Paschal v. Flagstar Bank

• Court: Court of Appeals for the Sixth Circuit
• Decided: July 17, 2002
• Docket: 00-1634
• Status: Published

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$/' 3$6&+$/HWDO ; 3ODLQWLIIV$SSHOOHHV    1R Y  !  )/$*67$5 %$1. )6%D  )HGHUDO6DYLQJV%DQNIND  )LUVW6HFXULW\6DYLQJV%DQN  )6%  'HIHQGDQW$SSHOODQW    1 $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH(DVWHUQ'LVWULFWRI0LFKLJDQDW'HWURLW 1Rn$YHUQ&RKQ'LVWULFWsXGJH $UJXHG0DUFK 'HFLGHGDQG)LOHGsXO\ %HIRUH6,/(5DQG*,/0$1&LUFXLWsXGJHV +(<%851&KLHI'LVWULFWsXGJH

7KH +RQRUDEOH sRKQ * +H\EXUQ ,, &KLHI 8QLWHG 6WDWHV 'LVWULFW sXGJH IRU WKH :HVWHUQ 'LVWULFW RI .HQWXFN\ VLWWLQJ E\ GHVLJQDWLRQ

  3DVFKDOHWDOY)ODJVWDU%DQN 1R

BBBBBBBBBBBBBBBBB &2816(/ $5*8('  )UDQFLV 5 2UWL] ',&.,1621 :5,*+7 3//& 'HWURLW 0LFKLJDQ IRU $SSHOODQW  6WHSKHQ 5 7RPNRZLDN 6RXWKILHOG 0LFKLJDQ IRU $SSHOOHHV 21 %5,()  )UDQFLV 5 2UWL] 5LFN $ +DEHUPDQ ',&.,1621 :5,*+7 3//& 'HWURLW 0LFKLJDQ IRU $SSHOODQW6WHSKHQ57RPNRZLDN6RXWKILHOG0LFKLJDQIRU $SSHOOHHV BBBBBBBBBBBBBBBBB 23,1,21 BBBBBBBBBBBBBBBBB 521$/' /(( *,/0$1 &LUFXLW sXGJH  (LJKW VHWV RI $IULFDQ$PHULFDQ SODLQWLIIV ILOHG D PRUWJDJHOHQGLQJ GLVFULPLQDWLRQODZVXLWDJDLQVW)ODJVWDU%DQN$OWKRXJKWKH GLVWULFW FRXUW JUDQWHG )ODJVWDU VXPPDU\ MXGJPHQW DJDLQVW WKUHHRIWKHVHVHWVWKHFODLPVRIWKHRWKHUILYHVHWVSURFHHGHG WR WULDO  'XULQJ MXU\ VHOHFWLRQ )ODJVWDU H[FXVHG WKH RQO\ $IULFDQ$PHULFDQRQWKHMXU\SDQHO%XWWKHGLVWULFWFRXUW UHFDOOHGWKHMXURUDIWHUFRQFOXGLQJWKDW)ODJVWDUjVSHUHPSWRU\ FKDOOHQJHZDVLPSURSHUO\H[HUFLVHG7KHGLVWULFWFRXUWDOVR GHFLGHGDQXPEHURIHYLGHQWLDU\LVVXHVDJDLQVW)ODJVWDUGXULQJ WKH WULDO  $ YHUGLFW ZDV VXEVHTXHQWO\ UHWXUQHG LQ IDYRU RI )ODJVWDUDVWRWKUHHRIWKHILYHVHWVRISODLQWLIIVEXWWKHMXU\ IRXQG WKDW WKH UHPDLQLQJ WZR VHWV RI SODLQWLIIVnWKH (GZDUGVHVDQGWKH3DVFKDOVnKDGSURYHQE\DSUHSRQGHUDQFH RI WKH HYLGHQFH WKDW )ODJVWDU UDFLDOO\ GLVFULPLQDWHG DJDLQVW WKHP ZKHQ WKH\ DSSOLHG IRU PRUWJDJHV  )ODJVWDU ILOHG D QXPEHURISRVWWULDOPRWLRQVDOORIZKLFKZHUHGHQLHGE\WKH GLVWULFW FRXUW  7KH EDQN QRZ DSSHDOV WKH YDULRXV DGYHUVH GHFLVLRQVWKDWWKHGLVWULFWFRXUWUHQGHUHGWKURXJKRXWWKHFDVH )RU WKH UHDVRQV VHW IRUWK EHORZ ZH $)),50 WKH GLVWULFW FRXUWjVMXGJPHQWLQIDYRURIWKH(GZDUGVHV5(9(56(LWV MXGJPHQWLQIDYRURIWKH3DVFKDOVDQG5(0$1'WKHFDVH ZLWKLQVWUXFWLRQVWRGLVPLVVWKH3DVFKDOVjFRPSODLQW 1R 3DVFKDOHWDOY)ODJVWDU%DQN 

,%$&.*5281' 7KHGLVWULFWFRXUWVXFFLQFWO\VWDWHGWKHJHQHUDOEDFNJURXQG RIWKLVFDVHDVIROORZV 7KLV LV D KRXVLQJ GLVFULPLQDWLRQ FDVH PRUWJDJH OHQGLQJEURXJKWXQGHUVHFWLRQVDQGRIWKH)DLU +RXVLQJ$PHQGPHQW$FWRI86&†DQG †DQGFRUUHVSRQGLQJUHJXODWLRQVSURPXOJDWHGE\ WKH 'HSDUWPHQW RI +RXVLQJ DQG 8UEDQ 'HYHORSPHQW SHUWDLQLQJWRPRUWJDJHOHQGLQJ&)5††WR  DV ZHOO DV WKH &LYLO 5LJKWV $FW RI  DQG 86&†DQG†DQGVHFWLRQRI 0LFKLJDQjV (OOLRW/DUVHQ &LYLO 5LJKWV $FW 0&/ † ,QJHQHUDOSODLQWLIIVFODLPWKDWWKH\ZHUHWKHVXEMHFWV RIUDFLDOGLVFULPLQDWLRQLQWKHPDQQHULQZKLFKGHIHQGDQW )ODJVWDU%DQN)ODJVWDUDPRUWJDJHEDQNKDQGOHGWKHLU PRUWJDJHORDQDSSOLFDWLRQVRULQWKHZD\WKHWHUPVDQG FRQGLWLRQVRIWKHLUPRUWJDJHORDQVZHUHVHW (GZDUGVY)ODJVWDU%DQN)6XSSG(' 0LFK 3ULRU WR WULDO )ODJVWDU ILOHG D PRWLRQ IRU VXPPDU\ MXGJPHQWDUJXLQJWKDWWKHHYHQWVXQGHUO\LQJWKHFODLPVRI IRXUVHWVRISODLQWLIIVLQFOXGLQJWKH3DVFKDOVRFFXUUHGRXWVLGH RIWKHDSSOLFDEOHVWDWXWHRIOLPLWDWLRQV$OWKRXJKWKHGLVWULFW FRXUWJUDQWHG)ODJVWDUjVPRWLRQIRUSDUWLDOVXPPDU\MXGJPHQW ZLWKUHJDUGWRWKHWKUHHRWKHUVHWVRISODLQWLIIVLWGHQLHGWKH PRWLRQZLWKUHJDUGWRWKH3DVFKDOV)ODJVWDUGLGQRWFRQWHQG WKDW WKH (GZDUGVHVj FODLPV ZHUH EDUUHG E\ WKH VWDWXWH RI OLPLWDWLRQV )LYHVHWVRISODLQWLIIVZHQWWRWULDO7KH\DUHGHVFULEHGE\ WKHGLVWULFWFRXUWDVIROORZV $XGUD&DUVRQ&DUVRQFODLPHGVKHZDVWKHYLFWLPRI UDFLDO GLVFULPLQDWLRQ LQ WKH PDQQHU LQ ZKLFK KHU DSSOLFDWLRQIRUDPRUWJDJHORDQZDVKDQGOHG6KHGLGQRW FORVHZLWK)ODJVWDU  3DVFKDOHWDOY)ODJVWDU%DQN 1R 1R 3DVFKDOHWDOY)ODJVWDU%DQN 

3DTXLWD'DYLV)ULGD\'DYLV)ULGD\FODLPHGVKHZDV DQ DQDO\VLV RI D QXPEHU RI FRPSDUDEOH FDVHV LQ ZKLFK WKHYLFWLPRIUDFLDOGLVFULPLQDWLRQLQWKHPDQQHULQZKLFK GDPDJHVZHUHDZDUGHGIRUGLVFULPLQDWLRQWKHGLVWULFWFRXUW KHUDSSOLFDWLRQIRUDPRUWJDJHORDQZDVKDQGOHG6KHGLG DOVRFRQFOXGHGWKDWmWKHFRPSHQVDWRU\GDPDJHVDZDUGHGE\ QRWFORVHZLWK)ODJVWDU WKHMXU\DUHQRWH[FHVVLYHRURXWRIOLQHZLWKDZDUGVLQVLPLODU +HDWK7KRPDV7KRPDVFODLPHGKHZDVWKHYLFWLPRI FDVHVl,GDW UDFLDO GLVFULPLQDWLRQ LQ WKH PDQQHU LQ ZKLFK KLV DSSOLFDWLRQIRUDPRUWJDJHORDQZDVKDQGOHG+HGLGQRW $V H[SODLQHG DERYH WKH SODLQWLIIVj HYLGHQFH ZKHQ FORVHZLWK)ODJVWDU FRQVLGHUHG DV D ZKROH SURYLGHV VXIILFLHQW VXSSRUW IRU WKH 'DYLG(GZDUGVDQG(6WHSKDQLH(GZDUGVKLVZLIH MXU\jVYHUGLFW:HWKHUHIRUHFRQFOXGHWKDWWKHGLVWULFWFRXUW WKH(GZDUGV>HV@FODLPHGWKH\ZHUHWKHYLFWLPVRIUDFLDO GLGQRWDEXVHLWVGLVFUHWLRQZKHQLWGHQLHG)ODJVWDUjVPRWLRQ GLVFULPLQDWLRQ LQ WKH PDQQHU LQ ZKLFK WKHLU HIIRUWV WR IRUDQHZWULDO UHILQDQFHWKHLUPRUWJDJHORDQZLWK)ODJVWDUZDVKDQGOHG 7KH (GZDUGV>HV@ HYHQWXDOO\ REWDLQHG D QHZ PRUWJDJH ) 3XQLWLYHGDPDJHV ORDQIURP)ODJVWDU *HUDOG 3DVFKDO DQG /LVD 3DVFKDO WKH 3DVFKDOV )ODJVWDUjV ILQDO FRQWHQWLRQ LV WKDW WKH HYLGHQFH GRHV QRW FODLPHGWKH\ZHUHWKHYLFWLPVRIUDFLDOGLVFULPLQDWLRQLQ VXSSRUWWKHMXU\jVDZDUGRILQSXQLWLYHGDPDJHVWR WKHPDQQHULQZKLFKWKHLUDSSOLFDWLRQIRUDPRUWJDJHORDQ WKH3DVFKDOV%HFDXVHZHKDYHFRQFOXGHGWKDWWKH3DVFKDOVj ZDVKDQGOHG7KH3DVFKDOVZHUHDSSURYHGIRUDPRUWJDJH FODLP LV EDUUHG E\ WKH VWDWXWH RI OLPLWDWLRQV VHH 3DUW ,,$ ORDQ E\ )ODJVWDU RQ WHUPV FRQVLGHUDEO\ OHVV IDYRUDEOH DERYHWKLVLVVXHLVPRRW WKDQ IRU ZKLFK WKH\ DSSOLHG DQG HYHQWXDOO\ REWDLQHG D PRUWJDJHORDQHOVHZKHUH ,,,&21&/86,21

