00a0331p.06

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
0$5< (/,=$%(7+ /($5<
*/(1'$ + :,//,$06
3ODLQWLIIV$SSHOODQWV
&URVV$SSHOOHHV
Y
67(3+(1 : '$(6&+1(5
6XSHULQWHQGHQWRIWKH
-HIIHUVRQ&RXQW\%RDUGRI
(GXFDWLRQ
'HIHQGDQW$SSHOOHH
&URVV$SSHOODQW
;!

1
1RV
$SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
IRUWKH:HVWHUQ'LVWULFWRI.HQWXFN\DW/RXLVYLOOH
1R²&KDUOHV56LPSVRQ,,,
&KLHI'LVWULFW-XGJH
$UJXHG$XJXVW
'HFLGHGDQG)LOHG6HSWHPEHU

-- 1 of 12 --

/HDU\HWDOY'DHVFKQHU 1RV
7KH +RQRUDEOH 'HQLVH 3DJH +RRG 8QLWHG 6WDWHV 'LVWULFW -XGJH IRU
WKH (DVWHUQ 'LVWULFW RI 0LFKLJDQ VLWWLQJ E\ GHVLJQDWLRQ
%HIRUH0225(DQG&/$<&LUFXLW-XGJHV+22'
'LVWULFW-XGJH
BBBBBBBBBBBBBBBBB
&2816(/
$5*8(''DQLHO77D\ORU,,,/RXLVYLOOH.HQWXFN\IRU
$SSHOODQWV 0LFKDHO . .LUN :<$77 7$55$17
&20%6/RXLVYLOOH.HQWXFN\IRU$SSHOOHH21%5,()
'DQLHO 7 7D\ORU ,,, /RXLVYLOOH .HQWXFN\ IRU $SSHOODQWV
0LFKDHO..LUN'HQLVH/6W&ODLU:<$777$55$17
&20%6/RXLVYLOOH.HQWXFN\IRU$SSHOOHH
BBBBBBBBBBBBBBBBB
23,1,21
BBBBBBBBBBBBBBBBB
.$5(1 1(/621 0225( &LUFXLW -XGJH 3ODLQWLIIV
DSSHOODQWV DQG FURVVDSSHOOHHV 0DU\ (OL]DEHWK /HDU\ DQG
*OHQGD + :LOOLDPV ³SODLQWLIIV´ ZHUH WHDFKHUV DW WKH
$WNLQVRQ(OHPHQWDU\6FKRRO ³$WNLQVRQ´ DSXEOLFVFKRROLQ
-HIIHUVRQ &RXQW\ .HQWXFN\ $W WKH HQG RI WKH
VFKRRO \HDU WKH\ ZHUH LQYROXQWDULO\ WUDQVIHUUHG WR DQRWKHU
VFKRRO ZLWKLQ WKH VFKRRO GLVWULFW $OOHJLQJ WKDW WKH\ ZHUH
WUDQVIHUUHGLQUHWDOLDWLRQIRUH[HUFLVLQJWKHLU)LUVW$PHQGPHQW
ULJKWV DQG WKDW WKH\ ZHUH QRW DIIRUGHG GXH SURFHVV LQ
FRQQHFWLRQZLWKWKHWUDQVIHUWKHSODLQWLIIVEURXJKWWKHLQVWDQW
VXLWXQGHU86&†DJDLQVWGHIHQGDQWDSSHOOHHDQG
FURVVDSSHOODQW6WHSKHQ:'DHVFKQHUWKH6XSHULQWHQGHQWRI
WKH -HIIHUVRQ &RXQW\ %RDUG RI (GXFDWLRQ VHHNLQJ D
SUHOLPLQDU\ LQMXQFWLRQ SUHYHQWLQJ WKH VFKRRO GLVWULFW IURP
FRPSOHWLQJ WKH WUDQVIHU 7KH GLVWULFW FRXUW GHQLHG WKH
SODLQWLIIV¶PRWLRQIRUSUHOLPLQDU\LQMXQFWLRQEDVHGRQWKHLU
)LUVW $PHQGPHQW FODLP EXW HQMRLQHG 'DHVFKQHU IURP
WUDQVIHUULQJWKHSODLQWLIIVXQWLOWKH\KDGUHFHLYHGGXHSURFHVV

