitions, or demands in law or equity, direct, derivative, representative, or otherwise, any
and all allegations of liability (including any allegations of debts, obligations, promises,
guarantees, damages, awards, or for any equitable, legal and administrative relief), and any and
all demands for damages or equitable relief (including any claims for rescission, reformation,
5
restitution or all damages of any kind, including those in excess of actual damages and claims for
mental anguish), that have been, could have been, may be or could be asserted in any court
action, whether federal, state or otherwise, or before any administrative body (including any
brought by or on behalf of any state or local insurance, prosecutorial or other organization),
tribunal, arbitrator or arbitration panel, or other adjudicatory body, regardless of whether based
on federal, state or local law, statute, ordinance, regulation, contract, common law, or any other
source, and regardless of whether foreseen or unforeseen, suspected or unsuspected, or fixed or
contingent at the time of this settlement, that are based upon, related to, or connected with,
directly or
statements
issue in th_
ndirectly, in whole o
n part, (a) the allegations in the Petition
n th
n any of the decisions or orders of the Court, or (b) any acts or om
s Action or with respect to th
SS
s Act
on or the
ons that were at
s Settlement. The released Claims do not
nclude claims
for the breach ofthis Settlement.
1.23. "Released Parties" means the City of Dubuque and all of its current or
former elected officials, employees, agents, attorneys, representatives, indemnitors, insurers and
reinsurers who have assumed or are liable for any obligations on its behalf.
1.24. "Releasors" means the Plaintiff and all Class Members, on behalf of
themselves and their respective heirs, executors, administrators, successors, assigns, guardians,
attorneys, agents, trustees, fiduciaries, and representatives, in any and all capacities whatsoever.
1.25. "Settlementmeans the terms and conditions of this Agreement, the
Exhibits to this Agreement, and the documents, instruments and orders implementing this
Agreement.
1.26. "Settlement Administrator," (who shall be determined by the parties) will
perform all the functions and have all the obligations set forth in this Settlement.
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1.27. "Settlement Fund" means the funds paid by the City in the amount of
$2,600,000 in cash together with additional cash payments in an amount equal to the costs
incurred by the Escrow Agent and the Settlement Administrator as provided in this Settlement,
and the costs of delivering Notice to the Class.
1.28. "Taxes" means all taxes (including any estimated taxes, interest or
penalties) arising with respect to income earned by the Settlement Fund.
1.29. "Tax Expenses" means the expenses and costs incurred in connection with
the calculation and payment of taxes, the preparation of tax returns and related documents
(including, without limitation, expenses of tax attorneys and/or accountants, including any costs
and expenses relating to the filing or failure to file tax returns).
2. SETTLEMENT TERMS
2.1 The Settlement Fund shall be used for the payment of Taxes, Tax Expenses,
Class Counsel Attorneys' Fees and Expenses, Plaintiff's Incentive Award, the costs incurred by
the Escrow Agent and the Settlement Administrator, the cost of delivering Notice to the Class,
the payment to Class Members and/or the payment to the Cy Pres Recipient, the City or State of
Iowa, as provided herein. If any interest or any other investment income is earned on the
Settlement Fund while in the control of the Escrow Agent, such interest and income shall be
included in the Net Settlement Fund and disbursed as part of the Settlement.
2.1.1 On or before January 2, 2015 or six months after approval of this
Settlement Agreement by the Court (irrespective of any subsequent appeal), whichever is
later, the City shall cause to be paid into the Escrow Account and controlled by the
Escrow Agent, the sum of $2,600,000. Thereafter, the City shall pay in cash such
additional payments projected by the Settlement Agent to be adequate to pay the costs of
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delivering Notice to the Class based upon reasonable estimates provided by the
Settlement Administrator and the projected costs to be incurred by the Escrow Agent and
the Settlement Administrator in administering the Settlement as provided herein, based
upon reasonable estimates provided by the Settlement Administrator.
2.1.2 All funds held by the Escrow Agent shall be deemed and considered to be
custodia legis of the Court and shall remain subject to the jurisdiction of the Court until
such time as such funds have been distributed pursuant to this Settlement and/or further
order(s) of the Court.
