* LAW LEGAL MALPRACTICE PROBLEMS AND PREVENTION

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LEGAL MALPRACTICE
LAW
PROBLEMS AND PREVENTION
By
Susan Saab Fortney
George Mahon Professor of Law
Texas Tech University
Vincent R. Johnson
Professor of Law
St. Mary's University
AMERICAN CASEBOOK SERIES®
THOMSON
*
VVEST
Mat #40506218
Table of Contents
PREFACE ................ . . ... . .... ... . . ........... . ..... ... v
ACKNOWLEDGMENTS ... . ... . .. ... .. ...................... . .. vii
SUMMARY OF CONTENTS . . ...... . . . ... .... ... .. . ...... . ..... . xi
TABLE OF CONTENTS . .. ........ ....... .. . .. . .... ........... xiii
TABLE OF CASES ... . ... ... . .. ... . . .. ....................... xxi
TABLE OF BOOKS AND ARTICLES . ... ... .. ... .. . . . .. .... .. . .. . xxix
Chapter 1. Introduction to Legal Malpractice . . . . . . . . . . . . . . . . 1
A. The Increase in Legal Malpractice Exposure and Litigation ..... 2
1. Changes in Client Attitudes and Expectations ... . .... .. .. . 2
Legal Malpractice: When the Legal System Turns on
the Lawyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes on Expectations and Malpractice Exposure . .... .. 8
2. Changes in the Legal Profession That Mfect Malpractice
Liability . .. ... . . ................................. 8
3. Expansion in the Theories of Liability ... .... . . . . ... .... . . 9
4. Statistics on Legal Malpractice Claims .................. 10
B. The Role of Malpractice Education and Risk Management
in Avoiding Costly Claims .. . . : . . . . ...... ... . . . . ....... 12
Problem 1-1: What is Your Malpractice Intelligence
Quotient (I.Q.)? .... ...... ..................... 13
Chapter 2. Overview of Theories of Liability . .. ...... . ... . ..
A. Legal Malpractice Defined .. . .... .. .. .... . ...... .. ... . ... .
B. Principal Theories of Liability ... . . ... . ... ...... . ... .......
1. Theories Covered in the Restatement .. ........ . .. ... ...
2. Consequences of Classification . . . . . . . . . . . . . . . . . . . . . . . . .
a. Pleadings and Proof ... .. .........................
b. Defenses. .. ... .. . .. . .. ... .. . . . . . . .... ....... . . . .
c. Insurance ........ .. .. . . . . . .... .. .... .. . . . .. . . ...
d. Respondeat Superior .... . .. .. .. . . ...... . ... .. .....
e. Remedies . ... ... .... .. . ........ . .. .... . ... ... . ..
f. Discharge in Bankruptcy . . .. . ...... . .. . ..... . .. . ..
3. Differentiating Claims ..... ..... .. ........ . ... . . .. .. . .
Fiduciary Duty, Tort and Contract:
A Primer on the Legal Malpractice Puzzle . . .... .. .
C. Differentiating Clients, Prospective Clients, and Nonclients ....
D. Differentiating Legal Malpractice from Discipline .. .. . .... . . .
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Purpose and Prosecutor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Procedures and Decision-makers ... .. .. .... . .... . . .....
Effect of Ethics Rule Violations . . .. ... . ... . . . .. . .... . . .
Problem 2-1 : Investigating and Asserting Claims . . . .. .
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Chapter 3. Negligence . . . .. . . .... ... . . .. ... ... . .... . ......
A. Duty to Exercise Care .. . . .. .. .. .. ........ . . .. ...... . . . ..
1. To Whom is a Duty Owed? ... ... . . . . .. . . ............ ..
a. Clients .. ... . . ........ . . .... .. .. ... .. ... . .. .....
b. Prospective Clients . . . . .... .... .... . .. . . .. .. . .....
Problem 3-1: Potential Clinic Clients . ... . .. . . . . ..
c. Class Members ....... . . .. . . ... ... . .... . . ... . ....