-- 2 of 12 --

/HDU\HWDOY'DHVFKQHU 1RV
WKHKHDULQJ7KLVDUJXPHQWLVRQHRIVHPDQWLFV,WLVFOHDU
IURPWKHFRQWH[WRIWKHOHWWHUWKDWWKHWHUPLQDWLRQZRXOGEH
HIIHFWLYH WKDW GD\ EDUULQJ D VXFFHVVIXO FKDOOHQJH WR WKH
UHDVRQVJLYHQIRUWKHWUDQVIHU,QDGGLWLRQWRWKHH[WHQWWKDW
WKHSODLQWLIIVPDNHFODLPVUHJDUGLQJWKHDOOHJHGEDGIDLWKRU
ELDV RI WKH VFKRRO DGPLQLVWUDWRUV LQ FRQQHFWLRQ ZLWK WKH
KHDULQJ²VXFKDVSXUSRUWHGVWDWHPHQWVE\WKHQHZSULQFLSDO
RI$WNLQVRQWKDWKHGLGQRWZDQWWKHSODLQWLIIVWRUHWXUQWRWKH
VFKRRODQGKDGQRLQWHQWLRQRIUHLQVWDWLQJWKHP²ZHQRWH
WKDWSUHGHSULYDWLRQKHDULQJVDUHLQWHQGHGRQO\WREHDQ³LQLWLDO
FKHFN´RQWKHHPSOR\HU¶VGHFLVLRQDQG³QHHGQRWGHILQLWLYHO\
UHVROYHWKHSURSULHW\RI´WKHDFWLRQ/RXGHUPLOO86DW
,QFRQWUDVWWRWKHSUHGHSULYDWLRQKHDULQJRQHSXUSRVHRI
PRUHHODERUDWHSRVWGHSULYDWLRQSURFHVVLV³WRIHUUHWRXWELDV
SUHWH[W GHFHSWLRQ DQG FRUUXSWLRQ E\ WKH HPSOR\HU´
'XFKHVQHY:LOOLDPV)G WK&LU
HQEDQF FHUWGHQLHG86 7KHUHIRUHWKH
SODLQWLIIV KDYH UHFHLYHG DOO WKH SUHGHSULYDWLRQ SURFHVV WKDW
WKH\ DUH GXH DQG WKH GLVWULFW FRXUW FRUUHFWO\ OLIWHG WKH
SUHOLPLQDU\LQMXQFWLRQ
,,,&21&/86,21
)RUWKHIRUHJRLQJUHDVRQVWKHMXGJPHQWRIWKHGLVWULFWFRXUW
LV$)),50('LQLWVHQWLUHW\
1RV /HDU\HWDOY'DHVFKQHU
$ WKLUG SODLQWLII 'RQQD - *UDQW ZDV RULJLQDOO\ LQYROYHG LQ WKH FDVH
EXW GURSSHG RXW RI WKH OLWLJDWLRQ DIWHU GHFLGLQJ WR DFFHSW D YROXQWDU\
WUDQVIHU WR DQRWKHU VFKRRO LQ $XJXVW
7KUHHGD\VODWHUWKHGLVWULFWFRXUWGLVVROYHGWKHLQMXQFWLRQ
ILQGLQJWKDWWKHVFKRROKDGSURYLGHGVXIILFLHQWSURFHVVWRWKH
SODLQWLIIV LQ WKHWLPHVLQFHWKHFRXUW¶VRULJLQDORUGHU7KH
SODLQWLIIVWKHQEURXJKWWKLVDSSHDOFODLPLQJWKDWWKHGLVWULFW
FRXUWDEXVHGLWVGLVFUHWLRQLQGHQ\LQJDSUHOLPLQDU\LQMXQFWLRQ
RQ WKHLU )LUVW $PHQGPHQW FODLPV DQG LQ ILQGLQJ WKDW WKH
SODLQWLIIVKDGEHHQDIIRUGHGGXHSURFHVV'DHVFKQHUFURVV
DSSHDOHG FODLPLQJ WKDW WKH GLVWULFW FRXUW¶V RULJLQDO
GHWHUPLQDWLRQWKDWWKHSODLQWLIIVZHUHHQWLWOHGWRGXHSURFHVV
ZDVLQHUURU)RUWKHUHDVRQVGLVFXVVHGEHORZZH$)),50
DOORIWKHGLVWULFWFRXUW¶VUXOLQJV
,%$&.*5281'
0DU\(OL]DEHWK/HDU\DQG*OHQGD+:LOOLDPVZHUHORQJ
WLPHVSHFLDOHGXFDWLRQWHDFKHUVDWWKH$WNLQVRQ(OHPHQWDU\
6FKRRO D SXEOLF VFKRRO LQ -HIIHUVRQ &RXQW\ .HQWXFN\
$WNLQVRQWKHXQGLVSXWHGHYLGHQFHVKRZVLVDKLJKO\WURXEOHG
HOHPHQWDU\VFKRROSURGXFLQJVRPHRIWKHORZHVWVWXGHQWWHVW
VFRUHV LQ WKH VWDWH RI .HQWXFN\ ,Q IDFW $WNLQVRQ ZDV
LGHQWLILHGE\WKHVWDWHDVDVFKRRO³LQGHFOLQH´0RUHRYHUWKH
VFKRROKDVDUHSXWDWLRQIRUEHLQJDQXQSOHDVDQWSODFHWRZRUN
WHVWLPRQ\ SUHVHQWHG WR WKH GLVWULFW FRXUW VXJJHVWHG WKDW
$WNLQVRQ KDV KDG JUHDW GLIILFXOW\ LQ JHWWLQJ TXDOLILHG
LQGLYLGXDOVWRDFFHSWDQGNHHSWKHMRERISULQFLSDOGXHLQSDUW
WR WKH WHQVH UHODWLRQVKLS EHWZHHQ $WNLQVRQ IDFXOW\ DQG
DGPLQLVWUDWLRQ ,Q DGGLWLRQ VHYHUDO WHDFKHUV WHVWLILHG WKDW
VWXGHQWGLVFLSOLQHZDVDVLJQLILFDQWSUREOHP
'XHWR$WNLQVRQ¶VSRRUDFDGHPLFDFKLHYHPHQWOHYHOWKH
VFKRROTXDOLILHGXQGHUWKH.HQWXFN\(GXFDWLRQ5HIRUP$FW
WR UHFHLYH WKH DVVLVWDQFH RI D 'LVWLQJXLVKHG (GXFDWRU RU
³+LJKO\6NLOOHG(GXFDWRU´DQHPSOR\HHRIWKHVFKRROGLVWULFW
ZKR VSHFLDOL]HV LQ DLGLQJ WURXEOHG VFKRROV $WNLQVRQ¶V
'LVWLQJXLVKHG(GXFDWRUZDV1DQF\%RZOGVZKRDUULYHGDW
WKHVFKRROLQ$XJXVW%RZOGVFRQGXFWHGDQXPEHURI

