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SPRING 2003  
Vol. 31, No. 3

UNORTHODOX JUSTICE
By Michael Bazyler

collageThe Untold Story of How a Team of Feuding Lawyers, a Billionaire Jewish Activist, a U.S. Senator Seeking Reelection, Tenacious New York City and State Comptrollers, and a Deft Brooklyn Federal Judge Negotiated the Swiss Banks Restitution Settlement--Which Is Changing the Way Aggrieved Groups Around the World Are Fighting Back

One day in September 1996, when 66-year-old Auschwitz survivor Gizella Weisshaus made her weekly visit to deliver homemade potato kugel and sponge cake to her attorney and friend Edward Fagan, she set in motion a legal battle that would result in some of the largest legal settlements in United States history--and revitalize the African American reparations movement.

On that day, Fagan showed her a New York Times article on the growing scandal surrounding the failure of Swiss banks to return funds deposited by Jews for safekeeping before and during World War II. He then asked her whether she had any experience with this problem.

To Fagan's astonishment, Weisshaus began to tell him about her fruitless attempts to recover the money that her father, who died in the Holocaust, had deposited in a savings account at the Union Bank of Switzerland (UBS). After the war, Gizella had made three trips to Switzerland, to no avail; UBS demanded documentation, including the account number, which she could not produce.

When Gizella finished her story, Fagan became excited. "Oh, my God," he thought, "I have a plaintiff."

Although he had no experience in class-action litigation, Fagan was always ready to venture into new legal territory--and he wasted no time. Less than two weeks later, working on his laptop during a ballgame at Yankee Stadium, Fagan put the final touches on a $20 billion lawsuit against UBS and the two other largest banks in Switzerland. He listed Weisshaus as lead plaintiff. Employing a tactic he would repeat in later Holocaust restitution litigation, Fagan first delivered the lawsuit to the press. The next day, October 3, 1996, after the media had picked up the story, he filed his suit in Brooklyn federal court. The modern era of Holocaust restitution litigation had begun.

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Pressure on the Swiss to return confiscated assets to Holocaust survivors had been building since 1995, when Edgar Bronfman, Sr., the billionaire scion of the Seagram's liquor empire and head of the World Jewish Congress (WJC), began to champion their cause. Alerted to the issue by WJC deputy Rabbi Israel Singer, Bronfman arranged for WJC staffers to research Swiss-related documents at the U.S. National Archives offices in College Park, Maryland. They returned with U.S. intelligence reports confirming that Swiss banks had collaborated with the Nazis in the purchase and laundering of gold and other stolen assets.

Bronfman and Singer took aim at the three dominant Swiss banks--Union Bank of Switzerland (UBS), Credit Suisse, and the Swiss Bank Corporation (SBC)--all of which had operations in the United States. Bronfman's fiercest political ally would be former New York Senator Alfonse D'Amato, then chairman of the U.S. Senate Banking Committee, who was facing a tough re-election campaign. D'Amato offered to hold public hearings on the matter. As Time magazine would later note: "Bronfman brought [D'Amato] a heaven-sent gift certain to appeal to his large bloc of Jewish voters."

By April 1996, the hearings were underway in the Senate Banking Committee. The story made international headlines. Books began to appear exposing the details of Swiss complicity in what the WJC called "the greatest theft in history"--the expropriation of an estimated $230-$320 billion of Jewish assets by the Nazis and their accomplices.

Denying any wrongdoing, Swiss officials portrayed their country as the victim of a Jewish conspiracy. In December 1996, the outgoing Swiss President Jean-Pascal Delamuraz decried Jewish efforts to create a Swiss fund to compensate Holocaust survivors and heirs as an attack on Swiss sovereignty; he also warned of an antisemitic backlash. A month later, Carlo Jagmetti, Switzerland's ambassador to the United States, was forced to resign after a 1996 memo was leaked to the press in which he advised his government to wage "war against Jewish groups that are seeking compensation for Holocaust victims....This is a war that Switzerland must wage and win on the foreign and domestic fronts."

