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Articles Posted in Business Litigation

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Businesses submitting licensing applications with state or local government agencies are often required to file confidential documents and financial records. The State of Florida has a broad public records policy requiring that “all state, county, and municipal records…[shall be]…open for personal inspection and copying by any person.” Florida Statute § 119.01(1). Businesses are often confronted with the challenge of protecting its trade secrets while complying with the obligation to disclose confidential information to a municipality.  Peter Mavrick is a business litigation lawyer who has extensive experience with trade secret protection.

The Florida legislature created an exemption to the public records law for trade secrets. Pursuant to Florida Statute § 815.045, businesses may identify which confidential information furnished to a state agency should be excluded from public disclosure. However, failure to identify information as putatively exempt from public disclosure effectively destroys any confidential character it might otherwise have enjoyed as a trade secret. Sepro Corporation v. Florida Department of Environmental Protection, 839 So. 2d 781 (Fla. 1st DCA 2003) (a company must label a trade secret or specify in writing as such upon delivery to a state agency to invoke the exemption from disclosure).

Even when a trade secret owner has taken the necessary precautions to label its confidential information, the risk of disclosure remains because Florida courts liberally construe the Public Records Act and favor disclosure. Christy v. Palm Beach County Sheriff’s Office, 698 So.2d 1365 (Fla. 4th DCA 1997). Designating information furnished to a government agency as confidential does not automatically render the record exempt from disclosure. Instead the information must qualify as a trade secret pursuant to Florida law. The trade secret owner also must undertake reasonable measures to protect the information from disclosure.

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The term ‘trade dress’ refers to the appearance of a product when that appearance is used to identify the creator of that product. Trade dress encompasses the total image of a product and may include features such as size, shape, color, texture, graphics, or particular sales techniques.” AmBrit, Inc. v. Kraft, Inc., 812 F.2d 1531 (11th Cir. 1986). The party seeking trade dress protection bears the burden of proving that the features of the trade dress sought to be protected are not functional in nature. The functionality doctrine prevents trademark law from inhibiting legitimate competition by allowing businesses to compete through imitation of a useful product feature. Peter Mavrick is a business litigation lawyer who represents clients in trademark infringement lawsuits.

In the case of Dippin’ Dots, Inc. v. Frosty Bites Distribution, LLC, Plaintiff Dippin’ Dots, Inc. (“DDI”) sued Defendant Frosty Bites Distribution, LLC (“FBD”) for trade dress infringement of DDI’s product and logo design, in violation of the Lanham Act, 15 U.S.C. § 1125. Plaintiff DDI sold brightly-colored, small beads of ice cream called “dippin’ dots.” DDI’s dippin’ dots were created through a six-step process involving, among other things, dripping, freezing and storing an ice cream composition into beads.

FBD was secretly started by a group of retail dealers who terminated their contracts with DDI. FBD sold a competing brightly-colored, small, popcorn-shaped and spherical-shaped ice cream product called “frosty bites.” FBD’s frosty bites were created, in part, by streaming and dripping an ice cream solution into liquid nitrogen where it freezes and forms beads and clusters of frozen ice cream.

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A party seeking a temporary injunction to enforce a non-compete agreement must establish four elements: (1) a likelihood of irreparable harm and the unavailability of an adequate remedy at law; (2) a substantial likelihood of success on the merits; (3) the threatened injury to the petitioner outweighs any possible harm to the respondent, and (4) the granting of a temporary injunction will not disserve the public interest. Avisena, Inc. v. Santalo, 65 So. 3d 14, (Fla. 3d DCA 2011).  The party seeking the injunction has the burden of persuasion of these four elements. Peter Mavrick is a Miami non-compete lawyer who has extensive experience representing clients in non-compete litigation, including cases seeking injunctions.