-- 3 of 12 --

/HDU\HWDOY'DHVFKQHU 1RV
PHHWLQJV FRPPXQLFDWHG ZLWK WHDFKHUV DQG DGPLQLVWUDWRUV
DQG ZRUNHG FORVHO\ ZLWK WKH WKHQSULQFLSDO RI $WNLQVRQ
/H'LWD+RZDUGLQRUGHUWRGHYLVHDQLPSURYHPHQWSODQIRU
WKHVFKRRO8OWLPDWHO\LWZDVGHFLGHGWKDWD³FROODERUDWLYH
PRGHO´ RI HGXFDWLRQ ZDV WKH SUHIHUDEOH RQH DQG +RZDUG
IRUPDOO\SUHVHQWHGWKHLGHDWRWKH$WNLQVRQIDFXOW\ZKHUHLW
PHW ZLWK VRPH UHVLVWDQFH 6KRUWO\ WKHUHDIWHU LQ
DSSUR[LPDWHO\ 0D\ RI WKH GHFLVLRQ ZDV PDGH WR
WUDQVIHU VRPH RI WKH WHDFKHUV IURP $WNLQVRQ WR DQRWKHU
VFKRROSXUSRUWHGO\LQRUGHUWRHQVXUHWKDWWKHIDFXOW\ZRXOG
SULPDULO\ FRQVLVW RI WHDFKHUV ZKR ZHUH LQ IDYRU RI
LPSOHPHQWLQJWKHSURSRVHGFKDQJHVDQGSDUWO\DOVRLQKRSHV
RIFKDQJLQJWKHRYHUDOOFOLPDWHDWWKHVFKRROWKURXJKDFKDQJH
RI SHUVRQQHO 7KH XQUHIXWHG WHVWLPRQ\ RI WKH GHIHQGDQW¶V
ZLWQHVVHVLQGLFDWHVWKDWWKHLGHDRIWUDQVIHUULQJSHUVRQQHOZDV
LQLWLDWHGE\GLVWULFWOHYHODGPLQLVWUDWRUV:LOOLDP(FNHOVWKH
([HFXWLYH 'LUHFWRU RI +XPDQ 5HVRXUFHV DQG 'U )UHGD
0HULZHDWKHUWKH$VVLVWDQW6XSHULQWHQGHQWIRU'LVWULFW:LGH
,QVWUXFWLRQ ZLWK WKH DSSURYDO RI 6XSHULQWHQGHQW 6WHSKHQ
'DHVFKQHU
2QFH WKH GHFLVLRQ ZDV WDNHQ WR WUDQVIHU VRPH WHDFKHUV
0HULZHDWKHUDVNHG+RZDUGDQG%RZOGVWRVXJJHVWWKHQDPHV
RIWHDFKHUVZKRZRXOGEHPRVWOLNHO\WRUHVLVWRULPSHGHWKH
LPSHQGLQJFKDQJHVDW$WNLQVRQ%RZOGV¶VOLVWFRQWDLQHGERWK
/HDU\¶VDQG:LOOLDPV¶VQDPHVEXW+RZDUG¶VGLGQRWFRQWDLQ
HLWKHU0HULZHDWKHUFRPSDUHGWKHOLVWVDQGDVNHG+RZDUG
ZKHWKHU VKH ZRXOG DJUHH ZLWK %RZOGV¶V LGHQWLILFDWLRQ RI
/HDU\DQG:LOOLDPVDVSURVSHFWVIRUWUDQVIHU+RZDUGDJUHHG
1HLWKHU0HULZHDWKHUQRU(FNHOVSHUVRQDOO\NQHZYHU\PXFK
DERXWWKHSODLQWLIIVEXWUDWKHUUHOLHGHQWLUHO\RQWKHDGYLFHRI
+RZDUG DQG %RZOGV 8OWLPDWHO\ ILYH WHDFKHUV DQG RQH
VHFXULW\ PRQLWRU ZHUH JLYHQ QRWLFH WKDW WKH\ ZRXOG EH
WUDQVIHUUHGRXWRIWKH$WNLQVRQVFKRRO:LOOLDPVDQG/HDU\
UHFHLYHG OHWWHUV RQ 0D\ DQG -XQH
UHVSHFWLYHO\²WKHODVWGD\VRIWKHVFKRRO\HDU²LQIRUPLQJ
WKHPWKDWWKH\ZRXOGEHWUDQVIHUUHGSXUVXDQWWRVHFWLRQ'RI
WKH FROOHFWLYH EDUJDLQLQJ DJUHHPHQW &%$ EHWZHHQ WKH
-HIIHUVRQ &RXQW\ %RDUG RI (GXFDWLRQ DQG WKH -HIIHUVRQ