(GZDUGV)6XSSGDW )RU DOO RI WKH UHDVRQV VHW IRUWK DERYH ZH $)),50 WKH GLVWULFW FRXUWjV MXGJPHQW LQ IDYRU RI WKH (GZDUGVHV %HFDXVH WKH MXU\ UHQGHUHG D YHUGLFW LQ IDYRU RI WKH 5(9(56( LWV MXGJPHQW LQ IDYRU RI WKH 3DVFKDOV DQG (GZDUGVHVDQGWKH3DVFKDOVZHZLOOGHVFULEHWKHLUFODLPVLQ 5(0$1'WKHFDVHZLWKLQVWUXFWLRQVWRGLVPLVVWKH3DVFKDOVj PRUHGHWDLO2Q0DUFKWKH(GZDUGVHVDSSOLHGIRU FRPSODLQW D\HDUPRUWJDJHIURP)ODJVWDUDWDIL[HGLQWHUHVWUDWHRI   7KHLU DSSOLFDWLRQ ZDV GHQLHG RQ 0D\   $FFRUGLQJWR)ODJVWDUWKH(GZDUGVHVjDSSOLFDWLRQZDVGHQLHG EHFDXVH WKH\ KDG LQVXIILFLHQW IXQGV WR FORVH WKH ORDQ LQDGHTXDWHFROODWHUDODQG)ODJVWDUmGR>HV@QRWJUDQWFUHGLWWR DQ\DSSOLFDQWRQWKHWHUPVDQGFRQGLWLRQV>WKH(GZDUGVHV@ UHTXHVWHGl7KH(GZDUGVHVFODLPWKDWWKHVWDWHGUHDVRQVZHUH DSUHWH[WGHVLJQHGWRPDVNUDFLDOGLVFULPLQDWLRQ ,QDQDWWHPSWWRDQVZHU)ODJVWDUjVTXHVWLRQVDERXWYDULRXV FUHGLWLVVXHVWKH(GZDUGVHVPHWZLWKD)ODJVWDUORDQRIILFHU RQsXQH7KH(GZDUGVHVPDLQWDLQWKDWWKHVHDOOHJHG FUHGLWLVVXHVZHUHROGDQGLQFRQVHTXHQWLDO1HYHUWKHOHVVRQ  3DVFKDOHWDOY)ODJVWDU%DQN 1R 1R 3DVFKDOHWDOY)ODJVWDU%DQN 

WHOOXVDQ\WKLQJDERXWZKHWKHUWKHPRUWJDJHDSSOLFDWLRQVWKDW 6HSWHPEHU)ODJVWDULVVXHGDVHFRQGFUHGLWGHQLDO ZHUHDSSURYHGGLVFULPLQDWHGLQWKHLUWHUPVDQGFRQGLWLRQVRQ VWDWHPHQW7KH(GZDUGVHVFODLPWKDWWKHUHDVRQVJLYHQIRU WKHEDVLVRIUDFH WKLVGHQLDOZHUHDOVRSUHWH[WXDO *LYHQWKHFRPELQHGHIIHFWRIWKHWHVWLPRQ\RIIHUHGE\WKH $IWHUDGGUHVVLQJDGGLWLRQDOTXHVWLRQVDERXWYDULRXVFUHGLW SODLQWLIIV ZH DUH RI WKH RSLQLRQ WKDW WKHUH ZDV VXIILFLHQW LVVXHV WKH (GZDUGVHV DSSOLHG IRU D \HDU PRUWJDJH DW D HYLGHQFHIRUUHDVRQDEOHPLQGVWRmGLIIHUDVWRWKHFRQFOXVLRQV KLJKHU  LQWHUHVW UDWH  :KHQ WKLV DSSOLFDWLRQ ZDV DOVR WREHGUDZQIURPWKHHYLGHQFHl0FsXQNLQ&RUS)G GHQLHG WKH (GZDUGVHV DSSOLHG RQFH DJDLQ IRU D \HDU DW$FFRUGLQJO\ZHFRQFOXGHWKDWWKHGLVWULFWFRXUWGLG PRUWJDJHEXWWKLVWLPHDWDLQWHUHVWUDWH7KLVILQDO QRW HUU LQ KROGLQJ WKDW WKH HYLGHQFH mVXSSRUWV WKH MXU\jV DSSOLFDWLRQ ZDV DSSURYHG E\ )ODJVWDU DQG WKH (GZDUGVHV YHUGLFWWKDWERWK>SODLQWLIIV@SURYHGE\DSUHSRQGHUDQFHRIWKH DJUHHG WR WKH WHUPV  7KH (GZDUGVHV QRZ FODLP WKDW HYLGHQFHWKDWUDFHZDVDIDFWRULQWKHZD\LQZKLFK)ODJVWDU WKURXJKRXW WKH HQWLUH SURFHVV )ODJVWDU WUHDWHG WKHP DV GHDOWZLWKHDFKRIWKHPl mVHFRQGFODVVFLWL]HQVl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m6WDWHPHQW RI &UHGLW 'HQLDO VDPHDUJXPHQWVLQVXSSRUWRIWKLVFODLPDVLWGLGLQVXSSRUWRI 7HUPLQDWLRQRU&KDQJHlLQZKLFKLWLQIRUPHGWKH3DVFKDOV LWVFODLPWKDWWKHGLVWULFWFRXUWHUUHGLQGHQ\LQJLWVPRWLRQIRU WKDW )ODJVWDU ZRXOG DSSURYH RQO\ D  PRUWJDJH MXGJPHQWDVDPDWWHURIODZ )ODJVWDU DVVHUWHG WKDW LW ZDV PDNLQJ WKLV mFRXQWHURIIHUl EHFDXVHRIWKH3DVFKDOVjRWKHUFUHGLWREOLJDWLRQVWKHLUSULRU $GLVWULFWFRXUWjVGHFLVLRQWRGHQ\DPRWLRQIRUDQHZWULDO EDQNUXSWF\DQGWKHEDQNjVLQDELOLW\WRYHULI\WKH3DVFKDOVj ZLOOQRW EH VHW DVLGHXQOHVVWKHFRXUWDEXVHVLWVGLVFUHWLRQ FUHGLWUHIHUHQFHV$FFRUGLQJWRWKH3DVFKDOVWKHVHUHDVRQV /RJDQY'D\WRQ+XGVRQ&RUS)GWK&LU ZHUHDSUHWH[WLQWHQGHGWRKLGHUDFLDOGLVFULPLQDWLRQ   6XFK DQ DEXVH ZLOO EH IRXQG RQO\ LI ZH KDYH mD GHILQLWHDQGILUPFRQYLFWLRQWKDWWKHWULDOFRXUWFRPPLWWHGD )ODJVWDUjVORDQRIILFHUWKHQWRRNWKH3DVFKDOVjORDQILOHWR FOHDUHUURURIMXGJPHQWl,G 0RUWJDJH 6ROXWLRQV DND ,QYHVWDLG &RUSRUDWLRQ ZKLFK SUHOLPLQDULO\DSSURYHGDPRUWJDJHDWDIL[HG ,QHYDOXDWLQJ)ODJVWDUjVPRWLRQIRUDQHZWULDOWKHGLVWULFW LQWHUHVWUDWH,QYHVWDLGKRZHYHUODWHUZLWKGUHZWKLVRIIHU FRXUWFRQFOXGHGWKDWmYLHZLQJWKHHYLGHQFHLQDOLJKWPRVW $FFRUGLQJWRWKH3DVFKDOVm)ODJVWDUSUHVVXUHG,QYHVWDLGWR IDYRUDEOHWRWKH3DVFKDOVDQG(GZDUGV>HV@WKH&RXUWKDVQR QRWFORVHRQWKH3DVFKDOVjDSSOLFDWLRQl7KH3DVFKDOV ILUPFRQYLFWLRQWKDWWKHUHLVDQLQMXVWLFHLQWKHOLDELOLW\YHUGLFW DOVRDOOHJHWKDW)ODJVWDUILUHGLWVORDQRIILFHUZKRWRRNWKH RUWKDWLWLVDPLVWDNHWRDOORZWKHOLDELOLW\YHUGLFWWRVWDQGl 3DVFKDOVjILOHWR,QYHVWDLG2Q6HSWHPEHU,QYHVWDLG (GZDUGV)6XSSGDW7KHGLVWULFWFRXUWQRWHG DSSURYHGDPRUWJDJHDW$IWHUUHIXVLQJWKLV WKDW m>W@KH VHTXHQFH RI HYHQWV WKH OHQJWK RI WLPH WKH RIIHU DQG ZLWKGUDZLQJ WKHLU DSSOLFDWLRQ IURP )ODJVWDU WKH FRPSDUDEOHGDWDWKH+0'$GDWDWKHWHVWLQJGDWDDOOVXSSRUW 3DVFKDOVUHFHLYHGDPRUWJDJHDWDQLQLWLDOLQWHUHVW WKHFRQFOXVLRQWKDWWKHYHUGLFWZDVFHUWDLQO\RQHZKLFKDMXU\ UDWHRIIURPDQRWKHUOHQGHU FRXOGUHDVRQDEO\KDYHFRPHWRDVWROLDELOLW\l,G%DVHGRQ  3DVFKDOHWDOY)ODJVWDU%DQN 1R 1R 3DVFKDOHWDOY)ODJVWDU%DQN 