This strategy of denial and counterattack failed. Unable to wall off the growing tide of negative publicity that was eroding Switzerland's image both in the U.S. and Europe, the Swiss government announced on February 26, 1997 the establishment of the "Swiss Fund for Needy Victims of the Holocaust/ SHOA." The fund distributed $179 million to 309,000 people around the world, more than 80% to Jewish survivors, mainly in Eastern Europe; what remained was paid to non-Jewish victims, including gypsies, gays, political dissenters, and rescuers of Jews. The individual payouts were small, between $375 and $1,250, depending on the nationality of the recipient. This remedy, however, did not address individual claims against the banks, and it was too little, too late.

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At the same time that Fagan was readying the Weisshaus litigation, Washington, D.C. attorney Michael Hausfeld, representing a different group of plaintiffs, was completing exhaustive preparations for a separate lawsuit against the Swiss banks. Hausfeld's firm, described by the Corporate Legal Times as "probably the most effective class-action firm in the country for lawsuits dealing with a strong social and political component," had recently concluded what at that time was the largest class-action settlement in U.S. history: $141 million paid by Texaco to settle a case accusing the corporation of race discrimination in its workforce.

In a highly unorthodox move--the expert testimony of historians had never before been introduced in a class-action suit in U.S. courts--Hausfeld hired Holocaust historians on a full-time basis to search for documents at the U.S. National Archives that might bolster his case by exposing Switzerland's wartime complicity. After months of meticulous research, Hausfeld's historians uncovered a number of "smoking guns" implicating the Swiss as the Nazis' bankers--among them, documents showing that Swiss banks purchased gold stolen by the Nazis from individual victims, including dental gold ripped from the mouths of Jews. One of the historians on the case, Miriam Kleiman, who earlier had conducted similar research for the WJC, would later say, "Before my eyes I saw Switzerland's reputation change from being a neutral haven for refugees to being an ATM for the Third Reich."

Hausfeld waited until October 21, 1996 to file his class-action suit at Brooklyn federal court. In so doing, he lost the race to the courthouse; Fagan had initiated his class-action suit eighteen days earlier. And two months later, yet another suit was filed against the Swiss banks, this time by the World Council of Orthodox Jewish Communities, a U.S.-based organization that claimed to be the heir to Jewish religious institutions destroyed by the Nazis in Europe.

Three separate lawsuits, encompassing twenty-eight law firms, were now pending in Brooklyn federal court. To assist him with the litigation, Fagan brought aboard New York University Law School professor Burt Neuborne (a constitutional and human rights scholar and a former director of the ACLU) and Philadelphia attorney Robert Swift (who had previously sued Ferdinand Marcos on behalf of the victims of Marcos' dictatorship). For his part, Hausfeld recruited one of the nation's most savvy class-action lawyers, Melvyn Weiss (whose firm is presently lead plaintiffs' counsel in the Enron litigation).

Acrimony among the competing sets of plaintiffs' lawyers quickly ensued. The enmity was so acute that when Hausfeld and Fagan addressed a "Nazi gold" symposium in March 1998, they would not speak to one another. "[Fagan's suit] angered us," Hausfeld later told American Lawyer magazine. "Here we were, taking all this time, and [Fagan] writes this sloppy ten-page thing and makes this silly demand for $20 billion." An unrealistic demand, to be sure, but one that immediately got the attention of the world press. Major pieces about the litigation in The Wall Street Journal, The New York Times, and the European media all highlighted Fagan's $20 billion figure.

By April 1997, the three suits had been consolidated into one--In re Holocaust Victim Assets Litigation--and named as defendants UBS, Credit Suisse, and SBC, which together represented approximately 75% of the private banks operating in Switzerland between 1933-45. The case was assigned to Brooklyn federal judge Edward R. Korman, whose innovative approach to the case would become a model for future restitution settlements.

The strategy of the defense lawyers was to challenge the suit on procedural grounds, filing extensive motions to throw the case out of court. The banks argued that American courts had no jurisdiction over claims stemming from acts committed on foreign soil, and over a half century ago. Moreover, they asserted that they had already established an alternative mechanism for resolving dormant bank claims. Earlier, in response to public pressure, the banks had hired former U.S. Federal Reserve chief Paul Volcker to lead an independent audit of the banks' prewar and wartime records to determine any wrongdoing and resolve the issue of unpaid Holocaust-era monies.

