Hadix v. Johnson

Opinion

5(&200(1'(' )25 )8//7(;7 38%/,&$7,21 3XUVXDQW WR 6L[WK &LUFXLW 5XOH 

(/(&7521,& &,7$7,21  )(' $SS 3 WK &LU )LOH 1DPH DS

81,7('67$7(6&28572)$33($/6 )257+(6,;7+&,5&8,7 BBBBBBBBBBBBBBBBB

(9(5(77 +$',;HWDO ; 0$5< */29(5  HWDO   1RV 3ODLQWLIIV$SSHOOHHV   &URVV$SSHOODQWV !   Y   3(55< 0 s2+1621HWDO  'HIHQGDQWV$SSHOODQWV   &URVV$SSHOOHHV   81,7(' 67$7(6 2) $0(5,&$  ,QWHUYHQRU   1 8SRQ5HPDQGE\WKH6XSUHPH&RXUWRIWKH8QLWHG6WDWHV 1RVnsRKQ)HLNHQV'LVWULFWsXGJH $UJXHGsXQH 'HFLGHGDQG)LOHG2FWREHU %HIRUH.(11('<s21(6DQG68+5+(,15,&+ &LUFXLWsXGJHV

  +DGL[HWDOY 1RV 1RV +DGL[HWDOY  sRKQVRQHWDO sRKQVRQHWDO

BBBBBBBBBBBBBBBBB YLFWRU\ DQG DQ\ IHHV DZDUG  6HH LG  ,W LV WKXV WKDW WKH 6XSUHPH &RXUW KDV KHOG WKDW LQ FLYLO ULJKWV VXLWV IRU &2816(/ FRPSHQVDWRU\GDPDJHVDWWRUQH\VIHHVVKRXOGQRWEHDZDUGHG WRDSUHYDLOLQJSODLQWLIIWKDWUHFHLYHVRQO\QRPLQDOGDPDJHV $5*8('  /HR + )ULHGPDQ 2)),&( 2) 7+( 6HHLGDW,QWKLVUHJDUGLWLVFOHDUWKDW†LVQRW $77251(< *(1(5$/ &255(&7,216 ',9,6,21 GHVLJQHGmWRSURGXFHZLQGIDOOVIRUDWWRUQH\Vl5LYHUVLGHY /DQVLQJ 0LFKLJDQ IRU $SSHOODQWV  'DQLHO .DSODQ 86 5LYHUD86SOXUDOLW\RSLQLRQTXRWLQJ '(3$570(17 2) s867,&( &,9,/ ',9,6,21 65HS1RS86&RGH&RQJ $GPLQ :DVKLQJWRQ'&IRU,QWHUYHQRU'HERUDK$/D%HOOH/$: 1HZVSS 2)),&(2)'(%25$+/$%(//($QQ$UERU0LFKLJDQ IRU$SSHOOHHV21%5,()/HR+)ULHGPDQ2)),&(2) ,QWKLVFRQWH[WLWLVHYLGHQWWKDW†GRHVQRWDXWKRUL]H 7+($77251(<*(1(5$/&255(&7,216',9,6,21 DWWRUQH\VjIHHVIRUIULYRORXVRUWULYLDOODZVXLWV6HH:DONHUY /DQVLQJ 0LFKLJDQ IRU $SSHOODQWV  'DQLHO .DSODQ 86 %DLQ)6XSSG('0LFKKROGLQJWKDW '(3$570(17 2) s867,&( &,9,/ ',9,6,21 †GLVQRWUDWLRQDOO\UHODWHGWRJRDORIGHWHUULQJIULYRORXV :DVKLQJWRQ'&IRU,QWHUYHQRU7RGG50DUWL2)),&( ODZVXLWV$VDSUHGLFDWHWRHOLJLELOLW\IRUIHHVXQGHU† 2) 7+( $77251(< *(1(5$/ &255(&7,216 DSODLQWLIIPXVWQRWRQO\SUHYDLOLQD†DFWLRQEXWPXVW ',9,6,21&ROXPEXV2KLRIRU$PLFXV&XULDH'HERUDK$ UHFHLYH VXEVWDQWLDO UHOLHI RQ WKH PHULWV RI KHU FODLP  6HH /D%HOOH /$: 2)),&( 2) '(%25$+ /$%(//( $QQ )DUUDU86DWSURYLGLQJWKDWIHHVVKRXOGQRWEH $UERU0LFKLJDQIRU$SSHOOHHV DZDUGHG ZKHUH RQO\ QRPLQDO GDPDJHV DUH DZDUGHG 3UHYDLOLQJFODLPVE\GHILQLWLRQDUHQRWIULYRORXVDQGFODLPV .(11('<sGHOLYHUHGWKHRSLQLRQRIWKHFRXUWLQZKLFK ZKHUHD†SODLQWLIIREWDLQVVXIILFLHQWO\VXEVWDQWLDOUHOLHI 68+5+(,15,&+ s MRLQHG  s21(6 s SS  WRZDUUDQWIHHVXQGHU†DUHE\GHILQLWLRQQRWmPDUJLQDO GHOLYHUHGDVHSDUDWHGLVVHQWLQJRSLQLRQ RUWULYLDOl$QWHDW BBBBBBBBBBBBBBBBB *LYHQ WKDW †  GRHV QRW SHUPLW D IHHV DZDUG IRU IULYRORXV RU WULYLDO VXLWV WKH IHHV OLPLWDWLRQ RI † G  23,1,21 FDQQRW EH UDWLRQDOO\ UHODWHG WR HLWKHU RI WKHVH SXUSRVHV BBBBBBBBBBBBBBBBB 0RUHRYHUXQOHVVUHGXFLQJWKHPHULWRULRXVQRQWULYLDOFODLPV RISULVRQHUVLVDOHJLWLPDWHFRQVWLWXWLRQDOREMHFWLYHZKLFKKDV .(11('< &LUFXLW sXGJH  :H DUH SUHVHQWHG ZLWK WKH QRW EHHQ DYHUUHG E\ DQ\ RI WKH SDUWLHV WKH GHULYDWLYH LVVXHRIZKHWKHUWKHDWWRUQH\IHHFDSVHWIRUWKLQ†G  REMHFWLYHVDGYDQFHGE\WKHSDUWLHVSUHVHUYLQJJRYHUQPHQWDO RI WKH 3ULVRQ /LWLJDWLRQ 5HIRUP $FW YLRODWHV SODLQWLIIVj UHVRXUFHVUHGXFLQJSULVRQHULQFHQWLYHVWRILOH†DFWLRQV FRQVWLWXWLRQDO ULJKWV XQGHU WKH LPSOLHG (TXDO 3URWHFWLRQ DQGUHGXFLQJIHGHUDORYHUVLJKWRIVWDWHSULVRQVDUHVLPLODUO\ 3URYLVLRQRIWKH)LIWK$PHQGPHQW3ODLQWLIIVVHHNDWWRUQH\ QRWUDWLRQDOO\UHODWHGWR†G  IHHVIRUSRVWMXGJPHQWFRPSOLDQFHPRQLWRULQJDQGDUJXHWKDW E\FDSSLQJWKHIHHVWKH\PD\UHFRYHU†G GHSULYHV %HFDXVHQRUDWLRQDOEDVLVVXSSRUWV†G jVLVRODWLRQ WKHPRIWKHHTXDOSURWHFWLRQJXDUDQWHHGE\WKH&RQVWLWXWLRQ RI SULVRQHUV IRU GLVFULPLQDWRU\ WUHDWPHQW , UHVSHFWIXOO\ 7KHGLVWULFWFRXUWFRQFOXGHGWKDW†G GRHVQRWYLRODWH GLVVHQWIURPWKHPDMRULW\jVRSLQLRQ SODLQWLIIVj HTXDO SURWHFWLRQ ULJKWV DQG SODLQWLIIV DSSHDOHG %HFDXVHSODLQWLIIVKDYHIDLOHGWRVKRZWKDW†G LVQRW  +DGL[HWDOY 1RV 1RV +DGL[HWDOY  sRKQVRQHWDO sRKQVRQHWDO