2.1.3 Upon ten (10) business days' notice to Class Counsel and City Counsel,
the Escrow Agent may pay itself and the Settlement Administrator their costs, reasonably
and actually incurred in their role as Settlement Administrator and Escrow Agent.
2.1.4 In the event that the amounts paid by the City to the Settlement Fund are
insufficient to pay the costs reasonably and actually incurred by the Escrow Agent and
Settlement Administrator in administering the Settlement, upon thirty (30) days' notice,
the City shall pay over to the Escrow Agent such additional sums as may be necessary to
pay such costs in full.
2.1.5 The Settlement Fund is comprised of the total amount that the City will
pay under this Settlement, including, without limitation, to satisfy the claims by the Class
Members, the costs of delivering Notice to the Class, and the costs incurred by the
Settlement Administrator and Escrow Agent. Class Members shall look solely to the
Settlement Fund for settlement and satisfaction of all Released Claims.
2.2 The Settlement shall be allocated among the Class Members as follows:
2.2.1 The settlement fund will be distributed 30% to Class Members for
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franchise fees paid for natural gas and 70% to Class Members for franchise fees paid for
electricity.
2.2.2 Each Class Member who paid a franchise fee included in their gas and
electric utility bills during the Relevant Period shall be entitled to a pro rata refund of the
franchise fee paid for gas and electric, respectively. The prorated amount payable to each
Class Member for their share of gas and electric franchise fees, respectively, shall be the
Distribution Amount multiplied by the Distribution Ratio multiplied by the amount of the
(gas or electric, as appropriate) franchise fee paid by each Class Member, net of any
franchise fees (gas or electric, as appropriate) refunded, rebated or to be refunded or
rebated by the City to any Class Member (the "Class Member Payment").
2.2.3 "Distribution Amount" shall be the Net Settlement Fund to be distributed
by the Settlement Administrator to the Class Members, separately calculated as to gas
and electric franchise fees.
2.2.4 "Distribution Ratio" shall be the Distribution Amount divided by the total
franchise fees collected by the City during the relevant period divided into two classes for
gas and electric (net of any franchise fees refunded or rebated or to be refunded or
rebated to any Class Members), in amounts to be calculated by the Settlement
Administrator and approved by the parties.
2.2.5 The franchise fees paid by each Class Member and any refund or rebate
paid or to be paid to each Class Member shall be conclusively determined by the
Settlement Administrator and shall be based on the records therefor from the respective
public utility companies supplying gas and electric utility services to the Class Members
during the Relevant Period and the records of the City concerning any refund or rebate
9
paid or to be paid by the City to any Class Member.
2.2.6 No distribution from the Escrow Account shall be made without prior
approval of the Court. In no event shall any funds be distributed to Class Members before
the Effective Date. No payment of any Attorneys' Fees and Expenses shall be paid from
the Escrow Account except as provided in Section 8 of this Settlement. In addition,
unless otherwise specifically authorized in this Settlement, no funds shall be distributed
or paid in any manner from the Escrow Account without the express written consent of
both Class Counsel and City Counsel or approval of the Court.
2.2.7 All funds held in the Escrow Account shall be deemed to be in the
custody of the Court and shall remain subject to the jurisdiction of the Court until such
time as the funds are either distributed to Class Members pursuant to the Final
Distribution Order, paid to Class Counsel as provided in Section 8 of this Settlement or,
if funds thereafter remain in the Escrow Account, as otherwise distributed in accordance
with an order of the Court.
2.2.8 Any Escrow Account fees (e.g. bank account fees) may be paid directly
out of the Escrow Account without prior approval by the Court. Any funds held in the
Escrow Account may be held in an interest bearing bank account or non-interest bearing
account as determined by the Escrow Agent. The Escrow Agent is authorized to execute
such transactions as are consistent with the terms of this Settlement.
