Monthly Archives: July 2007

Federal wind coverage bill clears House committee

Only time for a quick post today due to pressing matters, so here it is.  I’m a little late with this, but there were other things on which I had to post and my time is finite.  Rep. Gene Taylor’s federal multi-peril insurance bill, which would allow policyholders to purchase wind and flood coverage in a single government-backed policy passed the House Financial Services Committee last week.  This blog post cheering on the news caught my eye, in part because of a blistering attack on Mississippi Insurance Commissioner George Dale as an insurance company toadie, and partly because of the fairly provocative headline on a link to a news feature about Taylor: "State Farm’s Head on a Platter — What Gulf Coast Congressman Gene Taylor wanted the Easter Bunny to bring him." 

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Scruggs post redux

I found out late Friday about Judge Acker’s decision to appoint special prosecutors in the Dickie Scruggs criminal contempt matter, and I wrote posts about that Friday evening both here at this blog and at Point of Law.  Seeing as how these took a lot of time to write — especially in that I like to write it a little differently for each blog so I don’t get bored — and also seeing as that except for you weekend readers no one has seen them yet, I think I’ll let those posts stand as my work for today. 

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Judge Acker appoints special prosecutors in Dickie Scruggs criminal contempt matter

In Hurricane Katrina litigation, Dickie Scruggs at times has seemed like a legal superman, able to bring lawsuits left and right, achieve big settlements and manipulate public opinion and the media at will.  Well, U.S. District Court Judge William Acker just may have dropped a 20-pound bar of Kryptonite down Superman’s red shorts.  

Two days after Alice Martin, U.S. Attorney for the Northern District of Alabama, declined to prosecute Scruggs, Judge Acker appointed two Birmingham attorneys as special prosecutors to pursue a charge of criminal contempt.  Here is a copy of Acker’s special prosecutor order.   If you don’t remember what this is all about, here is a post I wrote that tells all. If you don’t have much time, here’s an AP story on developments.

If you do have much time, read on.

Kerri and Cori Rigsby, two sisters who worked for E.A. Renfroe, a business that assists State Farm in claims handling and adjustment, copied confidential State Farm claims documents and gave them to Scruggs.  They claimed the documents showed State Farm was engaging in bad faith claims handling.  They fed the docs to Scruggs over several months in 2006, and when they sensed Renfroe was on to them and they were about to be sacked, they copied one last big "data dump" before they could be fired.  They then went to work for Scruggs with $150,000 consulting contracts and turned over this final set of documents shortly afterward. Scruggs says $150,000 is the amount each of the sisters earned from Renfroe the prior year (this is plausible because with the massive Katrina claims workload, some people undoubtedly worked very hard and did very well for themselves).

The sisters had confidentiality agreements with Renfroe, as would anyone who reviews private insurance information of numerous policyholders. So Renfroe sued for breach of those agreements in federal court in Alabama, and during the litigation, Judge Acker issued an injunction requiring Scruggs to give the documents back to Renfroe.  Instead, after the injunction was issued, Scruggs that night called Mississippi Attorney General Jim Hood, who was suing and criminally investigating State Farm and other insurers.  The result of their conversation was a plan where Scruggs would send the documents to Hood, according to Acker’s June order finding Scruggs in contempt, so he wouldn’t have to return them to Renfroe.  Scruggs also later requested that Hood make copies of the documents and send them back to Scruggs. 

To Acker, this looked like willful disobedience of the injunction.  Why would Scruggs do it? Keep in mind that Acker had also issued a protective order keeping the returned documents from State Farm and Renfroe itself, so as not to interfere with Hood’s criminal investigation — only Renfroe’s counsel would have the returned documents, and they could not further disclose them without the court’s review and express permission. Acker had these thoughts about that issue in his June order:

[E]ven if the court had not issued a protective order with the preliminary injunction, and even if Renfroe’s counsel had promptly disclosed the documents to State Farm, the court does not understand how this would have jeopardized a criminal investigation of State Farm.  Unless, as Renfroe has hinted at, Scruggs and Hood had teamed up to bully State Farm into civil and criminal settlements by telling State Farm that they had 15,000 inculpatory documents but not allowing State Farm to see them, the court does not see why it was worth it to Scruggs to risk contempt. (Emphasis added).

