Mays v. Buckeye Rural Elec

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

&+$5/277( 0$<6 ; 3ODLQWLII$SSHOODQW    1R Y  !  %8&.(<( 585$/ (/(&75,&  &223(5$7,9( ,1&DQG  )5('(5,&. % 3$5.(5  'HIHQGDQWV$SSHOOHHV   1 $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH6RXWKHUQ'LVWULFWRI2KLRDW&LQFLQQDWL 1Rn6XVDQs'ORWW'LVWULFWsXGJH $UJXHG2FWREHU 'HFLGHGDQG)LOHGsDQXDU\ %HIRUHs21(6DQG&/$<&LUFXLWsXGJHV'2:' 'LVWULFWsXGJH 

7KH +RQRUDEOH 'DYLG ' 'RZG sU 8QLWHG 6WDWHV 'LVWULFW sXGJH IRU WKH 1RUWKHUQ 'LVWULFW RI 2KLR VLWWLQJ E\ GHVLJQDWLRQ

  0D\VY%XFNH\H5XUDO(OHFHWDO 1R

BBBBBBBBBBBBBBBBB &2816(/ $5*8('  *DU\ 0 6PLWK (48$/ s867,&( )281'$7,21&ROXPEXV2KLRIRU$SSHOODQW:LOOLDP5 &DVH7+203621+,1( )/25<//3&ROXPEXV2KLR IRU$SSHOOHHV21%5,()*DU\06PLWK.LPEHUO\0 6NDJJV (48$/ s867,&( )281'$7,21 &ROXPEXV 2KLR IRU $SSHOODQW  :LOOLDP 5 &DVH 0LFKDHO 1 %HHNKXL]HQ 7+203621 +,1(  )/25< //3 &ROXPEXV2KLRIRU$SSHOOHHV BBBBBBBBBBBBBBBBB 23,1,21 BBBBBBBBBBBBBBBBB &/$<&LUFXLWsXGJH3ODLQWLII&KDUORWWH0D\VDSSHDOV IURPWKHGLVWULFWFRXUWjVRUGHUGLVPLVVLQJ3ODLQWLIIjVFODLPVRI GLVFULPLQDWLRQRQWKHEDVLVRIPDULWDOVWDWXVSXUVXDQWWRWKH (TXDO&UHGLW2SSRUWXQLW\$FW86&†D DQG SURYLVLRQVRI5HJXODWLRQ%RIWKH(TXDO&UHGLW2SSRUWXQLW\ $FW&)5†GHSULYDWLRQRImGXHSURFHVVDQGQDWXUDO MXVWLFHl DQG YLRODWLRQV RI 2KLR VWDWXWHV DQG FRPPRQ ODZ )RU WKH UHDVRQV VHW IRUWK EHORZ ZH $)),50 ,1 3$57 9$&$7(,13$57$1'5(0$1'ZLWKLQVWUXFWLRQVWR GLVPLVVZLWKRXWSUHMXGLFH3ODLQWLIIjVFODLPRIDGHSULYDWLRQRI GXHSURFHVVDQGQDWXUDOMXVWLFH %$&.*5281' 'HIHQGDQW %XFNH\H 5XUDO (OHFWULF &RRSHUDWLYH ,QF m%XFNH\HlDQRQSURILWFRRSHUDWLYHHOHFWULFDOXWLOLW\LVWKH H[FOXVLYH SURYLGHU RI HOHFWULFLW\ LQ QLQH FRXQWLHV LQ VRXWKHDVWHUQ 2KLR  'HIHQGDQW %XFNH\HjV HOHFWULFLW\ FXVWRPHUV DUH PHPEHUV RI WKH FRUSRUDWLRQ DQG HOHFW %XFNH\HjVJRYHUQLQJERDUGRIWUXVWHHV'HIHQGDQW)UHGHULFN %3DUNHULV%XFNH\HjVYLFHSUHVLGHQWRIILQDQFH  0D\VY%XFNH\H5XUDO(OHFHWDO 1R 1R 0D\VY%XFNH\H5XUDO(OHFHWDO 

$WQRSRLQWGLGWKHPDJLVWUDWHMXGJHRUWKHGLVWULFWFRXUW ,Q  ZKLOH 3ODLQWLII ZDV PDUULHG WR /DUU\ 0D\V DGGUHVV3ODLQWLIIjVDGYDQFHGDQGSHUKDSVQRYHOGXHSURFHVV m0D\Vl0D\VVRXJKWHOHFWULFLW\VHUYLFHIURP'HIHQGDQWV GHSULYDWLRQ WKHRU\  3ODLQWLII FOHDUO\ KDG QR LQWHQWLRQ WR 'HIHQGDQWVVXSSOLHG3ODLQWLIIDQG0D\VZLWKDPHPEHUVKLS LQYRNH IHGHUDO FRQVWLWXWLRQDO ULJKWV DQG WKH GLVWULFW FRXUW DSSOLFDWLRQ IRUP  'HVFULELQJ LWVHOI DV D mMRLQW XVH HUUHG LQ JUDQWLQJ VXPPDU\ MXGJPHQW RQ 3ODLQWLIIjV mGXH DSSOLFDWLRQl WKH IRUP UHTXLUHG mKXVEDQG DQG ZLIHl WR SURFHVV DQG QDWXUDO MXVWLFHl FODLP VROHO\ SXUVXDQW WR D FRPSOHWHLWDQGSURYLGHGVHSDUDWHOLQHVIRUWKHVLJQDWXUHVDQG )RXUWHHQWK$PHQGPHQWDQDO\VLV VRFLDOVHFXULW\QXPEHUVRIm$SSOLFDQWlDQGm6SRXVHl0D\V VLJQHGDVm$SSOLFDQWlDQG3ODLQWLIIVLJQHGDVm6SRXVHl$IWHU %HFDXVHZHKDYHFRQFOXGHGWKDWWKHGLVWULFWFRXUWSURSHUO\ DFFHSWLQJWKHDSSOLFDWLRQIRUVHUYLFH'HIHQGDQWVDGGUHVVHG JUDQWHGVXPPDU\MXGJPHQWRQ3ODLQWLIIjVFODLPVDULVLQJXQGHU HOHFWULFLW\ELOOVWRm/$55<(0$<6l IHGHUDOVWDWXWHVDQGUHJXODWLRQVWKHUHUHPDLQVQRLQGHSHQGHQW EDVLV IRU IHGHUDO VXEMHFW PDWWHU MXULVGLFWLRQ RYHU WKLV ,Q2FWREHURI3ODLQWLIIILOHGIRUGLYRUFHIURP0D\V OLWLJDWLRQ,QGLVPLVVLQJZLWKRXWSUHMXGLFHIRXURWKHUFODLPV 0D\VWKHQPRYHGRXWRIWKHFRXSOHjVKRPHDQGLQWRDFDPSHU 3ODLQWLIIKDGDVVHUWHGXQGHU2KLRVWDWXWHVDQGFRPPRQODZ ORFDWHG RQ WKH MRLQWO\RZQHG UHDO HVWDWH  0D\V VXSSOLHG WKHGLVWULFWFRXUWUHFRJQL]HGWKHDEVHQFHRIIHGHUDOFODLPVDQG HOHFWULFLW\WRWKHFDPSHUYLDH[WHQVLRQFRUGVFRQQHFWLQJWKH GHFOLQHGWRH[HUFLVHVXSSOHPHQWDOMXULVGLFWLRQIRUWKLVUHDVRQ FDPSHUZLWKWKHKRPH :KLOHOLYLQJLQWKHFDPSHU0D\V SXUVXDQWWR86&†F :HGRQRWEHOLHYHWKH EHJDQQHJOHFWLQJZRUNDQGIDLOLQJWRSD\ELOOV%\sDQXDU\RI GLVWULFWFRXUWDEXVHGLWVGLVFUHWLRQLQGHFOLQLQJVXSSOHPHQWDO WKHDFFRXQWVHUYLQJWKHKRPHDQGFDPSHUZDVLQDUUHDUV MXULVGLFWLRQRYHU3ODLQWLIIjVVWDWHODZFODLPVDQGZHKDYHQR DQG 'HIHQGDQWV GLVFRQQHFWHG HOHFWULFLW\ VHUYLFH  :LWKLQ D UHDVRQWREHOLHYHWKHGLVWULFWFRXUWZRXOGFKRRVHWRH[HUFLVH PRQWK3ODLQWLIIVHFXUHGDUHVWUDLQLQJRUGHUDJDLQVW0D\VDQG MXULVGLFWLRQRYHU3ODLQWLIIjVmGXHSURFHVVDQGQDWXUDOMXVWLFHl IRUFHGKLPWROHDYHWKHSURSHUW\3ODLQWLIIZKRKDGQHYHU GHSULYDWLRQFODLPDORQH&I%UDQGHQEXUJY+RXVLQJ$XWK ZRUNHGRXWVLGHWKHKRPHWKHQREWDLQHGJDLQIXOHPSOR\PHQW RI ,UYLQH  )G   WK &LU  m,Q IDFW WKH XVXDOFRXUVHLVIRUWKHGLVWULFWFRXUWWRGLVPLVVWKHVWDWHODZ 2Q 0DUFK  RU   DERXW WZR PRQWKV DIWHU FODLPVZLWKRXWSUHMXGLFHLIDOOIHGHUDOFODLPVDUHGLVSRVHGRI 'HIHQGDQWVGLVFRQQHFWHGVHUYLFH3ODLQWLIIVRXJKWWRHVWDEOLVK RQ VXPPDU\ MXGJPHQWl  :H ZLOO WKHUHIRUH UHPDQG DQLQGLYLGXDODFFRXQWZLWK'HIHQGDQWVDQGUHVWRUHHOHFWULFLW\ 3ODLQWLIIjVmGXHSURFHVVDQGQDWXUDOMXVWLFHlFODLP&RXQW9,,, WRWKHKRPH3ODLQWLIIWHOHSKRQHG'HIHQGDQWVDQGOHDUQHGVKH RI3ODLQWLIIjVFRPSODLQWWRWKHGLVWULFWFRXUWZLWKLQVWUXFWLRQV FRXOG QRW UHVWRUH VHUYLFH WR WKH KRPH XQWLO WKH HQWLUH WRGLVPLVVLWZLWKRXWSUHMXGLFH RXWVWDQGLQJ EDODQFH RQ WKH GLVFRQQHFWHG DFFRXQW ZDV VDWLVILHG'HIHQGDQWVODWHULQIRUPHG3ODLQWLIIVKHFRXOGREWDLQ &21&/86,21 DQ LQGLYLGXDO DFFRXQW ZLWKRXW VDWLVI\LQJ WKH RXWVWDQGLQJ EDODQFH LI VKH GRFXPHQWHG KHU VHSDUDWLRQ RU GLYRUFH IURP )RU WKH DERYH UHDVRQV ZH $)),50 WKH GLVWULFW FRXUWjV 0D\VDQGGRFXPHQWHG0D\VjLQGLYLGXDOUHVSRQVLELOLW\IRUWKH RUGHUJUDQWLQJVXPPDU\MXGJPHQWRQ3ODLQWLIIjVVWDWXWRU\DQG GLVFRQQHFWHGDFFRXQW UHJXODWRU\ FODLPV RI FUHGLW GLVFULPLQDWLRQ RQ WKH EDVLV RI PDULWDO VWDWXV  :H 9$&$7( WKH GLVWULFW FRXUWjV HQWU\ RI 2Q 6HSWHPEHU   3ODLQWLII ILOHG VXLW DJDLQVW VXPPDU\MXGJPHQWRQ3ODLQWLIIjVFODLPRIDGHSULYDWLRQRI 'HIHQGDQWVIRUGLVFULPLQDWLRQRQWKHEDVLVRIPDULWDOVWDWXVLQ GXH SURFHVV DQG QDWXUDO MXVWLFH &RXUW 9,,, RI 3ODLQWLIIjV YLRODWLRQRIWKH(TXDO&UHGLW2SSRUWXQLW\$FWm(&2$l FRPSODLQWDQG5(0$1'IRUHQWU\RIDQRUGHUGLVPLVVLQJ 86&†D DQGSURYLVLRQVRI5HJXODWLRQ%RIWKH WKDWFODLPZLWKRXWSUHMXGLFH (&2$&)5††FDQGGDEDQGF  0D\VY%XFNH\H5XUDO(OHFHWDO 1R 1R 0D\VY%XFNH\H5XUDO(OHFHWDO 

