              IN THE SUPREME COURT OF MISSISSIPPI

                       NO. 2018-CA-00723-SCT

LAGB, LLC AND MAMA KIO’S GRILL, INC.

v.

TOTAL MERCHANT SERVICES, INC., HSBC
BANK USA, GLOBAL PAYMENTS, INC. AND
GLOBAL PAYMENTS DIRECT, INC.


DATE OF JUDGMENT:              04/13/2018
TRIAL JUDGE:                   HON. WINSTON L. KIDD
TRIAL COURT ATTORNEYS:         WALTER H. BOONE
                               CHARLES H. RUSSELL, III
                               LAWRENCE M. COCO, III
                               T. STEWART LEE, JR.
                               COLLEEN SUZANNE WELCH
                               JOHN T. ROUSE
                               JAMES E. GRAVES, III
                               H. KEITH KEETON
COURT FROM WHICH APPEALED:     HINDS COUNTY CIRCUIT COURT
ATTORNEYS FOR APPELLANTS:      JAMES L. KELLY
                               H. KEITH KEETON
ATTORNEYS FOR APPELLEES:       CHARLES H. RUSSELL, III
                               JAMES E. GRAVES, III
                               JOHN T. ROUSE
                               WALTER H. BOONE
NATURE OF THE CASE:            CIVIL - CONTRACT
DISPOSITION:                   AFFIRMED IN PART; REVERSED AND
                               REMANDED IN PART - 09/26/2019
MOTION FOR REHEARING FILED:
MANDATE ISSUED:

     BEFORE RANDOLPH, C.J., ISHEE AND GRIFFIS, JJ.

     RANDOLPH, CHIEF JUSTICE, FOR THE COURT:
¶1.    LAGB, LLC, a commercial landlord, sued its tenant Mama Kio’s Grill and numerous

companies that provided credit-card processing services to Mama Kio’s, alleging that the

negligence of the credit-card processing companies caused Mama Kio’s to breach its lease

with LAGB. Mama Kio’s filed a cross-claim against the credit-card processing companies,

alleging misrepresentations and tortious interference with its business. The credit-card

processing companies filed motions compelling LAGB and Mama Kio’s to arbitrate. The

trial court granted the motions. While the trial court did not err by compelling Mama Kio’s

to arbitrate its cross-claims, it did err by compelling LAGB to arbitrate its claims.

                       FACTS AND PROCEDURAL HISTORY

¶2.    In January 2013, LAGB was formed “for the sole purpose of acquiring and owning

the 10,000 square foot building . . . renovating and improving the said building for the

purpose of housing a Mexican restaurant, and then leasing the improved building to Mama

Kio’s Grill, Inc.” Once the building was acquired, LAGB and Mama Kio’s entered into a

commercial lease.

¶3.    Federico Garcia, president of Mama Kio’s, entered into an agreement with Total

Merchant Services (TMS) for credit-card financial services for the restaurant. Two months

after opening Mama Kio’s, Garcia noticed that the bank deposits through TMS were

considerably less than expected. TMS later discovered the cause was an improper code in its

software that had failed to collect the tips authorized by the customers. The missing tips

totaled approximately $14,000. TMS attempted to remedy the error by running the credit

cards again for the uncharged tip amounts. However, the customers were charged not only



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for the uncollected tips but also for the entire charged amounts. More than three thousand

customers’ transactions were double and/or triple billed, resulting in more than $400,000

taken from Mama Kio’s customers’ accounts. Mama Kio’s worked with the credit-card

companies for more than a month to repair and mitigate the damages. Mama Kio’s was

forced to close its restaurant for lack of customers.

¶4.    LAGB filed suit against Mama Kio’s for breach of its lease contract and sought

damages for rent, insurance, taxes, and capital improvements. LAGB also filed suit against

the credit-card processing companies, pleading in the alternative three theories of

wrongdoing: negligence, tortious interference with a contract, and tortious interference with

a prospective business advantage. In its answer to the complaint, Mama Kio’s filed cross-

claims against the credit-card processing companies, alleging causes of action for breach of

fiduciary relationship, intentional and/or gross negligent misrepresentation, and tortious

interference with a prospective business advantage.

