02a0409p.06

7KH +RQRUDEOH *HUDOG ( 5RVHQ 8QLWHG 6WDWHV 'LVWULFW -XGJH IRU WKH
(DVWHUQ 'LVWULFW RI 0LFKLJDQ VLWWLQJ E\ GHVLJQDWLRQ

5(&200(1'(' )25 )8//7(;7 38%/,&$7,21
3XUVXDQW WR 6L[WK &LUFXLW 5XOH
(/(&7521,& &,7$7,21 )(' $SS 3 WK &LU
)LOH 1DPH DS
81,7('67$7(6&28572)$33($/6
)257+(6,;7+&,5&8,7
BBBBBBBBBBBBBBBBB
&/(9(/$1' %52:1
3ODLQWLII$SSHOODQW
Y
0,&+$(/ - &52:/(<HWDO
'HIHQGDQWV$SSHOOHHV
;!

1
1R
$SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
IRUWKH:HVWHUQ'LVWULFWRI0LFKLJDQDW0DUTXHWWH
1R²5REHUW+ROPHV%HOO&KLHI'LVWULFW-XGJH
6XEPLWWHG$XJXVW
'HFLGHGDQG)LOHG1RYHPEHU
%HIRUH0225(DQG*,/0$1&LUFXLW-XGJHV526(1
'LVWULFW-XGJH
BBBBBBBBBBBBBBBBB
&2816(/
21 %5,() 3DWULFN - :ULJKW 2)),&( 2) 7+(
$77251(< *(1(5$/ &255(&7,216 ',9,6,21

-- 1 of 24 --

%URZQY&URZOH\HWDO 1R
/DQVLQJ0LFKLJDQIRU$SSHOOHH&OHYHODQG%URZQ,RQLD
0LFKLJDQSURVH
*,/0$1-GHOLYHUHGWKHRSLQLRQRIWKHFRXUWLQZKLFK
0225(-MRLQHG526(1'- SS GHOLYHUHGD
VHSDUDWHGLVVHQWLQJRSLQLRQ
BBBBBBBBBBBBBBBBB
23,1,21
BBBBBBBBBBBBBBBBB
521$/'/((*,/0$1&LUFXLW-XGJH$IWHU&OHYHODQG
%URZQD0LFKLJDQSULVRQHUZDVWUDQVIHUUHGIURPRQHSULVRQ
WRDQRWKHUKHZDVLQIRUPHGWKDWKHRZHGDEDODQFHRQKLV
SHUVRQDODFFRXQWZLWKWKHIRUPHUSULVRQ)XQGVZHUHWKHQ
UHPRYHGIURP%URZQ¶VSULVRQWUXVWDFFRXQWWRFRYHUWKHGHEW
<HW ZKHQ %URZQ ZDV VXEVHTXHQWO\ WUDQVIHUUHG WR RWKHU
0LFKLJDQ SULVRQV LQ ODWHU \HDUV KH FRQWLQXHG WR UHFHLYH
QRWLFHVUHJDUGLQJWKHVDPHGHEW%URZQDWWHPSWHGWRUHFWLI\
WKH VLWXDWLRQ E\ ILOLQJ JULHYDQFHV HDFK WLPH KH UHFHLYHG D
QRWLFHEXWKLVHIIRUWVZHUHXQVXFFHVVIXO+HILQDOO\ZURWHD
0LFKLJDQ6WDWH3ROLFHRIILFLDOWRUHTXHVWWKDWFULPLQDOFKDUJHV
EHEURXJKWDJDLQVWYDULRXVSULVRQRIILFLDOVIRUHPEH]]OHPHQW
RIKLVIXQGV+LVUHTXHVWZDVUHIHUUHGWRWKH,QWHUQDO$IIDLUV
'HSDUWPHQW RI WKH 0LFKLJDQ 'HSDUWPHQW RI &RUUHFWLRQV
0'2& ZKLFKGHFLGHGWKDWKLVFRPSODLQWZDVPHULWOHVV
%URZQZDVVXEVHTXHQWO\LVVXHGDPDMRUPLVFRQGXFWFKDUJH
IRU ILOLQJDIDOVHFRPSODLQW+HZDVODWHUDFTXLWWHGRIWKH
FKDUJHE\DKHDULQJRIILFHU
,Q -XQH RI %URZQ ILOHG VXLW DJDLQVW D QXPEHU RI
0'2& RIILFLDOV SXUVXDQW WR 86& † %URZQ
FODLPHGWKDWWKHGHIHQGDQWVYLRODWHGKLVFRQVWLWXWLRQDOULJKWV
XQGHUWKH(TXDO3URWHFWLRQ&ODXVHWKH'XH3URFHVV&ODXVH
WKH )LUVW $PHQGPHQW DQG WKH (LJKWK $PHQGPHQW 7KH
GLVWULFWFRXUWGLVPLVVHGVHYHUDORI%URZQ¶VFODLPVVXDVSRQWH
DQGWKHGHIHQGDQWVZHUHODWHUJUDQWHGVXPPDU\MXGJPHQWRQ
WKHUHPDLQLQJFODLPV7KLVFRXUWLQDSULRUDSSHDOYDFDWHG
WKHGLVWULFWFRXUW¶VGLVPLVVDORI%URZQ¶VUHWDOLDWLRQFODLPDQG
UHPDQGHGIRUIXUWKHUSURFHHGLQJV2QUHPDQGWKHGLVWULFW

-- 2 of 24 --

%URZQY&URZOH\HWDO 1R
DVVHVV WKH YHUDFLW\ RI WKH SDUWLHV¶ UHVSHFWLYH EHOLHIV WKDW
%URZQ¶VSULVRQDFFRXQWZDVRUZDVQRWRYHUFKDUJHGE\DIHZ
GROODUV,EHOLHYHWKDWWKHPDMRULW\¶VUXOLQJIDLOVRQDQXPEHU
RI OHYHOV WR DSSO\ WKH SURSHU VWDQGDUGV IRU HYDOXDWLQJ
%URZQ¶V FODLP RI )LUVW $PHQGPHQW UHWDOLDWLRQ DQG ,
DFFRUGLQJO\GLVVHQW
1R %URZQY&URZOH\HWDO
FRXUWJUDQWHGWKHGHIHQGDQWV¶PRWLRQIRUVXPPDU\MXGJPHQW
RQWKHUHWDOLDWLRQFODLP)RUWKHUHDVRQVVHWIRUWKEHORZZH
9$&$7(WKHMXGJPHQWRIWKHGLVWULFWFRXUWDQG5(0$1'
WKHFDVHRQFHDJDLQIRUIXUWKHUSURFHHGLQJVFRQVLVWHQWZLWK
WKLVRSLQLRQ
,%$&.*5281'
$ )DFWXDOEDFNJURXQG
,Q )HEUXDU\ RI %URZQ ZDV WUDQVIHUUHG IURP 5\DQ
&RUUHFWLRQDO)DFLOLW\ 5\DQ WRWKH0DUTXHWWH%UDQFK3ULVRQ
0DUTXHWWH %URZQZDVODWHULQIRUPHGWKDW5\DQKDGVHQWD
QRWLFH WR 0DUTXHWWH VWDWLQJ WKDW KH RZHG $IWHU
FRQFOXGLQJWKDW%URZQGLGLQIDFWRZHWKH0DUTXHWWH
%XVLQHVV2IILFH6HFUHWDU\6XVDQ%LDQFKLUHTXHVWHG0DUTXHWWH
$FFRXQWDQW 6 /DLQH WR GHGXFW WKDW DPRXQW IURP %URZQ¶V
SULVRQWUXVWDFFRXQW%LDQFKLVXEVHTXHQWO\WROG%URZQWKDW
WKHGHEWKDGEHHQSDLG
%URZQZDVODWHUFKDUJHGDQDGGLWLRQDOIRUDGHEW
WKDW KH DOOHJHGO\ RZHG WR 6RXWKHUQ 0LFKLJDQ 3ULVRQ +H
FRQWHQGV KRZHYHU WKDW WKLV DPRXQW KDG DOUHDG\ EHHQ
LQFOXGHGLQWKHWKDWZDVSDLGWR5\DQ:KHQ%URZQ
TXHVWLRQHGWKHGHEW%LDQFKLLQIRUPHGKLPWKDWWKH
GHEWZDVSDUWRIDGLIIHUHQWWUDQVDFWLRQ
$IWHU%URZQ¶VDWWHPSWVWRREWDLQUHFRUGVSHUWDLQLQJWRKLV
5\DQGHEWZHUHXQVXFFHVVIXOKHILOHGDJULHYDQFH%URZQ¶V
JULHYDQFHZDVDQVZHUHGE\WKHJULHYDQFHFRRUGLQDWRUDW5\DQ
&LQG\7KRUWRQ7KRUWRQVWDWHGWKDWRIWKHSDLGWR
5\DQ ZDV IRU DQ LQGLJHQW ORDQ DQG WKH UHPDLQLQJ
ZDV WKH DPRXQW WKDW KDG EHHQ RYHUGUDZQ IURP
%URZQ¶VSULVRQDFFRXQW
%URZQ ZDV VXEVHTXHQWO\ WUDQVIHUUHG IURP 0DUTXHWWH WR
6WDQGLVK0D[LPXP&RUUHFWLRQDO)DFLOLW\ 6WDQGLVK :KHQ
%URZQUHFHLYHGDVHFRQGQRWLFHUHJDUGLQJWKHGHEWKH
ILOHG D JULHYDQFH UHTXHVWLQJ DQ LWHPL]HG VWDWHPHQW RI WKH
DPRXQWRZHG$W6WDQGLVK%URZQDOVRFRQWLQXHGWRUHFHLYH

-- 3 of 24 --

%URZQY&URZOH\HWDO 1R
QRWLFHVWKDWKHRZHGWKHGHEWWKDWKDGEHHQSDLGZKLOH
KHZDVLPSULVRQHGDW0DUTXHWWH
%URZQ ZDV WKHQ WUDQVIHUUHG RQFH DJDLQ WKLV WLPH IURP
6WDQGLVKWR%DUDJD0D[LPXP&RUUHFWLRQDO)DFLOLW\ %DUDJD
$IWHU KH ZDV WUDQVIHUUHG WKH %DUDJD DFFRXQWLQJ RIILFH
LQIRUPHG%URZQWKDW5\DQZDVVWLOOFODLPLQJWKDWKHRZHG
,Q -DQXDU\ RI %URZQ ILOHG VWLOO DQRWKHU
JULHYDQFHDQGZURWHWR%DUDJD&DVH0DQDJHU'DQLHO/HVDW]
UHJDUGLQJWKHVLWXDWLRQ$IHZGD\VODWHUKHZURWHDVHFRQG
OHWWHU WR /HVDW] +H DOVR ZURWH FRQWHPSRUDQHRXV OHWWHUV
UHJDUGLQJ WKH PDWWHU WR %DUDJD $FFRXQWDQW 7RQL -RNL DQG
%DUDJD:DUGHQ0LFKDHO&URZOH\7ZRGD\VODWHUKHVHQW
FRSLHV RI WKH SHUWLQHQW UHFRUGV WR %DUDJD 5HVLGHQW 8QLW
0DQDJHU :LOOLDP /HXW]RZ WR WU\ WR UHVROYH WKH PDWWHU
/HXW]RZKRZHYHUUHWXUQHGWKHVHGRFXPHQWVWR%URZQDQG
WROGKLPWKDWKHVKRXOGFRQWDFW5\DQGLUHFWO\
/HVDW]ODWHUGHQLHG%URZQ¶V-DQXDU\JULHYDQFHRQWKH
EDVLVWKDWLWZDVGXSOLFDWLYH RI JULHYDQFHVWKDW%URZQKDG
ILOHGLQDQG7KLVFDXVHG%URZQWRVHQGD6WHS,,
JULHYDQFHDSSHDOWR%DUDJD:DUGHQ&URZOH\FRQWHQGLQJWKDW
KLV JULHYDQFH ZDV QRW UHGXQGDQW EHFDXVH D GXSOLFDWH
GHGXFWLRQKDGEHHQPDGHIURPKLVSULVRQDFFRXQW$IWHUWKH
PDWWHUZDVLQYHVWLJDWHG&URZOH\WROG%URZQWKDWWKH
GHEWKDGEHHQUHGXFHGWRDQGWKDWWKHPDWWHUZRXOGEH
UHVROYHG ZKHQ WKDW DPRXQW ZDV SDLG $OWKRXJK %URZQ
UHTXHVWHG FRSLHV RI WKH LQYHVWLJDWLRQ UHSRUWV KH QHYHU
UHFHLYHGDUHVSRQVH%URZQWKHQVHQWD6WHS,,,JULHYDQFH
DSSHDOWR0'2&'LUHFWRU.HQQHWK0F*LQQLVEXWKLVDSSHDO
ZDVGHQLHG
$W WKLV SRLQW %URZQ ZURWH 0LFKLJDQ 6WDWH 3ROLFH
/LHXWHQDQW&RORQHO$ODQ.$QGHUVRQWRUHTXHVWWKDWFULPLQDO
FKDUJHV EH EURXJKW DJDLQVW WKH DERYHPHQWLRQHG SULVRQ
RIILFLDOVIRUHPEH]]OHPHQWRIKLVIXQGV$QGHUVRQVXEPLWWHG
WKHPDWWHUWRWKH,QWHUQDO$IIDLUV'HSDUWPHQWRIWKH0'2&
%URZQVXEVHTXHQWO\UHFHLYHGDOHWWHUIURP0'2&,QWHUQDO
$IIDLUV0DQDJHU-DFN/+DOOVWDWLQJWKDWKLVFRPSODLQWKDG
EHHQLQYHVWLJDWHGDQGWKDWLWODFNHGPHULW
1R %URZQY&URZOH\HWDO
%\ GLVPLVVLQJ WKLV DV D ³SDUDGH RI KRUULEOHV´ 0DMRULW\ 2S DW
WKH PDMRULW\ SUHVXPDEO\ PHDQV WR VXJJHVW WKDW , DP FRQMXULQJ XS D PHUH
WKHRUHWLFDO SRVVLELOLW\ WKDW LV XQOLNHO\ WR RFFXU ZLWK DQ\ IUHTXHQF\ LI DW DOO
<HW WKLV YHU\ FDVH IHDWXUHV SUHFLVHO\ WKH ³KRUULEOHV´ ZLWK ZKLFK , DP
FRQFHUQHG ² QDPHO\ OHQJWK\ SURFHHGLQJV DQG D WULDO EDVHG VROHO\ XSRQ
'HIHQGDQWV¶ IDLOXUH WR SHUVXDGH D KHDULQJ RIILFHU WKDW %URZQ KDG HQJDJHG
LQ PLVFRQGXFW 0RUHRYHU XQOHVV ZH DUH SUHSDUHG WR EHOLHYH WKDW SULVRQHUV
H[HUFLVH PRUH UHVWUDLQW LQ WKHLU ILOLQJ RI LQWHUQDO JULHYDQFHV WKDQ LQ WKHLU
SXUVXLW RI FLYLO OLWLJDWLRQ RU XQOHVV VXEVHTXHQW SDQHOV DUH DEOH WR LGHQWLI\
OLPLWLQJ SULQFLSOHV LQ WKH PDMRULW\ RSLQLRQ WKDW , KDYH IDLOHG WR GLVFHUQ LW
VHHPV FOHDU WR PH WKDW WRGD\¶V GHFLVLRQ NLFNV RII D YHULWDEOH ³SDUDGH´ RI
VLPLODUO\ XQVXEVWDQWLDWHG )LUVW $PHQGPHQW UHWDOLDWLRQ FODLPV WKDW
QRQHWKHOHVV VXUYLYH VXPPDU\ MXGJPHQW
86&† H % WRQDPHMXVWWZR²WKDWHQDEOHXVWR
TXLFNO\GLVSRVHRIIULYRORXVFODLPVDQGVDQFWLRQWKRVHZKR
EULQJWKHP,IDOLWLJDQWEHOLHYHVZHDUHZURQJLQWDNLQJVXFK
DFWLRQ KLV VROH UHFRXUVH LV WR DSSHDO 7KH MXGJHPDGH
GRFWULQHRIMXGLFLDOLPPXQLW\SURWHFWVXVIURPDQDZDUGRI
GDPDJHV RU HYHQ GLVFRYHU\ RQ DOOHJDWLRQV RI EDG IDLWK RU
PDOLFH6HH%DUUHWWY+DUULQJWRQ)G WK
&LU FHUWGHQLHG86
,IZHHQMR\VXFKLPPXQLW\LQRXUUDWKHUUDUHILHGVHWWLQJ,
WKLQNLWRQO\IDLUWKDWZHJUDQWVRPHGHJUHHRIGHIHUHQFHWR
SULVRQRIILFLDOVZKRPDNHVLPLODUGHWHUPLQDWLRQVXQGHUPXFK
PRUH WU\LQJ DQG WXUEXOHQW FLUFXPVWDQFHV 7KH TXDOLILHG
LPPXQLW\GRFWULQHVHHNVWRDFFRXQWIRUWKHVHFLUFXPVWDQFHV
\HWZHLQH[SOLFDEO\UHIXVHWRDSSO\LWLQWKLVFDVH:RUVHWKH
PDMRULW\ GHWHUPLQHV RQ WKH PHULWV WKDW DQ DGPLQLVWUDWLYH
UHYHUVDO RI D PLVFRQGXFW FKDUJH VWDQGLQJ DORQH UDLVHV D
WULDEOHLVVXHRIIDFWRQDQ\XQODZIXOPRWLYHWKHSULVRQHUPLJKW
FDUHWRVXJJHVWDVWKHEDVLVIRUWKHFKDUJH8QGHUWKLVUXOHD
SULVRQRIILFLDOZKREHOLHYHVWKDWDQLQPDWHKDVILOHGDIDOVH
FRPSODLQW KDG EHWWHU EH ULJKW DQG DEOH WR SURYH LW WR WKH
VDWLVIDFWLRQRIDQDGPLQLVWUDWLYHKHDULQJRIILFHURQSDLQRI
GLVFRYHU\WULDODQGH[SRVXUHWRDPRQH\MXGJPHQW
7KLVZRXOGEHEDGSROLF\EXWLVHYHQPRUHXQWHQDEOHDVD
UXOHRIFRQVWLWXWLRQDOODZ7KHIDFWVRIWKLVFDVHPDNHWKLV
FOHDUZKHUHWKHPDMRULW\KDVIRXQGWKDWDWULDOLVQHFHVVDU\WR

-- 4 of 24 --

%URZQY&URZOH\HWDO 1R
VFKRODUVDVHYDOXDWHGE\WKHFRXUWVLQKLQGVLJKWUDWKHUWKDQ
WKHLUPRWLYHVEHLQJDVVHVVHGE\ZKDWWKH\DFWXDOO\VDLGDQG
EHOLHYHG DW WKH WLPH WKH\ DFWHG , DP VLPSO\ DW D ORVV WR
XQGHUVWDQGZK\WKHPDMRULW\GHHPVLWQHFHVVDU\WRDQDO\]HD
SULVRQHU¶V)LUVW$PHQGPHQWUHWDOLDWLRQFODLPXQGHUDVSHFLDO
VHW RI VWDQGDUGV ZKROO\ GLIIHUHQW IURP WKRVH ZH URXWLQHO\
DSSO\LQFDVHVLQYROYLQJDOOHJDWLRQVRILPSHUPLVVLEOHPRWLYH
8QGHUWKHVHODWWHUSULQFLSOHVZKLFKZHKDYHUHSHDWHGO\VWDWHG
DQGDSSOLHGLQRXUGHFLVLRQVLWLVFOHDUWKDW%URZQVXIIHUHGQR
DGYHUVH HIIHFWV ZKDWVRHYHU IRU WKH IHZ VKRUW GD\V WKDW WKH
PLVFRQGXFW FKDUJH ZDV SHQGLQJ DJDLQVW KLP ,Q DGGLWLRQ
'HIHQGDQWVKDYHSURGXFHGHYLGHQFHWKDWWKH\FKDUJHG%URZQ
ZLWKPLVFRQGXFWIRUDSHUPLVVLEOHQRQUHWDOLDWRU\UHDVRQDQG
%URZQ KDV SURGXFHG QR HYLGHQFH WKDW WKLV UHDVRQ ZDV
SUHWH[WXDOPXFKOHVVWKDWWKHWUXHUHDVRQZDVUHWDOLDWRU\2Q
WKHVH JURXQGV PRVW RI ZKLFK ZHUH UHFRJQL]HG E\ WKH
0DJLVWUDWH-XGJHLQWKHYHU\HDUO\GD\VRIWKLVFDVH VHH-XO\
5HSRUW DQG 5HFRPPHQGDWLRQ DW ZH VKRXOG
DIILUPWKH'LVWULFW&RXUW¶VDZDUGRIVXPPDU\MXGJPHQWLQ
'HIHQGDQWV¶IDYRU
,9
'HIHQGDQWVWHOOXVWKDW0LFKLJDQSULVRQHUVILOHWKRXVDQGVRI
JULHYDQFHVHDFK\HDU,WVHHPVVDIHWRDVVXPHWKDWDWOHDVW
VRPH RI WKHVH DUH IULYRORXV RU RXWULJKW IDOVH DQG WKDW
VXEVWDQWLDO VWDWH UHVRXUFHV DUH ZDVWHG LQ SURFHVVLQJ VXFK
FRPSODLQWV 0RUHRYHU DV ZH UHFRJQL]H WKH GDQJHU WKDW D
SULVRQRIILFLDOPLJKWXVHDPLVFRQGXFWFKDUJHDVDPHDQVRI
UHWDOLDWLQJDJDLQVWDQLQPDWHZHVXUHO\PXVWDFNQRZOHGJH
WKDW D SULVRQHU OLNHZLVH PLJKW ORGJH UHWDOLDWRU\ FKDUJHV
DJDLQVWSULVRQVWDIIZLWKWKHUHVXOWWKDWSHUVRQQHODUHGLYHUWHG
IURP WKHLU XVXDO WDVNV WR DGGUHVV WKHVH FKDUJHV DW
FRQVLGHUDEOHH[SHQVHWRWKHWD[SD\HUV,WVWDQGVWRUHDVRQ
WKHQWKDWSULVRQRIILFLDOVPXVWEHJLYHQWKHWRROVWRGHWHUVXFK
FRPSODLQWVLQFOXGLQJWKHDXWKRULW\WRWDNHGLVFLSOLQDU\DFWLRQ
DJDLQVWLQPDWHVZKRILOHWKHP
$V MXGJHV ZH VXUHO\ PXVW DSSUHFLDWH WKLV :H KDYH D
SDQRSO\RIWRROVDWRXUGLVSRVDO²)HG5&LY3DQG
1R %URZQY&URZOH\HWDO
,Q$SULORI5HJLRQDO3ULVRQ$GPLQLVWUDWRU5LFKDUG
(-RKQVRQZURWHDOHWWHUWR:DUGHQ&URZOH\WRUHTXHVWWKDW
%URZQEHLVVXHGDPDMRUPLVFRQGXFWFKDUJHIRUILOLQJDIDOVH
FRPSODLQW $W &URZOH\¶V GLUHFWLRQ &DVH 0DQDJHU /HVDW]
WKHQLVVXHGWKHFKDUJHDJDLQVW%URZQIRU³LQWHUIHUHQFHZLWK
WKHDGPLQLVWUDWLRQRIUXOHV´7KHPLVFRQGXFWFKDUJHVWDWHG
WKDWDQLQYHVWLJDWLRQKDGGHWHUPLQHGWKDW%URZQVWLOOKDGDQ
RXWVWDQGLQJGHEW%HFDXVH%URZQZDVDOUHDG\EHLQJKRXVHG
LQ DGPLQLVWUDWLYH VHJUHJDWLRQ QR IXUWKHU UHVWULFWLRQV ZHUH
LPSRVHGRQKLPDVDUHVXOWRIWKHPLVFRQGXFWFKDUJH
$IWHU D KHDULQJ %URZQ ZDV IRXQG ³QRW JXLOW\´ RI WKH
FKDUJH7KHKHDULQJRIILFHUFRQFOXGHGWKDWWKHHYLGHQFHZDV
LQVXIILFLHQWWRVKRZWKDW%URZQKDGGHOLEHUDWHO\ILOHGIDOVH
DOOHJDWLRQV)XUWKHUPRUHWKHKHDULQJRIILFHUFRQFOXGHGWKDW
%URZQ¶VEHOLHIWKDWVRPHRQHZDVLPSURSHUO\WDNLQJPRQH\
IURPKLVDFFRXQWZDVQRWXQUHDVRQDEOH
% 3URFHGXUDOEDFNJURXQG
,Q-XQHRI%URZQILOHGWKLVVXLWLQWKH8QLWHG6WDWHV
'LVWULFW&RXUWIRUWKH:HVWHUQ'LVWULFWRI0LFKLJDQDJDLQVWD
QXPEHU RI WKH DERYHPHQWLRQHG 0'2& RIILFLDOV %URZQ
FODLPHG WKDW WKH GHIHQGDQWV GLVFULPLQDWHG DJDLQVW KLP
EHFDXVHKHLV$IULFDQ$PHULFDQ GHQLHGKLPGXHSURFHVV
E\RYHUFKDUJLQJKLVSULVRQDFFRXQWIRUDPRXQWVGXHDVKHZDV
WUDQVIHUUHGEHWZHHQGLIIHUHQWIDFLOLWLHVZLWKLQWKH0LFKLJDQ
SULVRQ V\VWHP YLRODWHG WKH (LJKWK $PHQGPHQW¶V
SURKLELWLRQDJDLQVWFUXHODQGXQXVXDOSXQLVKPHQWEHFDXVHKH
KDG QR PRQH\ OHIW IRU EDVLF K\JLHQH SURGXFWV VXFK DV
VKDPSRRRUWRRWKSDVWHDQG LPSHGHGKLV)LUVW$PHQGPHQW
ULJKWV E\ GHQ\LQJ KLP FRQWDFW ZLWK KLV IDPLO\ EHFDXVH KH
FRXOGQRWDIIRUGVWDPSV)XUWKHUPRUHLQWKH³VWDWHPHQWRI
IDFWV´DSSHQGHGWRKLVSURVHFRPSODLQW%URZQDVVHUWHGWKDW
WKHPDMRUPLVFRQGXFWFKDUJHZDVLVVXHG³LQUHWDOLDWLRQIRU
VHHNLQJ WR JHW UHGUHVV IRU WKH 0'2&¶V YLRODWLRQV RI P\
ULJKWV´%URZQODWHUILOHGDPRWLRQWRDPHQGKLVFRPSODLQWWR
DGGDQXPEHURIRWKHUGHIHQGDQWV
2Q$XJXVWWKHPDJLVWUDWHMXGJHWRZKRP%URZQ¶V
FDVHZDVUHIHUUHGUHFRPPHQGHGWKDWKLVFODLPVEHGLVPLVVHG