DQG D E DQG G  3ODLQWLII DOVR DVVHUWHG D GXH FRQFOXVLRQGRHVQRWZDUUDQWVXPPDU\MXGJPHQWRQ3ODLQWLIIjV SURFHVV GHSULYDWLRQ FODLP DQG FODLPV DULVLQJ XQGHU 2KLR FODLPDULVLQJRXWRImGXHSURFHVVDQGQDWXUDOMXVWLFHl VWDWXWHV DQG FRPPRQ ODZ DQG VRXJKW FHUWLILFDWLRQ RI WKH OLWLJDWLRQDVDFODVVDFWLRQSXUVXDQWWR)HG5&LY3D $V D WKUHVKROG PDWWHU 3ODLQWLII GLG QRW SOHDG KHU GXH DQGE  SURFHVV FODLP SXUVXDQW WR  86& †  WKH VWDWXWRU\ DXWKRUL]DWLRQ IRU FODLPV RI GHSULYDWLRQV RI IHGHUDO 2Q1RYHPEHU'HIHQGDQWVPRYHGWRGLVPLVVDOORI FRQVWLWXWLRQDO ULJKWV  $W QR SRLQW LQ KHU FRPSODLQW GRHV 3ODLQWLIIjV FODLPV SXUVXDQW WR )HG 5 &LY 3 E  DQG 3ODLQWLII PHQWLRQ †  ZKLFK LV QRWHZRUWK\ ZKHQ E 2QsDQXDU\0DJLVWUDWHsXGJH7LPRWK\6 FRPSDUHG WR KHU H[WHQVLYH DQG PHWLFXORXV FLWDWLRQ RI +RJDQ LVVXHG D 5HSRUW DQG 5HFRPPHQGDWLRQ UHJDUGLQJ SURYLVLRQV RI WKH (&2$ DQG LPSOHPHQWLQJ UHJXODWLRQV 'HIHQGDQWVj GLVSRVLWLYH PRWLRQ  %HFDXVH 3ODLQWLII DQG 3ODLQWLIIjVIDLOXUHWRUDLVH†H[SOLFLWO\LQKHUFRPSODLQW 'HIHQGDQWV KDG ILOHG HYLGHQWLDU\ PDWHULDOV RXWVLGH WKH PLJKWQRWQHFHVVDULO\SUHFOXGHDIHGHUDOFRQVWLWXWLRQDOFODLP SOHDGLQJVWKHPDJLVWUDWHMXGJHWUHDWHGWKHPRWLRQWRGLVPLVV LQDOOFLUFXPVWDQFHVEXWLQWKLVFDVHLWLVFOHDUWKDW3ODLQWLII DVDPRWLRQIRUVXPPDU\MXGJPHQWSXUVXDQWWR)HG5&LY GLGQRWLQWHQGWRDVVHUWDFODLPXQGHUWKHIHGHUDO&RQVWLWXWLRQ 37KHPDJLVWUDWHMXGJHUHFRPPHQGHGJUDQWLQJVXPPDU\ MXGJPHQWLQIDYRURI'HIHQGDQWVRQ3ODLQWLIIjV(&2$DQGGXH $OWKRXJK3ODLQWLIIjVXWLOL]LQJWKHWHUPmGXHSURFHVVlZRXOG SURFHVV FODLPV DQG GHFOLQLQJ WR H[HUFLVH VXEMHFW PDWWHU DSSHDUWRLPSOLFDWHIHGHUDOFRQVWLWXWLRQDOULJKWV3ODLQWLIIKDV MXULVGLFWLRQRYHU3ODLQWLIIjVFODLPVXQGHU2KLRODZSXUVXDQW FRQVLVWHQWO\ DWWHPSWHG WR FODULI\ WKDW KHU FODLP RI D WR86&†7KHPDJLVWUDWHMXGJHUHDVRQHGVXPPDU\ GHSULYDWLRQ RI mGXH SURFHVV DQG QDWXUDO MXVWLFHl LV GHULYHG MXGJPHQWZDVSURSHUEHFDXVHWKHUHJXODWLRQV3ODLQWLII IURPWKHFRPPRQODZRI2KLRDQGRWKHUVWDWHV3ODLQWLIIjV UHOLHGXSRQIRUWKH(&2$FODLPVH[HPSWHG'HIHQGDQWVIURP LQLWLDO UHVSRQVH LQ RSSRVLWLRQ WR 'HIHQGDQWVj PRWLRQ WR FRPSOLDQFH3ODLQWLIIFRXOGQRWDVVHUWFODLPVDULVLQJRXWRI GLVPLVVGLVFXVVHVKHUmGXHSURFHVVDQGQDWXUDOMXVWLFHlFODLP VLJQLQJDQHOHFWULFLW\VHUYLFHDSSOLFDWLRQLQEHFDXVHWKH HQWLUHO\ LQ WKH FRQWH[W RI FRPPRQ ODZ ULJKWV DQG LQWHUHVWV WZR\HDUVWDWXWHRIOLPLWDWLRQVRI86&†HIKDG LQFLGHQWWRWKHUHFHLSWRUGHQLDORIXWLOLW\VHUYLFHV$IWHUWKH UXQ DQG  'HIHQGDQWVj DFWLRQV GLG QRW FRQVWLWXWH mVWDWH PDJLVWUDWH MXGJH LVVXHG KLV VXPPDU\ MXGJPHQW DFWLRQlIRUGXHSURFHVVSXUSRVHV7KHPDJLVWUDWHMXGJHGLG UHFRPPHQGDWLRQRQHRI3ODLQWLIIjVJURXQGVIRUREMHFWLRQZDV QRWDGGUHVV3ODLQWLIIjVPRWLRQIRUFODVVFHUWLILFDWLRQ WKDWWKHPDJLVWUDWHMXGJHKDGPLVFRQVWUXHGKHUGXHSURFHVV