&RXQW\7HDFKHUV¶$VVRFLDWLRQ -&7$ ,WLVXQGLVSXWHGWKDW
1RV /HDU\HWDOY'DHVFKQHU
SHUVRQRULQZULWLQJZK\SURSRVHGDFWLRQVKRXOGQRWEHWDNHQ
LVDIXQGDPHQWDOGXHSURFHVVUHTXLUHPHQW´/RXGHUPLOO
86DW$OWKRXJKWKHVFKRROERDUGJDYHWKHSODLQWLIIV
YHU\ OLWWOH WLPH WR SUHSDUH IRU WKH $XJXVW KHDULQJ WKH
GLVWULFWFRXUWGLGQRWDEXVHLWVGLVFUHWLRQLQUHIXVLQJWRUHTXLUH
IXUWKHUSUHGHSULYDWLRQSURFHVVE\H[WHQGLQJLWVSUHOLPLQDU\
LQMXQFWLRQ)LUVWDV'DHVFKQHUSRLQWVRXWWKHSODLQWLIIVDQG
WKHLU FRXQVHO KDG MXVW ILQLVKHG JDWKHULQJ GLVFRYHU\ DQG
DUJXLQJDERXWWKHUHDVRQVIRUWKHSODLQWLIIV¶WUDQVIHUGXULQJWKH
OLWLJDWLRQRIWKHSUHOLPLQDU\LQMXQFWLRQPRWLRQWKH\ZHUHWKXV
XQGRXEWHGO\SUHSDUHGWRUHVSRQGWRWKHUHDVRQVJLYHQIRUWKHLU
WUDQVIHU6HFRQGWKHSODLQWLIIV¶FRXQVHODSSHDUHGWRLQGLFDWH
DWWKHSUHOLPLQDU\LQMXQFWLRQKHDULQJWKDWWKH\ZRXOGEHUHDG\
IRUDGXHSURFHVVKHDULQJDVVRRQDV$XJXVW6HH-$DW
7U RI +U¶J 7KLUG WKHUH KDV EHHQ QR
DOOHJDWLRQWKDWWKHSODLQWLIIV¶FRXQVHOZRXOGKDYHEHHQXQDEOH
WRDWWHQGWKHKHDULQJDWWKHGHVLJQDWHGWLPHUDWKHUFRXQVHO
FKRVH WR VSHQG WKH PRUQLQJ RI $XJXVW SUHSDULQJ D
FRQWHPSWPRWLRQUDWKHUWKDQDWWHQGLQJWKHKHDULQJ)RXUWKLW
LV XQGLVSXWHG WKDW WKH SODLQWLIIV FDQ WDNH DGYDQWDJH RI D
SRVWGHSULYDWLRQJULHYDQFHSURFHGXUHSURYLGHGE\WKH&%$
DOWKRXJKWKHUHFRUGFRQWDLQVYHU\OLWWOHLQIRUPDWLRQDERXWWKLV
SURFHGXUH7KHSODLQWLIIVKDYHQRWDOOHJHGWKDWWKLVSURFHGXUH
LVLQDQ\ZD\XQDYDLODEOHWRWKHP)LQDOO\WKHHQWLWOHPHQWWR
GXHSURFHVVLVDQHQWLWOHPHQWWR³DPHDQLQJIXOKHDULQJDWD
PHDQLQJIXOWLPH´7RQH\(OY)UDQ]HQ)G
WK &LU FHUW GHQLHG 86 $OO
SDUWLHVXQGHUVWRRG WKDWWKHUHZDVVRPHXUJHQF\DVVRFLDWHG
ZLWK WKH SUHWUDQVIHU KHDULQJ EHFDXVH WKH VFKRRO \HDU ZDV
VFKHGXOHGWRVWDUWRQ$XJXVW6HH-$DW,QVXP
WKHSODLQWLIIVZHUHDIIRUGHGGXHSURFHVVDQGZDLYHGWKHLUULJKW
WRLWE\UHIXVLQJWRSDUWLFLSDWHLQWKHKHDULQJRIIHUHGWRWKHP
E\WKHVFKRROERDUG6HH&ROO\HUY'DUOLQJ)G
WK&LU FHUWGHQLHG86
0RUHRYHUWKHSODLQWLIIVKDYHQRWVXIILFLHQWO\VKRZQWKDWWKH
KHDULQJ RIIHUHG WR WKHP ZDV QRW WUXO\ PHDQLQJIXO 7KH
SODLQWLIIVFODLPWKDWWKHOHWWHULQIRUPLQJWKHPRIWKHLUULJKWWR
D KHDULQJ DOVR LQIRUPHG WKHP WKDW WKH WUDQVIHU ZRXOG EH
HIIHFWLYHDWSPWKDWGD\UHJDUGOHVVRIWKHRXWFRPHRI