7KHGLVWULFWFRXUWVXPPDUL]HGWKHMXU\WULDODQGVXEVHTXHQW ERWKH[SHULHQFHGQXPHURXVVHHPLQJO\XQQHFHVVDU\GHOD\VLQ YHUGLFWVDVIROORZV DSSO\LQJ IRU ORDQV  $FFRUGLQJ WR %UDGIRUG QRQH RI WKH &DXFDVLDQ DSSOLFDQWV ZKRVH ILOHV KH FRPSDUHG ZLWK WKH 3ODLQWLIIVjFODLPVZHUHWULHGWRDMXU\LQ1RYHPEHURI SODLQWLIIVjH[SHULHQFHGVXFKDPXOWLWXGHRImWDFWLFVRIGHOD\l 7KHMXU\UHWXUQHGDYHUGLFWLQIDYRURI)ODJVWDURQ DQG mKLQGUDQFHl  6HFRQG DOWKRXJK WKH WHVWLQJ IRFXVHG RQ WKH FODLPV RI &DUVRQ 'DYLV)ULGD\ DQG 7KRPDV DQG SUHDSSOLFDWLRQFRQWDFWVZLWK)ODJVWDULWLVQRWXQUHDVRQDEOHWR UHWXUQHG D YHUGLFW LQ IDYRU RI WKH (GZDUGV>HV@ DQG GUDZWKHLQIHUHQFHWKDWWKHGLVSDUDWHWUHDWPHQWHQFRXQWHUHGE\ 3DVFKDOV3DUWLFXODUO\WKHMXU\IRXQGWKH3DVFKDOVSURYHG $IULFDQ$PHULFDQWHVWHUVGXULQJWKHLULQLWLDOLQWHUDFWLRQVZLWK E\ D SUHSRQGHUDQFH RI WKH HYLGHQFH WKDW WKHLU UDFH RU )ODJVWDUPLJKWEHLQGLFDWLYHRIZKDWDSSOLFDQWVIRUPRUWJDJHV FRORUZDVRQHRIWKHUHDVRQVZK\WKH\GLGQRWREWDLQD ZRXOG H[SHULHQFH  6FKUXSS ZKR KDV EHHQ WKH H[HFXWLYH PRUWJDJH ORDQ IURP )ODJVWDU 7KH MXU\ DZDUGHG WKH GLUHFWRURIWKH)+&IRU\HDUVWHVWLILHGWKDWLWKDVEHHQKLV 3DVFKDOV  LQ FRPSHQVDWRU\ GDPDJHV DQG H[SHULHQFHWKDWWKLVVRUWRIWHVWLQJFDQSURYLGHmTXLWHDELWRI LQSXQLWLYHGDPDJHV$VWRWKH(GZDUGV>HV@ LQIRUPDWLRQDERXWKRZSHRSOHDUHWUHDWHGDQGPD\EHWUHDWHG WKHMXU\IRXQGWKDWWKH\SURYHGE\DSUHSRQGHUDQFHRIWKH GLIIHUHQWO\ E\ ORDQ RIILFHUVl  7KLUG WKH PHWKRGRORJLFDO HYLGHQFHWKDWWKHLUUDFHDQGFRORUZDVRQHRIWKHUHDVRQV FRQFHUQVWKDW)ODJVWDUUDLVHVUHJDUGLQJ:LQJjVWHVWLPRQ\DUH ZK\WKH\GLGQRWREWDLQDPRUWJDJHORDQRQWKHLULQLWLDO JHQHUDOO\LQVXEVWDQWLDO$VWKH6XSUHPH&RXUWKDVKHOGmLWLV DSSOLFDWLRQ ZLWK )ODJVWDU  7KH MXU\ DZDUGHG WKH FOHDU WKDW D UHJUHVVLRQ DQDO\VLV WKDW LQFOXGHV OHVV WKDQ DOO (GZDUGV>HV@LQFRPSHQVDWRU\GDPDJHV PHDVXUDEOHYDULDEOHVPD\VHUYHWRSURYHDSODLQWLIIjVFDVHl %D]HPRUHY)ULGD\86%UHQQDQs (GZDUGV)6XSSGDW FRQFXUULQJ LQWHUQDO TXRWDWLRQ PDUNV RPLWWHG  :LQJjV ILQGLQJWKDWEHWZHHQDQG)ODJVWDUGHQLHG$IULFDQ $IWHUWKHMXU\UHWXUQHGLWVYHUGLFW)ODJVWDUILOHGDPRWLRQ $PHULFDQ ORDQ DSSOLFDQWV WKUHH WLPHV PRUH RIWHQ WKDQ IRUMXGJPHQWDVDPDWWHURIODZSXUVXDQWWR5XOHERIWKH &DXFDVLDQDSSOLFDQWVSURYLGHVVXSSRUWIRUWKHMXU\jVYHUGLFW )HGHUDO 5XOHV RI &LYLO 3URFHGXUH  ,W DOVR ILOHG DOWHUQDWLYH )LQDOO\ WKH GLVWULFW FRXUW IRXQG WKDW WKH H[SHUW WHVWLPRQ\ PRWLRQVIRUDQHZWULDOSXUVXDQWWR5XOH RIWKH)HGHUDO SURYLGHG E\ %UDGIRUG ZDV FRPSHOOLQJ  7KH GLVWULFW FRXUW 5XOHVRI&LYLO3URFHGXUHDQGIRUDUHPLWWLWXU7KHGLVWULFW VWDWHG WKDW m0U >%UDGIRUG@ ZDV RQH RI WKH EHVWSUHSDUHG FRXUW GHQLHG DOO RI )ODJVWDUjV PRWLRQV  7KLV WLPHO\ DSSHDO H[SHUWVWKDW,KDYHKHDUGLQ\HDUVl/DWHUWKHGLVWULFWFRXUW IROORZHG QRWHG WKDW m>\@RX NQRZ ZLWKRXW KHDULQJ WKH FURVV H[DPLQDWLRQ %UDGIRUG SDLQWHG D SUHWW\ EOHDN SLFWXUH IRU ,,$1$/<6,6 >)ODJVWDU@l $ 6WDWXWHRIOLPLWDWLRQVGHIHQVH )ODJVWDU LV FRUUHFW WKDW ZKHQ EURNHQ GRZQ LQWR GLVFUHWH )ODJVWDUFRQWHQGVWKDWWKHGLVWULFWFRXUWHUUHGLQGHQ\LQJLWV SDUWVWKHSODLQWLIIVjHYLGHQFHPLJKWEHVXEMHFWWRDWWDFN)RU PRWLRQ IRU VXPPDU\ MXGJPHQW ZKLFK ZDV EDVHG RQ LWV H[DPSOH6WHYHQ/DLGODZZKRPDQDJHV)ODJVWDUjVGLVFORVXUHV DUJXPHQWWKDWWKH3DVFKDOVjVXLWZDVEDUUHGE\WKHDSSOLFDEOH XQGHU WKH +RPH 0RUWJDJH 'LVFORVXUH $FW WHVWLILHG WKDW WKUHH\HDU VWDWXWH RI OLPLWDWLRQV HVWDEOLVKHG E\  86& )ODJVWDU DSSURYHG PRUWJDJH DSSOLFDWLRQV DW WKH IROORZLQJ ††  DQG  DQG WKH 0LFKLJDQ (OOLRWW/DUVHQ &LYLO UDWHVIRU$IULFDQ$PHULFDQVIRU&DXFDVLDQVLQ 5LJKWV$FW0&/†7KLVFRXUWKDVKHOGKRZHYHU IRU$IULFDQ$PHULFDQVIRU&DXFDVLDQVLQ WKDW mZKHUH VXPPDU\ MXGJPHQW LV GHQLHG DQG WKH PRYDQW  DQG  IRU $IULFDQ$PHULFDQV  IRU VXEVHTXHQWO\ORVHVDIWHUDIXOOWULDORQWKHPHULWVWKHGHQLDORI &DXFDVLDQVLQ7KHVHDSSURYDOUDWHVGRQRWKRZHYHU  3DVFKDOHWDOY)ODJVWDU%DQN 1R 1R 3DVFKDOHWDOY)ODJVWDU%DQN 

LQVWLWXWLRQVPXVWUHFRUGIRUDOOORDQDSSOLFDWLRQVIRUDOOKRPH VXPPDU\MXGJPHQWPD\QRWEHDSSHDOHGlsDUUHWWY(SSHUO\ PRUWJDJH ORDQ DSSOLFDWLRQVl  :LQJ WHVWLILHG WKDW EHWZHHQ )GWK&LU7KHSROLF\EHKLQGWKLV DQG)ODJVWDUGHQLHG$IULFDQ$PHULFDQDSSOLFDQWV UXOHLVEDVHGRQWKHFRQFOXVLRQWKDWWKHSRWHQWLDOLQMXVWLFHRI WKUHHWLPHVPRUHRIWHQWKDQLWGHQLHG&DXFDVLDQDSSOLFDQWV DOORZLQJ WKH LPSURSHU GHQLDO RI D PRWLRQ IRU VXPPDU\ %DVHG RQ KLV VWDWLVWLFDO DQDO\VLV RI WKH +0'$ GDWD :LQJ MXGJPHQW LV RXWZHLJKHG E\ WKH LQMXVWLFH RI mGHSULY>LQJ@ D FRQFOXGHGWKDWmWKHGHQLDOUDWHVGHSHQGRQUDFH7KHGHQLDO SDUW\RIDMXU\YHUGLFWDIWHUWKHHYLGHQFHZDVIXOO\SUHVHQWHG UDWH DQG UDFH DUH GHSHQGHQW QRW LQGHSHQGHQWl  ,Q RWKHU RQ WKH EDVLV RI DQ DSSHOODWH FRXUWjV UHYLHZ RI ZKHWKHU WKH ZRUGV:LQJFRQFOXGHGWKDWWKHGLVSDULW\EHWZHHQWKHUDWHDW SOHDGLQJVDQGDIILGDYLWVDWWKHWLPHRIWKHVXPPDU\MXGJPHQW ZKLFK)ODJVWDUGHQLHGDSSOLFDWLRQVRI$IULFDQ$PHULFDQVDQG PRWLRQGHPRQVWUDWHGWKHQHHGIRUDWULDOl,GDWQ WKHUDWHDWZKLFKLWGHQLHGDSSOLFDWLRQVRI&DXFDVLDQVFRXOG QRW EH IXOO\ H[SODLQHG E\ RWKHU IDFWRUV VXFK DV LQFRPH RU )ODJVWDU DFNQRZOHGJHV WKDW WKH GHQLDO RI VXPPDU\ FUHGLWKLVWRU\ MXGJPHQW LV JHQHUDOO\ QRW DSSHDODEOH mZKHUH VXPPDU\ MXGJPHQWLVGHQLHGDQGWKHPRYDQWVXEVHTXHQWO\ORVHVDIWHU )ODJVWDUFODLPVWKDWWKHHYLGHQFHRIIHUHGE\WKHSODLQWLIIV DIXOOWULDORQWKHPHULWVl,GDW,WFODLPVKRZHYHU ZDV LQVXIILFLHQW WR VXSSRUW WKH MXU\jV ILQGLQJ RI UDFLDO WKDWWKHXQGHUO\LQJUHDVRQIRUWKLVUXOHGRHVQRWDSSO\LQWKLV GLVFULPLQDWLRQ)LUVW)ODJVWDUSRLQWVRXWWKDWWKHWHVWLPRQ\RI FDVHEHFDXVHm)ODJVWDUjVPRWLRQZDVQRWGHQLHGEHFDXVHWKH WKH3DVFKDOVDQG(GZDUGVHVDERXWDOOHJHGGLVFULPLQDWLRQZDV WULDOFRXUWIRXQGDJHQXLQHLVVXHRIIDFWIRUWULDO7KHWULDO FRPSOHWHO\FLUFXPVWDQWLDO,WQRWHVWKDWHYHQWKHGLVWULFWFRXUW FRXUW LQVWHDG IRXQG WKDW WKH 3DVFKDOVj FODLPV ZHUH WLPHO\ FKDUDFWHUL]HGWKLVHYLGHQFHDVEHLQJmUDWKHUZHDNl6HFRQG XQGHUWKHFRQWLQXLQJYLRODWLRQVGRFWULQH7KHUHZDVQRIDFW )ODJVWDU FODLPV WKDW WKH WHVWLQJ HYLGHQFH ODFNHG SUREDWLYH TXHVWLRQIRUWKHMXU\WRGHWHUPLQHl)ODJVWDUFRQWHQGVWKDWWKH YDOXH EHFDXVH DV 6FKUXSS DGPLWWHG WKH WHVWV ZHUH GLVWULFWFRXUWjV GHQLDORILWVPRWLRQIRUVXPPDU\MXGJPHQW LQFRQFOXVLYHDVWRZKHWKHU)ODJVWDUZDVOHVVOLNHO\WRJUDQWD mHIIHFWLYHO\ JUDQWHG SDUWLDO VXPPDU\ MXGJPHQW DJDLQVW PRUWJDJH WR DQ $IULFDQ$PHULFDQ WKDQ LW ZDV WR JUDQW D )ODJVWDURQLWVVWDWXWHRIOLPLWDWLRQVGHIHQVHl PRUWJDJHWRD&DXFDVLDQ)ODJVWDUDOVRHPSKDVL]HVWKDWWKH WHVWLQJHYLGHQFHLQYROYHG)ODJVWDUjVWUHDWPHQWRILQGLYLGXDOV $GLVWULFWFRXUWjVGHWHUPLQDWLRQWKDWDFRPSODLQWZDVILOHG GXULQJWKHSUHDSSOLFDWLRQSURFHVVDVRSSRVHGWRGXULQJWKH ZLWKLQWKHDSSOLFDEOHVWDWXWHRIOLPLWDWLRQVLVDFRQFOXVLRQRI XQGHUZULWLQJ SURFHVV  7KLUG )ODJVWDU FRQWHQGV WKDW WKH ODZ7ROEHUWY6WDWHRI2KLR'HSWRI7UDQV)G VWDWLVWLFDO HYLGHQFH SUHVHQWHG  E\ :LQJ ZDV RI OLPLWHG WK&LU$VQRWHGDERYHWKHGLVWULFWFRXUWGHQLHG UHOLDELOLW\EHFDXVHKHRPLWWHGVHYHUDO NH\YDULDEOHVDQGKH )ODJVWDUjVPRWLRQIRUVXPPDU\MXGJPHQWEHFDXVHLWIRXQGWKDW DJJUHJDWHGGDWDDFURVVGLIIHUHQWORDQSURJUDPVZLWKGLIIHUHQW WKH3DVFKDOVjmDOOHJDWLRQVDUHVXIILFLHQWWRDOORZWKH3DVFKDOV XQGHUZULWLQJVWDQGDUGV)RXUWK)ODJVWDUFODLPVWKDWWKHILOHV WRLQYRNHWKHFRQWLQXLQJYLRODWLRQGRFWULQHWRWROOWKHUHOHYDQW RQ ZKLFK %UDGIRUG EDVHG KLV FRPSDULVRQV LQYROYHG VWDWXWH RI OLPLWDWLRQVl  )ODJVWDU SUHVHUYHG WKLV LVVXH E\ DSSOLFDWLRQV WKDW ZHUH JRYHUQHG E\ GLIIHUHQW XQGHUZULWLQJ PRYLQJIRUMXGJPHQWDVDPDWWHURIODZDWWKHFORVHRIWKH VWDQGDUGV  $V D UHVXOW )ODJVWDU FODLPV WKDW %UDGIRUGjV HYLGHQFHSUHGLFDWHGRQmDOOWKHUHDVRQVNQRZQWRWKHODZl WHVWLPRQ\mFRXOGQRWKDYHFRQYLQFHGDUHDVRQDEOHMXURUWKDW 7KHGLVWULFWFRXUWGHQLHGWKLVPRWLRQ )ODJVWDUGLVFULPLQDWHGDJDLQVW>WKHSODLQWLIIV@l $OWKRXJK)ODJVWDUIDLOHGWRUDLVHWKLVVSHFLILFLVVXHZKHQLW &RQWUDU\WR)ODJVWDUjVDUJXPHQWVZHDUHRIWKHRSLQLRQWKDW PRYHGIRUMXGJPHQWDVDPDWWHURIODZDIWHUWKHMXU\UHQGHUHG WKHUHZDVVXIILFLHQWHYLGHQFHWRVXSSRUWWKHMXU\jVILQGLQJRI LWVYHUGLFWWKLVFRXUWKDVKHOGWKDWDOLWLJDQWjVIDLOXUHWRUDLVH UDFLDOGLVFULPLQDWLRQ)LUVWWKH(GZDUGVHVDQGWKH3DVFKDOV VXFK D GHIHQVH LQ D 5XOH E PRWLRQ GRHV QRW ZDLYH  3DVFKDOHWDOY)ODJVWDU%DQN 1R 1R 3DVFKDOHWDOY)ODJVWDU%DQN 

