(/(&7521,&&,7$7,21)('$SS3WK&LU )LOH1DPHES
%$1.5837&<$33(//$7(3$1(/2)7+(6,;7+&,5&8,7
,QUH0$5.s6:((1(<
'HEWRU BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB &5$,*6,//DQG/,6$6,//
3ODLQWLIIV$SSHOOHHV
Y 1R
0$5.s6:((1(<
'HIHQGDQW$SSHOODQW
$SSHDOIURPWKH8QLWHG6WDWHV%DQNUXSWF\&RXUW IRUWKH1RUWKHUQ'LVWULFWRI2KLR(DVWHUQ'LYLVLRQ 1R$GY1R
$UJXHG0DUFK
'HFLGHGDQG)LOHG$SULO
%HIRUH%52:1&22.DQG+2:$5'%DQNUXSWF\$SSHOODWH3DQHOsXGJHV
&2816(/
$5*8('7KRPDV&3DYOLN129$.52%(1$/73$9/,. 6&+$5)&OHYHODQG2KLR IRU$SSHOODQW'DYLG$&RUUDGR&OHYHODQG2KLRIRU$SSHOOHHV21%5,()7KRPDV& 3DYOLN.LPEHUO\$&ROHPDQ129$.52%(1$/73$9/,. 6&+$5)&OHYHODQG2KLR IRU$SSHOODQW'DYLG$&RUUDGR&OHYHODQG2KLR6WHYHQ'DYLV5$%% '$9,6&2/3$ &OHYHODQG2KLRIRU$SSHOOHHV
BBBBBBBBBBBBBBB
23,1,21 BBBBBBBBBBBBBBB
s2+1&&22.%DQNUXSWF\$SSHOODWH3DQHOsXGJH7KLVFDVHLVEHIRUHWKH3DQHO RQ DSSHDO IURP D GHFLVLRQ RI WKH EDQNUXSWF\ FRXUW JUDQWLQJ VXPPDU\ MXGJPHQW WR WKH 3ODLQWLIIVLQWKHLUDGYHUVDU\DFWLRQWRGHWHUPLQHWKHGLVFKDUJHDELOLW\RIDGHEWXQGHU 86&D )RUWKHUHDVRQVWKDWIROORZZH5(9(56(DQG5(0$1'WKHFDVHIRU IXUWKHUSURFHHGLQJV
,,668(621$33($/ 7KHUHDUHWKUHHOHJDOLVVXHVUDLVHGE\WKHSDUWLHVLQWKLVFDVH 'LGWKH'HEWRUKDYHDIXOODQGIDLURSSRUWXQLW\WROLWLJDWHWKHFODLPVDJDLQVWKLP LQWKHVWDWHFRXUWDFWLRQ" :DVWKHFODLPRIIUDXGDJDLQVWWKH'HEWRUDFWXDOO\DQGGLUHFWO\OLWLJDWHGLQWKH VWDWHFRXUW" 'RHVWKH5RRNHU)HOGPDQGRFWULQHDSSO\VXFKWKDWWKHGLVFKDUJLQJRIWKHGHEW LQTXHVWLRQZRXOGDPRXQWWRDUHYLHZDQGRYHUUXOLQJRIWKHVWDWHFRXUWjVGHFLVLRQ"
,,s85,6',&7,21$1'6&23(2)5(9,(: :H KDYH MXULVGLFWLRQ RYHU DSSHDOV IURP WKH ILQDO RUGHUV RI WKH EDQNUXSWF\ FRXUW SXUVXDQWWR86&D DQGWKHFRQVHQWRIWKH1RUWKHUQ'LVWULFWRI2KLR $JUDQWRIVXPPDU\MXGJPHQWLVUHYLHZHGGHQRYR,QYHVWRUV&UHGLW&RUSY%DWLH ,QUH%DWLH)GWK&LU0\HUVY,56,QUH0\HUV%5 %$3WK&LUDII G)GWK&LU$OORIWKHLVVXHVLQWKLVFDVHDUH OHJDOLVVXHVDQGZHUHYLHZWKHPGHQRYRIRUWKDWUHDVRQDVZHOO&RU]LQY)RUGX,QUH )RUGX%5%$3WK&LUDII G)GWK&LU
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jDOOHJDWLRQVQRVXEGLYLVLRQDFFRPSDQLHGWKHFRQVWUXFWLRQRIWKHLU KRPHWKH\ZHUHWKXVZLWKRXWVXLWDEOHQHLJKERUVDQGQXPHURXVPDMRUFRQVWUXFWLRQGHIHFWV GLPLQLVKHGIXUWKHUWKHYDOXHRIWKHLULQYHVWPHQW 6HUYLFHRISURFHVVZDVE\FHUWLILHGPDLODWRQHRIWKH'HEWRUj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m%DVHGXSRQWKHHYLGHQFHWKHFRXUWLVVDWLVILHGWKDWMXGJPHQW VKRXOGEHUHQGHUHGLQIDYRURIWKHSODLQWLIIVl,WWKHQVLPSO\OLVWHGWKHGDPDJHVFRXQW E\FRXQWRIWKHFRPSODLQWZLWKRXWUHFLWLQJDQ\ILQGLQJVRIIDFWRUFRQFOXVLRQVRIODZ
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mVHWWLQJDVLGHWKHVWDWHFRXUWMXGJPHQWl$IWHUWKXVDSSO\LQJERWKWKHFROODWHUDOHVWRSSHO DQG 5RRNHU)HOGPDQ GRFWULQHV WKH EDQNUXSWF\ FRXUW JUDQWHG 3ODLQWLIIVj PRWLRQ IRU VXPPDU\MXGJPHQWDQGGHQLHGWKH'HEWRUDGLVFKDUJHZLWKUHVSHFWWRWKH3ODLQWLIIVjFODLP IRU LQ FRPSHQVDWRU\ DQG LQ SXQLWLYH GDPDJHV 7KH 'HEWRU WLPHO\ DSSHDOV
