Banks v. Wolfe Cnty Bd Ed

Opinion

5(&200(1'(' )25 )8//7(;7 38%/,&$7,21 3XUVXDQW WR 6L[WK &LUFXLW 5XOH   %DQNVY:ROIH&RXQW\ 1R (/(&7521,& &,7$7,21  )(' $SS 3 WK &LU %GRI(GXFHWDO )LOH 1DPH DS

IRU $SSHOOHHV  21 %5,()  sRKQ & 5RDFK : .HLWK 81,7('67$7(6&28572)$33($/6 5DQVGHOO 5$16'(// 52$&+  :,(5 /H[LQJWRQ .HQWXFN\ IRU $SSHOODQW  &DWKHULQH 6 :ULJKW )5267 )257+(6,;7+&,5&8,7 %52:1 72''/H[LQJWRQ.HQWXFN\IRU$SSHOOHHV BBBBBBBBBBBBBBBBB 32/67(5 ' s GHOLYHUHG WKH RSLQLRQ RI WKH FRXUW LQ 1(77$ %$1.6 ; ZKLFK *,/0$1 s MRLQHG  *,%%216 s SS  3ODLQWLII$SSHOODQW  GHOLYHUHGDVHSDUDWHFRQFXUULQJRSLQLRQ   1R BBBBBBBBBBBBBBBBB Y  ! 23,1,21  BBBBBBBBBBBBBBBBB :2/)( &2817< %2$5' 2)  ('8&$7,21HWDO  '$1 $$521 32/67(5 'LVWULFW sXGJH  3ODLQWLII 'HIHQGDQWV$SSHOOHHV  $SSHOODQW 1HWWD %DQNV DSSHDOV WKH GLVWULFW FRXUWjV RUGHU  JUDQWLQJVXPPDU\MXGJPHQWWR'HIHQGDQWV$SSHOOHHV:ROIH 1 &RXQW\%RDUGRI(GXFDWLRQ6WHSKHQ%XWFKHUDQG+RZDUG $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW 2VERUQHRQKHU)LUVW$PHQGPHQWUHWDOLDWLRQFODLP)RUWKH IRUWKH(DVWHUQ'LVWULFWRI.HQWXFN\DW/H[LQJWRQ UHDVRQVVHWIRUWKEHORZWKHMXGJPHQWRIWKHGLVWULFWFRXUWLV 1Rn.DUO6)RUHVWHU&KLHI'LVWULFWsXGJH 5(9(56(' DQG WKH FDVH LV 5(0$1'(' IRU IXUWKHU SURFHHGLQJVFRQVLVWHQWZLWKWKLVRSLQLRQ $UJXHG)HEUXDU\ ,%DFNJURXQG 'HFLGHGDQG)LOHGsXQH ,Q  3ODLQWLII$SSHOODQW 1HWWD %DQNV m%DQNVl %HIRUH*,/0$1DQG*,%%216&LUFXLWsXGJHV UHFHLYHG D GHJUHH LQ HOHPHQWDU\ HGXFDWLRQ  $IWHU KHU 32/67(5'LVWULFWsXGJH JUDGXDWLRQ %DQNV EHJDQ VXEVWLWXWH WHDFKLQJ IRU WKH :ROIH &RXQW\%RDUGRI(GXFDWLRQm'HIHQGDQW%RDUGl,Q BBBBBBBBBBBBBBBBB %DQNV ZDV KLUHG DV D FODVVLILHG LQVWUXFWLRQDO DLGH ZLWK 'HIHQGDQW %RDUG  ,Q $XJXVW RI  %DQNV EHFDPH WKH &2816(/ SDUHQW OLDLVRQ DW &DPSWRQ (OHPHQWDU\ 6FKRRO  %DQNV ZDV QHYHUHPSOR\HGE\'HIHQGDQW%RDUGLQDFHUWLILHGWHDFKLQJ $5*8('sRKQ&5RDFK5$16'(//52$&+ :,(5 SRVLWLRQGHVSLWHLQWHUYLHZLQJIRUVHYHUDOSRVLWLRQVERWKEHIRUH /H[LQJWRQ .HQWXFN\ IRU $SSHOODQW  0HNHVKD + DQGDIWHU$XJXVWRI 0RQWJRPHU\)5267%52:1 72''&LQFLQQDWL2KLR ,Q $XJXVW RI  +RZDUG 2VERUQH m'HIHQGDQW 2VERUQHlZDVKLUHGDVSULQFLSDODW&DPSWRQ(OHPHQWDU\2Q

$XJXVW   %DQNV LQWHUYLHZHG IRU D SULPDU\ WHDFKLQJ SRVLWLRQDW&DPSWRQ(OHPHQWDU\ZLWKWKH&DPSWRQ6LWH%DVHG 7KH +RQRUDEOH 'DQ $DURQ 3ROVWHU 8QLWHG 6WDWHV 'LVWULFW sXGJH IRU WKH 1RUWKHUQ 'LVWULFW RI 2KLR VLWWLQJ E\ GHVLJQDWLRQ

 1R %DQNVY:ROIH&RXQW\   %DQNVY:ROIH&RXQW\ 1R %GRI(GXFHWDO %GRI(GXFHWDO

&RXQFLO m&DPSWRQ &RXQFLOl  'HIHQGDQW 2VERUQH ZDV D &DPSWRQ &RXQFLO PHPEHUV DQG 6XSHULQWHQGHQW 6WHSKHQ PHPEHU RI WKH &DPSWRQ &RXQFLO  .U\VWDO (YDQV DQRWKHU %XWFKHUm'HIHQGDQW%XWFKHUl2Q'HFHPEHUWKH DSSOLFDQWZDVDZDUGHGWKHSRVLWLRQ 2($ VHQW 'HIHQGDQW %XWFKHU WKH 3UHOLPLQDU\ 5HSRUW DQG UHTXHVWHG D IRUPDO UHVSRQVH WR WKH ILQGLQJV  2Q )ROORZLQJ WKLV GHFLVLRQ %DQNV EHJDQ WR TXHVWLRQ WKH 'HFHPEHU   'HIHQGDQW %XWFKHU UHVSRQGHG WR WKH SROLFLHV DQG SURFHGXUHV RI WKH &DPSWRQ &RXQFLO  %DQNV ILQGLQJV  2Q )HEUXDU\   WKH 2($ LVVXHG D ILQDO VSRNHWRVHYHUDOPHPEHUVRIWKH&DPSWRQ&RXQFLOUHJDUGLQJ UHSRUW (YDQVjKLULQJDQGWKHLQWHUYLHZLQJSURFHGXUHVWKDWZHUHRU ZHUHQRWIROORZHG2Q$XJXVW%DQNVGLUHFWHGDQ 'HIHQGDQWVDVVHUWWKDW%DQNVjFRQGXFWDGYHUVHO\DIIHFWHG