DSSHOODWH UHYLHZ LI DQ DSSHDO RI WKH GHQLDO RI D PRWLRQ RI GLVWULFWFRXUWWKHIROORZLQJHYLGHQFHZDVSDUWLFXODUO\FHQWUDO VXPPDU\MXGJPHQWRQWKHVDPHJURXQGZRXOGLQYROYHUHYLHZ WRLWVGHFLVLRQm>&DOYLQ@%UDGIRUGjVFRQFOXVLRQVWKDWWKH RIDSXUHTXHVWLRQRIODZ0F3KHUVRQY.HOVH\)G RQO\ YDULDEOH LQ >WKH SODLQWLIIVj@ WUHDWPHQW E\ )ODJVWDU   WK &LU  DOORZLQJ DSSHOODWH UHYLHZ RI D FRPSDUHGWRZKLWHDSSOLFDQWVZDVWKDWWKH\ZHUHWUHDWHGOHVV PRWLRQIRUVXPPDU\MXGJPHQWRQWKHJURXQGRIJRYHUQPHQWDO IDYRUDEO\EHFDXVHRIWKHLUUDFHlmWKH>+RPH0RUWJDJH LPPXQLW\EHFDXVHXQOLNHsDUUHWWWKHLVVXHEHIRUHWKHFRXUW 'LVFORVXUH'DWD+0'$@GDWDZKLFKJHQHUDOO\SURYHGWKDW ZDVmSXUHO\RQHRIODZl6XFKDQH[FHSWLRQLVDSSOLFDEOHLQ )ODJVWDU DFWHG ZLWK D GLVFULPLQDWRU\ DQLPXVl DQG  mWKH WKLVFDVHEHFDXVHWKHOHJDOLVVXHUDLVHGLQ)ODJVWDUjVPRWLRQ WHVWLQJGDWDZKLFKGLVSOD\HGDGLVFULPLQDWRU\DQLPXVl,G IRUVXPPDU\MXGJPHQWGRHVQRWUHTXLUHWKHUHVROXWLRQRIDQ\ GLVSXWHGIDFWV 7KHWHVWLQJGDWDKDVEHHQGLVFXVVHGDWOHQJWKLQ3DUW,,& DERYH:HQRZZLOOGHVFULEHEULHIO\WKHWHVWLPRQ\RIWZRRI %HFDXVHWKHGLVWULFWFRXUWjVGHFLVLRQLVSURSHUO\EHIRUHXV WKHSODLQWLIIVjH[SHUWZLWQHVVHV&DOYLQ%UDGIRUG3K'DQG ZH PXVW GHWHUPLQH ZKHWKHU WKH mFRQWLQXLQJ YLRODWLRQVl 0DUWLQ:LQJ3K'%UDGIRUGWHVWLILHGIRUWKHSODLQWLIIVDVD GRFWULQHLVDSSOLFDEOHWRWKH3DVFKDOVjFODLPV7KLVFRXUWKDV PRUWJDJHOHQGLQJGLVFULPLQDWLRQH[SHUW$IWHUH[DPLQLQJWKH DGRSWHG D WKUHHSDUW LQTXLU\ IRU GHWHUPLQLQJ ZKHWKHU D GRFXPHQWV SHUWDLQLQJ WR WKH SODLQWLIIVj DSSOLFDWLRQV IRU FRQWLQXLQJYLRODWLRQH[LVWVm)LUVWWKHGHIHQGDQWjVZURQJIXO PRUWJDJHVIURP)ODJVWDU%UDGIRUGDOVRFKHFNHGWKHILOHVRI FRQGXFWPXVWFRQWLQXHDIWHUWKHSUHFLSLWDWLQJHYHQWWKDWEHJDQ YDULRXV &DXFDVLDQ DSSOLFDQWV ZKRVH PRUWJDJH DSSOLFDWLRQV WKHSDWWHUQ6HFRQGLQMXU\WRWKHSODLQWLIIPXVWFRQWLQXH ZHUH DSSURYHG E\ WKH EDQN  $OWKRXJK %UDGIRUG WR DFFUXH DIWHU WKDW HYHQW  )LQDOO\ IXUWKHU LQMXU\ WR WKH DFNQRZOHGJHGWKDWQRWZRORDQDSSOLFDWLRQVDUHHYHUH[DFW SODLQWLIIVPXVWKDYHEHHQDYRLGDEOHLIWKHGHIHQGDQW>@KDGDW PDWFKHVKHFRPSDUHGWKHSODLQWLIIVjDSSOLFDWLRQVZLWKWKRVH DQ\WLPHFHDVHG>LWV@ZURQJIXOFRQGXFWl7ROEHUW)GDW RI &DXFDVLDQ DSSOLFDQWV ZKR KDG VLPLODU ILQDQFLDO  TXDOLILFDWLRQV%UDGIRUGILUVWFRPSDUHGWKH3DVFKDOVjILOHZLWK WKRVH RI VL[ &DXFDVLDQ DSSOLFDQWV  +H FRQFOXGHG WKDW WKH 7KHGLVWULFWFRXUWIRXQGWKDW)ODJVWDUGHQLHGWKH3DVFKDOVj GLIIHUHQFHVLQKRZ)ODJVWDUWUHDWHGWKH3DVFKDOVFRXOGQRWEH DSSOLFDWLRQ IRU D ORDQ PRUH WKDQ WKUHH \HDUV EHIRUH H[SODLQHGE\DQ\YDOLGXQGHUZULWLQJFULWHULRQ%UDGIRUGWKHQ 6HSWHPEHUWKHGDWHRQZKLFKWKH3DVFKDOVILOHGWKHLU FRPSDUHGWKH(GZDUGVHVjILOHZLWKWKRVHRIWZR&DXFDVLDQ FRPSODLQW,QFRQVLGHULQJZKHWKHUWKHFRQWLQXLQJYLRODWLRQV DSSOLFDQWV$JDLQ%UDGIRUGFRQFOXGHGWKDWWKHGLIIHUHQFHVLQ GRFWULQHZDVDSSOLFDEOHKRZHYHUWKHGLVWULFWFRXUWIRFXVHG KRZ)ODJVWDUWUHDWHGWKH(GZDUGVHVFRXOGQRWEHH[SODLQHGE\ RQWKH3DVFKDOVjDOOHJDWLRQVWKDWRQ6HSWHPEHU DQ\YDOLGXQGHUZULWLQJFULWHULRQ WKH3DVFKDOVKDGZULWWHQ)ODJVWDUDOHWWHUZLWKGUDZLQJWKHLU ORDQDSSOLFDWLRQRQWKHJURXQGVRIXQIDLUWUHDWPHQWDQGRQ :LQJ WHVWLILHG IRU WKH SODLQWLIIV DV DQ H[SHUW LQ 1RYHPEHU)ODJVWDUKDGJUDQWHGWKH3DVFKDOVjUHTXHVW HFRQRPHWULFV  7KH SODLQWLIIV DVNHG :LQJ WR GHWHUPLQH mLI WR ZLWKGUDZ WKHLU DSSOLFDWLRQ LQ D m6WDWHPHQW RI &UHGLW WKHUHZDVDQ\HYLGHQFHRIGLIIHUHQFHVLQWUHDWPHQWEHWZHHQ 'HQLDO7HUPLQDWLRQRU&KDQJHl7KHGLVWULFWFRXUWKHOGWKDW $IULFDQ$PHULFDQDSSOLFDQWVDQG:KLWHDSSOLFDQWVIRUKRPH m>W@KHVH DOOHJDWLRQV DUH VXIILFLHQW WR DOORZ WKH 3DVFKDOV WR PRUWJDJHORDQVDW)ODJVWDU%DQNl:LQJSURYLGHGDGHWDLOHG LQYRNHWKHFRQWLQXLQJYLRODWLRQGRFWULQHWRWROOWKHUHOHYDQW VWDWLVWLFDODQDO\VLVRI)ODJVWDUjVOHQGLQJSUDFWLFHVEDVHGRQ VWDWXWHRIOLPLWDWLRQVl +RPH0RUWJDJH'LVFORVXUH'DWD+0'$IRUWKURXJK  WKDW )ODJVWDU KDG SURYLGHG WR WKH )HGHUDO )LQDQFLDO &RQWUDU\WRWKHGLVWULFWFRXUWjVGHWHUPLQDWLRQZHFRQFOXGH ,QVWLWXWLRQV ([DPLQDWLRQ &RXQFLO  $FFRUGLQJ WR :LQJ WKDWQHLWKHURIWKHVHHYHQWVFRQVWLWXWHVDFRQWLQXLQJYLRODWLRQ +0'$ GDWD mFRQVLVWV RI D VHW RI YDULDEOHV WKDW ILQDQFLDO  3DVFKDOHWDOY)ODJVWDU%DQN 1R 1R 3DVFKDOHWDOY)ODJVWDU%DQN 