2.2.9 The Parties agree that the Escrow Account is intended to be a Qualified
Settlement Fund ("QSF") within the meaning of Treasury Regulation § 1.468B-1. The
Escrow Agent, as administrator of the QSF within the meaning of Treasury Regulation §
1.468B -2(k)(3), shall be solely responsible for filing all informational and other tax
10
returns necessary for the Escrow Account and paying from the Escrow Account any
Taxes owed with respect to the Escrow Account. The Parties shall have no liability or
responsibility of any kind for filing tax returns or paying any taxes with respect to the
Escrow Account.
2.2.10 All (a) Taxes on the Escrow Account and (b) reasonable expenses and
costs incurred in connection with the taxation of the Escrow Account (including, without
limitation, expenses of tax attorneys and accountants) (collectively, "Tax Expenses")
shall be timely paid out of the Escrow Account by the Escrow Agent without need for
prior Court approval. Further, the Escrow Agent shall be obligated (notwithstanding
anything herein to the contrary) to withhold from distribution to Claimants any funds
necessary to pay such amounts including the establishment of adequate reserves for any
Taxes and Tax Expenses (as well as any amounts that may be required to be withheld
under Treas. Reg. §1.468B-2(1)(2)). The Parties agree to cooperate with the Escrow
Agent, each other, and their tax attorneys and accountants to the extent reasonably
necessary to carry out the provisions of this paragraph.
2.3 To the extent that the Settlement Administrator, after exercising reasonable
diligence to locate each Class Member, is unable to distribute payment to each Class Member for
any reason (including, without limitation, when a Class Member is deceased and no heirs can be
located; the Class Member has moved and no forwarding address can be located; or the Class
Member has gone out of business and no successor or owner can be located or, if the Class
Member has failed to comply with the Court Ordered Process; or if the Class Member has either
declined payment or failed to affirmatively request payment), then, in that event, after the
payment of all claims, any remaining funds in the Escrow Account shall be awarded, as cy pres
11
to the Cy Pres Recipients, to the City or to the State of Iowa, as determined by the Court
following application by one or both of the parties, notice of hearing, and hearing.
2.4 To the extent that any Class Member paid gas or electric franchise fees to the
City and is separately requesting a refund or rebate of all or a part of the amounts of the franchise
fees paid, pursuant to Dubuque ordinances 58-03, 59-03, 75-03, 76-03, 7-10, 8-10 and Dubuque
Municipal Code sections 11-4-23, 11-5A-23 or 11-5B-23 or otherwise (for example: Ainley
Kennels & Fabrication et al v. City of Dubuque now pending in the Iowa District Court for
Dubuque County — Case No. 01311 EQCV101386), the Class Member shall not receive any
refund in this case for that part of the franchise fees for which a refund is sought unless
specifically allowed by the Court.
3. SETTLEMENT ADMINISTRATOR
3.1. The Parties shall jointly appoint the Settlement Administrator to determine
eligibility for payments and to make payments to Class Members. The Settlement
Administrator will (a) determine whether the Class Member is eligible for payment via the
Court Ordered Process; (b) determine the amount that each Class Member is entitled to receive
by applying the allocation formula set forth in Section 2; and (c) make payments to those Class
Members who are eligible for payment under theCourt Ordered Process.
3.2. The Settlement Administrator will prepare a schedule listing each Class
Member who paid franchise fees and the amounts so paid. The City shall promptly obtain the
necessary records from each utility company at the City's cost and shall provide such records
to the Settlement Administrator to permit the Settlement Administrator to properly perform the
administration of the settlement as outlined herein.
3.3. The Settlement Administrator will owe Class Members and City a duty to
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perform the administration of this settlement fairly. The Parties and their counsel shall have the
right to review the administration of the settlement at any time, for the purpose of assuring that
the Settlement Administrator is performing its duties in accordance with the terms of this
Settlement. The Parties and their counsel shall have the right of access to the information
necessary for the Settlement Administrator to perform its duties.
3.4. The Settlement Administrator is authorized to establish a toll-free number
dedicated to communicating with Class Members for purposes of the administration of the
settlement and to establish an Internet website for the same purposes.
3.5 The Settlement Administrator shall make a cash payment, in the amount of the
Class Member Payment as provided herein, in a manner consistent with the Court Ordered
Process.