RSHQUHFRUGVUHTXHVWWR'HIHQGDQW2VERUQH%DQNVjUHTXHVW WKHVFKRRODQGWKHDELOLW\RILWVVWDIIWRPHHWWKHQHHGVRIWKH VRXJKWFRSLHVRIWKH&DPSWRQ(OHPHQWDU\6FKRROjVVLWHEDVHG VWXGHQWV2QRUEHIRUH2FWREHU'HIHQGDQW%XWFKHU GHFLVLRQPDNLQJ SROLFLHV DQG SURFHGXUHV IRU WKH KLULQJ RI PHWZLWKDQGLQIRUPHG%DQNVWKDWVKHZDVEHLQJWUDQVIHUUHG FHUWLILHG SHUVRQQHO FRSLHV RI KHU MRE GHVFULSWLRQ DQG WRWKH)DPLO\5HVRXUFH&HQWHU2Q2FWREHU%DQNV SHUVRQQHOIROGHUDQGFRSLHVRIWKH$XJXVW&DPSWRQ UHFHLYHGDOHWWHUFRQILUPLQJWKHWUDQVIHU%DQNVDOOHJHVWKDW &RXQFLOjVPHHWLQJ VKH ZDV WUDQVIHUUHG LQ UHWDOLDWLRQ IRU KHU ILOLQJ WKH IRUPDO FRPSODLQWVZLWK2($%DQNVIXUWKHUFRQWHQGVWKDWVKHZDV ,Q D OHWWHU GDWHG $XJXVW   %DQNV PDGH D IRUPDO QRW LQWHUYLHZHG RU KLUHG IRU QXPHURXV MREV DQG WKDW ZULWWHQFRPSODLQWWRWKH2IILFHRI(GXFDWLRQ$FFRXQWDELOLW\ 'HIHQGDQW%XWFKHUUHIXVHGWRIRUZDUGKHUQDPHWRSULQFLSDOV RIWKH&RPPRQZHDOWKRI.HQWXFN\m2($l7KHOHWWHU IRU RSHQ SRVLWLRQV  %DQNV DOVR DVVHUWV WKDW WKH FRQWUDFW DOOHJHVWKDWWKH&DPSWRQ&RXQFLOIDLOHGWRIROORZLWVSROLFLHV RIIHUHGE\'HIHQGDQW%RDUGIRUWKHVFKRRO\HDU DQG SURFHGXUHV LQ KLULQJ (YDQV DQG WKDW WKHUH KDG EHHQ GLGQRWLQFOXGHDSHUFHQWUDLVHDQGDQDGGLWLRQDOSD\ LUUHJXODULWLHVLQWKHKLULQJRIWKUHHRWKHUSULPDU\SRVLWLRQV LQFUHDVH  %DQNV GLG QRW VLJQ WKH FRQWUDFW DQG DFFHSWHG D 2Q RU DERXW $XJXVW   %LOO 6WHDUQV RI WKH 2($ FHUWLILHG WHDFKLQJ SRVLWLRQ LQ 3RZHOO &RXQW\  %DQNV KDV FRQWDFWHG 'HIHQGDQW 2VERUQH DQG UHTXHVWHG LQIRUPDWLRQ WDXJKWDW6WDQWRQ(OHPHQWDU\6FKRROLQ3RZHOO&RXQW\VLQFH UHJDUGLQJWKHKLULQJRI(YDQV'HIHQGDQW2VERUQHWHVWLILHG $XJXVWRI WKDWWKH2($QHLWKHUJDYHKLPDFRS\RIWKHFRPSODLQWQRU WROG KLP ZKR WKH FRPSODLQDQW ZDV  2Q $XJXVW   2Q sXO\   %DQNV ILOHG D  86& †  'HIHQGDQW2VERUQHSURYLGHGWKH2($ZLWKGRFXPHQWDWLRQ FRPSODLQW DOOHJLQJ D )LUVW $PHQGPHQW  FODLP DQG D VWDWH DERXWWKHKLULQJRI.U\VWDO(YDQV ZKLVWOHEORZHUFODLPs$DW7KHGLVWULFWFRXUWJUDQWHG VXPPDU\ MXGJPHQW LQ IDYRU RI :ROIH &RXQW\ %RDUG RI ,Q D OHWWHU GDWHG 2FWREHU   %DQNV VHQW D VHFRQG (GXFDWLRQ6WHSKHQ%XWFKHUDQG+RZDUG2VERUQHRQ%DQNVj ZULWWHQ FRPSODLQW WR WKH 2($ DQG DVVHUWHG WZHQW\HLJKW )LUVW$PHQGPHQWFODLP7KHGLVWULFWFRXUWFRQFOXGHGWKDW DOOHJDWLRQVRIZURQJGRLQJE\'HIHQGDQWV2Q2FWREHUDQG %DQNVj VSHHFK GLG QRW DGGUHVV D PDWWHU RI SXEOLF FRQFHUQ   WZR 2($ VWDII PHPEHUV FRQGXFWHG DQ RQVLWH 7KH GLVWULFW FRXUW GLVPLVVHG ZLWK SUHMXGLFH %DQNVj VWDWH LQYHVWLJDWLRQ DW &DPSWRQ (OHPHQWDU\ DQG LQWHUYLHZHG WKH  2Q UHPDQG %DQNV PXVW FODULI\ KHU FRQWHQWLRQ ,W LV QRW FOHDU IURP  ,3 NV WHVWLILHG WKDW VKH FRQWDFWHG WKH 2($ E\ WHOHSKRQH EHIRUH WKH UHFRUG LI VKH LV FODLPLQJ WKDW VKH ZDV GHQLHG DFURVVWKHERDUG PDNLQJ D IRUPDO FRPSODLQW $GGLWLRQDOO\ GXULQJ $XJXVW DQG 6HSWHPEHU LQFUHDVHV LQ UHWDOLDWLRQ IRU KHU FRPSODLQWV RU ZKHWKHU LQFUHDVHV WKDW ZHUH %DQNV VSRNH VHYHUDO WLPHV ZLWK WKH 2($ RQ WKH WHOHSKRQH VSHFLILFDOO\ SURPLVHG WR KHU ZHUH ZLWKGUDZQ DIWHU VKH ILOHG KHU FRPSODLQW 1R %DQNVY:ROIH&RXQW\   %DQNVY:ROIH&RXQW\ 1R %GRI(GXFHWDO %GRI(GXFHWDO