BBBBBBBBBBBBBBBBB UDWLRQDOO\ UHODWHG WR DQ\ FRQFHLYDEOH OHJLWLPDWH OHJLVODWLYH SXUSRVHZHDIILUPWKHGLVWULFWFRXUW ',66(17 BBBBBBBBBBBBBBBBB , 1$7+$1,(/ 5 s21(6 &LUFXLW sXGJH GLVVHQWLQJ 7KHVH DSSHDOV ZHUH SUHYLRXVO\ FRQVROLGDWHG IRU RUDO %HFDXVH,EHOLHYHWKDW†G LVQRWUDWLRQDOO\UHODWHGWR DUJXPHQW EHIRUH WKLV &RXUW RQ WKH LVVXH RI ZKHWKHU WKH DOHJLWLPDWHOHJLVODWLYHSXUSRVH,UHVSHFWIXOO\GLVVHQW7KH DWWRUQH\IHHOLPLWDWLRQVVHWIRUWKLQ†G RIWKH3ULVRQ PDMRULW\ UHDFKHV D FRQWUDU\ FRQFOXVLRQ SULPDULO\ E\ /LWLJDWLRQ 5HIRUP $FW m3/5$l RU WKH m$FWl  86& GLVFRQQHFWLQJWKHDWWRUQH\VjIHHFDSPDQGDWHGE\†G  † HG  OLPLWHG DWWRUQH\ IHHV HDUQHG DIWHU WKH $FWjV IURPWKHIHHVRWKHUZLVHDYDLODEOHXQGHU86&†,W SDVVDJHLQFDVHVZKLFKSUHH[LVWHGWKH$FW7KLV&RXUWKHOG LVRQO\WKURXJKVXFKDUHDGLQJRI†G WKDWWKHPDMRULW\ WKDWWKH3/5$jVDWWRUQH\IHHVSURYLVLRQVZHUHLQDSSOLFDEOHWR GHHPVWKHVWDWXWHUDWLRQDOO\UHODWHGWRWKHJRDORImGHFUHDVLQJ IHHVHDUQHGIROORZLQJWKHHQDFWPHQWRIWKH3/5$LQFDVHV PDUJLQDORUWULYLDOODZVXLWVl6HH$QWHDW$VDFRUROODU\WR ILOHGEHIRUHWKH$FWjVSDVVDJH6HH+DGL[YsRKQVRQ WKH SXUSRVH RI UHGXFLQJ WULYLDO ODZVXLWV WKH PDMRULW\ )GWK&LU%HFDXVHZHFRQFOXGHGWKDWWKHIHH H[WUDSRODWHV WKDW WKH VWDWXWH FRQVHUYHV WKH UHVRXUFHV RI WKH SURYLVLRQV RI WKH 3/5$ ZHUH LQDSSOLFDEOH WR SODLQWLII ZH VWDWHDQGIHGHUDOWUHDVXULHVRXWRIZKLFKWKHIHHVDUHSDLG,G GHFOLQHGWRUHDFKSODLQWLIIjVDUJXPHQWWKDW†G ZDV DW   +RZHYHU ZKHQ RQH DVVHVVHV WKH UDWLRQDOLW\ RI XQFRQVWLWXWLRQDO,GDWQ †G WKURXJKWKHOHQVRIWKHIHHVRWKHUZLVHDYDLODEOH XQGHU †  LW EHFRPHV FOHDU WKDW QR FRQVWLWXWLRQDOO\ )ROORZLQJRXUGHFLVLRQGHIHQGDQWVSHWLWLRQHGWKH8QLWHG UDWLRQDOEDVLVVXSSRUWVWKHVWDWXWH 6WDWHV 6XSUHPH &RXUW IRU FHUWLRUDUL  7KH &RXUW JUDQWHG GHIHQGDQWVjSHWLWLRQDQGDIILUPHGLQSDUWDQGUHYHUVHGLQSDUW 6HFWLRQ  DXWKRUL]HV FRXUWV WR DZDUG mUHDVRQDEOHl FRQFOXGLQJWKDWZKLOHWKHIHHSURYLVLRQVRIWKH3/5$FRXOG DWWRUQH\VjIHHVWRWKHmSUHYDLOLQJSDUW\lLQD†DFWLRQ QRWEHUHWURDFWLYHO\DSSOLHGWRVHUYLFHVSHUIRUPHGSULRUWRWKH 6HH  86& † E &LW\ RI &OHYHODQG Y 1DWLRQ RI $FWjVSDVVDJHWKHSURYLVLRQVZRXOGDSSO\WRDQ\IHHVHDUQHG ,VODP1R:/DW WK&LU IROORZLQJWKHSDVVDJHRIWKH$FW6HH0DUWLQY+DGL[ XQSXEOLVKHG RSLQLRQ  7KH SODLQ ODQJXDJH RI WKH VWDWXWH 86 BBB  / (G G    7KH &RXUW GLG QRW UHTXLUHVmWKDWDSODLQWLIIUHFHLYHDWOHDVWVRPHUHOLHIRQWKH DGGUHVVWKHFRQVWLWXWLRQDOLW\RI†G DQGUHPDQGHGWKH PHULWVRIKLVFODLPEHIRUHKHFDQEHVDLGWRSUHYDLOl+HZLWW FDVHWRWKLV&RXUWIRUIXUWKHUSURFHHGLQJV Y+HOPV866SHFLILFDOO\DSODLQWLII GRHV QRW SUHYDLO XQOHVV mDFWXDO UHOLHI RQ WKH PHULWV RI KLV ,, FODLP PDWHULDOO\ DOWHUV WKH OHJDO UHODWLRQVKLS EHWZHHQ WKH SDUWLHVE\PRGLI\LQJWKHGHIHQGDQWjVEHKDYLRULQDZD\WKDW :H DUH QRZ VTXDUHO\ FRQIURQWHG ZLWK WKH TXHVWLRQ RI GLUHFWO\EHQHILWVWKHSODLQWLIIl)DUUDUY+REE\86 ZKHWKHU†G RIWKH3/5$UHVXOWVLQDGHSULYDWLRQRI ,QDVVHVVLQJWKHDPRXQWRIIHHVWREH WKH (TXDO 3URWHFWLRQ JXDUDQWHHG E\ WKH LPSOLHG HTXDO DZDUGHGWRDSUHYDLOLQJSODLQWLIIWKHSULPDU\FRQVLGHUDWLRQLV WKHGHJUHHRIVXFFHVVREWDLQHGE\WKHFODLPDQW6HHLGDW 6HFWLRQ  V UHDVRQDEOHQHVV UHTXLUHPHQW WKHUHIRUH PDQGDWHVDSURSRUWLRQDOLW\EHWZHHQWKHGHJUHHRIDSODLQWLIIjV  +DGL[HWDOY 1RV 1RV +DGL[HWDOY  sRKQVRQHWDO sRKQVRQHWDO