For their part, the plaintiffs' lawyers filed extensive briefs explaining why the U.S. federal court did have jurisdiction over this litigation and why the suits were not time-barred. Because many of the claimants were now U.S. citizens and their claims were against banking entities which operated in the U.S., they argued that American courts did have jurisdiction. As to the passage of time, plaintiffs' lawyers maintained that the banks' retaining funds not legally belonging to them--"unjust enrichment"--amounted to a continuing injury, a wrong for which the clock to file a suit does not run out. Rejecting the claim that litigation was unnecessary, plaintiffs' lawyers pointed out that the Swiss banks had failed to deal with the problem for more than a half century, and that the Volcker audit was yet another device for the banks to avoid confronting their full liability. Only through litigation in U.S. courts, they insisted, would justice finally be served.

The Diplomatic Front

In May 1997, the Clinton administration issued a report on Swiss activities during the war, based upon its own research of the U.S. wartime and postwar archives. Eleven government agencies participated in the study, supervised by Stuart Eizenstat, then assistant secretary of state and later Clinton's chief representative in all matters concerning Holocaust restitution claims. Eizenstat's 212-page report concluded that the Swiss had "profit[ed] handsomely from their economic cooperation with Nazi Germany while the Allied nations were sacrificing blood and treasure to fight one of the most powerful forces in the annals of history."

In December 1997, another important figure in the Holocaust restitution drama appeared on the scene. New York City Comptroller Alan Hevesi announced the creation of a special committee to monitor "international efforts at restoring stolen, lost, and looted property to Holocaust survivors and victims' heirs." He buttressed his demand for a settlement with the very real prospect of financial sanctions against Swiss banks operating in the U.S. Objecting vehemently to the sanctions threat, the Swiss government filed a formal protest with the U.S. State Department. In an effort to prevent further erosion of U.S.-Swiss relations, Eizenstat tried to convince Hevesi that sanctions would be counterproductive, "making it more difficult for us to get a measure of justice for Holocaust survivors." Hevesi stood his ground.

Bowing to the pressure, the Swiss bank defendants announced on June 19, 1998 that they were prepared to settle all claims for $600 million--their "top offer." The amount outraged Jewish leaders. Bronfman called it "an insult." Hevesi, with New York State Comptroller H. Carl McCall at his side, announced at a Manhattan news conference on July 2, 1998 that unless the Swiss banks made a more credible offer, the city and state would introduce a three-stage program of rolling sanctions, ranging from ceasing to make deposits of public funds in Swiss banks to instructing private investment managers investing for the state and city to stop trading through Swiss firms, as well as other unspecified restrictions to be issued in the future. In protest, the Swiss business community placed full-page ads in The New York Times and major media to win public support against a "trade war" between the two nations and urged the Clinton administration to intervene. Speaking for the White House, Eizenstat called on Hevesi and McCall to desist. They refused. Speaking before the Senate Banking Committee, McCall, an African American, explained, "This is not the first time that state and local governments have determined that morality and justice require the imposition of sanctions....I have been to Capetown; I have seen Nelson Mandela sitting in the Presidential office; and I have heard him say that without sanctions--without visible and painful economic pressure from the United States--he would not be in that seat and, in fact, his nation would not have experienced a peaceful transition to democracy."

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Back on the legal front, Judge Korman still had not ruled on the Swiss banks' procedural motions to dismiss the lawsuits. On July 28, 1998, sensing that the timing was right, he called a meeting of the attorneys representing both sides. Breaking with custom, instead of meeting in his chambers, Korman moved the negotiations to a private dining room at the famed Brooklyn steakhouse Gage & Tollner. The parties failed to reach an agreement that night, but two weeks later the plaintiffs' attorneys informed Korman they would settle for $1.5 billion. For the next two days, Korman kept the negotiations moving, interceding when necessary. Finally, on August 12, 1998, just days before the rolling sanctions were to take effect, the Swiss banks agreed to pay $1.25 billion. The plaintiffs' attorneys accepted, and the next day the deal was announced in open court.