ZKLVWOHEORZHUFODLPRQVWDWXWHRIOLPLWDWLRQVJURXQGV,QWKH  WKH SODLQWLII ZDV VXEMHFWHG WR DQ DGYHUVH DFWLRQ RU ZDV SUHVHQW DSSHDO %DQNV FKDOOHQJHV RQO\ WKH GLVWULFW FRXUWjV GHSULYHGRIVRPHEHQHILWDQGWKHSURWHFWHGVSHHFKZDVD JUDQWLQJRIVXPPDU\MXGJPHQWLQIDYRURI'HIHQGDQWVRQWKH µVXEVWDQWLDOjRUDµPRWLYDWLQJIDFWRUjLQWKHDGYHUVHDFWLRQl )LUVW$PHQGPHQWFODLP%DQNVGRHVQRWFKDOOHQJHWKHGLVWULFW %UDQGHQEXUJY+RXVLQJ$XWKRULW\RI,UYLQH)G FRXUWjVUXOLQJRQKHUVWDWHZKLVWOHEORZHUFODLP WK&LUFLWLQJ0W+HDOWK\&LW\6FKRRO'LVW%G RI(GXFY'R\OH86 7RGHPRQVWUDWH ,,6WDQGDUGRI5HYLHZ WKDW%DQNVZDVHQJDJLQJLQFRQVWLWXWLRQDOO\SURWHFWHGVSHHFK VKHPXVWVKRZWKDWKHUVSHHFKWRXFKHGRQPDWWHUVRISXEOLF 7KLV FRXUW UHYLHZV WKH GLVWULFW FRXUWjV JUDQW RI VXPPDU\ FRQFHUQ DQG WKDW KHU mLQWHUHVW LQ PDNLQJ VXFK VWDWHPHQWV MXGJPHQWGHQRYR:DWNLQVY&LW\RI%DWWOH&UHHN)G RXWZHLJKV WKH LQWHUHVW RI WKH 6WDWH DV DQ HPSOR\HU LQ WK&LU6XPPDU\MXGJPHQWLVSURSHUZKHQ SURPRWLQJWKHHIILFLHQF\RIWKHSXEOLFVHUYLFHVLWSHUIRUPV mWKHSOHDGLQJVGHSRVLWLRQVDQVZHUVWRLQWHUURJDWRULHVDQG WKURXJK LWV HPSOR\HHVl  3LFNHULQJ Y  %RDUG RI (GXF RI DGPLVVLRQVRQILOHWRJHWKHUZLWKWKHDIILGDYLWVLIDQ\VKRZ 7RZQVKLS+LJK6FKRRO'LVW86 WKDWWKHUHLVQRJHQXLQHLVVXHDVWRDQ\PDWHULDOIDFWDQGWKDW 0W+HDOWK\&LW\6FKRRO'LVW%GRI(GXF86DW WKHPRYLQJSDUW\LVHQWLWOHGWRDMXGJPHQWDVDPDWWHURIODZl DQG%DLOH\Y)OR\G&RXQW\%GRI(GXF)G )HG 5 &LY 3 F  ,Q GHFLGLQJ D PRWLRQ IRU VXPPDU\ WK&LU:KHWKHUVSHHFKDGGUHVVHVDPDWWHURISXEOLF MXGJPHQWWKHFRXUWPXVWYLHZWKHIDFWXDOHYLGHQFHDQGGUDZ FRQFHUQLVDTXHVWLRQRIODZ%DUQHVY0F'RZHOO)G DOO UHDVRQDEOH LQIHUHQFHV LQ IDYRU RI WKH QRQPRYLQJ SDUW\   WK &LU   ,I D SODLQWLIIjV VSHHFK GRHV QRW 0DWVXVKLWD(OHF,QGXV&R/WGY=HQLWK5DGLR&RUS DGGUHVV D PDWWHU RI SXEOLF FRQFHUQ QR IXUWKHU LQTXLU\ LV 86m>7@KHSDUW\RSSRVLQJWKHPRWLRQPD\ QHFHVVDU\,G QRWUHO\VROHO\RQWKHSOHDGLQJVDQGPXVWDGGXFHPRUHWKDQD PHUH VFLQWLOOD RI HYLGHQFH LI WKH QRQPRYLQJ SDUW\ IDLOV WR 7KH 6XSUHPH &RXUW KDV KHOG WKDW VSHHFK DGGUHVVLQJ D PDNHDVXIILFLHQWVKRZLQJRQDQHVVHQWLDOHOHPHQWRIWKHFDVH PDWWHURISXEOLFFRQFHUQLVVSHHFKUHODWLQJWRmDQ\PDWWHURI ZLWK UHVSHFW WR ZKLFK WKH QRQPRYDQW KDV WKH EXUGHQ WKH SROLWLFDO VRFLDO RU RWKHU FRQFHUQ WR WKH FRPPXQLW\l PRYLQJSDUW\LVHQWLWOHGWRVXPPDU\MXGJPHQWDVDPDWWHURI &RQQLFNY0\HUV86%\FRQWUDVWD ODZl7KRPSVRQY$VKH)GWK&LU SXEOLF HPSOR\HHjV VSHHFK GHDOLQJ ZLWK mPDWWHUV RQO\ RI $JHQXLQHLVVXHIRUWULDOH[LVWVmLIWKHHYLGHQFHLVVXFKWKDWD SHUVRQDO LQWHUHVWl LV JHQHUDOO\ QRW DIIRUGHG FRQVWLWXWLRQDO UHDVRQDEOH MXU\ FRXOG UHWXUQ D YHUGLFW IRU WKH QRQPRYLQJ SURWHFWLRQ  ,G DW   m:KHWKHU DQ HPSOR\HHjV VSHHFK SDUW\l$QGHUVRQY/LEHUW\/REE\,QF86 DGGUHVVHVDPDWWHURISXEOLFFRQFHUQPXVWEHGHWHUPLQHGE\  WKH FRQWHQW IRUP DQG FRQWH[W RI D JLYHQ VWDWHPHQW DV UHYHDOHG E\ WKH ZKROH UHFRUGl  ,G DW   ,Q JHQHUDO ,,,$SSOLFDEOH/DZ VSHHFKLQYROYHVPDWWHUVRISXEOLFFRQFHUQZKHQLWLQYROYHV mLVVXHVDERXWZKLFKLQIRUPDWLRQLVQHHGHGRUDSSURSULDWHWR 1RW DOO VSHHFK E\ D SXEOLF HPSOR\HH LV SURWHFWHG E\ WKH HQDEOHWKHPHPEHUVRIVRFLHW\WRPDNHLQIRUPHGGHFLVLRQV )LUVW$PHQGPHQW,QRUGHUWRPDNHRXWDSULPDIDFLHFDVHIRU DERXWWKHRSHUDWLRQRIWKHLUJRYHUQPHQWl%UDQGHQEXUJ D )LUVW $PHQGPHQW FODLP %DQNV D SXEOLF HPSOR\HH ZKR )GDWTXRWLQJ0F.LQOH\Y&LW\RI(OR\)G FODLPVWKDWDQHPSOR\PHQWGHFLVLRQZDVPDGHLQUHWDOLDWLRQ WK&LU ,IDQ\SDUWRIDQHPSOR\HHjVVSHHFK IRUHQJDJLQJLQSURWHFWHGVSHHFKPXVWVKRZWKDWmWKH UHODWLQJ WR D PDWWHU RI SXEOLF FRQFHUQ LV D VXEVWDQWLDO RU SODLQWLII ZDV HQJDJHG LQ FRQVWLWXWLRQDOO\ SURWHFWHG VSHHFK PRWLYDWLQJIDFWRULQWKHDGYHUVHDFWLRQWKHFRXUWPXVWHQJDJH 1R %DQNVY:ROIH&RXQW\   %DQNVY:ROIH&RXQW\ 1R %GRI(GXFHWDO %GRI(GXFHWDO

