Periandri v. Norwest Bank

Opinion

(/(&7521,&&,7$7,21)('$SS3WK&LU

)LOH1DPHES

%$1.5837&<$33(//$7(3$1(/2)7+(6,;7+&,5&8,7 ,QUHs(520(s2+13(5,$1'5,

'HEWRU

 $/$1s75(,1,6+

&+$37(575867((

3ODLQWLII$SSHOODQW

Y

1R

125:(67%$1.0,11(627$1$HWDO

'HIHQGDQWV$SSHOOHHV



1

$SSHDOIURPWKH8QLWHG6WDWHV%DQNUXSWF\&RXUW IRUWKH1RUWKHUQ'LVWULFWRI2KLR(DVWHUQ'LYLVLRQDW&OHYHODQG 1R$GY1R

$UJXHGsXQH

'HFLGHGDQG)LOHG6HSWHPEHU

%HIRUH%52:1&22.DQG+2:$5' %DQNUXSWF\$SSHOODWH3DQHOsXGJHV

 &2816(/

$5*8('6WHSKHQ'+REW&OHYHODQG2KLRIRU$SSHOODQW$PHOLD$%RZHU&OHYHODQG 2KLRIRU$SSHOOHHV21%5,()6WHSKHQ'+REW&OHYHODQG2KLRIRU$SSHOODQW$PHOLD $%RZHU&OHYHODQG2KLRIRU$SSHOOHHV



23,1,21



:,//,$0+286721%52:1%DQNUXSWF\$SSHOODWH3DQHOsXGJH7KH&KDSWHU WUXVWHHDSSHDOVWKHEDQNUXSWF\FRXUWjVRUGHUJUDQWLQJVXPPDU\MXGJPHQWWR1RUZHVW %DQN0LQQHVRWD1$m1RUZHVWl EDVHGRQ2KLRjVOLVSHQGHQVVWDWXWH2KLR5HY&RGH †7KHEDQNUXSWF\FRXUWjVRUGHUDVVXPHVWKDWWKH&KDSWHUWUXVWHHFRXOGQRW REWDLQWKHVWDWXVRIDERQDILGHSXUFKDVHUXQGHU2KLRODZLQRUGHUWRDYRLG1RUZHVWjV PRUWJDJHXQGHU86&†D  GXHWRWKHFRQVWUXFWLYHQRWLFHSURYLGHGE\1RUZHVWjV IRUHFORVXUHDFWLRQWKDWZDVSHQGLQJLQVWDWHFRXUWZKHQWKHEDQNUXSWF\SHWLWLRQZDVILOHG )RUWKHUHDVRQVVWDWHGEHORZZH$)),50WKHGHFLVLRQRIWKHEDQNUXSWF\FRXUW

,,VVXHRQ$SSHDO

7KHLVVXHRQDSSHDOLVZKHWKHU1RUZHVWjVSHQGLQJVWDWHFRXUWIRUHFORVXUHDFWLRQ SURYLGHGFRQVWUXFWLYHQRWLFHWRWKH&KDSWHUEDQNUXSWF\WUXVWHHSXUVXDQWWR2KLRjVOLV SHQGHQV VWDWXWH VR DV WR SUHYHQW WKH WUXVWHH IURP REWDLQLQJ WKH VWDWXV RI D ERQD ILGH SXUFKDVHUXQGHU86&†D 

2



,,sXULVGLFWLRQDQG6WDQGDUGRI5HYLHZ 7KH%DQNUXSWF\$SSHOODWH3DQHORIWKH6L[WK&LUFXLWKDVMXULVGLFWLRQWRGHFLGHWKLV DSSHDO7KH8QLWHG6WDWHV'LVWULFW&RXUWIRUWKH1RUWKHUQ'LVWULFWRI2KLRKDVDXWKRUL]HG

DSSHDOVWRWKHDSSHOODWHSDQHO$ILQDORUGHURIDEDQNUXSWF\FRXUWPD\EHDSSHDOHGE\ ULJKWXQGHU86&†D   7KHEDQNUXSWF\FRXUWjVRUGHUJUDQWLQJVXPPDU\MXGJPHQWZKLFKLVDILQDORUGHU SUHVHQWVDFRQFOXVLRQRIODZWKDWLVUHYLHZHGGHQRYR0\HUVY,56,QUH0\HUV  %5%$3WK&LU DIIjG)GWK&LU m'HQRYRPHDQV WKDWWKHDSSHOODWHFRXUWGHWHUPLQHVWKHODZLQGHSHQGHQWO\RIWKHWULDOFRXUWjVGHWHUPLQDWLRQl ,GTXRWLQJ&RU]LQY)RUGX,QUH)RUGX %5%$3WK&LU m1R GHIHUHQFHLVJLYHQWRWKHWULDOFRXUWjVFRQFOXVLRQVRIODZl%RRKHU(QWHUVY(DVWRZQ$XWR &R,QUH(DVWRZQ$XWR&R %5%$3WK&LU FLWDWLRQRPLWWHG 