LVRYHUDOO)ODJVWDUKDGDUHODWLYHO\JRRGFRPSOLDQFHSURJUDP 7KHILUVWRFFXUUHQFHLQYROYHVDOHWWHUWKH3DVFKDOVZURWHWR ,WKDVQRWKLQJWRGRZLWKWKHLVVXHVLQWKLVFDVHl )ODJVWDU  %HFDXVH WKH SDVVLYH UHFHLSW RI D OHWWHU GRHV QRW FRQVWLWXWHmZURQJIXOFRQGXFWlWKLVHYHQWFRXOGQRWSRVVLEO\ 7KHSODLQWLIIVKDYHSRLQWHGRXWWKDW)ODJVWDUGLGQRWUHVSRQG VDWLVI\ WKH ILUVW SURQJ RI WKH DERYHPHQWLRQHG WKUHHSDUW WRWKHSODLQWLIIVjPRWLRQLQOLPLQHWRSURKLELWLQWURGXFWLRQRI LQTXLU\  7ROEHUW  )G DW  KROGLQJ WKDW m>S@DVVLYH WKH&5$SHUIRUPDQFHHYDOXDWLRQV7KLVDJDLQFRQVWLWXWHVD LQDFWLRQGRHVQRWVXSSRUWDFRQWLQXLQJYLRODWLRQWKHRU\l ZDLYHURIWKLVDUJXPHQWRQDSSHDO1LHFNRY(PUR 0NWJ 7KH VHFRQG RFFXUUHQFH ZDV WKH JUDQWLQJ RI WKH 3DVFKDOVj &R)GWK&LUm,WLVZHOOVHWWOHG UHTXHVW WR ZLWKGUDZ WKHLU DSSOLFDWLRQ IRU D PRUWJDJH ODZWKDWWKLVFRXUWZLOOQRWFRQVLGHUDQHUURURULVVXHZKLFK $OWKRXJKWKLVRFFXUUHQFHUHTXLUHGDFWLRQE\)ODJVWDULWGRHV FRXOGKDYHEHHQUDLVHGEHORZEXWZDVQRWl0RUHRYHUDIWHU QRWFRQVWLWXWHDVHSDUDWHDFWRImZURQJIXOFRQGXFWl$WPRVW UHYLHZLQJ WKH UHFRUG ZH ZRXOG QRW OLNHO\ KDYH IRXQG WKH WKHJUDQWLQJRIWKH3DVFKDOVjUHTXHVWZDVWKHFRQWLQXLQJLOO GLVWULFWFRXUWjVH[FOXVLRQRIWKH&5$SHUIRUPDQFHHYDOXDWLRQV HIIHFWRIDSULRUDFWRIGLVFULPLQDWLRQ,GQRWLQJWKDWm>D@ WREHUHYHUVLEOHHUURU+XH\)GDW FRQWLQXLQJYLRODWLRQLVRFFDVLRQHGE\FRQWLQXDOXQODZIXODFWV QRWFRQWLQXDOLOOHIIHFWVIURPDQRULJLQDOYLRODWLRQlTXRWDWLRQ ' 0RWLRQIRUMXGJPHQWDVDPDWWHURIODZ PDUNVRPLWWHGDOWHUDWLRQLQRULJLQDO )ODJVWDUFRQWHQGVWKDWWKHGLVWULFWFRXUWHUUHGLQGHQ\LQJLWV 7KH3DVFKDOVFLWHIRXURWKHUHYHQWVLQVXSSRUWRIWKHLUFODLP PRWLRQ IRU MXGJPHQW DV D PDWWHU RI ODZ ZKLFK LW ILOHG WKDWWKHFRPSODLQWZDVILOHGZLWKLQWKHDSSOLFDEOHVWDWXWHRI IROORZLQJWKHMXU\jVYHUGLFW6SHFLILFDOO\)ODJVWDUDUJXHVWKDW OLPLWDWLRQV)LUVWWKH3DVFKDOVSRLQWRXWWKDWRQ6HSWHPEHU WKH HYLGHQFH DW WULDO ZDV LQVXIILFLHQW WR VXSSRUW WKH MXU\jV WKH\mUHFHLYHGSUHOLPLQDU\DSSURYDOIURP,QYHVWDLG ILQGLQJRIUDFLDOGLVFULPLQDWLRQDQGWKHUHIRUHWKDW)ODJVWDULV IRUDPRUWJDJHDWDLQWHUHVWUDWHl(PSKDVLV HQWLWOHGWRMXGJPHQWLQLWVIDYRUDVDPDWWHURIODZ DGGHG6HFRQGWKH3DVFKDOVFRQWHQGWKDWm)ODJVWDUIRUFHG ,QYHVWDLGWRZLWKGUDZLWVRIIHUWRWKH3DVFKDOVl7KLUGWKH $ PRWLRQ IRU MXGJPHQW DV D PDWWHU RI ODZ mPD\ QRW EH 3DVFKDOVDOOHJHWKDWRQ6HSWHPEHUm,QYHVWDLG JUDQWHG XQOHVV UHDVRQDEOH PLQGV FRXOG QRW GLIIHU DV WR WKH FKDQJHG WKH DSSURYDO WHUPV WR WKH RXWUDJHRXV  FRQFOXVLRQVWREHGUDZQIURPWKHHYLGHQFHl0FsXQNLQ&RUS LQWHUHVWUDWHl(PSKDVLVDGGHG)RXUWKWKH3DVFKDOV Y0HFKDQLFDOV,QF)GWK&LU$Q FODLPWKDWWKH\ZHUHGLVFULPLQDWHGDJDLQVWDWDPHHWLQJRQ DSSHDOV FRXUW LV QRW WR mZHLJK WKH HYLGHQFH SDVV RQ WKH WKDWGDWHGXULQJZKLFKD)ODJVWDUORDQRIILFHUDOOHJHGO\WROG FUHGLELOLW\RIZLWQHVVHVRUVXEVWLWXWHLWVMXGJPHQWIRUWKDWRI WKHPDERXW,QYHVWDLGjVODWHVWORDQRIIHU WKHMXU\l7RWKYW@KHUHLVQREDVLVIRUD $V IRU WKH IRXUWK RFFXUUHQFH WKH DFW RI )ODJVWDU DOOHJHGO\ MXGJPHQWDVDPDWWHURIODZLQIDYRURI)ODJVWDUlEHFDXVH WHOOLQJWKH3DVFKDOVDERXW,QYHVWDLGjVODWHVWORDQRIIHUZRXOG YLHZLQJ m>W@KH HYLGHQFH LQ D OLJKW PRVW IDYRUDEOH WR WKH DW PRVW EH D FRQWLQXDO LOO HIIHFW RI SDVW GLVFULPLQDWLRQ E\ 3DVFKDOVDQG(GZDUGV>HV@VXSSRUWVWKHMXU\jVYHUGLFWWKDWERWK )ODJVWDUQRWZURQJIXOFRQGXFWLQDQGRILWVHOI SDUWLHVSURYHGE\DSUHSRQGHUDQFHRIWKHHYLGHQFHWKDWUDFH ZDVDIDFWRULQWKHZD\LQZKLFK)ODJVWDUGHDOWZLWKHDFKRI WKHPl(GZDUGV)6XSSGDW$FFRUGLQJWRWKH  3DVFKDOHWDOY)ODJVWDU%DQN 1R 1R 3DVFKDOHWDOY)ODJVWDU%DQN 

7KHVHFRQGDOOHJHGHYHQWn)ODJVWDUmIRUFLQJl,QYHVWDLGWR ILOH,WLVQRWDUJXDEO\UHOHYDQWWRDQ\RIWKHLVVXHVLQWKLV ZLWKGUDZLWVRULJLQDOORDQRIIHUnLVWKHRQO\RQHWKDWFRXOGEH FDVH FRQVWUXHGWRFRQVWLWXWHZURQJIXOFRQGXFWE\)ODJVWDU2XU *LYHQ>@WKHILOHVDYDLODEOHWR>)ODJVWDU@EHFDXVHRIWKH LQVSHFWLRQ RI WKH UHFRUG KRZHYHU XQFRYHUHG QR SURRI WR ODUJHQXPEHURIPRUWJDJHVLWJHQHUDWHVWKHIDFWWKDWLW VXSSRUW WKH 3DVFKDOVj DOOHJDWLRQ WKDW )ODJVWDU mIRUFHGl >JUDQWHGDPRUWJDJHWR@DQ$IULFDQ$PHULFDQZK>R@LW ,QYHVWDLGWRZLWKGUDZLWVORDQRIIHU7KHFORVHVWWKH3DVFKDOV VD\V >LV@ FRPSDUDEOH WR    RQH RI WKH >@ $IULFDQ FRPHWRSURYLGLQJHYLGHQFHWRFRUURERUDWHWKHLUFODLPLVWKH $PHULFDQSODLQWLIIV>@GRHVQjWPHDQWKDW>)ODJVWDU@GLGQjW WHVWLPRQ\RIDIRUPHU)ODJVWDUHPSOR\HH'DYLG5HHGsU%XW GLVFULPLQDWHDJDLQVWWKH>SODLQWLIIV@ 5HHGKDGQRSHUVRQDONQRZOHGJHRIZKHWKHU)ODJVWDUWULHGWR H[HUWDQ\LQIOXHQFHRQ,QYHVWDLG+HVLPSO\VWDWHGWKDWKH 7KH SODLQWLIIV FODLP WKDW )ODJVWDU ZDLYHG WKLV LVVXH E\ mEHOLHYH>G@lWKDW)ODJVWDUmDGYLVHGl,QYHVWDLGWRZLWKGUDZLWV IDLOLQJWRPDNHDQRIIHURISURRIUHJDUGLQJWKHH[FOXGHGILOHV ORDQ RIIHU  0RUHRYHU WKH GLVWULFW FRXUW FRPPHQWHG WKDW 6HOGHQ$SDUWPHQWVY+8')GQWK&LU 5HHGjVWHVWLPRQ\RQWKLVLVVXHZDVKHDUVD\DQGWKHSRLQWZDV  QRWLQJ WKDW 5XOH D  RI WKH )HGHUDO 5XOHV RI QRWSXUVXHGIXUWKHUE\WKH3DVFKDOVjDWWRUQH\5XOHRIWKH (YLGHQFH UHTXLUHV D SDUW\ WR PDNH NQRZQ WR WKH FRXUW WKH )HGHUDO 5XOHV RI &LYLO 3URFHGXUH KRZHYHU UHTXLUHV PRUH VXEVWDQFHRIWKHH[FOXGHGHYLGHQFHLQRUGHUWRSUHVHUYHWKH WKDQmPHUHDOOHJDWLRQVlLQVXSSRUWRIDFODLPIRUDSDUW\WR LVVXH IRU DSSHDO  )ODJVWDU KDV QRW UHVSRQGHG WR WKLV VXUYLYHDPRWLRQIRUVXPPDU\MXGJPHQW,QVWHDGWKHSDUW\ DUJXPHQWDQDUJXPHQWWKDWZHILQGSHUVXDVLYH,QDQ\HYHQW mPXVWVHWIRUWKVSHFLILFIDFWVVKRZLQJWKDWWKHUHLVDJHQXLQH HYHQLIWKHGLVWULFWFRXUWVKRXOGKDYHDFFHSWHGWKHIRXUILOHV LVVXHIRUWULDOl)HG5&LY3H7KH3DVFKDOVKDYHWKXV LQWRHYLGHQFHZHZRXOGKDYHEHHQKDUGSUHVVHGWRFRQFOXGH IDLOHGWRSURYLGHDQ\VSHFLILFIDFWVLQVXSSRUWRIWKHLUFODLP WKDW E\ QRW GRLQJ VR LW mFRPPLWWHG D FOHDU HUURU RI WKDW)ODJVWDUmIRUFHGl,QYHVWDLGWRZLWKGUDZDORDQRIIHU MXGJPHQWl+XH\Y6WLQH)GWK&LU ,Q VXP QRQH RI WKHVH RWKHU IRXU HYHQWV VXSSRUW WKH  &5$SHUIRUPDQFHHYDOXDWLRQV 3DVFKDOVjFRQWHQWLRQWKDWDQ\ZURQJIXOFRQGXFWE\)ODJVWDU WRRN SODFH ZLWKLQ WKH WKUHH \HDUV EHIRUH WKH\ ILOHG WKHLU )LQDOO\ )ODJVWDU FRQWHQGV WKDW WKH GLVWULFW FRXUW HUUHG LQ FRPSODLQW7KH3DVFKDOVjFODLPLVWKXVEDUUHGE\WKHVWDWXWH H[FOXGLQJ)ODJVWDUjV SURSRVHG([KLELWVDQG RI OLPLWDWLRQV DQG WKH GLVWULFW FRXUW HUUHG E\ GHQ\LQJ 7KHVH H[KLELWV FRQVLVWHG RI &RPPXQLW\ 5HLQYHVWPHQW $FW )ODJVWDUjVPRWLRQIRUMXGJPHQWDVDPDWWHURIODZZLWKUHVSHFW &5$ SHUIRUPDQFH HYDOXDWLRQV E\ WKH 2IILFH RI 7KULIW WKHUHWR 6XSHUYLVLRQ 276 WKH IHGHUDO UHJXODWRU\ DJHQF\ FKDUJHG ZLWKVXSHUYLVLQJ )ODJVWDU7KHSXUSRVHRIWKH&5$LVmWR % 3HUHPSWRU\FKDOOHQJH UHTXLUHHDFKDSSURSULDWH)HGHUDOILQDQFLDOVXSHUYLVRU\DJHQF\ WRXVHLWVDXWKRULW\ZKHQH[DPLQLQJILQDQFLDOLQVWLWXWLRQVWR )ODJVWDU FRQWHQGV WKDW WKH GLVWULFW FRXUW FRPPLWWHG HQFRXUDJHVXFKLQVWLWXWLRQVWRKHOSPHHWWKHFUHGLWQHHGVRI UHYHUVLEOHHUURUZKHQLWUHFDOOHGDQ$IULFDQ$PHULFDQMXURU WKHORFDOFRPPXQLWLHVLQZKLFKWKH\DUHFKDUWHUHGFRQVLVWHQW ZKRP)ODJVWDUKDGUHPRYHGWKURXJKWKHXVHRIDSHUHPSWRU\ ZLWKWKHVDIHDQGVRXQGRSHUDWLRQRIVXFKLQVWLWXWLRQVl FKDOOHQJH  6SHFLILFDOO\ )ODJVWDU PDLQWDLQV WKDW DIWHU LW 86& † E  ,Q H[FOXGLQJ HYLGHQFH RI SHUIRUPDQFH DUWLFXODWHGDUDFHQHXWUDOUHDVRQIRUFKDOOHQJLQJWKHMXURUWKH HYDOXDWLRQV SHUIRUPHG E\ WKH 276 WR GHWHUPLQH ZKHWKHU GLVWULFWFRXUWLPSURSHUO\FRPELQHGWKHVHFRQGDQGWKLUGVWHSV )ODJVWDU ZDV FRPSO\LQJ ZLWK WKH &5$ WKH GLVWULFW FRXUW RI WKH %DWVRQ WHVW DQG HUURQHRXVO\ SODFHG WKH EXUGHQ RQ VWDWHG m, ILQGLQJ QRWKLQJ DUJXDEO\ UHOHYDQW WR DQ\ RI WKH LVVXHVLQWKLVFDVH:KDW>WKHSHUIRUPDQFHHYDOXDWLRQV@VKRZ  3DVFKDOHWDOY)ODJVWDU%DQN 1R 1R 3DVFKDOHWDOY)ODJVWDU%DQN 