LQWKHEDODQFLQJSURFHVVVHWIRUWKLQ3LFNHULQJ7KHFRXUWLV &RQQLFN86DW UHTXLUHGWRmEDODQFHEHWZHHQWKHLQWHUHVWVRIWKHWHDFKHUDV DFLWL]HQLQFRPPHQWLQJXSRQPDWWHUVRISXEOLFFRQFHUQDQG ,QWKHLQVWDQWFDVHWKHGLVWULFWFRXUWUHOLHGH[FOXVLYHO\XSRQ WKH LQWHUHVW RI WKH 6WDWH DV DQ HPSOR\HU LQ SURPRWLQJ WKH &KDSSHOY0RQWJRPHU\&RXQW\)LUH3URWHFWLRQ'LVW1R HIILFLHQF\ RI WKH SXEOLF VHUYLFHV LW SHUIRUPV WKURXJK LWV  )G  WK &LU  DQG IRXQG WKDW %DQNVj HPSOR\HHVl3LFNHULQJ86DW,IUHWDOLDWLRQIRU VXEMHFWLYH PRWLYDWLRQV IRU FRQWDFWLQJ WKH 2($ FRXOG EH SURWHFWHG VSHHFK ZDV D VXEVWDQWLDO RU PRWLYDWLQJ IDFWRU LQ GHGXFHG IURP WKH UHFRUG  %DVHG RQ %DQNVj VXEMHFWLYH 'HIHQGDQWVj GLVFLSOLQDU\ RU DGYHUVH DFWLRQ DJDLQVW %DQNV PRWLYDWLRQVWKHGLVWULFWFRXUWFRQFOXGHGWKDW%DQNVjVSHHFK 'HIHQGDQWVPD\SUHVHQWHYLGHQFHWKDWWKH\ZRXOGKDYHWDNHQ ZDVPHUHO\DPDWWHURISHUVRQDOFRQFHUQDQGGLGQRWDGGUHVV WKLVDFWLRQLQWKHDEVHQFHRIKHUSURWHFWHGFRQGXFW6HH0W DPDWWHURISXEOLFFRQFHUQ7KHGLVWULFWFRXUWFLWHG&KDSSHO +HDOWK\&LW\6FKRRO'LVW%GRI(GXF86DW IRU WKH SURSRVLWLRQ mWKDW DQ HPSOR\HHjV PRWLYDWLRQ IRU VSHDNLQJ FRXOG GRPLQDWH WKH VXEVWDQFH RI WKH HPSOR\HHjV ,9$QDO\VLV VSHHFKUHQGHULQJWKHµSRLQWjRUµFRPPXQLFDWLYHSXUSRVHjRI WKHHPSOR\HHjVVSHHFKPHUHO\DPDWWHURISHUVRQDOFRQFHUQl 'HIHQGDQWVDUJXHWKDW%DQNVj$XJXVWDQG2FWREHU %DQNVY:ROIH&RXQW\%GRI(GXF1R('.\ FRPSODLQWOHWWHUVWRWKH2($UHODWHWRQRWKLQJPRUHWKDQ sXO\)RUHVWHU&s+RZHYHUWKHGLVWULFWFRXUW KHU SHUVRQDO JULHYDQFHV PRWLYDWHG E\ KHU VHOILQWHUHVW LQ DSSDUHQWO\ RYHUORRNHG DQRWKHU SRUWLRQ RI WKH &KDSSHO REWDLQLQJDFHUWLILHGSRVLWLRQDQGWKHUHIRUHGRQRWDGGUHVVD KROGLQJm:KHWKHUDQHPSOR\HHjVVWDWHPHQWLVSUHGRPLQDWHG PDWWHURISXEOLFFRQFHUQ%DQNVFRQWHQGVWKDWKHUFRPSODLQW E\ µWKH HPSOR\HHjV SHUVRQDO LQWHUHVW TXD HPSOR\HHj LV OHWWHUVDOOHJHYLRODWLRQVRIVWDWHODZLQFOXGLQJIDLOXUHWR SULPDULO\ D FRQWHQWEDVHG LQTXLU\ QRW DQ H[FOXVLYHO\ IROORZHVWDEOLVKHGSROLFLHVDQGSURFHGXUHVLPSURSHUXVH PRWLYHEDVHGLQTXLU\l)GDW RIIXQGVDQGLPSURSHUKLULQJSUDFWLFHV%DQNVDUJXHVWKDW WKHVHLVVXHVDUHPDWWHUVRISXEOLFFRQFHUQ 6LQFH&KDSSHOWKLVFRXUWKDVKHOGWKDWWKHVXEMHFWLYHLQWHQW RIWKHVSHDNHUZKLOHUHOHYDQWLVQRWDFRQWUROOLQJIDFWRU6HH 7KLV FRXUW KDV UHFRJQL]HG WKDW LW LV D GLIILFXOW WDVN IRU D 3HUU\Y0F*LQQLV)GWK&LUWKH FRXUWWRGHWHUPLQH LI DQ HPSOR\HHjVVSHHFKLVSURWHFWHGRU IDFWWKDWWKHVSHDNHUZDVmFRPSODLQLQJLQWKHFRXUVHRIKLV XQSURWHFWHG%RQQHOOY/RUHQ]R)GWK&LU SHUVRQDO HPSOR\PHQW GLVSXWHl GLG QRW PDWWHU /XFDV Y   1HDUO\ DQ\WKLQJ D SXEOLF HPSOR\HH VD\V DERXW WKH 0RQURH &RXQW\  )G   WK &LU  JRYHUQPHQW HQWLW\ PLJKW DSSHDU WR EH D PDWWHU RI SXEOLF m3ODLQWLIIVQHHGRQO\VKRZWKDWWKHLUVSHHFKVRPHKRZUHODWHG FRQFHUQ+RZHYHUWKH6XSUHPH&RXUWKDVFODULILHGWKDWWKH WRDPDWWHURIFRPPXQLW\FRQFHUQl%RQQHOO)GDW FDWHJRU\RISURWHFWHGVSHHFKLVQRWWKLVEURDG m>W@KHPRWLYHZKLFKXQGHUOLHVDQHPSOR\HHjVVWDWHPHQWVLVD UHOHYDQW EXW QRW QHFHVVDULO\ GLVSRVLWLYH IDFWRUl FLWDWLRQV >:@KHQDSXEOLFHPSOR\HHVSHDNVQRWDVDFLWL]HQXSRQ RPLWWHGDQG9DXJKQY/DZUHQFHEXUJ3RZHU6\VWHP PDWWHUV RI SXEOLF FRQFHUQ EXW LQVWHDG DV DQ HPSOR\HH )GWK&LUPRWLYHLVUHOHYDQWEXWQRW XSRQPDWWHUVRQO\RISHUVRQDOLQWHUHVWDEVHQWWKHPRVW