,,,)DFWV

1RUZHVWLVWKHKROGHURIDILUVWPRUWJDJHRQ0U3HULDQGULjVm'HEWRUl UHVLGHQFH 7KHPRUWJDJHZDVH[HFXWHGE\WKH'HEWRURQ0DUFK2Q)HEUXDU\ 1RUZHVWFRPPHQFHGDIRUHFORVXUHDFWLRQDJDLQVWWKH'HEWRULQVWDWHFRXUWZKLFKZDV VWD\HGXSRQWKHILOLQJRIWKH'HEWRUjV&KDSWHUEDQNUXSWF\FDVHRQ0D\7KH &KDSWHUFDVHZDVWKHQFRQYHUWHGWRDFDVHXQGHU&KDSWHURQ0DUFKDQG 0U7UHLQLVKWKHDSSHOODQWmWUXVWHHl ZDVDSSRLQWHGDVWKHFDVHWUXVWHH7KHIRUHFORVXUH DFWLRQLVXQUHVROYHGDQGLVVWLOOSHQGLQJLQWKHVWDWHFRXUW $IWHUWKHILUVWPHHWLQJRIFUHGLWRUVWKH&KDSWHUWUXVWHHILOHGDFRPSODLQWSXUVXDQW WR86&†D 

3

WRGHWHUPLQHWKHYDOLGLW\RI1RUZHVWjVPRUWJDJHDQGWRVHWWKH PRUWJDJHDVLGHDVLPSURSHUO\H[HFXWHG7KHFRPSODLQWDOOHJHGWKDWWKH'HEWRUjVVLJQDWXUH RQWKHPRUWJDJHLQVWUXPHQWZDVZLWQHVVHGE\RQO\RQHSHUVRQLQYLRODWLRQRI2KLR5HY &RGH†WKXVUHQGHULQJWKHPRUWJDJHGHIHFWLYHDQGDYRLGDEOHE\WKHWUXVWHH VWDQGLQJLQWKHVKRHVRIDERQDILGHSXUFKDVHU7KHWUXVWHHjVFRPSODLQWZDVPHWZLWKD PRWLRQIRUVXPPDU\MXGJPHQWFRQWHQGLQJWKDWSXUVXDQWWR2KLRjVOLVSHQGHQVVWDWXWHWKH VWDWHFRXUWIRUHFORVXUHDFWLRQSURYLGHGFRQVWUXFWLYHQRWLFHWRWKHWUXVWHHWKXVSUHYHQWLQJ WKHWUXVWHHIURPREWDLQLQJWKHVWDWXVRIDERQDILGHSXUFKDVHUIRUSXUSRVHVRIDYRLGDQFH XQGHU†D   2Q DSSHDO WKH WUXVWHH DUJXHV WKDW WKH OLV SHQGHQV VWDWXWH GRHV QRW RSHUDWH WR WUDQVIRUPWKHDOOHJHGO\LQYDOLGPRUWJDJHLQWRDYDOLGOLHQ+HFRQWHQGVWKDWEHFDXVHWKH PRUWJDJHLVLQYDOLGQRFRQVWUXFWLYHQRWLFHZDVSURYLGHGE\WKHILOLQJRIWKHIRUHFORVXUH DFWLRQ VR DV WR GHIHDW WKH ERQD ILGH SXUFKDVHU VWDWXV DIIRUGHG WR WKH WUXVWHH XQGHU †D  ,QDQRUGHUJUDQWLQJ1RUZHVWjVVXPPDU\MXGJPHQWPRWLRQWKHEDQNUXSWF\ MXGJHVLPSO\VWDWHGm7KLV&RXUWILQGVWKDWWKHSRUWLRQRIWKH0RWLRQIRU6XPPDU\sXGJPHQW UHODWLQJWR2KLRjVOLVSHQGHQVVWDWXWH2KLR5HY&RGH†LVZHOOWDNHQDQGLV WKHUHIRUHJUDQWHGl7KLVDSSHDOIROORZHG

 2KLR 5HY &RGH †  SURYLGHV LQ SDUW

$ GHHG PRUWJDJH ODQG FRQWUDFW    RU OHDVH RI DQ\ LQWHUHVW LQ UHDO SURSHUW\    VKDOO EH VLJQHG E\ WKH JUDQWRU PRUWJDJRU YHQGRU RU OHVVRU LQ WKH FDVH RI D GHHG PRUWJDJH ODQG FRQWUDFW RU OHDVH    7KH VLJQLQJ VKDOO EH DFNQRZOHGJHG E\ WKH JUDQWRU PRUWJDJRU YHQGRU RU OHVVRU    LQ WKH SUHVHQFH RI WZR ZLWQHVVHV ZKR VKDOO DWWHVW WKH VLJQLQJ DQG VXEVFULEH WKHLU QDPHV WR WKH DWWHVWDWLRQ 7KH VLJQLQJ VKDOO EH DFNQRZOHGJHG E\ WKH JUDQWRU PRUWJDJRU YHQGRU RU OHVVRU    EHIRUH D MXGJH RU FOHUN RI D FRXUW RI UHFRUG LQ WKLV VWDWH RU D    QRWDU\ SXEOLF    ZKR VKDOO FHUWLI\ WKH DFNQRZOHGJPHQW DQG VXEVFULEH KLV QDPH WR WKH FHUWLILFDWH RI WKH DFNQRZOHGJPHQW

 m2KLR 5HYLVHG &RGH VHFWLRQ  SURYLGHV WKDW EHJLQQLQJ RQ sXQH   D GHIHFWLYHO\ H[HFXWHG EXW UHFRUGHG PRUWJDJH FDQ EH FRQVWUXFWLYH QRWLFH WR WKLUG SDUWLHV LQFOXGLQJ ERQD ILGH SXUFKDVHUVl 6LPRQ Y &KDVH 0DQKDWWDQ %DQN ,Q UH =DSWRFN\   )G   Q  WK &LU 