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
Free access — add to your briefcase to read the full text and ask questions with AI
(/(&7521,&&,7$7,21)('$SS3WK&LU )LOH1DPHES
%$1.5837&<$33(//$7(3$1(/2)7+(6,;7+&,5&8,7
,QUH0$5.s6:((1(<
'HEWRU BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB &5$,*6,//DQG/,6$6,//
3ODLQWLIIV$SSHOOHHV
Y 1R
0$5.s6:((1(<
'HIHQGDQW$SSHOODQW
$SSHDOIURPWKH8QLWHG6WDWHV%DQNUXSWF\&RXUW IRUWKH1RUWKHUQ'LVWULFWRI2KLR(DVWHUQ'LYLVLRQ 1R$GY1R
$UJXHG0DUFK
'HFLGHGDQG)LOHG$SULO
%HIRUH%52:1&22.DQG+2:$5'%DQNUXSWF\$SSHOODWH3DQHOsXGJHV
&2816(/
$5*8('7KRPDV&3DYOLN129$.52%(1$/73$9/,. 6&+$5)&OHYHODQG2KLR IRU$SSHOODQW'DYLG$&RUUDGR&OHYHODQG2KLRIRU$SSHOOHHV21%5,()7KRPDV& 3DYOLN.LPEHUO\$&ROHPDQ129$.52%(1$/73$9/,. 6&+$5)&OHYHODQG2KLR IRU$SSHOODQW'DYLG$&RUUDGR&OHYHODQG2KLR6WHYHQ'DYLV5$%% '$9,6&2/3$ &OHYHODQG2KLRIRU$SSHOOHHV
BBBBBBBBBBBBBBB
23,1,21 BBBBBBBBBBBBBBB
s2+1&&22.%DQNUXSWF\$SSHOODWH3DQHOsXGJH7KLVFDVHLVEHIRUHWKH3DQHO RQ DSSHDO IURP D GHFLVLRQ RI WKH EDQNUXSWF\ FRXUW JUDQWLQJ VXPPDU\ MXGJPHQW WR WKH 3ODLQWLIIVLQWKHLUDGYHUVDU\DFWLRQWRGHWHUPLQHWKHGLVFKDUJHDELOLW\RIDGHEWXQGHU 86&D )RUWKHUHDVRQVWKDWIROORZZH5(9(56(DQG5(0$1'WKHFDVHIRU IXUWKHUSURFHHGLQJV
,,668(621$33($/ 7KHUHDUHWKUHHOHJDOLVVXHVUDLVHGE\WKHSDUWLHVLQWKLVFDVH 'LGWKH'HEWRUKDYHDIXOODQGIDLURSSRUWXQLW\WROLWLJDWHWKHFODLPVDJDLQVWKLP LQWKHVWDWHFRXUWDFWLRQ" :DVWKHFODLPRIIUDXGDJDLQVWWKH'HEWRUDFWXDOO\DQGGLUHFWO\OLWLJDWHGLQWKH VWDWHFRXUW" 'RHVWKH5RRNHU)HOGPDQGRFWULQHDSSO\VXFKWKDWWKHGLVFKDUJLQJRIWKHGHEW LQTXHVWLRQZRXOGDPRXQWWRDUHYLHZDQGRYHUUXOLQJRIWKHVWDWHFRXUWjVGHFLVLRQ"
,,s85,6',&7,21$1'6&23(2)5(9,(: :H KDYH MXULVGLFWLRQ RYHU DSSHDOV IURP WKH ILQDO RUGHUV RI WKH EDQNUXSWF\ FRXUW SXUVXDQWWR86&D DQGWKHFRQVHQWRIWKH1RUWKHUQ'LVWULFWRI2KLR $JUDQWRIVXPPDU\MXGJPHQWLVUHYLHZHGGHQRYR,QYHVWRUV&UHGLW&RUSY%DWLH ,QUH%DWLH)GWK&LU0\HUVY,56,QUH0\HUV%5 %$3WK&LUDII G)GWK&LU$OORIWKHLVVXHVLQWKLVFDVHDUH OHJDOLVVXHVDQGZHUHYLHZWKHPGHQRYRIRUWKDWUHDVRQDVZHOO&RU]LQY)RUGX,QUH )RUGX%5%$3WK&LUDII G)GWK&LU
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jDOOHJDWLRQVQRVXEGLYLVLRQDFFRPSDQLHGWKHFRQVWUXFWLRQRIWKHLU KRPHWKH\ZHUHWKXVZLWKRXWVXLWDEOHQHLJKERUVDQGQXPHURXVPDMRUFRQVWUXFWLRQGHIHFWV GLPLQLVKHGIXUWKHUWKHYDOXHRIWKHLULQYHVWPHQW 6HUYLFHRISURFHVVZDVE\FHUWLILHGPDLODWRQHRIWKH'HEWRUj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m%DVHGXSRQWKHHYLGHQFHWKHFRXUWLVVDWLVILHGWKDWMXGJPHQW VKRXOGEHUHQGHUHGLQIDYRURIWKHSODLQWLIIVl,WWKHQVLPSO\OLVWHGWKHGDPDJHVFRXQW E\FRXQWRIWKHFRPSODLQWZLWKRXWUHFLWLQJDQ\ILQGLQJVRIIDFWRUFRQFOXVLRQVRIODZ