In Avisena, Inc. v. Santalo, 65 So. 3d 14, (Fla. 3d DCA 2011), Avisena, Inc., (“Avisena”), i.e., the former employer, sued Alberto C. Santalo (“Santalo”), its founder and former president and chief executive officer, along with his new company CareCloud Corporation (“CareCloud”) for alleged violation of a non-compete agreement.  Santalo had previously signed an employment agreement containing non-compete covenant that prohibited competition with his former employer. Santalo’s non-compete period was conditional because it depended on whether he voluntarily quit or instead whether he was terminated and what was the basis for the employment termination.

The employment agreement articulated three reasons that Santalo’s employment may be terminated either by the Avisena or by Santalo. Subsection 5.5 of the employment agreement described termination by Avisena without cause. This subsection stated that Santalo may be terminated by Avisena for any reason or for no reason. Subsection 8.9 of the employment agreement provided varying lengths of non-compete periods depending on which of the three subsections of Section 5 applied. Subsection 8.9 provided that if Santalo were terminated without cause, then the non-compete period would be the twelve-month period following Santalo’s termination from Avisena.

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The Lanham Act does not contain a statute of limitations. When the filing of a trademark infringement lawsuit is delayed for years, the defendants may instead assert laches as an affirmative defense.  Federal courts use the limitations period for analogous state law claims as a standard for the defense of laches. Peter Mavrick is a business litigation lawyer who represents clients in unfair competition and trademark infringement lawsuits.

The laches defense requires a defendant to show 1) a delay in asserting a right or a claim, 2) that the delay was not excusable, and 3) that there was undue prejudice to the party against whom the claim is asserted.” Ares Defense Systems, Inc. v. Karras, 2016 WL 7042957 (M.D. Fla. March 10, 2016) citing AmBrit, Inc. v. Kraft, Inc., 812 F.2d 1531 (11th Cir. 1986). In Florida, Plaintiff’s delay in asserting its trademark infringement claims is assessed against a four-year limitations period, pursuant to Florida Statute § 95.11(3). AmBrit, Inc. v. Kraft, Inc., 812 F.2d 1531 (11th Cir. 1986). Florida Statute § 95.11(3) sets forth a four-year statute of limitations for several causes of action, including actions based on statutory liability, actions for injury to property and is also a “catch-all” limitations period for any action not specifically provided for in Florida Statutes.

A recent case examined this issue. In Ares Defense Systems, Inc. v. Karras, Plaintiff Ares Defense Systems, Inc. (“ADS”) was a firearm manufacturing company that designed, manufactured, and sold a variety of firearms and components under the marks Ares and Ares Defense since 1999.  ADS filed suit alleging trademark infringement against (among others) Defendants Double A and Lycurgan (and their president Dimitrios Karras (“Karras”)), two companies that each claimed use of the mark “Ares Armor” since 2010 or 2011.

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Many employers possess confidential information vital to generating profits. Employers routinely entrust employees with this information to facilitate business operations, but employees often leave their job after a few years to work for a competitor. When this happens, the employee takes the confidential information he or she learned to the next job. The employee might disclose this information to the new employer, and thereby detrimentally affect the former employer’s business. As a result, some employers competing in the same space have joined forces to combat disclosure of their confidential information by agreeing not to solicit each other’s employees, thereby ensuring the employees will remain at the same company. However, these agreements would likely constitute an unlawful restraint on trade under federal law it and may result in significant civil and criminal liability. The Mavrick Law Firm has extensive experience with non-compete agreements and related litigation.