The reason why Scruggs did what he did is somewhat perplexing.  Because a protective order was in place, neither State Farm nor Renfroe would know exactly what was in the documents, except what Scruggs had already disclosed.  It is inconceivable that a lawyer as smart as Scruggs would be unaware that a protective order was part of the injunction.  Although Scruggs was not representing the Rigsby sisters in the Renfroe litigation as attorney of record, he did have an attorney-client relationship with them about these documents dating back to when they were employed by Renfroe. So let’s test the possible motive Judge Acker listed above.

Scruggs’ actions would make the most sense if he did not know there was a protective order in place, but that possibility must be disregarded for two reasons: first, because Scruggs received a copy of the injunction the day it was entered and is charged with constructive knowledge of its contents, and second, because Scruggs received an e-mailed letter confirming his talk with Hood from one of Hood’s assistant AG’s, and the letter stated that Hood’s office was "not comfortable that the protective measures put in place by the Court will be effective in keeping these documents out of the grasp of State Farm."  This would appear to mean they feared either that Renfroe’s counsel would violate the protective order and give the copies to State Farm and Renfroe, or that Renfroe’s attorneys would convince Judge Acker to review the documents and then release them.  Scruggs then Fed Ex’d the documents to Hood later that day. Remember that Hood already had a copy of the documents, because Scruggs had advised the Rigsbies to give copies of the documents to both Hood and the FBI months earlier. 

Cori Rigsby called Scruggs to get the documents, so she could comply with the injunction and give the documents to Renfroe’s counsel.  Scruggs said he didn’t have them, because he had given them to Hood.  Renfroe sought an order forcing Scruggs and the Rigsbies to give up the documents, and the court issued an order requiring them to show cause why they should not be held in contempt for failing to abide by the injunction.  On February 1, Hood sent the documents directly to Renfroe’s counsel.

Now, relevant to our inquiry might be this question: what if anything happened in the meantime, between when Judge Acker’s injunction was entered in December 2006 and when Jim Hood sent the documents to Renfroe’s counsel in February 2007? Remember that we are testing Judge Acker’s "bullying" theory. One big thing happened, and that was that on January 23, State Farm and the Scruggs Katrina Group announced a massive settlement of 639 policyholder lawsuits that had been filed by Scruggs.  This deal was worth $80 million, and the Scruggs Katrina Group reportedly took most or all of its cases on a 40 percent contingency.  Also on January 23, State Farm and Hood announced that State Farm also agreed to pay at least $50 million — but possibly hundreds of millions more — to thousands of Mississippi policyholders whose claims were denied but didn’t sue the company.  In return for that , Hood agreed to drop his civil lawsuit and criminal investigation.  The second part of the deal involved a certification and immediate settlement of a class action, and federal Judge L.T. Senter Jr. rejected it as procedurally unfair and not in compliance with federal class action requirements.  The settlements of the individual lawsuits worth $80 million, however, were not subject to a judge’s review under the federal rules and were valid.  

Settlements of that size take a long time to negotiate.  How long?  This story quotes Hood as follows:

“It’s been like a death roll with an alligator for the last two months in these negotiations,” Hood said.

Hmmmmm. Two months?  Isn’t that about the time frame between when Acker ordered the documents returned (and Scruggs instead sent them to Hood), and Hood’s return of the documents to the Renfroe lawyers?  It may be significant that Hood gave them to the lawyers about a week after the settlements were announced.

Could there be something to Acker’s theory? Could be, although one would think State Farm had some idea of what the documents said, especially since Scruggs had previously used some of them as exhibits in the complaint in the McIntosh v. State Farm lawsuit.  One would expect he would have already come out with the best stuff he had.  Also, let us suppose that State Farm has been truthful when it says that it believes its claims practices have by and large been done honestly and in good faith.  It is difficult to blackmail someone who does not believe they have done anything wrong. On the other hand, keeping the documents in some kind of suspended animation might be a useful strategy to increase the perception in the public of State Farm’s wrongdoing, and therefore threaten State Farm with damage to its brand name.  As the public, from all evidence available to me, has an understanding of Katrina legal issues that ranges from fuzzy to completely wrong, adding some mystery to the document issue might be just the thing to make them seem nefarious.  This possible answer also seems somewhat unsatisfactory, because it depends on the public being aware that the documents exist.  For example, one could just as easily make up some story about 15,000 documents that contain incriminating evidence of bad faith, and numerous people would believe it despite the lack of any evidence. One could also make the same charge without mentioning documents at all, and numerous people would believe it. 