SURWHFWLRQ SURYLVLRQ RI WKH )LIWK $PHQGPHQW  6HFWLRQ )LIWK$PHQGPHQW$FFRUGLQJO\ZH$)),50WKHMXGJPHQW GSURYLGHVLQUHOHYDQWSDUW RIWKHGLVWULFWFRXUW G$WWRUQH\ VIHHV  ,Q DQ\ DFWLRQ EURXJKW E\ D SULVRQHU ZKR LV FRQILQHGWRDQ\MDLOSULVRQRURWKHUFRUUHFWLRQDO IDFLOLW\ LQ ZKLFK DWWRUQH\ V IHHV DUH DXWKRUL]HG XQGHUVHFWLRQ>)1@RIWKLVWLWOHVXFKIHHV VKDOOQRWEHDZDUGHGH[FHSWWRWKHH[WHQWWKDW % LL WKH IHH ZDV GLUHFWO\ DQG UHDVRQDEO\ LQFXUUHG LQ HQIRUFLQJ WKH UHOLHI RUGHUHG IRU WKH YLRODWLRQ  1RDZDUGRIDWWRUQH\ VIHHVLQDQDFWLRQGHVFULEHG LQSDUDJUDSKVKDOOEHEDVHGRQDQKRXUO\UDWH JUHDWHU WKDQ  SHUFHQW RI WKH KRXUO\ UDWH HVWDEOLVKHGXQGHUVHFWLRQ$RI7LWOHIRU SD\PHQWRIFRXUWDSSRLQWHGFRXQVHO :H UHYLHZ GH QRYR SODLQWLIIVj FKDOOHQJH RI WKH FRQVWLWXWLRQDOLW\RIWKLVIHGHUDOVWDWXWH6HH8QLWHG6WDWHVY %URZQ)GoWK&LU $ 3ODLQWLIIV DUJXH WKDW † G  YLRODWHV WKH HTXDO SURWHFWLRQFODXVHRIWKH8QLWHG6WDWHV&RQVWLWXWLRQE\FDSSLQJ WKHKRXUO\UDWHIRUDWWRUQH\IHHVWKDWSULVRQHUVPD\UHFRYHU ZKLOH OHDYLQJ RWKHU FLYLO ULJKWV SODLQWLIIV IUHH WR UHFRYHU UHDVRQDEOH DWWRUQH\ IHHV XQGHU  86& †  DW WKH