¶5.    The credit-card processing companies filed motions to compel arbitration of LAGB’s

claims against them and Mama Kio’s cross-claims. The companies also filed motions to stay,

alleging that all claims arose from contractual breaches of the agreement between the

companies and Mama Kio’s and that the agreement contained an arbitration clause. The

companies alternatively moved to dismiss the complaint, because LAGB lacked standing to

bring an action against the companies and the companies owed no legal duty to LAGB.

¶6.    LAGB argued that it never contracted with the companies, that it was not a third-party

beneficiary of the contract, and that it could not be bound by an arbitration clause in a



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contract between two other parties. Mama Kio’s argued that its claims did not arise out of

the Merchant Agreement signed by a representative of Mama Kio’s and that Mama Kio’s was

not aware of and had never signed any other agreement that contained an arbitration clause.

¶7.    The trial court granted the companies’ motions to compel arbitration. LAGB and

Mama Kio’s separately moved to alter or amend the judgment and filed a motion for the trial

court to enter specific findings of fact and conclusions of law. After a hearing was conducted

on the motions, the trial court denied their motions. Subsequently, Mama Kio’s and LAGB

appealed.

                                          ISSUES

¶8.    For brevity and clarity, the issues have been reordered and restated as follows:

       I.     Is there a valid arbitration agreement?

       II.    Does the dispute fall within the scope of the agreement?

       III.   Whether any legal constraints external to the agreement would prevent
              arbitration.

       IV.    Is LAGB bound by the arbitration clause contained in the contract
              entered into by Mama Kio’s and the credit-card processing companies?

                               STANDARD OF REVIEW

¶9.    The standard of review for arbitration disputes is well settled.

       This Court reviews the grant of a motion to compel arbitration de novo.
       Tupelo Auto Sales, Ltd. v. Scott, 844 So. 2d 1167, 1169 (Miss. 2003) (citing
       East Ford, Inc. v. Taylor, 826 So. 2d 709, 713 (Miss. 2002)). Under
       Mississippi’s two-prong test to determine arbitrability, this Court asks: (1)
       whether the parties have agreed to arbitrate the dispute, and (2) whether legal
       constraints external to the agreement prevent arbitration. Smith ex rel. Smith
       v. Captain D’s, LLC, 963 So. 2d 1116, 1119-20 (Miss. 2007) (quoting



                                              4
       Rogers–Dabbs Chevrolet–Hummer v. Blakeney, 950 So. 2d 170, 173 (Miss.
       2007)).

Doe v. Hallmark Partners, LP, 227 So. 3d 1052, 1055 (Miss. 2017). Under the first prong,

this Court asks: “(1) Is there a valid arbitration agreement? And, if so, (2) does the dispute

fall within the scope of the agreement?” Id. (quoting Smith, 963 So. 2d at 1120). “To

determine whether there is a valid arbitration agreement, we apply the law of contracts.”

Adams Cmty. Care Ctr., LLC v. Reed, 37 So. 3d 1155, 1158 (Miss. 2010) (citing Grenada

Living Ctr., LLC v. Coleman, 961 So. 2d 33, 36-37 (Miss. 2007). The elements of a contract

are “(1) two or more contracting parties, (2) consideration, (3) an agreement that is

sufficiently definite, (4) parties with legal capacity to make a contract, (5) mutual assent, and

(6) no legal prohibition precluding contract formation.” Id. (internal quotation marks

omitted) (quoting Coleman, 961 So. 2d at 37). Applicable contract defenses provided under

the second prong include fraud, duress, and unconscionability. E. Ford, Inc. v. Taylor, 826

So. 2d 709, 713 (Miss. 2002) (citing Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 686,

116 S. Ct. 1652, 134 L. Ed. 2d 902 (1996)).

                                         ANALYSIS

       I.     Is there a valid arbitration agreement?

¶10.   Mama Kio’s and TMS entered into a “Merchant Credit Card Processing Application

and Agreement” (Merchant Application). The following language was contained in the

Merchant Application in the first of three paragraphs directly above the signature line:

       By signing below you are agreeing to the provisions stated within this
       merchant application, and have acknowledged receipt and have read the
       Merchant Credit Card Processing Agreement (the “Merchant Agreement”).