QHFHVVDULO\WKHGLVSRVLWLYHIDFWRU,QGHFLGLQJWKLVFDVHWKH XQXVXDO FLUFXPVWDQFHV D IHGHUDO FRXUW LV QRW WKH GLVWULFWFRXUWGLGQRWKDYHWKHEHQHILWRIWKLVFRXUWjVRSLQLRQV DSSURSULDWHIRUXPLQZKLFKWRUHYLHZWKHZLVGRPRID LQ%RQQHOODQG9DXJKQ:HFRQFOXGHWKDWWKHGLVWULFWFRXUW SHUVRQQHOGHFLVLRQWDNHQE\DSXEOLFDJHQF\DOOHJHGO\LQ HUUHGE\DFFRUGLQJWRRPXFKVLJQLILFDQFHWR%DQNVjSHUVRQDO UHDFWLRQWRWKHHPSOR\HHjVEHKDYLRU PRWLYDWLRQV 1R %DQNVY:ROIH&RXQW\   %DQNVY:ROIH&RXQW\ 1R %GRI(GXFHWDO %GRI(GXFHWDO

%HFDXVH WKH GLVWULFW FRXUW IRFXVHG RQ %DQNVj VXEMHFWLYH GHWHUPLQDWLRQZHJHQHUDOO\ORRNWRZKDWZDVVDLGUDWKHUWKDQ PRWLYDWLRQUHJDUGLQJWKH2($FRPSODLQWOHWWHUVLWIDLOHGWR ZK\LWZDVVDLGl9DXJKQ)GDW UHFRJQL]HWKDWWKHVSHHFKPLJKWEHYLHZHGDVmPL[HGVSHHFKl LQYROYLQJERWKSHUVRQDODQGSXEOLFPDWWHUV6LQFHWKLV 9$SSOLFDWLRQ FRXUW KDV IROORZHG WKH 6XSUHPH &RXUWjV KROGLQJ WKDW WKH HQWLUHW\RIWKHHPSOR\HHj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o FRPEDWLQJKHUVXSHUYLVRUVj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s$DW ZKHWKHUWKHHPSOR\HHjVVSHHFKLQIDFWWRXFKHVRQDPDWWHURI SXEOLFFRQFHUQ,G $ ,WKLQN,UHDOO\WKLQNWKDWWKHPDLQWKHUHDVRQRUWKH WLPHIUDPHIRUFRQWDFWLQJ2($ZDVEHFDXVH,ZDV sXVW UHFHQWO\ WKLV FRXUW KDV UHFRJQL]HG WKDW m>P@L[HG XQDEOH WR JHW DQVZHUV RU JHW LQIRUPDWLRQ RU JHW TXHVWLRQVRISULYDWHDQGSXEOLFFRQFHUQZKHUHWKHHPSOR\HH ZKDWHYHULWZDVDQGWKDWWKDWZDVZK\,PDGHP\ LVVSHDNLQJERWKDVDFLWL]HQDVZHOODVDQHPSOR\HHFDQEH FRPSODLQW SURWHFWHGl9DXJKQ)GDW6HHDOVR%RQQHOO )GDWWK&LUmDOWKRXJKDVSHFWVRI3ODLQWLIIjV s$DW VSHHFK LQYROYH PDWWHUV RI SHUVRQDO LQWHUHVW ZKHUH KH LV VSHDNLQJUHJDUGLQJDSHUVRQDOJULHYDQFHDVDQHPSOR\HHKLV )XUWKHULQKHUWHVWLPRQ\VKHVWDWHGWKDWKHUFRQFHUQVZHUH VSHHFK DOVR LQYROYHV PDWWHUV RI SXEOLF LQWHUHVW VXFK WKDW EURDGHU 3ODLQWLII LV VSHDNLQJ DV D FRQFHUQHG FLWL]HQl  m0L[HG VSHHFKlFDVHVDUHWKHPRVWGLIILFXOWWRDGMXGLFDWHm>E@HFDXVH 4 :HOO,jPNLQGRIORRNLQJDWZKDWZDV\RXUWKRXJKW WKHHPSOR\HHDGPLWWHGO\VSHDNVIURPPXOWLSOHPRWLYHV>DQG@ SURFHVVDERXWZK\\RXGHFLGHGWRFDOOWKH2($ GHWHUPLQLQJ ZKHWKHU VKH VSHDNV DV D FLWL]HQ RU HPSOR\HH UHTXLUHV D SUHFLVH DQG IDFWXDOO\VHQVLWLYH GHWHUPLQDWLRQl $ ,FDOOHG2($EHFDXVH,IHOWOLNHWKDWWKHUHZHUHDORW .HQQHG\Y7DQJLSDKRD3DULVK/LEUDU\%GRI&RQWURO RILUUHJXODULWLHVWKDWZHUHJRLQJRQDWRXUVFKRRODQG )G   WK &LU    m>,@Q PDNLQJ WKLV IDFWXDO LQWKHFRXQW\VFKRROV\VWHPVLQJHQHUDO,ZDV 1R %DQNVY:ROIH&RXQW\   %DQNVY:ROIH&RXQW\ 1R %GRI(GXFHWDO %GRI(GXFHWDO

FRQFHUQHG IRU RXU VFKRRO V\VWHP DV D ZKROH  , &DPSWRQ(OHPHQWDU\6LWH%DVH&RXQFLOKDVD3ROLF\DQG ZDQWHGWKHWKLQJVWKDWZHUHWDNLQJSODFHWRVWRSWKDW 3URFHGXUHV PDQXDO ZKLFK KDV EHHQ DGRSWHG ZLWK ZHUHQRWULJKWWKDWZHUHZHQWDERXWLOOHJDOO\ JXLGHOLQHVWKDWDUHYHU\VSHFLILFRQWKHKLULQJRIFHUWLILHG SHUVRQQHODFRS\LVDWWDFKHG7KHSURFHGXUHIRUWKLVLV s$DW VHWXSVRWKDWHDFKDSSOLFDQWLVLQWHUYLHZHGE\WKH6LWH %DVH &RXQFLO DQG WKH 3ULQFLSDO DQG HDFK DSSOLFDQW LV 4 :DVWKDW\RXUSULPDU\FRQFHUQZKHQ\RXZURWHRXW UDWHGE\DVFRULQJJXLGHZKLFKGHWHUPLQHVKRZPDQ\ \RXUOHWWHUWRWKH2($LVZK\\RXFDQQRWVHHPWREH SRLQWVHDFKDSSOLFDQWUHFHLYHV$XJXVW/HWWHUWR KLUHGDVDFHUWLILHGWHDFKHULQ:ROIH&RXQW\" 2($ˆ $ 1RDFWXDOO\LWZDVQjW0\SULPDU\FRQFHUQZDVLV >7@KH 3ULQFLSDO DOORZHG D FRXQFLO PHPEHU WR UHPDLQ ZK\ LW LV WKDW