FODLPDVDULVLQJXQGHUWKH&RQVWLWXWLRQ3ODLQWLIIH[SODLQHG 2Q sXQH   WKH GLVWULFW FRXUW LVVXHG DQ RUGHU WKDWKHUmGXHSURFHVVDQGQDWXUDOMXVWLFHlFODLPLQYROYHGQRW DGRSWLQJWKHUHFRPPHQGDWLRQVRIWKHPDJLVWUDWHMXGJH7KH FRQVWLWXWLRQDOULJKWVEXWDGXW\LPSRVHGRQXWLOLW\FRPSDQLHV GLVWULFW FRXUW JUDQWHG 'HIHQGDQWVj PRWLRQ WR GLVPLVV DV WR XQGHU WKH FRPPRQ ODZ  6KH VWDWHG WKDW VKH KDG mQHYHU 3ODLQWLIIjVFODLPVDULVLQJXQGHUWKH(&2$)HGHUDO5HVHUYH DVVHUWHG WKDW GHIHQGDQWV ZHUH VWDWH DFWRUV RU WKDW WKH %RDUGUHJXODWLRQVDQGGXHSURFHVVDQGGLVPLVVLQJZLWKRXW )RXUWHHQWK$PHQGPHQWZDVWKHVRXUFHRIWKLVGXW\RUHYHQ SUHMXGLFH3ODLQWLIIjVFODLPVDULVLQJXQGHU2KLRVWDWXWHVDQG WKDW WKH GXW\ ZDV WKH HTXLYDOHQW WR FRQVWLWXWLRQDO GXH SURFHVVls$DW,QDUJXPHQWVWRWKLV&RXUW3ODLQWLII FRQWLQXHV WR FKDUDFWHUL]H KHU WKHRU\ RI GHSULYDWLRQ RI GXH  SURFHVV DV DULVLQJ RXW RI WKH FRPPRQ ODZ UDWKHU WKDQ WKH ,Q 6HSWHPEHU RI  DIWHU 3ODLQWLII ILOHG KHU FRPSODLQW LQ WKLV DFWLRQ 'HIHQGDQWV HVWDEOLVKHG DQ LQGLYLGXDO DFFRXQW LQ 3ODLQWLIIjV QDPH IHGHUDO&RQVWLWXWLRQ DQG DIWHU 3ODLQWLII SDLG WKH PHPEHUVKLS IHH DQG GHSRVLW UHVWRUHG HOHFWULFLW\ VHUYLFH WR 3ODLQWLIIjV KRPH 'HIHQGDQWV GLG QRW UHTXLUH 3ODLQWLII WR SD\ WKH RXWVWDQGLQJ EDODQFH RQ WKH GLVFRQQHFWHG DFFRXQW  0D\VY%XFNH\H5XUDO(OHFHWDO 1R 1R 0D\VY%XFNH\H5XUDO(OHFHWDO 

VSRXVHZLWKRXWDQ\SULRUFRQWHPSRUDQHRXVRUVXEVHTXHQW FRPPRQODZ7KHGLVWULFWFRXUWGLGQRWUXOHRQ3ODLQWLIIjV LQGLFDWLRQRIWKHVSRXVHjVDVVHQWWRWKHGHEW%\IXQGDPHQWDO PRWLRQIRUFODVVFHUWLILFDWLRQ FRQWUDVW WKH IDFWV RI WKLV FDVH DV DOOHJHG LQ 3ODLQWLIIjV FRPSODLQWDQGVXEVWDQWLDWHGLQWKHUHFRUGFRQFHUQGHQLDORI ',6&866,21 LQGLYLGXDO FUHGLWEDVHGRQDQH[LVWLQJGHEWIRUZKLFKDVD VLJQDWRU\RQWKHDFFRXQWDSSOLFDWLRQ3ODLQWLIIKDGREMHFWLYHO\ , (&2$&/$,06 GHPRQVWUDWHG DFFHSWDQFH RI VRPH GHJUHH RI ILQDQFLDO UHVSRQVLELOLW\ 7KH(&2$SURKLELWVFUHGLWRUVIURPGLVFULPLQDWLQJDJDLQVW DQ\FUHGLWDSSOLFDQWmZLWKUHVSHFWWRDQ\DVSHFWRIDFUHGLW 8QGHU WKH VSHFLILF IDFWV RI WKLV OLWLJDWLRQ UHVROXWLRQ RI WUDQVDFWLRQRQWKHEDVLVRIUDFHFRORUUHOLJLRQQDWLRQDO 3ODLQWLIIjV (&2$ FODLPV ZRXOG LQH[WULFDEO\ WXUQ RQ DQ RULJLQVH[RUPDULWDOVWDWXVl86&†D $VDQ HYDOXDWLRQ RI 'HIHQGDQWVj UHTXLULQJ 3ODLQWLII WR VLJQ WKH HQWLW\JUDQWLQJPHPEHUVWKHDELOLW\mWRGHIHUSD\PHQWRID PHPEHUVKLSDSSOLFDWLRQLQ3ODLQWLIIWKHUHIRUHKDGXQWLO GHEWRUWRLQFXUGHEWVDQGGHIHULWVSD\PHQWRUWRSXUFKDVH  WR EULQJ KHU (&2$ FODLPV DJDLQVW 'HIHQGDQWV SURSHUW\RUVHUYLFHVDQGGHIHUSD\PHQWWKHUHIRUl'HIHQGDQW 3ODLQWLIIVFODLPVXQGHU86&†D DQG&)5 %XFNH\HLVDmFUHGLWRUlZLWKLQWKHPHDQLQJRIWKH(&2$ †DDQGEEURXJKWLQDFRPSODLQWILOHGLQDUH 86&†DG%DUQH\Y+RO]HU&OLQLF/WG)G WLPHEDUUHG WK&LUTXRWLQJVWDWXWRU\GHILQLWLRQRI FUHGLWVHHDOVR6KDXP\DQY6LGHWH[&R,QF)G ,, '8(352&(66'(35,9$7,21  G &LU  m$EVHQW D ULJKW WR GHIHU SD\PHQW IRU D PRQHWDU\ GHEW SURSHUW\ RU VHUYLFHV WKH (&2$ LV ,QWKHDEVHQFHRIVWDWHDFWLRQDSODLQWLIIPD\QRWDVVHUWD