 $V WKH 8QLWHG 6WDWHV UHFRJQL]HV LQ LWV EULHI RQO\ WKH IHH FDS SURYLVLRQV DUH EHIRUH WKH SDQHO LQ WKLV DSSHDO DV WKH DWWRUQH\ IHHV DW LVVXH DURVH IURP SRVWMXGJPHQW FRPSOLDQFH PRQLWRULQJ 7KXV ZH QHHG QRW DGGUHVV WKH FRQVWLWXWLRQDOLW\ RI † G  ZKLFK UHTXLUHV XS WR  RI DQ\ MXGJPHQW D SULVRQHU REWDLQV WR EH DSSOLHG DJDLQVW DQ\ DWWRUQH\ IHHV DZDUGHG XQGHU WKLV VHFWLRQ  +DGL[HWDOY 1RV 1RV +DGL[HWDOY  sRKQVRQHWDO sRKQVRQHWDO

RUGHVLUDELOLW\RIOHJLVODWLYHSROLF\GHWHUPLQDWLRQVPDGH SUHYDLOLQJPDUNHWUDWH:HEHJLQRXUDQDO\VLVRISODLQWLIIjV LQ DUHDV WKDW QHLWKHU DIIHFW IXQGDPHQWDO ULJKWV QRU FODLPHGHTXDOSURWHFWLRQYLRODWLRQE\GHWHUPLQLQJWKHOHYHORI SURFHHG DORQJ VXVSHFW OLQHV  )RU WKHVH UHDVRQV D VFUXWLQ\ WR DSSO\ WR WKH FODVVLILFDWLRQV &RQJUHVV PDGH LQ FODVVLILFDWLRQQHLWKHULQYROYLQJIXQGDPHQWDOULJKWVQRU HQDFWLQJ†G 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o6&Wo DW DQ\ WLPH WKH SXUSRVH RU UDWLRQDOH VXSSRUWLQJ LWV /(GG6DQ$QWRQLR,QGHSHQGHQW6FKRRO'LVW FODVVLILFDWLRQ,QVWHDGDFODVVLILFDWLRQPXVWEHXSKHOG Y5RGULJXH]866&W/(GG DJDLQVW HTXDO SURWHFWLRQ FKDOOHQJH LI WKHUH LV DQ\   3ULVRQHUV DUH QRW D VXVSHFW FODVV VHH :LOVRQ Y UHDVRQDEO\FRQFHLYDEOHVWDWHRIIDFWVWKDWFRXOGSURYLGH