Next came the tough question: how would the $1.25 billion be divided? To help him decide, Judge Korman appointed famed New York attorney Judah Gribetz to undertake an unenviable job: reviewing and consolidating submitted suggestions from all interested parties (which eventually numbered more than a thousand) on how to allocate the funds--a plan that Judge Korman would then have to authorize. Two years later, Gribetz sent Korman his nearly 1,000-page plan, which the judge approved in full. In recognition of the fact that the strongest legal claim in the litigation was the failure of the Swiss banks to return moneys deposited for safekeeping on the eve of and during the war, Gribetz allocated the largest portion, $800 million, to these so-called "dormant account" claims. The remaining $425 million went to the other classes of claimants, including slave laborers and survivors who had sought entry into Switzerland but were stopped at the border or expelled from the country.

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As of early 2003, approximately 500 individual claims have been processed. Both Jewish and non-Jewish survivors who have not been able to prove entitlement to funds left for them in Swiss banks but who worked as slaves have each received a $1,450 lump sum. One hundred forty-five million dollars has also been distributed from the settlement to the "neediest of the needy" Holocaust survivors--especially those in the former Soviet Union. In addition, some refugees who had been denied entry to Switzerland and laborers who had been forced to work as slaves for Swiss companies operating in Nazi Germany are receiving payouts of approximately $2,500. The goal now is to complete the claims process sometime in 2003. No decision has been reached on the disposition of funds that might remain after all current claims have been satisfied.

One of the most heated issues in the Swiss banks litigation and subsequent Holocaust restitution suits has been whether the plaintiffs' attorneys should be compensated, and if so, how much? Some survivors have argued that the lawyers were engaging in "holy work" and therefore should not charge fees. Others believe they should be paid, but not in the millions while the actual victims receive much less.

In late 2002 and early 2003, Judge Korman awarded approximately $6 million in legal fees, amounting to approximately one-half of one percent (0.05%) of the settlement--an amount substantially lower in percentage terms than the 15-20% usually received by plaintiffs' lawyers in successful class-action cases in American courts. Three of the principal lawyers in the case--Burt Neuborne, Michael Hausfeld, and Mel Weiss--waived their fees. Some of the lawyers who did take fees, including Fagan, donated all or a portion of their fees to those survivors who helped them win the litigation but could not prove that their family had a prewar Swiss bank account. All the principal lawyers, however, went on to earn millions of dollars in subsequent suits. In the German slave labor settlement, for example, they were awarded fees totaling almost $60 million (amounting to 1.2% of the nearly $5 billion settlement), of which Fagan received $4.4 million, Hausfeld $5.8 million, Swift $4.3 million, Neuborne $4.3 million, and Weiss $7.3 million.

The Legacy of the Swiss Banks Settlement

Following the successful litigation against the Swiss banks, lawyers, politicians, and Jewish activists in the United States became emboldened to initiate claims against other governments and corporations, including U.S. companies such as Ford, JP Morgan, and Chase Manhattan, all of which had profited from the Holocaust. JP Morgan and Chase Manhattan (today a joint company) are now making settlement payments because in 1940, after the Nazi conquest of France, their Paris-based branches had "aryanized" (confiscated) accounts of their Jewish clients. Ford agreed to pay for the slave labor used by its German plant in Cologne during World War II. Several major European insurance companies, including Allianz of Germany, Generali of Italy, and Winterhur of Switzerland, agreed to honor some claims on prewar policies which they had previously denied to Jewish policyholders and to establish a commission to process Holocaust-era insurance claims (1998); German industry and the German government agreed to approximately $5 billion to settle all claims against private German firms for their wartime wrongs--especially for profits earned from the use of both Jewish and non-Jewish slave labor (1999); and more than a dozen French and Austrian banks agreed to pay Holocaust survivors and their heirs $50 million and $40 million respectively for the banks' theft of assets of their Jewish account holders (2001). In addition, beginning in 1998, museums in the United States, Germany, Austria, Switzerland, and other European countries agreed to pay restitution or to return artworks in their collections which had been stolen from their Jewish owners during the war.