$OOHQGXULQJWKHWHVW7KHRWKHUH[KLELWZDVWKHWUDQVFULSWRI )ODJVWDUWRHVWDEOLVKWKDWWKHSHUHPSWRU\FKDOOHQJHZDVQRW DUHFRUGLQJWKDW&KDSSDQG5DWNRZVNLPDGHRIWKHVDPHIDLU UDFLDOO\PRWLYDWHG%DWVRQY.HQWXFN\86 OHQGLQJ WHVW  7KHVH H[KLELWV ZHUH H[FOXGHG E\ WKH GLVWULFW FRXUW EHFDXVH LW IRXQG WKDW WKH GDQJHU RI XQIDLU SUHMXGLFH m,QGHWHUPLQLQJZKHWKHUDSDUW\KDVFRPPLWWHGD%DWVRQ VXEVWDQWLDOO\ RXWZHLJKHG ZKDWHYHU SUREDWLYH YDOXH WKH YLRODWLRQLQLWVH[HUFLVHRIDSHUHPSWRU\FKDOOHQJHDGLVWULFW H[KLELWV PLJKW KDYH  7KLV GHFLVLRQ GHPRQVWUDWHV WKDW WKH FRXUW PXVW IROORZ D WKUHHVWHS SURFHVVl  8QLWHG 6WDWHV Y GLVWULFW FRXUW ZDV FRJQL]DQW RI WKH SRWHQWLDOO\ SUHMXGLFLDO 0DKDQ)GWK&LU7KHGLVWULFWFRXUW LPSDFW RI WKH WHVWLPRQ\ DQG WKDW LW DWWHPSWHG WR GUDZ WKH PXVWILUVWGHWHUPLQHZKHWKHUmWKHRSSRQHQWRIDSHUHPSWRU\ DSSURSULDWH EDODQFH XQGHU 5XOH   7KH GLVWULFW FRXUWjV FKDOOHQJH KDV PDGH RXW D SULPD IDFLH FDVH RI UDFLDO H[FOXVLRQRIWKHHYLGHQFHRIWHVWLQJFRQGXFWHGRQ)ODJVWDUjV GLVFULPLQDWLRQl3XUNHWWY(OHP86 OHQGLQJSUDFWLFHVLQ*UDQG5DSLGV0LFKLJDQIXUWKHUSRLQWV 1H[WLIWKHRSSRQHQWRIWKHSHUHPSWRU\FKDOOHQJHPDNHVRXW RXWWKDWLWZDVDZDUHRISRWHQWLDOOLPLWDWLRQVRQWKHSUREDWLYH D SULPD IDFLH FDVH mWKH EXUGHQ RI SURGXFWLRQ VKLIWV WR WKH YDOXHRIWHVWLQJHYLGHQFH SURSRQHQWRIWKHVWULNHWRFRPHIRUZDUGZLWKDUDFHQHXWUDO H[SODQDWLRQl,Gm>,@IDUDFHQHXWUDOH[SODQDWLRQLVWHQGHUHG ,QDGGLWLRQWKHHYLGHQFHUHJDUGLQJ$OOHQZDVPRVWH[SOLFLW WKHWULDOFRXUWPXVWWKHQGHFLGHZKHWKHUWKHRSSRQHQWRIWKH UHJDUGLQJKLVDQLPXVDJDLQVW$UDE$PHULFDQVZKHUHDVWKLV VWULNHKDVSURYHGSXUSRVHIXOGLVFULPLQDWLRQl0DKDQ FDVH LQYROYHG DOOHJHG GLVFULPLQDWLRQ DJDLQVW $IULFDQ )GDW$WWKHWKLUGVWHSRIWKHDQDO\VLVmWKHGLVWULFW $PHULFDQV:HDOVRQRWHWKDWWHVWLQJHYLGHQFHLQWKHFRQWH[W FRXUWKDVWKHUHVSRQVLELOLW\WRDVVHVVWKH>VWULNHSURSRQHQWjV@ RIUHQWDOGLVFULPLQDWLRQKDVORQJEHHQKHOGDGPLVVLEOHXQGHU FUHGLELOLW\XQGHUDOORIWKHSHUWLQHQWFLUFXPVWDQFHVDQGWKHQ 5XOH  GHVSLWH WKH IDFW WKDW LW KDV VRPH RI WKH VDPH WRZHLJKWKHDVVHUWHGMXVWLILFDWLRQDJDLQVWWKHVWUHQJWKRIWKH SRWHQWLDOOLPLWDWLRQVRQLWVSUREDWLYHYDOXHDVLQWKHOHQGLQJ >VWULNH RSSRQHQWjV@ SULPD IDFLH FDVH XQGHU WKH WRWDOLW\ RI FRQWH[W5LFKDUGVRQY+RZDUG)GWK FLUFXPVWDQFHVl,GDWFLWDWLRQRPLWWHG &LU)LQDOO\ZHQRWHWKDWWKHMXU\UHWXUQHGDYHUGLFWLQ IDYRURI)ODJVWDUDVWRWKHFODLPVUHJDUGLQJWKUHHRIWKHILYH m7KH GLVWULFW FRXUWjV UXOLQJ RQ WKH XOWLPDWH TXHVWLRQ RI VHWV RI SODLQWLIIV  ,I WKH XQIDLUO\ SUHMXGLFLDO HIIHFW RI WKH GLVFULPLQDWRU\LQWHQWLQWKHH[HUFLVHRISHUHPSWRU\FKDOOHQJHV WHVWLQJHYLGHQFHKDGEHHQVXEVWDQWLDOWKH MXU\ZRXOGKDYH LV D ILQGLQJ RI IDFWl  ,G DW   $OWKRXJK )ODJVWDU OLNHO\ IRXQG DJDLQVW )ODJVWDU RQ DOO WKH FODLPV  :H ZLOO DFNQRZOHGJHV WKDW WKLV FRXUW JHQHUDOO\ UHYLHZV D GLVWULFW WKHUHIRUH QRW UHYHUVH WKH GLVWULFW FRXUWjV MXGJPHQW RU JUDQW FRXUWjV DSSOLFDWLRQ RI WKH %DWVRQ WHVW IRU mFOHDU HUURUl LW )ODJVWDUDQHZWULDORQWKLVEDVLV FODLPV WKDW WKH GLVWULFW FRXUW FRPPLWWHG DQ HUURU RI ODZ LQ DSSO\LQJWKHWHVWDQGWKHUHIRUHZHVKRXOGUHYLHZWKHFRXUWjV  )RXUORDQILOHV GHWHUPLQDWLRQGHQRYR,QVXSSRUWRIWKLVDUJXPHQW)ODJVWDU FLWHV8QLWHG6WDWHVY0F)HUURQ)GWK&LU )ODJVWDU QH[W FRQWHQGV WKDW WKH GLVWULFW FRXUW HUUHG LQ KROGLQJWKDWWKHGLVWULFWFRXUWHUUHGmE\FRQVROLGDWLQJ SUHYHQWLQJLWIURPRIIHULQJLQWRHYLGHQFHmIRXUORDQILOHVRI WKH VHFRQG DQG WKLUG VWHSV RI WKH %DWVRQ DQDO\VLV DQG PLQRULW\ DSSOLFDQWV ZKR ZHUH H[WHQGHG PRUWJDJHV GHVSLWH LPSRVLQJWKHEXUGHQRISHUVXDVLRQRQ>WKHSURSRQHQWRIWKH GHILFLHQFLHV LQ WKHLU DSSOLFDWLRQV RU FUHGLW KLVWRULHVl  ,Q VWULNH@l H[FOXGLQJWKLVHYLGHQFHWKHGLVWULFWFRXUWVWDWHG sXU\VHOHFWLRQLQWKLVFDVHEHJDQZLWKSURVSHFWLYHMXURUV 7KHUHZLOOEHQRFRPSDUDEOHXVHWKHUHZLOOEHQR 2QO\RQHRIWKHVHSURVSHFWLYHMXURUVsXURUZDV$IULFDQ $IULFDQ$PHULFDQFRPSDUDEOHWRDQ$IULFDQ$PHULFDQ $PHULFDQ  'XULQJ YRLU GLUH sXURU   GLVFORVHG WKDW VKH  3DVFKDOHWDOY)ODJVWDU%DQN 1R 1R 3DVFKDOHWDOY)ODJVWDU%DQN 

ZRUNHG IRU WKH 0LFKLJDQ 6WDWH +RXVLQJ 'HYHORSPHQW HVWDWHDJHQWVZKRPLJKWEHRIDVVLVWDQFHWR0U&KDSS $XWKRULW\06+'$7KHGLVWULFWFRXUWDVNHGKHUZKDWW\SH 4 1RZDUH\RXIDPLOLDUZLWKWKHUDFLDOFRPSRVLWLRQRU RIZRUNVKHGLGIRUWKH06+'$sXURUH[SODLQHGWKDWVKH DSSUR[LPDWH UDFLDO FRPSRVLWLRQ RI WKH YDULRXV ZDV mWKH FDOFXODWLRQV FOHUNl DQG WKDW VKH mSURFHVV>HG@ FRPPXQLWLHVLGHQWLILHGE\WKHORDQRIILFHU" SD\PHQWV IRU ORZLQFRPH KRXVLQJ SHRSOHl ZKR UHFHLYH $ *HQHUDOO\\HV 6HFWLRQ  KRXVLQJ EHQHILWV  )ODJVWDU GLG QRW UHTXHVW WKH GLVWULFWFRXUWWRDVNsXURUDQ\DGGLWLRQDOTXHVWLRQVDERXW $WDVLGHEDUFRQIHUHQFHWKHGLVWULFWFRXUWGHVFULEHGWKH WKH W\SH RI ZRUN WKDW VKH GLG  $IWHU WKH GLVWULFW FRXUW SUREOHP ZLWK WKLV OLQH RI TXHVWLRQLQJ msXURU@" ZKHWKHUWKHHYLGHQFHZDVXQIDLUO\SUHMXGLFLDO,QVWHDGWKH 0U :KLWH L@QUHYLHZLQJ SHUHPSWRU\" WKH WULDO FRXUWjV GHFLVLRQ IRU DQ DEXVH RI GLVFUHWLRQ WKH 7KH&RXUW7KHUHjVDFDVH%DWVRQWKDWJLYHV\RXWKH DSSHOODWH FRXUW PXVW YLHZ WKH HYLGHQFH LQ WKH OLJKW PRVW ULJKWQRWWRH[FXVHWKHPIRUGLVFULPLQDWRU\SXUSRVHVDQG IDYRUDEOHWRLWVSURSRQHQWJLYLQJWKHHYLGHQFHLWVPD[LPXP \RXFRXOGQjWJLYHPHDQDQVZHU UHDVRQDEOH SUREDWLYH IRUFH DQG LWV PLQLPXP UHDVRQDEOH 0U3KLIHU2WKHUWKDQ SUHMXGLFLDOYDOXHl8QLWHG6WDWHVY6FKURFN)G 7KH&RXUW