OHJLVODWLRQ  6HH 1RUGOLQJHU Y +DKQ  86   LIWKH\VXFFHHGRQVRPHWHFKQLFDOLW\l$FFRUGLQJO\ZKLOH 6&W/(GG&RQVHTXHQWO\ HPSOR\LQJLPSUHFLVHPHDQV&RQJUHVVGLGQRWDFWLUUDWLRQDOO\ SODLQWLIIV EHDU WKH KHDY\ EXUGHQ RI mQHJDWLY>LQJ@ HYHU\ LQOLPLWLQJWKHDWWRUQH\IHHVWKDWODZ\HUVPD\UHFRYHUIRUWKHLU FRQFHLYDEOHEDVLVZKLFKPLJKWVXSSRUW>WKHOHJLVODWLRQ@ UHSUHVHQWDWLRQRISUHYDLOLQJSULVRQHUFLYLOULJKWVOLWLJDQWV ZKHWKHU RU QRW WKH EDVLV KDV D IRXQGDWLRQ LQ WKH UHFRUGl +HOOHU86DW6&WDW7KDWEHLQJVDLG :KLOHSODLQWLIIKDVUDLVHGVRPHZHOOIRXQGHGFULWLFLVPVRI UDWLRQDOEDVLVUHYLHZLVQRWDUXEEHUVWDPSRIDOOOHJLVODWLYH WKHPHWKRGV&RQJUHVVHPSOR\HGWRDFKLHYHLWVSXUSRVHLWLV DFWLRQDVGLVFULPLQDWLRQWKDWFDQRQO\EHYLHZHGDVDUELWUDU\ QRWRXUSURYLQFHWRMXGJHWKHZLVGRPIDLUQHVVRUORJLFRI DQGLUUDWLRQDOZLOOYLRODWHWKH(TXDO3URWHFWLRQ&ODXVH6HH &RQJUHVVjV GHFLVLRQ WR HQDFW WKH OHJLVODWLRQ DW LVVXH  6HH 9DQFHY%UDGOH\866&W/(GG +HOOHU86DW6&WDW)&&Y%HDFK VWDWLQJWKDWDODZZLOOIDLOUDWLRQDOEDVLVUHYLHZLI &RPPXQLFDWLRQV,QF866&W mWKH YDU\LQJ WUHDWPHQW RI GLIIHUHQW JURXSV RI SHUVRQV LV VR /(GG'DQGULGJHY:LOOLDPV XQUHODWHGWRWKHDFKLHYHPHQWRIDQ\FRPELQDWLRQRIOHJLWLPDWH 866&W/(GG SXUSRVHV WKDW >WKH FRXUW@ FDQ RQO\ FRQFOXGH WKDW WKH 7KH6XSUHPH&RXUWHPSKDVL]HGWKLVSRLQWLQ+HOOHU >OHJLVODWXUHjV@DFWLRQVZHUHLUUDWLRQDOl ZLWKDQH[WHQVLYHGLVFXVVLRQRIWKHLVVXH %  >5DWLRQDOEDVLV UHYLHZ@ GRHV >QRW@ DXWKRUL]H WKH MXGLFLDU\WRVLWDVDVXSHUOHJLVODWXUHWRMXGJHWKHZLVGRP 'HIHQGDQWVWKH8QLWHG6WDWHVDVLQWHUYHQRUDQGWKH6WDWH RI 2KLR DV $PLFXV &XULDH FROOHFWLYHO\ UHIHUHG WR DV WKH mJRYHUQPHQWl IRU FRQYHQLHQFH FRQWHQG WKDW GLIIHUHQW  WUHDWPHQW WKDW † G  DIIRUGV LQFDUFHUDWHG FLYLO ULJKWV 7KH 6WDWH RI 2KLR DV $PLFXV &XULDH FLWHV * &ROH 5 +DQVRQ DQG

OLWLJDQWVLVUDWLRQDOO\UHODWHGWRVHYHUDOOHJLWLPDWHOHJLVODWLYH s *LOEHUW $OWHUQDWLYH 'LVSXWH 5HVROXWLRQ IRU 3ULVRQHU *ULHYDQFHV $ 5HIHUHQFH 0DQXDO IRU $YHUWLQJ /LWLJDWLRQ o 1DWLRQDO ,QVWLWXWH RI SXUSRVHV1DPHO\WKHJRYHUQPHQWDUJXHVWKDWWKHSURYLVLRQV &RUUHFWLRQV  DV REVHUYLQJ m0DQ\ QRQIULYRORXV VXLWV FRQFHUQ VPDOO VHUYHWRGHWHUWKHILOLQJRIIULYRORXVODZVXLWVE\SULVRQHUV PRQHWDU\ VXPV DQG WKH WLPH GHYRWHG WR WKHP E\ DGPLQLVWUDWRUV LV UHGXFH WULYLDO RU LQFRQVHTXHQWLDO VXLWV UHGXFH MXGLFLDO GLVSURSRUWLRQDWH WR WKH DPRXQWV LQYROYHGl LQWHUYHQWLRQLQWRWKHPDQDJHPHQWRISULVRQVSUHYHQWZLQGIDOO  IHHDZDUGVDQGSURWHFWWKHSXEOLFILVF 7KH JRYHUQPHQW DUJXHV WKDW WKH DWWRUQH\ IHH FDS SURYLVLRQV PD\ UHGXFH MXGLFLDO RYHULQYROYHPHQW LQ WKH GD\ WR GD\ DGPLQLVWUDWLRQ RI RXU 3ODLQWLIIV DJUHH WKDW WKH &RQJUHVVj LQWHQW LQ HQDFWLQJ WKH QDWLRQjV SULVRQV 7KH OHJLVODWLYH KLVWRU\ RI WKH 3/5$ DOVR VKRZV WKDW

3/5$ZDVWRUHGXFHWKHODUJHQXPEHURIIULYRORXVODZVXLWV &RQJUHVV ZDV FRQFHUQHG ZLWK WKLV LVVXH 6HH HJ 3ULVRQ 5HIRUP

EURXJKWE\SULVRQHUV6HH&RQJ5HF6GDLO\HG (QKDQFLQJ WKH (IIHFWLYHQHVV RI ,QFDUFHUDWLRQ +HDULQJV RQ 6 6 6 6 6 DQG +5  %HIRUH WKH &RPPLWWHH RQ WKH sXGLFLDU\ 0D\VWDWHPHQWRI6HQ'ROHm:HKDYHZLWQHVVHG RI WKH 8QLWHG 6WDWHV 6HQDWH 6 +UJ  DW o o  DQ DODUPLQJ H[SORVLRQ LQ WKH QXPEHU RI IULYRORXV ODZVXLWV UHSULQWHG LQ %HUQDUG ' 5HDPV DQG :LOOLDP + 0DQ] $ /HJLVODWLYH ILOHGE\6WDWHGDQG)HGHUDOSULVRQHUV)ULYRORXVODZVXLWV +LVWRU\ RI WKH 3ULVRQ /LWLJDWLRQ 5HIRUP $FW RI  3XE / 1R 