-- 4 of 12 --

/HDU\HWDOY'DHVFKQHU 1RV
DVVRFLDWHG ZLWK 6HFWLRQ ' WUDQVIHUV :LOOLDPV 7HVW
VDPH VHHJHQHUDOO\%RJHU)GDW
7KHSODLQWLIIV¶FDVHGRHVQRWIDOOZLWKLQWKHH[FHSWLRQODLG
RXWLQ5DPVH\Y%RDUGRI(GXFDWLRQ)G WK&LU
,Q5DPVH\WKLVFRXUWQRWHGWKDWVWDWHSRVWGHSULYDWLRQ
SURFHGXUHVDUHVXIILFLHQWDQGQHLWKHUDSUHGHSULYDWLRQKHDULQJ
QRUDIHGHUDOFDXVHRIDFWLRQLVQHFHVVDU\ZKHQWKHSURSHUW\
LQWHUHVWDWVWDNHLVD³VSHFLILFEHQHILWWHUPRUFRQGLWLRQRI
HPSOR\PHQW´WKHORVVRIZKLFKLVHDVLO\TXDQWLILHGUDWKHU
WKDQWKH³WHQXUHGQDWXUHRIWKHHPSOR\PHQWLWVHOI´5DPVH\
)GDW7KHEHQHILWORVWLQ5DPVH\ZDVWKHULJKWWR
FRPSHQVDWLRQIRUDQXPEHURIXQXVHGDFFXPXODWHGVLFNOHDYH
GD\V SURYLGHG IRU E\ WKH SODLQWLII¶V HPSOR\PHQW FRQWUDFW
6LQFHWKHSODLQWLIIFRXOGVXHXQGHUKHUHPSOR\PHQWFRQWUDFW
DQG WKH YDOXH RI WKH SURSHUW\ LQWHUHVW ORVW ZDV FOHDUO\
GHILQDEOH DQG TXDQWLILDEOH WKLV FRXUW KHOG WKDW D VWDWHODZ
EUHDFK RI FRQWUDFW DFWLRQ ZRXOG SURYLGH WKH SODLQWLII ZLWK
VXIILFLHQWGXHSURFHVV6HHLGDW,QWKHLQVWDQWFDVHE\
FRQWUDVWWKH&%$KDVFUHDWHGIRU:LOOLDPVDQG/HDU\DULJKW
WRWHQXUHLQDSDUWLFXODUSRVLWLRQZLWKLQWKHVFKRROGLVWULFW
:H EHOLHYH WKDW WKH SODLQWLIIV¶ ORVV RI WKLV WHQXUH LV PRUH
DQDORJRXV WR WKH FRPSOHWH WHUPLQDWLRQ IURP D SRVW LQ
/RXGHUPLOOWKDQWKHORVVRIDVSHFLILFDQGSULPDULO\HFRQRPLF
EHQHILWLQ5DPVH\&I-RKQVWRQ7D\ORU)GDW
KROGLQJWKDWSRVWWHUPLQDWLRQJULHYDQFHSURFHGXUHVDUHQRW
VXIILFLHQWLQWKHFDVHRIWKHGLVFKDUJHRIWHQXUHGSURIHVVRUV
ZKHUHWKHSURIHVVRUVZHUHQRWJLYHQUHDVRQVIRUWKHGLVFKDUJH
RU DQ RSSRUWXQLW\ WR EH KHDUG EHIRUHKDQG 7KH RULJLQDO
GHWHUPLQDWLRQ E\ WKH GLVWULFW FRXUW WKDW WKH SODLQWLIIV ZHUH
HQWLWOHGWRGXHSURFHVVZDVQRWLQHUURU
,Q WKH FLUFXPVWDQFHV RI WKLV SDUWLFXODU FDVH WKH
SUHGHSULYDWLRQ KHDULQJ XOWLPDWHO\ SURYLGHG E\ WKH VFKRRO
ERDUG ZDV VXIILFLHQW WR VDWLVI\ WKH GLFWDWHV RI GXH SURFHVV
'XH SURFHVV LV D IOH[LEOH SULQFLSOH ZKRVH UHTXLUHPHQWV
GHSHQGRQWKHIDFWVRIWKHLQGLYLGXDOFDVH6HH0DFHQHY
0-:,QF)G WK&LU ³7KHHVVHQWLDO
UHTXLUHPHQWVRIGXHSURFHVVDUHQRWLFHDQGDQRSSRUWXQLW\
WR UHVSRQG 7KH RSSRUWXQLW\ WR SUHVHQW UHDVRQV HLWKHU LQ
1RV /HDU\HWDOY'DHVFKQHU
6HFWLRQ ' RI WKH &%$ SURYLGHV
7KH 6XSHULQWHQGHQW RU GHVLJQHH IRU JRRG FDXVH DQG H[WHQXDWLQJ
FLUFXPVWDQFHV ZLOO H[HFXWH WUDQVIHUV DV PD\ EH QHFHVVDU\ IRU WKH
HIILFLHQW RSHUDWLRQ RI WKH VFKRRO GLVWULFW
-$ DW &%$ † '
WKHSODLQWLIIVZHUHJLYHQQRSULRUQRWLFHRIWKHGHFLVLRQDQGQR
UHDVRQIRUWKHWUDQVIHUH[FHSWWKDWLWZDV³IRUJRRGFDXVHDQG
H[WHQXDWLQJFLUFXPVWDQFHV´DQG³QHFHVVDU\IRUWKHHIILFLHQW
RSHUDWLRQ RI WKH VFKRRO GLVWULFW´ ZKLFK LV WKH ODQJXDJH RI
6HFWLRQ'1RUZHUHWKHSODLQWLIIVJLYHQDQRSSRUWXQLW\WREH
KHDUG H[FHSW WKDW WKH\ KDG WKH RSSRUWXQLW\ WR JULHYH WKH
GHFLVLRQWKURXJKWKHSURFHVVVHWRXWLQWKH&%$
/HDU\DQG:LOOLDPVSUHVHQWHGVXEVWDQWLDOHYLGHQFHWRWKH
GLVWULFWFRXUWVKRZLQJWKDWWKH\KDGEHHQKLJKO\YRFDORQD
QXPEHU RI RFFDVLRQV LQ FULWLFL]LQJ YDULRXV DVSHFWV RI WKH
PDQDJHPHQW RI WKH $WNLQVRQ VFKRRO DQG WKDW WKH\ ZHUH
FRQVLGHUHG ³OHDGHUV´DPRQJWKHIDFXOW\LQWKLVUHVSHFW,Q
HDUO\/HDU\ZDVLQYROYHGLQSUHVHQWLQJFRPSODLQWV²
DQG XOWLPDWHO\ D SHWLWLRQ ² WR WKH 6FKRRO%DVHG 'HFLVLRQ
0DNLQJ&RPPLWWHHDVRUWRIPLQLVFKRROERDUGWKDWFRQVLVWHG
RI $WNLQVRQ HPSOR\HHV DQG JRYHUQHG $WNLQVRQ DORQH
UHJDUGLQJWKHVFKRRO¶VKDQGOLQJRIVWXGHQWGLVFLSOLQH/HDU\
KDGDOVREHHQSDUWLFXODUO\FULWLFDORIWKHFKDQJHVWRWKH(&(
SURJUDP SURSRVHG E\ %RZOGV DQG WKH UHVW RI WKH
DGPLQLVWUDWLRQ LQ WKH VSULQJ RI VXJJHVWLQJ WKDW WKH
FKDQJHV FRXOG SXW WKH VFKRRO LQ YLRODWLRQ RI WKH ODZ
)XUWKHUPRUH :LOOLDPV ZDV D WHDFKHUV¶ XQLRQ -&7$
UHSUHVHQWDWLYHDQGWKHUHIRUHKDGYRLFHGDQXPEHURIFRQFHUQV
RYHUWKH\HDUVWR+RZDUGRQEHKDOIRIRWKHUWHDFKHUV²DV
RIWHQDVHYHU\WZRZHHNVDFFRUGLQJWR+RZDUG
7KH GHIHQVH ZLWQHVVHV JDYH UHDVRQV IRU WUDQVIHUULQJ WKH
SODLQWLIIVWKDWZHUHXQUHODWHGWRWKHSODLQWLIIV¶YRFDOFULWLFLVP
RIVFKRROSROLF\KRZHYHU%RZOGVWHVWLILHGWKDWVKHEHOLHYHG
WKDW/HDU\DQG:LOOLDPVKDGOHDGHUVKLSSUREOHPVDQGZHUH
QRW ³WHDP SOD\HUV´ 6KH FODLPHG WKDW ERWK SODLQWLIIV KDG
IDLOHGWRDWWHQGWKHPHHWLQJVRIFHUWDLQFRPPLWWHHVWKDWWKH\
ZHUH LQYROYHG ZLWK %RZOGV DOVR QRWHG WKDW /HDU\ KDG D