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       These provisions must be read before signing. By signing below you agree to
       the terms and conditions contained in the merchant application and the
       Merchant Agreement.

The last sentence of that paragraph reads, “A complete copy of your Merchant Agreement

can be obtained at the following URL:

http://www.merchantsupport.info/disclosure/TMS.html.” The font size of the URL was

slightly smaller than the preceding text.

¶11.   The second paragraph reads as follows:

       IN ORDER TO DISPUTE ANY CHARGE OR FUNDING, MERCHANT
       MUST NOTIFY SERVICERS IN WRITING WITHIN THIRTY DAYS OF
       THE DATE OF THIS STATEMENT WHERE SUCH CHARGE OR
       FUNDING APPEARS OR SHOULD HAVE APPEARED. THE LIABILITY
       OF SERVICES IS LIMITED UNDER THE MERCHANT AGREEMENT.
       THE MERCHANT AGREEMENT CONTAINS MANDATORY
       PROCEDURES FOR RESOLVING DISPUTES. ARBITRATION IS
       REQUIRED IN ALL BUT CERTAIN LIMITED CIRCUMSTANCES, AND
       PURSUING CLAIMS ON A CLASS-WIDE BASIS IS PROHIBITED. Please
       review the Merchant Agreement for further details.

¶12.   The Merchant Agreement, which was provided through accessing a website, was a

thirteen-page document. Almost the entirety of page nine of the Merchant Agreement was

devoted to arbitration.

       1.50 Dispute Resolution.

       Servicers and Merchant each acknowledge and agree that any controversy,
       disagreement, dispute or claim arising out of or relating to this Agreement, or
       any breach thereof (each, a “Dispute”), shall be settled by following the
       procedures set forth below:

       ....

       (c) IN THE ABSENCE OF RESOLVING THE DISPUTE UNDER THIS
       SECTION 1.50 AND INSTEAD OF SUING IN COURT, SERVICERS AND

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      MERCHANTS EACH AGREE TO SETTLE AND RESOLVE FULLY AND
      FINALLY ALL DISPUTES EXCLUSIVELY BY ARBITRATION, EXCEPT
      IN THE FOLLOWING LIMITED CIRCUMSTANCES: (I) SERVICERS OR
      MERCHANTS MAY COMMENCE AN INDIVIDUAL ACTION IN SMALL
      CLAIMS COURT WHERE THE AMOUNT OF THE DISPUTE DOES NOT
      EXCEED THE JURISDICTIONAL LIMIT OF SUCH COURT; AND (II)
      MERCHANT MAY FILE A DISPUTE WITH ANY FEDERAL, STATE OR
      LOCAL GOVERNMENTAL AGENCY THAT CAN, IF THE LAW SO
      AUTHORIZES, SEEK RELIEF AGAINST SERVICERS OR BEHALF OF
      MERCHANT. THE AGREEMENT TO HAVE DISPUTES RESOLVED BY
      ARBITRATION IS MADE WITH THE UNDERSTANDING THAT EACH
      PARTY IS IRREVOCABLY, KNOWINGLY, AND INTELLIGENTLY
      WAIVING AND RELEASING ITS RIGHT TO LITIGATE DISPUTES
      THROUGH A COURT AND TO HAVE A JUDGE OR JURY DECIDE
      DISPUTES. Without limitation, Servicers and Merchant agree that Disputes,
      as defined above, shall include the following matters: (a) any Dispute by any
      party against any agent, employee, successor, or assign of the other party or
      parties, including to the full extent permitted by applicable law, third parties
      who are not signatories to this Agreement, whether related to this Agreement
      or otherwise; (b) any past, present, or future Dispute; and (c) any Dispute as
      to the scope, validity, or applicability of this Section 1.50, and/or the
      arbitrability of any Dispute; and (d) any Dispute against Servicers, or any
      solicitation, or advertising, even if it arises after the Agreement has terminated.

The Merchant Agreement also included a choice-of-law provision.