4

 7KDW FKDQJH LQ 2KLRjV &RGH LV QRW UDLVHG DV DQ LVVXH EHIRUH WKLV SDQHO

,9'LVFXVVLRQ

%HIRUH EHJLQQLQJ RXU DQDO\VLV ZH QRWH ZKDW ZH GR QRW GHFLGH LQ WKLV DSSHDO :KHWKHUWKHPRUWJDJHZDVGHIHFWLYHO\H[HFXWHGXQGHU2KLR5HY&RGH†LVQRW EHIRUHWKLVSDQHOVLQFHWKHJUDQWRIVXPPDU\MXGJPHQWSUHFOXGHGDGHWHUPLQDWLRQRIWKDW LVVXH7KHHIIHFWRIGHIHFWLYHH[HFXWLRQXSRQUHFRUGLQJRIDPRUWJDJHLQ2KLRLVQRWDQ LVVXHEHIRUHXV6HH6LPRQY&KDVH0DQKDWWDQ%DQN,QUH=DSWRFN\ )G  WK &LU   m$W WKH WLPH WKDW WKH =DSWRFN\V ILOHG IRU EDQNUXSWF\ 2KLR ODZ SURYLGHG WKDW DQ LPSURSHUO\ H[HFXWHG PRUWJDJH GRHV QRW SXW D VXEVHTXHQW ERQD ILGH SXUFKDVHURQFRQVWUXFWLYHQRWLFHl $VWKH6L[WK&LUFXLWjVVWDWHPHQWLQGLFDWHVHIIHFWLYH UHFRUGLQJRIPRUWJDJHVLVRQHIRUPRIFRQVWUXFWLYHQRWLFHRIWKHPRUWJDJHHjVLQWHUHVWLQWKH SURSHUW\GHVFULEHGLQWKHUHFRUGHGPRUWJDJH $W LVVXH LQ WKLV DSSHDO LV ZKHWKHU 2KLRjV OLV SHQGHQV VWDWXWH 2KLR 5HY &RGH †SURYLGHVDQRWKHUIRUPRIFRQVWUXFWLYHQRWLFHDQGLIVRZKHWKHULWVHIIHFWLQWKLV FDVHLVWRGHSULYHWKHWUXVWHHRIERQDILGHSXUFKDVHUVWDWXV:HFRQFOXGHWKDWOLVSHQGHQV RSHUDWHV XSRQ WKH ILOLQJ RI D MXGLFLDO IRUHFORVXUH VXLW LQ 2KLR LI WKH VXEMHFW SURSHUW\ LV VSHFLILFDOO\GHVFULEHGDQGWKDWLWSURYLGHVFRQVWUXFWLYHQRWLFHWRDOORIWKHPRUWJDJHHjV LQWHUHVWZKDWHYHUWKDWPD\EH8QGHUWKHXQGLVSXWHGIDFWVRIWKLVFDVHWKH&KDSWHU WUXVWHHKDGFRQVWUXFWLYHQRWLFHRI1RUZHVWjVHTXLWDEOHLQWHUHVWDWWKHWLPHWKHEDQNUXSWF\

 m7KH JHQHUDO UXOH LV WKDW LQ RUGHU IRU OLV SHQGHQV WR DSSO\ WR D SDUWLFXODU SLHFH RI SURSHUW\ LQ DQ\ NLQG RI DQ DFWLRQ WKDW SURSHUW\ PXVW EH VSHFLILFDOO\ LGHQWLILHG RU GHVFULEHG LQ WKH SOHDGLQJV2KLR IROORZV WKH JHQHUDO UXOH ,Q HYHU\ FDVH ZKHUH OLV SHQGHQV KDV EHHQ UHFRJQL]HG WKH SHWLWLRQ KDV GHVFULEHG SDUWLFXODU SURSHUW\l 'RPLQR Y 'RPLQR  1(G   2KLR &W &RP 3O   6HH DOVR 6ZHLJDUW Y 3LTXD 0LOOLQJ &R  1(G   2KLR &W $SS 

5

 IRU D VLPLODU H[SUHVVLRQ RI WKH UXOH 7KH UHFRUG EHIRUH WKLV SDQHO LQFOXGHV 1RUZHVWjV FRPSODLQW IRU IRUHFORVXUH ZKLFK H[KLELWV D FRS\ RI WKH PRUWJDJH DQG LWV GHVFULSWLRQ RI WKH 'HEWRUjV SURSHUW\

FDVHZDVFRPPHQFHGVRDVWREDUWKHWUXVWHHjVXVHRI†D   RI WKH%DQNUXSWF\ &RGH 6HFWLRQD  SURYLGHV D 7KHWUXVWHHVKDOOKDYHDVRIWKHFRPPHQFHPHQWRIWKHFDVHDQGZLWKRXW UHJDUG WR DQ\ NQRZOHGJH RI WKH WUXVWHH RU RI DQ\ FUHGLWRU WKH ULJKWV DQG SRZHUV RI RU PD\ DYRLG DQ\ WUDQVIHU RI SURSHUW\ RI WKH GHEWRU RU DQ\ REOLJDWLRQLQFXUUHGE\WKHGHEWRUWKDWLVYRLGDEOHE\o 