-- 5 of 12 --

/HDU\HWDOY'DHVFKQHU 1RV
SURSHQVLW\ IRU \HOOLQJ DW VWXGHQWV DQG FROOHDJXHV DOLNH
%RZOGVDGPLWWHGWKDWKHUSUREOHPVZLWKWKHSODLQWLIIVZHUH
QRWUHODWHGWRWKHSODLQWLIIV¶FRPSHWHQFHLQWKHFODVVURRPDQG
LQ IDFW WKDW VKH KDG QRW HYHQ UHYLHZHG WKH SODLQWLIIV¶
XQFRQWURYHUWHGO\SRVLWLYH MREHYDOXDWLRQVEHIRUHGHVLJQDWLQJ
WKHPIRUWUDQVIHU+RZDUGVWHVWLILHGWKDW/HDU\KDGH[SOLFLWO\
LQGLFDWHG KHU XQZLOOLQJQHVV WR DGRSW WKH ³FROODERUDWLYH
PRGHO´ LQ KHU FODVVURRP DQG DJUHHG WKDW /HDU\ ZDV QRW D
³WHDPSOD\HU´-$DW +RZDUG7HVW +RZDUGKDG
VLPLODUWKLQJVWRVD\DERXW:LOOLDPVDQGIXUWKHUFRPSODLQHG
WKDW:LOOLDPVKDGFRQWLQXDOO\TXHVWLRQHG+RZDUG¶VDXWKRULW\
$WRQHSRLQWGXULQJKHUGHSRVLWLRQ+RZDUGFRQFHGHGWKDW
/HDU\ZDVSUREDEO\WUDQVIHUUHGEHFDXVHRIKHUVSHDNLQJRXW
RQ YDULRXV LVVXHV DQG EHFDXVH RI ³RWKHU WKLQJV´ EXW WKHQ
LPPHGLDWHO\EDFNWUDFNHGIURPWKLVWHVWLPRQ\-$DW