LQDSSOLFDEOHlm7KHSXUSRVHRIWKH(&2$LVWRHUDGLFDWH GXHSURFHVVFODLPXQGHUWKH)RXUWHHQWK$PHQGPHQW6HH$P FUHGLW GLVFULPLQDWLRQ ZDJHG DJDLQVW ZRPHQ HVSHFLDOO\ 0IUV0XW,QV&RY6XOOLYDQ86VHH PDUULHG ZRPHQ ZKRP FUHGLWRUV WUDGLWLRQDOO\ UHIXVHG WR DOVR%ODFNDUGY0HPSKLV$UHD0HG&HQWHUIRU:RPHQ,QF FRQVLGHUIRULQGLYLGXDOFUHGLWl$QGHUVRQY8QLWHG)LQ&R  )G   WK &LU  m7KH UHTXLUHPHQW WKDW  )G   WK &LU  FLWLQJ 0DUNKDP Y WKHUHEHVWDWHDFWLRQLQWKHFRQWH[WRIFRQVWLWXWLRQDOYLRODWLRQV &RORQLDO0RUWJDJH6HUY&R$VVRFV,QF)G UHIHUVWRJRYHUQPHQWDFWLRQoVWDWHRUIHGHUDOoDVRSSRVHGWR '&&LU  SULYDWH DFWLRQl  $ SULYDWH XWLOLW\ FRPSDQ\ VXFK DV 'HIHQGDQW%XFNH\HGRHVQRWDPRXQWWRDVWDWHDFWRUHYHQLI *LYHQWKHVLPLODUSXUSRVHVRIWKH(&2$DQG7LWOH9,,WKH WKH XWLOLW\ SRVVHVVHV D PRQRSRO\ RYHU WKH SURYLVLRQ RI D EXUGHQDOORFDWLRQ V\VWHP RI IHGHUDO HPSOR\PHQW VHUYLFH IRU )RXUWHHQWK $PHQGPHQW SXUSRVHV  sDFNVRQ Y GLVFULPLQDWLRQ ODZ SURYLGHV DQ DQDO\WLFDO IUDPHZRUN IRU 0HWUR(GLVRQ&R867KHGLVWULFW FODLPV RI FUHGLW GLVFULPLQDWLRQ  6HH /HZLV Y $&% %XV FRXUWDSSOLHGWKHVHSULQFLSOHVLQJUDQWLQJVXPPDU\MXGJPHQW 6HUYV,QF)GWK&LUVHHDOVR5RVD LQIDYRURI'HIHQGDQWVRQ3ODLQWLIIjVGXHSURFHVVFODLP Y3DUN:HVW%DQN 7UXVW&R)GVW&LU ORRNLQJWR7LWOH9,,LQFRQVWUXLQJWKH(&2$%XWVHH :HGRQRWTXDUUHOZLWKWKHGLVWULFWFRXUWjVVXEVWDQWLYHOHJDO /DWLPRUHY&LWLEDQN)HG6DY%DQN)GWK FRQFOXVLRQ WKDW 3ODLQWLII FDQQRW PDLQWDLQ D IHGHUDO &LUUHIXVLQJWRDSSO\%XUGLQH0F'RQQHOO'RXJODV FRQVWLWXWLRQDOGXHSURFHVVGHSULYDWLRQFODLPLQWKHDEVHQFHRI VWDWHDFWLRQ2XUH[DPLQDWLRQRI3ODLQWLIIjVFRPSODLQWDQG DUJXPHQWVLQWKHGLVWULFWFRXUWKRZHYHUUHYHDOVWKDWWKLVOHJDO  7H[DV 'HSjW RI &PW\ $IIDLUV Y %XUGLQH  86    0F'RQQHOO 'RXJODV &RUS Y *UHHQ  86     0D\VY%XFNH\H5XUDO(OHFHWDO 1R 1R 0D\VY%XFNH\H5XUDO(OHFHWDO 

EXUGHQVKLIWLQJ IUDPHZRUN WR (&2$ FDVHV 8QGHU WKLV WKHOLPLWDWLRQVSHULRGRQ3ODLQWLIIjVFODLPVZHZLOOWKHUHIRUH DQDO\WLFDO IUDPHZRUN 3ODLQWLII FDQ HVWDEOLVK D SULPD IDFLH ORRN WR WKH VSHFLILF (&2$ DQG UHJXODWRU\ YLRODWLRQV IRU FDVHRIFUHGLWGLVFULPLQDWLRQE\VKRZLQJ3ODLQWLIIZDVD ZKLFK DQ H[HPSWLRQ GRHV QRW DSSO\ WKDW 3ODLQWLII DOOHJHV PHPEHURIDSURWHFWHGFODVV3ODLQWLIIDSSOLHGIRUFUHGLW FDXVHGKHULQMXU\ IURP'HIHQGDQWV3ODLQWLIIZDVTXDOLILHGIRUWKHFUHGLWDQG  GHVSLWH 3ODLQWLIIjV TXDOLILFDWLRQ 'HIHQGDQWV GHQLHG KHU 3ODLQWLIIDOOHJHVWKDW'HIHQGDQWVWRRNDGYHUVHFUHGLWDFWLRQ FUHGLW DSSOLFDWLRQ  6HH HJ 0DWWKLHXVHQ Y %DQF 2QH DJDLQVWKHULQE\UHIXVLQJWRRSHQDQLQGLYLGXDODFFRXQW 0RUWJDJH&RUS)GWK&LU IRUKHULQYLRODWLRQRI&)5†DDQGE\UHIXVLQJ WRDOORZKHUWRRSHQRUPDLQWDLQDQDFFRXQWXQGHUDGLIIHUHQW ,Q FRQFOXGLQJ 3ODLQWLII FRXOG QRW HVWDEOLVK D SULPD IDFLH VXUQDPH LQ YLRODWLRQ RI † E  3ODLQWLIIjV FRPSODLQW FDVH RI FUHGLW GLVFULPLQDWLRQ RQ WKH EDVLV RI PDULWDO VWDWXV DOOHJHVWKDW'HIHQGDQWVUHIXVHGWRWDNHWKHVHDFWLRQVEHFDXVH SXUVXDQWWRWKLVIUDPHZRUNWKHPDJLVWUDWHMXGJHHIIHFWLYHO\ RI WKH RXWVWDQGLQJ GHEW H[LVWLQJ RQ WKH DFFRXQW 0D\V DQG IRFXVHG RQ WKH DEVHQFH RI WKH ILUVW HOHPHQW  3ODLQWLIIjV 3ODLQWLIIRSHQHGLQ7KHPDJLVWUDWHMXGJHYLHZHGWKHVH PHPEHUVKLSLQDSURWHFWHGFODVV5DWKHUWKDQGLUHFWO\VWDWLQJ DFWLRQV DV WKH FRQWLQXLQJ HIIHFWV RI 'HIHQGDQWVj REOLJDWLQJ 3ODLQWLII KDG IDLOHG WR VDWLVI\ WKLV HOHPHQW KRZHYHU WKH 3ODLQWLIIWRVLJQWKHDFFRXQWDSSOLFDWLRQHOHYHQ\HDUVHDUOLHU PDJLVWUDWHMXGJHFRQFOXGHGWKDWPDQ\RIWKH)HGHUDO5HVHUYH %RDUGUHJXODWLRQVQDPHGLQ3ODLQWLIIjVFRPSODLQWH[HPSWHG $mGHQLDORUUHYRFDWLRQRIFUHGLWlLVRQHW\SHRIDGYHUVH 'HIHQGDQWVIURPFRPSOLDQFH,QRWKHUZRUGV3ODLQWLIIFRXOG DFWLRQSXUVXDQWWRWKH(&2$86&†G /HZLV QRWVKRZVKHZDVDPHPEHURIDSURWHFWHGFODVVEHFDXVHWKH  )G DW  TXRWLQJ VWDWXWRU\ ODQJXDJH   &)5 )HGHUDO5HVHUYH%RDUGUHJXODWLRQVHVWDEOLVKLQJFHUWDLQRIKHU † F GHILQHV mDGYHUVH DFWLRQl IRU SXUSRVHV RI FODLPV GLG QRW DSSO\ WR 'HIHQGDQWV  6SHFLILFDOO\ WKH 5HJXODWLRQ % DQG LQFOXGHV D FUHGLWRUjV UHIXVDO WR H[WHQG PDJLVWUDWH MXGJH GHWHUPLQHG WKDW 'HIHQGDQWV SURYLGH FUHGLWDVRQHRIVHYHUDOPDQLIHVWDWLRQVRIDGYHUVHDFWLRQ mLQFLGHQWDOFUHGLWlDVGHILQHGLQ&)5†F DQG &)5 † F  L  7KH DOOHJDWLRQV RI 3ODLQWLIIjV ZHUHWKHUHIRUHHQWLWOHGWRH[HPSWLRQVOLVWHGLQ†F  FRPSODLQW3ODLQWLIIjVUHSUHVHQWDWLRQVLQDQDIILGDYLWDQGWKH 6XPPDU\ MXGJPHQW WKH PDJLVWUDWH MXGJH UHFRPPHQGHG DIILGDYLWWHVWLPRQ\RI'HIHQGDQW3DUNHUDOOGHPRQVWUDWHWKDW ZRXOGEHDSSURSULDWHRQ3ODLQWLIIjVFODLPVEURXJKWSXUVXDQW 'HIHQGDQWVUHIXVHGWRRSHQDQLQGLYLGXDODFFRXQWIRU3ODLQWLII WRUHJXODWLRQVIRUZKLFK†F SURYLGHGFRPSOLDQFH EHFDXVH RIWKHDUUHDUDJHRQWKHH[LVWLQJDFFRXQW3ODLQWLII H[HPSWLRQV  7KH PDJLVWUDWH MXGJH DOVR UHFRPPHQGHG MRLQHG0D\VLQVLJQLQJWKHDSSOLFDWLRQIRUHOHFWULFDOVHUYLFHLQ VXPPDU\ MXGJPHQW RQ 3ODLQWLIIjV VWDWXWRU\ DQG UHJXODWRU\ 3ODLQWLIIjVIDLOHGDWWHPSWVLQHDUO\WRHVWDEOLVKDQ FODLPVRXWVLGHWKHH[HPSWLRQSURYLVLRQVFRQFOXGLQJWKDWWKH HOHFWULFDOVHUYLFHDFFRXQWDURVHRXWRIKHURZLQJPRQH\IURP WZR\HDUVWDWXWHRIOLPLWDWLRQVRI86&†HIEDUUHG WKH SULRU DFFRXQW D UHVXOW RI WKH DOOHJHGO\ GLVFULPLQDWRU\ WKRVHFODLPV UHTXLUHPHQWWKDWVKHVLJQWKHFUHGLWDSSOLFDWLRQLQ $OWKRXJK WKH PDJLVWUDWH MXGJH DGGUHVVHG 'HIHQGDQWVj 7KLVFDVHGRHVQRWSUHVHQWIRULQVWDQFHWKHVLWXDWLRQZKHUH PRWLRQ WR GLVPLVV 3ODLQWLIIjV FODLPV LQ VXPPDU\ MXGJPHQW D XWLOLWLHV FUHGLWRU GHQLHG DQ LQGLYLGXDO DFFRXQW EHFDXVH D WHUPVWKHGLVWULFWFRXUWLQDGRSWLQJWKHPDJLVWUDWHMXGJHjV VSRXVHRUIRUPHUVSRXVHZDVPHUHO\OLYLQJLQDKRPHVHUYHG UHFRPPHQGDWLRQV GLG QRW VSHFLILFDOO\ JUDQW VXPPDU\ E\DGHOLQTXHQWIRUPHUDFFRXQWRSHQHGE\WKHRWKHUVSRXVH MXGJPHQW,QVWHDGWKHGLVWULFWFRXUWFKDUDFWHUL]HGLWVRUGHUDV 7KLVFDVHDOVRGRHVQRWSUHVHQWWKHVLWXDWLRQZKHUHDXWLOLWLHV JUDQWLQJ 'HIHQGDQWVj PRWLRQ WR GLVPLVV DV WR 3ODLQWLIIjV FUHGLWRUGHQLHGDQDFFRXQWIRUVHUYLFHWRDVSRXVHRUIRUPHU FODLPV DULVLQJ XQGHU IHGHUDO ODZ DQG GLVPLVVLQJ ZLWKRXW VSRXVHEHFDXVHRIDQRXWVWDQGLQJGHEWLQFXUUHGE\WKHRWKHU  0D\VY%XFNH\H5XUDO(OHFHWDO 1R 1R 0D\VY%XFNH\H5XUDO(OHFHWDO 