DERQDILGHSXUFKDVHURIUHDOSURSHUW\RWKHUWKDQIL[WXUHVIURPWKH GHEWRUDJDLQVWZKRPDSSOLFDEOHODZSHUPLWVVXFKWUDQVIHUWREHSHUIHFWHG WKDW REWDLQV WKH VWDWXV RI D ERQD ILGH SXUFKDVHU DQG KDV SHUIHFWHG VXFK WUDQVIHUDWWKHWLPHRIWKHFRPPHQFHPHQWRIWKHFDVHZKHWKHURUQRWVXFK DSXUFKDVHUH[LVWV

86&†D   ,WLVZHOOHVWDEOLVKHGWKDWVWDWHODZGHWHUPLQHVWKHH[WHQWRIWKHWUXVWHHjVULJKWVXQGHU †D  6LPRQY&KDVH0DQKDWWDQ%DQN,QUH=DSWRFN\ %5%$3 WK &LU   FLWLQJ 2ZHQ$PHV.LPEDOO &R Y 0LFK /LWKRJUDSKLQJ &R ,Q UH 0LFK /LWKRJUDSKLQJ&R )GWK&LU m6WDWHODZJRYHUQVZKRPD\EH DERQDILGHSXUFKDVHUl DIIjG)GWK&LU m$FFRUGLQJO\WKHWUXVWHH FDQSUHYDLORQO\LIXQGHU2KLRODZDSHUVRQZLWKWKHVWDWXVGHVFULEHGLQ†D    RU DVRIWKHFRPPHQFHPHQWRIWKHFDVHFRXOGDYRLG>WKHPRUWJDJHHjV@LQWHUHVWLQWKH 'HEWRUVjSURSHUW\XQGHUWKHPRUWJDJHl,QUH=DSWRFN\%5DW 7KHVWDWXWHjVmNQRZOHGJHRIWKHWUXVWHHlLVDUHIHUHQFHWRDFWXDONQRZOHGJH6HH HJ:DWNLQVY:DWNLQV)GWK&LU m7KHWUXVWHHKRZHYHU DVVXPHVWKHERQDILGHSXUFKDVHUSRVLWLRQVXEMHFWWRWKHVWDWHjVFRQVWUXFWLYHQRWLFHODZl

FLWDWLRQVRPLWWHG

6

$VWKH6L[WK&LUFXLWKDVUHFRJQL]HGmWKH%DQNUXSWF\&RGHjVVWURQJDUP FODXVHGRHVQRWLPPXQL]HDWUXVWHHZKRKDVFRQVWUXFWLYHNQRZOHGJHRIDSULRUPRUWJDJHl ,QUH=DSWRFN\)GDWFLWLQJ,QUH0LFK/LWKRJUDSKLQJ&R)GDW  6HHDOVR3UREDVFRY(DGV,QUH3UREDVFR )GWK&LU

GHEWRU LQ SRVVHVVLRQjV FRQVWUXFWLYH QRWLFH RI XQUHFRUGHG SURSHUW\ LQWHUHVW SUHFOXGHG DYRLGDQFH &RQGUHQY+DUULVRQ,QUH%RULVRQ %5%DQNU6'1< m$OWKRXJK&RGH†D  HOHYDWHVDWUXVWHHWRWKHVWDWXVRIDERQDILGHSXUFKDVHUHYHQ LIWKHGHEWRUKDGDFWXDONQRZOHGJHRIDQDGYHUVHLQWHUHVWLWGRHVQRWFORWKHDWUXVWHHZLWK WKLVSURWHFWLYHPDQWOHLIWKHUHZDVQRZD\XQGHUWKHDSSOLFDEOHVWDWHODZWKDWDQ\RQH FRXOGDWWDLQWKHVWDWXVRIDERQDILGHSXUFKDVHUl )XUWKHUm>W@KHSURYLVLRQRI%DQNUXSWF\ &RGH † D   WKDW WKH WUXVWHH WDNHV WKH SRZHUV RI D ERQD ILGH SXUFKDVHU RI UHDO SURSHUW\µZLWKRXWUHJDUGWRDQ\NQRZOHGJHRIWKHWUXVWHHRUDQ\FUHGLWRUjGRHVQRWRYHU ULGH SURYLVLRQV RI VWDWH ODZ ZKLFK LPSXWH QRWLFH RI FODLPV WR UHDO HVWDWH VXFK DV D OLV SHQGHQVWRDOOWKHZRUOGl6DJKLY:DOVK,QUH*XUV %5%$3WK&LU  TXRWLQJ86&†D  7KLVEULQJVXVWRWKHODQJXDJHRI2KLRjVVWDWXWHZKLFKSURYLGHV

:KHQVXPPRQVKDVEHHQVHUYHGRUSXEOLFDWLRQPDGHWKHDFWLRQLV SHQGLQJVRDVWRFKDUJHWKLUGSHUVRQVZLWKQRWLFHRILWVSHQGHQF\ :KLOHSHQGLQJQRLQWHUHVWFDQEHDFTXLUHGE\WKLUGSHUVRQVLQWKH VXEMHFWRIWKHDFWLRQDVDJDLQVWWKHSODLQWLIIjVWLWOH