2. Scope of Representation . . . ... ..... ... .. . . ...... .. ... .
Lerner v. Laufer .... . . ... .. . ..... ..... . .... ... . . .
Notes on Termination of Representation ...... . . . ... . .
Problem 3-2: The Public Housing Litigation ...... ... ..
B. Breach of Duty . . .. . .. .. ..... . .. .. . .. . .. . . ... ... . ... .. . .
1. The Standard of Care ... . . .... .. .. . .. . . . .. . . .... .. ...
2. Exercise of Judgment .. . .. .. . .. .. . . ...... . ..... . . .. ..
Darby & Darby, P.C. v. VSI International, Inc. . .. . ... .
Problem 3-3: Standardized Testing Errors . . . ... .. ....
3. Expert Testimony ...... . .... . .. .. . . ..... ... . .. . . . . ..
Problem 3-4: The Expert Witness's Dilemma . .... . . ...
4. Specialists and Novices . . ....... . .. . . . .... . .... . .. ... .
5. Negligence Per Se in Legal Malpractice . .. . ... . .. . ... .. ..
6. Informed Consent in Legal Malpractice . ............ . .. . .
Problem 3-5: The Veteran's Appeal ........... .... .. .
Misrepresentation by Lawyers about Credentials or
Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. Causation . . ......... .. .. .. . ....... . .. .. .. ... ... .. . . . . .
1. Factual Causation: The But-For Test .. . ...... . . . . ... . . . .
a. "Trial-within-a-Trial" Analysis ... . . .. . .... . .. .. .....
b. The Test for Factual Causation .. .. . . . ...... . ... . . . .
Notes on Factual Causation .. .. .... . .. . . .. .. ... .
c. Loss of a Chance .. . . ... .. . ... . . .. . . ....... . ......
Vahila v. Hall ... . . . ... .... . . .... . . . ....... ...
Problem 3-6: The Summer Associate's Memo . .. .. . .
2. Proximate Causation .. ... ... .... ... .. .. . ........... ..
a . In General ... . .. . . .. ... ........ . .. . .... ........ .
b. Super seding Causation and Shifting Responsibility . .. .
Problem 3-7: The Withdrawal Misstep . .. . . . .. . . ..
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Chapter 4. Breach of Fiduciary Duty .. .... . . ... . ... .... .. .
A. Changing the Language of Duty . .. . . . .. . . . . . . ... . . ... ....
1. The Measured Language of Negligence . ...... . . . .. . . . . .
2. The Demanding Language of Fiduciary Duty . .. . . . . .. . ..
3. The Interplay of Negligence and Fiduciary Duty .. . .. . . ..
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4. Lawyers and Strict Liability ...................... .. ..
5. Expert Testimony on Fiduciary Duties . ..... . ...... . ...
6. Fiduciary Duties and Causation of Damages ........... .
7. The Statute of Limitations for Fiduciary Breach . .. ......
Disclosure Obligations ....... ... ..... . . .... . .. . . . .. . ....
''Absolute and Perfect Candor" to Clients ..... . . . .. . .....
Fee Forfeiture . .... .. .. ...... ..... .... .. ... . ..... .. . ...
Burrow v. Arce .......... .. .... . ........... ..... . ...
Problem 4-1: "We are Just Friends" . . . ......... . . .... . .
Aiding and Abetting a Breach of Fiduciary Duty ......... .. . .
l. A Dangerous Theory of Lawyer Liability . . . . . . . . . . . . . . . .
2. Duties to Clients Versus Duties to Nonclients ... ..... ...
3. Tort Principles on Aiding and Abetting . ... ......... . ...
4. Implications for Corporate Policy Making ....... .. . .....
5. Circumstantial Evidence of Knowledge . .. .. ....... . . .. .
6. Substantial Assistance ........ . .. .... ... .. . .... .. . ..
7. Privileges and Defenses . ..... . ..... . . ... . ............
Problem 4-2: The New Golf Course .... .......... .. .