VDWLVILHGWKHWKUHHHVVHQWLDOHOHPHQWVIRULQFLGHQWDOFUHGLW,G SUHMXGLFH3ODLQWLIIjVFODLPVDULVLQJXQGHUVWDWHODZ%HFDXVH DW   Q  $FFRUGLQJ WR WKH :LOOLDPV FRXUW WKH WKHGLVWULFWFRXUWDQGWKHPDJLVWUDWHMXGJHORRNHGWRPDWHULDOV FHOOXODUWHOHSKRQHFRPSDQ\TXDOLILHGDVDQLQFLGHQWDOFUHGLWRU EH\RQG3ODLQWLIIjVFRPSODLQWLQUXOLQJRQ'HIHQGDQWjVPRWLRQ XQGHU&)5†FEHFDXVHLWVFUHGLWWUDQVDFWLRQVGLG WRGLVPLVVWKHGLVWULFWFRXUWjVGLVPLVVDORI3ODLQWLIIjVIHGHUDO QRW LQYROYH FUHGLW FDUG DFFRXQWV ILQDQFH FKDUJHV RU ODZ FODLPV DPRXQWHG WR JUDQWLQJ VXPPDU\ MXGJPHQW  6HH LQVWDOOPHQWSD\PHQWV,GDW$VDQLQFLGHQWDOFUHGLWRU )HG5&LY3EZKHUHGLVWULFWFRXUWFRQVLGHUVPDWWHUV WKH GHIHQGDQW FHOOXODU SKRQH FRPSDQ\ ZDV GXH WKH RXWVLGHWKHSOHDGLQJVLQUXOLQJRQDPRWLRQWRGLVPLVVWKH FRPSOLDQFHH[HPSWLRQVRI†F  GLVWULFW FRXUW VKRXOG WUHDW WKH PRWLRQ DV RQH IRU VXPPDU\ MXGJPHQW:HVKDOOWKHUHIRUHFRQVWUXHWKHGLVWULFWFRXUWjV :HDJUHHZLWKWKHDQDO\VLVRIWKH:LOOLDPVFRXUWWKHVDPH RUGHUDVJUDQWLQJVXPPDU\MXGJPHQWLQ'HIHQGDQWVjIDYRURQ DQDO\VLV DSSOLHG E\ WKH PDJLVWUDWH MXGJH DQG DGYDQFHG E\ 3ODLQWLIIjVIHGHUDOODZFODLPV6HHHJ7DOOH\%H\Y.QHEO 'HIHQGDQWVLQWKHLQVWDQWFDVH'HIHQGDQWVjFUHGLWH[WHQVLRQV )GWK&LU)XJDULQRY+DUWIRUG/LIH VDWLVI\ WKH WKUHH HOHPHQWV IRU mLQFLGHQWDO FUHGLWl DQG $FFLGHQW,QV&R)GWK&LU 'HIHQGDQWVDUHWKHUHIRUHH[HPSWIURPFRPSOLDQFHZLWKWKH IROORZLQJSURYLVLRQVXQGHUJLUGLQJDOORUSDUWRIVHYHUDORI :HUHYLHZWKHGLVWULFWFRXUWjVGHFLVLRQWRJUDQWVXPPDU\ 3ODLQWLIIjVFODLPV&)5††FDQGGG MXGJPHQW GH QRYR  :KLWH &RQVRO ,QGXV ,QF Y DQGDEDQGF:HFRQFOXGHWKDWWKHGLVWULFWFRXUW :HVWLQJKRXVH(OHF&RUS)GWK&LU SURSHUO\ JUDQWHG VXPPDU\ MXGJPHQW IRU 'HIHQGDQWV RQ 7KH GLVWULFW FRXUW VKRXOG JUDQW VXPPDU\ MXGJPHQW mLI WKH 3ODLQWLIIjV FODLPV RU WKH SRUWLRQV RI WKRVH FODLPV EURXJKW SOHDGLQJV GHSRVLWLRQV DQVZHUV WR LQWHUURJDWRULHV DQG SXUVXDQWWRWKHVHVHFWLRQVRI5HJXODWLRQ% DGPLVVLRQVRQILOHWRJHWKHUZLWKWKHDIILGDYLWVLIDQ\VKRZ WKDWWKHUHLVQRJHQXLQHLVVXHDVWRDQ\PDWHULDOIDFWDQGWKDW % 7ZR

DGYHUVHFUHGLWDFWLRQ3ODLQWLIIDOVRFODLPVWKDW'HIHQGDQWVj RIDFUHGLWFDUGDFFRXQWQRWVXEMHFWWRDILQDQFHFKDUJHDV DFWLRQV YLRODWHG WKUHH SRUWLRQV RI  &)5 †  GHILQHG LQ †  DQG  QRW SD\DEOH LQ PRUH WKDQ IRXU † DjV SURKLELWLQJ FUHGLWRUV IURP GHQ\LQJ LQGLYLGXDO LQVWDOOPHQWVE\DJUHHPHQW†F $FFRUGLQJWRDQ FUHGLW DFFRXQWV RQ WKH EDVLV RI PDULWDO VWDWXV † EjV DIILGDYLWSURYLGHGE\'HIHQGDQW3DUNHU'HIHQGDQW%XFNH\H SURKLELWLQJFUHGLWRUVIURPUHIXVLQJWRDOORZDFUHGLWDSSOLFDQW KDV QR FUHGLW FDUG DFFRXQWV GRHV QRW SHUPLW LQVWDOOPHQW WRGHVLJQDWHWKHQDPHWREHSODFHGRQDQDFFRXQWVXFKDVD SD\PHQWVIRUHOHFWULFDOVHUYLFHDQGGRHVQRWLPSRVHILQDQFH SULRUVXUQDPHDQG†GjVSURKLELWLQJFUHGLWRUVIURP FKDUJHV3ODLQWLIIRIIHUVOLWWOHSUREDWLYHHYLGHQFHGLVSXWLQJ UHTXLULQJDQRWKHUSHUVRQjVVLJQDWXUHRQDFUHGLWDSSOLFDWLRQ 