{"id":813,"date":"2011-01-18T13:00:30","date_gmt":"2011-01-18T18:00:30","guid":{"rendered":"http:\/\/journals.law.harvard.edu\/hblr\/?p=813"},"modified":"2016-07-04T21:55:15","modified_gmt":"2016-07-05T01:55:15","slug":"citizens-united-and-the-nexus-of-contracts-presumption","status":"publish","type":"post","link":"https:\/\/journals.law.harvard.edu\/hblr\/citizens-united-and-the-nexus-of-contracts-presumption\/","title":{"rendered":"Citizens United and the Nexus-Of-Contracts Presumption"},"content":{"rendered":"<p><a href=\"https:\/\/journals.law.harvard.edu\/hblr\/\/wp-content\/uploads\/sites\/87\/2011\/01\/Padfield_Online_Article.pdf\">Download PDF<\/a><\/p>\n<p><a href=\"http:\/\/www.uakron.edu\/law\/faculty\/profile.dot?identity=698752\">Stefan J. Padfield<\/a><a href=\"#_ftn*\">*<\/a><\/p>\n<p><em>Citizens United v. Federal Election Commission<\/em><a href=\"#_ftn1\"><sup><sup>[1]<\/sup><\/sup><\/a> has been described as \u201cone of the most important business decisions in a generation.\u201d<a href=\"#_ftn2\"><sup><sup>[2]<\/sup><\/sup><\/a> In <em>Citizens United<\/em>, the Supreme Court of the United States invalidated section\u00a0441(b) of the Federal Election Campaign Act of 1971 as unconstitutional.<a href=\"#_ftn3\"><sup><sup>[3]<\/sup><\/sup><\/a> That section prohibited corporations (and unions) from financing \u201celectioneering communications\u201d (speech that expressly advocates the election or defeat of a candidate) within 30\u00a0days of a primary election. The five Justices in the majority rested their holding on the assertion that \u201cGovernment may not suppress political speech on the basis of the speaker\u2019s corporate identity.\u201d<a href=\"#_ftn4\"><sup><sup>[4]<\/sup><\/sup><\/a> In reaching this conclusion, the majority relied on a view of the corporation fundamentally as an \u201cassociation of citizens.\u201d<a href=\"#_ftn5\"><sup><sup>[5]<\/sup><\/sup><\/a><\/p>\n<p>Meanwhile, the view of the corporation advanced by Justice Stevens in dissent differed markedly from that of the majority. Where the majority saw an association of citizens, the dissent saw state-created entities that: (1)\u00a0\u201cdiffer from natural persons in fundamental ways\u201d;<a href=\"#_ftn6\"><sup><sup>[6]<\/sup><\/sup><\/a> (2)\u00a0\u201chave no consciences, no beliefs, no feelings, no thoughts, no desires\u201d;<a href=\"#_ftn7\"><sup><sup>[7]<\/sup><\/sup><\/a>and (3)\u00a0\u201cmust engage the political process in instrumental terms if they are to maximize shareholder value.\u201d<a href=\"#_ftn8\"><sup><sup>[8]<\/sup><\/sup><\/a> Of particular note, the dissent asserted that \u201ccorporations have been \u2018effectively delegated responsibility for ensuring society\u2019s economic welfare.\u2019\u201d<a href=\"#_ftn9\"><sup><sup>[9]<\/sup><\/sup><\/a><\/p>\n<p>These competing visions of the corporation roughly align with two divergent theories of the corporation: nexus-of-contracts theory for the majority and concession theory for the dissent.<a href=\"#_ftn10\"><sup><sup>[10]<\/sup><\/sup><\/a> It is worth considering that adoption of these competing theories of the firm was in some meaningful way dispositive. By denying that there was anything more substantial to the corporation than an association of citizens, the majority could conclude that there was nothing about the corporation qua corporation that justified restricting corporate political speech solely on the basis of corporate identity.<a href=\"#_ftn11\"><sup><sup>[11]<\/sup><\/sup><\/a> Conversely, the dissent\u2019s view of the corporation as \u201cdiffer[ing] from natural persons in fundamental ways\u201d<a href=\"#_ftn12\"><sup><sup>[12]<\/sup><\/sup><\/a> arguably made it much easier to conclude that the challenged limitations on speech survived strict scrutiny.<\/p>\n<p>If the foregoing is correct, then it becomes quite puzzling that the majority remained silent as to the role of corporate theory and the dissent expressly disavowed any connection. Wrote Justice Stevens: \u201cNothing in this analysis turns on whether the corporation is conceptualized as a grantee of a state concession, a nexus of explicit and implicit contracts, a mediated hierarchy of stakeholders, or any other recognized model.