Intra-Firm Fiduciary Duties .. . . .........................
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Chapter 5. Duties to Nonclients ....... . .... ... . .. . . .. .. ...
A. Historical Development . . . . .... .. . ..... . . . .. . . ... . .. . .. .
l. The Privity Obstacle . . . ... . .. ...... . .... .... ... ... ..
2. Exceptions to Privity ........ .... .... . ... .. ..........
3. Modern Nonclient Litigation .... . . . .... . ... . ....... . ..
4. Statutory Limits on Nonclient Liability ... . ....... .. ....
5. Successors in Interest .... . . .. . . . .. . ....... . ........ .
B. Fraud on Nonclients ... .. .. .. ... . ....... . .. . .. ..... ... . .
l. A Primer on the Law of Fraud ... ..... .... .... . ..... . .
a. Tort Law and Other Common Law Remedies ... .. ... .
b. The Elements of Deceit ......... .. ....... . .. . .....
c. Scienter . . . . ... .... . ........ . . . .. . . .. . . .... . ...
d. Types of Misrepresentation ............. .. . . . .....
e. Actions Based on Nondisclosure (Silence) .... ...... . .
f. Opinion v. Fact ......... . .... .. ... .. ........ . ...
1.
"Puffing"...... . ..... . . .. .... .. ..........
ii. Words of Qualification . ... . . ... .... . ... . .. .
iii. Implicit Statements of Fact ... . . . .. .........
iv. Intentions .......... . ............. . ......
g. Actionable Statements of Opinion ... ... ........ ....
h . Statements of Law ......... ...... .. . . ... . .. ..... .
1.
Justifiable Reliance .... . .. . .. . . ... .. . . .... .. . .. ..
J. Intent to Induce Reliance or Expectation of Reliance ...
k. Resulting Damages . . ..... . . .. .. . .. .. .... .... ....
Problem 5-1: The Scaffolding Rental Business . ....
C. Deceptive Trade Practices Acts .......... . ... . ..... . .. . .. .
l. Culpability Requirement ... ....... ..... . .. ... ..... . . .
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2. Applicability to Lawyers . ... ... . . . . .... . . . . .. . .. . . .. .
3. Advantages Over Common Law ......... .. ...... ... .. .
4. Multiple Damages .. ... . .. .... . . ... . .... . .... . .... ..
5. Suits by Nonclients . . .. .. . . ..... . . ... . ... . . . .... . ...
Negligent Misrepresentation . ..... . .. . . . . . ..... ... . .. ....
Problem 5-2: The Tax Shelter Opinion Lett er ... . ..... . . .
Claims Based on Representation of Fiduciaries .. . .. . .. . .. . . .
Funds and Property of Nonclients .... .. .. .. . .. .. .. . . .. . . .
Problem 5-3: Disputed Settlement Proceeds . .. . .. . ......
Intended Beneficiaries . . . .... .. . .... . .. ... .. .. .... . ... . .
1. Invalid Wills .. . .. . . . .. .... ... ... .. . ... . .. ... . . . . . . .
2. Other Intended Beneficiaries . . .. ... ..... . .. . .. ... . . . .
Problem 5-4: The Mis-Drawn Easement . ........ . . . .
Duties to Other Lawyers .. .. .. . . .. . . .. . . ....... .. . .... . .
1. Duties to Outside Co-Counsel . . . . . . . . . . . . . . . . . . . . . . . . .
Beck v. Wecht .... . . .... .. .. . . .. .. .... .. .. ... ...
2. Retaliatory Claims for Malicious Prosecution . . . . . . . . . . . .
Duties to Litigation Adversaries .. . ......... . ... .. .. . . . ...
1. The Litigation Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Problem 5-5: The Enlarged Legal Team . . . ... . .. . . . .
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Chapter 6. Remedies for Legal Malpractice ....... . .. . .....