Under the Sherman Act’s prohibition against anti-competitive behavior, an employer cannot lawfully stymie competition by entering agreements with other employers to hinder their employees’ ability to compete in the labor market. Congress declared every contract, trust, or conspiracy restraining trade or commerce illegal. 15 U.S.C. § 1 (“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States….”). The Sherman Act therefore prevents anti-competitive behavior and courts interpret this statute to prohibit competitors from agreeing not to solicit each other’s customers or fix prices. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458 (1993) (“The law directs itself… against conduct which unfairly tends to destroy competition itself.”); United States v. Topco Associates, Inc., 405 U.S. 596, 608 (1972) (“We think that it is clear that the restraint in this case is a horizontal one, and, therefore, a per se violation of § 1.”); Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006) (“Price-fixing agreements between two or more competitors… are per se unlawful.”). The Department of Justice has used the Sherman Act to sue several employers who agreed to refrain from competing for each other’s employees.  In one such case, the Department of Justice contended in court filings that the employers “fix[ed] and suppress[ed] employee compensation and to restrict[ed] employee mobility.” In re High–Tech Employee Litig., 856 F. Supp. 2d 1103, 1108-10 (N.D. Cal. 2012). The case settled but opened the door for employees to assert similar private causes of action. For example, in Nitsch v. DreamWorks Animation SKG Inc., an employee sued DreamWorks Animation SKG Inc., The Walt Disney Company, Lucasfilm Ltd., and others claiming they agreed to refrain from actively soliciting each other’s employees and set employee compensation ranges. Nitsch v. DreamWorks Animation SKG Inc., 100 F. Supp. 3d 851, 853 (N.D. Cal. 2015). Although the Nitsch lawsuit was resolved through arbitration, the case is problematic for employers because it sets a precedent for employees who fall within agreements between two or more employers to sue. These lawsuits could negatively affect businesses and business owners because liabilities associated with the Sherman Act can be severe. For instance, an individual can be fined up to one million dollars or imprisoned for up to ten years and a business can be fined up to one-hundred thousand dollars. 15 U.S.C. § 1. In addition, significant class action liability could arise. In re High–Tech Employee Litig., 2011-2509, ECF 1032 (granting class certification). Employers should therefore consider these risks before agreeing with another employer to inhibit employees from participating in the labor market.

Employers may avoid liability under the Sherman Act by entering bilateral employment contracts with employees that prohibit employees from disclosing confidential information. Florida law allows non-disclosure provisions within employment contracts.  Courts must enforce these provisions if they are in a signed writing; protect a legitimate business interest; and are reasonable in time, area, and line of business. Fla. Stat. § 542.335 (1) (“enforcement of contracts that restrict or prohibit competition during or after the term of restrictive covenants, so long as such contracts are reasonable in time, area, and line of business, is not prohibited”); Fla. Stat. § 542.335 (1)(a)-(b) (“A court shall not enforce a restrictive covenant unless it is set forth in a writing signed by the person against whom enforcement is sought… and the person seeking enforcement of a restrictive covenant [must] plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant”). These non-disclosure employment agreements are less likely to violate the Sherman Act because they are generally considered reasonable. Alders v. Afa Corp. of Florida, 353 F. Supp. 654, 658 (S.D. Fla. 1973) (finding the employer’s restrictive covenant reasonable). In fact, non-disclosure employment agreements may further the Sherman Act’s goals of creating an efficient marketplace by securing a business’ confidential information. Consultants & Designers, Inc. v. butler Service Group, Inc., 720 F. 2d 1553, 1561 (11 Cir. 1983) (“when a practice tends to reduce competition…, but nevertheless operates to make the market more efficient… then it may still be found, under the rule of reason, to further the Sherman Act’s goals in aiding competition.”). An employer employee non-disclosure agreement therefore reduces legal exposure and is more likely to be enforced.

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Punitive damages punish and dissuade wrong-doers from committing egregious acts by increasing the damages award to exceed compensable injuries. Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 432 (2001) (the purpose of punitive damages is to punish and deter future wrongdoing); Engle v. Liggett Group, Inc., 945 So. 2d 1246, 1265 (Fla. 2006) (Punitive damages are calculated by multiplying the compensatory damages award by a number less than 10). A claim for punitive damages is therefore an important weapon in a litigant’s arsenal because it creates liability and risk exposure exceeding the value of the plaintiff’s actual claim. See State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 425 (2003) (“The Court further referenced a long legislative history, dating back over 700 years and going forward to today, providing for sanctions of double, treble, or quadruple damages to deter and punish.”). Because the incentive to pursue punitive damages in unwarranted circumstances may be too difficult for some to resist, the Florida Legislature developed a heightened pleading standard to assert a claim for punitive damages.  See W.R. Grace & Co.–Conn. v. Waters, 638 So. 2d 502, 505 (Fla. 1994) (“We acknowledge the potential for abuse when a defendant may be subjected to repeated punitive damage awards arising out of the same conduct.”). While this enhanced standard may preclude some litigants from asserting punitive damages claims, it is unlikely to affect fraud claims because the pleading requirements for fraud and punitive damages coincide.  Peter Mavrick has successfully represented clients in Palm Beach, Broward, and Miami-Dade business litigation and related arbitration proceedings.