\u201d<a href=\"#_ftn13\"><sup><sup>[13]<\/sup><\/sup><\/a> What might explain such apparent incongruence?<\/p>\n<p>One could argue that whatever differences the majority and dissent may have had regarding theories of the corporation, their differences were not dispositive because the only thing we need to know about the nature of the corporation in order to decide the case is that corporations are \u201cpersons\u201d whose speech is protected under the First Amendment.<a href=\"#_ftn14\"><sup><sup>[14]<\/sup><\/sup><\/a> However, one also could argue that First Amendment analysis regarding a corporate person is incomplete without considering the theory of the corporation. According to this argument, speech by such a corporate person potentially fits within the \u201cnarrow class\u201d of cases upholding identity-based speech restrictions,<a href=\"#_ftn15\"><sup><sup>[15]<\/sup><\/sup><\/a> but we cannot properly determine that issue without clarifying the \u201cidentity\u201d of the corporation\u2014which would need to be based on a theory of the corporation.<\/p>\n<p>Overall, it might have been improper to focus on corporation theory because that theory is not in fact outcome determinative.<a href=\"#_ftn16\"><sup><sup>[16]<\/sup><\/sup><\/a> However, most modern commentators agree that the nexus-of-contracts theory generally is aligned with less regulation of corporations, while concession theory generally is aligned with more regulation.<a href=\"#_ftn17\"><sup><sup>[17]<\/sup><\/sup><\/a><\/p>\n<p>I suggest another explanation. It may well be that corporate theory was dispositive in <em>Citizens United<\/em>, but that acknowledging such a role for corporate theory would have raised serious questions about the propriety of the Supreme Court proclaiming what the \u201ctrue\u201d nature of the corporation might be. As recently as 1989, the Court described corporations as \u201centities whose very existence and attributes are a product of state law.\u201d<a href=\"#_ftn18\"><sup><sup>[18]<\/sup><\/sup><\/a> Would the Court now turn around and tell states what they had created? Such a pronouncement would raise issues of federalism. Rather, one might view the majority\u2019s effective adoption of the nexus-of-contracts theory as the adoption of a sort of presumption\u2014not unlike the adoption of the fraud-on-the-market presumption in <em>Basic Inc. v. Levinson<\/em>.<a href=\"#_ftn19\"><sup><sup>[19]<\/sup><\/sup><\/a> The fraud-on-the-market theory then, like the nexus-of-contracts theory now, certainly had much academic support. Nonetheless, by merely adopting a presumption, the Court was able to employ the benefits of the widely accepted theory without having to confront difficult questions of having exceeded its expertise by determining whether the theory was in fact correct.<a href=\"#_ftn20\"><sup><sup>[20]<\/sup><\/sup><\/a><\/p>\n<p>Likewise, one might view the majority\u2019s reliance on a view of the corporation as nothing more than an association of citizens as the adoption of a presumption in favor of the nexus-of-contracts theory\u2014albeit an unexpressed adoption.<a href=\"#_ftn21\"><sup><sup>[21]<\/sup><\/sup><\/a> Interestingly, we may see the Court apply such a presumption again in the pending case of <em>FCC v. AT&amp;T<\/em>.<a href=\"#_ftn22\"><sup><sup>[22]<\/sup><\/sup><\/a> In that case, the Court has been asked to decide whether corporations have personal privacy rights under the Freedom of Information Act (\u201cFOIA\u201d). While the case may well be decided on the basis of a purely textual analysis of the statute, there certainly appears to be room for an assertion that there is nothing unique about corporations\u2014since they are merely associations of citizens (in accordance with the nexus-of-contracts presumption)\u2014that should preclude them from claiming personal privacy rights under FOIA like other persons.