A. Compensatory Damages .......... ... . . .. .. . . . . ...... . . .
1. Basic Rules .. . . .... .. ...... . . ... . . . . . . .. . ..... . .. ..
a. No Speculation and Reasonable Certainty ... .. . ... . .
b. Proximately Caused Losses . ... . . . . .... . . .. .. .....
c. Emotional Distr ess Damages .. ....... . .... . .... . ..
d. Harm to Reputation ..... .... . . . .. . . ... . . . ... ... .
e. Attorney's Fees as Compensatory Damages . . . . ..... .
f. Adjustments to the Calculation of Damages . .... . ....
Problem 6-1: The Structured Settlement . . . . ... . .
B. Punitive Damages .. ..... . ........ .. .. . . . . . .......... . .
1. State Law Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Constitutional Limitations . .. .. . . .. . ...... ......... ..
a. Due Process and the Amount of Punitive Damages . . . .
b . Vicarious Liability for Punitive Dama ges .. . . . . .. . ...
Problem 6-2: Overbilling Clients .. ....... .. . .. ..
3. Liability for "Lost Punitive Damages" . ... .. ... . .... . ...
Tri-G, Inc. v. Burke, Bosselman & Weaver ... . . . ... ..
Problem 6-3: The Nursing Home Litigation . . ...... ..
C. Restitution .. .. ... . ... . . .. . . .. . .... . ... .. . . ... . . .... ..
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Chapter 7. Defenses and Obstacles to Recovery ... ... . . ....
A. Contributory Negligence, Comparative Negligence, and
Comparative Fault ..... ... . . . ... . . . .. . .. . .. . ... .. ...
1. Conduct Contributing to the Plaintiffs Harm .. .. ... .....
Problem 7-1: The Lawyer as Client .. . .... ..... ... ..
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Avoidable Consequences and Failure to Mitigate .........
Borley Storage and Transfer Co., Inc. v. Whitted ..... .
Notes on Mitigation .. . .... .. ... .......... ..... ...
Problem 7-2: The Flawed Trust .. ... . .. . . . ........ .
Unlawful Conduct .. .. ... .. .. . .. .. . .............. ..... .
1. In General ... ... .. .. . ............... ..... .........
2. The Exoneration or Innocence Requirement in
Criminal-Defense Malpractice ....... .. ............
Caanan v. Barte .... . ...... . .. . .. .. ... .. .... ... . .
Notes on Unlawful Conduct ... .. ... .. .. ... ... . ... .
Problem 7-3: Client Fraud on Investors ....... . .....
Malpractice Statutes of Limitations .. ... .. . . . ........ . ....
1. In General .............. ... .... . . .. .. ..... . .... .. .
2. Commencement of the Running of the Statute .. .. .......
Problem 7-4: The Failure to Notify the Insurer ..... . .
3. Tolling .. ... .. ... .. .... ........... . . ....... . .... . . .
a. The Discovery Rule ..............................
Humphreys v. Argabrite . . .... . ............. . ..
Note on Discovery of Malpractice .... .. . . ..... ..
b. The Continuous Representation Rule ........ .... ...
DeLeo v. Nusbaum ......... .. ......... .. .. . . .
Notes on the Continuous Representation Rule ... ..
Problem 7-5: The Missed Maritime Defense .. .....
c. Fraudulent Concealment ..... . .. . . . .... . . ...... . .
Non-Assignability of Legal Malpractice Claims ..... .. .. . ....
Problem 7-6: A Deal With One of the Defendants . ... .....
Joint Liability and Reimbursement ...................... .
Releases and Covenants Not to Sue . ... .. . . ... .. ..........
Problem 7-7: The Wrongful Incarceration Release ... .. ...
Notes on Settlement and Contribution .. .. ... . .. . . '.... .
Immunities and Privileges . .... ............. . ........ . . ..
Arbitration Agreements . ... ...... ..... .. .. . .............
Problem 7-8: Pleading Malpractice Defenses . . . .. . . . .. ...
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G.
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Chapter 8. Vicarious Liability .......... .. ................