A claimant establishes a punitive damage claim with evidence demonstrating the tortfeasor (i.e., the defendant) acted with intentional misconduct or gross negligence. A tortfeasor is liable for punitive damages for engaging in intentional misconduct or gross negligence. Fla. Stat. § 768.72 (2). Intentional misconduct occurs when the tortfeasor knows the conduct is wrongful and has a high probability of injury but proceeds to act anyway. Id. at (2)(a) (“Intentional misconduct” means that the defendant had actual knowledge of the wrongfulness of the conduct and the high probability that injury or damage to the claimant would result”).  Gross negligence similarly occurs when reckless or wanton conduct constitutes a conscious disregard for the plaintiff’s rights. Id. at (2)(b) (“Gross negligence” means that the defendant’s conduct was so reckless or wanting in care that it constituted a conscious disregard or indifference to the life, safety, or rights of persons exposed to such conduct”). However, conclusory allegations of intentional misconduct or gross negligence will not sustain a punitive damage claim. Douse v. Boston Scientific Corporation, 314 F. Supp. 3d 1251, 1264 (M.D. Fla. 2018) (Conclusory allegations are insufficient to provide a reasonable basis, and instead “a plaintiff must plead specific acts committed by a defendant”). A pleader must therefore present evidence or make a proffer demonstrating a reasonable basis for the recovery of punitive damages. Compare Fla. Stat. § 768.72 (1) (“No claim for punitive damages shall be permitted unless there is a reasonable showing by evidence in the record or proffered by the claimant which would provide a reasonable basis for recovery of such damages”) and Fla. R. Civ. P. 1.120 (b) (a claim shall contain “a short and plain statement of the ultimate facts showing that the pleader is entitled to relief”).

This heightened pleading standard for punitive damage claims does not significantly alter what plaintiffs need to plead for fraud claims.  Claims asserting fraud must be pled with specificity, regardless of whether punitive damages are sought.  In addition, intent is an element of fraud. Fraud is perpetrated by a tortfeasor who, inter alia, intentionally and knowingly makes a false statement about a material fact for purposes of inducing reliance. Johnson v. Davis, 480 So. 2d 625, 627 (Fla. 1985) (providing the elements of fraud). Intent is thus a prerequisite of fraud and must be plead with particularity. Mejia v. Ruiz, 985 So. 2d 1109, 1113 (Fla. 3d DCA 2008) (“Proof of fraud requires proof of intent.”); Cedars Healthcare Group, Ltd. v. Mehta, 16 So. 3d 914, 917 (Fla. 3d DCA 2009) (All elements of fraud must be plead with particularity). A claim for punitive damages therefore does not impose an additional burden on a plaintiff claiming fraud, because fraud already contains an element of intent. Pearlman v. Prudential Ins. Co. of America, Inc., 686 So. 2d 1378, 1382 (Fla. 3d 1997) (“A claim of fraud sufficient to justify compensatory damages is also sufficient to support an award of punitive damages.”). Consequently, a claimant providing evidence of fraud claim automatically satisfies the punitive damages pleading standard. Espirito Santo bank v. Rogo, 990 S0. 2d 1088, 1090 (Fla. 3d 2007) (“When a party has presented sufficient facts in support of a fraudulent inducement claim that would entitle him to an award of compensatory damages, he has also presented sufficient facts that would support a request for punitive damages” because intent in an element of fraud); see also First Interstate Development Corp. c. Ablanedo, 511 So. 2d 536 (Fla. 1987) (“Proof of fraud sufficient to support compensatory damages necessarily is sufficient to create a jury question regarding punitive damages.”); Rappaport v. Jimmy Bryan Toyota of Fort Lauderdale, Inc., 522 So. 2d 1005, 1006 (Fla. 4th DCA 1988) (“Thus, in all cases of fraud the jury is empowered to award punitive damages.”). Plaintiffs with fraud claims should therefore consider asserting punitive damages claims because there is no additional burden of proof.  The leverage gained from the liability associated with punitive damages could help plaintiffs reach favorable resolutions in business litigation and other disputes.