2KLR5HY&RGH† /LVSHQGHQVLVIRXQGHGRQSXEOLFSROLF\DQGmµWKHQHFHVVLW\RIVXFKUXOHWRJLYH HIIHFWWRWKHSURFHHGLQJRIDFRXUWRIMXVWLFH:LWKRXWLWHYHU\MXGJPHQWDQGGHFUHHIRU VSHFLILF SURSHUW\ PLJKW EH UHQGHUHG DERUWLYH E\ VXFFHVVLYH DOLHQDWLRQVjl  0HFN Y

&ODEDXJK2KLR$SS:/DW 2KLR&W$SS FLWDWLRQRPLWWHG

7

 VHHDOVR,QUH%RULVRQ%5DW7KHGRFWULQHKDVHQMR\HGORQJYLWDOLW\LQ2KLR 6HH&RRNY0R]HU1(2KLR UHYLHZLQJSULQFLSOHVRIOLVSHQGHQV GRFWULQH  7KH2KLRVWDWXWHLWVHOILVFRPSRVHGRIWZRVHQWHQFHVHDFKRIZKLFKIXQFWLRQVLQD GLIIHUHQW ZD\ WR DFFRPSOLVK WKH VDPH HQG  7KH ILUVW VHQWHQFH SURYLGHV WKDW WKH YHU\ H[LVWHQFHRIDQDFWLRQLQYROYLQJVSHFLILFDOO\GHVFULEHGSURSHUW\JLYHVDOOSHUVRQVmQRWLFHRI LWV SHQGHQF\l  7KXV DQ\ SURVSHFWLYH SXUFKDVHU RU HQFXPEUDQFHU mLV FKDUJHDEOH ZLWK FRQVWUXFWLYHQRWLFHRIWKHSHQGHQF\RIVXFKVXLWVRDVWRUHQGHUKLVLQWHUHVWLQWKHVXEMHFW RILWOLDEOHWRLWVHYHQWl/XGORZY.LGGjV([HFXWRUV2KLR2KLR  6LQFH OLV SHQGHQV FKDUJHV HYHU\RQH ZLWK FRQVWUXFWLYH QRWLFH RI WKH ODZVXLW WKH &KDSWHUWUXVWHHLVRQVXFKQRWLFH2QFHRQQRWLFHRIWKHODZVXLWWKHWUXVWHHjVVLWXDWLRQ OLNHWKDWRIDQ\SRWHQWLDOSXUFKDVHURIWKHSURSHUW\FKDQJHVIRU ZKLOHWKHSURYLVLRQVRI†D  VWDWHWKDWWKH7UXVWHHWDNHV WKHSRZHUVRIDERQDILGHSXUFKDVHURIUHDOSURSHUW\mZLWKRXW UHJDUG WR DQ\ NQRZOHGJH RI WKH 7UXVWHH RU DQ\ FUHGLWRUl †D   GRHV QRW RYHUULGH SURYLVLRQV RI VWDWH ODZ ZKLFK LPSXWH QRWLFH RI FODLPV WR UHDO HVWDWH WKURXJK FRQVWUXFWLYH QRWLFH RU WKURXJK IDFWV ZKLFK DUH OHJDOO\ VXIILFLHQW WR SXW D SXUFKDVHUXSRQLQTXLU\

%URZQ)DPLO\)DUPV,QFY%URZQ,QUH%URZQ)DPLO\)DUPV,QF %5 %DQNU1'2KLR HPSKDVLVDGGHG FLWDWLRQVRPLWWHG 6HHDOVR&RVWHOOY&RVWHOO ,QUH&RVWHOO %5%DQNU1'2KLR KROGLQJWKDWmLQTXLU\QRWLFHlFDQ DIIHFW WKH WUXVWHHjV † D   DYRLGDQFH SRZHUV  sRKQ & 0XUUD\ ,V $ 'HIHFWLYH 0RUWJDJH3URWHFWHG)URP$3UHIHUHQFH&ODLP"&  /s :LQWHU

8

m7KH2KLROLVSHQGHQVGRFWULQHSXUVXDQWWR2KLR5HYLVHG&RGHVHFWLRQFUHDWHV FRQVWUXFWLYHQRWLFHRIWKHSODLQWLIIjVLQWHUHVWLQSURSHUW\WKDWLVWKHVXEMHFWRIWKHDFWLRQWR