'HIHQGDQWVjVDWLVIDFWLRQRIWKHWKUHHHOHPHQWVIRULQFLGHQWDO H[FHSWLQWKHFDVHRIMRLQWDSSOLFDWLRQ FUHGLWDQGZHFRQFOXGHWKDW'HIHQGDQWVjH[WHQVLRQVRIFUHGLW DUHZLWKLQWKHWHUPVRI†F  6HFWLRQRI5HJXODWLRQ%UHQGHUVFHUWDLQUHJXODWRU\ SURYLVLRQVLQDSSOLFDEOHWRVHYHUDOW\SHVRIFUHGLWWUDQVDFWLRQV 7RWKHH[WHQWWKDW3ODLQWLIIVXJJHVWV'HIHQGDQWVLPSRVHD ([WHQVLRQVRIRQHRIWKHVHWUDQVDFWLRQW\SHVLQFLGHQWDOFUHGLW mILQDQFHFKDUJHlE\DVVHVVLQJDWHQSHUFHQWSHQDOW\RQSDVW QHHGQRWFRPSO\ZLWKWKHIROORZLQJSURYLVLRQVRI5HJXODWLRQ GXH ELOOV WKLV ODWH SHQDOW\ LV H[SUHVVO\ H[FOXGHG IURP WKH %PRVWRIZKLFKDUHLPSOLFDWHGLQ3ODLQWLIIjVFRPSODLQW UHJXODWRU\GHILQLWLRQRImILQDQFHFKDUJHl$PRQJWKHW\SHV RIFKDUJHVH[FOXGHGIURPWKHmILQDQFHFKDUJHlGHILQLWLRQLQ L 6HFWLRQ F FRQFHUQLQJ LQIRUPDWLRQ DERXW D  &)5 † F WKH VHFWLRQ WR ZKLFK † F  VSRXVHRUIRUPHUVSRXVH UHIHUVDUHm>F@KDUJHVIRUDFWXDOXQDQWLFLSDWHGODWHSD\PHQW LL 6HFWLRQ G  FRQFHUQLQJ LQIRUPDWLRQ DERXW IRUH[FHHGLQJDFUHGLWOLPLWRUIRUGHOLQTXHQF\GHIDXOWRUD PDULWDOVWDWXV VLPLODURFFXUUHQFHl†F 'HIHQGDQWVjWHQSHUFHQW LLL 6HFWLRQ G  FRQFHUQLQJ LQIRUPDWLRQ DERXW ODWHSHQDOW\IDOOVZLWKLQWKLVH[FOXVLRQUHQGHULQJWKHSHQDOW\ LQFRPH GHULYHG IURP DOLPRQ\ FKLOG VXSSRUW RU RXWVLGHWKHPHDQLQJRImILQDQFHFKDUJHl VHSDUDWHPDLQWHQDQFHSD\PHQWV LY 6HFWLRQ G  FRQFHUQLQJ LQIRUPDWLRQ DERXW ,Q:LOOLDPVY$7 7:LUHOHVV6HUYV,QF)6XSSG WKH VH[ RI DQ DSSOLFDQW EXW RQO\ WR WKH H[WHQW :':DVKWKH:HVWHUQ'LVWULFWRI:DVKLQJWRQ QHFHVVDU\IRUPHGLFDOUHFRUGVRUVLPLODUSXUSRVHV UHDFKHG D VLPLODU FRQFOXVLRQ ZKHQ LW DQDO\]HG D FHOOXODU Y 6HFWLRQGUHODWLQJWRWKHVLJQDWXUHRIDVSRXVH WHOHSKRQH FRPSDQ\jV FRPSOLDQFH REOLJDWLRQV XQGHU WKH RURWKHUSHUVRQ (&2$7KHFRXUWOLNHQHGWKHSURYLVLRQRIFHOOXODUWHOHSKRQH YL 6HFWLRQUHODWLQJWRQRWLILFDWLRQV VHUYLFHWRWKHSURYLVLRQRIJDVHOHFWULFLW\DQGZDWHUQRWLQJ WKDW FRQVXPHUV LQ DOO IRXU FDVHV LQFXU GHEW DV WKH\ XVH WKH &)5†F ([WHQVLRQVRILQFLGHQWDOFUHGLWDUH VHUYLFHV DQG UHFHLYH SHULRGLF ELOOV IRU WKH VHUYLFHV XVHG H[WHQVLRQV RWKHU WKDQ IRU mSXEOLF XWLOLWLHV FUHGLWl DQG :LOOLDPV)6XSSGDW7KHFRXUWFRQFOXGHGWKDW mVHFXULWLHVFUHGLWl DQGDUHQRWPDGHSXUVXDQWWRWHUPV FHOOXODUWHOHSKRQHFRPSDQLHVOLNHXWLOLW\FRPSDQLHVSURYLGH FUHGLWWRWKHLUFXVWRPHUVZLWKLQWKHPHDQLQJRIWKH(&2$ ,G7KHFRXUWGLVWLQJXLVKHGWKHGHIHQGDQWjVDFWLYLWLHVIURP  SXEOLF XWLOLW\ FUHGLW EHFDXVH LWV UDWHV ZHUH QRW VXEMHFW WR ([WHQVLRQV RI mSXEOLF XWLOLWLHV FUHGLWl LQYROYH WKH SURYLVLRQ RI JRYHUQPHQW UHJXODWLRQ EXW FRQFOXGHG WKDW WKH GHIHQGDQW XWLOLW\ VHUYLFHV E\ DQ HQWLW\ UHTXLUHG WR ILOH LWV UDWHV ZLWK D JRYHUQPHQW DJHQF\ 800 † D  DQG H[WHQVLRQV RI mVHFXULWLHV FUHGLWl LQYROYH WUDQVDFWLRQV VXEMHFW WR WKH VHFXULWLHV ODZV 800 † D  7KH SDUWLHV DJUHH WKDW 'HIHQGDQWVj FUHGLW H[WHQVLRQV GR QRW TXDOLI\ DV mSXEOLF XWLOLWLHVl FUHGLW EHFDXVH 'HIHQGDQWV DUH QRW REOLJDWHG WR ILOH WKHLU UDWHV ZLWK DQ\ JRYHUQPHQWDO HQWLW\