However, throughout the Katrina litigation, Scruggs has had a pattern of pointing to specific documents as evidence of State Farm’s bad faith.  He has acknowledged the Katrina cases were only part legal, but also involved public relations and political pressure.  Even though a story about the contents of the 15,000 documents would be lost on the vast majority of the public, many of whom would believe any bad story about an insurance company, politicians and the media pay closer attention and would not be fooled by a story that was totally invented.  Therefore, some plausible elements of the story would have to exist to make them believe in it.  If Judge Acker was correct in his theory, could this be the reason — that Scruggs wanted to play keep-away with the documents to keep anyone from seeing there was nothing harmful in them while he negotiated the settlements? Perhaps. But let’s also remember that in mid-January, another set of lawyers won a $2.5 million bad faith verdict — later reduced to $1 million — against State Farm in the Broussard case, which likely contributed to State Farm’s willingness to settle.  Still, clearly the negotiations had been going on for some time before the Broussard verdict. 

Another possibility that must be considered is that Scruggs was right, and the documents do contain damaging information.  If so, it would seem the smartest strategy to make sure State Farm got the documents so it could see just how incriminating they were, making it clear State Farm must settle. Looking at all these possibilities, I admit Scruggs’ actions don’t make complete sense to me, and I remain open to interpretations and theories.

UPDATE: I’ve also cross-posted on this issue at Point of Law.

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U.S. Attorney’s Office declines prosecution of Dickie Scruggs

U.S. Attorney Alice Martin of the Northern District of Alabama has declined Judge William Acker’s request to prosecute Dickie Scruggs for alleged criminal contempt  stemming from the E.A. Renfroe lawsuit against the "whistleblower" Rigsby sisters. 

According to this story, Martin didn’t say much about her reasons. Acker, of course, has a back-up plan: he said he would appoint another attorney to prosecute if Martin declined.  No word yet on when that is going to happen or who will be chosen.  You can read more about this whole hullabaloo at this post I did earlier this year.  I looked for Martin’s declination letter to Acker on Martin’s website, but didn’t find it.  I was relieved to find, however, that the website lists a "Kids Page" so youngsters can get the full flavor of the justice system.  Among the useful information on the Kids Page is this:

What does the judge wear?

Judges wear robes in court and under the robe the judge wears regular clothes.

I notice they left out one important fact, however — the best thing about wearing that black robe has got to be that you never have to worry whether your belt matches your shoes. 

I know what some of you are thinking, I’m a day late with this story.  Well, it’s true, but you try finding a place to get decent Wi-Fi in Newport, Oregon, where my family was vacationing this week.  After sitting in the Newport Public Library for two hours trying to keep connected, I just about whipped out that reserve telephone cord I keep to try dial-up, but to be honest, I couldn’t face doing that.  It would be unbearably primitive, like plowing a field with a mule instead of a tractor, or writing on a typewriter instead of a laptop.  I mean, if we’re going to go back to caveman days I might as well forget about blogging and try to communicate with a big drum, a newsletter or some such other troglodytic accoutrement. 

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RAND study on insurance along Gulf Coast

The lede on this press release is in the "No Kidding" category — but the study it talks about gives some useful specifics about the cost of wind insurance along the Gulf Coast. Here’s the opening paragraph:

Many businesses along the Gulf of Mexico coast have had a difficult time obtaining wind insurance coverage since Hurricanes Katrina, Rita, and Wilma hit in 2005 and have often ended up paying more than twice as much for the insurance as they did previously, according to a RAND Corporation study issued today.