-- 5 of 24 --

%URZQY&URZOH\HWDO 1R
IRUWKHIROORZLQJUHDVRQV KLVHTXDOSURWHFWLRQFODLPZDV
IULYRORXV KHKDGIDLOHGWRVWDWHDGXHSURFHVVFODLPXSRQ
ZKLFKUHOLHIFRXOGEHJUDQWHGDQG KHKDGIDLOHGWRH[KDXVW
KLVDGPLQLVWUDWLYHUHPHGLHVZLWKUHJDUGWRKLV)LUVWDQG(LJKWK
$PHQGPHQWFODLPV7KHPDJLVWUDWHMXGJHDSSDUHQWO\GLGQRW
FRQVWUXH %URZQ¶V FRPSODLQW DV VHWWLQJ IRUWK D UHWDOLDWLRQ
FODLP
2Q 6HSWHPEHU %URZQ ILOHG REMHFWLRQV WR WKH
PDJLVWUDWH MXGJH¶V 5HSRUW DQG 5HFRPPHQGDWLRQ %URZQ
UHLWHUDWHGKLVUHWDOLDWLRQFODLPLQWKHVHREMHFWLRQVE\DUJXLQJ
WKDW WKH GHIHQGDQWV SXQLVKHG KLP ³LQ YLRODWLRQ RI WKH
SODLQWLII¶V )LUVW $PHQGPHQW ULJKW LQ UHWDOLDWLRQ IRU KLV
UHSRUWLQJ WKHLU DFWLRQV´ 2Q 2FWREHU WKH GLVWULFW
FRXUW DSSURYHG LQ SDUW DQG UHMHFWHG LQ SDUW WKH PDJLVWUDWH
MXGJH¶V 5HSRUW DQG 5HFRPPHQGDWLRQ 7KH GLVWULFW FRXUW
GLVPLVVHG%URZQ¶VHTXDOSURWHFWLRQDQGGXHSURFHVVFODLPV
EXW OHIW VWDQGLQJ KLV )LUVW DQG (LJKWK $PHQGPHQW FODLPV
/LNHWKHPDJLVWUDWHMXGJHWKHGLVWULFWFRXUWGLGQRWGLUHFWO\
DGGUHVV%URZQ¶VUHWDOLDWLRQFODLP
7KHGHIHQGDQWVWKHQILOHGDPRWLRQIRUVXPPDU\MXGJPHQW
RQ%URZQ¶VUHPDLQLQJFODLPV,QWKHLUPRWLRQIRUVXPPDU\
MXGJPHQW WKH GHIHQGDQWV UHTXHVWHG GLVPLVVDO RI %URZQ¶V
FRPSODLQWRQWKHJURXQGVWKDWWKH\ZHUHHQWLWOHGWRTXDOLILHG
DQG (OHYHQWK $PHQGPHQW LPPXQLW\ 7KH GHIHQGDQWV
VSHFLILFDOO\GHQLHGWKH³DSSDUHQWUHWDOLDWRU\FRQVSLUDF\´WKDW
%URZQFODLPHGKDGRFFXUUHG%URZQILOHGDFURVVPRWLRQIRU
VXPPDU\MXGJPHQWRQ$SULOLQZKLFKKHGHYHORSHG
KLV UHWDOLDWLRQ FODLP DQG DGGUHVVHG WKH GHIHQVHV WKDW WKH
GHIHQGDQWVKDGDVVHUWHG
,QKLV5HSRUWDQG5HFRPPHQGDWLRQGDWHG-XO\WKH
PDJLVWUDWHMXGJHFRQFOXGHGWKDWWKHGHIHQGDQWV¶PRWLRQIRU
VXPPDU\MXGJPHQWVKRXOGEHJUDQWHG7KHPDJLVWUDWHMXGJH
GLUHFWO\DGGUHVVHG%URZQ¶VUHWDOLDWLRQFODLPDQGFRQFOXGHG
WKDW%URZQ³IDLOVWRDOOHJHDQ\VSHFLILFIDFWVLQVXSSRUWRIKLV
FODLPWKDWWKHPLVFRQGXFWFKDUJHZDVPRWLYDWHGE\UHWDOLDWRU\
DQLPXV´DQGWKDW³>W@KHUHLVQRLQGLFDWLRQWKDWWKHPLVFRQGXFW
>FKDUJH@ ZDV PRWLYDWHG E\ DQ LPSURSHU GHVLUH WR UHWDOLDWH
1R %URZQY&URZOH\HWDO
FRXUW SURFHHGLQJV 7KH 6XSUHPH &RXUW KDV H[SODLQHG XQGHU DQDORJRXV
FLUFXPVWDQFHV WKDW ³DQ DFTXLWWDO RQ FULPLQDO FKDUJHV GRHV QRW SURYH WKDW
WKH GHIHQGDQW LV LQQRFHQW LW PHUHO\ SURYHV WKH H[LVWHQFH RI D UHDVRQDEOH
GRXEW DV WR KLV JXLOW´ 8QLWHG 6WDWHV Y 2QH $VVRUWPHQW RI )LUHDUPV
86 6 &W +HUH %URZQ¶V
DGPLQLVWUDWLYH DFTXLWWDO LV HYHQ OHVV HQWLWOHG WR LVVXHSUHFOXVLYH HIIHFW
JLYHQ WKDW WKLV FDVH LQYROYHV ERWK D GLIIHUHQW VWDQGDUG RI SURRI DQG D VKLIW
RI WKH EXUGHQ RI SURRI WR WKH RSSRVLQJ SDUW\ %URZQ 7KH KHDULQJ UHSRUW
PLJKW DVVLVW %URZQ LQ VDWLVI\LQJ WKLV EXUGHQ EXW LW VXUHO\ LV QRW
FRQFOXVLYH SURRI DV WR WKH ³SURWHFWHG FRQGXFW´ HOHPHQW RI 7KDGGHXV;
:KLOH WKH PDMRULW\¶V ³VWLFNV DQG VWRQHV´ DGDJH PLJKW EH JRRG
DGYLFH RQ WKH SOD\JURXQG LW KDV QRW VR IDU DV , DP DZDUH EHHQ DGRSWHG
LQWR RXU )LUVW $PHQGPHQW UHWDOLDWLRQ MXULVSUXGHQFH 5DWKHU ZH KDYH
FRQVLVWHQWO\ KHOG WKDW D SULVRQHU HQMR\V )LUVW $PHQGPHQW SURWHFWLRQ RQO\
LQVRIDU DV KH SXUVXHV QRQIULYRORXV JULHYDQFHV LQ D PDQQHU WKDW GRHV QRW
YLRODWH OHJLWLPDWH SULVRQ UHJXODWLRQV RU SHQRORJLFDO REMHFWLYHV 6HH %HOO
)G DW Q 6PLWK )G DW +HUURQ )G DW
7KH PDMRULW\¶V ³PHUH ZRUGV´ IRUPXODWLRQ LQ FRQWUDVW ODFNV DQ\ VXFK
OLPLWLQJ SULQFLSOHV DQG VHHPLQJO\ ZRXOG DFFRUG IXOO FRQVWLWXWLRQDO
SURWHFWLRQ WR D SULVRQHU¶V JULHYDQFH WKUHDWHQLQJ IRU H[DPSOH WKDW SULVRQ
RIILFLDOV ZRXOG EH PDLPHG RU NLOOHG LI WKH\ GLG QRW UHWXUQ WKH IXQGV
DOOHJHGO\ HPEH]]OHG IURP WKH SULVRQHU¶V DFFRXQW
HIIHFWLYHO\ GHFUHHG WKDW %URZQ ZDV HQJDJHG LQ SURWHFWHG
FRQGXFWWKHPDMRULW\VXJJHVWVLILWGRHVQRWRXWULJKWKROG
WKDW 'HIHQGDQWV¶ SHUFHSWLRQ RI ZKDW %URZQ ZDV GRLQJ LV
OHJDOO\LUUHOHYDQWDQGWKDWDSULVRQHU¶VH[HUFLVHRIZKDWZH
GHHPDIWHUWKHIDFWWREH³SURWHFWHGFRQGXFW´²DGHILQLWLRQ
ZKLFKDSSDUHQWO\HQFRPSDVVHVDQ\XVHRI³PHUHZRUGV´QR
PDWWHUKRZEDVHOHVVRUGLVUXSWLYHWRWKHSULVRQHQYLURQPHQW
²SUHFOXGHVSULVRQRIILFLDOVIURPWDNLQJDQ\DFWLRQDJDLQVW
VXFKFRQGXFWUHJDUGOHVVRIWKHLUPRWLYH$JDLQRQHZRQGHUV
ZKHWKHU 'HIHQGDQWV PLJKW VWLOO EH SHUPLWWHG WR SURGXFH
HYLGHQFHEH\RQGWKHXQUHIXWHGVWDWHPHQWVWKH\DOUHDG\KDYH
RIIHUHGWKDWWKH\DFWHGRXWRIDQKRQHVWJRRGIDLWKDQGZHOO
IRXQGHGEHOLHIWKDW%URZQKDGHQJDJHGLQWKHPLVFRQGXFW
ZLWKZKLFKKHZDVFKDUJHG
7KHPDMRULW\LQVKRUWKDVUHGXFHG7KDGGHXV;WRDVLQJOH
HOHPHQW WHVW IRU WKH H[LVWHQFH RI SURWHFWHG FRQGXFW ZLWK
SULVRQ RIILFLDOV H[SHFWHG WR EH XQHUULQJ )LUVW $PHQGPHQW

-- 6 of 24 --

%URZQY&URZOH\HWDO 1R
,I WKH ODWWHU DV SRUWLRQV RI WKH PDMRULW\ RSLQLRQ DSSHDU WR VXJJHVW
WKHQ ZH DSSDUHQWO\ KROG LQ WKLV FDVH WKDW SULVRQ DGPLQLVWUDWLYH KHDULQJV
KDYH D JUHDWHU DQG PRUH LQYLRODWH WUXWKVHHNLQJ FDSDFLW\ WKDQ VD\ IHGHUDO
WRDQRWKHUDQGE\WKHDSSDUHQWLQDELOLW\RIVWDIIDWRQHSULVRQ
WR JDLQ DFFHVV WR WKH ILQDQFLDO UHFRUGV RI DQRWKHU 0'2&
IDFLOLW\7KXVHYHQLIWKHPLVFRQGXFWFKDUJHZHUHFRQVWUXHG
DVUHVWLQJLQSDUWXSRQ'HIHQGDQWV¶EHOLHIWKDW%URZQ¶VFODLPV
RIRYHUFKDUJHVDVZHOODVKLVFODLPVRIHPEH]]OHPHQWZHUH
IDOVH,ZRXOGFRQFOXGHWKDWWKLVEHOLHIWRRZRXOGEHGHHPHG
³KRQHVWO\KHOG´XQGHUWKHIDFWVDYDLODEOHWR'HIHQGDQWVDWWKH
WLPH³>:@HGRQRWUHTXLUHWKDWWKHGHFLVLRQDOSURFHVVXVHG
E\ WKH >GHIHQGDQW@ EH RSWLPDO RU WKDW LW OHIW QR VWRQH
XQWXUQHG´EXWUDWKHULQTXLUHRQO\³ZKHWKHUWKH>GHIHQGDQW@
PDGHDUHDVRQDEO\LQIRUPHGDQGFRQVLGHUHGGHFLVLRQEHIRUH
WDNLQJDQDGYHUVHDFWLRQ´6PLWK)GDW7KH
UHFRUG KHUH LQ P\ YLHZ UHYHDOV D PRUH WKDQ DGHTXDWH
LQYHVWLJDWLRQRI%URZQ¶VRYHUFKDUJHFRPSODLQWSDUWLFXODUO\
JLYHQWKHPRGHVWDPRXQWDWLVVXH
8QIRUWXQDWHO\ WKLV XQUHIXWHG HYLGHQFH RI 'HIHQGDQWV¶
SHUPLVVLEOHQRQUHWDOLDWRU\PRWLYHIRUFKDUJLQJ%URZQZLWK
PLVFRQGXFW SOD\VQRUROHLQWKHPDMRULW\¶VDQDO\VLVRIWKLV
FDVH 5DWKHU EDVHG VROHO\ XSRQ WKH RXWFRPH RI WKH
PLVFRQGXFW KHDULQJ WKH PDMRULW\ PRYHV VZLIWO\ DQG
XQFULWLFDOO\WKURXJKWKHHOHPHQWVRIWKH7KDGGHXV;VWDQGDUG
FRPLQJ ZLWKLQ D KDLU¶VEUHDGWK RI DZDUGLQJ VXPPDU\
MXGJPHQWLQ%URZQ¶VIDYRUDQGOHDYLQJPH²DQGQRGRXEW
'HIHQGDQWVDQGWKH'LVWULFW&RXUWDVZHOO²ZRQGHULQJZKDW
VRUWRIDGGLWLRQDOSURRI'HIHQGDQWVFRXOGSRVVLEO\RIIHUWR
DYRLG WKLV UHVXOW RQ UHPDQG 7KH PDMRULW\ GHFODUHV IRU
H[DPSOHWKDW³WKHUHZDVQRPLVFRQGXFW´LQWKLVFDVHWKDW
%URZQILOHGH[FOXVLYHO\³QRQIULYRORXVJULHYDQFHV´DQGWKDW
%URZQDFWXDOO\EHOLHYHGWKDWSULVRQRIILFLDOVZHUHHPEH]]OLQJ
KLVIXQGV VHH0DMRULW\2SDW ZLWKDOORIWKHVHDSSDUHQW
³ILQGLQJV´ GHULYHG VROHO\ IURP WKH UHSRUW RI WKH KHDULQJ
RIILFHU<HWWKHPDMRULW\IDLOVWRLQGLFDWHZKHWKHU'HIHQGDQWV
VKRXOGEHSHUPLWWHGWRFRQWHVWDQ\RIWKHVHSRLQWVRQUHPDQG
RUZKHWKHUWKHVWDWHPHQWVLQWKHKHDULQJUHSRUWVKRXOGLQVWHDG
EH DFFRUGHG WKH VWDWXV RI LUUHIXWDEOH IDFW 7KHQ KDYLQJ
1R %URZQY&URZOH\HWDO
DJDLQVW SODLQWLII´ 2Q $XJXVW WKH GLVWULFW FRXUW
DGRSWHGWKH5HSRUWDQG5HFRPPHQGDWLRQDQGGLVPLVVHGWKH
FDVHLQLWVHQWLUHW\
,Q$XJXVWRIWKLVFRXUWYDFDWHGWKHGLVWULFWFRXUW¶V
GLVPLVVDO RI %URZQ¶V UHWDOLDWLRQ FODLP DQG UHPDQGHG IRU
IXUWKHUSURFHHGLQJVDIWHUFRQFOXGLQJWKDW%URZQKDGDOOHJHG
IDFWVVXIILFLHQWWRVWDWHDYLDEOHFODLPXQGHUWKHVWDQGDUGVHW
IRUWKLQ7KDGGHXV;Y%ODWWHU)G WK&LU
HQEDQF 7KHGLVWULFWFRXUW¶VMXGJPHQWZDVDIILUPHG
LQDOORWKHUUHVSHFWV%URZQY&URZOH\1R
:/ WK &LU $XJ XQSXEOLVKHG WDEOH
GHFLVLRQ
$IWHU WKH FDVH ZDV UHPDQGHG WKH WZR UHPDLQLQJ
GHIHQGDQWV:DUGHQ&URZOH\DQG&DVH0DQDJHU/HVDW]ILOHG
DQ DQVZHU WR %URZQ¶V FRPSODLQW ,Q WKHLU DQVZHU WKH
GHIHQGDQWV UDLVHG WKH DIILUPDWLYH GHIHQVH RI ³LPPXQLW\´
%URZQVXEVHTXHQWO\ILOHGDPRWLRQWRDPHQGKLVFRPSODLQWWR
DGGILYHGHIHQGDQWV2Q-DQXDU\WKHGHIHQGDQWV
ILOHGDPRWLRQIRUGLVPLVVDORUIRUVXPPDU\MXGJPHQW,Q
WKHLU PRWLRQ KRZHYHU WKH GHIHQGDQWV GLG QRW DUJXH IRU
GLVPLVVDORUVXPPDU\MXGJPHQWRQWKHJURXQGRITXDOLILHG
LPPXQLW\
7KH PDJLVWUDWH MXGJH UHFRPPHQGHG WKDW WKH GHIHQGDQWV¶
PRWLRQIRUVXPPDU\MXGJPHQWEHJUDQWHGRQWKHEDVLVWKDW
%URZQKDGIDLOHGWRHVWDEOLVKDOORIWKHUHTXLUHGHOHPHQWVRI
D UHWDOLDWLRQ FODLP 2YHU %URZQ¶V REMHFWLRQV WKH GLVWULFW
FRXUW DGRSWHG WKH PDJLVWUDWH MXGJH¶V 5HSRUW DQG
5HFRPPHQGDWLRQ%URZQ¶VPRWLRQWRDPHQGKLVFRPSODLQW
ZDVWKHQGHQLHGDVPRRW1HLWKHUWKHPDJLVWUDWHMXGJHQRU
WKHGLVWULFWFRXUWDGGUHVVHGWKHLVVXHRITXDOLILHGLPPXQLW\LQ
JUDQWLQJWKHGHIHQGDQWV¶PRWLRQIRUVXPPDU\MXGJPHQW7KLV
WLPHO\DSSHDOIROORZHG