Boost to Non-Holocaust Restitution Cases

The Swiss banks case has also revitalized other long-standing claims. Aging survivors of the Armenian genocide have filed suit against New York Life Insurance Company for failure to honor policies sold to their parents and grandparents in Ottoman Turkey before World War I. In July 1999, American POWs and foreign civilians who had been forced into slave labor by the Japanese during the war began filing suits against private Japanese corporations which acted as their masters during the war. (So far, these suits have been unable to achieve the results of the Holocaust restitution cases.) The Washington, D.C.-based Council for Palestinian Restitution and Repatriation has declared its determination "to do for Palestinians driven from their homes in 1948 and 1967 what lawyers for the Jewish survivors of the Holocaust have succeeded in doing for their clients." In response, Jews who had fled or were expelled from Arab lands are preparing lawsuits to win restitution for lost properties. In May 2002, Israel launched a major initiative to preserve, collect, and computerize claims of Jewish refugees from Arab lands.

And now gaining momentum in the U.S. is a case that may dwarf all previous restitution deals: compensation for the enslavement of African Americans. If the governments and corporations which abetted or used slave labor in Europe over a half century ago are legally accountable for their actions, insist leaders of the African American reparations movement, the same should apply to American corporations which benefited from the labor of Africans brought to these shores in chains.

The African American Reparations Movement

Before the settlement by the Swiss banks and other corporate defendants for wartime historical wrongs, Randall Robinson, the chief proponent of reparations for slavery, had received little attention outside the African American community. Suddenly the theoretical became attainable. Robinson lost no time enlisting the services of superstar attorney Johnnie Cochran. Together they recruited a legal "dream team," among them Alexander Pires, Jr., a Washington D.C. lawyer who had recently achieved a $1 billion settlement on behalf of black farmers who had been discriminated against in obtaining federal farm loans, and Professor Charles Ogletree of Harvard Law School, whom American Lawyer magazine labelled in June 2002 as "the Rajah of Reparations" given his long-time advocacy for the cause. Shortly thereafter, Cochran invited Michael Hausfeld to join the team. Hausfeld's original blueprint for the litigation against the Swiss banks, conceived in 1996 and then fine-tuned during the subsequent five years of litigation against the Germans and other European corporate wrongdoers, is now being applied to the legal struggle against American corporate interests with ties to slavery. The once formidable statute of limitations obstacle with regard to slavery reparations no longer seems insurmountable: it could be overcome either by convincing a court that the wrong continues to the present day and, therefore, the period for filing suit remains open, or by obtaining the passage of a federal or state law extending time-bound statutes, as has been done in Holocaust restitution cases. (In January 2003, however, a federal appeals court in San Francisco did rule that a law enacted by the California legislature extending the statute of limitations was an impermissible intrusion on "the federal government's exclusive power to make and resolve war.") A far more daunting obstacle is the fact that slavery was legal and constitutional in America until its abolition in 1865. And perhaps the greatest challenge is determining the proper class of aggrieved claimants, who, unlike the plaintiffs in the Holocaust restitution slave labor lawsuits, are not the actual victims or their immediate heirs.

With few exceptions, advocates of reparations for slavery in America are not seeking payouts for individual claimants; they want funding for social and educational programs that would benefit the African American community for generations to come. This line of thinking echoes the position of the WJC's Rabbi Israel Singer, who has argued that all Jews are heirs to moneys stolen from deceased Holocaust victims and that the funds should be used "to address the future needs of the Jewish people...to rebuild the Jewish soul and spirit."

While Johnnie Cochran and his team were pondering these thorny legal issues and formulating their strategy, the enterprising Edward Fagan struck again. On March 27, 2002, in the same Brooklyn courthouse where, almost seven years earlier, he had rushed past Hausfeld, Fagan, joined by 36-year-old African American reparations activist and attorney Deadria Farmer-Paellmann, filed a class-action suit on behalf of nearly forty million African Americans. They accused Aetna of profiting from the sale of insurance policies to protect slave owners from loss; FleetBoston and its predecessor, The Providence Bank, of having financed transatlantic slave ships; and CSX, the largest railroad on the East Coast, of profiting from rail networks built by slaves for its predecessor companies. The suit sought unspecified damages, but Fagan and Farmer-Paellmann announced to the press that they would be seeking $1.4 trillion, which they calculated in their complaint to be the current value of unpaid African American slave labor plus interest.