Actually, most of the press release after that point is pretty good.  The reasons for higher property insurance In Florida, Mississippi, Louisiana and elsewhere won’t come as much of a surprise to the kind of folks who read this blog, but it’s interesting to look at the list as RAND sees it:

The study identified several reasons behind the large premium increases:

  • Insurers and the modeling firms on which they rely increased estimates of the number of hurricanes expected to hit the region and the damage caused by hurricanes when they do occur.  
  • Financial rating agencies tightened capital adequacy requirements for insurers.  
  • Litigation and government actions following the 2005 hurricane season led to uncertainty about how insurance contracts will be enforced by courts in the region.  
  • The threat of large assessments on insurers after future hurricanes that caused deficits in residual markets.

That third reason is one you can’t underestimate. By the way, here’s a link to the study itself. 

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Some Mississippi Katrina victims allowed to keep grants after receiving insurance payments

This is a good story by Anita Lee of the Sun Herald about state grants given by Katrina victims to compensate for wind and water damage to their homes.  Some people, after getting their insurance money, are going to have to repay Mississippi for the grants.  Others, however, who received confidential settlements of insurance lawsuits, will get to keep the state money.  This does not sit well with everyone.

 As the story says:

A federal grant modification that created the situation has gone unnoticed by many, but others are angry about the Mississippi Development Authority policy.

"It doesn’t seem right that they don’t ask for repayment," said Gulfport resident Nancy Fish, who had flood and homeowner insurance coverage for the loss of two homes and cars.

Why doesn’t the state ask for the money back? Here’s how Dickie Scruggs and policyholder attorney Jack Denton explained it:

Denton said in many cases, clients needed both the legal settlement and grant money to be made whole, a sentiment Scruggs echoed.

Scruggs added: "The difference between settling a lawsuit and just getting some more money from your insurance company unsolicited – there’s a big difference. You’re suing for all kinds of claims. When a settlement is reached, it’s not broken down as to how much was for structure, breach of contract, bad faith, emotional distress, breach of the duty of good faith and fair dealing, fraud, negligent adjustment of the claim. Every lawsuit we’ve settled has had at least 10 or 11 legal claims.

"Nobody can slice and dice the settlement of a lawsuit in such a way to figure out what is owed. It’s a situation that they didn’t envision when the payment provisions were written."

MDA’s disaster recovery director, Donna Sanford, said the agency is not tracking the lawsuit settlements because they are confidential.

"That was the whole purpose of this modification," she said. "We can’t tell from these closed settlements what structural-damage payments, if any, they’re getting."

A couple points.  First, some folks may indeed need more dough than others to be made whole, especially when they must pay 40 percent of the proceeds of a lawsuit settlement to Scruggs or Denton. Second, just because you throw some RICO claims, or some other claim outside of breach of contract, into a lawsuit does not make the fundamental principle of compensation for the structure different.  That’s lawyer talk, not common sense.  Third, what is with this passive attitude on the part of state officials? They don’t know about the amounts because they are confidential? That’s what I’m going to tell the IRS about money I received this year, you think they will buy it?  

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Auto insurance round-up

I don’t talk about auto insurance much — not that I have anything against it, it’s just that it’s not where the action usually is.  But I often harangue other lawyers about trying something new when it comes to writing, so today I’ll put my keyboard where my mouth is.

That being said, here are some items of interest about auto insurance developments:

Here is a good story by Bruce Mohr of the Boston Globe about Massachusetts’ new insurance commissioner, Nonnie Burnes, a name which has a Shakespearean ring to it:  "Converting all your sounds of woe into Hey Nonny Nonny" — Much Ado About Nothing (II,iii,68-69).  To the surprise of many, she has come out for increased competition as a solution for many of the Bay State’s insurance problems.

Louisiana Gov. Kathleen Blanco has vetoed a bill that would have raised the mandatory minimum liability insurance drivers must carry to $25,000.  It is now only $10,000.  She says that since 1.5 million of the state’s 4 million drivers carry only the minimum coverage, premium increases would have meant more drivers would go without any insurance at all.   However, as the state’s insurance commissioner implies in his statements in support of the bill, this amounts to a subsidy of underinsured drivers by other drivers, who have to purchase higher uninsured/underinsured motorist coverage to compensate. 