<\/p>\n<hr size=\"1\" \/>\n<p>*<a name=\"_ftn*\"><\/a> Associate Professor, University of Akron School of Law. The idea for this piece was presented at <em>Citizens United v. FEC: A Panel Discussion<\/em>, hosted by the West Virginia University College of Law on November 4, 2010. My thanks to all the participants for their helpful comments. Thanks also to Stephen Bainbridge, Kent Greenfield, and Larry Ribstein for their helpful comments.<\/p>\n<p>&nbsp;<\/p>\n<p>[1]<a name=\"_ftn1\"><\/a> 130 S. Ct. 876 (2010).<\/p>\n<p>[2]<a name=\"_ftn2\"><\/a> Larry E. Ribstein, <em>The Court Unleashes the Corporation<\/em>, <span style=\"font-variant: small-caps;\">Ideoblog<\/span> (Jan. 22, 2010, 8:22 AM), http:\/\/busmovie.typepad.com\/ideoblog\/2010\/01\/the-court-unleashes-the-corporation.html.<\/p>\n<p>[3]<a name=\"_ftn3\"><\/a> Bipartisan Campaign Reform Act of 2002, Pub. L. No. 107-155, 116 Stat. 81 (2002) (amending 2 U.S.C. \u00a7\u00a0441(b) (2006)).<\/p>\n<p>[4]<a name=\"_ftn4\"><\/a> <em>Citizens United<\/em>, 130 S. Ct. at 885.<\/p>\n<p>[5]<a name=\"_ftn5\"><\/a> <em>See, e.g.<\/em>, <em>id.<\/em> at 906\u201307 (asserting that the Court\u2019s prior ruling in <em>Austin v. Michigan State Chamber of Commerce<\/em>, 494 U.S. 652 (1990), \u201cpermits the Government to ban the political speech of millions of associations of citizens\u201d); <em>id.<\/em> at 908 (asserting that, under 2 U.S.C.A. \u00a7 441(b), \u201ccertain disfavored associations of citizens\u2014those that have taken on the corporate form\u2014are penalized for engaging in .\u00a0.\u00a0. political speech\u201d).<\/p>\n<p>[6]<a name=\"_ftn6\"><\/a> <em>Id.<\/em> at 971 n.72 (Stevens, J., dissenting).<\/p>\n<p>[7]<a name=\"_ftn7\"><\/a> <em>Id.<\/em> at 972.<\/p>\n<p>[8]<a name=\"_ftn8\"><\/a> <em>Id.<\/em> at 965.<\/p>\n<p>[9]<a name=\"_ftn9\"><\/a> <em>Id.<\/em> at 971 (quoting Milton Regan, <em>Corporate Speech and Civic Virtue<\/em>, <em>in<\/em> <span style=\"font-variant: small-caps;\">Debating Democracy\u2019s Discontent <\/span>289, 302 (A. Allen &amp; M. Regan eds.,1998)).<\/p>\n<p>[10]<a name=\"_ftn10\"><\/a> <em>See, e.g.<\/em>, Stephen M. Bainbridge, <em>Citizens United v. FEC: Stevens\u2019 Pernicious Version of the Concession Theory<\/em>, <span style=\"font-variant: small-caps;\">ProfessorBrainbridge.com <\/span>(Jan. 21, 2010, 4:05 PM), http:\/\/www.professorbainbridge.com\/professorbainbridgecom \/2010\/01\/citizens-united-v-fec-stevens-pernicious-version-of-the-concession-theory.html. <em>But see<\/em> Larry E. Ribstein, <em>Citizens United v. FEC: A Roundtable Discussion<\/em>, <span style=\"font-variant: small-caps;\">Federalist Society <\/span>(Feb. 3, 2010), http:\/\/www.fed-soc.org\/debates\/dbtid.38\/default.asp (\u201cIn general, Justice Kennedy\u2019s majority opinion and Justice Stevens\u2019 dissent represent diametrically opposed views of the corporation.\u00a0. .\u00a0. Neither the majority nor the dissent sees the corporation for what it is \u2013 a set of contracts among the participants.\u201d); <em>cf.<\/em> Liam Seamus O\u2019Melinn, <em>Neither Contract nor Concession: The Public Personality of the Corporation<\/em>, 74 <span style=\"font-variant: small-caps;\">Geo. Wash. L. Rev. <\/span>201, 201 (2006) (\u201cThis Article challenges the two preeminent theories of the corporation\u2014contract and concession. .\u00a0.\u00a0.\u201d);<em> id<\/em>. at n.3 (\u201cNot all theorists use the language of contract and concession, with several preferring \u2018property\u2019 and \u2018entity,\u2019 but the contract and property theories are roughly the same, as are the concession and entity theories.\u201d).<\/p>\n<p>[11]<a name=\"_ftn11\"><\/a> <em>See Citizens United<\/em>, 130 S. Ct. at 899 (majority opinion) (concluding there was no reason to include BCRA in the \u201cnarrow class of speech restrictions that operate to the disadvantage of certain persons\u201d because \u201c[t]he corporate independent expenditures at issue in this case .\u00a0.\u00a0. would not interfere with governmental functions\u201d).<\/p>\n<p>[12]<a name=\"_ftn12\"><\/a> <em>Id.<\/em> at 971 n.72 (Stevens, J., dissenting).<\/p>\n<p>[13]<a name=\"_ftn13\"><\/a> <em>Id.<\/em> (internal citations omitted).