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mVHWWLQJDVLGHWKHVWDWHFRXUWMXGJPHQWl$IWHUWKXVDSSO\LQJERWKWKHFROODWHUDOHVWRSSHO DQG 5RRNHU)HOGPDQ GRFWULQHV WKH EDQNUXSWF\ FRXUW JUDQWHG 3ODLQWLIIVj PRWLRQ IRU VXPPDU\MXGJPHQWDQGGHQLHGWKH'HEWRUDGLVFKDUJHZLWKUHVSHFWWRWKH3ODLQWLIIVjFODLP IRU LQ FRPSHQVDWRU\ DQG LQ SXQLWLYH GDPDJHV 7KH 'HEWRU WLPHO\ DSSHDOV
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
$ILQDOMXGJPHQWRQWKHPHULWVLQWKHSUHYLRXVFDVHDIWHUD IXOODQGIDLURSSRUWXQLW\WROLWLJDWHWKHLVVXH7KHLVVXHPXVW KDYHEHHQDFWXDOO\DQGGLUHFWO\OLWLJDWHGLQWKHSULRUVXLWDQG PXVWKDYHEHHQQHFHVVDU\WRWKHILQDOMXGJPHQW7KHLVVXH LQWKHSUHVHQWVXLWPXVWKDYHEHHQLGHQWLFDOWRWKHLVVXHLQWKH SULRUVXLW7KHSDUW\DJDLQVWZKRPHVWRSSHOLVVRXJKWZDVD SDUW\RULQSULYLW\ZLWKWKHSDUW\WRWKHSULRUDFWLRQ
*RQ]DOH]Y0RIILWW,QUH0RIILWW%5%$3WK&LUTXRWLQJ0XUUD\ Y:LOFR[,QUH:LOFR[%5%DQNU1'2KLR 7KH'HEWRUjVSUHFLVHDUJXPHQWRQWKLVLVVXHLVWKDWKHZDVDEVROXWHO\XQDZDUHRI WKHVWDWHODZVXLWDQGWKHUHIRUHKDGQRRSSRUWXQLW\WRILOHDQDQVZHURUWROLWLJDWHWKHPHULWV ,QRSSRVLWLRQWRWKH3ODLQWLIIVjPRWLRQIRUVXPPDU\MXGJPHQWKHILOHGDQDIILGDYLWVZHDULQJ WKDW KH KDG QR NQRZOHGJH RI WKH OLWLJDWLRQ XQWLO DIWHU WKH GHIDXOW ZDV HQWHUHG WKDW WKH EXVLQHVVDGGUHVVDWZKLFKKHZDVSXUSRUWHGO\VHUYHGZDVQRWDQDGGUHVVDWZKLFKmKH QRUPDOO\ZRUNHGlDQGWKDWKHmSULPDULO\ZRUNHGlDWDQRWKHURIILFHLQDGLIIHUHQWFLW\LQ2KLR 7KHXQGLVSXWHGIDFWVVKRZWKDWSURFHVVZDVVHQWWRWKH'HEWRUE\FHUWLILHGPDLOUHWXUQ UHFHLSWUHTXHVWHGZKLFKZDVGHOLYHUHGWRWKH&RPPRQZHDOWK/DQG7LWOH$JHQF\&RPSDQ\ RI ZKLFK WKH GHEWRU ZDV D RZQHU DQG ZDV UHFHLSWHG IRU E\ DQ HPSOR\HH RI WKDW FRPSDQ\7KHEDQNUXSWF\FRXUWKHOGWKDWWKH'HEWRUKDGDIXOODQGIDLURSSRUWXQLW\WR OLWLJDWHWKHLVVXHVLQWKHVWDWHDFWLRQEHFDXVHVHUYLFHRISURFHVVRQKLPZDVSURSHUXQGHU 2KLR ODZ VSHFLILFDOO\ 2KLR 5 &LY 3 ZKLFK SURYLGHV IRU VHUYLFH E\ FHUWLILHG PDLO m>H@YLGHQFHGE\UHWXUQUHFHLSWVLJQHGE\DQ\SHUVRQl6LQFHDQHPSOR\HHRIWKH'HEWRUjV FRPSDQ\ UHFHLSWHG IRU WKH FHUWLILHG PDLO FRQWDLQLQJ WKH SURFHVV WKH EDQNUXSWF\ FRXUW FRQVLGHUHGWKHPDWWHUFORVHG 7KHFRXUWVRI2KLRKRZHYHUPDNHDGLVWLQFWLRQEHWZHHQFHUWLILHGPDLOVHUYLFHVHQW WRDUHVLGHQFHDQGVXFKVHUYLFHVHQWWRDEXVLQHVVDGGUHVVm7KHFRQWUROOLQJFDVHLQ2KLR UHJDUGLQJ WKH VXIILFLHQF\ RI FHUWLILHG PDLO VHUYLFH VHQW WR D EXVLQHVV DGGUHVV LV WKH 6XSUHPH&RXUWGHFLVLRQRI$NURQ&DQWRQ5HJLRQDO$LUSRUW$XWKY6ZLQHKDUWl%HOO Y0LGZHVWHUQ(GXF6HUYV,QF1(G2KLR&W$SS,Q6ZLQHKDUW WKH2KLR6XSUHPH&RXUWWRRNWKHSRVLWLRQWKDWVHUYLFHPXVWEHmUHDVRQDEO\FDOFXODWHGlWR UHDFKLQWHUHVWHGSDUWLHVLQRUGHUWRFRPSRUWZLWKWKHIXQGDPHQWDOVRIGXHSURFHVV7KH
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
$NURQ&DQWRQ 5HJj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jV EXVLQHVV LW VKRXOGEHWKHDGGUHVVZKHUHWKHSDUW\KLPVHOIKDVKLVRZQ RIILFHRUDWOHDVWZKHUHKHLVFRQWLQXDOO\DQGUHJXODUO\SK\VL FDOO\SUHVHQWPRVWRIWKHWLPH,WLVFHUWDLQO\QRWDTXHVWLRQRI RZQHUVKLSRIHLWKHUWKHSUHPLVHVRUWKHFRPSDQ\HQJDJHGLQ