A. Firms, Employers, and Partners ....... .. .... .............
1. Development and Structure of Law Firms .... .. . ..... ...
Notes on the Development and Structure of Law Firms
2. Agency Principles .. .. ......... .. ........ ..... .......
3. Joint and Several Liability .................. . ........
Notes on Vicarious Liability ........ .. .... . .... . .. .
Problem 8-1: The Wanted Partner .... .. ... ... .. ... .
4. Supervisory Responsibility and Liability ..... . ..........
B. Limited Liability Law Firms .... ... . .... ... ... . . .. . ......
1. Advent and Characteristics of Organizational Structures ..
Organizational Choices of Professional Service Firms:
An Empirical Study . .............. ... ..... . ..
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Problem 8-2: The Hot Potato Client . . . ....... .......
Evaluating Liability of Lawyers Practicing in Limited
Liability Firms . .......... ... . ..... . ... ... .. ... ..
Problem 8-3: Looking for Shelter . ... . . . . .. .... .. .. .
3. Unresolved Liability Issues Related to Practice in LLPs . . .
Professional Responsibility and Liability Issues Related
to Professional Limited Liability Partnerships .....
Problem 8-4: Am I My Partner's Keeper? ............
C. Other Associations that Expose Lawyers to Liability for the
Conduct of Other Lawyers .. . .. . ... .. .. .. .... .. . . .. . .
1. Referral Fee Arrangements ... . ... .. ........... . .. ...
2. Negligent Referral ..................................
3. Co-Counsel Arrangements .. .. .. .. ......... . ... ... ...
4. "Of Counsel" Arrangements .. .. .. . .... .... .. .. ... . . . .
5. Office-Sharing Arrangements ... . ... . .... .. ... .. ......
Problem 8-5: Pals or Partners . . . ........ . . . . ... . ..
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Chapter 9. Important Malpractice Traps .. . . .... ........ . .
A. Client Relations Errors .................................
1. Client Screening . . ........ .... . ... ..... . ....... . ... .
2. Client Communication and the Failure to Keep Clients
Reasonably Informed ... .. ... . . . ... . ... . .... .. ...
B. Conflicts of Interest ..... .. ..... ... .... . ... . ... . ..... . . .
1. The Nature and Consequences of Conflicts of Interest ... . .
2. Analyzing Conflicts and Obtaining Informed Consent .... .
Conflicts of Interest .. . .. ...... ... .. ...... .. ... . ..
Problem 9-1: Know Your Conflicts and Clients .. . .....
3. Practical Issues Related to Written Disclosure and
Informed Consent ... . .. .... . ... ...... . . . ..... . ..
4. Advanced Waivers .. ...... . ......... ... . . ........ ...
Professional Responsibility News on "Thrust-Upon"
Conflicts, Advance Waivers of Future Conflicts . . ..
C. Litigation Errors . . . .. . . . . . ... .. . . ......... . ... . ..... . . .
1. Missed Deadlines .. .. .. ... . .... . ........... . ........
Top 10 Ways Not to Blow a Statute of Limitations .....
2. Appellate Malpractice .. . . .... ...... ... .. . .. ... ......
Appellate Malpractice ..... . ......................
Notes on Appellate Malpractice ... ... . ... ... ... . . ..
3. The Exercise of Judgment in Litigation .... . .. . ........ .
Problem 9-2: Lawyer's Exercise of Professional
Judgment in Litigation ........................
4. Settlement Errors . ..... ..... . . ............... . . ... .
Thomas v. Bethea . .......... . . . ....... .. ... . ... .
Notes on Post-Settlement Malpractice Claims ........
Problem 9-3: Inadequate Settlements ...............
D. Business Transactions with Clients .................... . . .
1. General Concerns .......... . ...... .. .... . ... ...... .
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Fee Arrangements ..................................
a. Taking Stock in Lieu of Fees . . ..... . .... ... . . . . ...
The Decline in Lawyer Independence: Lawyer
Equity Investments in Clients ...............
b. Modifying Fee Agreements ............ . .. .. .......