3.5.1 Manner of Payments. Payments shall be made by paper check.
3.5.2 Timing of Payment. The payment shall be distributed to the Class
Members within thirty (30) days after the Class Member has become eligible to
receive payment under the Court orderedprocess.
3.5.3 Class Members who receive a paper check shall have 120 calendar days
within which to cash the check.
3.5.4 If settlement checks are not cashed within the 120 -day period or are
returned as undeliverable without a forwarding address, the Settlement Administrator
shall make reasonable attempts to locate the Class Member by use of tracing
procedures. Remaining funds from checks not cashed within the 120 -day period or
funds from checks returned as undeliverable shall be distributed pursuant to Section
2.3.
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4. NOTICE TO THE CLASS
4.1. At least thirty (30) days prior to the Fairness Hearing, the Settlement
Administrator will send to each Class Member whose potential monetary recovery is estimated
to exceed one hundred dollars ($100), via first class mail, the Notice to the Class Member at
the last -known address contained in the records of the utility companies, as updated by the
Settlement Administrator through a check of all address databases customarily checked,
including the "national change of address" database. The Settlement Administrator will
promptly re -mail any notices returned by the U.S. Postal Service with a forwarding address.
4.2. The Publication Notice will also be made two times before the Fairness Hearing
by publ
cat
on
n the "Dubuque Telegraph Herald." The Settlement Administrator will also
publish the Notice on the Internet. Plaintiff's Class Counsel may also post the Notice on their
firm website and may provide the Notice to the Class to other internet sites.
4.3. City will pay the cost of printing, publishing and mailing Notice to the Class
and the costs of the Settlement Administrator in giving Notice. The Settlement Administrator
will provide the City with an estimate of said costs in writing thirty (30) days prior to incurring
said costs.
5. OBJECTIONS TO SETTLEMENT
5.1. Any Class Member who wishes to object to the fairness, reasonableness or
adequacy of the proposed settlement, or to the award of Attorneys' Fees and Expenses, must
deliver a statement of objection to Class Counsel and to City Counsel and file it with the Court
no later than five (5) days before the Fairness Hearing. The statement of objection must state
the specific reason(s), if any, for each objection, including any legal support the Class Member
desires to bring to the Court's attention and any evidence the Class Member wishes to
14
introduce in support of the objection. Class Members may so object either on their own or
through an attorney hired at their own expense.
5.2. If a Class Member hires an attorney, the attorney must (a) file a notice of
appearance with the Clerk of the Court no later than five (5) days before the Fairness Hearing;
and (b) deliver a copy of that notice of appearance to Class Counsel and to City Counsel no
later than five (5) days before the Fairness Hearing.
5.3. Any Class Member who fails to comply with the provisions of this Section
shall waive and forfeit any and all rights that Class Member may have to appear separately,
object, and/ or appeal, and shall be bound by all the terms of this Settlement, the releases and
covenants herein, and by all proceedings, orders and judgments in this Action.
6. RELEASES AND COVENANTS NOT TO SUE
6.1. In consideration of the money received for settlement, the Class Members
described above, acting as Releasors, hereby release Defendant and the Released Parties
from any and all Released Claims.
6.2. In connection with the releases set forth herein, the Releasors acknowledge that
they are aware that they may hereafter discover claims presently unknown or unsuspected, or
facts in addition to or different from those that they now know or believe to be true with
respect to the matters released herein. Nevertheless, it is the intention of Releasors, in
executing the releases herein to fully, finally and forever settle and release all such matters that
exist, hereafter may exist, or might have existed (whether or not previously or currently
asserted in any action or proceeding) as set forth above.
6.3. Plaintiff, on her own behalf and on behalf of all Releasors, hereby agrees and
acknowledges that the provisions of the releases in this Settlement, individually and
15
collectively, constitute an essential and material term of the Settlement.
6.4. Plaintiff, on her own behalf and on behalf of all Releasors, covenants not to sue
or otherwise bring any Released Claims against the Released Parties.