EXVLQHVVDWWKHSUHPLVHV6ZLQHKDUWSURYHGWKDWRZQHUVKLSLV OHJDOO\LUUHOHYDQWWRWKHLVVXH
1RU LV WKH FRQWURO DQG RYHUDOO PDQDJHPHQW RI WKH FRPSDQ\ GRLQJ EXVLQHVV DW WKH DGGUHVV WR ZKLFK VHUYLFH LV GLUHFWHGRIDQ\OHJDOVLJQLILFDQFH
,W LV LQVLJQLILFDQW DOVR WKDW WKH DSSHOOHHV KHUH ZHUH RIILFHUVRIWKHFRUSRUDWLRQ7KHNH\LVVXHLVWKHSK\VLFDO SUHVHQFHRIWKHSDUW\EHLQJVHUYHGDWWKHEXVLQHVVDGGUHVV
%HOO1(GDWHPSKDVLVDGGHG )ROORZLQJ%HOODQRWKHU2KLR&RXUWRI$SSHDOVKHOGWKDWDQHYLGHQWLDU\KHDULQJPXVW EH KHOG ZKHQ D SDUW\ FKDOOHQJHV WKH YDOLGLW\ RI FHUWLILHG PDLO VHUYLFH DW KLV EXVLQHVV DGGUHVVE\DVZRUQDIILGDYLWLQZKLFKKHGHQLHVUHFHLSWRIVHUYLFHRISURFHVVDQGDYHUVWKDW KHKDVOLPLWHGFRQWDFWVZLWKWKHEXVLQHVVORFDWLRQLQTXHVWLRQ5LWH5XJ&RY:LOVRQ 1(G2KLR&W$SS $SSHOODQWFODLPVWKDWKLVVZRUQDIILGDYLWLVXQFRQWUDGLFWHGDQG WKDWEDVHGXSRQWKLVFRXUWjVGHFLVLRQVLQ5RJHUVDQG0DKQ WKH GHIDXOW MXGJPHQW VKRXOG EH YDFDWHG RU DQ HYLGHQWLDU\ KHDULQJ VKRXOG EH JUDQWHG 7KLV FRXUW KDV ORQJ KHOG WKDW ZKHUH D GHIHQGDQW ILOHV DQ XQFRQWUDGLFWHG VZRUQ DIILGDYLW WHVWLI\LQJWKDWKHQHYHUUHFHLYHGVHUYLFHRISURFHVVDQGWKDWKH GLGQRWUHFHLYHPDLODWWKDWDGGUHVVWKHGHIHQGDQWLVDWOHDVW HQWLWOHGWRDQHYLGHQWLDU\KHDULQJ
,GDW,QGHHGHYHQZKHQFHUWLILHGPDLOVHUYLFHLVVHQWWRDGHIHQGDQWjVUHVLGHQFH DGGUHVVDFLUFXPVWDQFHLQZKLFKm>Y@DOLGVHUYLFHRISURFHVVLVSUHVXPHGl2KLR&LYLO5LJKWV &RPP QY)LUVW$P3URSV,QF1(G2KLR&W$SSDQDIILGDYLW E\ WKH GHIHQGDQW WKDW KH KDV QHYHU UHFHLYHG VHUYLFH UHTXLUHV WKH FRXUW WR FRQGXFW DQ HYLGHQWLDU\KHDULQJWRGHWHUPLQHWKHPDWWHU :HIXUWKHUFRQFOXGHGWKDWZKHQSURFHVVZDVVHQWWRDFRUUHFW DGGUHVVDQGWKHGHIHQGDQWKDVRQO\KLVVHOIVHUYLQJWHVWLPRQ\ WKDWKHGLGQRWUHFHLYHVHUYLFHRISURFHVVWKHWULDOFRXUWLVQRW UHTXLUHGWRILQGWKDWWKHSUHVXPSWLRQRIVHUYLFHRISURFHVVKDV EHHQVDWLVIDFWRULO\UHEXWWHG:HGHWHUPLQHGWKDWWKHWULDOFRXUW PXVWVWLOOKROGDQHYLGHQWLDU\KHDULQJRQWKHPDWWHU
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jVDIILGDYLWGHQ\LQJWKDWKHUHFHLYHGVHUYLFH DYHUULQJWKDWKHGLGQRWQRUPDOO\ZRUNDWWKHVHUYLFHDGGUHVVDQGIXUWKHUDYHUULQJWKDWKLV XVXDORIILFHZDVHOVHZKHUH,QOLJKWRIWKH2KLRVHUYLFHUXOHVDQGWKH'HEWRUjVDIILGDYLWZH PXVWFRQFOXGHWKDWWKH3ODLQWLIIVKDYHQRWFDUULHGWKHLUEXUGHQRIGHPRQVWUDWLQJWKHUHLVQR LVVXHRIPDWHULDOIDFWZLWKUHVSHFWWRWKHVHUYLFHRISURFHVVLVVXHDQGWKDWWKHUHIRUHWKH\ IDLOHGWRHVWDEOLVKDVDPDWWHURIODZWKDWWKH'HEWRUKDGDIXOODQGIDLURSSRUWXQLW\WROLWLJDWH LQWKHVWDWHODZVXLW)RUWKLVUHDVRQLWZDVHUURUWRJUDQWVXPPDU\MXGJPHQWRQWKLVLVVXH