ILOHGE\SULVRQHUVWLHXSWKHFRXUWVZDVWHYDOXDEOHMXGLFLDO  6WDW  'RFXPHQW 1R  VWDWHPHQWV RI 6HQ 6SHQFHU $EUDKDP DQG )RUPHU $WWRUQH\ *HQHUDO :LOOLDP 3 %DUU +RZHYHU EHFDXVH ZH DQGOHJDOUHVRXUFHVDQGDIIHFWWKHTXDOLW\RIMXVWLFHHQMR\HG FRQFOXGH WKDW WKH DWWRUQH\ IHH FDS SURYLVLRQ LV UDWLRQDOO\ UHODWHG WR WKH E\ WKH ODZ DELGLQJ SRSXODWLRQl VHH DOVR  &RQJ 5HF JRDO RI UHGXFLQJ WULYLDO FODLPV DQG SURWHFWLQJ WKH SXEOLF ILVF ZH QHHG QRW 6 GDLO\ HG 6HSW   VWDWHPHQW RI 6HQ GHWHUPLQH ZKHWKHU &RQJUHVVjV JRDO RI UHGXFLQJ MXGLFLDO LQYROYHPHQW ZRXOG DOVR SURYLGH D UDWLRQDO EDVLV IRU HQDFWLQJ † G   +DGL[HWDOY 1RV 1RV +DGL[HWDOY  sRKQVRQHWDO sRKQVRQHWDO

+ GDLO\ HG )HE   VWDWHPHQW RI 5HS +RNH $EUDKDP LQ DGGLWLRQ WR SUREOHPV ZLWK mPDVVLYH MXGLFLDO m>7@KLV SURYLVLRQ HOLPLQDWHV WKH ILQDQFLDO LQFHQWLYH IRU LQWHUYHQWLRQV LQ VWDWH SULVRQ V\VWHPV ZH DOVR KDYH >WKH SULVRQHUV >ODZ\HUV@ WR LQFOXGH QXPHURXV QRQPHULWRULRXV SUREOHP RI@ IULYRORXV LQPDWH OLWLJDWLRQl  +RZHYHU FODLPV LQ VZHHSLQJ LQVWLWXWLRQDO UHIRUP OLWLJDWLRQl  $ SODLQWLIIVDVVHUWWKDWWKHDWWRUQH\IHHSURYLVLRQVRIWKH3/5$ UHYLHZRIWKHOHJLVODWLYHKLVWRU\PDNHVLWFOHDUWKDW&RQJUHVV DUHXQUHODWHGWRWKLVJRDOVLQFHRQO\SUHYDLOLQJSDUWLHVPD\ EHOLHYHGWKDWWKHH[SORVLRQRISULVRQHUFLYLOULJKWVOLWLJDWLRQ FROOHFW DWWRUQH\ IHHV XQGHU  86& †   )XUWKHU WKDWKDVRFFXUUHGVLQFHWKHSDVVDJHRI86&†KDV SODLQWLIIVSRLQWRXWWKDWWKHPDMRULW\RISULVRQHUODZVXLWVILOHG SODFHG DQ H[FHVVLYH ILQDQFLDO EXUGHQ RQ WKH SULVRQ LQIHGHUDOFRXUWDUHSURVHZLWKPRVWIULYRORXVVXLWVEHLQJ DGPLQLVWUDWLRQWKHVWDWHWUHDVXU\DQGWKHIHGHUDOMXGLFLDU\ GLVPLVVHG E\ WKH GLVWULFW FRXUW SULRU WR DSSRLQWPHQW RI 6HHHJ&RQJ5HF6oGDLO\HG6HS FRXQVHO)LQDOO\SODLQWLIIVDUJXHWKDWXQGHU5LQDOGLYE@\LPSRVLQJDILQDQFLDOREOLJDWLRQRQO\XSRQLQPDWHVRI %HIRUHWKH&RPPLWWHHRQWKHsXGLFLDU\RIWKH8QLWHG6WDWHV LQVWLWXWLRQV WKH VWDWXWH LQHYLWDEO\ EXUGHQV PDQ\ ZKRVH 6HQDWH6+UJDWUHSULQWHGLQ%HUQDUG DSSHDOVWKRXJKXQVXFFHVVIXOZHUHQRWIULYRORXVDQGOHDYHV '5HDPVDQG:LOOLDP+0DQ]$/HJLVODWLYH+LVWRU\RIWKH XQWRXFKHG PDQ\ ZKRVH DSSHDOV PD\ KDYH EHHQ IULYRORXV 3ULVRQ/LWLJDWLRQ5HIRUP$FWRI3XE/1R LQGHHGl,GDW  6WDW  'RFXPHQW 1R  VWDWHPHQW RI 2 /DQH 0F&RWWHU'LUHFWRU8WDK'HSWRI&RUUHFWLRQm7KHGULYLQJ 7KHJRYHUQPHQWGLVWLQJXLVKHV5LQDOGLE\DUJXLQJWKDWWKHUH IRUFHEHKLQG>WKH@IORRGRISULVRQOLWLJDWLRQlLVDmQRWKLQJWR DUHUDWLRQDOUHDVRQVIRU&RQJUHVVWRVLQJOHRXWSULVRQHUVE\ ORVHl DWWLWXGH E\ SULVRQHUV DQG ODZ\HUV GULYHQ E\ mWKH FDSSLQJWKHDWWRUQH\IHHVWKH\PD\UHFRYHUXSRQSUHYDLOLQJLQ SURVSHFWRIREWDLQLQJDOORIWKHLUKLJKO\LQIODWHGIHHVDQGFRVWV FLYLOULJKWVOLWLJDWLRQGXHWRWKHSHFXOLDUFLUFXPVWDQFHVZKLFK LQIOXHQFHDSULVRQHUjVGHFLVLRQWROLWLJDWH6SHFLILFDOO\WKH JRYHUQPHQWQRWHVWKDWSULVRQHUVKDYHVXEVWDQWLDOTXDQWLWLHVRI  IUHH WLPHKDYHDOOWKHLUEDVLFQHHGVPHWDQGDUHSURYLGHG 7KH GLVVHQWjV DOOHJDWLRQ WKDW † G  FDQQRW EH UDWLRQDOO\ UHODWHG ZLWKIUHHZULWLQJPDWHULDOVDQGRIWHQOHJDODVVLVWDQFH7KH WR SURWHFWLQJ VWDWH DQG IHGHUDO WUHDVXULHV XQOHVV UHGXFLQJ WKH QXPEHU RI PHULWRULRXV QRQWULYLDO FODLPV RI SULVRQHUV LV D OHJLWLPDWH FRQVWLWXWLRQDO JRYHUQPHQW DOVR SRLQWV RXW WKDW ZKDW ZRXOG QRUPDOO\ EH REMHFWLYH IDLOV WR UHFRJQL]H WKH FLUFXPVWDQFHV VSHFLILF WR SULVRQHUV WKDW WKRXJKWRIDVWKHEXUGHQVZKLFKDWWHQGOLWLJDWLRQnVXFKDVWKH PD\ LQFUHDVH WKH QXPEHU RI WULYLDO RU IULYRORXV DOOHJDWLRQV D SULVRQHU PD\ ODUJH DPRXQWV RI WLPH VSHQW LQ GHSRVLWLRQV SUHSDULQJ WR ILOH DV FRPSDUHG WR D QRQSULVRQHU &RQJUHVV FRXOG KDYH UDWLRQDOO\ WHVWLI\ FRXUW DSSHDUDQFHV DQG WKH OLNHnFDUU\ IHZ RU QR WKRXJKW WKDW † G  ZRXOG HOLPLQDWH WKLV GLVWLQFWLRQ DQG WKXV SUHVHUYH RSSRUWXQLW\ FRVW WR SULVRQHUV  5DWKHU WKH JRYHUQPHQW VRPH JRYHUQPHQWDO UHVRXUFHV  +DGL[HWDOY 1RV 1RV +DGL[HWDOY  sRKQVRQHWDO sRKQVRQHWDO