6.5. The releases and covenants not to sue contained in this Settlement shall not
compromise or otherwise affect the Class Members other business or affairs with the City or
Released Parties; or other claims against the City or the Released Parties that are not the
subject of the Released Claims.
7. FINAL DISTRIBUTION
7.1. The Settlement Administrator will be authorized by the Court in the
Preliminary Approval Order and the Final Order and Judgment to make all decisions and to
resolve all disputes concerning the validity and accuracy of all payments to Class Members,
subject to the Court's oversight, review and approval of all such decisions and resolutions
prior to entry of the Final Distribution Order.
7.2. No later than thirty (30) days following the receipt of the franchise fee records
from the City and utility companies, the Settlement Administrator shall prepare and provide to
Class Counsel and City Counsel a final schedule listing each Class Member, by name and
address, and setting forth the calculation of the proposed payments to the respective Class
Members.
7.3. As soon as possible after receiving the schedule from the Settlement
Administrator, but not before the Effective Date, Class Counsel shall submit the schedule to
the Court for approval and request the issuance of a "Final Distribution Order" approving the
allocation and distribution to the Class. To protect the privacy of Class Members, and because
the schedule may contain confidential information, the schedule shall not be filed of record
16
with the Court.
8. ATTORNEYS' FEES AND EXPENSES
8.1. Class Counsel may request approval of the Court to be paid from the Settlement
Fund the sum of Eight Hundred Sixty-six Thousand Six Hundred Sixty-six Dollars ($866,666)
for all Class Counsel's attorneys' fees, plus an award for counsel's out-of-pocket expenses and
costs, and an award of Five Thousand and 00/100 Dollars ($5,000) to Plaintiff to compensate
him for his time and effort expended in connection with this Action as the representative of the
Class (the "Plaintiff Incentive Award"). The parties acknowledge that the award of Attorneys'
Fees and Expenses and the Plaintiff Incentive Award shall be in such amounts as determined
by the Court, but shall not otherwise affect the validity of this Settlement. The Settlement may
not be terminated regardless of whether the Court approves or disapproves the Attorneys' Fees
and Expenses payment and the Plaintiff Incentive Award payment in the above amounts.
8.2 Defendant shall not oppose, or cause to be opposed, Class Counsel's application
for court approval of these payments.
8.3. Upon approval by the Court, the Attorneys Fees and Expenses and Plaintiff
Incentive Award should be paid to Class Counsel and to Plaintiff, respectively, from the
Escrow Account following the Effective Date.
8.4. Plaintiffs agree to file a release and waiver of any judgment lien on any City
real estate upon approval of this Settlement by the Court; however the judgment itself shall not
be satisfied of record until the settlement is paid in full.
8.5. The failure of the Court to approve the payments in Section 8 of this
Settlement, or a decision on appeal reversing, vacating, or modifying the Court's order
approving the payments provided in Section 8, will not affect in any way the validity of the
17
Settlement and the releases and covenants not to sue set forth herein, or any other obligations
or rights of the Parties hereunder and will not affect in any way the occurrence of the Effective
Date.
9. COURT APPROVAL
9.1. As soon as practicable after execution of this Settlement, Class Counsel shall
submit the Settlement to the Court and request for entry of a Preliminary Approval Order
equivalent in all material respects to the form attached hereto as Exhibit "A."
9.2. The Settlement shall be conditioned on entry of the Final Order and Judgment
barring Plaintiff and all Class Members from asserting, in any forum, any claims or causes of
actions covered by the releases and covenants not to sue contained in this Settlement.
9.3. The Settlement shall become effective only on the Effective Date.
9.4. In the event that the Settlement is not approved by the Court, the Parties shall
be restored to their respective positions in the Action as of the date hereof.
9.5. The terms and provisions of this Settlement may be amended, modified or
expanded by written agreement of the Parties and approval of the Court; provided, however,
that after entry of the Final Order and Judgment such amendments, modifications or expansions
of this Settlement and its implementing documents (including all exhibits hereto) may only be
made without further notice to the Class Members if such amendments, modifications or
expansions are consistent with the Court's Final Order and Judgment and do not limit the rights
of Class Members under the Settlement.