%m$FWXDOO\/LWLJDWHGl 7KHRWKHUFRQWHVWHGHOHPHQWZLWKLQWKHGRFWULQHRIFROODWHUDOHVWRSSHOKDVWRGRZLWK ZKHWKHU WKH LVVXH VRXJKW WR EH SUHFOXGHG o WKH GHEWRUjV IUDXG YHO QRQ o ZDV DFWXDOO\ OLWLJDWHGLQWKHVWDWHFRXUW2KLRFHUWDLQO\UHFRJQL]HVWKHGRFWULQHRIFROODWHUDOHVWRSSHO ZKLFKLWKDVYDULRXVO\GHILQHG,Q7UDXWZHLQY6RUJHQIUHL1(G2KLR FLWDWLRQRPLWWHGWKH2KLR6XSUHPH&RXUWVWDWHGWKHGRFWULQHDVIROORZV >$@ SRLQW RI ODZ RU D IDFW ZKLFK ZDV DFWXDOO\ DQG GLUHFWO\ LQ LVVXHLQWKHIRUPHUDFWLRQDQGZDVWKHUHSDVVHGXSRQDQG GHWHUPLQHGE\DFRXUWRIFRPSHWHQWMXULVGLFWLRQPD\QRWEH GUDZQLQTXHVWLRQLQDVXEVHTXHQWDFWLRQEHWZHHQWKHVDPH SDUWLHVRUWKHLUSULYLHV
,Q+LFNVY'H/D&UX]1(G2KLRWKHVDPHFRXUWKHOGWKDWWKH SUHFOXVLYHHIIHFWZRXOGRFFXURQO\ZKHUHDQLVVXHmDFWXDOO\LVOLWLJDWHGDQGGHWHUPLQHGE\ DYDOLGDQGILQDO MXGJPHQWl2WKHU2KLRFRXUWVKDYHKHOGWKDWWKHHVWRSSHOFDQQRWEH
VXFFHVVIXOXQOHVVWKHUHOHYDQWLVVXHZDVm DGPLWWHGRUDFWXDOO\WULHGDQGGHFLGHG lLQWKH ILUVWLQVWDQFHDQGWKHUHDIWHUDMXGJPHQWUHQGHUHGm RQWKHPHULWV l&DVKHOPDUD9LOODV/WG 3jVKLSY'L%HQHGHWWR1(G2KLR&W$SS TXRWLQJ0RQDKDQY (DJOH3LFKHU,QGXV,QF1(G2KLR&W$SS 2KLRFRXUWVKRZHYHUKDYHQRWDJUHHGRQZKHWKHURUKRZWRDSSO\WKHIRUHJRLQJ VWDQGDUGV RI FROODWHUDO HVWRSSHO WR GHIDXOW MXGJPHQWV 0RVW RI WKH UHFHQW FDVHV DUH XQUHSRUWHGDQGQRQHKDYHXQGHUWDNHQDIXOOGLVFXVVLRQRIWKLVFRPSOLFDWHGLVVXH6RPH KDYHDSSOLHGWKHGRFWULQHWRGHIDXOWMXGJPHQWV6HH0HUNOHY+RGDU\1R& :/DW 2KLR&W$SS)HEVWDWLQJRQO\WKDWm>D@OWKRXJKZH UHFRJQL]HWKDWWKHDSSOLFDWLRQRIFROODWHUDOHVWRSSHOLVQRWFRQVLVWHQWO\DSSOLHGWRGHIDXOW MXGJPHQWVLQ2KLRZHEHOLHYHWKDWXQGHUWKHIDFWVRIWKLVFDVHlHWF&RU\GRQ3DOPHU 'HQWDO6RF \YsRKQVRQsRKQVRQ $VVRFV,QF1R&$:/2KLR &W $SS )HE 2WKHU FRXUWV KDYH UHIXVHG WR DSSO\ WKH GRFWULQH WR GHIDXOW MXGJPHQWV+LFNH\Y+DQFRFN:RRG(OHF&RRS1R:':/DW 2KLR&W$SSsXQH1RUWK'D\WRQ7UXFN6HUYY7HUUHOO1R:/ DW 2KLR&W$SS0DUKROGLQJWKDWGHIDXOWMXGJPHQWKDGQRSUHFOXVLYH HIIHFWEHFDXVHmQRLVVXHZDVDFWXDOO\DQGQHFHVVDULO\OLWLJDWHGl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mPDGH DQ DIILUPDWLYHILQGLQJWKDWQRFKLOGUHQZHUHERUQlWKHFRXUWGLVPLVVHGWKHKXVEDQGjVDUJXPHQW WKDWWKHZLIHjVIDLOXUHWRDQVZHUFRQVWLWXWHGDQDGPLVVLRQLQWKHVXEVHTXHQWOLWLJDWLRQ,W WKHQVWDWHGWKDW >R@QO\ LI WKHUH LV DQ H[SUHVV DGMXGLFDWLRQ RI DQ LVVXH E\ WKH FRXUWLQWKHRULJLQDODFWLRQZKHWKHUE\GHIDXOWRUWULDOFDQWKH
MXGJPHQWLQWKDWDFWLRQEHXWLOL]HGDVHVWDEOLVKLQJDPDWWHUDV EHWZHHQWKHSDUWLHV+HUHWKHUHLVQRHYLGHQFHRIDQDGMXGL FDWLRQE\WKHGLYRUFHFRXUW
,G DW HPSKDVLV DGGHG ,W WKXV DSSHDUV WKDW GHIDXOW MXGJPHQWV PD\ KDYH SUHFOXVLYHHIIHFWLQ2KLRDVWRDQLVVXHWKDWZDVWKHVXEMHFWRIDQmH[SUHVVDGMXGLFDWLRQl DQG DQ XQDQVZHUHG FRPSODLQW DQG WKH GHIDXOW MXGJPHQW EDVHG RQ LW GR QRW E\ WKHPVHOYHVFRQVWLWXWHDQH[SUHVVDGMXGLFDWLRQ$OWKRXJKWKHWHUPZDVQRWIXUWKHUGHILQHG LQ=DSHUDFKLWVHHPVIURPVXEVHTXHQWFDVHVWKDWDQmH[SUHVVDGMXGLFDWLRQlLVRQHWKDW H[SUHVVO\ILQGVVRPHWKLQJ)RUH[DPSOHLQ&UDQILOOY%URZQ,QUH%URZQ%5 %DQNU('.