7KH SODLQWLIIV ILOHG VXLW RQ -XO\ LQ WKH 86
'LVWULFW&RXUWIRUWKH:HVWHUQ'LVWULFWRI.HQWXFN\DOOHJLQJ
WKDW VFKRRO ERDUG VXSHULQWHQGHQW 6WHSKHQ 'DHVFKQHU KDG
YLRODWHGWKHLUULJKWVWRIUHHVSHHFKLQYLRODWLRQRIWKH)LUVWDQG
)RXUWHHQWK$PHQGPHQWVWRWKH86&RQVWLWXWLRQDQGWKHLU
ULJKWV WR SURFHGXUDO GXH SURFHVV LQ YLRODWLRQ RI WKH
)RXUWHHQWK $PHQGPHQW 7KH\ UHTXHVWHG SUHOLPLQDU\ DQG
SHUPDQHQWLQMXQFWLYHUHOLHIDVZHOODVGHFODUDWRU\UHOLHI7KH
GLVWULFW FRXUW KHOG KHDULQJV RQ $XJXVW DQG LQ
RUGHU WR DWWHPSW WR UHVROYH WKH PDWWHU RI WKH SUHOLPLQDU\
LQMXQFWLRQ EHIRUH WKH $WNLQVRQ VWXGHQWV ZHUH VFKHGXOHG WR
UHWXUQWRVFKRRORQ$XJXVW2Q$XJXVW
WKHGLVWULFWFRXUWRUDOO\UXOHGDJDLQVWWKHSODLQWLIIVRQWKHLU
)LUVW$PHQGPHQWFODLPEXWIRXQGWKDWWKH\ZHUHHQWLWOHGWR
PRUHSURFHVVWKDQWKH\KDGUHFHLYHGEHIRUHWKHLUWUDQVIHUZDV
HIIHFWHG 7KHUHIRUH WKH GLVWULFW FRXUW HQMRLQHG WKH VFKRRO
ERDUGIURPWUDQVIHUULQJ/HDU\DQG:LOOLDPVXQWLOWKH\KDG
EHHQDIIRUGHG³QRWLFHRIWKHSURSRVHGWUDQVIHUDVWDWHPHQWRI
WKHUHDVRQV>WKHUHIRU@DQGDQRSSRUWXQLW\WREHKHDUG´-$
DW 7URI+U¶J
2QWKHPRUQLQJRI$XJXVW/HDU\DQG:LOOLDPV
ZHUH JLYHQ ZULWWHQ QRWLFH RI WKHLU WUDQVIHU ZKLFK OLVWHG
1RV /HDU\HWDOY'DHVFKQHU
:KDW3URFHVV,V'XH
:KHQ D SODLQWLII KDV D SURWHFWHG SURSHUW\ LQWHUHVW D
SUHGHSULYDWLRQKHDULQJRIVRPHVRUWLVJHQHUDOO\UHTXLUHGWR
VDWLVI\WKHGLFWDWHVRIGXHSURFHVV6HH/RXGHUPLOO86
DW5RWK86DW ³:KHQSURWHFWHGLQWHUHVWV
DUH LPSOLFDWHG WKH ULJKW WR VRPH NLQG RI SULRU KHDULQJ LV
SDUDPRXQW´ 7KHSUHGHSULYDWLRQSURFHVVQHHGQRWDOZD\VEH
HODERUDWHKRZHYHUWKHDPRXQWRISURFHVVUHTXLUHGGHSHQGV
LQ SDUW RQ WKH LPSRUWDQFH RI WKH LQWHUHVWV DW VWDNH 6HH
/RXGHUPLOO86DW:LQHJDUY'HV0RLQHV,QGHS
&RPPXQLW\6FK'LVW)G WK&LU FHUW
GHQLHG86 7KXVZKHQGHFLGLQJRQWKH
QHFHVVDU\ SURFHVV WKLV FRXUW PXVW EDODQFH ³WKH SULYDWH
LQWHUHVWLQUHWDLQLQJHPSOR\PHQWWKHJRYHUQPHQWDOLQWHUHVWLQ
WKHH[SHGLWLRXVUHPRYDORIXQVDWLVIDFWRU\HPSOR\HHVDQGWKH
DYRLGDQFH RI DGPLQLVWUDWLYH EXUGHQV DQG WKH ULVN RI DQ
HUURQHRXV´GHFLVLRQ/RXGHUPLOO86DW FLWLQJ
0DWKHZVY(OGULGJH86 0RUHRYHU
WKH VXIILFLHQF\ RI SUHGHSULYDWLRQ SURFHGXUHV PXVW EH
FRQVLGHUHGLQFRQMXQFWLRQZLWKWKHRSWLRQVIRUSRVWGHSULYDWLRQ
UHYLHZLIHODERUDWHSURFHGXUHVIRUSRVWGHSULYDWLRQUHYLHZDUH
LQ SODFH OHVV HODERUDWH SUHGHSULYDWLRQ SURFHVV PD\ EH
UHTXLUHG6HHHJ6XWWRQY&OHYHODQG%GRI(GXF)G
WK&LU ,QVRPHFDVHVSRVWGHSULYDWLRQ
UHYLHZ PD\ SRVVLEO\ EH VXIILFLHQW DQG QR SUHGHSULYDWLRQ
SURFHVVLVUHTXLUHG6HH5DPVH\)GDW
,Q WKLV FDVH D SUHGHSULYDWLRQ KHDULQJ ZDV UHTXLUHG
$GPLWWHGO\WKHSODLQWLIIV¶LQWHUHVWLQQRWEHLQJWUDQVIHUUHGLV
QRWDVJUHDWDVWKDWRIWKHSODLQWLIILQ/RXGHUPLOOLQQRWORVLQJ
KLV MRE DOWRJHWKHU 6HH /RXGHUPLOO 86 DW
HPSKDVL]LQJWKH³VHYHULW\RIGHSULYLQJDSHUVRQRIWKHPHDQV
RI OLYHOLKRRG´ +RZHYHU WKHUH LV VXIILFLHQW UHDVRQ WR
EHOLHYH EDVHG RQ WKH UHFRUG HYLGHQFH DGGXFHG E\ WKH
SODLQWLIIV WKDW DQ LQYROXQWDU\ WUDQVIHU FDUULHV ZLWK LW
VLJQLILFDQWFRVWVIRUWKHWUDQVIHUHHLQFOXGLQJVWLJPDORVVRI
SURIHVVLRQDO HVWHHP DQG WKH GLIILFXOW\ RI UHEXLOGLQJ
UHODWLRQVKLSVDQGSURIHVVLRQDOVWDWXVZLWKLQWKHQHZVFKRRO
6HH -$DW 'UHVFKHU7HVW GHVFULELQJWKHVWLJPD