FRQWHQGVWKDWIRUPDQ\SULVRQHUVWLPHVSHQWLQDFRXUWURRP SRWHQWLDOUHFRYHU\DUDWLRQDODWWRUQH\ZRXOGGHPDQGDJUHDWHU PD\ZHOOEHSUHIHUDEOHWRWLPHVSHQWLQMDLO6HH&RQJ OLNHOLKRRGRIVXFFHVVEHIRUHWDNLQJDSULVRQHUjVFDVH 5HF6GDLO\HG6HSWVWDWHPHQWRI6HQ .\O REVHUYLQJ WKDW mD FRXUWURRP LV FHUWDLQO\ D PRUH 7KXV&RQJUHVVFRXOGUDWLRQDOO\LQWHQGWKH3/5$jVDWWRUQH\ KRVSLWDEOHSODFHWRVSHQGDQDIWHUQRRQWKDQDSULVRQFHOOlDQG IHHFDSWRSURYLGHDFRXQWHUEDODQFHWRDSULVRQHUjVQXPHURXV FRPSDULQJ OLWLJDWLRQ WR D mUHFUHDWLRQDO DFWLYLW\l IRU PDQ\ LQFHQWLYHV WR OLWLJDWH WKHUHE\ SODFLQJ SULVRQHU FLYLO ULJKWV SULVRQHUV)XUWKHUWKHJRYHUQPHQWDUJXHVWKDWSULVRQHUVPD\ SODLQWLIIVPRUHFORVHO\LQWKHVDPHGHFLVLRQPDNLQJSRVLWLRQ UHFHLYH XQLTXH UHZDUGV IURP OLWLJDWLRQ LQ WKDW LW JLYHV DVQRQSULVRQHUFLYLOULJKWVSODLQWLIIV6HH+55HS1R OLWLJLRXVSULVRQHUVDPHDQVRILQWLPLGDWLQJPHPEHUVRIWKH    m7K>H@ SURSRUWLRQDOLW\ UHTXLUHPHQW ZLOO SULVRQVWDII GLVFRXUDJH EXUGHQVRPH OLWLJDWLRQ RI LQVXEVWDQWLDO FODLPV ZKHUH WKH SULVRQHU FDQ HVWDEOLVK D WHFKQLFDO YLRODWLRQ RI D 3ODLQWLIIV DUJXH WKDW WKH 3/5$jV DWWRUQH\ IHHV FDS GRHV IHGHUDO ULJKW EXW KH VXIIHUHG QR UHDO KDUP IURP WKH UHODWLYHO\OLWWOHWRFXUEWUXO\IULYRORXVODZVXLWV+RZHYHUWKH YLRODWLRQlVHHDOVR0RUULVRQY'DYLV)6XSSG FDSGRHVDSSHDUWREHUDWLRQDOO\UHODWHGWRWKHYHU\VLPLODU 6'2+7KHUHDUHFHUWDLQO\VRPHSULVRQHUVZKR JRDORIGHFUHDVLQJPDUJLQDORUWULYLDOODZVXLWV3ULRUWRWKH ZRXOGFRQWLQXHWKHOLWLJDWLRQRIWKHLUPDUJLQDOFODLPVHYHQ IHH FDS DQ DWWRUQH\ ZRXOG KDYH OLWWOH GLVLQFHQWLYH WR WDNH ZLWKRXWWKHKHOSRIDQDWWRUQH\KRZHYHULWLVUHDVRQDEOHWR SULVRQHUFLYLOULJKWVFODLPVWKDWDOOHJHGDWHFKQLFDOEXWYHU\ FRQFOXGHWKDWDWOHDVWVRPHZLOOEHGLVVXDGHGE\WKHIDFWWKDW WULYLDO YLRODWLRQ  7KLV FRXOG OHDG DWWRUQH\V WR DGRSW D WKH\ZLOOKDYHWRVKRXOGHUWKHHQWLUHZRUNORDGWKHPVHOYHV mVKRWJXQl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mVKRWJXQ GHFLGLQJ WR DFFHSW DQ\ FRQWLQJHQW IHH DUUDQJHPHQW DQ DSSURDFKlWRILOLQJSULVRQFLYLOULJKWVFODLPVLQWKHKRSHRI DWWRUQH\PXVWGLVFRXQWWKHSRWHQWLDODPRXQWUHFRYHUDEOHE\ SUHYDLOLQJ RQ DW OHDVW D PLQRU SRLQW  6HH  &RQJ 5HF WKHHVWLPDWHGSUREDELOLW\RIVXFFHVV)DFHGZLWKDVPDOOHU