\WKHEDQNUXSWF\FRXUWDSSOLHGDFROODWHUDOHVWRSSHODJDLQVWD GHEWRUVRDVWRHVWDEOLVKIUDXGLQDQDFWLRQE\DFUHGLWRUXQGHU86&D $ ZKHUHWKH2KLRVWDWHFRXUWmUHFLWHGDILQGLQJRIIUDXGl,Q&RU\GRQ3DOPHU'HQWDO6RFj\Y sRKQVRQsRKQVRQ $VVRFV,QF1R&$:/DW 2KLR&W$SS )HEWKHFRXUWJDYHSUHFOXVLYHHIIHFWWRDGHIDXOWMXGJPHQWEXWRQO\ZKHUHWKH GHIHQGDQWKDGDQVZHUHGWKHFRPSODLQWWKHQGHIDXOWHGDQGWKHmWULDOFRXUWIRXQGWKDW>KH@ KDGEHHQQHJOLJHQWl(PSKDVLVDGGHG7KHUXOHWREHJOHDQHGIURPWKHVHIHZDYDLODEOH FDVHVPDLQO\XQSXEOLVKHGDQGIURPLQWHUPHGLDWHFRXUWVLVWKDWDGHIDXOWMXGJPHQWPXVW FRQWDLQ H[SUHVV ILQGLQJV LQ RUGHU WR EH JLYHQ SUHFOXVLYH HIIHFW LQ VXEVHTXHQW OLWLJDWLRQ EHWZHHQWKHSDUWLHV 5HDFKLQJWKLVVDPHFRQFOXVLRQDIWHUDFDUHIXOUHYLHZDQGDQDO\VLVRI2KLRjVSRVLWLRQ RQWKLVTXHVWLRQLVsXGJH6SHHUDEDQNUXSWF\MXGJHVLWWLQJLQ2KLR,Q+LQ]HY5RELQVRQ ,Q UH 5RELQVRQ %5 %DQNU 1' 2KLR sXGJH 6SHHU ILUVW QRWHG WKDW m>X@QGHU2KLRODZDGHIDXOWMXGJPHQWREYLDWHVWKHSODLQWLIIjVEXUGHQWRSURYHWKHHOHPHQWV RIWKHFODLPDOOHJHG2KLR9DOOH\5DGLRORJ\$VVRF,QFY2KLR9DOOH\+RVS$VVjQ 2KLR6WG1(G2KLRl,GDW7KDWEHLQJVRKH FRQFOXGHGWKDWLWZDVmUHDVRQDEOHWRDVVXPHWKDWQRUPDOO\LVVXHVDUHQRWµDFWXDOO\OLWLJDWHGj IRUSXUSRVHVRIWKHFROODWHUDOHVWRSSHOGRFWULQHZKHQDVWDWHFRXUWJUDQWVDPRWLRQIRU GHIDXOWMXGJPHQWl,G7RUHFRQFLOHWKHmDFWXDOOLWLJDWLRQlUHTXLUHPHQWRIFROODWHUDOHVWRSSHO ZLWKWKHUHDOLWLHVRIGHIDXOWMXGJPHQWVsXGJH6SHHUGHFLGHGWKDWWKHSUHFOXVLYHHIIHFWRI GHIDXOWMXGJPHQWVPXVWEHOLPLWHGWRVLWXDWLRQVLQZKLFKWZRFLUFXPVWDQFHVFRQMRLQHG
)LUVW WKH SODLQWLII PXVW DFWXDOO\ VXEPLW WR WKH VWDWH FRXUW DGPLVVLEOHHYLGHQFHDSDUWIURPKLVSOHDGLQJV,QRWKHUZRUGV D SODLQWLIIj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m%DVHG XSRQ WKH HYLGHQFHWKHFRXUWLVVDWLVILHGWKDWMXGJPHQWVKRXOGEHUHQGHUHGLQIDYRURIWKHSODLQWLIIV l,WWKHQVLPSO\DZDUGHGGDPDJHVFRXQWE\FRXQWZLWKRXWPDNLQJDQ\UHIHUHQFHWRWKH IDFWVRUGUDZLQJDQ\FRQFOXVLRQV$IDLUUHDGLQJRIWKHFRXUWjVODQJXDJHLVWKDWEDVHGRQ WKHHYLGHQFHWKHFRXUWZDVVDWLVILHGWKDWMXGJPHQWVKRXOGEHUHQGHUHGLQWKHDPRXQWVWKDW
IROORZHG,WGLGQRWVSHFLILFDOO\ILQGWKH'HEWRUJXLOW\RIIUDXGRUDQ\HOHPHQWRIIUDXG,Q IDFW WKH MXGJPHQW ZDV DZDUGHG mMRLQWO\ DQG VHYHUDOO\l DJDLQVW WKH 'HEWRU DQG WZR FRGHIHQGDQWVDVZHOODVmLQGLYLGXDOO\lDJDLQVWWKH'HEWRUOHDYLQJRSHQWRVSHFXODWLRQ ZKHWKHUWKHFRXUWIRXQGIUDXGDVWRHDFKGHIHQGDQWRUZKHWKHURQHGHIHQGDQW VIUDXGZDV LPSXWHGWRRWKHUV,WLVWKLVODFNRIFODULW\WKDWFRQWULEXWHVWRRXUFRQFOXVLRQWKDWWKHVWDWH FRXUWjVEULHIVWDWHPHQWGRHVQRWPHHWWKHWHVWLQ5RELQVRQEHFDXVHLWLVQRWmVXIILFLHQWO\ GHWDLOHGWRVXSSRUWWKHDSSOLFDWLRQRIWKHFROODWHUDOHVWRSSHOGRFWULQHl5RELQVRQ%5 DW,QGHHGLWFRQWDLQVQRPDWHULDOGHWDLOZKDWHYHU1RULVLWDQmDIILUPDWLYHILQGLQJl =DSHUDFK1(GDW:KHQDOOLVVDLGDQGGRQHWKHFRXUWjVSURIRUPDUHFLWDWLRQ PD\KDYHPHDQWQRWKLQJPRUHWKDQWKDWWKHFRXUWZDVVDWLVILHGIURPWKHHYLGHQFHWKDWWKH GDPDJHVLWZDVDZDUGLQJZHUHDSSURSULDWHLQDPRXQWDVVXPLQJWKDWWKH'HEWRUZDVOLDEOH