      1.30 Choice of Law, Jurisdiction, Venue.

      The parties agree that all performances and transactions under this Agreement
      will be deemed to have occurred in Colorado, and that Merchant’s entry into
      and performance of this Agreement will be deemed to be the transaction of
      business within the State of Colorado. The Agreement will be governed by
      Colorado law, without regard to its conflicts-of-law principles, and applicable
      federal law. Subject to Section 1.50 below: (i) the parties hereby knowingly,
      intelligently, and voluntarily consent to the exclusive jurisdiction and venue
      for any action relating to the subject matter of this Agreement in either the
      courts of the State of Colorado sitting in Eagle County, Colorado, or the
      United States District Court for the District of Colorado, sitting in Denver
      Colorado . . . .




                                              7
¶13.   In Woodruff v. Thames, this Court addressed contracts referencing and incorporating

other documents.

       For an incorporation by reference to be effective, it must be clear that the
       parties to the agreement had knowledge of and assented to the incorporated
       terms. A reference to another document must be clear and unequivocal, and the
       terms of the incorporated document must be known or easily available to the
       parties. A document is considered incorporated by reference where the
       incorporating document specifically provides that it is subject to the
       incorporated one. However, a mere reference to another document is not
       sufficient to incorporate that other document into a contract; the writing to
       which reference is made must be described in such terms that its identity may
       be ascertained beyond reasonable doubt.

Woodruff v. Thames, 143 So. 3d 546, 554-55 (Miss. 2014) (quoting 17A C.J.S. Contracts

§ 402 (2011)). The Merchant Application specified that the relationship between the parties

would be governed by the separate Merchant Agreement and that Mama Kio’s would be

bound by the terms of the Merchant Agreement. By signing the Merchant Application, Mama

Kio’s director and president, Federico Garcia, affirmed that he had reviewed and agreed to

the full terms of the Merchant Agreement. See Terminix Int’l, Inc. v. Rice, 904 So. 2d 1051,

1056 (Miss. 2004) (“[T]he law presumes that Dr. Rice read the agreement he signed with

Terminix. Had he done so, he would have seen the arbitration clause in the contract.”).

¶14.   The Merchant Application made clear that the Merchant Agreement must be read

because it contained further terms of the parties’ agreement and laid out wholly ascertainable

and definite terms requiring arbitration of disputes. The Merchant Agreement, referenced by

and incorporated in the Merchant Application, is valid and enforceable against Mama Kio’s.

       II.    Does the dispute fall within the scope of the agreement?




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¶15.   Mama Kio’s three cross-claims alleged against the credit-card processing companies

were (1) breach of fiduciary duty, (2) intentional and/or gross negligent misrepresentation,

and (3) tortious interference with prospective business advantage. These claims arose out of

the credit-card processing companies’ alleged breach of the Merchant Agreement. Section

1.50 of the Merchant Agreement reads that “any controversy, disagreement, dispute or claim

arising out of or relating to this Agreement, or any breach thereof (each, a ‘Dispute’), shall

be settled by [dispute resolution and then arbitration].”

¶16.   Mama Kio’s cross-claims were the precise types of disputes anticipated and provided

by the Merchant Agreement.

       III.   Whether any legal constraints external to the agreement would
              prevent arbitration.

¶17.   Mama Kio’s argues that the Merchant Agreement is both procedurally and

substantively unconscionable, thus preventing arbitration. The party opposing arbitration

bears the burden of proving that a contract defense applies in the particular case. Norwest

Fin. Miss., Inc. v. McDonald, 905 So. 2d 1187, 1193 (Miss. 2005) (citing Green Tree Fin.

Corp.–Ala. v. Randolph, 531 U.S. 79, 92, 121 S. Ct. 513, 522, 148 L. Ed. 2d 373 (2000)).

The doctrine of unconscionability applies only to the most egregious of contractual

situations. Smith v. Express Check Advance of Miss., LLC, 153 So. 3d 601, 607 (Miss.

2014). An unconscionable contract is “one such as no man in his senses and not under a

delusion would make on the one hand, and as no honest and fair man would accept on the

other . . . .” Id. (internal quotation marks omitted) (quoting Terre Haute Cooperage v.