-- 7 of 24 --

%URZQY&URZOH\HWDO 1R
,,$1$/<6,6
$ 5HWDOLDWLRQFODLP
2Q DSSHDO %URZQ DUJXHV WKDW WKH GLVWULFW FRXUW HUUHG LQ
JUDQWLQJ VXPPDU\ MXGJPHQW WR WKH GHIHQGDQWV RQ KLV
UHWDOLDWLRQ FODLP $ GLVWULFW FRXUW¶V JUDQW RI VXPPDU\
MXGJPHQWLVUHYLHZHGGHQRYR+ROORZD\Y%UXVK)G
WK&LU 6XPPDU\MXGJPHQWLVSURSHUZKHUH
QRJHQXLQHLVVXHRIPDWHULDOIDFWH[LVWVDQGWKHPRYLQJSDUW\
LVHQWLWOHGWRMXGJPHQWDVDPDWWHURIODZ)HG5&LY3
F ,QFRQVLGHULQJVXFKDPRWLRQWKHFRXUWPXVWYLHZWKH
HYLGHQFHDQGGUDZDOOUHDVRQDEOHLQIHUHQFHVLQIDYRURIWKH
QRQPRYLQJ SDUW\ 0DWVXVKLWD (OHF ,QGXV &R Y =HQLWK
5DGLR&RUS86 7KHFHQWUDOLVVXHLV
³ZKHWKHUWKHHYLGHQFHSUHVHQWVDVXIILFLHQWGLVDJUHHPHQWWR
UHTXLUHVXEPLVVLRQWRDMXU\RUZKHWKHULWLVVRRQHVLGHGWKDW
RQH SDUW\ PXVW SUHYDLO DV D PDWWHU RI ODZ´ $QGHUVRQ Y
/LEHUW\/REE\,QF86
7KLVFRXUWKDVKHOGWKDWUHWDOLDWLRQDJDLQVWDSULVRQHUEDVHG
XSRQ KLV H[HUFLVH RI D FRQVWLWXWLRQDO ULJKW YLRODWHV WKH
&RQVWLWXWLRQ 7KDGGHXV; )G DW KROGLQJ WKDW
JHQXLQHLVVXHVRIPDWHULDOIDFWSUHFOXGHGVXPPDU\MXGJPHQW
RQDUHWDOLDWLRQFODLPLQYROYLQJDSULVRQHU¶VULJKWRIDFFHVVWR
WKHFRXUWV $UHWDOLDWLRQFODLPKDVWKUHHHOHPHQWV
WKHSODLQWLIIHQJDJHGLQSURWHFWHGFRQGXFW
DQDGYHUVHDFWLRQZDVWDNHQDJDLQVWWKHSODLQWLIIWKDW
ZRXOG GHWHU D SHUVRQ RI RUGLQDU\ ILUPQHVV IURP
FRQWLQXLQJWRHQJDJHLQWKDWFRQGXFWDQG
WKHUHLVDFDXVDOFRQQHFWLRQEHWZHHQHOHPHQWVRQH
DQGWZR²WKDW LV WKHDGYHUVHDFWLRQZDVPRWLYDWHGDW
OHDVWLQSDUWE\WKHSODLQWLII¶VSURWHFWHGFRQGXFW
,GDW,IWKHSULVRQHULVDEOHWRSURYHWKDWKLVH[HUFLVHRI
WKHSURWHFWHGULJKWZDVDVXEVWDQWLDORUPRWLYDWLQJIDFWRULQ
WKHGHIHQGDQW¶VDOOHJHGUHWDOLDWRU\FRQGXFWWKHEXUGHQVKLIWV
WRWKH GHIHQGDQWWRVKRZWKDWWKHVDPHDFWLRQZRXOGKDYH
EHHQWDNHQHYHQDEVHQWWKHSURWHFWHGFRQGXFW,GDW
1R %URZQY&URZOH\HWDO
, DJDLQ QRWH KRZHYHU WKDW QRWKLQJ LQ WKH KHDULQJ UHSRUW RU
HOVHZKHUH LQ WKH UHFRUG FDOOV LQWR TXHVWLRQ 'HIHQGDQWV¶ GHWHUPLQDWLRQ WKDW
%URZQ¶V DFFXVDWLRQV RI HPEH]]OHPHQW ZHUH IDOVH
'HIHQGDQWV¶GHWHUPLQDWLRQWKDW%URZQVKRXOGEHGLVFLSOLQHG
IRUPDNLQJIDOVHFODLPVRIHPEH]]OHPHQW
7KLV FRQFOXVLRQ KRZHYHU RQFH DJDLQ UXQV DIRXO RI RXU
SUHFHGHQWV/HWXVDVVXPHIRUWKHPRPHQWWKDWWKHILQGLQJV
DW WKH PLVFRQGXFW KHDULQJ HVWDEOLVK WKDW 'HIHQGDQWV ZHUH
PLVWDNHQLQEHOLHYLQJWKDW%URZQKDGPDGHIDOVHFODLPV
(YHQ VR LQ DVVHVVLQJ WKH IDFWXDO EDVLV IRU D GHIHQGDQW¶V
DFWLRQZHGRQRWUHTXLUHWKDWWKHGHIHQGDQW¶VEHOLHIXOWLPDWHO\
SURYHFRUUHFWE\REMHFWLYHPHDVXUHVEXWRQO\WKDWWKLVEHOLHI
EH ³KRQHVWO\ KHOG´ DQG UHDVRQDEO\ EDVHG XSRQ WKH
³SDUWLFXODUL]HGIDFWV´EHIRUHWKHGHIHQGDQWDWWKHWLPHRIWKH
FKDOOHQJHGDFWLRQ6PLWKY&KU\VOHU&RUS)G
WK&LU 7KHUDWLRQDOHEHKLQGWKLVYDULDQWRI
WKH ³KRQHVW EHOLHI´ UXOH LV VLPSOH ³,I WKH >GHIHQGDQW@
KRQHVWO\DOEHLWPLVWDNHQO\EHOLHYHVLQWKHQRQ>UHWDOLDWRU\@
UHDVRQ LW UHOLHG XSRQ LQ PDNLQJ LWV GHFLVLRQ WKHQ WKH
>GHIHQGDQW@DUJXDEO\ODFNVWKHQHFHVVDU\>UHWDOLDWRU\@LQWHQW´
)GDW
'HIHQGDQWV HDVLO\ VDWLVI\ WKLV VWDQGDUG DQG %URZQ KDV
SURGXFHGQRHYLGHQFHWRVXJJHVWRWKHUZLVH$VLQGLFDWHGLQ
-RKQVRQ¶V VWDWHPHQW DQG LQ WKH PLVFRQGXFW FKDUJH LWVHOI
%URZQ¶V DOOHJDWLRQV RI FULPLQDO HPEH]]OHPHQW E\ SULVRQ
RIILFLDOV ZHUH LQYHVWLJDWHG E\ 0'2&¶V ,QWHUQDO $IIDLUV
VHFWLRQDQGIRXQGWREHZLWKRXWPHULW 6HH-$DW
7KLVLQYHVWLJDWLRQDQGLWVILQGLQJVSURYLGHWKHUHTXLVLWH
³SDUWLFXODUL]HG IDFWV´ WKDW UHQGHU 'HIHQGDQWV¶ VWDWHG EHOLHI
³KRQHVWO\KHOG´7RWKLVGD\WKHUHDUHQRIDFWVEHIRUHXVWKDW
ZRXOGVXSSRUWDGLIIHUHQWFRQFOXVLRQ
(YHQ DV WR %URZQ¶V EURDGHU DQG OHVV LQIODPPDWRU\
FRPSODLQWWKDWKLVSULVRQDFFRXQWKDGEHHQRYHUFKDUJHGWKH
UHFRUG UHIOHFWV WKDW SULVRQ RIILFLDOV FRQGXFWHG D GLOLJHQW
LQYHVWLJDWLRQRIWKLVFRPSODLQWEXWWKDWWKLVHIIRUWZDVPDGH
PRUHGLIILFXOWE\%URZQ¶VIUHTXHQWWUDQVIHUVIURPRQHIDFLOLW\

-- 8 of 24 --

%URZQY&URZOH\HWDO 1R
$OWHUQDWLYHO\ DV VXJJHVWHG HDUOLHU WKLV LVVXH FRXOG EH IUDPHG DV DQ
LQTXLU\ ZKHWKHU %URZQ KDV ³SURGXFH>G@ VXIILFLHQW HYLGHQFH IURP ZKLFK
DQ LQIHUHQFH FRXOG EH GUDZQ WKDW WKH DGYHUVH DFWLRQ ZRXOG QRW KDYH EHHQ
WDNHQ LQ WKH DEVHQFH RI WKH SURWHFWHG FRQGXFW´ :HLJHO Y %DSWLVW +RVS
)G WK &LU LQWHUQDO TXRWDWLRQV DQG FLWDWLRQ
RPLWWHG 7R WKH OLPLWHG H[WHQW WKDW WKH PDMRULW\ RSLQLRQ DOOXGHV WR WKLV
LVVXH LW LPSURSHUO\ VKLIWV WKH EXUGHQ RI SURRI IURP %URZQ WR 'HIHQGDQWV
7KH PDMRULW\ FRQFHGHV WKDW -RKQVRQ¶V VWDWHPHQW DQG RWKHU PDWHULDOV LQ WKH
UHFRUG DUH ³UHOHYDQW´ WR WKH TXHVWLRQ ZKHWKHU 'HIHQGDQWV ZRXOG KDYH
WDNHQ WKH VDPH DFWLRQ LQ WKH DEVHQFH RI DQ\ SURWHFWHG FRQGXFW 0DMRULW\
2S DW <HW GHVSLWH 'HIHQGDQWV¶ PRGHVW EXUGHQ RI SURGXFWLRQ RQ WKLV
SRLQW WKH PDMRULW\ FRQFOXGHV WKDW 'HIHQGDQWV KDYH QRW ³HVWDEOLVK>HG@ DV
D PDWWHU RI ODZ WKDW WKHUH ZDV QR FDXVDO FRQQHFWLRQ EHWZHHQ WKH SURWHFWHG
FRQGXFW DQG WKH DGYHUVH DFWLRQ´ ,G
'HIHQGDQWV DUH QRW REOLJHG WR SURYH WKLV SRLQW 5DWKHU RQFH WKH\
KDYH SURGXFHG HYLGHQFH WKDW GHQLHV WKH UHTXLVLWH FDXVDO FRQQHFWLRQ ² DV
WKH\ XQGRXEWHGO\ KDYH GRQH WKURXJK -RKQVRQ¶V VWDWHPHQW DQG RWKHUZLVH
² LW LV %URZQ¶V EXUGHQ WR LGHQWLI\ HYLGHQFH WKDW ZRXOG SHUPLW D WULHU RI
IDFW WR UHMHFW 'HIHQGDQWV¶ VWDWHG PRWLYH DV D PHUH SUHWH[W IRU XQODZIXO
UHWDOLDWLRQ
HPEH]]OHPHQW²%URZQWKHQ³EHDUVWKHXOWLPDWHEXUGHQRI
SURYLQJWKDWWKHSURIIHUHGUHDVRQIRUWKH>PLVFRQGXFWFKDUJH@
ZDV PHUHO\ D SUHWH[W´ IRU UHWDOLDWLRQ 3HQQ\ )G DW
$SODLQWLIIJHQHUDOO\HVWDEOLVKHVSUHWH[WWKURXJKRQHRI
WKUHHURXWHVVKRZLQJHLWKHU L WKDWWKHGHIHQGDQW¶VSURIIHUHG
UHDVRQ KDV QR EDVLV LQ IDFW LL WKDW WKLV UHDVRQ GLG QRW
DFWXDOO\ PRWLYDWH WKH GHIHQGDQW¶V DFWLRQ RU LLL WKDW WKLV
UHDVRQZDVLQVXIILFLHQWWRPRWLYDWHWKHGHIHQGDQW¶VDFWLRQ
:HLJHO)GDW
,KDYHDOUHDG\H[SODLQHGZK\LQP\YLHZWKHRXWFRPHRI
WKHPLVFRQGXFWKHDULQJWHOOVXVQRWKLQJDERXW'HIHQGDQWV¶
DFWXDOPRWLYDWLRQDQGWKHUHFRUGFRQWDLQVQRWKLQJ EHDULQJ
XSRQ WKH VXIILFLHQF\ RI WKLV PRWLYDWLRQ ² %URZQ KDV QRW
VXJJHVWHG IRU H[DPSOH WKDW RWKHU SULVRQHUV KDYH PDGH
FRPSDUDEOH IDOVH FRPSODLQWV \HW QRW EHHQ FLWHG IRU
PLVFRQGXFW7KLVOHDYHV%URZQDQGWKHPDMRULW\WRUHO\RQ
WKHILUVWIRUPRISUHWH[W7KHPDMRULW\DSSDUHQWO\FRQFOXGHV
DJDLQRQWKHEDVLVRIWKHILQGLQJVDWWKHPLVFRQGXFWKHDULQJ
WKDW LVVXHV RI IDFW UHPDLQ DV WR WKH IDFWXDO EDVLV IRU
1R %URZQY&URZOH\HWDO
7KHGHIHQGDQWVDUJXHWKDWWKH7KDGGHXV;VWDQGDUGGRHV
QRW DSSO\ WR WKLV FDVH EHFDXVH WKH LQFLGHQWV LQ TXHVWLRQ
RFFXUUHGEHIRUH0DUFKWKHGDWHRQZKLFK7KDGGHXV
;ZDVGHFLGHG,QVWHDGWKH\PDLQWDLQWKDWZHVKRXOGDSSO\
WKH ³VKRFNV WKH FRQVFLHQFH´ VWDQGDUG LQ DQDO\]LQJ WKHLU
GHIHQVH RI TXDOLILHG LPPXQLW\ 8QGHU WKLV VWDQGDUG WKH
SULVRQHU KDV WR ³HVWDEOLVK μDQ HJUHJLRXV DEXVH RI
JRYHUQPHQWDO SRZHU¶ RU EHKDYLRU WKDW μVKRFNV WKH
FRQVFLHQFH¶´ DV D SUHUHTXLVLWH WR UHFRYHU\ +HUURQ Y
+DUULVRQ)G WK&LU
:HQHHGQRWDGGUHVVWKLVDUJXPHQWKRZHYHUEHFDXVHWKH
GHIHQGDQWVGLGQRWUDLVHWKHDIILUPDWLYHGHIHQVHRITXDOLILHG
LPPXQLW\LQWKHLUPRWLRQIRUVXPPDU\MXGJPHQW$OWKRXJK
WKHGHIHQGDQWVSUHVHUYHGWKHGHIHQVHLQWKHLUILUVWUHVSRQVLYH
SOHDGLQJDQGLQWKHLUDQVZHUWR%URZQ¶VFRPSODLQWWKH\GLG
QRW SXUVXH WKLV DUJXPHQW EHIRUH WKH GLVWULFW FRXUW LQ WKH
PRWLRQIRUVXPPDU\MXGJPHQWWKDWWKH\ILOHGDIWHUWKHFDVH
ZDVUHPDQGHG7KH6HYHQWK&LUFXLWKDVH[SODLQHGWKDWHYHQ
LI D GHIHQGDQW KDV ³UDLVHG´ WKH DIILUPDWLYH GHIHQVH LQ D
UHVSRQVLYHSOHDGLQJ³WKHGHIHQVHRITXDOLILHGLPPXQLW\PD\
EH GHHPHGDVZDLYHGLIQRWSURSHUO\DQGWLPHO\SUHVHQWHG
EHIRUHWKHGLVWULFWFRXUW´:DOVKY0HOODV)G
WK&LU ³>7@KHFDVHVKROGLQJWKDWDQRPLVVLRQRIWKLV
FKDUDFWHUFRQVWLWXWHVDZDLYHURIWKHULJKWWRSUHVHQWWKDWLVVXH
RQDSSHDODUHOHJLRQ´,GDW ³7KHPHUHIDFWWKDWDQ
REVFXUHUHIHUHQFHWR>DQDIILUPDWLYHGHIHQVH@LVFRQWDLQHGLQ
RQHRIWKHGHIHQGDQWV¶SOHDGLQJVGRHVQRWVXIILFHWRSUHVHUYH
WKDWLVVXHIRUDSSHDO´ :HILQGWKLVUHDVRQLQJSHUVXDVLYH
6HH-&:\FNRII $VVRFV,QFY6WDQGDUG)LUH,QV&R
)G WK&LU ³,VVXHVQRWSUHVHQWHGWR
WKHGLVWULFWFRXUWEXWUDLVHGIRUWKHILUVWWLPHRQDSSHDODUHQRW
SURSHUO\EHIRUHWKHFRXUW´ :HZLOOQRWWKHUHIRUHDGGUHVV
WKHGHIHQGDQWV¶DUJXPHQWWKDWWKH\KDYHTXDOLILHGLPPXQLW\
IURP%URZQ¶VFODLP
2QWKHRWKHUKDQGDVZHGLVFXVVEHORZWKHMXGJPHQWRI
WKHGLVWULFWFRXUWPXVWEHYDFDWHGDQGWKHFDVHUHPDQGHGIRU
IXUWKHU SURFHHGLQJV EHFDXVH WKH GLVWULFW FRXUW HUUHG LQ LWV
DSSOLFDWLRQ RI WKH ODZ WR %URZQ¶V UHWDOLDWLRQ FODLP 7KH

-- 9 of 24 --

%URZQY&URZOH\HWDO 1R
GHIHQGDQWV ZLOO WKXV EH IUHH WR UHDVVHUW WKHLU LPPXQLW\
GHIHQVHVLQWKHGLVWULFWFRXUW6HH(QJOLVKY'\NH)G
WK&LU H[SODLQLQJWKDWDZDLYHURIDQ
RIILFLDOLPPXQLW\GHIHQVH³QHHGQRWZDLYHWKHGHIHQVHIRUDOO
SXUSRVHVEXWZRXOGJHQHUDOO\RQO\ZDLYHWKHGHIHQVHIRUWKH
VWDJHDWZKLFKWKHGHIHQVHVKRXOGKDYHEHHQDVVHUWHG´
³>(@YHU\FRQVLGHUDWLRQWKDWFODVVLFDOO\VXSSRUWVWKHODZ¶V
RUGLQDU\UHPDQGUHTXLUHPHQWGRHVVRKHUH´,16Y9HQWXUD
BB6&WBB1R:/DW 1RY
SHUFXULDP OLVWLQJDPRQJWKRVHFRQVLGHUDWLRQVWKH
SRLQWV WKDW WKH ORZHUOHYHO GHFLVLRQPDNHU FDQ ³EULQJ LWV
H[SHUWLVH WR EHDU XSRQ WKH PDWWHU LW FDQ HYDOXDWH WKH
HYLGHQFHLWFDQPDNHDQLQLWLDOGHWHUPLQDWLRQDQGLQGRLQJ
VRLWFDQWKURXJKLQIRUPHGGLVFXVVLRQDQGDQDO\VLVKHOSD
>KLJKHU@ FRXUW ODWHU GHWHUPLQH ZKHWKHU LWV GHFLVLRQ´ LV
DSSURSULDWH %\ IRUFLQJ WKH GHIHQGDQWV WR SUHVHQW WKH
TXDOLILHGLPPXQLW\GHIHQVHWRWKHGLVWULFWFRXUWLQWKHILUVW
LQVWDQFHZHHQVXUHWKDWDQ\IXWXUHDSSHDOLQWKLVFDVHZLOO
KDYHWKHEHQHILWRIWKHGLVWULFWFRXUW¶VDQDO\VLVRIWKHLVVXHV
UHODWLQJWRWKHGHIHQVH:HDUHDWDGLVDGYDQWDJHJHQHUDOO\
ZKHQ ZH DGGUHVV RQ DSSHDO DQ LVVXH WKDW ZDV VR WHUVHO\
SUHVHQWHGWRWKHGLVWULFWFRXUW'LVWULFWFRXUWVDUHIDUPRUH
IDPLOLDU ZLWK WKH IDFWXDO UHFRUG LQ WKHLU FDVHV WKDQ DUH WKH
FRXUWV RI DSSHDOV DQG WKLV NQRZOHGJH FDQ JHQHUDWH XVHIXO
LQVLJKWVLQWRWKHLVVXHVVXUURXQGLQJTXDOLILHGLPPXQLW\%\
GHFOLQLQJWRFRQVLGHUTXDOLILHGLPPXQLW\GHIHQVHVRQDSSHDO
WKDW ZHUH QRW UDLVHG SURSHUO\ EHIRUH WKH GLVWULFW FRXUW
PRUHRYHUZHPLJKWHQFRXUDJHIXWXUHGHIHQGDQWVWRSURSHUO\
UDLVHWKLVGHIHQVHDWWKHGLVWULFWFRXUWOHYHO
7KHGLVVHQWQHYHUWKHOHVVODPHQWVRXUUHVWUDLQWLQGHFOLQLQJ
WRUHDFKWKHLVVXHRITXDOLILHGLPPXQLW\LQWKLVSDUWLFXODUFDVH
³ZKHUH WKLV LPPXQLW\ LV FHUWDLQ WR EH FRQIHUUHG XSRQ
UHPDQG´'LVVHQWLQJ2SDW:HGRQRWVKDUHWKHGLVVHQW¶V
FHUWDLQW\ RI RXWFRPH )LUVW LW LV IDU IURP FOHDU WKDW WKH
GHIHQGDQWVDUHFRUUHFWLQXUJLQJWKHLUHQWLWOHPHQWWRLPPXQLW\
XQGHU WKH ³VKRFNV WKH FRQVFLHQFH´ VWDQGDUG 6HH %HOO Y
-RKQVRQBB)GBB1R:/DW
WK&LU2FW ³7KXVDIWHU*LEEV>Y+RSNLQV
1R %URZQY&URZOH\HWDO
SURGXFHGLQVXSSRUWRIKLVDOOHJDWLRQVRU LLL NQRZLQJO\DQG
GHOLEHUDWHO\ORGJHGDIDOVHFKDUJHDJDLQVW%URZQLQUHWDOLDWLRQ
IRU KLV ILOLQJ RI JULHYDQFHV DQG FRPSODLQWV DJDLQVW WKHP
2QO\WKHODVWRIWKHVHK\SRWKHVHVRIFRXUVHZRXOGVXVWDLQ
%URZQ¶VFODLPRIUHWDOLDWLRQEXWWKHWULHURIIDFWFRXOGQRW
SHUPLVVLEO\GUDZWKLVLQIHUHQFHXQOHVVDQGXQWLOSUHVHQWHG
ZLWKHYLGHQFHWKDWWHQGV WRFRXQWHU-RKQVRQ¶VH[SUHVVDQG
VWLOOXQFKDOOHQJHG VWDWHPHQW RI KLV ODZIXO QRQUHWDOLDWRU\
PRWLYH IRU LQVWUXFWLQJ WKDW %URZQ EH FKDUJHG ZLWK
PLVFRQGXFW
,QGHHG WKH FDVH ODZ GHPRQVWUDWHV LQ P\ YLHZ WKDW WKH
KHDULQJRIILFHU¶VILQGLQJVFDQQRWEHDUWKHHYLGHQWLDU\ZHLJKW
WKDW WKH PDMRULW\ SODFHV XSRQ WKHP ,Q DSSO\LQJ WKH
³SURWHFWHGFRQGXFW´SURQJRI7KDGGHXV;IRUH[DPSOHZH
KDYHH[SODLQHGWKDWDSULVRQHU¶VFODLP³QHHGQRWEHVXFFHVVIXO
WREHQRQIULYRORXV´DQGWKDWVXFKDFODLPLVSURWHFWHGVR
ORQJDVLWLV³DUJXDEOH´6HH%HOO)GDWQ FLWLQJ
/HZLVY&DVH\86 QQ6&W
QQ %\ WKH VDPH ORJLF WKH
KHDULQJ RIILFHU¶V GLVPLVVDO RI %URZQ¶V PLVFRQGXFW FKDUJH
DIWHUDKHDULQJRQWKHPHULWVVD\VQRWKLQJDERXWZKHWKHUWKH
FKDUJHKDGDUJXDEOHPHULWZDVIULYRORXVRUZDVEURXJKWLQ
EDGIDLWKSDUWLFXODUO\JLYHQWKHKHDULQJRIILFHU¶VDSSOLFDWLRQ
RIDQHOHYDWHGVWDQGDUGRISURRILQDGMXGLFDWLQJWKHFKDUJH
7KRXJK LW PLJKW ZHOO EH QHFHVVDU\ WR %URZQ¶V FODLP RI
UHWDOLDWLRQWKDWKHVHFXUHWKHDGPLQLVWUDWLYHUHYHUVDORIWKH
PLVFRQGXFWFKDUJHVHHHJ&RZDQVY:DUUHQ)G
WK&LU -DFNVRQ(OY:LQVRU)6XSS
('0LFK DII¶G)G WK&LU
WKLVDORQHLVQRWVXIILFLHQWWRUDLVHDWULDEOHLVVXHRI
IDFWDVWR'HIHQGDQWV¶PRWLYHVIRULVVXLQJWKHFKDUJH
5DWKHU , EHOLHYH WKDW WKLV LQTXLU\ LV JRYHUQHG E\ WKH
WUDGLWLRQDOVWDQGDUGVILUPO\HVWDEOLVKHGLQRXUHPSOR\PHQW
ODZGHFLVLRQVIRUDQDO\]LQJGLVSXWHVRYHUDGHIHQGDQW¶VVWDWHG
UHDVRQV IRU WDNLQJ D SDUWLFXODU DFWLRQ 'HIHQGDQWV KDYLQJ
LGHQWLILHGDODZIXOQRQUHWDOLDWRU\JURXQGIRUWKHPLVFRQGXFW
FKDUJH ² QDPHO\ WKHLU GHWHUPLQDWLRQ IROORZLQJ DQ
LQYHVWLJDWLRQ WKDW %URZQ KDG DVVHUWHG IDOVH FODLPV RI