GXHWRWKHGHIDXOWQDWXUHRIWKHKHDULQJ ,Q5RELQVRQWKHEDQNUXSWF\FRXUWUHIXVHGWRJLYHFROODWHUDOHVWRSSHOHIIHFWWRD GHIDXOW MXGJPHQW WKDW ODEHOHG WKH GHIHQGDQWjV EHKDYLRU DV mXQIRUWXQDWHl ZKHUH WKH EDQNUXSWF\LVVXHZDVZKHWKHUWKHGHIHQGDQWjVFRQGXFWZDVZLOOIXORUPDOLFLRXV7KHFRXUW VWDWHGWKDWDPHUHFKDUDFWHUL]DWLRQGLGQRWDPRXQWWRWKHNLQGRIVSHFLILFILQGLQJLWWKRXJKW QHFHVVDU\XQGHU2KLRODZ,QWKHFDVHDWEDUWKHUHLVQRWHYHQDFKDUDFWHUL]DWLRQRIWKH 'HEWRU V FRQGXFW %HFDXVH WKH 2KLR FRXUW GLG QRW PDNH ILQGLQJV RI IDFW RU GUDZ FRQFOXVLRQVRIODZWKDWZRXOGDOORZDVXEVHTXHQWFRXUWWRGHWHUPLQHZKHWKHUWKHLVVXHDV WR WKLV 'HEWRU ZDV mDFWXDOO\ OLWLJDWHGl RU mSDVVHG XSRQ DQG GHWHUPLQHGl ZH WKLQN WKH EDQNUXSWF\FRXUWHUUHGLQJLYLQJSUHFOXVLYHHIIHFWWRWKHGHIDXOWMXGJPHQW :HWKLQNWKLVDEHWWHUUHVXOWWKDQRQHZKLFKZRXOGDOORZSUHFOXVLRQIURPUHDVRQLQJ EDFNZDUGVIURPWKHGDPDJHDZDUGVWRZKDWmPXVWlKDYHEHHQIRXQGLQRUGHUWRMXVWLI\ WKHP)RUH[DPSOHRQHFRXOGUHDVRQWKDWWKHFRXUWjVDZDUGRISXQLWLYHGDPDJHVRQWKH IUDXGFRXQWPXVWPHDQWKDWLWDFWXDOO\GHFLGHGWKDWDIUDXGZDVFRPPLWWHG%XWWKDWVDPH UHDVRQLQJZRXOGILQGSUHFOXVLRQWREHWKHUHVXOWRIHYHU\GHIDXOWMXGJPHQWDQGVRLQHYHU\ DXWRPRELOHDFFLGHQWFDVHZHZRXOGUHDVRQEDFNZDUGVIURPDQDZDUGRIGDPDJHVWRWKH FRQFOXVLRQWKDWWKHFRXUWPXVWKDYHGHFLGHGWKDWWKHGHIHQGDQWZDVQHJOLJHQW(YHQLID UHYLHZRIWKHUHFRUGVKRZHGWKDWHYLGHQFHKDGEHHQSUHVHQWHGIURPZKLFKWKHFRXUWFRXOG KDYHIRXQGQHJOLJHQFHWKHUHZRXOGEHQRDVVXUDQFHWKDWLWGLGIRUZHFDQQHYHUNQRZ
ZKHWKHUWKHFRXUWDZDUGHGGDPDJHVEDVHGRQWKHHYLGHQFHSUHVHQWHGRUPHUHO\RQWKH GHIHQGDQW VGHIDXOWDVLWZDVHQWLWOHGWR,WZRXOGDOZD\VEHIUHHWRLJQRUHWKHHYLGHQFH RUILQGLWLQVXIILFLHQWDQGUHO\RQWKHGHIDXOWLQVWHDG2QO\ILQGLQJVRUVRPHWKLQJOLNHWKHP ZLOOVKRZZKHWKHUWKHFRXUWDFWXDOO\GHFLGHGWKHTXHVWLRQDQGZHWKLQNWKDWWKH3ODLQWLIIV KDYHQRWFDUULHGWKHLUEXUGHQRIVKRZLQJVXFKILQGLQJVLQWKLVFDVH
&5RRNHU)HOGPDQ'RFWULQH 7KHEDQNUXSWF\FRXUWDOVREDVHGLWVKROGLQJRQWKH5RRNHU)HOGPDQGRFWULQHD MXULVGLFWLRQDOGRFWULQHWKDWSURYLGHVWKDWORZHUIHGHUDOFRXUWVPD\QRWUHYLHZWKHGHFLVLRQV RIVWDWHFRXUWV2QO\WKH8QLWHG6WDWHV6XSUHPH&RXUWPD\GRVR6LQJOHWRQY)LIWK7KLUG %DQN,QUH6LQJOHWRQ%5%$3WK&LU$OWKRXJKWKH5RRNHU )HOGPDQGRFWULQHSURKLELWVORZHUIHGHUDOFRXUWVIURPUHYLHZLQJVWDWHFRXUWGHFLVLRQVLW GRHVQRWSUHYHQWWKHPIURPGHFLGLQJDQmLQGHSHQGHQWFODLPDOEHLWRQHWKDWGHQLHVDOHJDO FRQFOXVLRQWKDWDVWDWHFRXUWKDVUHDFKHGl*$6+$VVRFVY9LOODJHRI5RVHPRQW )GWK&LU)XUWKHUPRUHWKHGRFWULQHGRHVQRWUHTXLUHORZHUIHGHUDO FRXUWV WR VXUUHQGHU WKHLU RZQ H[FOXVLYH MXULVGLFWLRQ sXULVGLFWLRQ WR GHWHUPLQH WKH GLVFKDUJHDELOLW\ RI GHEWV GHVFULEHG E\ 86& D LV H[FOXVLYHO\ ZLWKLQ WKH EDQNUXSWF\FRXUWVDQGQRVWDWHFRXUWKDVMXULVGLFWLRQWRGHFLGHZKHWKHUDIUDXGFODLPZLOO EHGLVFKDUJHDEOHLQEDQNUXSWF\86&F)HG5%DQNU3DGYLVRU\ FRPPLWWHHjVQRWH,QUH0DVVD%5%DQNU:'1<DII G )GG&LU 