 7KH GLVVHQW DUJXHV WKDW † G  FDQQRW EH UDWLRQDOO\ UHODWHG WR  7KH JRYHUQPHQW DUJXHV WKDW WKH UHGXFWLRQ LQ DWWRUQH\ IHHV JRHV LQWR UHGXFLQJ IULYRORXV ODZVXLWV EHFDXVH †  DOUHDG\ RQO\ DXWKRUL]HV D SULVRQHUjV GHFLVLRQ ZKHWKHU WR ILOH D FODLP 6HYHUDO FRXUWV KDYH DJUHHG FRXUWV WR DZDUG UHDVRQDEOH DWWRUQH\Vj IHHV WR WKH mSUHYDLOLQJ SDUW\l ,Q ZLWK WKH JRYHUQPHQWjV FRQWHQWLRQ $00 0DGULG Y *RPH]  )G  DGGLWLRQ WKH GLVVHQW DUJXHV WKDW WKH mUHDVRQDEOHQHVVl UHTXLUHPHQW LQ  WK &LU  0RUULVRQ Y 'DYLV  )6XSSG   6'2+ †  IRU WKH DPRXQW RI DWWRUQH\Vj IHHV DZDUGHG PDQGDWHV D  +RZHYHU ZLWK UHVSHFW WR WUXO\ IULYRORXV FODLPV LW FRXOG EH SURSRUWLRQDOLW\ EHWZHHQ WKH GHJUHH RI SODLQWLIIjV YLFWRU\ DQG DQ\ IHH SODXVLEO\ DUJXHG WKDW WKH SURYLVLRQ ZRXOG KDYH DW EHVW D YHU\ DWWHQXDWHG DZDUGHG DQG WKXV † G  FDQQRW EH UDWLRQDOO\ UHODWHG WR UHGXFLQJ DIIHFW RQ WKH OLWLJDWLRQ GHFLVLRQ RI D SUR VH LQPDWH ZKRVH FODLPV PXVW EH WULYLDO FODLPV HLWKHU %\ UHGXFLQJ WKH DPRXQW RI DQ\ SRWHQWLDO UHFRYHU\ FHUWLILHG DV SRVVHVVLQJ DW OHDVW VRPH PHULW DW DQ HDUO\ VWDJH LQ WKH KRZHYHU † G  UDLVHV WKH SUREDELOLW\ RI VXFFHVV WKDW VXFK FDVHV OLWLJDWLRQ )XUWKHU WKH IHH FDS SURYLVLRQV RQO\ DSSO\ WR FDVHV LQ ZKLFK WKH PXVW HQMR\ EHIRUH DQ DWWRUQH\ ZLOO DFFHSW WKH FDVH 7KXV †  LV SULVRQHU KDV DFWXDOO\ SUHYDLOHG WKHUHE\ DVVXULQJ WKDW DW OHDVW RQH FODLP UDWLRQDOO\ UHODWHG WR UHGXFLQJ IULYRORXV DQG WULYLDO FODLPV EHFDXVH LW ZLOO ZDV PHULWRULRXV :H QHHG QRW UHVROYH WKLV LVVXH KRZHYHU DV RWKHU JHQHUDWH D KLJKHU UHTXLUHG OLNHOLKRRG RI VXFFHVV EHIRUH DQ\ JLYHQ FDVH LV UDWLRQDO EDVHV H[LVW IRU WKH ODZV HQDFWPHQW WDNHQ