-- 10 of 24 --

%URZQY&URZOH\HWDO 1R
ZKHWKHU WKH HYLGHQWLDU\ UHFRUG YLHZHG PRVW IDYRUDEO\ WR %URZQ ZRXOG
HQDEOH KLP WR PHHW KLV EXUGHQ RI HVWDEOLVKLQJ WKDW 'HIHQGDQWV FKDUJHG
KLP ZLWK PLVFRQGXFW QRW IRU WKH UHDVRQ VWDWHG E\ -RKQVRQ EXW UDWKHU LQ
UHWDOLDWLRQ DJDLQVW KLV H[HUFLVH RI )LUVW $PHQGPHQW ULJKWV 6HH 3HQQ\ Y
8QLWHG 3DUFHO 6HUYLFH )G WK &LU
MXGJPHQWODZRIFRXUVHWKDW%URZQFDQQRW³UHO\RQWKHKRSH
WKDWWKHWULHURIIDFWZLOOGLVEHOLHYH´-RKQVRQ¶VDFFRXQWEXW
³PXVWSUHVHQWDIILUPDWLYHHYLGHQFH´RIDUHWDOLDWRU\PRWLYH
6HH6WUHHWY-&%UDGIRUG &R)G WK
&LU LQWHUQDOTXRWDWLRQVDQGFLWDWLRQVRPLWWHG
7KHRQO\SRVVLEOHFDQGLGDWHIRUVXFK³DIILUPDWLYHHYLGHQFH´
WKDW , FDQ GLVFHUQ IURP WKH PDMRULW\ RSLQLRQ RU IURP WKH
UHFRUGDVDZKROHLVWKHGHWHUPLQDWLRQRIWKHKHDULQJRIILFHU
WKDW %URZQ¶V PLVFRQGXFW FKDUJH VKRXOG EH VHW DVLGH ,Q
SDUWLFXODUWKHPDMRULW\TXRWHVWKHKHDULQJRIILFHU¶VILQGLQJV
WKDW %URZQ ZDV ³QRW XQUHDVRQDEOH´ LQ EHOLHYLQJ WKDW KLV
SULVRQGHEWKDGDOUHDG\EHHQSDLGDQGWKDW%URZQSUREDEO\
³GLGOHJLW>L@PDWHO\WKLQN>WKDW@VRPHRQHZDVWDNLQJKLVPRQH\
DQGWKDWKLVDOOH>J@DWLRQVZHUHQRWIDOVH´ -$DW
7KHHQWLUHIRFXVRIWKHKHDULQJRIILFHU¶VLQTXLU\KRZHYHU
ZDV ZKHWKHU %URZQ ³GHOLEHUDWHO\ DQG LQWHQWLRQDOO\ ILOHG D
IDOVHFODLPZLWKWKHVSHFLILFSXUSRVHRIPLVOHDGLQJ´SULVRQ
RIILFLDOVRU³KDYLQJVWDIIGLVFLSOLQHG´ ,G
7KHKHDULQJUHSRUWFRQVHTXHQWO\VHHPVDSRRUSODFHWR
ORRN IRU HYLGHQFH RI 'HIHQGDQWV¶ PRWLYDWLRQ LQ FKDUJLQJ
%URZQZLWKPLVFRQGXFW7KHPRVWWKDWFDQEHVDLGIURPWKLV
GRFXPHQW LV WKDW 'HIHQGDQWV IDLOHG WR SURYH ² WR WKH
VDWLVIDFWLRQ RI WKH KHDULQJ RIILFHU DW OHDVW DQG XQGHU WKH
³KLJKHUEXUGHQRISURRI´LPSRVHGE\WKHRIILFHU LG ²WKDW
%URZQKDGLQWHQWLRQDOO\ILOHGDIDOVHFODLPIRUDQLPSURSHU
SXUSRVH7KLVVD\VQRWKLQJDERXWZK\'HIHQGDQWVDFFXVHG
%URZQ RI WKLV PLVFRQGXFW LQ WKH ILUVW LQVWDQFH )URP WKH
KHDULQJUHSRUWDORQHRQHFRXOGHTXDOO\ZHOOVSHFXODWHIRU
H[DPSOH WKDW 'HIHQGDQWV L KRQHVWO\ EHOLHYHG DIWHU D
WKRURXJK LQYHVWLJDWLRQ WKDW %URZQ¶V DOOHJDWLRQV RI
HPEH]]OHPHQWZHUHNQRZLQJO\IDOVH LL DUULYHGDWWKLVEHOLHI
RQO\WKURXJKDFDUHOHVVGLVUHJDUGIRUWKHUHFRUGV%URZQKDG
1R %URZQY&URZOH\HWDO
)G WK &LU @ ZH WKLQN LW FOHDU WKDW DQ
LQPDWH¶V )LUVW $PHQGPHQW UHWDOLDWLRQ FODLP ZRXOG EH
DVVHVVHG DFFRUGLQJ WR WKH VDPH VWDQGDUGV DSSOLHG WR VXFK
FODLPV LQ WKH RWKHU FRQWH[WV UDWKHU WKDQ WKH μVKRFN WKH
FRQVFLHQFH¶VWDQGDUGDSSOLFDEOHWRVXEVWDQWLYHGXHSURFHVV
FODLPV´ (YHQ DSSO\LQJ WKH VWDQGDUG XUJHG E\ WKH
GHIHQGDQWV PRUHRYHU WKLV FRXUW KDV KHOG WKDW D SODLQWLII
LQPDWHDOOHJHGIDFWVVKRZLQJDFRQVFLHQFHVKRFNLQJDEXVHRI
SRZHUZKHUHKHDVVHUWHGWKDWSULVRQJXDUGVPDOLFLRXVO\ILOHG
IDOVHGLVFLSOLQDU\FKDUJHVDJDLQVWKLPLQUHWDOLDWLRQIRUWKH
H[HUFLVHRIKLV)LUVW$PHQGPHQWULJKWV&DOHY-RKQVRQ
)G WK &LU %URZQ KDV DOOHJHG FHUWDLQ
VLPLODUFLUFXPVWDQFHVLQWKLVFDVH,QVKRUWLWLVIDUIURPD
IRUHJRQHFRQFOXVLRQWKDWWKHGHIHQGDQWVZLOOEHHQWLWOHGWR
TXDOLILHGLPPXQLW\XSRQUHPDQG
:HZLOOQRZSURFHHGWRGHWHUPLQHZKHWKHUWKHGHIHQGDQWV
DUHHQWLWOHGWRVXPPDU\MXGJPHQWE\DSSO\LQJWKHVWDQGDUG
WKDW WKLV FRXUW DQQRXQFHG LQ 7KDGGHXV; 7KH GHIHQGDQWV
FRQFHGHWKDW%URZQZDVHQJDJHGLQSURWHFWHGFRQGXFWZKHQ
KHFRPSODLQHGDERXWWKHDOOHJHGRYHUFKDUJHVWRKLVSULVRQ
DFFRXQW%URZQKDVWKXVHVWDEOLVKHGWKHILUVWHOHPHQWRID
UHWDOLDWLRQFODLP
8QGHU7KDGGHXV;WKHVHFRQGHOHPHQWUHTXLUHVSURRIRIDQ
DGYHUVHDFWLRQWKDWZRXOGGHWHUDSHUVRQRIRUGLQDU\ILUPQHVV
IURPFRQWLQXLQJWRHQJDJHLQWKDWFRQGXFW7KLVFRXUWKDV
H[SODLQHGWKDW³ZKLOHFHUWDLQWKUHDWVRUGHSULYDWLRQVDUHVRGH
PLQLPLV WKDW WKH\ GR QRW ULVH WR WKH OHYHO RI EHLQJ
FRQVWLWXWLRQDOYLRODWLRQVWKLVWKUHVKROGLVLQWHQGHGWRZHHG
RXWRQO\LQFRQVHTXHQWLDODFWLRQVDQGLVQRWDPHDQVZKHUHE\
VROHO\HJUHJLRXVUHWDOLDWRU\DFWVDUHDOORZHGWRSURFHHGSDVW
VXPPDU\MXGJPHQW´7KDGGHXV;)GDW
7KHGHIHQGDQWVDFNQRZOHGJHWKDWSULVRQHUVZKRDUHVXEMHFW
WR D PDMRU PLVFRQGXFW FKDUJH DUH JHQHUDOO\ WUDQVIHUUHG WR
DGPLQLVWUDWLYHVHJUHJDWLRQDQGWKDWWKLVFRXUWKDVFRQFOXGHG
WKDW SODFLQJ D SULVRQHU LQ DGPLQLVWUDWLYH VHJUHJDWLRQ LV DQ
DGYHUVHDFWLRQ+HUURQ)GDW KROGLQJWKDWEHLQJ
VHQWHQFHG WR ILYH GD\V RI DGPLQLVWUDWLYH VHJUHJDWLRQ

-- 11 of 24 --

%URZQY&URZOH\HWDO 1R
FRQVWLWXWHVDQDGYHUVHDFWLRQ 7KDGGHXV;)GDW
³,QWKHSULVRQFRQWH[WDQDFWLRQFRPSDUDEOHWRWUDQVIHUWR
DGPLQLVWUDWLYH VHJUHJDWLRQ ZRXOG FHUWDLQO\ EH DGYHUVH´
7KH\ SRLQW RXW KRZHYHU WKDW %URZQ ZDV DOUHDG\ LQ
DGPLQLVWUDWLYH VHJUHJDWLRQ ZKHQ KH ZDV LVVXHG WKH PDMRU
PLVFRQGXFWFKDUJH7KHGHIHQGDQWVWKHUHIRUHFRQWHQGWKDWKH
GLGQRWVXIIHUDQDGYHUVHDFWLRQ
$OWKRXJK%URZQZDVDOUHDG\LQDGPLQLVWUDWLYHVHJUHJDWLRQ
DQG D KHDULQJ RIILFHU XOWLPDWHO\ IRXQG KLP QRW JXLOW\ WKH
LVVXDQFHRIWKHPDMRUPLVFRQGXFWFKDUJHVXEMHFWHGKLPWRWKH
ULVN RI VLJQLILFDQW VDQFWLRQV 0LFK $GPLQ &RGH 5
OLVWLQJ WKH VDQFWLRQV WKDW D KHDULQJ RIILFHU LV
DOORZHGWRLPSRVHRQDSULVRQHUZKRLVIRXQGJXLOW\RIPDMRU
PLVFRQGXFW %URZQIRUH[DPSOHFRXOGKDYHEHHQVHQWHQFHG
WR ³SXQLWLYH VHJUHJDWLRQ´ LI KH KDG EHHQ IRXQG JXLOW\ D
VDQFWLRQPRUHVHYHUHWKDQDGPLQLVWUDWLYHVHJUHJDWLRQ ,G
0LFK $GPLQ &RGH 5 GHVFULELQJ SXQLWLYH
VHJUHJDWLRQ +H DOVR FRXOG KDYH ORVW JRRGWLPH RU
GLVFLSOLQDU\ FUHGLWV HIIHFWLYHO\ LQFUHDVLQJ WKH DPRXQW RI
UHPDLQLQJWLPHWKDWKHZDVUHTXLUHGWRVHUYH0LFK&RPS
/DZV† 0LFK$GPLQ&RGH5 E $
UHDVRQDEOHMXU\FRXOGFRQFOXGHWKDWEHLQJVXEMHFWHGWRWKHULVN
RIVXFKVHYHUHVDQFWLRQVIRUUDLVLQJDOHJLWLPDWHFRPSODLQW
³ZRXOGGHWHUDSHUVRQRIRUGLQDU\ILUPQHVVIURPFRQWLQXLQJ
WRHQJDJHLQWKDW>SURWHFWHG@FRQGXFW´7KDGGHXV;)G
DWVHHDOVR&DOH)GDW UHFRJQL]LQJWKH
† FODLP RI DQ LQPDWH LQ SDUW EHFDXVH ³LQ WKLV FDVH
DSSHOODQW ZDV LQ GDQJHU RI IXUWKHU ORVV RI OLEHUW\ WKURXJK
GLVFLSOLQDU\GHWHQWLRQDQGWKURXJKWKHORVVRIJRRGWLPHFUHGLW
DV WKH UHVXOW RI WKH FKDUJHV ILOHG DJDLQVW KLP´ HPSKDVLV
DGGHG
7KH WKLUG HOHPHQW RI D UHWDOLDWLRQ FODLP LV D FDXVDO
FRQQHFWLRQEHWZHHQWKHSURWHFWHGFRQGXFWDQGWKHDGYHUVH
DFWLRQ7KLVHOHPHQWLVVDWLVILHGZKHUH³WKHDGYHUVHDFWLRQ
ZDV PRWLYDWHG DW OHDVW LQ SDUW E\ WKH SODLQWLII¶V SURWHFWHG
FRQGXFW´,GDW³2QFHWKHSODLQWLIIKDVPHWKLVEXUGHQ
RIHVWDEOLVKLQJWKDWKLVSURWHFWHGFRQGXFWZDVDPRWLYDWLQJ
IDFWRUEHKLQGDQ\KDUPWKHEXUGHQRISURGXFWLRQVKLIWVWRWKH
1R %URZQY&URZOH\HWDO
,W LV LPPDWHULDO LQ P\ MXGJPHQW ZKHWKHU RQH FRQVLGHUV -RKQVRQ¶V
VWDWHPHQW DV SDUW RI WKH ³FDXVDO FRQQHFWLRQ´ LQTXLU\ RU LQVWHDG YLHZV WKLV
VWDWHPHQW DV EHDULQJ XSRQ 'HIHQGDQWV¶ EXUGHQ RI SURGXFWLRQ RQFH %URZQ
KDV HVWDEOLVKHG WKH WKUHH HOHPHQWV RI D SULPD IDFLH FDVH RI UHWDOLDWLRQ
$VVXPLQJ WKDW %URZQ KDV PDGH RXW D SULPD IDFLH FDVH 'HIHQGDQWV WKHQ
ZRXOG KDYH WR SURGXFH HYLGHQFH WKDW WKH\ ZRXOG KDYH LVVXHG WKH
PLVFRQGXFW WLFNHW HYHQ LQ WKH DEVHQFH RI %URZQ¶V SURWHFWHG DFWLYLW\ 6HH
7KDGGHXV; )G DW -RKQVRQ¶V VWDWHPHQW VDWLVILHV WKLV EXUGHQ
RI SURGXFWLRQ ² DV QRWHG KH VWDWHG KLV EHOLHI WKDW %URZQ ZDV QRW
HQJDJHG LQ SURWHFWHG FRQGXFW PDNLQJ LW FOHDU WKDW KH ZRXOG KDYH SXUVXHG
SUHFLVHO\ WKH VDPH FRXUVH RI DFWLRQ HYHQ ³LQ WKH DEVHQFH RI´ DQ\ SURWHFWHG
FRQGXFW $W WKLV SRLQW KDYLQJ QHJRWLDWHG RXU ZD\ WKURXJK WKH LQLWLDO
EXUGHQVKLIWLQJ IUDPHZRUN ZH ZRXOG UHWXUQ WR WKH RYHUDUFKLQJ TXHVWLRQ
IULYRORXV FRPSODLQW RU ZKR H[HUFLVHV KLV ULJKW WR ILOH
JULHYDQFHV LQ D PDQQHU WKDW YLRODWHV OHJLWLPDWH SULVRQ
UHJXODWLRQVDQGREMHFWLYHVLVQRWHQJDJHGLQSURWHFWHGDFWLYLW\
DQGDSULVRQRIILFLDOGRHVQRWXQODZIXOO\UHWDOLDWHE\WDNLQJ
DFWLRQDJDLQVWVXFKXQSURWHFWHGFRQGXFW6HH6PLWK)G
DW+HUURQ)GDW-RKQVRQ¶VVWDWHGPRWLYHLV
SUHFLVHO\WKLVSHUPLVVLEOHRQH²DQGLQGHHGKHUHFRJQL]HG
WKDW LW ZRXOG QRW EH DSSURSULDWH WR WDNH DFWLRQ DJDLQVW D
OHJLWLPDWHJULHYDQFH2QLWVIDFHWKHQ-RKQVRQ¶VVWDWHPHQW
EUHDNVWKHUHOHYDQWFDXVDOFRQQHFWLRQUDWKHUWKDQVHUYLQJDV
HYLGHQFH RI LW DV WKH PDMRULW\ KROGV ,Q RWKHU ZRUGV
-RKQVRQ¶VVWDWHPHQWLQGLFDWHVWKDWKHFRXOGQRWSRVVLEO\EH
DFWLQJZLWKWKHLPSHUPLVVLEOHPRWLYHRIUHWDOLDWLQJDJDLQVW
%URZQ¶V H[HUFLVH RI )LUVW $PHQGPHQW ULJKWV EHFDXVH LQ
-RKQVRQ¶VYLHZ%URZQZDVQRWHYHQHQJDJHGLQSURWHFWHG
FRQGXFWZKHQKHDFFXVHGSULVRQRIILFLDOVRIHPEH]]OHPHQW
+HQFH LQ RUGHU WR VXUYLYH VXPPDU\ MXGJPHQW RQ WKH
³FDXVDO FRQQHFWLRQ´ HOHPHQW RI WKH 7KDGGHXV; VWDQGDUG
%URZQPXVWLGHQWLI\DJHQXLQHLVVXHRIIDFWDVWRZKHWKHU
'HIHQGDQWV ZHUH PRWLYDWHG DW OHDVW LQ SDUW E\ %URZQ¶V
SURWHFWHG FRQGXFW %URZQ PXVW PDNH WKLV VKRZLQJ
PRUHRYHULQWKHIDFHRI-RKQVRQ¶VH[SUHVVFRQWHPSRUDQHRXV
VWDWHPHQWWKDWKHZDVQRWVRPRWLYDWHGEXWLQVWHDGGLUHFWHG
WKDW %URZQ EH FKDUJHG ZLWK PLVFRQGXFW IRU HQJDJLQJ LQ
XQSURWHFWHG DFWLYLW\ WKDW ZDV GLVUXSWLYH WR WKH RUGHUO\
RSHUDWLRQRIWKHSULVRQ,WLVDIDPLOLDUSULQFLSOHRIVXPPDU\

-- 12 of 24 --

%URZQY&URZOH\HWDO 1R
0\ VWURQJHVW SRLQW RI GLVDJUHHPHQW ZLWK WKH PDMRULW\
KRZHYHU FRQFHUQV LWV DSSOLFDWLRQ RI WKH WKLUG ³FDXVDO
FRQQHFWLRQ´HOHPHQWRIWKH7KDGGHXV;WHVWWRWKHIDFWVRIWKLV
FDVH +DYLQJ VHHPLQJO\ GHWHUPLQHG WKDW DOO RI %URZQ¶V
JULHYDQFHUHODWHGDFWLYLW\LVSURWHFWHGFRQGXFWWKHPDMRULW\
KDV QR GLIILFXOW\ LQ FRQFOXGLQJ WKDW WKH PDMRU PLVFRQGXFW
FKDUJHZDVFDXVDOO\UHODWHGWRWKLVFRQGXFW$QGLQGHHGWKH
UHFRUG LV FOHDU RQ WKLV LVVXH DW OHDVW DV WKH PDMRULW\ KDV
IUDPHGLW)ROORZLQJDQ,QWHUQDO$IIDLUVLQYHVWLJDWLRQZKLFK
GHWHUPLQHGWKDW%URZQ¶VDOOHJDWLRQVRIHPEH]]OHPHQWZHUH
³ZLWKRXW PHULW´ 5HJLRQDO 3ULVRQ $GPLQLVWUDWRU 5LFKDUG
-RKQVRQUHTXHVWHGWKDWDPLVFRQGXFWWLFNHWEHLVVXHGDJDLQVW
%URZQ
:H KDYH EHHQ VHHLQJ PRUH DQG PRUH RI WKHVH IDOVH
FRPSODLQWVODWHO\:KLOH,EHOLHYHDSULVRQHUVKRXOGEH
DEOHWRILOHDOHJLWLPDWHFRPSODLQWWKH\DOVRVKRXOGEH
SXQLVKHGIRUILOLQJIDOVHFRPSODLQWV7KHUHIRUHSOHDVH
LVVXHDPDMRUPLVFRQGXFWWLFNHWWRWKHSULVRQHUUHJDUGLQJ
WKLVPDWWHU
-$DW ,ZKROHKHDUWHGO\DJUHHZLWKWKHPDMRULW\WKDW
-RKQVRQ¶VVWDWHPHQWH[SUHVVO\OLQNVWKHPLVFRQGXFWFKDUJHWR
%URZQ¶VSULRUJULHYDQFHVDQGFRPSODLQWVWRSXEOLFRIILFLDOV
FRQFHUQLQJWKHIXQGVLQKLVSULVRQDFFRXQW
&RQWUDU\WRWKHPDMRULW\¶VUHDVRQLQJKRZHYHUWKLVLVRQO\
WKHEHJLQQLQJRIWKH³FDXVDOFRQQHFWLRQ´DQDO\VLVDQGQRWWKH
HQG $Q\ WLPH D SULVRQ RIILFLDO FKDUJHV DQ LQPDWH ZLWK
PLVFRQGXFWIRUILOLQJDIDOVHFRPSODLQWWKHUHLVDQXQGHQLDEOH
FDXVDO OLQN EHWZHHQ WKH SULVRQHU¶V FRPSODLQW DQG WKH
PLVFRQGXFWFKDUJH<HWWKHUHOHYDQWFRQVLGHUDWLRQDVDOZD\V
LQ UHWDOLDWLRQ FDVHV LV ³WKH VXEMHFWLYH PRWLYDWLRQ RI WKH
GHFLVLRQPDNHU´²³WKDWLVWKHSODLQWLIIPXVWVKRZWKDWWKH
GHFLVLRQ ZDV PRWLYDWHG DW OHDVW LQ SDUW E\ WKH SODLQWLII¶V
SURWHFWHGDFWLYLW\´6PLWK)GDW
7DNLQJ 5LFKDUG -RKQVRQ DW KLV ZRUG WKLV PRWLYDWLRQ LV
ODFNLQJKHUH-RKQVRQUHTXHVWHGWKDWDPLVFRQGXFWWLFNHWEH
LVVXHG LQ OLJKW RI %URZQ¶V ³IDOVH FRPSODLQW>@´ RI
HPEH]]OHPHQW$VH[SODLQHGHDUOLHUDSULVRQHUZKRILOHVD
1R %URZQY&URZOH\HWDO
GHIHQGDQW´ ,G DW ,Q RUGHU WR SUHYDLO RQ VXPPDU\
MXGJPHQWWKHGHIHQGDQWPXVWWKHQ³VKRZWKDWKHZRXOGKDYH
WDNHQ WKH VDPH DFWLRQ LQ WKH DEVHQFH RI WKH SURWHFWHG
DFWLYLW\´,G
7KH UHFRUG LQ WKH SUHVHQW FDVH HVWDEOLVKHV WKDW 5HJLRQDO
3ULVRQ$GPLQLVWUDWRU-RKQVRQVHQWDPHPRUDQGXPWR:DUGHQ
&URZOH\ GLUHFWO\ OLQNLQJ WKH PDMRU PLVFRQGXFW FKDUJH WR
%URZQ¶V SURWHFWHG FRQGXFW $IWHU WKDW PHPRUDQGXP ZDV
UHFHLYHGWKHPDMRUPLVFRQGXFWFKDUJHZDVLVVXHGGHVSLWHWKH
IDFW WKDW SULVRQ RIILFLDOV ZHUH DZDUH WKDW DQ DFFRXQWLQJ
SUREOHPH[LVWHGUHJDUGLQJ%URZQ¶VSULVRQDFFRXQWDQGWKDW
%URZQPLJKWKDYHDYDOLGFRPSODLQW,QILQGLQJ%URZQQRW
JXLOW\RIWKHPLVFRQGXFWFKDUJHWKHKHDULQJRIILFHUVWDWHG
, ILQG WKDW EDVHG RQ WKH GRFXPHQWV WKDW SULVRQHU GLG
VXEPLWDWWKLVKHDULQJWKDWKLVSHUFHSWLRQWKDWKLVGHEWLV
SDLGRIILVQRWXQUHDVRQDEOHDWDOO3ULVRQHUHYHQVWDWHV
LQ KLV FRPSODLQWV WKDW KH KDV JULHYHG WKDW PDWWHU DQG
VSRNHQZLWKVWDIIVHYHUDOWLRPHV>VLF@DERXWWKLVPDWWHULQ
DQHIIRUWWRVKRZWKDWKHKDV>@SDLGKLVGHEWLQIXOODQG
HYHQ VKRZQ WKHP WKH GRFXPHQWV WKDW KH VKRZHG WKLV
KHDULQJRIILFHU+HDULQJRIILFHUILQGVWKDWLWLVHQWLUHO\
UHDVRQDEOH DQG SUREDEOH WKDW SULVRQHU GLG OHJLWLPDWHO\
WKLQNVRPHRQHZDVWDNLQJKLVPRQH\DQGWKDWSULVRQHU
KDGDUHDVRQDEOHEHOLHIWKDWKLVDOOHDWLRQV>VLF@ZHUHQRW
IDOVH
%DVHGXSRQWKLVHYLGHQFHZHFRQFOXGHWKDWDUHDVRQDEOHMXU\
FRXOGILQGWKDW%URZQKDVHVWDEOLVKHGWKDWWKHGHIHQGDQWV¶
DGYHUVHDFWLRQZDVPRWLYDWHGDWOHDVWLQSDUWE\KLVSURWHFWHG
FRQGXFW 7KH EXUGHQ RI SURGXFWLRQ WKHUHIRUH VKLIWV WR WKH
GHIHQGDQWV
,QKROGLQJWKDW%URZQIDLOHGWRHVWDEOLVKWKHWKLUGHOHPHQW
RIDUHWDOLDWLRQFODLPWKHGLVWULFWFRXUWHPSKDVL]HGWKDWWKH
GHIHQGDQWVSUHVHQWHGHYLGHQFHWKDWWKH\KDGLVVXHG%URZQD
PDMRU PLVFRQGXFW FKDUJH RQO\ DIWHU LQYHVWLJDWLQJ KLV
DOOHJDWLRQDQGFRQFOXGLQJWKDWLWZDVPHULWOHVV7KHGLVWULFW
FRXUWWKXVFRQFOXGHGWKDW³>L@WLVFOHDUWKDWGHIHQGDQWVLVVXHG
WKHPLVFRQGXFWWLFNHWVROHO\EHFDXVHWKH\EHOLHYHGSODLQWLII