ERQDILGHSXUFKDVHUVIURPWKHWLPHRIVHUYLFHRIWKHVXPPRQV>RUSXEOLFDWLRQ@l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jV LQWHUHVW  mµ7KH SULQFLSOH WKDW WKH SXUFKDVHURIWKHVXEMHFWPDWWHURIDVXLWSHQGHQWHOLWHDFTXLUHVQRLQWHUHVWDVDJDLQVWWKH SODLQWLIIjVWLWOHZKHWKHUOHJDORUHTXLWDEOHLVWRRZHOOHVWDEOLVKHGWREHQRZTXHVWLRQHGjl )R[Y5HHGHU2KLR6W2KLR TXRWLQJ/XGORZY.LGGjV([HFXWRUV 2KLRDW $PRUHPRGHUQUHLWHUDWLRQRIWKHSULQFLSOHKROGVWKDWmLIDWKLUGSDUW\DFTXLUHV DQ LQWHUHVW LQ WKH SURSHUW\ ZKLOH WKH DFWLRQ LV SHQGLQJ WKDW SHUVRQ WDNHV WKH SURSHUW\ VXEMHFW WR WKH ILQDO RXWFRPH RI WKH DFWLRQ WKXV SURWHFWLQJ WKH SODLQWLIIjV LQWHUHVW LQ WKH SURSHUW\DWLVVXHl%UDGIRUGY5HLG1(G2KLR&W$SS FLWLQJ 0DUWLQ5RFKIRUG 'XUUY/DZ\HUjV7LWOH,QV&RUS1(G2KLR&W$SS  7KHSODLQODQJXDJHRIWKH2KLRVWDWXWHSODFHVQROLPLWDWLRQRQWKHmWKLUGSHUVRQVl ZKR DUH SURKLELWHG IURP DFTXLULQJ DQ LQWHUHVW LQ WKH SURSHUW\ WR WKH SUHMXGLFH RI WKH mSODLQWLIIjV WLWOHl  )URP D QDWXUDO UHDGLQJ WKHUHIRUH LW ZRXOG DSSHDU WKDW EDQNUXSWF\ WUXVWHHVOLNHRWKHUSURVSHFWLYHSXUFKDVHUVDUHLQFOXGHGZLWKLQWKDWVWDWXWHjVUHDFK 7KH WUXVWHH DUJXHV WKDW KLV † D 

9

 DYRLGDQFH SRZHUV DUH QRW UHVWULFWHG QRWZLWKVWDQGLQJWKHSHQGLQJIRUHFORVXUHVXLWVLQFHWKRVHEDQNUXSWF\SRZHUVFDPHLQWR

SOD\EHIRUHWKHVWDWHFRXUWPDGHDILQDOGHWHUPLQDWLRQFRQFHUQLQJWKHSURSHUW\DQGKH H[SUHVVHVFRQFHUQWKDWDOORZLQJWKHOLVSHQGHQVVWDWXWHWRSULPHWKHWUXVWHHjV†D 

SRZHUVZRXOGHQFRXUDJHPRUWJDJHHVWRUDFHWRWKHFRXUWKRXVHWRILOHIRUHFORVXUHVXLWV 7KHODWWHUIHDUVLIWKH\DUHYDOLGDUHQRWIRUMXGLFLDOUHVROXWLRQVLQFHWKHFRQVWUXFWLYHQRWLFH HIIHFWRIOLVSHQGHQVLVDQ2KLROHJLVODWLYHHQDFWPHQW7KHFRQFHUQDERXWWKHSULPLQJ HIIHFWRIOLVSHQGHQVPXVWEHUHVROYHGLQWKHOLJKWRIWKHSULPDF\RIVWDWHODZDVWRZKR HQMR\V ERQD ILGH SXUFKDVHU VWDWXV  0RUHRYHU ZKLOH WKH EDQNUXSWF\ ILOLQJ WULJJHUHG DQ DXWRPDWLFVWD\RIWKHSHQGLQJMXGLFLDOIRUHFORVXUHWKDWVWD\GLGQRWHQGWKHVXLW$EVHQW WKHWUXVWHHjVDYRLGDQFHDFWLRQWKHVWD\ZRXOGEHWHUPLQDWHGDVWRWKHSURSHUW\WKDWLVWKH VXEMHFW RI WKH IRUHFORVXUH VXLW DV VRRQ DV WKDW SURSHUW\ ZDV QR ORQJHU SURSHUW\ RI WKH EDQNUXSWF\ HVWDWH   86& † F    ,Q WKH W\SLFDO &KDSWHU  FDVH ZKHQ D PRUWJDJHHjVLQWHUHVWLVQRWFKDOOHQJHGVXFFHVVIXOO\DQGZKHQWKHUHLVQRYDOXHWREHQHILW WKHEDQNUXSWF\HVWDWHWKHSURSHUW\ZRXOGHLWKHUEHDEDQGRQHGIURPWKHHVWDWHRUZRXOG FHDVHWREHSURSHUW\RIWKHHVWDWHXSRQWHUPLQDWLRQRIWKHFDVHDGPLQLVWUDWLRQ,G,QWKDW HYHQWDPRUWJDJHHVXFKDV1RUZHVWZRXOGSURFHHGZLWKLWVMXGLFLDOIRUHFORVXUHWRREWDLQ LQUHPUHOLHI6HHsRKQVRQY+RPH6WDWH%DQN866&W  m>7@KH&RGHSURYLGHVWKDWDFUHGLWRUjVULJKWWRIRUHFORVHRQWKHPRUWJDJHVXUYLYHV RUSDVVHVWKURXJKWKHEDQNUXSWF\6HH86&†F  l

10

,WPDWWHUVQRWWKHUHIRUH IRURXUDQDO\VLVWKDW1RUZHVWjVIRUHFORVXUHVXLWZDVVWD\HGDQGWKDWQRGHWHUPLQDWLRQKDG EHHQPDGHE\WKHVWDWHFRXUWEHIRUHWKHILOLQJRIWKHEDQNUXSWF\1RWZLWKVWDQGLQJWKH WUXVWHHjVDUJXPHQWWKDWWKHOLVSHQGHQVVWDWXWHVHUYHVRQO\DSURFHGXUDOIXQFWLRQWKHSRLQW RIOLVSHQGHQVLVWKDWDOOSDUWLHVDUHSXWRQFRQVWUXFWLYHQRWLFHRIWKHVWDWHFRXUWjVVXEMHFW