<\/p>\n<p>[14]<a name=\"_ftn14\"><\/a> <em>See <\/em>First Nat\u2019l Bank of Bos. v. Bellotti, 435 U.S. 765, 780 n.15 (1978) (\u201c[C]orporations are persons within the meaning of the Fourteenth Amendment.\u201d).<\/p>\n<p>[15]<a name=\"_ftn15\"><\/a> <em>See<\/em> Daniel J.H. Greenwood, <em>Fictional Shareholders: For Whom are Corporate Managers Trustees, Revisited<\/em>, 69 <span style=\"font-variant: small-caps;\">S. Cal. L. Rev. <\/span>1021, 1093\u201394 (1996) (arguing that corporations lobby for laws that no human being would desire, and which may in fact be harmful to human beings).<\/p>\n<p>[16]<a name=\"_ftn16\"><\/a> <em>Cf.<\/em> David Millon, <em>Theories of the Corporation<\/em>, 1990 <span style=\"font-variant: small-caps;\">Duke L.J. <\/span>201, 202 (1990) (\u201cHistorically, the political implications of the natural\/artificial and entity\/aggregate distinctions have been ambiguous, meaning different things at different times.\u201d).<\/p>\n<p>[17]<a name=\"_ftn17\"><\/a> <em>Cf.<\/em> William W. Bratton, Jr., <em>The \u201cNexus of Contracts\u201d Corporation: A Critical Appraisal<\/em>, 74 <span style=\"font-variant: small-caps;\">Cornell L. Rev. <\/span>407, 433 (1989) (\u201cCommentary grounded in the nexus of contracts concept declares \u2018contract or concession\u2019 to be the political issue regarding the theory of the firm. It asserts that advocates of government regulation subscribe to a concession theory of the corporation\u2019s origin and then draws on the nexus of contracts to rebut concession theory.\u201d).<\/p>\n<p>[18]<a name=\"_ftn18\"><\/a> CTS Corp. v. Dynamics Corp. of America, 481 U.S. 69, 89 (1989).<\/p>\n<p>[19]<a name=\"_ftn19\"><\/a> 485 U.S. 224, 250 (1988) (holding that \u201c[i]t is not inappropriate to apply a presumption of reliance supported by the fraud-on-the-market theory\u201d in Rule 10b-5 actions).<\/p>\n<p>[20]<a name=\"_ftn20\"><\/a> <em>Id.<\/em> at 242 (\u201cOur task, of course, is not to assess the general validity of the theory, but to consider whether it was proper for the courts below to apply a rebuttable presumption of reliance, supported in part by the fraud-on-the-market theory.\u201d).<\/p>\n<p>[21]<a name=\"_ftn21\"><\/a> One possible reason that the Court did not expressly adopt the suggested presumption is that both the majority and the dissent considered their respective views of the corporation to be so obvious as to require little further comment. <em>See<\/em> Citizens United v. Fed. Election Comm\u2019n, 130 S. Ct. 876, 971, n.72 (Stevens, J., dissenting) (\u201cIt is not necessary to agree on a precise theory of the corporation to agree that corporations differ from natural persons in fundamental ways, and that a legislature might therefore need to regulate them differently if it is human welfare that is the object of its concern.\u201d). As far as the dissent is concerned, the motivation for avoiding further discussion of the theory of the corporation may also include a desire to avoid the objection that its concession theory ultimately seeks to impose an unconstitutional condition on the grant of corporate powers. <em>See id.<\/em> at 905 (\u201cIt is rudimentary that the State cannot exact as the price of those special advantages [of incorporation] the forfeiture of First Amendment rights.\u201d) (quoting Austin v. Michigan State Chamber of Commerce, 494 U.S. 652, 680 (1990) (Scalia, J., dissenting)).<\/p>\n<p>[22]<a name=\"_ftn22\"><\/a> 582 F.3d 490. <em>See generally<\/em> Stefan J. Padfield, <em>Freedom of Information Act: FCC v. AT&amp;T<\/em>, 38 <span style=\"font-variant: small-caps;\">Preview of U.S. Sup. Ct. Cases <\/span>156, 158 (forthcoming Jan.\u00a02011) (\u201cOne thing to watch for is the extent to which corporate theory plays a role in the decision.\u201d).<\/p>\n<p>Preferred citation: Stefan J. Padfield, <em>Citizens United and the Nexus-Of-Contracts Presumption<\/em>, 1 <span style=\"font-variant: small-caps;\">Harv. Bus. L. Rev. Online<\/span> 25 (2010), https:\/\/journals.law.harvard.edu\/hblr\/\/?p=813.