9.6. If this Settlement is not approved by the Court, then:
9.6.1. All funds (including all interest) in the Escrow Account shall be paid
to City by the Escrow Agent within five (5) business days.
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9.6.2. This Settlement shall be null and void and shall have no force or
effect, and no Party to this settlement shall be bound by any of its terms;
9.6.3. This Settlement, all of its provisions, and all negotiations, statements
and proceedings relating to it shall be without prejudice to the rights of Defendant,
Plaintiff or any other Class Member, all of whom shall be restored to their respective
positions existing immediately before the execution of this settlement;
9.6.4. Defendant expressly and affirmatively reserves all defenses,
arguments and motions as to all claims that have been or might later be asserted in the
Action;
9.6.5. Plaintiff and her successors, heirs, agents and assigns expressly and
affirmatively reserve all rights and arguments in support of, all claims that have been or
might later be asserted in the Action;
9.6.6. Neither this Settlement, nor the fact of its having been made, shall
be admissible or entered into evidence for any purpose whatsoever; and
9.6.7. Any order or judgment entered in support of this Settlement shall be
deemed vacated and will be without any force or effect.
10. MISCELLANEOUS
10.1. Neither the fact of, nor any provision contained in, this Settlement, or any
exhibits to either of them, nor any actions taken under them or any actions, negotiations,
statements or court proceedings relating to any of them shall in any way constitute or be
construed, offered, received or used as, or be deemed to be, evidence of any kind in this
Action, any other action, or any judicial, administrative, regulatory or other proceeding, except
a proceeding to approve or enforce this Settlement. Without limiting the foregoing, neither the
19
fact of, nor any provision contained in this Settlement, or any exhibits to either of them, nor
any actions taken under them or any actions, negotiations, statements or court proceedings
relating to any of them shall in any way constitute, or be construed, offered, received, or used
as, or be deemed to be, evidence or an admission or concession of any liability or wrongdoing
whatsoever on the part of any Person, including but not limited to Defendant, or as a waiver by
Defendant or any Released Party of any applicable defense, including without limitation any
applicable statute of limitations or statute of frauds, or as a waiver by Plaintiff or the Class of
any claims, causes of action or remedies.
10.2. The Settlement compromises claims that are contested and shall not be deemed
an admission by any Party as to the merits of any claim or defense.
10.3. In connection with the implementation of this Settlement, the Parties and their
counsel may have access to, or receive from the Settlement Administrator, documents and
other information that contains proprietary or confidential business information, or non-public
personally identifiable information of individuals who are or may be Class Members. The
Parties and their counsel agree to hold all such confidential information in the strictest
confidence. The Parties and their counsel agree not to use such confidential information nor to
disclose such confidential information to any third parties for any purpose other than the
implementation of this Settlement.
10.4. Except as otherwise provided herein, neither the Parties nor their counsel shall
have any liability for the administration, allocation, or distribution of any settlement payments
ncluding without limitation any act, omission, decision, or other conduct by the Settlement
Administrator or the Escrow Agent in connection therewith).
10.5. This Settlement, including all exhibits attached hereto, shall constitute the entire
20
agreement among the Parties with regard to the settlement of the Action and shall supersede
any previous agreements and understandings between the Parties.
10.6. All notices required to be given to Class Counsel and City Counsel under this
Settlement shall be in writing and shall be delivered personally, by U.S. Mail or overnight
courier service, and by concurrently e-mailed Notices, as follows:
If to Class Counsel:
Terry M. Giebelstein
Richard A. Davidson
LANE & WATERMAN LLP
220 N. Main St., Suite 600
Davenport, Iowa 52801-1987
tgiebelstein@1-wlaw.com
rdavidson@1-wlaw.com
If to City Counsel:
Ivan T. Webber
James R. Wainwright
AHLERS & COONEY, P.C.