Fagan's race to the courthouse infuriated Cochran, who condemned the suit as a threat to the African American reparations movement; "All you need," Cochran said, "is for one judge to throw a case out and this thing doesn't go anywhere." Fagan, however, is confident that, like their corporate counterparts confronted by Holocaust-era claims, the U.S. corporations named in his suit will eventually see the wisdom of reaching an out-of-court solution. Cochran is not so sure. "It's going to be hard," he says. "There'll be some settlements [and] some victories along the way, but this will be a long battle."

Justice or Extortion?

In the end, Holocaust claimants will receive more than $8 billion. But the restitution movement is not without its Jewish critics. Anti-Defamation League director Abraham Foxman, himself a child survivor, wrote in The Wall Street Journal that restitution from private defendants (the Swiss banks) is a "desecration of the victims...and too high a price to pay for justice we can never achieve." Nationally syndicated columnist Charles Krauthammer accused attorneys representing Holocaust victims of being "shysters" out to commit a "shakedown of Swiss banks, Austrian industry, [and] German auto makers," and warned that "the scramble for money by lawyers could revive anti-Semitism [in Europe]."

Holocaust survivor Roman Kent strongly disagrees that Holocaust restitution is not worth pursuing: "Although 50 years late, we survivors, before we depart, are demanding that the historical facts regarding the role of Switzerland and its banks, and the insurance companies and industrial giants involved in profiteering during the Holocaust be exposed and the truth be known," he wrote in Commentary magazine. "If, as a result of such exposure, long-overdue and token compensation is given to survivors, we deserve it. Justice demands it. History demands it." As to the issue of whether it is fair to make current shareholders pay for the actions of their predecessors, Professor Neuborne argues: "Just as the sins the father should not be visited upon the sons, the unjust profits of the fathers should not be inherited by the sons."

Stuart Eizenstat stands with those who reject Foxman's argument that restitution is "a desecration of the victims." "In every developed nation on earth," he writes in the same issue of Commentary, "the accepted method of compensating the victim when a civil wrong has been committed...is the award of money. Victims of...radiation exposure, oil spills, medical malpractice, and smoking-related illness routinely bring lawsuits....Why should the victims [of the Holocaust] not have the same right?" As for Foxman's concern that the restitution campaign would fuel antisemitism in Europe, Jerusalem Post columnist Hirsh Goodman counters: "[We should] not allow the antisemites to dictate our agenda."

Overlooked and underplayed in this dispute is the fact that Jews are not the only beneficiaries of the Holocaust restitution movement; in fact, the majority of recipients are non-Jewish wartime survivors or heirs. For example, 80% of those receiving payments from the $5 billion German settlement are elderly Slavs from Eastern Europe dragooned to work for Nazi industries.

Perhaps one of the most significant and lasting outcomes of the Holocaust litigation movement is the creation, in almost fifty European countries, of historical commissions of inquiry, some governmental and others less formal, to examine the wrongs committed by their citizens against their Jewish neighbors during the war. A Swiss commission corroborated most of the allegations filed in the Holocaust litigation and strongly criticized both the private Swiss banks and the Swiss government for their dealings with the Nazis. France's historical commission exposed the long-suppressed looting of Jewish assets in wartime France. An Italian government commission determined that both Italian Fascists and Nazis had systematically plundered Jewish assets in Italy. President Johannes Rau of Germany wrote letters asking for forgiveness to every Holocaust survivor that benefited from the Slave Labor agreement. And in January 2000, in Stockholm, prime ministers and education ministers from forty-three countries assembled to discuss how to teach the younger generation the lessons of the Holocaust.

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While tens of thousands of survivors and heirs have benefited from her quest, the elderly survivor who sparked the restitution movement, Gizella Weisshaus--Fagan's lead plaintiff--never received a cent of the settlement. The Swiss banks claimed they could not find any evidence of her father's account. And so Fagan took up her cause once again in December 2002, asking the court to grant her $100,000 of his fees. Judge Korman agreed, and the same month, President George W. Bush signed legislation that made all such payouts tax-free.

Michael J. Bazyler is professor of law at Whittier Law School; a fellow at the Center for Advanced Holocaust Studies, U.S. Holocaust Memorial Museum; and the author of Holocaust Justice: The Legal Battle for Restitution in America's Courts (New York University Press, 2003).

 


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