-- 13 of 24 --

%URZQY&URZOH\HWDO 1R
DFWHGLPSURSHUO\DQGPDGHIDOVHDOOHJDWLRQV´$OWKRXJKWKH
HYLGHQFH SUHVHQWHG E\ WKH GHIHQGDQWV LV UHOHYDQW WR WKH
TXHVWLRQRIZKHWKHUWKH\³ZRXOGKDYHWDNHQWKHVDPHDFWLRQ
LQWKHDEVHQFHRIWKHSURWHFWHGDFWLYLW\´LWLVQRWVXIILFLHQWWR
HVWDEOLVK DV D PDWWHU RI ODZ WKDW WKHUH ZDV QR FDXVDO
FRQQHFWLRQEHWZHHQ WKH SURWHFWHGFRQGXFWDQGWKHDGYHUVH
DFWLRQ7KHGLVWULFWFRXUWWKHUHIRUHHUUHGLQFRQFOXGLQJWKDWQR
JHQXLQH LVVXH RI PDWHULDO IDFW H[LVWV UHJDUGLQJ WKH WKLUG
HOHPHQWRI%URZQ¶VUHWDOLDWLRQFODLP
$FODVVLF³SDUDGHRIKRUULEOHV´LVSUHVHQWHGE\WKHGLVVHQW
EHFDXVHRIRXUFRQFOXVLRQZKLFKVXSSRVHGO\³ZLOOUHVXOWLQ
VWULFWOLDELOLW\²RUDWOHDVWDWULDEOHIDFWXDOLVVXH²ZKHQHYHU
DSULVRQRIILFLDOFLWHVDSULVRQHUIRUPLVFRQGXFWDQGWKHFKDUJH
LVVXEVHTXHQWO\VHWDVLGH´'LVVHQWLQJ2SDW:KDWWKLV
FULWLTXHPLVVHVLVWKDWZHDUHKHUHFRQFHUQHGZLWKDOOHJDWLRQV
RI SULVRQ RIILFLDOV UHWDOLDWLQJ DJDLQVW DQ LQPDWH IRU WKH
H[HUFLVH RI KLV )LUVW $PHQGPHQW ULJKWV QRW ZLWK SULVRQHU
PLVFRQGXFWJHQHUDOO\&I:ULJKWY1HZVRPH)G
WK&LU FRQFOXGLQJWKDWWKHSODLQWLIILQPDWHKDG
³DOOHJHGIDFWVEULQJLQJDFWLRQVWKDWPLJKWQRWRWKHUZLVHEH
RIIHQVLYHWRWKH&RQVWLWXWLRQVXFKDVWKHVHDUFKLWVHOIRUWKH
FRQILVFDWLRQDQGGHVWUXFWLRQRI>OHJDODQG@QRQOHJDOPDWHULDOV
ZLWKLQWKHVFRSHRIWKH&RQVWLWXWLRQE\DOOHJLQJWKDWWKH
DFWLRQV ZHUH WDNHQ LQ UHWDOLDWLRQ IRU ILOLQJ ODZVXLWV DQG
DGPLQLVWUDWLYHJULHYDQFHV´
7KHGLVVHQWFRQWHQGVWKDW³DSULVRQRIILFLDOGRHVQRWDEXVH
KLVSRVLWLRQRIDXWKRULW\PHUHO\E\LQYRNLQJDFRQYHQWLRQDO
DGPLQLVWUDWLYH SURFHGXUH IRU VDQFWLRQLQJ SULVRQHU
PLVFRQGXFW´ 'LVVHQWLQJ 2S DW 7KLV LV DFFXUDWH DV D
JHQHUDOVWDWHPHQWRIWKHODZEXWLWKDVOLWWOHDSSOLFDWLRQWRWKH
IDFWVRIWKLVFDVHZKHUHWKHUHZDVQRPLVFRQGXFW$OO%URZQ
GLGZDVILOHQRQIULYRORXVJULHYDQFHVDQGZULWHDOHWWHUWRWKH
SROLFH DVNLQJ WKHP WR LQYHVWLJDWH SULVRQ RIILFLDOV IRU
HPEH]]OHPHQWZKHQDFFRUGLQJWRWKHKHDULQJRIILFHUKH³GLG
OHJLWLPDWHO\WKLQNVRPHRQHZDVWDNLQJKLVPRQH\´2QWKH
IDFWVDVDOOHJHGE\WKHSODLQWLIIWKHGHIHQGDQWVDQGWKHGLVVHQW
VHHPWRKDYHIRUJRWWHQWKHFKLOGKRRGGRJJHUHOWKDW³VWLFNV
DQGVWRQHVZLOOEUHDNP\ERQHVEXWZRUGVZLOOQHYHUKXUW
1R %URZQY&URZOH\HWDO
8QLY)G WK&LU FHUWGHQLHG
86 WKH WHPSRUDU\ ORVV RI D SRVLWLRQ VHH
%RZPDQY6KDZQHH6WDWH8QLY)G WK
&LU DVKRUWWHUPVXVSHQVLRQZLWKSD\VHH-DFNVRQ
)G DW RU DOOHJHGO\ XQMXVWLILHG GLVFLSOLQDU\
PHDVXUHV VXFK DV ³FRXQVHOLQJ PHPRUDQGD´ WKDW KDYH QR
PDWHULDOHIIHFWXSRQWKHWHUPVDQGFRQGLWLRQVRIWKHSODLQWLII¶V
HPSOR\PHQWVHH$OOHQY0LFKLJDQ'HS¶WRI&RUUHFWLRQV
)G WK &LU :DOERUQ Y (ULH
&RXQW\&DUH)DFLOLW\)G WK&LU 2QH
RIRXUREVHUYDWLRQVLQ'REEV:HLQVWHLQDSSOLHVZLWKIXOOIRUFH
KHUH²WKDWLIZHZHUHWRDFFRUG³DGYHUVH´VWDWXVWRLQWHULP
GHFLVLRQVWKDWDUHVXEMHFWWRIXUWKHULQWHUQDOUHYLHZWKHUHVXOW
³ZRXOGEHWRHQFRXUDJHOLWLJDWLRQEHIRUHWKH>GHIHQGDQW@KDV
DQ RSSRUWXQLW\ WR FRUUHFW WKURXJK LQWHUQDO JULHYDQFH
SURFHGXUHV DQ\ ZURQJ LW PD\ KDYH FRPPLWWHG´ 'REEV
:HLQVWHLQ)GDW
7KH7KDGGHXV;VWDQGDUGH[SUHVVO\GHULYHVIURPWKLVERG\
RIHPSOR\PHQWODZ6HH7KDGGHXV;)GDW
<HW ZH UHFRJQL]HG WKDW LQ OLJKW RI WKH SDUDPRXQW
FRQFHUQ IRU ³>V@DIHW\ DQG RUGHU´ LQ WKH SULVRQ VHWWLQJ ³>D@
SULVRQHU¶V )LUVW $PHQGPHQW ULJKWV DUH QRW PRUH H[WHQVLYH
WKDQ WKRVH RI D JRYHUQPHQW HPSOR\HH LQ IDFW XQGHU PRVW
FODXVHVRIWKH)LUVW$PHQGPHQWWKH\DUHPXFKPRUHVWULFWO\
OLPLWHG´7KDGGHXV;)GDW0RUHVSHFLILFDOO\
UHJDUGLQJWKH³DGYHUVHDFWLRQ´HOHPHQWRIDUHWDOLDWLRQFODLP
ZH H[SODLQHG WKDW ³>S@ULVRQHUV PD\ EH UHTXLUHG WR WROHUDWH
PRUHWKDQSXEOLFHPSOR\HHVZKRPD\EHUHTXLUHGWRWROHUDWH
PRUH WKDQ DYHUDJH FLWL]HQV EHIRUH DQ DFWLRQ WDNHQ DJDLQVW
WKHPLVFRQVLGHUHGDGYHUVH´7KDGGHXV;)GDW
,WIROORZVWKHQWKDWDFWLRQVWKHVDPHDVRUFRPSDUDEOHWR
WKRVHZHKDYHGHHPHGQRQDGYHUVHLQRXUHPSOR\PHQWFDVHV
PXVW EH QRQDGYHUVH LQ WKH SULVRQ FRQWH[W DV ZHOO 7KH
PDMRULW\RSLQLRQVWDQGVWKLVHTXDWLRQRQLWVKHDGKRZHYHU
,FDQQRWFRQFHLYHWKDWWKHDYHUDJHLQPDWH¶VVHQVLELOLWLHVDUHVR
GHOLFDWHDQGHDVLO\RIIHQGHGWKDWDPHUHULVNRIGLVFLSOLQDU\
PHDVXUHV²DVWRFNLQWUDGHRIWKHSULVRQHQYLURQPHQWDV,
XQGHUVWDQG LW ² ZRXOG GHWHU KLP RU KHU IURP ILOLQJ
JULHYDQFHVWRFKDOOHQJHSHUFHLYHGZURQJGRLQJ

-- 14 of 24 --

%URZQY&URZOH\HWDO 1R
HPEH]]OHPHQW"7KHPDMRULW\SURYLGHVQRJXLGDQFHRQWKHVH
TXHVWLRQV QRU GRHV LW FLWH DQ\ DXWKRULW\ WKDW PLJKW DVVLVW
IXWXUH FRXUWV LQ GHWHUPLQLQJ ZKHQ D PHUH ³ULVN´ RI
FRQVHTXHQFHVDORQHPLJKWFRQVWLWXWH³DGYHUVHDFWLRQ´
0\RZQUHVHDUFKKDVIDLOHGWRXQFRYHUDQ\VXSSRUWIRUWKH
SURSRVLWLRQWKDWDVKRZLQJRIDGYHUVHDFWLRQPD\UHVWXSRQ
PHUHSRWHQWLDOLWLHVWKDWQHYHUFRPHWRSDVV7RWKHFRQWUDU\
ZH KDYH DIILUPHG WKH GLVPLVVDO RI D )LUVW $PHQGPHQW
UHWDOLDWLRQFODLPIRUODFNRIDQ\³FRQFUHWHLQMXULHV´VXIIHUHG
E\WKHSODLQWLII-DFNVRQY&LW\RI&ROXPEXV)G
WK &LU RYHUUXOHG RQ RWKHU JURXQGV E\
6ZLHUNLHZLF]Y6RUHPD1$86 VHHDOVR
)UDQFRY.HOO\)G G&LU KROGLQJ
WKDW D SULVRQHU ZRXOG EH HQWLWOHG WR UHOLHI XQGHU D )LUVW
$PHQGPHQW UHWDOLDWLRQ WKHRU\ LI KH FRXOG ³SURYH KLV
DOOHJDWLRQWKDWKHZDVVXEMHFWHGWRIDOVHGLVFLSOLQDU\FKDUJHV
DQG VXEVHTXHQW SXQLVKPHQW´ DV D UHVXOW RI KLV SURWHFWHG
DFWLYLW\ HPSKDVLVDGGHG ,WLVQRWHQRXJKPRUHRYHUWKDW
WKHSODLQWLIILGHQWLI\DFRQFUHWHFKDQJHLQWKHFRQGLWLRQVRI
KLVFRQILQHPHQWLIWKLVFKDQJHLVQRWDGYHUVH:HKDYHKHOG
IRUH[DPSOHWKDWDODWHUDOWUDQVIHUIURPRQHSULVRQIDFLOLW\WR
DQRWKHUGRHVQRWVXIILFHWRVXVWDLQDUHWDOLDWLRQFODLPHYHQ
WKRXJKWKLVWUDQVIHUPLJKWKDYH³VRPHHIIHFWRQ>WKHSODLQWLII
SULVRQHU¶V@IXWXUHILOLQJRIJULHYDQFHV´DQGHYHQWKRXJKWKLV
WUDQVIHU PLJKW EH LQWHQGHG LQ SDUW ³WR JLYH SULVRQ VWDII D
UHVSLWH IURP >WKH SULVRQHU¶V@ FRQWLQXRXV EDUUDJH RI
JULHYDQFHV´:DUGY'\NH)G WK&LU
FHUWGHQLHG86
/LNHZLVH LQ WKH UHODWHG FRQWH[W RI HPSOR\PHQWEDVHG
UHWDOLDWLRQFODLPVZHKDYHUHTXLUHGWKDWDSODLQWLIILGHQWLI\D
³PDWHULDOO\DGYHUVH´HIIHFWXSRQWKHWHUPVDQGFRQGLWLRQVRI
KLVRUKHUHPSOR\PHQW6HH+ROOLQVY$WODQWLF&R)G
WK&LU :HKDYHKHOGWKDWWKLVVWDQGDUGLV
QRWVDWLVILHGE\DQLQWHULPGHFLVLRQWRGHQ\WHQXUHRUHYHQDQ
RXWULJKW GLVFKDUJH ZKLFK LV RYHUWXUQHG LQ D VXEVHTXHQW
JULHYDQFHSURFHVVDQGZKLFKSURGXFHVQR³ILQDORUODVWLQJ´
KDUPVHH9LUWVY&RQVROLGDWHG)UHLJKWZD\V&RUS)G
WK &LU 'REEV:HLQVWHLQ Y 9DQGHUELOW
1R %URZQY&URZOH\HWDO
PH´-RKQVRQY3HGHUVHQ1R&:/
DW 1',OO6HSW KROGLQJWKDWSULVRQRIILFLDOV
FRXOGQRWGLVUHJDUGDSULVRQHU¶VGXHSURFHVVULJKWVZKHQWKH\
SXQLVKHG KLP IRU ³VXFK D UHODWLYHO\ PLQRU RIIHQVH DV
VZHDULQJ´
:HDUHGXELRXVWKDWWKHLVVXDQFHRIDPDMRUPLVFRQGXFW
WLFNHW XQGHU VXFK FLUFXPVWDQFHV FRXOG HYHU EH GHHPHG
FRQVLVWHQWZLWK)LUVW$PHQGPHQWSULQFLSOHV3ULVRQRIILFLDOV
DUHFOHDUO\IUHHWRSXQLVKLQPDWHFRQGXFWWKDWWKUHDWHQVWKH
RUGHUO\DGPLQLVWUDWLRQRIWKHSULVRQ%XW³>W@KH6WDWHPXVW
HQVXUHWKDW>FRQGXFWUHJXODWLQJ@SRUWLRQVRIWKHSULVRQ
UXOHVDUHQRWXVHGDVDEDFNGRRUPHDQVRISXQLVKLQJLQPDWHV
IRUH[HUFLVLQJWKHLUULJKWWRFULWLFL]HWKHOHJDOLW\RIRIILFLDOV¶
DFWLRQV$Q\DWWHPSWWRXVHWKHUXOHVLQWKLVPDQQHUZRXOG
UHVXOWLQDQXQFRQVWLWXWLRQDODSSOLFDWLRQRIWKHUXOHV´&ODUNH
Y 6WDOGHU )G WK &LU YDFDWHG RQ RWKHU
JURXQGVE\)G WK&LU
,QVXPJHQXLQHLVVXHVRIPDWHULDOIDFWUHPDLQDVWRZKHWKHU
%URZQZDVVXEMHFWHGWRDULVNRIVLJQLILFDQWVDQFWLRQVWKDW
ZRXOGGHWHUDSHUVRQRIRUGLQDU\ILUPQHVVIURPFRQWLQXLQJWR
HQJDJHLQSURWHFWHGFRQGXFWDQGZKHWKHUWKHGHIHQGDQWVFDQ
UHEXW WKH FDXVDO FRQQHFWLRQ EHWZHHQ WKH WZR 7KH GLVWULFW
FRXUWWKHUHIRUHHUUHGLQJUDQWLQJVXPPDU\MXGJPHQWWRWKH
GHIHQGDQWV $FFRUGLQJO\ WKH GLVWULFW FRXUW¶V MXGJPHQW LV
YDFDWHGDQGWKHFDVHLVUHPDQGHGIRUIXUWKHUSURFHHGLQJV2Q
UHPDQG WKH GLVWULFW FRXUW VKRXOG DOVR UHFRQVLGHU LWV RUGHU
GHQ\LQJ %URZQ¶V PRWLRQ WR DPHQG KLV FRPSODLQW EHFDXVH
WKDWPRWLRQLVQRORQJHUPRRW
% 5HTXHVW IRU D UHPDQG WR D GLIIHUHQW GLVWULFW FRXUW
MXGJH
%URZQDOVRUHTXHVWVWKDWZHUHPDQGWKLVFDVHWRDGLIIHUHQW
GLVWULFWFRXUWMXGJHEDVHGXSRQKLVFRQWHQWLRQWKDWKH³FDQ
QRWDQGZLOOQRWUHFHLYHDIDLUWULDOEHIRUHWKHFXUUHQWMXGJH´
,QSDUWLFXODU%URZQFODLPVWKDW³>W@KHGLVWULFWFRXUWVHHPHG
WR >DQDO\]H@ HYHU\WKLQJ LQ IDYRU RI WKH GHIHQGDQWV >@ DQG
WKHUHE\YLRODWHGWKHODZZKLFKVWDWHVWKDWKHLVWRYLHZWKH
IDFWV LQ IDYRU RI WKH QRQPRYLQJ SDUW\>@´ %URZQ DOVR