— Alabama drivers have been required to purchase insurance only since 1999, but despite a law that now makes auto insurance mandatory, 25 percent of drivers are still uninsured, a figure that is unchanged since 1998.  Alabama ties California for the higher percentage of uninsured drivers, with Mississippi coming in first, according to this 2006 study.  If you look at the second page of the study, you will see that 9 percent of NoDaks drive uninsured, a number that first surprised me as being higher than I expected, but then, after further thought about a lot of the people I grew up with there, surprised me as being lower than I would expect. 

—  Florida continues to debate whether to let its no-fault law die, or instead try to fix it.  State officials have had such a poor record lately with "fixing" insurance problems without making them worse, it might be best to just let no-fault fade off into the sunset.  

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Point of Law blogging

Some of you may remember that I was a guest blogger at Point of Law a few weeks ago.  I’m honored that I’ve been asked to be a regular contributor to the site, which has long been one of my essential stops on the web. Will that reduce my postings here? Nah, as I like to say, I will stop blogging when they pry the keyboard from my cold, dead hands.  

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Florida insurance fiasco in the making

What’s that sound I hear in Florida?  Could it be the clunk, clunk, clunk  of lawmakers throwing aside their wingtips and pumps as they lace up their Keds and get ready to run for the tall grass?  Perhaps.  Because remember those insurance reforms? They ain’t workin’.  And, lawmakers, I’ve got worse news for you — folks are starting to notice, and they are not happy.

Florida Gov. Charlie Crist and legislators promised they had a sure-fire recipe to bring down rising property insurance premiums in the state: two cups of demagoguery, five cups of increased regulation, four tablespoons of voodoo economics, two lucky rabbit’s feet, a four-leaf clover, a dash of balderdash, a pair of blinders, mix well with two quarts of unacceptable risk to the taxpayers, and pour into — what else — a crock pot. Let simmer for six months to one year until it explodes, then blame it on the insurance companies.  

This Miami Herald story is priceless.  There’s so much in it I hardly know where to begin, so let’s start at the start:

Seven months after Florida lawmakers expanded the government’s role in the state’s insurance market, rates should be lower and insurers should be willing to write more policies.

Just the opposite is happening. What went wrong?

Legislators themselves are stumped but are acknowledging they should never have pledged such big savings to homeowners. They say reforms need more time to work. But some wonder whether government should take even a bigger role in the insurance market — possibly taking over all windstorm coverage, for example.

What was that Clausewitz had to say on this subject? Oh yeah, "Never reinforce failure." 

This has got to be terrifying to the average Floridian. You’ve got a bunch that promised big, can’t deliver, can’t explain why they can’t deliver, but now they want to double down on the same failed policies.  Wow, these guys are like compulsive gamblers who can’t stop yanking back that handle. The next pull is sure to bring the jackpot.  Let these guys create another state-run insurance company? I haven’t heard an offer that good since this guy I knew as a kid got out of jail and hit me up to co-sign his loan for a new Cadillac. 

As the Herald story says, the centerpiece of Florida insurance reform was supposed to be the expansion of the state’s CAT fund to $28 billion, so part of the money could be used to issue cheap reinsurance to insurers, thereby reducing their cost of doing business and allowing them to drop premiums.  Right, except for one thing — no one believes the money will actually be there, because lawmakers also took the state-run insurer, Citizens Property, and shot it up full of steroids.

Citizens no longer has to have higher rates than the market, and is attracting new customers by the tens of thousands — it has 1.3 million policyholders and growing. Yet lawmakers also bar Citizens from charging an actuarially sound rate, meaning the money in the CAT fund may go first to bail out Citizens and won’t be there for insurers to use as reinsurance money. That makes insurers a little weak in the knees, and it isn’t because they’ve been bitten by the love bug.

I like the quote from Sen. Bill Posey: "You can’t turn the Queen Mary around on a dime.  This is a big ship and it will take time."  Hang on a minute, wasn’t it last week or so that Gov. Crist said, "We have turned the ship"? Has the ship been turned or has it not been turned? Maybe Crist meant it has been turned, but in the wrong direction.  Dang, can you fellas get your stories straight and let me know when you do?  You know, there are a lot of cliches involving ships, what is the next one that will be used: "like rats deserting a sinking ship"? Only time will tell.