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When parties execute two separate contracts and only one contract contains an arbitration clause, generally the parties cannot be compelled to arbitrate disputes arising from the contract that does not call for arbitration.  However, under certain circumstances courts will extend the arbitration provisions from one contract to a separate contract, and the parties may be bound to arbitrate disputes arising out of either agreement because the two agreements will be read together as one contract. Peter Mavrick has successfully represented clients in Palm Beach, Broward, and Miami-Dade business litigation and related arbitration proceedings.

Phoenix Motor Co. v. Desert Diamond Players Club, Inc. involved four agreements for the purchase of new motor vehicles. The purchase agreements contained an arbitration clause, but also stated that “[t]he Purchaser, before or at the time of delivery of the motor vehicle covered by the Order, shall execute such other forms of agreement or documents as may be required by the terms and conditions of payment indicated on the front of this Order.” Phoenix Motor Co. v. Desert Diamond Players Club, Inc., 144 So.3d 694 (Fla. 4th DCA 2014). The purchaser also signed an export policy imposing liquidated damages if Desert exported the new vehicle out of the United States within one year of purchase. The export policy stated that “[e]xecution of the purchase/lease documents by the purchaser/lessee shall constitute acceptance of these terms and conditions.”

The purchaser sued for a declaration that the export policy was invalid and unenforceable. The seller filed a motion to compel arbitration pursuant to the arbitration clause in the purchase agreements. The trial court in Phoenix Motor Co. addressed whether there was a valid agreement to arbitrate a dispute arising from the export policy. The trial court denied the seller’s motion and the seller immediately appealed.

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An important trend in business contracts today involves the use of arbitration provisions to resolve some or all contemplated disputes that may arise between parties to the contract and sometimes “third-party beneficiaries” of the contract.  Contracts are often made for the benefit of a third-party who did not sign the agreements.  A third-party beneficiary is a person or entity that the parties to the contract intended to benefit from the contract.  The question sometimes arises: is a third-party, non-signatory to a contract legally obligated to submit itself to an arbitrator to decide the third-party’s rights/obligations in the business litigation?  To answer this question, Florida courts analyze the issue in the following manner.  Peter Mavrick is a Fort Lauderdale business litigation attorney who has successfully represented many Fort Lauderdale, Miami, and Palm Beach businesses in connection with arbitration proceedings.

Florida courts examine the following three factors when determining whether to compel arbitration: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived. Florida Power and Light Co. v. Road Rock, Inc., 920 So.2d 201 (Fla. 4th DCA 2006). The first factor requires the court to determine the validity of the arbitration provision. Ordinary contract principles determine who will be bound by such an agreement. Courts give arbitration clauses their broadest possible interpretation to accomplish the statutory purpose of resolving controversies out of the court. Royal Caribbean Cruises, Ltd. v. Universal Employment Agency, 664 So.2d 1107 (Fla. 3d DCA 1995).  Doubts concerning the scope of an arbitration agreement should be resolved in favor of arbitration. Breckenridge v. Farber, 640 So. 2d 208 (Fla. 4th DCA 1994).  While it is fundamental that a court may compel parties to a contract to arbitrate their disputes when the contract mandates arbitration, generally “[o]ne who has not agreed to be bound by an arbitration agreement cannot be compelled to arbitrate.” Liberty Communications, Inc. v. MCI Telecommunications Corp., 733 So.2d 571 (Fla. 5th DCA 1999).  “Where the contract contains an arbitration clause which is legally enforceable, the general view is that the beneficiary is bound thereby to the same extent that the promisee is bound.” Zac Smith & Co., Inc. v. Moonspinner Condominium Ass’n, Inc., 472 So.2d 1324 (Fla. 1st DCA 1985) quoting 2 Williston on Contracts (3d ed.) § 364A (1959). A third-party beneficiary’s contractual rights, however, cannot rise higher than the rights of the contracting party through whom he claims. Crabtree v. Aetna Casualty & Surety Co., 438 So.2d 102, 105 (Fla. 1st DCA 1983).