PDWWHUMXULVGLFWLRQDQGRIWKHSODLQWLIIjVFODLPVSHQGLQJDILQDOGHWHUPLQDWLRQE\WKDWFRXUW RIWKHSODLQWLIIjVFODLPWRWKHSURSHUW\ 7KHWUXVWHHWKHQDUJXHVWKDWKHOLNHRWKHUFUHGLWRUVFRXOGKDYHLQWHUYHQHGLQWKH IRUHFORVXUHVXLWEXWWKDWKHVKRXOGQRWEHUHTXLUHGWRGRVRVLQFHWKHEDQNUXSWF\FRXUWKDG MXULVGLFWLRQWRGHWHUPLQHWKHYDOLGLW\RI1RUZHVWjVPRUWJDJH:HGRQRWQHHGWRGHFLGHLI WKHWUXVWHHZDVUHTXLUHGWRLQWHUYHQHLQWKHVWDWHFRXUWUDWKHUWKDQILOHKLVDYRLGDQFHDFWLRQ LQWKHEDQNUXSWF\FRXUWEXWLQWKHIDFHRI2KLRDXWKRULW\RQOLVSHQGHQVZHFKRRVHWR UHVSHFW WKDW VWDWHjV FRXUWVj VXEMHFW PDWWHU MXULVGLFWLRQ HVSHFLDOO\ LQ YLHZ RI WKDW VWDWHjV DSSOLFDWLRQRIOLVSHQGHQVWRERQDILGHSXUFKDVHUV $Q DQDO\VLV RI FDVH DXWKRULW\ IURP 2KLR UHYHDOV WKDW DEVHQW VRPH FRPSHOOLQJ UHDVRQVVXFKDVQHJOLJHQFHRUSUHMXGLFLDOGHOD\E\WKHSODLQWLIILQSURVHFXWLQJWKHSHQGLQJ VXLWOLVSHQGHQVDSSOLHVWRDOOSDUWLHVLQFOXGLQJERQDILGHSXUFKDVHUV6HH)R[Y5HHGHU 2KLR6WDWm>7@RPDNHOLVSHQGHQVDYDLODEOHDVQRWLFHWRVXEVHTXHQWLQQRFHQW SXUFKDVHUV WKHUH PXVW EH D FORVH DQG FRQWLQXRXV SURVHFXWLRQ RI WKH VXLWl  &RRN Y 0R]HU1(DWmµ,WLVLPPDWHULDOWKDWDSXUFKDVHUZDVDERQDILGHSXUFKDVHUjl

FLWDWLRQRPLWWHG  7KHUHLVQRWKLQJLQ2KLRjVVWDWXWHWRSUHYHQWLWSURYLGLQJFRQVWUXFWLYHQRWLFHWRWKLUG SDUWLHVVXFKDVWKH&KDSWHUWUXVWHHZKRDFTXLUHDQLQWHUHVWLQSURSHUW\WKDWLVDOUHDG\ VXEMHFWWRDIRUHFORVXUHDFWLRQ7KH2KLR6XSUHPH&RXUWJDYHOLVSHQGHQVHIIHFWWRD IRUHFORVXUHVXLWEURXJKWLQDIHGHUDOFRXUW6WHZDUWY:KHHOLQJ /(5\&R1( 2KLR

11

SDUDJUDSKRIWKHV\OODEXV7KH8QLWHG6WDWHV6XSUHPH&RXUWLQDQ

 ,Q WKH FDVH EHIRUH WKLV SDQHO ZH KDYH QR FRQWHQWLRQ WKDW 1RUZHVW ZDV UHVSRQVLEOH IRU DQ\ GHOD\ LQ LWV SURVHFXWLRQ RI WKH IRUHFORVXUH VXLW ZKLFK ZDV RI FRXUVH VWD\HG E\ WKH EDQNUXSWF\ ILOLQJ

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m>Z@KHUHDJUDQWHHKDVJLYHQFRQVLGHUDWLRQEXWOHJDOWLWOHZDV QRWFRQYH\HGEHFDXVHRIGHIHFWVLQH[HFXWLRQWKHJUDQWHHREWDLQVDQHTXLWDEOHLQWHUHVW LQWKHUHDOSURSHUW\l%5DWFLWLQJ%DVLOY9LQFHOOR1(G2KLR  mµ>$@GHIHFWLYHO\H[HFXWHGFRQYH\DQFHRIDQLQWHUHVWLQODQGLVYDOLGDVEHWZHHQWKH SDUWLHVWKHUHWRLQWKHDEVHQFHRIIUDXGjl FLWDWLRQRPLWWHG DQG$PLFNY:RRGZRUWK 1(2KLR KROGLQJWKDWRQHZKRVDWLVILHVDSULRUHQFXPEUDQFHJDLQVDQ HTXLWDEOHLQWHUHVWLQWKHSURSHUW\ ,QDIILUPLQJ=DSWRFN\WKH6L[WK&LUFXLWQRWHGWKDWmD ERQDILGHSXUFKDVHUPD\RQO\DYRLGDQLPSURSHUO\H[HFXWHGPRUWJDJHXQGHU2KLRODZLI KHGRHVQRWKDYHDFWXDORUFRQVWUXFWLYHNQRZOHGJHRIWKDWWUDQVDFWLRQl,QUH=DSWRFN\ )GDWHPSKDVLVDGGHG