-- 15 of 24 --

%URZQY&URZOH\HWDO 1R
FRQWHQGVWKDWWKHGLVWULFWFRXUWMXGJH³KDVDOZD\VEHHQ>ELDVHG
DJDLQVW@WKHSODLQWLII¶VFDVHZKHQHYHUWKHSODLQWLIIUHTXHVWHG
DQ\WKLQJIURPWKHFRXUW´
$OWKRXJK ZH KDYH WKH DXWKRULW\ SXUVXDQW WR 86&
†WRUHPDQGWKHFDVHWRDGLIIHUHQWGLVWULFWFRXUWMXGJH
³WKLV LV DQ H[WUDRUGLQDU\ SRZHU DQG VKRXOG UDUHO\ EH
LQYRNHG´$UPFR,QFY8QLWHG6WHHOZRUNHUVRI$P
)G WK&LU %HFDXVH%URZQKDVQRW
VXEPLWWHG DQ\ SURRI RI SHUVRQDO ELDV WKDW ZRXOG UHTXLUH
UHFXVDOSXUVXDQWWR86&†ZHKDYHFRQVLGHUHGWKH
IROORZLQJIDFWRUVLQHYDOXDWLQJKLVUHTXHVW
ZKHWKHU WKH RULJLQDO MXGJH ZRXOG UHDVRQDEO\ EH
H[SHFWHGXSRQUHPDQGWRKDYHVXEVWDQWLDOGLIILFXOW\LQ
SXWWLQJRXWRIKLVRUKHUPLQGSUHYLRXVO\H[SUHVVHGYLHZV
RU ILQGLQJV GHWHUPLQHG WR EH HUURQHRXV RU EDVHG RQ
HYLGHQFHWKDWPXVWEHUHMHFWHG
ZKHWKHU UHDVVLJQPHQW LV DGYLVDEOH WR SUHVHUYH WKH
DSSHDUDQFHRIMXVWLFHDQG
ZKHWKHU UHDVVLJQPHQW ZRXOG HQWDLO ZDVWH DQG
GXSOLFDWLRQRXWRISURSRUWLRQWRDQ\JDLQLQSUHVHUYLQJ
WKHDSSHDUDQFHRIIDLUQHVV
,G
1RQH RI WKHVH IDFWRUV ZHLJK LQ IDYRU RI UHPDQGLQJ WKH
SUHVHQW FDVH WR D GLIIHUHQW GLVWULFW FRXUW MXGJH 7KHUH LV
QRWKLQJLQWKHUHFRUGRULQ%URZQ¶VEULHIWRFRQYLQFHXVWKDW
WKHGLVWULFWFRXUWMXGJHZRXOGKDYHGLIILFXOW\FRQVLGHULQJWKH
FDVH RQ UHPDQG LQ DQ REMHFWLYH PDQQHU 1RU LV WKHUH DQ\
UHDVRQWRWKLQNWKDWUHDVVLJQPHQWLVDGYLVDEOHWRSUHVHUYHWKH
DSSHDUDQFHRIMXVWLFH,WLVWKHUHIRUHXQQHFHVVDU\IRUDQHZ
GLVWULFW FRXUW MXGJH WR EHFRPH IDPLOLDU ZLWK WKH FRPSOH[
IDFWXDODQGSURFHGXUDOKLVWRU\RIWKLVFDVH$VDUHVXOWZH
GHFOLQHWRJUDQWWKHH[WUDRUGLQDU\UHOLHIRIUHPDQGLQJWKLVFDVH
WRDGLIIHUHQWGLVWULFWFRXUWMXGJH
1R %URZQY&URZOH\HWDO
FRQGLWLRQVRIKLVFRQILQHPHQWQRUDQ\UHGXFWLRQLQSULYLOHJHV
DV FRQFHGHG E\ WKH PDMRULW\ %URZQ DOUHDG\ ZDV LQ
DGPLQLVWUDWLYH VHJUHJDWLRQ DW WKH WLPH 1HLWKHU GLG WKH
PLVFRQGXFWFKDUJHSURGXFHDQ\ODVWLQJHIIHFWVXSRQ%URZQ¶V
SULVRQVWD\RUGLVFLSOLQDU\UHFRUGDVWKHFKDUJHZDVVHWDVLGH
IROORZLQJDSURPSWKHDULQJ
7KDGGHXV;UHTXLUHVWKDWDQDOOHJHGDFWRIUHWDOLDWLRQEH
WUXO\ ³DGYHUVH´ DQG H[SODLQV WKDW ³FHUWDLQ WKUHDWV RU
GHSULYDWLRQV DUH VR GH PLQLPLV´ ³LQFRQVHTXHQWLDO´ RU
³WULYLDO´ WKDW WKH\ FDQQRW VXVWDLQ D )LUVW $PHQGPHQW
UHWDOLDWLRQ FODLP 7KDGGHXV; )G DW ,Q
GHWHUPLQLQJZKHWKHUDQDFWLRQLV³DGYHUVH´ZHDVNLILWZRXOG
³GHWHUDSHUVRQRIRUGLQDU\ILUPQHVVIURPWKHH[HUFLVHRIWKH
ULJKW DW VWDNH´ )G DW LQWHUQDO TXRWDWLRQV DQG
FLWDWLRQRPLWWHG :KHUHDVKHUHDFKDOOHQJHGDFWLRQKDVQR
FRQVHTXHQFHVZKDWVRHYHUHLWKHULPPHGLDWHRUORQJWHUPLW
LQHOXFWDEO\IROORZVWKDWVXFKDQDFWLRQLV³LQFRQVHTXHQWLDO´
1RUFDQLWSODXVLEO\EHDUJXHGWKDWWKHPLVFRQGXFWFKDUJHLQ
WKLVFDVHZRXOGKDYHFKLOOHGWKHH[HUFLVHRI)LUVW$PHQGPHQW
ULJKWVWRWKHFRQWUDU\WKHSURPSWDQGIDYRUDEOHGLVSRVLWLRQ
RIWKLVFKDUJHVXUHO\ZRXOGEHYLHZHGE\DUHDVRQDEOHLQPDWH
DV YLQGLFDWLQJ KLV ULJKW WR SXUVXH JRRGIDLWK JULHYDQFHV
*LYHQ WKH FRQWH[WVSHFLILF QDWXUH RI WKH ³DGYHUVH DFWLRQ´
LQTXLU\ VHH7KDGGHXV;)GDW,ILQGLWXQGXO\
P\RSLF WR IRFXV VROHO\ XSRQ WKH ILOLQJ RI WKH PLVFRQGXFW
FKDUJH LQ LVRODWLRQ ZLWKRXW UHJDUG IRU WKH SURFHGXUDO
VDIHJXDUGVWULJJHUHGE\WKLVILOLQJDQGWKHSURSHUIXQFWLRQLQJ
RIWKHVHVDIHJXDUGVLQWKLVFDVH
0RUHJHQHUDOO\,VHHQROLPLWLQJSULQFLSOHZKDWVRHYHULQ
WKHPDMRULW\¶VULVNEDVHGWKHRU\RIDGYHUVHDFWLRQ3ODLQO\
WKLVLQFKRDWH³ULVN´RIDGYHUVHFRQVHTXHQFHVQHHGQHYHUEH
UHDOL]HGDVLWZDVQRWKHUH+RZGHILQLWHRULPPLQHQWWKHQ
PXVW D ³ULVN´ EH LQ RUGHU WR VDWLVI\ WKH VHFRQG SURQJ RI
7KDGGHXV; DQG KRZ PDQ\ K\SRWKHWLFDO OHDSV DUH
SHUPLVVLEOH EHIRUH D ³ULVN´ LV GHHPHG LQFRQVHTXHQWLDO"
:RXOGLWKDYHVXIILFHGLQWKLVFDVHLI'HIHQGDQWVKDGVHQW
%URZQDWKUHDWHQLQJOHWWHUZDUQLQJWKDWWKH\ZRXOGSXUVXH
PLVFRQGXFW FKDUJHV LI KH PDGH DQ\ IXUWKHU DOOHJDWLRQV RI

-- 16 of 24 --

%URZQY&URZOH\HWDO 1R
GHDO PRUH WKDQ PHUHO\ FODLP WKDW KLV DFFRXQW KDG EHHQ
RYHUFKDUJHG ,Q SDUWLFXODU %URZQ ZURWH WR WKH 0LFKLJDQ
6WDWH3ROLFHDQGDORFDOSURVHFXWRUGHPDQGLQJWKDWFULPLQDO
FKDUJHV RI HPEH]]OHPHQW EH EURXJKW DJDLQVW D SULVRQ
DFFRXQWDQWDQGWKHSULVRQZDUGHQ 6HH-$DW (YHQ
WRWKLVGD\LQKLVEULHILQWKHSUHVHQWDSSHDO%URZQFRQWLQXHV
WR LQVLVW WKDW 'HIHQGDQWV HPEH]]OHG IXQGV IURP KLV SULVRQ
DFFRXQW DQG KH IXUWKHU FRQWHQGV WKDW 'HIHQGDQWV IDOVLILHG
GRFXPHQWVDQGOLHGLQRUGHUWRLQWHUIHUHZLWKDQ\LQYHVWLJDWLRQ
RIWKHVHFULPLQDOFKDUJHV
$VQRWHGLQWKHPLVFRQGXFWWLFNHWLWVHOIVXFKFKDUJHVJRIDU
EH\RQGPHUHFRPSODLQWVWKDW%URZQKDGEHHQRYHUFKDUJHGIRU
KLVSULVRQGHEWV%URZQ¶VVHULRXVDFFXVDWLRQVLIDFFHSWHG
³ZRXOGRUGLQDULO\UHVXOWLQGLVFLSOLQDU\DFWLRQVEHLQJLQLWLDWHG
DJDLQVW´WKHDFFXVHGSULVRQRIILFLDOV -$DW <HWDQ
,QWHUQDO$IIDLUVLQYHVWLJDWLRQGHWHUPLQHGWKDWWKHVHDOOHJDWLRQV
RIFULPLQDOZURQJGRLQJODFNHGPHULWDQGDEVROXWHO\QRWKLQJ
LQ WKH UHFRUG VXJJHVWV WKDW DQ\ SULVRQ RIILFLDO HQJDJHG LQ
FULPLQDOFRQGXFWRIDQ\VRUW(YHQWKHPLVFRQGXFWKHDULQJ
UHSRUWWKHFHQWHUSLHFHRI%URZQ¶VUHWDOLDWLRQFODLPDQGWKH
PDMRULW\¶V DQDO\VLV VWDWHV RQO\ WKDW WKHUH ZDV LQVXIILFLHQW
HYLGHQFHWRFRQFOXGHWKDW%URZQ³GHOLEHUDWHO\ILOH>G@IDOVH
DOOHJDWLRQV ZLWK>@ >W@KH VSHFLILF LQWHQW RI KDYLQJ VWDII
GLVFLSOLQHG´ -$DW 7KLVILQGLQJRIFRXUVHVD\VOLWWOH
RU QRWKLQJ DERXW ZKHWKHU %URZQ¶V DOOHJDWLRQV RI FULPLQDO
PLVFRQGXFW ZHUH XQJURXQGHG DQG IULYRORXV DQG KHQFH
LQHOLJLEOHIRU)LUVW$PHQGPHQWSURWHFWLRQ,WLVLPSRUWDQWWR
EHDU WKLV SRLQW LQ PLQG LQ DQDO\]LQJ %URZQ¶V FODLP RI
UHWDOLDWLRQ
7XUQLQJWRWKHVHFRQGSURQJRIWKH7KDGGHXV;VWDQGDUG
WKH PDMRULW\ FRQFOXGHV WKDW WKH PHUH ³ULVN RI VLJQLILFDQW
VDQFWLRQV´ 0DMRULW\2SDW ZLWKRXWPRUHFRQVWLWXWHVWKH
UHTXLVLWH ³DGYHUVH DFWLRQ´ WKDW SHUPLWV %URZQ¶V UHWDOLDWLRQ
FODLPWRJRIRUZDUG,QGHHGWKLVK\SRWKHWLFDO³ULVN´DORQH
PXVWVXIILFHLQWKLVFDVHEHFDXVH%URZQKDVQRWLGHQWLILHG
DQ\DFWXDOFRQFUHWHFRQVHTXHQFHRIWKHPLVFRQGXFWFKDUJH
DJDLQVW KLP 'XULQJ WKH IHZ GD\V WKDW WKLV FKDUJH ZDV
SHQGLQJ %URZQ VXIIHUHG DEVROXWHO\ QR FKDQJH LQ WKH
1R %URZQY&URZOH\HWDO
,,,&21&/86,21
)RUDOORIWKHUHDVRQVVHWIRUWKDERYHZH9$&$7(WKH
MXGJPHQW RI WKH GLVWULFW FRXUW DQG 5(0$1' WKH FDVH IRU
IXUWKHUSURFHHGLQJVFRQVLVWHQWZLWKWKLVRSLQLRQ

-- 17 of 24 --

%URZQY&URZOH\HWDO 1R
BBBBBBBBBBBBBBB
',66(17
BBBBBBBBBBBBBBB
526(1'LVWULFW-XGJHGLVVHQWLQJ7KHPDMRULW\GHFLVLRQ
LQWKLVFDVHUHDFKHVRXWWRHVWDEOLVKDQHZOHJDOVWDQGDUGLQ
SULVRQHUFLYLOULJKWVDFWLRQVDQQRXQFLQJODZWKDWLVZKROO\
DGYLVRU\DQGLPPDWHULDODVWRWKHFODLPDFWXDOO\EHIRUHXV\HW
ELQGVIXWXUHSDQHOVFRQIURQWHGZLWKVLPLODUIDFWV:RUVHVWLOO
WKHPDMRULW\VHHPLQJO\IDLOVWRDSSUHKHQGWKHWUXHPDJQLWXGH
RILWVUXOLQJZKLFKZLOOUHVXOWLQVWULFWOLDELOLW\²RUDWOHDVW
DWULDEOHIDFWXDOLVVXH²ZKHQHYHUDSULVRQRIILFLDOFLWHVD
SULVRQHUIRUPLVFRQGXFWDQGWKHFKDUJHVXEVHTXHQWO\LVVHW
DVLGH HYHQ WKRXJK L WKH SULVRQHU VXIIHUV QR DGYHUVH
FRQVHTXHQFHVZKDWVRHYHUZKLOHWKHFKDUJHLVSHQGLQJ LL WKH
SULVRQHULVDIIRUGHGDSURPSWKHDULQJDWZKLFKWRFRQWHVWWKH
FKDUJH DQG LLL WKHUH LV QR HYLGHQFH EH\RQG WKH EDUH
GLVSRVLWLRQ RI WKH FKDUJH LWVHOI WKDW FDVWV GRXEW XSRQ WKH
SULVRQ RIILFLDO¶V FRQVLGHUHG MXGJPHQW WKDW D PLVFRQGXFW
FLWDWLRQZDVZDUUDQWHG7KLVVWULFWOLDELOLW\VWDQGDUGLQP\
YLHZ ZLOO IRVWHU XQZDUUDQWHG DQG FRVWO\ IHGHUDO MXGLFLDO
LQWHUYHQWLRQLQWKHRUGHUO\IXQFWLRQLQJRIVWDWHSULVRQVDQG
UXQV FRXQWHU WR WKH 6XSUHPH &RXUW FRPPDQG WKDW ³SULVRQ
DGPLQLVWUDWRUV DQG QRW WKH FRXUWV >DUH@ WR PDNH WKH
GLIILFXOW MXGJPHQWV FRQFHUQLQJ LQVWLWXWLRQDO RSHUDWLRQV´
7XUQHU Y 6DIOH\ 86 6 &W
LQWHUQDOTXRWDWLRQVDQGFLWDWLRQRPLWWHG
)XUWKHU E\ HYHQ UHDFKLQJ WKH PHULWV RI WKLV FDVH WKH
PDMRULW\ XQGHUPLQHV DQ DGGLWLRQDO SURWHFWLRQ GHVLJQHG WR
VKLHOG WKH DFWLRQV RI VWDWH JRYHUQPHQW RIILFLDOV IURP
XQZDUUDQWHG MXGLFLDO VFUXWLQ\ ² QDPHO\ WKH GHIHQVH RI
TXDOLILHGLPPXQLW\6HYHUDO\HDUVDJRMXVWDIWHUWKH\ZHUH
VHUYHG ZLWK SULVRQHU &OHYHODQG %URZQ¶V FRPSODLQW LQ WKLV
† DFWLRQ WKH 'HIHQGDQW$SSHOOHH HPSOR\HHV RI WKH
0LFKLJDQ 'HSDUWPHQW RI &RUUHFWLRQV ³0'2&´ SURPSWO\
DVVHUWHGTXDOLILHGLPPXQLW\LQWKHLUILUVWUHVSRQVLYHSOHDGLQJ
DPRWLRQIRUVXPPDU\MXGJPHQW7KH6XSUHPH&RXUWKDV
LQVWUXFWHG WKDW ³TXDOLILHG LPPXQLW\ TXHVWLRQV VKRXOG EH
1R %URZQY&URZOH\HWDO
HQJDJHG LQ SURWHFWHG FRQGXFW LL WKDW DGYHUVH DFWLRQ ZDV
WDNHQ DJDLQVW KLP WKDW ³ZRXOG GHWHU D SHUVRQ RI RUGLQDU\
ILUPQHVVIURPFRQWLQXLQJWRHQJDJHLQ´WKHSURWHFWHGFRQGXFW
DQG LLL WKDW WKHUH ZDV D FDXVDO FRQQHFWLRQ EHWZHHQ WKH
SURWHFWHGFRQGXFWDQGWKHDGYHUVHDFWLRQ7KDGGHXV;
)GDW$VGLVFXVVHGEHORZ,EHOLHYHWKDWWKHUHFRUG
IDLOV DV D PDWWHU RI ODZ WR HVWDEOLVK WKH VHFRQG DQG WKLUG
SURQJVRIWKLVVWDQGDUG0RUHJHQHUDOO\WKHUHLVQRGLUHFW
HYLGHQFHRIDUHWDOLDWRU\PRWLYHIRU'HIHQGDQWV¶FRQGXFWDQG
%URZQ¶V HYLGHQFH GRHV QRW SHUPLW WKH LQIHUHQFH WKDW
'HIHQGDQWVDFWHGZLWKVXFKDPRWLYHLQFKDUJLQJ%URZQZLWK
PLVFRQGXFW (YHQ E\ UHIHUHQFH WR 7KDGGHXV; WKHQ WKH
'LVWULFW &RXUW SURSHUO\ DZDUGHG VXPPDU\ MXGJPHQW LQ
'HIHQGDQWV¶IDYRU
%HIRUHDGGUHVVLQJP\SULQFLSDOSRLQWVRIGLVDJUHHPHQWZLWK
WKH PDMRULW\ , ILUVW QRWH WKDW WKH LQTXLU\ XQGHU WKH ILUVW
³SURWHFWHGFRQGXFW´HOHPHQWRI7KDGGHXV;LVQRWTXLWHVR
FOHDUFXWDVWKHPDMRULW\VHHPVWREHOLHYH7KHPDMRULW\KDV
QRGRXEWDQG'HIHQGDQWVWKHPVHOYHVFRQFHGHWKDW%URZQ
ZDVHQJDJHGLQSURWHFWHGFRQGXFWZKHQKHFRPSODLQHGDERXW
DOOHJHGRYHUFKDUJHVWRKLVSULVRQDFFRXQW$QGWREHVXUH
ZH KDYH UHFRJQL]HG DQ LQPDWH¶V ³XQGLVSXWHG )LUVW
$PHQGPHQWULJKWWRILOHJULHYDQFHVDJDLQVWSULVRQRIILFLDOVRQ
KLVRZQEHKDOI´+HUURQY+DUULVRQ)G WK
&LU +HUURQ DOVR HVWDEOLVKHV KRZHYHU WKDW WKLV
FRQGXFWLVSURWHFWHG³RQO\LIWKHJULHYDQFHVDUHQRWIULYRORXV´
+HUURQ)GDW6LPLODUO\³ZKLOHDSULVRQHUPD\
KDYHDULJKWWRILOHJULHYDQFHVDJDLQVWSULVRQRIILFLDOVKHRU
VKH FDQQRW H[HUFLVH WKDW ULJKW LQ D PDQQHU WKDW YLRODWHV
OHJLWLPDWH SULVRQ UHJXODWLRQV RU SHQRORJLFDO REMHFWLYHV´
6PLWKY&DPSEHOO)G WK&LU
7RWKHH[WHQWWKDW%URZQFRPSODLQHGDERXWRYHUFKDUJHVLW
ZDVGHWHUPLQHGDWWKH VXEVHTXHQWPLVFRQGXFWKHDULQJWKDW
%URZQ¶VSHUFHSWLRQRQWKLVSRLQWZDV³QRWXQUHDVRQDEOHDW
DOO´ -$ DW 7KLV ILQGLQJ , ZRXOG DJUHH UDLVHV D
WULDEOHLVVXHRIIDFWDVWRZKHWKHU%URZQ¶VFRPSODLQWVRQWKLV
SRLQW ZHUH QRQIULYRORXV DQG KHQFH SURWHFWHG :KDW WKH
PDMRULW\IDLOVWRDGGUHVVKRZHYHULVWKDW%URZQGLGDJRRG

-- 18 of 24 --

%URZQY&URZOH\HWDO 1R
&DOH SURGXFHG HYLGHQFH WKDW :DKO DFWLYHO\ DEXVHG KLV
SRVLWLRQRIDXWKRULW\ILUVWE\LQVWUXFWLQJDQRWKHULQPDWHWR
SODQWLOOHJDOQDUFRWLFVRQ&DOHDQGWKHQE\DUUDQJLQJIRURWKHU
SULVRQRIILFLDOVWRZLWQHVVDQGEULQJFKDUJHVIRUWKLVWUXPSHG
XSRIIHQVH$VQRWHGLQ-XGJH1HOVRQ¶VFRQFXUUHQFH³:DKO
VXUHO\KDGQRDXWKRULW\WRFDXVHLOOHJDOGUXJVWREHSODQWHGRQ
WKHSHUVRQRIDSULVRQLQPDWHIRUDQ\SXUSRVHDWDOOUHWDOLDWRU\
RURWKHUZLVH´DQG³KDGDEVROXWHO\QREXVLQHVVWU\LQJWRPDNH
LWDSSHDUWKDWWKHLQPDWHZDVJXLOW\RIDQLQIUDFWLRQRIZKLFK
KH ZDV LQQRFHQW´ &DOH )G DW 1HOVRQ -
FRQFXUULQJ
7KHUHFRUGEHIRUHXVLQFRQWUDVWLQFOXGHVQRVXFKGLUHFW
HYLGHQFH RI UHWDOLDWRU\ PRWLYH 0RUH LPSRUWDQWO\ HYHQ LI
VXFKDPRWLYHFRXOGEHLQIHUUHGIURPWKHUHFRUG²DQGDV
H[SODLQHGEHORZ,GRQRWEHOLHYHWKDWLWFDQ²WKHHYLGHQFH
GRHVQRWUHPRWHO\VXJJHVWWKDW'HIHQGDQWVDFWHGXSRQWKLV
SXUSRUWHGPRWLYHE\NQRZLQJO\PDQXIDFWXULQJIDOVHFKDUJHV
DJDLQVW%URZQ5DWKHUWKHZRUVWWKDWFDQEHVDLGDERXWWKH
PLVFRQGXFW FKDUJH LQ WKLV FDVH LV WKDW LW ZDV VHW DVLGH
IROORZLQJDSURPSWKHDULQJ,QWKHPHDQWLPH%URZQVXIIHUHG
QRLOOFRQVHTXHQFHVZKDWVRHYHU,I'HIHQGDQWVVHWDERXWWR
SXQLVK %URZQ IRU KLV H[HUFLVH RI )LUVW $PHQGPHQW ULJKWV
WKH\ SLFNHG D UHPDUNDEO\ EHQLJQ DQG ZKROO\ DERYHERDUG
PHDQV RI GRLQJ VR 8QGHU WKLV UHFRUG WKH 'LVWULFW &RXUW
VXUHO\ ZLOO GHWHUPLQH XSRQ UHPDQG WKDW 'HIHQGDQWV DUH
HQWLWOHGWRTXDOLILHGLPPXQLW\7KHUHLVQRUHDVRQZK\ZH
VKRXOGQRWPDNHWKLVVDPHGHWHUPLQDWLRQKHUHDQGQRZ
,,,
)RUWKHUHDVRQVVHWIRUWKDERYH,WKLQNLWLUUHOHYDQWZKHWKHU
%URZQ¶VUHWDOLDWLRQFODLPFRXOGVXUYLYHVXPPDU\MXGJPHQW
XQGHU WKH DQDO\WLFDO IUDPHZRUN DGRSWHG LQ 7KDGGHXV;
%HFDXVHWKHPDMRULW\KDVZHLJKHGLQRQWKLVLVVXHKRZHYHU
DQGKDVDQQRXQFHGQHZDQGVZHHSLQJOHJDOVWDQGDUGVLQWKH
SURFHVV,ILQGLWQHFHVVDU\WRVWDWHP\TXLWHGLIIHUHQWYLHZRI
KRZ%URZQ¶VFODLPZRXOGIDUHXQGHU7KDGGHXV;
7KDGGHXV;HVWDEOLVKHVDWKUHHHOHPHQWWHVWIRUUHWDOLDWLRQ
FODLPV XQGHU ZKLFK D SULVRQHU PXVW VKRZ L WKDW KH
1R %URZQY&URZOH\HWDO
UHVROYHG DW WKH HDUOLHVW SRVVLEOH VWDJH RI D OLWLJDWLRQ´
$QGHUVRQ Y &UHLJKWRQ 86 Q 6 &W
Q DQG KDV FDXWLRQHG WKDW WKH FHQWUDO
SXUSRVH RI TXDOLILHG LPPXQLW\ ² QDPHO\ WR HQVXUH WKDW
JRYHUQPHQWRIILFLDOVQHHGQRW³VWDQGWULDORUIDFHWKHRWKHU
EXUGHQV RI OLWLJDWLRQ´ XQOHVV ³WKH FRQGXFW RI ZKLFK WKH
SODLQWLII FRPSODLQV YLRODWHG FOHDUO\ HVWDEOLVKHG ODZ´ ² LV
GHIHDWHGLIWKHFRXUWVHUURQHRXVO\ZLWKKROGVXFKLPPXQLW\
0LWFKHOOY)RUV\WK866&W
/LNHZLVHWKLV&RXUWKDVREVHUYHGWKDWWKHGHIHQVHRI
TXDOLILHG LPPXQLW\ ³QRW RQO\ SURWHFWV D GHIHQGDQW IURP
OLDELOLW\EXWPD\DOVRSURWHFWDGHIHQGDQWIURPWKHEXUGHQVRI
WULDODQGGLVFRYHU\´(QJOLVKY'\NH)G WK
&LU DQGZHKDYHGHHPHGLWSUXGHQWWRFRQVLGHUWKLV
GHIHQVHHYHQLIQRWDGGUHVVHGLQWKHFRXUWEHORZLQRUGHUWR
DYRLGDQ³XQQHFHVVDU\´UHPDQGDQG³SURWUDFWHGOLWLJDWLRQ´
6SXUORFN Y 6DWWHUILHOG )G Q WK &LU