Changing Fee Agreements During Representations:
lVhat Are the Rules? .......................
3. Entrepreneurial Activities with Clients .. . ....... . . . ....
Risky Business Transactions with Clients .. ... . . .....
E. Breach of Confidentiality ............ . ... . ...............
Problem 9-4: Liability for Breaches of Confidentiality .....
F . Representing Entities . ................... .... ..........
1. General Traps Associated with Representing Entities .....
Ethical Considerations lVhen Representing
Organizations .................. . ............
2. Lawyers Serving As Corporate Officers and Directors
3. Risks Associated with Sarbanes-Oxley (Sarbanes) .... . ...
Problem 9-5: Dealing with Constituents .............
Chapter 10. Preventing Legal Malpractice .. . ....... . ......
A. What is Law Practice Risk Management? ..... ..... ........
B. Client Management Procedures . ............... .. ........
1. Screen Prospective Clients ............ . .......... ....
2. Conduct a Thorough Conflicts Checks ..................
Fortifying A Law Firm's Ethical Infrastructure:
Avoiding Legal Malpractice Claims Based on
Conflicts of Interest .. .. . . .. .. .... . ............
Problem 10-1: Conducting Conflicts Checks and
Analyses .. ............... .. ............ ....
3. Use Non-Engagement Letters ............ . ............
4. Obtain Signed Engagement Agreements ................
5. Cement Client Relations .......... . .. ... . . ...........
6. Use Care in Terminating Representation . . ... .. . ...... .
C. Administrative and Work Control Systems .......... .... .. .
D. Human Resources Management ...................... ... .
Managing Lawyers' Risks at the Millennium ............
Notes on Human Resources Management ...............
Problem 10-2: All for One, One for All? .................
Chapter 11. Legal Malpractice Insurance ..................
A. Why Study Legal Malpractice Insurance ....... .. ...... . ...
B. What Type of Coverage is Available ....... ..... ...........
C. The Anatomy of a Policy ..... . . .. ........... . ...........
1. What Are the Specific Policy Terms for the Named
Insured: The Declarations Page ............... .. ...
2. What Do Policies Cover: Insuring Agreements ...........
3. What Policies Don't Cover: Exclusions ..................
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a . Exclusions Eliminating Coverage Not Intended to be
Provided under a Legal Malpractice Policy . ..... .
b. Exclusions Relating to Extraordinary Risk . .... . ... ..
c. Exclusions Relating to Moral or Illegal Risks . . . .. . ...
4. What Typical Conditions Mfect Coverage . .. ... .. . .... ..
Problem 11-1: What Insurance is Available for the
Lawyer Wearing Different Hats? . . . .. . .. .. ... .. .
Recognizing How Firm Changes Mfect Coverage .. . . . . . . . . . .
Problem 11-2: What is Your Insurance Intelligence
Quotient (I.Q.)? . . ... ....... .... .... . . . .... . .. . ..
Obtaining Insurance . . .. . .... . ..... . ..... ..... . . . .. .. . .
1. What to Consider in Purcha sing Insurance . ..... .... .. . .
2. How to Apply for Insurance . .. .. . .. . . . . . . . . . .. .... ...
Handling Claims . . .. . ....... . ... . ... . . . .. . . .. .. . .. .... .
1. Give the Insurer Prompt Notice . .. ..... .. .. . . . .. .... . .
2. Understand Coverage Issues . . .. . . .. .. ... . .. . .. .. . ...
3. Do Not Write Internal Memoranda ....... ... .... .. . .. .
4. Monitor Defense Counsel and Settlement Offers . ... . .. . .
Informing Clients When Lawyers Discover Their Own
Malpractice .. . ... . . . .... .. . . ...... . .. . . ..... .... . ..
Problem 11-3: Why Give the Client and the Insurer
Bad News? .. ... ..... . . . .. . .... . . ... . . ... .. ..
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Index . . . . ... . . . . .. .. ..... . . . ....... . .. . . . .. .. . . ........ . 425
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