7KHGLVFKDUJHDELOLW\RIDGHEWPXVWEHUHFRJQL]HGDVDPDWWHUVHSDUDWHIURPWKH PHULWVRIWKHGHEWLWVHOI7KXVXQGHUWKH5RRNHU)HOGPDQGRFWULQHDEDQNUXSWF\FRXUW PD\QRWUHYLHZDQGUHGHWHUPLQHWKHPHULWVRIDGHEWRUVHWDVLGHWKHGHIDXOWMXGJPHQW UHIOHFWLQJ LW EXW LW PD\ ZLWKLQ LWV H[FOXVLYH MXULVGLFWLRQ GHWHUPLQH ZKHWKHU WKDW GHEW LV GLVFKDUJHDEOHRUQRW7KHEDQNUXSWF\FRXUWZDVQRWFDOOHGXSRQWRmUHYHUVHWKHVWDWHFRXUW DFWLRQRUYRLGLWVUXOLQJl,QUH6LQJOHWRQ%5DWTXRWLQJ%HFKWROGY&LW\RI 5RVHPRXQW)GWK&LU 5DWKHUWKHLVVXHEHIRUHWKDWFRXUWDQG WKLV3DQHOLVZKHWKHUWRJLYHSUHFOXVLYHHIIHFWWRWKHVWDWHFRXUWMXGJPHQWVRDVWRGULYHWKH WULDOFRXUW VGHWHUPLQDWLRQRIQRQGLVFKDUJHDELOLW\
7KHVH SULQFLSOHV DQG GLVWLQFWLRQV DUH LPSRUWDQW DQG DUH ZHOO VXPPDUL]HG LQ D GHFLVLRQKROGLQJWKDWWKH5RRNHU)HOGPDQGRFWULQHGLGQRWDSSO\WRDEDQNUXSWF\FRXUW PDNLQJDGHFLVLRQDERXWWKHGLVFKDUJHDELOLW\RIDGHEWXQGHUD DVLVWHUSURYLVLRQ WRD ,QFRQVLGHULQJWKHDSSOLFDWLRQRIWKHVHGRFWULQHVWRDQDFWLRQWR H[FHSWDGHEWIURPDQLQGLYLGXDOj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
sRUJHY0DQQLH,QUH0DQQLH%5%DQNU1'&DO,IWKH GRFWULQHGRHVQRWDSSO\WRGLVFKDUJHDELOLW\DFWLRQVXQGHUD WKHQLWGRHVQRWDSSO\ WRWKRVHXQGHUD ,Q WKH FDVH DW EDU WKH EDQNUXSWF\ FRXUW WKRXJKW WKDW PDNLQJ D GLVFKDUJHDELOLW\ GHWHUPLQDWLRQ ZRXOG DPRXQW WR WKH UHYLHZ RI WKH VWDWH FRXUWjV GHIDXOW MXGJPHQW :H GLVDJUHHDQGKROGWKDWWKHFRXUWVKRXOGQRWKDYHGHQLHGLWVHOIMXULVGLFWLRQRYHUDPDWWHU FRPPLWWHGWRLWVH[FOXVLYHMXULVGLFWLRQ
9&21&/86,21 7KHSUHUHTXLVLWHVIRUDSSO\LQJFROODWHUDOHVWRSSHODQGWKXVIRUJUDQWLQJVXPPDU\ MXGJPHQW LQ WKLV FDVH KDYH QRW EHHQ PHW LQ WKDW D WKHUH UHPDLQ XQUHVROYHG LVVXHV FRQFHUQLQJWKH'HEWRUjVRSSRUWXQLW\WRIXOO\DQGIDLUO\OLWLJDWHWKHVWDWHODZVXLWEHFDXVHRI TXHVWLRQVFRQFHUQLQJWKHYDOLGLW\RIVHUYLFHRQKLPDQGEWKHUHDUHQRILQGLQJVRIIDFWRU FRQFOXVLRQVRIODZLQWKHVWDWHFRXUWjVUXOLQJWKDWZRXOGHQDEOHDFRXUWWRGHWHUPLQHWKDWWKH VWDWH IUDXG FDVH ZDV GHFLGHG RQ LWV PHULWV DQG QRW DV D PHUH SURFHGXUDO GHIDXOW
0RUHRYHU WKH 5RRNHU)HOGPDQ GRFWULQH GRHV QRW IRUELG WKH EDQNUXSWF\ FRXUW IURP H[HUFLVLQJMXULVGLFWLRQRYHUTXHVWLRQVRIGLVFKDUJHDELOLW\XQGHU86&D )RU WKHVHUHDVRQVZHEHOLHYHWKHEDQNUXSWF\FRXUWHUUHGLQJUDQWLQJVXPPDU\MXGJPHQWWRWKH 3ODLQWLIIVDQGWKHFDVHLVDFFRUGLQJO\5(9(56('DQG5(0$1'('
:,//,$0 6 +2:$5' %DQNUXSWF\ $SSHOODWH 3DQHO sXGJH FRQFXUULQJ , ZULWH VHSDUDWHO\WRLQGLFDWHP\DJUHHPHQWZLWKWKH3DQHOjVUHDVRQLQJLQVXEVHFWLRQV$DQG& :LWKUHVSHFWWRVXEVHFWLRQ%,DJUHHWKDWWKHUHZDVQRWVXIILFLHQWVSHFLILFLW\LQWKHVWDWH FRXUWMXGJPHQWRQWKLVPXOWLFRXQWFRPSODLQWWRDOORZWKHEDQNUXSWF\FRXUWWRDSSO\WKH GRFWULQH RI FROODWHUDO HVWRSSHO EXW , UHVSHFWIXOO\ GLVDJUHH ZLWK WKH 3DQHO PDMRULW\jV FRQFOXVLRQWKDWWKHFRXUWVRI2KLRUHTXLUHVSHFLILFILQGLQJVRIIDFWLQHYHU\FDVHWRVDWLVI\ WKHmDFWXDOO\OLWLJDWHGlUHTXLUHPHQWLQRUGHUWRDSSO\WKHGRFWULQHRIFROODWHUDOHVWRSSHO