For example, Florida’s First District Court of Appeal in Zac Smith & Co., Inc. held that an arbitration clause in a contract is binding on a third-party beneficiary and can compel the third-party to participate in arbitration.  In Zac Smith & Co., a condominium association sued a contractor, based in part, on an alleged breach of a construction contract to which the condominium association was a third-party beneficiary.  The defendant contractor moved to compel arbitration because that condominium association was required to abide by arbitration clause contained in contract. The condominium association was asserting its rights as a third-party beneficiary to the contract but disputed being bound to the arbitration clause. The trial court denied the motion and the contractor immediately appealed.  The appellate court reversed the trial court’s decision and held that that the Florida Arbitration Code applies to third-party beneficiaries to a contract containing an arbitration clause.

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A temporary injunction is often an effective protection for to prevent an adversary from using stolen trade secrets, such as a customer list.  Peter Mavrick is a Fort Lauderdale trade secret lawyer who represents businesses in trade secret litigation.

In the case of I.C. Systems, Inc. v. Oliff, 824 So. 2d 286 (Fla. 4th DCA 2002), an employer sued its former employee for damages and injunctive relief and alleged that the former employee misappropriated its client lists and other trade secrets to be used by the employee’s new employer (i.e. a competitor). The employer had no way to control or mitigate the potential damage that would inevitably occur during the lawsuit because the former employee possessed their confidential information. So, contemporaneous to filing its lawsuit, the employer filed a motion for a temporary injunction to immediately prevent further harm by its former employee while the lawsuit proceeded. A temporary injunction is strategically valuable because it penalizes noncompliance by holding them in contempt and the imposition of sanctions against the former employee if he or she fails to comply with the Court’s Order.

The trial court denied the motion for temporary injunction under the mistaken reasoning that the employer did not need the injunction because it could be fully compensated through its claim for monetary damages.  However, in Florida’s Trade Secret Act, the legislature expressly authorized parties to seek both injunctive relief and damages. So, a business should not be limited to recovery of its monetary relief, particularly when its trade secrets could be negatively impacted before a judgment is ever entered by the Court.

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Businesses often envision that litigation over trade secrets will generally involve a direct lawsuit by or against a person or company that steals or divulges such information in violation of a position of trust.  However, trade secrets can come under attack by way of a discovery requests in litigation where the owner of the trade secret may not even be involved in the lawsuit.  The following two recent appellate decisions are examples of the diligence required to safeguard trade secrets in litigation. Peter Mavrick is a Fort Lauderdale trade secret lawyer who represents businesses in trade secret litigation.

In Kelley v. Healthcare-IQ, Inc., 230 So. 3d 955 (Fla. 2d DCA 2017), former employees sued their former employer for breach of an employment contract.  The former employer filed counterclaims against them alleging disclosure of its trade secrets.  During discovery, the former employer served subpoenas for documents relating to the business practices of its competitor, who was the former employees’ current employer.  The employees asserted the trade secret privilege on its current employer’s behalf. At the court hearing on the privilege, there was no evidence taken and no findings were made by the judge. Nevertheless, the trial court allowed the discovery of the trade secret information.

The employees immediately appealed to prevent the irreparable harm that the disclosure of their employer’s trade secret information would cause to their employer.  On certiorari review, the Appeals Court reversed the decision because the trial court failed to follow the proper procedure, which required it to examine evidence and determine the answers to the following two prongs: 1) whether the information requested is in fact a trade secret and 2) if it is trade secret information, whether there is a reasonable necessity for the requesting party to have the information.

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