Branscome, 203 Miss. 493, 35 So. 2d 537, 541 (1948)). An unconscionable contract


                                              9
“affronts the sense of decency.” Id. (internal quotation marks omitted) (quoting Covenant

Health & Rehab., LP v. Estate of Moulds, 14 So. 3d 695, 699 (Miss. 2009)). Procedural

unconscionability is established by showing “a lack of knowledge, lack of voluntariness,

inconspicuous print, the use of complex legalistic language, disparity in sophistication or

bargaining power of the parties and/or a lack of opportunity to study the contract and inquire

about the contract terms.” Taylor, 826 So. 2d at 714 (internal quotation marks omitted)

(quoting Pridgen v. Green Tree Fin. Servicing Corp., 88 F. Supp. 2d 655, 657 (S.D. Miss.

2000)). “The terms of a substantively unconscionable contract are so unreasonably favorable

to one party that the contract imposes oppressive terms on the weaker party.” Smith, 153 So.

3d at 607-08 (citing Moulds, 14 So. 3d at 699).

¶18.   The arbitration agreement entered into by Mama Kio’s and the credit-card processing

companies is not unconscionable. Considering the merits of Mama Kio’s claims of

procedural unconscionability, Mama Kio’s could have done business with numerous other

credit-card processing companies. Mama Kio’s was not coerced to do business with these

companies. After Mama Kio’s was presented with the Merchant Application, Garcia, on

behalf of Mama Kio’s, could have refused to sign it, or he could have contracted with other

credit-card processing companies. The arbitration agreement in the Merchant Application is

in all capital letters directly above the signature line. The page devoted to the arbitration

agreement in the Merchant Agreement also contained language in all capital letters regarding

resolving disputes through arbitration and waiving a right to a jury trial. In Mississippi, a

person is charged with knowing the contents of any document that he executes. J.R. Watkins



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Co. v. Runnels, 252 Miss. 87, 172 So. 2d 567, 571 (1965) (“A person cannot avoid a written

contract which he has entered into on the ground that he did not read it or have it read to him.

. . .” (internal quotation marks omitted) (quoting 13 C.J. 370)).

¶19.   Mama Kio’s also claims that the arbitration clause was substantively unconscionable

because it was oppressive and onesided. However, the arbitration agreement pertains to

claims of either party and does not benefit the credit-card processing companies only. It is

equally binding upon the credit-card processing companies and Mama Kio’s. The credit-card

processing companies will not be shielded from any negligence that they may have

committed. All claims, including Mama Kio’s claim that the credit-card processing

companies were grossly negligent, will be heard and resolved during arbitration. This issue

is without merit.

¶20.   We find that the trial court did not err by compelling Mama Kio’s to arbitrate its cross-

claims against the credit-card processing companies. A valid arbitration agreement exists,

and the disputes alleged by Mama Kio’s all fall within that arbitration agreement. No legal

constraints are present that would prevent going forward with arbitration. We find that the

trial court did not err by compelling Mama Kio’s to arbitrate its cross-claims.

       IV.    Is LAGB bound by the arbitration clause contained in the contract
              entered into by Mama Kio’s and the credit-card processing
              companies?

¶21.   LAGB argues that it never contracted with any of the credit-card processing

companies and cannot be bound by any contract between Mama Kio’s and those companies.

LAGB contends that no consideration passed between LAGB and any of the credit-card



                                              11
processing companies, that LAGB had no discussion with those companies about arbitration,

and that no arbitration agreement ever was signed. Thus, LAGB argues, it and the companies

never reached a sufficiently definite agreement to arbitrate. Finally, LAGB asserts that there

was no mutual assent on its part to arbitrate any claims.

¶22.   The credit-card processing companies respond, arguing that the trial court correctly

held that LAGB’s claims fell within the scope of the arbitration agreement. Because LAGB’s

theory is based on the companies’ breaching the agreement with Mama Kio’s, the companies

argue that LAGB’s claims arise out of and relate to that agreement.

¶23.   A party will not be required to submit to arbitration “any dispute which he has not

agreed so to submit.” Adams v. Greenpoint Credit, LLC, 943 So. 2d 703, 708 (Miss. 2006)

(internal quotation marks omitted) (quoting Pre-Paid Legal Servs. v. Battle, 873 So. 2d 79,

83 (Miss. 2004)).