Oh, and I almost forgot: here’s a story by John O’Brien of Legal Newsline, in which I’m quoted, about Florida wanting federal money, in the form of a national catastrophe fund.  Yowza, Yowza, Yowza. Yeah, I can see that, that’s a good reason for a national CAT fund, because those jokers in Florida want one.  I mean, should we hold it against them that they’ve made a lot of bad choices so far? Shouldn’t we stay positive, hope for the best and go along with it? If you say yes, e-mail me with your phone number, I know a guy who’s still looking for someone to co-sign for that Caddy.

UPDATE: I liked this post from the Merlin Law Group, in Florida, on the problems associated with  Citizens Property.  This is a really good, lengthy post.  You know, this firm has a pretty good blog, they ought to consider having the author of a post sign his or her name instead of attributing it to the firm.  With rare exceptions, my name has been on everything I have ever written, including briefs I worked on as a first-year associate.  Writing is hard work, and I take a lot of pride in it — so anyone who has ever tried to diminish my credit for it has heard my statement that this will not stand, this statement varying in tone and bluntness by my analysis of whether the person was simply misguided or was in fact malevolent.

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Anti-concurrent cause language

You know that article I said I was researching and writing on anti-concurrent cause language, which has been such a big part of the Katrina public debate and litigation? Well, it is finally done and I have sent it off to the editor.  If I’ve made any mistakes in causation analysis, it certainly won’t be because of lack of effort. 

As I sit here in my office writing this post at 3 a.m., I have stacks of paper roughly three feet high, if you put them all together.  Most of this I read, in an effort to trace causation theory from Aristotle to Hume to English fire and maritime policies to wacky California cases to Katrina and beyond.  I think I got it, but only time will tell. I made a great effort to write it in as entertaining and simple a way as you can when you are dealing with a subject like causation that either flees as you approach or fights back.  I have suffered much over this article.  When writing these hard, long-term projects, your will gets weak, and your thoughts seem to scatter like marbles on the floor at the slightest excuse. I’m sure you’ve been there yourself. 

So I’ve had this letter written by the Consumer Federation of America sitting on my computer for a week, and have been wanting to write about it, but I felt if I said anything about causation or anti-concurrent cause language outside of what I was writing in the article, I would lose my focus.  So now that it’s done, I can say what I have to say.  The letter requests that state insurance commissioners act to overturn anti-concurrent cause language and strip it from new policies issued in the states.  But as I point out in my article, the wind damage and the water damage caused by Katrina were, in the great bulk of the cases, not concurrent causes, they were separate, independent causes of loss, and therefore do not present an issue of concurrent or multiple causation of a single loss.  That anti-concurrent cause language is at the center of Katrina debate is one of the great ironies of the entire Katrina mess. I’ve made that point on this blog before, but of course not in the depth I do in the article. 

Here’s an excerpt from the letter:

What is lurking to unexpectedly deny coverage to consumers in your state?  Would a later flood override a claim for tornado damage?  Would an earthquake that occurred at the same time as or after a fire destroyed a home negate coverage for fire losses?  Would the discovery of mold or termite damage exclude wind or fire damage that occurred? 

Surely it is terrible public policy to allow this sort of policy provision to exist, ticking like a time bomb, waiting to go off in the face of unsuspecting customers.

For reasons that I explore in exhaustive detail in my article, the scenarios listed above are — I’m sorry to be so blunt, but it’s true — just pure, uninformed bunk, and show a complete lack of understanding both of the real coverage issues in Katrina litigation and of how anti-concurrent cause language works.  You know, when I was a kid growing up in NoDak, one of my brother’s friends so habitually spewed bunk — his every thought, word and deed was saturated with it — that people disregarded his real name and he was universally referred to and called simply Bunk.  Make of that story what you will. 

Let that be the last word from my keyboard on anti-concurrent cause language this week.  I am going to go home, grab a few winks, get back in the office for a mid-morning conference call, help out some clients and then take a vacation. How I will blog during this vacation, which will be in a place without Wi-Fi or even (shudder) dial-up, I have not yet figured out, but I blogged from the middle of Yellowstone, and I will find a way.  So long for this week. 

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