100 Court Avenue, Suite 600,
Des Moines, IA 5 03 09-223 1
iwebber@ahlerslaw.com
jwainwright@ahlerslaw.com
10.7. The Parties and their counsel agree to undertake in good faith and to use their best efforts,
including all steps contemplated by this Settlement, and any other steps and efforts that may
become reasonably necessary by order of the Court or otherwise, to effectuate this settlement
and bring about the occurrence of the Effective Date. Each of the Parties reserves the right to
appeal from any orders of the court concerning (i) the Court Ordered Process to be utilized to
determine whether a class member will receive a refund; (ii) the final disposition of the funds
remaining in the Escrow Account pursuant to Section 2.4 hereof; and/or (iii) the award of
attorney's fees and expenses to Class Counsel, provided, however, that no appeal shall be
21
taken with respect to the other terms and conditions of the Settlement.
10.8. Class Counsel and City Counsel represent that they are authorized by their
respective clients to enter into this Settlement.
10.9. Upon prior notice to and approval by the Court, the Parties may agree to
reasonable extensions of time to carry out any of the provisions of this Settlement, as
contemplated in the attached Exhibits.
10.10. The failure of any Party to enforce at any time any provision of this Settlement
shall not be construed to be a waiver of such provision, or in any way to affect the validity of
the Settlement or any part hereof or the right of any Party thereafter to enforce each and every
provision. No waiver of any breach of this Settlement shall be held to constitute a waiver of
any other breach.
10.11. No opinion concerning the tax consequences of the proposed settlement to
individual Class Members is being given or will be given by Defendant, City Counsel, Class
Counsel, or the Settlement Administrator, nor is any representation or warranty made by virtue
of this Settlement with respect to the tax consequences of any award of remedies under this
settlement. Any Notice to the Class shall direct Class Members as follows: "Class Members
are directed to consult their own tax advisors regarding the tax consequences of the proposed
settlement, including any payments provided hereunder, and any tax reporting obligations they
may have with respect thereto. Each Class Member's tax obligation, including the
determination thereof, is the sole responsibility of the Class Member, and it is understood that
the tax consequences may vary depending on the particular circumstances of each individual
Class Member."
10.12. This Settlement shall be binding upon and inure to the benefit of the Class, the
22
Parties hereto, and their respective representatives, heirs, successors, and assigns.
10.13. Following the Effective Date, the Court shall have continuing jurisdiction to
interpret and enforce the terms, conditions, and obligations of this Settlement.
10.14. In the event that the Court or any other court is called upon to interpret this
Settlement for purposes of effecting rules of construction, no Party or group of Parties shall be
deemed to have drafted this Settlement.
10.15. Nothing in this Settlement or the negotiations or proceedings relating to the
foregoing is intended to or shall be deemed to constitute a waiver of any applicable privilege
or immunity, including without limitation the attorney client privilege, the work product
doctrine, or the joint defense privilege.
10.16. This Settlement shall be governed by and construed in accordance with the laws
of the State of Iowa, without regard to its laws applicable to choice of law.
10.17. This Settlement may be executed in counterparts, each of which shall constitute
an original and shall be deemed to be part of the same document.
1N WITNESS WHEREOF the Parties have executed this Settlement as of the date first
written above.
PLAINTIFF DEFENDANT
CITY OF DU QUE
J. Thomas Zaber
Terry M. Giebelstein
23
Ivan T. Webber
Richard A. Davidson
LANE & WATERMAN LLP
220 N. Main Street, Suite 600
Davenport, IA 52801
Telephone: (563) 324-3246
Facsimile: (563) 324-1616
Email: tgiebelstein@1-wlaw.com
Email: rdavidson@1-wlaw.com
ATTORNEYS FOR PLAINTIFF
24
James R. Wainwright
AHLERS & COONEY, P.C.
100 Court Avenue, Suite 600
Des Moines, IA 50309
Telephone: (515) 243-7611
Facsimile: (515) 243-2149
Email: iwebber@ahlerslaw.com
Email: jwainwright@ahlerslaw.com
ATTORNEYS FOR CITY
List of Exhibits
A. Preliminary Approval Order
B. Mailed Notice
C. Published Notice
D. Final Order and Judgment
01018423-1\10422-073
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