       Since arbitration provisions are “contractual in nature, the general rule is that
       ‘a party cannot be required to submit to arbitration any dispute which he has
       not agreed so to submit.’” Qualcomm [, Inc. v. Am. Wireless License Grp.],
       980 So. 2d [261,] 269 [(Miss. 2007)] (quoting Adams v. Greenpoint Credit,
       LLC, 943 So. 2d 703, 708 (Miss. 2006)). See also Bridas S.A.P.I.C. v. Gov’t
       of Turkmenistan, 345 F.3d 347, 354 n.3 (5th Cir. 2003) (quoting
       Westmoreland v. Sadoux, 299 F.3d 462, 465 (5th Cir. 2002)) (arbitration
       agreements apply to nonsignatories only “in rare circumstances.”). However,
       “a non-signatory party may be bound to an arbitration agreement if so dictated
       by the ordinary principles of contract and agency.” Miss. Care Ctr. of
       Greenville, LLC v. Hinyub, 975 So. 2d 211, 216 (Miss. 2008) (quoting
       Washington Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 266 (5th Cir.
       2004)). For example, “a signatory may enforce an arbitration agreement
       against a non-signatory if the non-signatory is a third-party beneficiary . . . .”
       Qualcomm, 980 So. 2d at 269 (citing Adams, 943 So. 2d at 708).




                                              12
Scruggs v. Wyatt, 60 So. 3d 758, 767 (Miss. 2011) (emphasis added). A third-party

beneficiary exists

       (1) When the terms of the contract are expressly broad enough to include the
       third party either by name as one of a specified class, and (2) the said third
       party was evidently within the intent of the terms so used, the said third party
       will be within its benefits, if (3) the promisee had, in fact, a substantial and
       articulate interest in the welfare of the said third party in respect to the subject
       of the contract.

Yazoo & M.V.R. Co. v. Sideboard, 161 Miss. 4, 133 So. 669, 671 (1931) (emphasis added).

“In other words, the right of the third party beneficiary to maintain an action on the contract

must spring from the terms of the contract itself.” Adams, 943 So. 2d at 709 (emphasis

omitted) (quoting Burns v. Washington Savings, 251 Miss. 789, 171 So. 2d 322, 325

(1965)). “Only in the rarest of circumstances, and with caution, should we shackle a citizen

to an agreement of others that strips the citizen of his or her constitutional right to a trial by

jury.” Olshan Found. Repair Co. of Jackson, LLC v. Moore, 251 So. 3d 725, 728 (Miss.

2018) (citing Miss. Const. art. 3, § 31; Pinnacle Trust Co., L.L.C. v. McTaggart, 152 So. 3d

1123, 1127 (Miss. 2014)). We must determine if this case presents one of those “rare

circumstances” in which nonsignatories should be bound by an arbitration agreement. We

find that this is not such a circumstance.

¶24.   LAGB has not made a contract claim against any of the credit-card processing

companies. LAGB alleges tort claims of negligence, tortious interference with a contract, and

tortious interference with a prospective business advantage. If LAGB can sustain its claims

without any reference to the contracts or agreements between or among Mama Kio’s and the

credit-card processing companies, its causes of action are not subject to arbitration. LAGB

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is not bound to the terms of Mama Kio’s contracts, including the arbitration provisions. The

trial court’s order compelling arbitration as to LAGB is reversed, and this case is remanded

for LAGB to pursue claims it may have against Mama Kio’s and the credit-card processing

companies consistent with this opinion.

                                     CONCLUSION

¶25.   The trial court’s order compelling arbitration as to Mama Kio’s cross-claims against

the credit-card processing companies is affirmed. However, the trial court erred by

compelling LAGB to arbitrate its claims against Mama Kio’s and the credit-card processing

companies. That portion of the order is reversed, and LAGB’s claims against Mama Kio’s

and the credit-card processing companies are remanded for proceedings consistent with this

opinion.

¶26.   AFFIRMED IN PART; REVERSED AND REMANDED IN PART.

    KITCHENS AND KING, P.JJ., COLEMAN,                            MAXWELL,         BEAM,
CHAMBERLIN, ISHEE AND GRIFFIS, JJ., CONCUR.




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