1RQHWKHOHVVGHVSLWHWZRURXQGVRISURFHHGLQJVEHIRUHWKH
'LVWULFW&RXUWDQGWZRDSSHDOVWRWKLV&RXUWQRFRQVLGHUDWLRQ
KDV \HW EHHQ JLYHQ WR 'HIHQGDQWV¶ FODLP RI TXDOLILHG
LPPXQLW\7KHPDMRULW\GRHVQRWTXHVWLRQRXUGLVFUHWLRQDU\
DXWKRULW\WRUHDFKWKLV LVVXHDQGH[SUHVVO\UHFRJQL]HVWKDW
'HIHQGDQWVZLOOEHIUHHWRUHDVVHUWWKLVGHIHQVHRQUHPDQGD
ULJKW'HIHQGDQWVVXUHO\ZLOOH[HUFLVH<HWWKHPDMRULW\GRHV
QRW HQGHDYRU WR H[SODLQ ZKDW PLJKW SRVVLEO\ EH JDLQHG
WKURXJKIXUWKHUSRVWSRQHPHQWRIWKLVLQTXLU\²WKH'LVWULFW
&RXUW SUHYLRXVO\ FRQIHUUHG WKH HQWLUH SHULRG RI GLVFRYHU\
VRXJKWE\WKHSDUWLHV VHH-$DW WKHUHFRUGRQ
DSSHDO LQFOXGHV WKH HQWLUH SHUWLQHQW KLVWRU\ RI %URZQ¶V
JULHYDQFHVDQGWKHLUDWWHQGDQWFLUFXPVWDQFHVWKHSDUWLHVKDYH
DGGUHVVHGWKHLVVXHRITXDOLILHGLPPXQLW\LQSDSHUVILOHGERWK
KHUH DQG LQ WKH FRXUW EHORZ DQG ZH DUH LQ MXVW DV JRRG D
SRVLWLRQ DV WKH 'LVWULFW &RXUW WR GHFLGH WKH SXUHO\ OHJDO
TXHVWLRQ ZKHWKHU WKH HYLGHQFH YLHZHG PRVW IDYRUDEO\ WR
%URZQFRXOGHVWDEOLVKDYLRODWLRQRIDFRQVWLWXWLRQDOULJKW
WKDWZDVFOHDUO\HVWDEOLVKHGDWWKHWLPHRI'HIHQGDQWV¶DFWLRQV
VHH'LFNHUVRQY0F&OHOODQ)G WK&LU

-- 19 of 24 --

%URZQY&URZOH\HWDO 1R
7KH PDMRULW\¶V UHWLFHQFH RQ WKH GHIHQVH RI TXDOLILHG
LPPXQLW\ LV SDUWLFXODUO\ XQIRUWXQDWH KHUH ZKHUH WKLV
LPPXQLW\ LV FHUWDLQ WR EH FRQIHUUHG XSRQ UHPDQG 7KH
PDMRULW\ GHWHUPLQHV RQ WKH PHULWV WKDW WKH 'LVWULFW &RXUW
PLVDSSOLHG³WKHODZ´JRYHUQLQJ%URZQ¶V)LUVW$PHQGPHQW
UHWDOLDWLRQFODLP VHH0DMRULW\2SDW ZKHUHWKH³ODZ´LQ
TXHVWLRQLVWKLV&RXUW¶VGHFLVLRQLQ7KDGGHXV;Y%ODWWHU
)G WK &LU <HW EHFDXVH 7KDGGHXV; ZDV
GHFLGHGLQQHDUO\D\HDUDIWHUWKHFRQGXFWDWLVVXHKHUH
WKHODZZHDQQRXQFHGLQWKDWFDVHZLOOKDYHQREHDULQJXSRQ
WKHTXHVWLRQEHIRUHWKH'LVWULFW&RXUWIROORZLQJRXUUHPDQG
RIWKLVFDVH²QDPHO\ZKHWKHU'HIHQGDQWVDUHHQWLWOHGWR
TXDOLILHGLPPXQLW\XQGHUWKHODZDVLWVWRRGDWWKHWLPHRI
WKHLU DFWLRQV 7KLV SULRU ODZ H[SUHVVO\ UHTXLUHG WKDW
'HIHQGDQWV¶DOOHJHGO\UHWDOLDWRU\FRQGXFWEH³VKRFNLQJWRWKH
FRQVFLHQFH´6HHHJ0F/DXULQY&ROH)G
WK&LU &DOHY-RKQVRQ)G
WK&LU ,ILWLVGRXEWIXOLQP\MXGJPHQWWKDW%URZQ
FDQVDWLVI\WKHVWDQGDUGVHWIRUWKLQ7KDGGHXV;LWLVSODLQ
WKDW KH KDV QRW LGHQWLILHG DQ\ FRQGXFW WKDW VKRFNV WKH
FRQVFLHQFH
$FFRUGLQJO\ , FDQQRW MRLQ LQ WKH PDMRULW\¶V HOHFWLRQ WR
EUXVKDVLGHWKLVVLPSOHDQGZKROO\ULSHLVVXHDQGWRLQVWHDG
HQJDJHLQDSXUHO\DGYLVRU\GLVFXVVLRQRIKRZ7KDGGHXV;
ZRXOGDSSO\WRWKHIDFWVEHIRUHXV7KURXJKWKLVFRXUVHRI
DFWLRQZHQRZH[WHQGWKLVOLWLJDWLRQLQWRLWVILIWK\HDUDQG
WKLUG URXQG RI 'LVWULFW &RXUW SURFHHGLQJV PDNLQJ WKH
SURYHUELDO ³IHGHUDO FDVH´ ² DQG RQH RI FRQVWLWXWLRQDO
GLPHQVLRQ QR OHVV ² RXW RI ZKDW LV DW ERWWRP D
ERRNNHHSLQJ GLVSXWH RYHU LQ %URZQ¶V SULVRQ WUXVW
DFFRXQW $W WKH VDPH WLPH ZH DQQRXQFH VXEVWDQWLYH ODZ
ZKLFKLQP\YLHZQRWRQO\IDLOVWRDGYDQFHWKLVOLWLJDWLRQ
EXWSURPLVHVWRSURGXFHWKHZURQJUHVXOWLQVXEVHTXHQWFDVHV
)RUWKHVHUHDVRQV,UHVSHFWIXOO\GLVVHQW
,
7KHPDMRULW\DFFXUDWHO\VXPPDUL]HVWKHSURFHGXUDOKLVWRU\
RI WKLV FDVH DQG H[SOLFLWO\ FRQILUPV WKH FUXFLDO SRLQW WKDW
1R %URZQY&URZOH\HWDO
SRFNHW&DOHEHJDQVKRXWLQJUHSHDWHGO\³<RX¶UHWU\LQJ
WR VHW PH XS´ &DOH ZDV DSSURDFKHG E\ VDIHW\ DQG
RFFXSDWLRQDOKHDOWKVSHFLDOLVW+DUU\)DUULVZKRSODFHG
KLVKDQGDURXQGWKHXSSHUSRUWLRQRI&DOH¶VDUPWRJHW
KLVDWWHQWLRQ&DOHVWDWHGWR)DUULV³2K,¶PJODGLW¶V
\RX0U)DUULV<RXDUHIDLU7KHVHBBBBDUHWU\LQJWR
VHWPHXS´$WWKDWWLPH:DKOVKRXWHGDW)DUULVWRJHW
WKHSDFNHWIURP&DOH)DUULVGLGQRWNQRZZKDW:DKO
PHDQWE\WKLVVWDWHPHQWEXW&DOHWKUHZDSLHFHRISDSHU
ZKLFK ZDV IROGHG LQ D VPDOO VTXDUH RQ WKH WRS RI WKH
PDLQVHUYLQJOLQHGLUHFWO\LQIURQWRI)DUULV7KLVSDFNHW
VXEVHTXHQWO\ZDVGHWHUPLQHGWRFRQWDLQPDULMXDQD&DOH
DJDLQEHFDPHYHU\DJLWDWHGDQGVKRXWHGDFFXVDWLRQVDW
3HUVN\
)GDW8SRQDUULYLQJDWWKHVFHQHWKHGXW\RIILFHU
GHWHUPLQHGWKDW&DOHVKRXOGEHFKDUJHGZLWKSRVVHVVLRQRI
QDUFRWLFVDQGWKUHDWHQLQJRWKHUVZLWKERGLO\KDUP&DOHZDV
SODFHG LQ DGPLQLVWUDWLYH VHJUHJDWLRQ XQWLO D GLVFLSOLQDU\
FRPPLWWHH GHWHUPLQHG D IHZ GD\V ODWHU WKDW &DOH KDG QRW
YLRODWHGDQ\RIWKHSULVRQ¶VGLVFLSOLQDU\UXOHV
2QWKLVUHFRUGZHUHYHUVHGWKH'LVWULFW&RXUW¶VDZDUGRI
VXPPDU\MXGJPHQWLQIDYRURIGHIHQGDQW:DKO,QVRUXOLQJ
ZHQRWHGWKDWWKH³VKRFNVWKHFRQVFLHQFH´VWDQGDUGJRYHUQHG
&DOH¶VFODLPEXWIRXQGWKDW&DOH¶VHYLGHQFHLIFUHGLWHGE\
WKHWULHURIIDFWZRXOGHVWDEOLVKWKHUHTXLVLWH³HJUHJLRXVDEXVH
RIJRYHUQPHQWDOSRZHU´)GDW6SHFLILFDOO\
ZH KHOG WKDW ³WKH HYLGHQFH VXSSRUWV D FODLP WKDW :DKO
LQWHQWLRQDOO\ DQG PDOLFLRXVO\ IUDPHG &DOH DQG ILOHG
GLVFLSOLQDU\ FKDUJHV DJDLQVW KLP LQ UHWDOLDWLRQ IRU &DOH¶V
H[HUFLVHRIKLVILUVWDPHQGPHQWULJKWV´)GDW
7KHGLVWLQFWLRQVEHWZHHQ&DOHDQGWKLVFDVHDUHHYLGHQW
)LUVWDQGPRVWREYLRXVO\&DOHIHDWXUHVGLUHFWHYLGHQFHRI
UHWDOLDWRU\FRQGXFWZLWKGHIHQGDQW:DKOH[SOLFLWO\VWDWLQJ
DFFRUGLQJWRRQHZLWQHVVWKDWKHZRXOGKDYH&DOHORFNHGXS
LQRUGHUWRSXWDQHQGWRKLVFRPSODLQWV1H[WLQJRLQJDERXW
WKLV VWDWHG PLVVLRQ :DKO GLG QRW PHUHO\ VFUXWLQL]H &DOH¶V
EHKDYLRULQDQHIIRUWWRLGHQWLI\DSXQLVKDEOHRIIHQVH5DWKHU

-- 20 of 24 --

%URZQY&URZOH\HWDO 1R
7KH UHFRUG FRQILUPV WKDW WKHUH ZDV QRWKLQJ UHPRWHO\
VKRFNLQJ RU DEXVLYH LQ WKH FLUFXPVWDQFHV VXUURXQGLQJ WKH
PLVFRQGXFWFKDUJHLQWKLVFDVH7KHPLVFRQGXFWUHSRUWZDV
ZULWWHQRQ$SULODQG%URZQZDVJLYHQDKHDULQJ
MXVWDIHZGD\VODWHURQ$SULODIWHUZKLFKKHZDV
DGMXGJHGQRWJXLOW\RIWKHFKDUJH$VQRWHGE\WKHPDMRULW\
%URZQDOUHDG\ZDVLQDGPLQLVWUDWLYHVHJUHJDWLRQDWWKHWLPH
WKHPLVFRQGXFWZDVLVVXHGDQGWKXVKHGLGQRWVXIIHUHYHQD
WHPSRUDU\GHSULYDWLRQRIDQ\SULYLOHJHVIRUWKHIHZGD\VWKH
FKDUJHZDVSHQGLQJ0RUHYHUDVGLVFXVVHGLQJUHDWHUGHWDLO
EHORZ %URZQ¶V FODLP RI UHWDOLDWLRQ UHVWV VROHO\ XSRQ
LQIRUPDWLRQ JOHDQHG IURP ZLWKLQ WKH IRXU FRUQHUV RI WKH
PLVFRQGXFW FKDUJH DQG KHDULQJ UHSRUW DQG QRW XSRQ DQ\
H[WULQVLF HYLGHQFH IURP ZKLFK LW PLJKW EH LQIHUUHG WKDW
'HIHQGDQWVZHUH³RXWWRJHWKLP´WKDWWKH\DFWHGPDOLFLRXVO\
RU UHFNOHVVO\ RU WKDW WKH PLVFRQGXFW FKDUJH ZDV SDUW RI D
ODUJHUSDWWHUQRIPDOIHDVDQFH8QGHUWKLVUHFRUG'HIHQGDQWV¶
FRQGXFWFRXOGQRWUHPRWHO\EHFKDUDFWHUL]HGDVVKRFNLQJEXW
UDWKHUDVXWWHUO\EHQLJQ
)LQDOO\ DQG E\ ZD\ RI FRQWUDVW , ILQG LW LQVWUXFWLYH WR
FRPSDUHWKLVFDVHZLWKRQHLQZKLFKZHIRXQGWKDWDSULVRQ
RIILFLDO¶VDOOHJHGDFWRIUHWDOLDWLRQGLGFRQVWLWXWHDQHJUHJLRXV
DEXVH RI SRZHU 6SHFLILFDOO\ LQ &DOH VXSUD WKH SODLQWLII
SULVRQHU/RXLV&DOHFRPSODLQHGDERXWWKHSRRUTXDOLW\RIWKH
SULVRQIRRGDQGWKLVFRPSODLQWZDVUHOD\HGWRWKHGHIHQGDQW
DGPLQLVWUDWRURIIRRGVHUYLFH-DPHV:DKO$FRRNIRUHPDQ
WHVWLILHGWKDWKHRYHUKHDUG:DKOVWDWLQJWKDW³KHZRXOGKDYH
&DOH ORFNHG XS DQG WKDW WKDW ZRXOG EH WKH HQG RI &DOH¶V
FRPSODLQWV´DQGWKDW:DKODOHUWHGDGXW\RIILFHUWREHUHDG\
IRU D FDOO WR WKH GLQLQJ URRP DW DERXW WKUHH R¶FORFN WKDW
DIWHUQRRQ&DOH)GDW
6XUHHQRXJKDWDURXQGSPWKDWGD\WKHGXW\RIILFHU
ZDVVXPPRQHGWRWKHGLQLQJKDOOWRLQYHVWLJDWHWKHIROORZLQJ
LQFLGHQW
$WWKDWWLPHDOOHJHGO\XQGHU:DKO¶VGLUHFWLRQLQPDWH
0HOYLQ3HUVN\ZKRZRUNHGLQWKHNLWFKHQDSSURDFKHG
&DOH IURP EHKLQG DQG SODFHG D VPDOO SDFNDJH LQ KLV
1R %URZQY&URZOH\HWDO
7KH UHFRUG RQ DSSHDO LQFOXGHV REMHFWLRQV ILOHG E\ %URZQ RQ
$XJXVW VHH -$ DW EXW D UHYLHZ RI WKHVH REMHFWLRQV DQG WKH
GRFNHW UHYHDOV WKDW WKLV VXEPLVVLRQ ZDV GLUHFWHG DW DQ HDUOLHU 5 5 DQG
QRW WKH RQH LVVXHG E\ WKH 0DJLVWUDWH -XGJH RQ -XO\
'HIHQGDQWV KDYH SUHVHUYHG WKHLU GHIHQVH RI TXDOLILHG
LPPXQLW\ , ZULWH IXUWKHU RQ WKLV VXEMHFW KRZHYHU WR
LOOXVWUDWHP\EHOLHIWKDWDQ\OLPLWHG³ZDLYHU´RIWKLVGHIHQVH
LQ WKLV FDVH LV IDU PRUH DWWULEXWDEOH WR WKH FRXUWV WKDQ WR
'HIHQGDQWV DQG KHQFH VKRXOG EH FRUUHFWHG DW WKH HDUOLHVW
RSSRUWXQLW\
%DFN LQ -DQXDU\ RI D IHZ PRQWKV DIWHU %URZQ
FRPPHQFHG WKLV VXLW 'HIHQGDQWV PRYHG IRU VXPPDU\
MXGJPHQWLQWKHLUIDYRUEDVHGLQSDUWXSRQ WKH GHIHQVHRI
TXDOLILHGLPPXQLW\$VQRWHGWKLVZDVWKHLUILUVWUHVSRQVLYH
SOHDGLQJLQWKHFDVH,QD5HSRUWDQG5HFRPPHQGDWLRQ ³5
5´ GDWHG -XO\ WKH 0DJLVWUDWH -XGJH GLG QRW
DGGUHVV WKH LVVXH RI TXDOLILHG LPPXQLW\ EXW QHYHUWKHOHVV
UHFRPPHQGHG WKDW 'HIHQGDQWV¶ PRWLRQ IRU VXPPDU\
MXGJPHQW EH JUDQWHG DQG WKDW WKH FDVH EH GLVPLVVHG LQ LWV
HQWLUHW\ 5HJDUGLQJ %URZQ¶V FODLP WKDW 'HIHQGDQWV KDG
UHWDOLDWHGDJDLQVWKLVH[HUFLVHRI)LUVW$PHQGPHQWULJKWVE\
FLWLQJ KLP IRU PLVFRQGXFW WKH 0DJLVWUDWH WKRURXJKO\
VXUYH\HG WKH UHOHYDQW FDVH ODZ LQFOXGLQJ RXU WKHQUHFHQW
GHFLVLRQLQ7KDGGHXV;DQGIRXQGWKDW%URZQKDGIDLOHGWR
SURGXFHDQ\HYLGHQFHRIUHWDOLDWRU\DQLPXVWKDWPLJKWFDVW
GRXEWRQ'HIHQGDQWV¶DIILGDYLWVVWDWLQJWKDWWKH\KDGDFWHGLQ
JRRGIDLWKLQLVVXLQJDPLVFRQGXFWFKDUJH%URZQIDLOHGWR
LQWHUSRVHDQ\REMHFWLRQVWRWKH5 5DQGLWZDVDGRSWHGDV
WKHRSLQLRQRIWKH'LVWULFW&RXUWLQDQ$XJXVW2UGHU
DQG-XGJPHQW
5HJUHWWDEO\ZKHQ%URZQDSSHDOHGWKHMXGJPHQWWKLV
&RXUWPLVDSSUHKHQGHGWKHSURFHGXUDOSRVWXUHRIWKHFDVH,Q
KLVLQLWLDODSSHOODWHVXEPLVVLRQ%URZQFRUUHFWO\QRWHGWKDW
'HIHQGDQWVKDGLQYRNHGWKHGHIHQVHRITXDOLILHGLPPXQLW\
DQGKHFKDOOHQJHGERWKWKH'LVWULFW&RXUW¶VJUDQWRIVXPPDU\
MXGJPHQWDQG'HIHQGDQWV¶FODLPHGHQWLWOHPHQWWRTXDOLILHG