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Stefan J. Padfield                                                                                                    <\/p>\n<p>Citizens United v. Federal Election Commission has been described as \u201cone of the most important business decisions in a generation.\u201d In Citizens United, the Supreme Court of the United States invalidated section 441(b) of the Federal Election Campaign Act of 1971 as unconstitutional. That section prohibited corporations (and unions) from financing \u201celectioneering communications\u201d (speech that expressly advocates the election or defeat of a candidate) within 30 days of a primary election. The five Justices in the majority rested their holding on the assertion that \u201cGovernment may not suppress political speech on the basis of the speaker\u2019s corporate identity.\u201d In reaching this conclusion, the majority relied on a view of the corporation fundamentally as an \u201cassociation of citizens.\u201d<\/p>\n","protected":false},"author":1,"featured_media":919,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[22],"tags":[65,64,66,57],"ppma_author":[373],"class_list":["post-813","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-home","tag-citizens-united","tag-federal-election-campaign-act","tag-nexus-of-contracts","tag-stefan-j-padfield"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/journals.law.harvard.edu\/hblr\/wp-content\/uploads\/sites\/87\/2011\/01\/network2.jpg?fit=300%2C200&ssl=1","jetpack_shortlink":"https:\/\/wp.me\/pgKEUK-d7","jetpack-related-posts":[{"id":4349,"url":"https:\/\/journals.law.harvard.edu\/hblr\/age-before-equity-federal-regulatory-agency-disgorgement-actions-and-the-statute-of-limitations\/","url_meta":{"origin":813,"position":0},"title":"Age Before Equity? Federal Regulatory Agency Disgorgement Actions and the Statute of Limitations","author":"ehansen","date":"April 4, 2017","format":false,"excerpt":"Download PDF Michael Columbo and Allison Davis I. Introduction At what point may a person rest assured that the government will not confiscate her money due to a past alleged regulatory infraction? In Kokesh v. 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The Federal Reserve\u2019s critical and significant role in responding to some of these disruptions has similarly been largely overlooked.","rel":"","context":"In &quot;Derivatives Regulation&quot;","block_context":{"text":"Derivatives Regulation","link":"https:\/\/journals.law.harvard.edu\/hblr\/category\/us-business-law\/derivatives-regulation\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1123,"url":"https:\/\/journals.law.harvard.edu\/hblr\/durbin-sticks-to-guns-chooses-slurpees-over-consumers-an-overview-of-the-durbin-amendment-and-its-potential-adverse-impact-on-consumers\/","url_meta":{"origin":813,"position":4},"title":"Durbin Sticks to Guns, Chooses Slurpees Over Consumers: An Overview of the Durbin Amendment and Its Potential Adverse Impact on Consumers","author":"wpengine","date":"April 9, 2011","format":false,"excerpt":"Brandon Gold When the chairmen of the Federal Reserve Board and Federal Deposit Insurance Corporation and the Acting Comptroller of the Currency express doubts about a regulation designed to eliminate seventy percent of a market, and when the queen and spokeswoman of consumer financial protection, Elizabeth Warren, refuses to comment\u2026","rel":"","context":"In &quot;Home&quot;","block_context":{"text":"Home","link":"https:\/\/journals.law.harvard.edu\/hblr\/category\/home\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":978,"url":"https:\/\/journals.law.harvard.edu\/hblr\/injury-or-deterrence-the-end-of-class-action-litigation-and-its-benefit-to-consumers\/","url_meta":{"origin":813,"position":5},"title":"Injury or Deterrence: The End of Class-Action Litigation and Its Benefit to Consumers","author":"wpengine","date":"March 10, 2011","format":false,"excerpt":"Jason Sherman On November 8, The Wall Street Journal asked, \u201cIs D-Day Approaching For Class-Actions Lawsuits?\u201d The next day, the Supreme Court heard oral arguments for AT&T Mobility v. Concepcion. 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