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jW ZDQW 6RXWKILHOG RU HDVW )ODJVWDUGRHVQRWFRQWHVWWKHGLVWULFWFRXUWjVFRQFOXVLRQWKDW 'HDUERUQ>WKHUHDUH@WRRPDQ\$UDEV,QVWHDGKH WKH SODLQWLIIV PDGH RXW D SULPD IDFLH FDVH RI UDFLDO VXJJHVWHG5R\DO2DN3OHDVDQW5LGJH+XQWLQJWRQ GLVFULPLQDWLRQ,QVWHDG)ODJVWDUIRFXVHVLWVFKDOOHQJHRQWKH :RRGV VHFRQGDQGWKLUGVWHSVRIWKH%DWVRQWHVW)ODJVWDUFRQWHQGV  WKDWWKHGLVWULFWFRXUWHUUHGE\FRPELQLQJWKHVHFRQGDQGWKLUG 4 ,EHOLHYH\RXFDQFRQWLQXHRQWKHVHFRQGSDJH VWHSVWKHUHE\SODFLQJWKHEXUGHQRQ)ODJVWDUWRSURYHWKDWLWV RI WKH QDUUDWLYH WHVW IRUP  sXVW YHU\ YHU\ EULHIO\ SHUHPSWRU\VWULNHZDVQRWUDFLDOO\PRWLYDWHG ZHUH WKHUH DQ\ RWKHU LWHPV WKDW UDLVHG FRQFHUQV" HG@KHUHPSOR\PHQWZLWK06+'$PD\JLYH UHFRPPHQGHG WKDW KLV VRQ JR WR VFKRROV LQ WKH KHU VRPH VRUW RI LQIRUPDWLRQ UHJDUGLQJ WKLV FDVH    l *URVVH3RLQWHDUHD )ODJVWDU FRQWHQGV WKDW WKH GLVWULFW FRXUW mVXPPDULO\ 4 $QG,WDNHLWWKHUHZHUHRWKHUVWDWHPHQWVPDGH" GLVPLVVHGlWKLVUDFHQHXWUDOH[SODQDWLRQIRUWKHSHUHPSWRU\ $ )ODJVWDUjV@UHSUHVHQWDWLRQlDVWRWKHEDQNjVUDFH QHXWUDOUHDVRQIRUWKHSHUHPSWRU\VWULNH  3DVFKDOHWDOY)ODJVWDU%DQN 1R 1R 3DVFKDOHWDOY)ODJVWDU%DQN 

7KH GLVWULFW FRXUW DIWHU DFFHSWLQJ )ODJVWDUjV UDFHQHXWUDO $V)ODJVWDUSRLQWVRXWKRZHYHU6FKUXSSDGPLWWHGWKDWWKH H[SODQDWLRQWKHQPRYHGRQWRWKHILQDOVWHSRIWKH%DWVRQ WHVWLQJ ZDV mLQFRQFOXVLYHl RQ WKH TXHVWLRQ RI ZKHWKHU WHVW$WWKHWKLUGVWHSRIWKHDQDO\VLVmWKHGLVWULFWFRXUWKDV )ODJVWDUZDVOHVVOLNHO\WRJUDQWDPRUWJDJHWRDQ$IULFDQ WKHUHVSRQVLELOLW\WRDVVHVVWKH>VWULNHSURSRQHQWjV@FUHGLELOLW\ $PHULFDQWKDQLWZDVWRJUDQWDPRUWJDJHWRD&DXFDVLDQ7KH XQGHUDOORIWKHSHUWLQHQWFLUFXPVWDQFHVDQGWKHQWRZHLJKWKH IDFWWKDWWKLVHYLGHQFHLVLQFRQFOXVLYHDVWRWKHUHVROXWLRQRI DVVHUWHG MXVWLILFDWLRQ DJDLQVW WKH VWUHQJWK RI WKH >VWULNH WKHXOWLPDWHTXHVWLRQLQYROYHGLQWKLVWULDOGRHVQRWKRZHYHU RSSRQHQWjV@ SULPD IDFLH FDVH XQGHU WKH WRWDOLW\ RI PHDQWKDWLWLVLUUHOHYDQW,IIRULQVWDQFHWKHUHVXOWVRIWKH FLUFXPVWDQFHVl0DKDQ)GDWFLWDWLRQRPLWWHG WHVWLQJKDGVKRZQWKDWWKHWHVWLQJXQFRYHUHGQRHYLGHQFHRI 7KHGLVWULFWFRXUWDUWLFXODWHGVHYHUDOUHDVRQVZK\XQGHUWKH GLVFULPLQDWRU\WUHDWPHQWLQWKHSUHDSSOLFDWLRQVWDJH)ODJVWDU WRWDOLW\RIWKHFLUFXPVWDQFHVLWEHOLHYHGWKDWWKHVWUHQJWKRI ZRXOGOLNHO\EHDUJXLQJWKDWWKHHYLGHQFHZDVUHOHYDQWWRWKH WKHSODLQWLIIVjSULPDIDFLHFDVHRXWZHLJKHGWKHFUHGLELOLW\RI TXHVWLRQRIZKHWKHULWKDGGLVFULPLQDWHGDJDLQVWWKHSODLQWLIIV )ODJVWDUjVDVVHUWHGMXVWLILFDWLRQ$FFRUGLQJWRWKHUHFRUGWKH 7KH WHVWLQJ HYLGHQFH WKRXJK QRW VWURQJ SRVVHVVHV D GLVWULFWFRXUWSULPDULO\UHOLHGRQWKHIDFWWKDW)ODJVWDUGLGQRW mWHQGHQF\ WR PDNH WKH H[LVWHQFH RI DQ\ IDFW WKDW LV RI DVNsXURUDQ\TXHVWLRQVDERXWKHUHPSOR\PHQWGHVSLWHLWV FRQVHTXHQFHWRWKHGHWHUPLQDWLRQRIWKHDFWLRQPRUHSUREDEOH SXUSRUWHG FRQFHUQ DERXW ZKDW VKH PLJKW KDYH NQRZQ RI RUOHVVSUREDEOHWKDQLWZRXOGEHZLWKRXWWKHHYLGHQFHl)HG )ODJVWDUWKURXJKKHUHPSOR\PHQWDWWKH06+'$7KHGLVWULFW 5(YLG:HWKHUHIRUHILQGQRDEXVHRIGLVFUHWLRQLQWKH FRXUWDOVRSRLQWHGRXWWKDWEDVHGRQWKHFRXUWjVTXHVWLRQLQJ GLVWULFWFRXUWjVGHWHUPLQDWLRQWKDWWKHWHVWLQJHYLGHQFHZDV RIsXURUGXULQJYRLUGLUHDERXWKHUVSHFLILF MRE GXWLHV UHOHYDQW WKHUH ZDV QR UHDVRQ WR EHOLHYH WKDW VKH KDG DQ\ FRQWDFW ZKDWVRHYHUZLWK)ODJVWDU 7KLVEULQJVXVWRWKHTXHVWLRQRIZKHWKHUWKHGLVWULFWFRXUW DEXVHGLWVGLVFUHWLRQE\IDLOLQJWRH[FOXGHWKHWHVWLQJHYLGHQFH $OWKRXJKWKHGLVWULFWFRXUWjVDSSOLFDWLRQRIWKH%DWVRQWHVW XQGHU5XOH)ODJVWDUFRQWHQGVWKDWWKHWHVWLQJHYLGHQFH ZDVOHVVWKDQLGHDOLQWKDWWKHFRXUWSUHPDWXUHO\VWDWHGLWV VKRXOG KDYH EHHQ H[FOXGHG EHFDXVH LW IRFXVHG RQ WKH FRQFOXVLRQEHIRUHIXOO\DUWLFXODWLQJWKH%DWVRQDQDO\VLVWKH SRWHQWLDOO\LQIODPPDWRU\FRQGXFWRI&KHW$OOHQD)ODJVWDU GLVWULFWFRXUWGLGQRWFRPPLWDQHUURURIODZLQDSSO\LQJWKH ORDQRIILFHUZKRZDVQRWLQYROYHGLQSURFHVVLQJWKHSODLQWLIIVj WHVW:HVKRXOGUHIUDLQIURPRYHUWXUQLQJWKHGLVWULFWFRXUWjV PRUWJDJHDSSOLFDWLRQV7KHEDQNWKHUHIRUHPDLQWDLQVWKDWWKH GHFLVLRQRQWKLVLVVXHXQOHVVLWFOHDUO\HUUHGLQFRQFOXGLQJWKDW ORZSUREDWLYHYDOXHRIWKHWHVWLQJHYLGHQFHZDVVXEVWDQWLDOO\ )ODJVWDUDFWHGZLWKGLVFULPLQDWRU\LQWHQWLQH[FXVLQJsXURU RXWZHLJKHGE\WKHGDQJHURIXQIDLUSUHMXGLFH%XWm>X@QIDLU 0DKDQ)GDW7KHGLVWULFWFRXUWZDVLQDPXFK SUHMXGLFHGRHVQRWPHDQWKHGDPDJHWRDGHIHQGDQWjVFDVHWKDW EHWWHU SRVLWLRQ WKDQ ZH DUH WR GHWHUPLQH WKH FUHGLELOLW\ RI UHVXOWVIURPWKHOHJLWLPDWHSUREDWLYHIRUFHRIWKHHYLGHQFH )ODJVWDUjVDWWRUQH\V$IWHUUHYLHZLQJWKHUHFRUGZHDUHQRW UDWKHULWUHIHUVWRHYLGHQFHZKLFKWHQGVWRVXJJHVWDGHFLVLRQ mOHIWZLWKWKHGHILQLWHDQGILUPFRQYLFWLRQlWKDWWKHGLVWULFW RQDQLPSURSHUEDVLVl8QLWHG6WDWHVY%RQGV)G FRXUW HUUHG LQ FRQFOXGLQJ WKDW )ODJVWDU H[KLELWHG  WK &LU  FLWDWLRQ DQG LQWHUQDO TXRWDWLRQ PDUNV GLVFULPLQDWRU\ LQWHQW LQ SHUHPSWRULO\ VWULNLQJ WKH VROH RPLWWHG $IULFDQ$PHULFDQMXURU:HWKHUHIRUHKROGWKDWWKHGLVWULFW FRXUWGLGQRWFRPPLWUHYHUVLEOHHUURUZKHQLWUHFDOOHGsXURU )ODJVWDUDUJXHVWKDWWKHWHVWLPRQ\UHJDUGLQJ&KHW$OOHQZDV  XQIDLUO\SUHMXGLFLDOEHFDXVHLWWHQGHGWRVXJJHVWDGHFLVLRQ DJDLQVWWKHEDQNEDVHGRQWKHIDFWWKDWLWHPSOR\HGVRPHRQH ZKRDOOHJHGO\KDGUDFLVWYLHZV'XULQJ6FKUXSSjVWHVWLPRQ\  3DVFKDOHWDOY)ODJVWDU%DQN 1R 1R 3DVFKDOHWDOY)ODJVWDU%DQN 