-- 21 of 24 --

%URZQY&URZOH\HWDO 1R
1RWDEO\ %URZQ¶V LQLWLDO EULHI RQ DSSHDO GLG QRW PHQWLRQ DQ\ FODLP
RI UHWDOLDWLRQ EXW DVVHUWHG RQO\ JHQHUDOO\ WKDW 'HIHQGDQWV KDG FRPPLWWHG
)LUVW $PHQGPHQW YLRODWLRQV ,W ZDV RQO\ LQ KLV UHSO\ EULHI WKDW %URZQ
VSHFLILFDOO\ DUJXHG WKDW 'HIHQGDQWV KDG DWWHPSWHG WR SXQLVK KLP IRU
H[HUFLVLQJ KLV )LUVW $PHQGPHQW ULJKW WR SHWLWLRQ IRU D UHGUHVV RI KLV
JULHYDQFHV 'HIHQGDQWV UHDVRQDEO\ FRXOG KDYH DVVXPHG WKHQ WKDW %URZQ
KDG DEDQGRQHG KLV UHWDOLDWLRQ FODLP RQ DSSHDO VHH 7KDGGHXV; )G
DW Q VWDWLQJ WKDW DQ DUJXPHQW ³QRW SUHVHQWHG WR WKLV FRXUW LQ WKH
LQLWLDO EULHIV RQ DSSHDO LV WKHUHIRUH ZDLYHG´ DQG WKLV SUHVXPDEO\
H[SODLQV ZK\ 'HIHQGDQWV¶ UHVSRQVH EULHI LQ WKH ILUVW DSSHDO GLG QRW
DGGUHVV WKLV FODLP
$OWKRXJK WKH 'LVWULFW &RXUW KDG QRW DGGUHVVHG WKH GHIHQVH RI
TXDOLILHG LPPXQLW\ DQG 'HIHQGDQWV GLG QRW LGHQWLI\ WKLV LVVXH LQ WKHLU
DSSHOODWH UHVSRQVH EULHI QRWKLQJ SUHYHQWHG WKH SDQHO LQ WKH LQLWLDO DSSHDO
IURP UHDFKLQJ WKLV LVVXH DV DQ DOWHUQDWLYH JURXQG IRU DIILUPLQJ WKH 'LVWULFW
&RXUW¶V MXGJPHQW 6HH HJ +ROORZD\ Y %UXVK )G WK
&LU
LPPXQLW\1RQHWKHOHVVDSDQHORIWKLV&RXUWHUURQHRXVO\
UHYLHZHG %URZQ¶V )LUVW $PHQGPHQW UHWDOLDWLRQ FODLP DV
WKRXJKLWKDGEHHQGLVPLVVHGDVIULYRORXVDQGIRUIDLOXUHWR
VWDWHDFODLPXQGHU86&† H % 7KHSDQHO
KHOGWKDW%URZQKDGDOOHJHGIDFWVVXIILFLHQWWRVWDWHDFODLPRI
UHWDOLDWLRQ XQGHU 7KDGGHXV; ² D FRQFOXVLRQ ZKLFK RI
FRXUVHVDLGQRWKLQJDERXWWKHSURSULHW\RIWKH'LVWULFW&RXUW¶V
JUDQW RI VXPPDU\ MXGJPHQW LQ 'HIHQGDQWV¶ IDYRU RQ WKLV
FODLP7KXVRXULQLWLDOGHFLVLRQGLGQRWKLQJWRDGYDQFHWKH
UHVROXWLRQRI%URZQ¶VUHWDOLDWLRQFODLPEXWLQVWHDGWHQGHGWR
PXGG\WKHSURFHGXUDOZDWHUV
8SRQUHPDQG'HIHQGDQWVILOHGDQDQVZHULQZKLFKWKH\
DVVHUWHGWKHDIILUPDWLYHGHIHQVHRILPPXQLW\DQGWKHSDUWLHV
VRXJKW DQG ZHUH JUDQWHG D PRGHVW SHULRG RI GLVFRYHU\
3URPSWO\ DIWHU WKH FORVH RI GLVFRYHU\ 'HIHQGDQWV DJDLQ
PRYHGIRUVXPPDU\MXGJPHQWLQWKHLUIDYRURQ%URZQ¶VVROH
UHPDLQLQJFODLPRIUHWDOLDWLRQ6RPHZKDWSUHGLFWDEO\WKLV
PRWLRQRPLWWHGDQ\PHQWLRQRITXDOLILHGLPPXQLW\²DIWHU
DOOWKHFRXUWVKDGVWXGLRXVO\LJQRUHGWKHVXEMHFWXSWRWKDW
SRLQW²DQGLQVWHDGGUHZXSRQWKHJURXQGVDOUHDG\LGHQWLILHG
LQ WKH 0DJLVWUDWH -XGJH¶V HDUOLHU 5 5 DV ZDUUDQWLQJ
VXPPDU\MXGJPHQW*LYHQWKLVSULRUGHWHUPLQDWLRQLWVKRXOG
1R %URZQY&URZOH\HWDO
,QGHHG , ZRXOG ILQG LW LURQLF LI ZH ZRXOG RQ RQH KDQG UHFRJQL]H
D SULVRQHU¶V FRQVWLWXWLRQDO ULJKW WR ILOH JULHYDQFHV HYHQ WKRVH WKDW DUH
GHWHUPLQHG WR EH ZLWKRXW PHULW \HW ZRXOG FRQFOXGH RQ WKH RWKHU KDQG
WKDW D SULVRQ RIILFLDO HJUHJLRXVO\ DEXVHV KLV SRZHU E\ LQYRNLQJ D VLPLODU
DGPLQLVWUDWLYH PHFKDQLVP WR FKDUJH D SULVRQHU ZLWK PLVFRQGXFW DW OHDVW
LQ WKRVH LQVWDQFHV ZKHUH WKH FKDUJH LV VHW DVLGH ,W VWULNHV PH WKDW ZH
VKRXOG HQFRXUDJH SULVRQ RIILFLDOV WR SXUVXH PLVFRQGXFW FKDUJHV DV
RSSRVHG WR RWKHU IRUPV RI GLVFLSOLQH WKDW DUH XQDFFRPSDQLHG E\ VLPLODU
VDIHJXDUGV 6HH <RXQJ )G DW REVHUYLQJ WKDW ³DV D SROLF\
PDWWHU WKLV SRVVLELOLW\ RI FXUH WKURXJK WKH DGPLQLVWUDWLYH DSSHDOV SURFHVV
ZLOO HQFRXUDJH SULVRQ DGPLQLVWUDWRUV WR FRUUHFW HUURUV DV DQ DOWHUQDWLYH WR
IRUFLQJ LQPDWHV WR VHHN UHOLHI LQ VWDWH RU IHGHUDO FRXUWV´
,QGHHGHYHQZLWKRXWEHQHILWRI0F/DXULQ¶VJXLGDQFHWKLV
FRQFOXVLRQZRXOGEHXQDVVDLODEOH8QGHUDQ\WKLQJEXWWKH
PRVWH[WUDRUGLQDU\RIFLUFXPVWDQFHVDSULVRQRIILFLDOGRHV
QRW DEXVH KLV SRVLWLRQ RI DXWKRULW\ PHUHO\ E\ LQYRNLQJ D
FRQYHQWLRQDO DGPLQLVWUDWLYH SURFHGXUH IRU VDQFWLRQLQJ
SULVRQHUPLVFRQGXFW7KHILOLQJRIDPLVFRQGXFWFKDUJHDIWHU
DOO WULJJHUV D ZKROH SDQRSO\ RI SURFHGXUDO VDIHJXDUGV
LQFOXGLQJWKHHQWLWOHPHQWVWRDSURPSWHYLGHQWLDU\KHDULQJWR
SUHVHQWHYLGHQFHDQGDUJXPHQWVWRUHTXHVWDUHKHDULQJDQG
WRVHHNMXGLFLDOUHYLHZ6HH0LFK&RPS/DZV††
6HHJHQHUDOO\&RSHODQGY0DFKXOLV
)G WK&LU KROGLQJWKDWWKLV³H[WHQVLYH
SURFHVV SURYLGHG E\ 0LFKLJDQ VWDWH ODZ´ FRPSRUWV ZLWK
³HVWDEOLVKHGFRQVWLWXWLRQDOJXLGHOLQHV´IRUGXHSURFHVV ,W
VHHPV WR PH WKHQ WKDW D SULVRQ RIILFLDO¶V XVH RI WKLV
PLVFRQGXFWPHFKDQLVPLVQRWH[DFWO\IUDXJKWZLWKSRWHQWLDO
IRU DEXVH DQG ZRXOG QRW ³VKRFN WKH FRQVFLHQFH´ DEVHQW
DGGLWLRQDO LQGLFLD RI PDOLFH VXFK DV HYLGHQFH RI DFWXDO
DQLPXV D SDWWHUQ RI UHSHDWHG ILOLQJV RU GHQLDO RI WKH
SURFHGXUDO FKHFNV DQG EDODQFHV DWWHQGDQW WR D PLVFRQGXFW
FKDUJH&I0RULVVHWWHY3HWHUV)G WK&LU
KROGLQJWKDWWKHUHLV³QRGHQLDORIGXHSURFHVV´ZKHUH
DQ HUURQHRXV GLVFLSOLQDU\ FKDUJH ³LV FRUUHFWHG LQ WKH
DGPLQLVWUDWLYHDSSHDOSURFHVV´ <RXQJY+RIIPDQ)G
G&LU VDPH FHUWGHQLHG86

-- 22 of 24 --

%URZQY&URZOH\HWDO 1R
:H DOVR FRQFOXGHG WKDW 0F/DXULQ KDG IDLOHG WR HVWDEOLVK D
UHWDOLDWRU\ PRWLYH EHKLQG WKH PLVFRQGXFW WLFNHW ZKHUH WKH UHFRUG UHYHDOHG
WKDW WKH SULVRQHU KDG LQ IDFW WKUHDWHQHG WR NLOO &ROH
WKLVFDVH0F/DXULQ¶V³VKRFNVWKHFRQVFLHQFH´WHVWJRYHUQV
WKHVHFRQGSURQJRIWKHTXDOLILHGLPPXQLW\LQTXLU\
2XUGHFLVLRQLQ0F/DXULQXQGHUVRPHZKDWVLPLODUIDFWV
DOVRVHUYHVWRFRQILUPWKDW%URZQFDQQRWKRSHWRGHPRQVWUDWH
D YLRODWLRQ RI WKLV FOHDUO\ HVWDEOLVKHG ODZ 7KH UHWDOLDWLRQ
FODLPLQWKDWFDVHSURFHHGHGWRWULDODQGSODLQWLII0F/DXULQ
WHVWLILHG WKDW GHIHQGDQW &ROH KDG ZURQJIXOO\ LVVXHG D
JURXQGOHVV PLVFRQGXFW WLFNHW DJDLQVW KLP FLWLQJ KLP IRU
WKUHDWHQLQJ&ROH¶VOLIH0F/DXULQIXUWKHUWHVWLILHGWKDWWKLV
WLFNHWZDVLVVXHGVROHO\WRUHWDOLDWHDJDLQVWWKHJULHYDQFHKH
SUHYLRXVO\KDGILOHGDJDLQVW&ROHFKDUJLQJWKLVFRUUHFWLRQV
RIILFHUZLWKGHVWUXFWLRQRIWKHOHJDOPDWHULDOVLQ0F/DXULQ¶V
SULVRQFHOO$WWKHFORVHRIWKLVWHVWLPRQ\WKH'LVWULFW&RXUW
HQWHUHGMXGJPHQWDVDPDWWHURIODZLQ&ROH¶VIDYRUKROGLQJ
WKDW 0F/DXULQ KDG ³RIIHUHG QR HYLGHQFH ZKDWVRHYHU WR
HVWDEOLVKWKDW>&ROH¶V@LVVXDQFHRIWKHPLVFRQGXFWWLFNHWZDV
DQ μHJUHJLRXV DEXVH RI JRYHUQPHQWDO SRZHU¶´ DQG WKDW
DFFHSWLQJ0F/DXULQ¶VWHVWLPRQ\DVWUXH&ROH¶V³DFWLRQVG>LG@
QRWULVHWRVXFKDOHYHODVWRμVKRFNWKHFRQVFLHQFH¶RIWKLV
FRXUW´0F/DXULQ)GDW TXRWLQJ'LVWULFW&RXUW
RUGHU :HDIILUPHGWKH'LVWULFW&RXUW¶VMXGJPHQWRQDSSHDO
EDVHGLQSDUWXSRQRXUFRQFOXVLRQWKDW&ROH¶V³DFWLRQVZHUH
QRWVKRFNLQJWRWKHFRQVFLHQFH´)GDW
,QWKHSUHVHQWFDVH%URZQ¶VFODLPRIUHWDOLDWLRQUHVWVVROHO\
XSRQ WKH PDMRU PLVFRQGXFW FKDUJH LVVXHG DJDLQVW KLP
0F/DXULQ HVWDEOLVKHV WKDW WKLV GRHV QRW FRQVWLWXWH DQ
³HJUHJLRXVDEXVHRIJRYHUQPHQWDOSRZHU´WKDWZRXOG³VKRFN
WKHFRQVFLHQFH´RIWKLV&RXUW7KXVLI'HIHQGDQWVKHUHKDG
UHYLHZHGRXUURXJKO\FRQWHPSRUDQHRXV0F/DXULQGHFLVLRQDW
WKHWLPHRIWKHLQFLGHQWVJLYLQJULVHWR%URZQ¶VUHWDOLDWLRQ
FODLPWKH\GRXEWOHVVZRXOGKDYHFRQFOXGHGWKDWWKH\FRXOG
LVVXHDPLVFRQGXFWWLFNHWDJDLQVW%URZQZLWKRXWIHDURIEHLQJ
KDOHGLQWRFRXUWDQGDFFXVHGRIYLRODWLQJDFOHDUO\HVWDEOLVKHG
FRQVWLWXWLRQDOULJKW
1R %URZQY&URZOH\HWDO
FRPH DV QR VXUSULVH WKDW WKH 0DJLVWUDWH RQFH DJDLQ
UHFRPPHQGHGWKDW'HIHQGDQWV¶PRWLRQEHJUDQWHG7KLVODWHVW
5 5ZDVDGRSWHGDVWKHRSLQLRQRIWKH'LVWULFW&RXUWDQG
%URZQKDVDJDLQDSSHDOHG,QWKHLUFXUUHQWDSSHOODWHEULHI
'HIHQGDQWV KDYH UDLVHG IRU WKH WKLUG WLPH WKH GHIHQVH RI
TXDOLILHGLPPXQLW\DVDQDOWHUQDWLYHEDVLVIRUDIILUPLQJWKH
'LVWULFW&RXUW¶VMXGJPHQW
,QOLJKWRIWKLVSURFHGXUDOKLVWRU\WKHRQO\VHQVHLQZKLFK
'HIHQGDQWVPLJKWEHVDLGWRKDYH³ZDLYHG´WKHGHIHQVHRI
TXDOLILHGLPPXQLW\LVWKURXJKWKHLUIDLOXUHWRUHKDVKWKHLVVXH
EHIRUH HDFK DQG HYHU\ FRXUW DW HDFK DQG HYHU\ DYDLODEOH
RSSRUWXQLW\ (YHQ WKHQ WKLV FRXUVH RI FRQGXFW ZRXOG EH
ZKROO\ XQGHUVWDQGDEOH ZKHUH QR FRXUW WKURXJKRXW WKLV
SURWUDFWHG OLWLJDWLRQ KDV \HW KHHGHG WKH 6XSUHPH &RXUW¶V
LQVWUXFWLRQ WKDW ³TXDOLILHG LPPXQLW\ TXHVWLRQV VKRXOG EH
UHVROYHG DW WKH HDUOLHVW SRVVLEOH VWDJH RI D OLWLJDWLRQ´
$QGHUVRQ86DWQ6&WDWQDQG
ZKHUH WKH VXSSRVHG EHQHILW RI WKLV LPPXQLW\ ² QDPHO\
IUHHGRPIURPWKHEXUGHQRIOLWLJDWLQJFODLPVQRWLQYROYLQJD
YLRODWLRQRIFOHDUO\HVWDEOLVKHGODZ²KDVORQJVLQFHEHHQ
ORVW)RUZKDWHYHUUHDVRQWKHFRXUWVFDQQRWVHHPWRUHVLVWWKH
DOOXUHRIPHDVXULQJ%URZQ¶VUHWDOLDWLRQFODLPE\WKHVWDQGDUGV
RI 7KDGGHXV; HYHQ WKRXJK DV GLVFXVVHG EHORZ WKRVH
VWDQGDUGV DUH H[FHHGLQJO\ XQOLNHO\ WR SOD\ DQ\ UROH LQ WKH
XOWLPDWHGLVSRVLWLRQRIWKLVFDVH
8QGHU WKHVH FLUFXPVWDQFHV ZKHUH 'HIHQGDQWV KDYH
DGHTXDWHO\SUHVHUYHGWKHGHIHQVHRITXDOLILHGLPPXQLW\DQG
ZKHUHZHXQGRXEWHGO\KDYHWKHDXWKRULW\WRUHDFKWKHLVVXH
³WKH ULJKW TXHVWLRQ LV ZKHWKHU WKH H[WHQW RI TXDOLILHG
LPPXQLW\LVULSHIRUGHFLVLRQ´%XFNOH\Y)LW]VLPPRQV
)G WK&LU FHUWGHQLHG86
7KH DQVZHU WR WKLV TXHVWLRQ LV FOHDUO\ \HV LQ P\
MXGJPHQW DQG WKH PDMRULW\ IDLOV WR VXJJHVW DQ\ EDVLV IRU
FRQFOXGLQJ RWKHUZLVH , VHH QR PHDQLQJIXO DQDO\WLFDO
GLVWLQFWLRQEHWZHHQWKHLQTXLU\,DGYRFDWHDQGWKHRQH WKH
PDMRULW\FRQGXFWV²LQHLWKHUFDVHZHVXUYH\SUHFLVHO\WKH
VDPHUHFRUGLQH[DFWO\WKHVDPHZD\ LHXQGHUVXPPDU\
MXGJPHQWSULQFLSOHVUHVROYLQJDOOIDFWXDOGLVSXWHVLQ%URZQ¶V

-- 23 of 24 --

%URZQY&URZOH\HWDO 1R
IDYRU DQGDVNKRZ'HIHQGDQWV¶DFWLRQVPHDVXUHXSDJDLQVW
WKHUHOHYDQWOHJDOVWDQGDUG7KHRQO\GLIIHUHQFHLVDVWRWKH
VXEVWDQWLYH ODZ ZH ZRXOG DSSO\ WKH PDMRULW\ ORRNV WR
7KDGGHXV;ZKLOH,ZRXOGFRQVXOWWKHODZWKDWZDVFOHDUO\
HVWDEOLVKHG DW WKH WLPH RI 'HIHQGDQWV¶ FRQGXFW ,Q RWKHU
ZRUGVWKHFKRLFHLVEHWZHHQWZRSXUHO\OHJDOTXHVWLRQVZLWK
HLWKHUWREHUHVROYHGXQGHUWKHYHU\VDPHUHFRUG7KHUHLVQR
UHDVRQ WKHQ ZK\ ZH VKRXOG IXUWKHU GHIHU WKH TXDOLILHG
LPPXQLW\LQTXLU\SDUWLFXODUO\ZKHUHDVH[SODLQHGEHORZWKH
LVVXHLVUHDGLO\DGGUHVVHGDQGWKHRXWFRPHLVFOHDU
,,
%HFDXVH 'HIHQGDQWV XQTXHVWLRQDEO\ KDYH SUHVHUYHG WKH
GHIHQVHRITXDOLILHGLPPXQLW\ZHFDQEHVXUHWKDWWKH\ZLOO
LPPHGLDWHO\ SXUVXH LW DJDLQ XSRQ UHPDQG WR WKH 'LVWULFW
&RXUW 5HJDUGOHVV RI ZKR ZLQV RU ORVHV RQ WKLV LVVXH DQ
LPPHGLDWH DSSHDO ZRXOG DOPRVW FHUWDLQO\ IROORZ 6HH
'LFNHUVRQ )G DW %XFNOH\ )G DW
7KH FDVH ZRXOG UHWXUQ WR WKLV &RXUW ³OLNH D \R\R´ ZLWK
³>W@LPH ORVW DQG QRWKLQJ JDLQHG E\ WKHVH DGGLWLRQDO
VWHSV´ %XFNOH\ )G DW 7KLV SURFHVV ZRXOG EH
SDUWLFXODUO\ZDVWHIXOKHUHDVWKHUHLVQRGRXEWLQP\YLHZ
WKDW'HIHQGDQWVDUHHQWLWOHGWRTXDOLILHGLPPXQLW\
,QFRQGXFWLQJWKLVLQTXLU\ZHILUVWDVN³ZKHWKHUEDVHGRQ
WKHDSSOLFDEOHODZDFRQVWLWXWLRQDOYLRODWLRQRFFXUUHG´DQG
LI VR ZH WKHQ FRQVLGHU ³ZKHWKHU WKLV YLRODWLRQ LQYROYHG
FOHDUO\HVWDEOLVKHGFRQVWLWXWLRQDOULJKWVRIZKLFKDUHDVRQDEOH
SHUVRQ ZRXOG KDYH NQRZQ´ DW WKH WLPH RI WKH DOOHJHG
YLRODWLRQ6SXUORFN)GDW LQWHUQDOTXRWDWLRQVDQG
FLWDWLRQVRPLWWHG ³%RWKTXHVWLRQVPXVWEHDQVZHUHGLQWKH
DIILUPDWLYHLQRUGHUWRGHIHDWDJRYHUQPHQWRIILFLDO¶VFODLPWR
TXDOLILHGLPPXQLW\´DQG³WKHEXUGHQLVRQWKHSODLQWLIIWR
DOOHJH DQG SURYH WKDW WKH GHIHQGDQW YLRODWHG D FOHDUO\
HVWDEOLVKHGFRQVWLWXWLRQDOULJKW´)GDW,ZLOO
DVVXPHIRUWKHPRPHQWWKDW%URZQFDQVDWLVI\WKHILUVWSURQJ
RIWKLVLQTXLU\²QDPHO\WKDWKHKDVDOOHJHGDQGFDQSURYH
1R %URZQY&URZOH\HWDO
8SRQ DGGUHVVLQJ WKH PHULWV EHORZ KRZHYHU , FRQFOXGH WKDW WKH
HYLGHQWLDU\ UHFRUG IDLOV DV D PDWWHU RI ODZ WR VXVWDLQ WKLV SURSRVLWLRQ
7KH SDQHO LQ 0F/DXULQ UHFRJQL]HG DV PXFK YDFDWLQJ LWV GHFLVLRQ LQ
OLJKW RI 7KDGGHXV; 6HH 0F/DXULQ Y &ROH )G :/
WK &LU 'HF $OWKRXJK WKLV YDFDWHG GHFLVLRQ QR
ORQJHU KDV SUHFHGHQWLDO YDOXH LW SODLQO\ VWLOO VHUYHV DV DQ LPSRUWDQW GDWXP
RI WKLV &LUFXLW¶V ODZ DV D JRYHUQPHQW RIILFLDO ZRXOG KDYH XQGHUVWRRG LW
SULRU WR 7KDGGHXV;
WKDWRQHRUPRUH'HIHQGDQWVUHWDOLDWHGDJDLQVWKLVH[HUFLVHRI
)LUVW$PHQGPHQWULJKWV
7XUQLQJ WR WKH VHFRQG TXHVWLRQ LW LV D VLPSOH PDWWHU WR
DVFHUWDLQ WKH FOHDUO\ HVWDEOLVKHG ODZ WKDW JRYHUQHG
'HIHQGDQWV¶DFWLRQVLQHDUO\-XVWDIHZPRQWKVHDUOLHU
LQ-XQHRIWKLV&RXUWGHFLGHGDFDVHZKHUHDVKHUHWKH
SODLQWLIISULVRQHU-DFN0F/DXULQDOOHJHGWKDWWKHGHIHQGDQW
FRUUHFWLRQVRIILFHU5XVV&ROHKDGLVVXHGDPLVFRQGXFWWLFNHW
LQUHWDOLDWLRQIRUDJULHYDQFHWKDW0F/DXULQKDGILOHGDJDLQVW
&ROHDIHZGD\VHDUOLHU6HH0F/DXULQ)GDW:H
VTXDUHO\UHMHFWHG0F/DXULQ¶VFRQWHQWLRQWKDWKLVFDVHZDVQRW
JRYHUQHGE\WKH³VKRFNVWKHFRQVFLHQFH´VWDQGDUGQRWLQJRXU
³UHSHDWHG>@GHPDQG>@WKDWUHWDOLDWLRQFODLPVDULVLQJIURPWKH
H[HUFLVH RI )LUVW $PHQGPHQW ULJKWV EH VKRFNLQJ WR WKH
FRQVFLHQFH´)GDW
2XU GHFLVLRQ LQ 7KDGGHXV; FRQILUPV WKLV WKHQ
H[LVWLQJVWDWHRIWKHODZDFNQRZOHGJLQJWKDWZHSUHYLRXVO\
KDG DSSOLHG D ³VKRFNV WKH FRQVFLHQFH´ VWDQGDUG LQ VRPH
LQVWDQFHV DQG GHFODULQJ WKDW WKHVH SULRU UXOLQJV LQFOXGLQJ
0F/DXULQDUH³QRORQJHUWKHODZRIWKLV&LUFXLW´7KDGGHXV
;)GDW0RUHUHFHQWO\WKRXJKZHFULWLFL]HG
0F/DXULQ¶V UHDGLQJ RI 6L[WK &LUFXLW SUHFHGHQW ZH
QRQHWKHOHVVUHFRJQL]HGWKDWRQFHWKLVUXOLQJZDVLVVXHG
³D UHDVRQDEOH RIILFLDO PLJKW >KDYH@ H[SHFW>HG@ WR HVFDSH
OLDELOLW\ IRU UHWDOLDWRU\ DFWV IDOOLQJ VKRUW RI FRQVFLHQFH
VKRFNLQJDEXVHVRISRZHU´%HOOY-RKQVRQ)G
WK&LU $FFRUGLQJO\EHFDXVH7KDGGHXV;KDG
QRW\HWEHHQGHFLGHGDWWKHWLPHRI'HIHQGDQWV¶FRQGXFWLQ

-- 24 of 24 --