12

WKXVLPSO\LQJWKDWLIWKHSXUFKDVHUGLGKDYHVXFK NQRZOHGJH DERXW WKH GHIHFWLYH PRUWJDJH WKH SXUFKDVHU FRXOG QRW DYRLG LW  7KXV D WUXVWHHjVFRQVWUXFWLYHNQRZOHGJHRIDSULRUHTXLWDEOHLQWHUHVWHYHQWKRXJKLWPD\EHWKH UHPQDQWRIDGHIHFWLYHOHJDOLQVWUXPHQWLVVXIILFLHQWWRWKZDUWWKHWUXVWHHjVDFFHVVLRQWRWKH

VWDWXV RI ERQD ILGH SXUFKDVHU ZLWKRXW QRWLFH WKH SUHUHTXLVLWH WR HPSOR\PHQW RI WKH %DQNUXSWF\&RGHjVVWURQJDUPSRZHUV $V SUHYLRXVO\ VWDWHG WKH IDFW WKDW QR GHWHUPLQDWLRQ KDG EHHQ PDGH RQ WKH IRUHFORVXUHVXLWSULRUWRWKH'HEWRUjVEDQNUXSWF\ILOLQJGRHVQRWFKDQJHPDWWHUV*LYHQWKH SDUWLHVjDJUHHPHQWWKDWWKH'HEWRUGLGH[HFXWHWKHPRUWJDJHLWLVXQGLVSXWHGWKDW1RUZHVW KDVDWOHDVWDQHTXLWDEOHOLHQRQWKHSURSHUW\DQGDGHWHUPLQDWLRQLQWKHIRUHFORVXUHVXLW FRXOGKDYHSURGXFHGQROHVVWKDQWKDWILQGLQJ6XFKDQHTXLWDEOHOLHQPD\DULVHIURPmµD ZULWWHQDJUHHPHQWLQGLFDWLQJDQLQWHQWWRPDNHSDUWLFXODUSURSHUW\DVHFXULW\IRUDGHEWRU REOLJDWLRQjl%UDGIRUGY5HLG1(GDWTXRWLQJ.DW]Y%DQQLQJ1(G 2KLR&W$SS 

9&RQFOXVLRQ

8QGHU WKH IDFWV DQG FLUFXPVWDQFHV H[LVWLQJ LQ WKLV FDVH SXUVXDQW WR 2KLRjV OLV SHQGHQVVWDWXWHWKHILOLQJRI1RUZHVWjVIRUHFORVXUHVXLWLQVWDWHFRXUWSURYLGHGFRQVWUXFWLYH QRWLFHWRWKHZRUOGRIDWWKHYHU\OHDVW1RUZHVWjVHTXLWDEOHLQWHUHVWLQWKHSURSHUW\WKDWLV WKHVXEMHFWRIWKDWVXLW7KHUHIRUHDIWHUWKHFRPPHQFHPHQWRIWKDWVXLWQRSDUW\LQFOXGLQJ WKHEDQNUXSWF\WUXVWHHDFWLQJSXUVXDQWWRWKH†D 

13

VWURQJDUPSRZHUVFRXOGDWWDLQ ERQDILGHSXUFKDVHUVWDWXVDJDLQVWWKHLQWHUHVWRI1RUZHVW7KHWUXVWHHjVFRQWHQWLRQWKDW WKHPRUWJDJHZDVLPSURSHUO\H[HFXWHGDQGLVWKHUHIRUHLQYDOLGLVDQDWWDFNSXUVXDQWWRWKH UHFRUGLQJVWDWXWHVRQHIRUPRIFRQVWUXFWLYHQRWLFHXQGHU2KLRODZ1RUZHVWGHIHQGVWKH WUXVWHHjVDYRLGDQFHRQWKHEDVLVRIOLVSHQGHQVDQRWKHUIRUPRIFRQVWUXFWLYHQRWLFHXQGHU 2KLRODZDQGRQHWKDWZHPXVWUHVSHFW,QFRQWUDVWWR=DSWRFN\ZKHUHFRQVWUXFWLYHQRWLFH

14

ZDVQRWHVWDEOLVKHGWKH6L[WK&LUFXLWPDGHLWFOHDUWKDWRQFHmFRQVWUXFWLYHQRWLFHKDVEHHQ HVWDEOLVKHGlWKHWUXVWHHLVQRORQJHUHQWLWOHGWRWKHERQDILGHSXUFKDVHUSRVLWLRQ)G DW   7KH EDQNUXSWF\ FRXUW GLG QRW HUU LQ JUDQWLQJ 1RUZHVWjV PRWLRQ IRU VXPPDU\ MXGJPHQW LQ WKLV FDVH EDVHG RQ 2KLRjV OLV SHQGHQV VWDWXWH DQG WKH GHFLVLRQ RI WKH EDQNUXSWF\FRXUWJUDQWLQJVXPPDU\MXGJPHQWLV$)),50('