ZH KDYH DOO RI WKHVH SROLFLHV DQG VHDWHGHYHQWKRXJKWKHLUVSRXVHZDVDQDSSOLFDQWWREH SURFHGXUHV DQG DOO WKHVH ODZV DQG WKHUH >VLF@ QRW LQWHUYLHZHG $ UHSUHVHQWDWLYH IURP 5HJLRQ  WUDLQLQJ EHLQJIROORZHG7KDWZDVP\SULPDU\FRQFHUQ FHQWHU KDG DOUHDG\ LQIRUPHG WKH 3ULQFLSDO DQG WKH &RXQFLOWKDWDZLIHFRXOGQRWVLWLQRQWKHLQWHUYLHZLQJ s$DW SURFHVVLIKHUKXVEDQG>5REHUW%UHZHU@ZDVDQDSSOLFDQW WR EH LQWHUYLHZHG  7KH FRXQFLO PHPEHU GLG QRW VWHS ,QFRQVLGHULQJmWKHFRQWHQWIRUPDQGFRQWH[WlRIWKH2($ GRZQDQGKHUKXVEDQGZDVKLUHGDVDSULPDU\WHDFKHUDW FRPSODLQW OHWWHUV ZH FRQFOXGH WKDW %DQNVj FRQFHUQV IDOO &DPSWRQ(OHPHQWDU\ZKHUHWKHWHDFKHUFRXQFLOPHPEHU ZLWKLQ WKH PL[HG VSHHFK FDWHJRU\  &RQQLFN  86 DW DOVRWHDFKHV,Gˆ   $ GHWDLOHG DQDO\VLV RI WKH UHFRUG DV D ZKROH HVWDEOLVKHVWKDW%DQNVjFRPSODLQWOHWWHUVLQFOXGHDOOHJDWLRQV :LWKRXWDQ\SRVWLQJVFUHHQLQJRULQWHUYLHZLQJD\RXQJ RI'HIHQGDQWVjIDLOXUHWRIROORZERWKVWDWHODZDQGWKHLURZQ ZRPDQZDVFDOOHGWRFRPHWRZRUNLQDSULPDU\SRVLWLRQ KLULQJ SROLFLHV DQG SURFHGXUHV DQG DOOHJHG ILQDQFLDO ZKLFKKDGQR%RDUGDSSURYDO$QRWKHUSULPDU\SRVLWLRQ PLVPDQDJHPHQW  %DQNV UHIHUV WR IDYRULWLVPQHSRWLVP LQ KDGEHHQSRVWHGHDUOLHUIRUWKHWKJUDGHEXWWKHSRVLWLRQ KLULQJWKHODFNRISRVWLQJDQGLQWHUYLHZLQJIRUMREYDFDQFLHV ZDVDOUHDG\SURPLVHGEHIRUHWKHSRVWLQJZHQWXS,G DQG WKH LPSURSHU FHUWLILFDWLRQ RI VWDII LQ WKH IROORZLQJ ˆ SDUDJUDSKV >1@RSRVWLQJVDQGQROLEUDULDQDW:ROI&R+LJK6FKRRO ZDVZDLWLQJRQSHUVRQWRILQLVKJHWWLQJFHUWLILFDWLRQ/DVW VFKRRO\HDU,G+DQGZULWWHQ1RWH  >1@HYHUEHHQDSRVWLQJIRUWKH+RPHERXQG'LVWULFW:LGH 7KH FRQWHQW RI DQ HPSOR\HHjV VSHHFK VKRXOG IDLUO\ SXW WKH HPSOR\HU RQ QRWLFH LI VKH LQWHQGV WR UDLVH D PDWWHU RI SXEOLF FRQFHUQ DQG DQ LWLVP\XQGHUVWDQGLQJVRPHRQHZKRKDVUHFHQWO\UHWLUHG HPSOR\HU VKRXOG QRW KDYH WR JXHVV RU VSHFXODWH %\ JLYLQJ DQ HPSOR\HU KDVILOOHGWKHSRVLWLRQ0V:DQGD&UHHFK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

+LULQJDW5RJHUV(OHPHQWDU\5LWD'UDNH1RSRVWLQJRU FRPPXQLW\PHPEHUVRIWKHRSSRUWXQLW\WRSDUWLFLSDWHLQDQ LQWHUYLHZV2FWREHU/HWWHUWR2($ˆ LPSDUWLDO LQWHUYLHZ  7KH FRPPXQLW\ KDV DQ LQWHUHVW LQ NQRZLQJKRZWKHGLVWULFWjVWHDFKHUVDUHKLUHGDQGZKHQWKH +LULQJRIWKJUDGHWHDFKHU&RQQLH%DNHUDW&DPSWRQ GLVWULFWGRHVQRWIROORZVWDWHODZRULWVRZQKLULQJSUDFWLFHV (OHPHQWDU\1RSRVWLQJDQGQRLQWHUYLHZV,Gˆ %DQNVjDOOHJDWLRQVFRXOGDIIHFWWKHFRPPXQLW\DQGWKHUHIRUH WRXFKXSRQPDWWHUVRISXEOLFFRQFHUQ6HH3HUU\)GDW 0U2VERUQHVDLGWKDWKHZDVWROGWRKLUH0UV.ULVWHO m%HFDXVH3HUU\jVVSHHFKVHUYHGWRHQVXUHWKDWWKH>VWDWH (YDQV$XJXVWWKRUKHZRXOGQjWKDYHDMRE$VRIWKDW DJHQF\@ ZDV RSHUDWLQJ LQ DFFRUGDQFH ZLWK WKH ODZ    LW GDWH0UV(YDQVZDVQRWFHUWLILHG%HFDXVHVKHZDVQRW FRQFHUQVWKHPRVWSXEOLFRIPDWWHUVl FHUWLILHG VKH VKRXOG KDYH QHYHU JRWWHQ WKURXJK WKH VFUHHQLQJSRUWLRQDQG\HWVKHGLGDQGZDVKLUHGIRUWKH %DQNVDOVRDUJXHVWKDWWKHSRUWLRQRIKHUVSHHFKZKHUHLQ SRVLWLRQ,Gˆ VKHFULWLFL]HGWKHLPSURSHUDOORFDWLRQRISXEOLFPRQLHVZDVD PDWWHURISXEOLFFRQFHUQ%DQNVDOOHJHVWKDW 0V 0DUJLH +DWWRQ &ODVVLILHG (PSOR\HH +LUHG 5HVLJQHGsRE 3RVWHG DQG VKH ZDV UHKLUHG"  :LWK DQ 1R MRE SRVWHG IRU OLEUDULDQ DIWHU WKH FHUWLILHG SHUVRQ LQFUHDVHLQVDODU\",VDZQR%RDUGPLQXWHVPDNLQJWKDW UHWLUHG :KDW KDSSHQHG WR WKH PRQLHV ZKLFK ZHUH DSSURYDO,Gˆ DOORFDWHGIRU>OLEUDULDQ@SRVLWLRQ"2FWREHU/HWWHU