DSSUR[LPDWHO\SHUFHQW&DXFDVLDQ)XUWKHUPRUHWKHORDQ & (YLGHQWLDU\UXOLQJV RIILFHU JDYH WKH $IULFDQ$PHULFDQ WHVWHU WKH QDPH RI DQ $IULFDQ$PHULFDQUHDOHVWDWHDJHQWDQGWKH&DXFDVLDQWHVWHU )ODJVWDU FRQWHQGV WKDW WKH GLVWULFW FRXUW HUUHG LQ WKHQDPHRID&DXFDVLDQUHDOHVWDWHDJHQW  DOORZLQJ LQWR HYLGHQFH WHVWLQJ FRQGXFWHG E\ WKH )DLU +RXVLQJ &HQWHU RI 0HWURSROLWDQ 'HWURLW )+& ZKLFK 6HFRQG sRUGDQ DQG .LVFK SUHVHQWHG VLPLODU ILQDQFLDO )ODJVWDUDUJXHGKDGH[WUHPHO\ORZLIDQ\SUREDWLYHYDOXH TXDOLILFDWLRQVDQGHDFKWROGWKH)ODJVWDUORDQRIILFHUWKDWWKH\ DQGDVXEVWDQWLDOSUHMXGLFLDOHIIHFWSUHYHQWLQJ)ODJVWDU ZDQWHG D KRXVH LQ $QQ $UERU D SUHGRPLQDQWO\ &DXFDVLDQ IURP RIIHULQJ LQWR HYLGHQFH mIRXU ORDQ ILOHV RI PLQRULW\ FRPPXQLW\7KHORDQRIILFHUKRZHYHUHQFRXUDJHGsRUGDQ DSSOLFDQWVZKRZHUHH[WHQGHGPRUWJDJHVGHVSLWHGHILFLHQFLHV WKH $IULFDQ$PHULFDQ WHVWHU WR FRQVLGHU LQVWHDG WKHWULDOFRXUW@LPSURSHUO\DSSOLHV DWWULEXWHV WKDW WKH SODLQWLIIV SUHVHQWHG WR )ODJVWDU  )RU WKHODZRUXVHVDQHUURQHRXVOHJDOVWDQGDUGl+XH\Y6WLQH H[DPSOHWKHsRUGDQ.LVFKWHVWLQYROYHGD&DXFDVLDQWHVWHU  )G   WK &LU  FLWDWLRQV DQG LQWHUQDO ZKR OLNH 7KRPDV ZRUNHG IRU D WHPSRUDU\ HPSOR\PHQW TXRWDWLRQPDUNVRPLWWHG DJHQF\7KH6HOPDQ7D\ORUDQGWKHsRUGDQ.LVFKWHVWVDOVR LQYROYHG &DXFDVLDQ WHVWHUV ZKR OLNH WKH 3DVFKDOV KDG D 8QGHU5XOHm>H@YLGHQFHZKLFKLVQRWUHOHYDQWLVQRW KLVWRU\RIEDQNUXSWF\2YHUDOOWKHLUH[SHULHQFHVVXJJHVWWKDW DGPLVVLEOHl5XOHGHILQHVUHOHYDQWHYLGHQFHDVmHYLGHQFH )ODJVWDU PLJKW WUHDW $IULFDQ$PHULFDQ DQG &DXFDVLDQ KDYLQJDQ\WHQGHQF\WRPDNHWKHH[LVWHQFHRIDQ\IDFWWKDWLV FXVWRPHUVGLIIHUHQWO\DWOHDVWGXULQJWKHSUHDSSOLFDWLRQVWDJH RI FRQVHTXHQFH WR WKH GHWHUPLQDWLRQ RI WKH DFWLRQ PRUH SUREDEOH RU OHVV SUREDEOH WKDQ LW ZRXOG EH ZLWKRXW WKH  3DVFKDOHWDOY)ODJVWDU%DQN 1R 1R 3DVFKDOHWDOY)ODJVWDU%DQN 

HYLGHQFHl  (YHQ UHOHYDQW HYLGHQFH KRZHYHU PD\ EH WKDWZHWKHQJDYHWRWKHWHVWHUVl+HDOVRH[SODLQHGZK\WKH SURSHUO\ H[FOXGHG LI mLWV SUREDWLYH YDOXH LV VXEVWDQWLDOO\ WHVWHUVXQOLNHWKHSODLQWLIIVGLGQRWILOORXWORDQDSSOLFDWLRQV RXWZHLJKHGE\WKHGDQJHURIXQIDLUSUHMXGLFHFRQIXVLRQRI WKH LVVXHV RU PLVOHDGLQJ WKH MXU\ RU E\ FRQVLGHUDWLRQV RI 4$QGLQWHUPVRIWKHPRUWJDJHWHVWHUVGRWKHWHVWHUV XQGXH GHOD\ ZDVWH RI WLPH RU QHHGOHVV SUHVHQWDWLRQ RI ILOORXWORDQDSSOLFDWLRQV" FXPXODWLYHHYLGHQFHl)HG5(YLG $1RWKH\GRQRW 4,QDUHQWDOWHVWGRWKHWHVWHUVILOORXWDSSOLFDWLRQVIRU  7HVWLQJHYLGHQFH DUHQWDO" $,WjVQRWDURXWLQHRUQRUPDOWKLQJIRUWHVWHUVWRGR )ODJVWDU FRQWHQGV WKDW WKH WHVWLQJ HYLGHQFH VKRXOG KDYH EXWWKHUHKDYHEHHQLQVWDQFHVZKHUHWKDWKDVKDSSHQHG EHHQ H[FOXGHG SXUVXDQW WR 5XOH  EHFDXVH LW mKDG QR 4+RZFRPHFDQ\RXH[SODLQZK\DSSOLFDWLRQVDUH SUREDWLYHYDOXHRQWKHLVVXHRIZKHWKHU)ODJVWDUGLVFULPLQDWHG QRW VXEPLWWHG ZKHQ \RX GR WHVWLQJ RI ILQDQFLDO DJDLQVWWKHSODLQWLIIVLQWKHFRQVLGHUDWLRQRIWKHLUPRUWJDJH LQVWLWXWLRQV" DSSOLFDWLRQVl  ,Q WKH DOWHUQDWLYH )ODJVWDU DUJXHV WKDW WKH $$QDSSOLFDWLRQQRUPDOO\IRUDILQDQFLDOLQVWLWXWLRQ WHVWLQJHYLGHQFHVKRXOGKDYHEHHQH[FOXGHGXQGHU5XOH UXQVGROODUVVRPHWLPHVPRUH>7KH)+&LV@ EHFDXVHLWIRFXVHGRQWKHUDFLDOO\LQIODPPDWRU\FRQGXFWRI QRWIXQGHGWREHDEOHWRSXWWKRVHNLQGVRILQYHVWPHQWV &KHW$OOHQD)ODJVWDUORDQRIILFHUZKRZDVQRWLQYROYHGLQ LQWRLQWRILOOLQJRXWWKHDSSOLFDWLRQ WKHSURFHVVLQJRIWKHSODLQWLIIVjDSSOLFDWLRQVDQGWKHUHIRUH :HDOVRIRXQGZHEHJDQGRLQJWHVWVRIILQDQFLDO WKH ORZ SUREDWLYH YDOXH RI WKH HYLGHQFH ZDV VXEVWDQWLDOO\ LQVWLWXWLRQVLQXQGHUDFRQWUDFWWKDWZHKDGZLWKWKH RXWZHLJKHGE\WKHGDQJHURIXQIDLUSUHMXGLFH &LW\RI3RQWLDFDQGZHIRXQGRXWLQWKDWVHULHVRIWHVWV WKDWZHGLGLQRIILQDQFLDOLQVWLWXWLRQVLQ3RQWLDF $OWKRXJK WKH )+& VHQW WHQ SDLUV RI WHVWHUV WR )ODJVWDU WKDWZHFRXOGJHWTXLWHDELWRILQIRUPDWLRQDERXWKRZ EHWZHHQ sXO\   DQG 0DUFK   WKH SODLQWLIIV SHRSOHDUHWUHDWHGDQGPD\EHWUHDWHGGLIIHUHQWO\E\ORDQ RIIHUHG WKH UHVXOWV RI RQO\ WKUHH PDWFKHGSDLU WHVWV LQWR RIILFHUVEHIRUHZHJHWWRWKHSRLQWRIKDYLQJWRILOORXWD HYLGHQFH  7KH SDLUV RI WHVWHUV ZHUH QDPHG DV IROORZV ORDQDSSOLFDWLRQ$QGVRZHZHUHVDWLVILHGWKDWZHFRXOG 6HOPDQ7D\ORUsRUGDQ.LVFKDQG&R[&KDSS,Q LGHQWLI\TXLWHDELWRILQIRUPDWLRQDERXWKRZVRPHERG\ HDFKFDVHWKHILUVWQDPHOLVWHGLVWKDWRIDQ$IULFDQ$PHULFDQ LVEHLQJWUHDWHGLQWKDWHDUO\VWDJHDQGVRIRUWKRVHWZR WHVWHUDQGWKHVHFRQGQDPHOLVWHGLVWKDWRID&DXFDVLDQWHVWHU UHDVRQV ZH KDYHQjW GRQH ORDQ DSSOLFDWLRQV RU SDLG   $OWKRXJKWKHGLVWULFWFRXUWSUHOLPLQDULO\GHFLGHGWRDGPLWLQWR DVNHGRXUWHVWHUVWRILOORXWORDQDSSOLFDWLRQVWKHPVHOYHV HYLGHQFH WKH UHVXOWV RI DOO WKUHH SDLUV RI WHVWHUV LW ODWHU H[FOXGHGDSRUWLRQRIWKHHYLGHQFHUHODWHGWRWKH&R[&KDSS 6FKUXSSWHVWLILHGWKDWWKHWKUHHSDLUVRIWHVWHUVH[SHULHQFHG WHVWDVVXEVWDQWLDOO\PRUHSUHMXGLFLDOWKDQSUREDWLYH GLIIHUHQFHVLQWUHDWPHQWWKDWZHUHSRWHQWLDOO\DWWULEXWDEOHWR UDFLDO GLVFULPLQDWLRQ  )LUVW DOWKRXJK 6HOPDQ DQG 7D\ORU &OLIIRUG 6FKUXSS WKH 'LUHFWRU RI WKH )+& JDYH SUHVHQWHGVLPLODUILQDQFLDO TXDOLILFDWLRQVDQGHDFKWROGWKH EDFNJURXQGLQIRUPDWLRQUHJDUGLQJWKHWHVWLQJFRQGXFWHGE\ )ODJVWDUORDQRIILFHUWKDWWKH\ZDQWHGDKRXVHLQWKH'HWURLW WKH WKUHH SDLUV RI WHVWHUV  'XULQJ KLV GLUHFW WHVWLPRQ\ DUHDWKH\ZHUHGLUHFWHGWRGLIIHUHQWQHLJKERUKRRGV7KHORDQ 6FKUXSSVWDWHGWKDWWKH)+&GHFLGHGWRSHUIRUPWKHWHVWLQJ RIILFHUVXJJHVWHGWKDW6HOPDQWKH$IULFDQ$PHULFDQWHVWHU DIWHU UHFHLYLQJ VHYHUDO FRPSODLQWV LQFOXGLQJ RQH IURP WKH VKRXOGORRNIRUDKRPHLQDQHLJKERUKRRG5RVHGDOH3DUN 3DVFKDOV DERXW )ODJVWDU  6FKUXSS QRWHG WKDW WKH )+& WKDWLVDSSUR[LPDWHO\SHUFHQW$IULFDQ$PHULFDQ7D\ORU mLQFRUSRUDWHGVRPHRIWKHHOHPHQWVRIWKHYDULRXVFRPSODLQWV WKH&DXFDVLDQWHVWHUZDVGLUHFWHGWRDQHLJKERUKRRGWKDWLV WKDWZHKDGLQSDUWLFXODUWKH3DVFKDOVLQWRWKHDVVLJQPHQWV