WR2($ˆ m>7@KH )LUVW $PHQGPHQW LV FRQFHUQHG QRW RQO\ ZLWK D VSHDNHUjV LQWHUHVW LQ VSHDNLQJ EXW DOVR ZLWK WKH SXEOLFjV *LIWHGDQG7DOHQWHG7HDFKHUPRQLHVKDYHEHHQDSSURYHG LQWHUHVWLQUHFHLYLQJLQIRUPDWLRQl&KDSSHO)GDW E\ WKH %RDUG IRU \HDUV DQG \HW WKLV LV WKH ILUVW \HDU D 3XEOLFLQWHUHVWmLVQHDULWV]HQLWKZKHQHQVXULQJWKDWSXEOLF WHDFKHUKDVEHHQKLUHG,Gˆ RUJDQL]DWLRQV DUH EHLQJ RSHUDWHG LQ DFFRUGDQFH ZLWK WKH ODZl,GDWLQWHUQDOTXRWDWLRQVRPLWWHG.HQWXFN\ D@OO HPSOR\HHV RI WKH ORFDO GLVWULFW VKDOO KDYH WKH ZRUNIRUW@KHORFDOVFKRROGLVWULFWVKDOO (666HUYLFHVKDYHQHYHUEHHQEURXJKWEHIRUHWKH6LWH SRVW SRVLWLRQ RSHQLQJV LQ WKH ORFDO ERDUG RIILFH IRU SXEOLF %DVH&RXQFLODW&DPSWRQ(OHPHQWDU\DQG\HWSHUVRQQHO YLHZLQJl.<5(967$7$11† DE%DOGZLQ DUHZRUNLQJDQGEHLQJSDLG,Gˆ 'HIHQGDQWVjIDLOXUHWRIROORZVWDWHODZLVDmFRQFHUQ WRWKHFRPPXQLW\l7KHFRPPXQLW\ZRXOGKDYHDQLQWHUHVW ([WUDFXUULFXODU>DFWLYLWLHV@0U2VERUQHVDLGLWZDV6WDWH LQ 'HIHQGDQWVj KLULQJ RI QRQFHUWLILFDWHG HPSOR\HHV IRU LW PDQGDWHG DQG %RDUG 3ROLF\ EXW WKLV KDV QHYHU FRPH FRXOG QHJDWLYHO\ LPSDFW WKH TXDOLW\ RI VWXGHQW HGXFDWLRQ EHIRUHWKH6LWH%DVH&RXQFLOSHUVRQQHODUHZRUNLQJDQG 'HIHQGDQWVDUHUHTXLUHGWRSRVWDYDFDQF\DQG'HIHQGDQWVj EHLQJSDLG,Gˆ IDLOXUH WR SRVW YDFDQFLHV PD\ KDYH GHSULYHG TXDOLILHG FRPPXQLW\ PHPEHUV RI WKH RSSRUWXQLW\ IRU HPSOR\PHQW >7@KUHH\HDUVLQDURZFODVVLILHGHPSOR\HHVWRRNDFXWLQ 'HIHQGDQWVj IDYRULWLVPQHSRWLVP PD\ DOVR KDYH GHSULYHG SD\ZKLOHHYHU\RQHHOVHHLWKHUVWD\HGWKHVDPHRUJRWDQ LQFUHDVH,Gˆ 1R %DQNVY:ROIH&RXQW\   %DQNVY:ROIH&RXQW\ 1R %GRI(GXFHWDO %GRI(GXFHWDO

%XGJHWV IRU 6HFWLRQ  DQG 6HFWLRQ  DW &DPSWRQ WKH SURWHFWHG VSHHFK ZDV D µVXEVWDQWLDOj RU D µPRWLYDWLQJ (OHPHQWDU\GRQRWPDWFKZK\",Gˆ IDFWRUjLQWKHDGYHUVHDFWLRQl%UDQGHQEXUJ)GDW FLWLQJ0W+HDOWK\&LW\6FKRRO'LVW%GRI(GXF86 &DQ0U+RZDUG2VERUQHFRQWLQXHWRSXUFKDVHZLWKRXW DW  :H HPSKDVL]H WKDW %DQNV FDQ VXUYLYH VXPPDU\ 6LWH%DVH&RXQFLODSSURYDO",Gˆ MXGJPHQWRQO\LIKHUVSHHFKLVFRQVWLWXWLRQDOO\SURWHFWHGDQG VKHKDVSURGXFHGHYLGHQFHOLQNLQJWKHSURWHFWHGSRUWLRQRIKHU 'HIHQGDQWVDUHFRUUHFWWKDWmWKHIDFWWKDWDQLVVXHLQYROYHV VSHHFKWRWKHDGYHUVHHPSOR\PHQWDFWLRQ SXEOLF PRQH\ LV DORQH QRW HQRXJK WR FRQYHUW H[SUHVVLYH DFWLYLW\ LQWR FRPPHQWDU\ RQ D PDWWHU RI SXEOLF FRQFHUQl ,9&RQFOXVLRQ *UDJJY.HQWXFN\&DELQHWIRU:RUNIRUFH'HYHORSPHQW )GWK&LUFLWLQJ5DKQY'UDNH&HQWHU $FFRUGLQJO\ WKH MXGJPHQW RI WKH GLVWULFW FRXUW LV ,QF)GWK&LU 7KH6L[WK&LUFXLWKDV 5(9(56(' DQG WKH FDVH LV 5(0$1'(' IRU IXUWKHU H[SODLQHG WKDW WKH SRLQW RI WKH SURWHFWLRQ DIIRUGHG SXEOLF SURFHHGLQJVFRQVLVWHQWZLWKWKLVRSLQLRQ HPSOR\HHV LV WR DOORZ SXEOLF HPSOR\HHV D YRLFH RQ LVVXHV DFWXDOO\DIIHFWLQJDQGLQWHUHVWLQJWKHFRPPXQLW\DWODUJH,G DW$SXEOLFVFKRROGLVWULFWSD\LQJHPSOR\HHVZKRZHUH QRWTXDOLILHGRUZKRZHUHQRWRIILFLDOO\DSSURYHGE\FRXQFLO DQG DUELWUDULO\ SD\LQJ UDLVHV WR VRPH RI LWV HPSOR\HHV DUH PDWWHUVRISXEOLFFRQFHUQ/LNHZLVHDVFKRROGLVWULFWPDNLQJ SXUFKDVHV ZLWKRXW DSSURYDO QRW DFFRXQWLQJ IRU IXQGV HDUPDUNHGIRUDVSHFLILFSXUSRVHDQGQRWEDODQFLQJVHFWLRQV RI WKH EXGJHW ZRXOG DIIHFW DQG LQWHUHVW WKH FRPPXQLW\ WD[SD\HUV&I&RQQLFN86DW%UDQGHQEXUJ )GDW :KLOHWKHYDVWPDMRULW\RI%DQNVjFRPSODLQWVDUHSULYDWH JULHYDQFHV RYHU KHU HPSOR\PHQW VLWXDWLRQ VRPH RI KHU DOOHJDWLRQVWRXFKRQPDWWHUVRISXEOLFFRQFHUQ$FFRUGLQJO\ ZHUHYHUVHWKHGLVWULFWFRXUWjVJUDQWRIVXPPDU\MXGJPHQWDQG UHPDQGWKHFDVH7KHGLVWULFWFRXUWPXVWDQDO\]HZKHWKHU %DQNVj mLQWHUHVW LQ PDNLQJ VXFK VWDWHPHQWV RXWZHLJKV WKH LQWHUHVW RI WKH 6WDWH DV DQ HPSOR\HU LQ SURPRWLQJ WKH HIILFLHQF\ RI WKH SXEOLF VHUYLFHV LW SHUIRUPV WKURXJK LWV HPSOR\HHVlWRGHWHUPLQHLI%DQNVjVSHHFKLVFRQVWLWXWLRQDOO\ SURWHFWHG3LFNHULQJ86DWDQG%DLOH\)G DW,I%DQNVjVSHHFKLVFRQVWLWXWLRQDOO\SURWHFWHGWKHQWKH GLVWULFWFRXUWPXVWH[DPLQHWKHUHPDLQGHURIWKHHOHPHQWVRI %DQNVj)LUVW$PHQGPHQWFODLPWKDW%DQNVZDVmVXEMHFWHGWR DQDGYHUVHDFWLRQRUZDVGHSULYHGRIVRPHEHQHILWDQGWKDW 1R %DQNVY:ROIH&RXQW\   %DQNVY:ROIH&RXQW\ 1R %GRI(GXFHWDO %GRI(GXFHWDO

BBBBBBBBBBBBBBBBBBB 7KLVFRXUWKDVH[SOLFLWO\UHMHFWHGWKHWHVWHPSOR\HGE\WKH )LIWK&LUFXLWVWDWLQJWKDWmWKHNH\TXHVWLRQLVQRWZKHWKHUD &21&855(1&( SHUVRQLVVSHDNLQJLQKLVUROHDVDQHPSOR\HHRUDFLWL]HQEXW BBBBBBBBBBBBBBBBBBB ZKHWKHUWKHHPSOR\HHjVVSHHFKLQIDFWWRXFKHVRQPDWWHUVRI SXEOLFFRQFHUQl&RFNUHOY6KHOE\&RXQW\6FK'LVW s8/,$60,7+*,%%216&LUFXLWsXGJHFRQFXUULQJ7KH )G   WK &LU  HPSKDVLV DGGHG  7KLV PDMRULW\RSLQLRQDSSURSULDWHO\IROORZVWKHFRQWUROOLQJ6L[WK DSSURDFK DV QRWHG  UHTXLUHV RQO\ WKDW D SODLQWLIIjV VSHHFK &LUFXLWSUHFHGHQWDQG,JHQHUDOO\DJUHHZLWKLWVDSSOLFDWLRQRI mVRPHKRZUHODWHGWRDPDWWHURIFRPPXQLW\FRQFHUQl/XFDV RXUSUHFHGHQWWRWKHIDFWVRIWKLVFDVH,WKHUHIRUHFRQFXULQ )GDW2XUWHVWWKXVSXWVWKHTXHVWLRQRIZKHWKHUD WKH UHVXOW  , ZULWH VHSDUDWHO\ KRZHYHU WR HPSKDVL]H WKH GLVJUXQWOHG HPSOR\HH REWDLQV )LUVW $PHQGPHQW SURWHFWLRQ HIIHFWRIDSSOLFDWLRQRIWKHWHVWXVHGE\WKLVFRXUWLQmPL[HG VROHO\LQWKHFRQWURORIWKHHPSOR\HHZKRFDQVXFFHVVIXOO\ VSHHFKlFDVHV$VVHWRXWLQWKHPDMRULW\RSLQLRQWKH6L[WK FKDUDFWHUL]HKHUGLVSXWHDVSXEOLFUDWKHUWKDQSULYDWHE\WKH &LUFXLWKDVKHOGWKDWLQPL[HGVSHHFKFDVHVLQRUGHUWRWULJJHU DGGLWLRQRIDIHZZRUGVRQPDWWHUVRISXEOLFFRQFHUQ7KH WKH3LFNHULQJEDODQFLQJWHVWSODLQWLIIVmQHHGRQO\VKRZWKDW )LIWK&LUFXLWKDVH[SUHVVHGFRQFHUQRYHUWKLVSUREOHPVWDWLQJ WKHLU VSHHFK VRPHKRZ UHODWHG WR D PDWWHU RI FRPPXQLW\ WKDW LW LV mXQZRUNDEOHl WR DOORZ m>W@KH PHUH LQVHUWLRQ RI D FRQFHUQl/XFDVY0RQURH&RXQW\)GWK VFLQWLOODRIVSHHFKUHJDUGLQJDPDWWHURISXEOLFFRQFHUQ>WR@ &LU PDNHDIHGHUDOFDVHRXWRIDZKROO\SULYDWHPDWWHUIXHOHGE\ SULYDWHLQWHUHVWVl7HDJXHY&LW\RI)ORZHU0RXQG7H[ 7KLVDSSURDFKLQP\YLHZLVQRWPDQGDWHGE\6XSUHPH  )G   WK &LU   %H\RQG LVVXHV RI &RXUW DXWKRULW\ VXFK DV &RQQLFN Y 0\HUV  86  ZRUNDELOLW\KRZHYHUWKH6L[WK&LUFXLWWHVWIDLOVWRWDNHLQWR   ,Q &RQQLFN WKH 6XSUHPH &RXUW REVHUYHG WKDW DFFRXQWIXOO\&RQQLFNjVUHFRJQLWLRQWKDWHYHU\HPSOR\PHQW mJRYHUQPHQWRIILFHVFRXOGQRWIXQFWLRQLIHYHU\HPSOR\PHQW GLVSXWHLQYROYLQJDSXEOLFHPSOR\HHLVQRWDFRQVWLWXWLRQDO GHFLVLRQEHFDPHDFRQVWLWXWLRQDOPDWWHUl86DW PDWWHU6HH&RQQLFN86DW &RQQLFNKHOGWKDWWKHVSHHFKRImDSXEOLFHPSOR\HH>ZKR@ VSHDNVQRWDVDFLWL]HQXSRQPDWWHUVRISXEOLFFRQFHUQEXW 7KH GLIIHUHQFH LQ DSSOLFDWLRQ RI WKH WZR WHVWV LV ZHOO LQVWHDG DV DQ HPSOR\HH XSRQ PDWWHUV RQO\ RI SHUVRQDO LOOXVWUDWHGLQWKLVFDVH$VWKHPDMRULW\RSLQLRQQRWHVWKH LQWHUHVWl LV QRW SURWHFWHG  ,G DW   7KH )LIWK &LUFXLW mYDVWPDMRULW\RI%DQNVjFRPSODLQWVDUHSULYDWHJULHYDQFHV DSSO\LQJWKLVDXWKRULW\KDVDGRSWHGDQDQDO\VLVWKDWGLIIHUV RYHU KHU HPSOR\PHQW VLWXDWLRQl  0DM 2S DW