-- 6 of 12 --

/HDU\HWDOY'DHVFKQHU 1RV
WKHUHTXLUHPHQWWKDWHPSOR\HHVPD\EHGLVPLVVHGRQO\IRU
FDXVH6HHHJ/RXGHUPLOO86DW KROGLQJWKDW
DSURSHUW\LQWHUHVWLQFRQWLQXHGHPSOR\PHQWZDVFUHDWHGE\
D VWDWH VWDWXWH SHUPLWWLQJ GLVPLVVDO RQO\ IRU ³PLVIHDVDQFH
PDOIHDVDQFHRUQRQIHDVDQFH´ -RKQVWRQ7D\ORU)GDW
KROGLQJWKDWWHQXUHGSURIHVVRUVKDYHDSURSHUW\LQWHUHVW
LQFRQWLQXHGHPSOR\PHQW 5DPVH\Y%RDUGRI(GXF
)G WK&LU KROGLQJWKDWDVWDWHVWDWXWH
DQGDVFKRROERDUGSROLF\SURYLGLQJIRUDFFXPXODWLRQRIVLFN
GD\VE\SXEOLFHPSOR\HHVFUHDWHGDSURSHUW\LQWHUHVWLQWKRVH
VLFN GD\V 7KXV WKH GHIHQGDQWV¶ DUJXPHQW WKDW XQGHU
.HQWXFN\ODZWHDFKHUVKDYHDQHQWLWOHPHQWWRHPSOR\PHQWLQ
DSDUWLFXODUGLVWULFWQRWLQDSDUWLFXODUSRVLWLRQLVSRVVLEO\
FRUUHFWEXWLUUHOHYDQW6HHHJ%DQNVY%XUNLFK)G
WK&LU 7KHSODLQWLIIVUHO\RQWKH&%$
QRW.HQWXFN\VWDWXWRU\ODZIRUWKHLUHQWLWOHPHQWWRFRQWLQXHG
HPSOR\PHQWLQDSDUWLFXODUSRVLWLRQDQGLWLVFOHDUWKDWVXFK
DQHQWLWOHPHQWPD\EHFUHDWHGE\³HLWKHUH[SOLFLWRULPSOLHG
FRQWUDFWXDOWHUPV´5DPVH\)GDW,QQRQHRIWKH
FDVHVFLWHGE\'DHVFKQHUIRUWKHSURSRVLWLRQWKDWDWHDFKHU
GRHVQRWKDYHDSURSHUW\ULJKWLQDSDUWLFXODUSRVLWLRQZLWKLQ
WKH VFKRRO GLVWULFW XQGHU .HQWXFN\ ODZ KDG WKH SDUWLHV
H[HFXWHG D FRQWUDFW WKDW H[SOLFLWO\ SXUSRUWHG WR OLPLW WKH
DXWKRULW\ RI WKH VXSHULQWHQGHQW WR HIIHFW VXFK WUDQVIHUV WR
FDVHVLQZKLFKWKHUHZDVJRRGFDXVH6HHJHQHUDOO\%DQNV
)G%RDUGRI(GXF Y -D\QH6:G
.\ 6QDSS Y 'HVNLQV 6:G .\
FI+XIIY+DUODQ&RXQW\%GRI(GXF6:G
.\ ³7KHUXOHFRQFHUQLQJHPSOR\PHQWXQGHU
DFRQWLQXLQJVHUYLFHFRQWUDFWLVWKDWVXFKFRQWUDFWGRHVQRW
SUHYHQW WKH %RDUG RI (GXFDWLRQ IURP WUDQVIHUULQJ WKH
HPSOR\HHIURPRQHVFKRROWRDQRWKHURUIURPRQHFODVVRI
WHDFKLQJSRVLWLRQWRDQRWKHUXQOHVVWKHFRQWUDFWVSHFLILHVWKH
VFKRRO RU FODVV RI SRVLWLRQ LQ ZKLFK WKH WHDFKHU LV WR EH
HPSOR\HG1HLWKHUZDVVSHFLILHGKHUH´ 7KHGLVWULFWFRXUW
WKHUHIRUH FRUUHFWO\ FRQFOXGHG WKDW 6HFWLRQ ' RI WKH &%$
FUHDWHG D SURSHUW\ LQWHUHVW LQ FRQWLQXHG HPSOR\PHQW DW
$WNLQVRQ
1RV /HDU\HWDOY'DHVFKQHU
VHYHUDOUHDVRQVIRUWKHWUDQVIHUDQGJDYHWKHPWKHRSSRUWXQLW\
WRUHVSRQGWRWKRVHUHDVRQVDWKHDULQJVVFKHGXOHGIRU
SPDQGSPWKDWGD\UHVSHFWLYHO\2QWKHDGYLFHRI
FRXQVHO WKH SODLQWLIIV GHFOLQHG WR SDUWLFLSDWH LQ WKRVH
KHDULQJV ,QVWHDG WKH SODLQWLIIV ILOHG D ³0RWLRQ LQ
)XUWKHUDQFH RI 3UHOLPLQDU\ ,QMXQFWLRQ DQG IRU 2UGHU RI
&RQWHPSW LQ 5HJDUG WR 6XSHULQWHQGHQW 6WHSKHQ :
'DHVFKQHU´ DUJXLQJ WKDW WKH VFKRRO ERDUG KDG DFWHG LQ
YLRODWLRQ RI WKH FRXUW¶V RUGHU E\ UHIXVLQJ WR UHLQVWDWH WKH
SODLQWLIIVWRWKHLUSUHYLRXVSRVLWLRQV-$DW 3OV¶0RWLQ
)XUWKHUDQFHRI3UHOLP,QMDQGIRU2UGHURI&RQWHPSW 7KH
GLVWULFW FRXUW KHOG D WHOHSKRQLF KHDULQJ WKDW GD\ ZLWK WZR
FRXQVHOIRUWKHGHIHQGDQWDQGRQHRIWKHSODLQWLIIV¶FRXQVHO
VLQFHWKHRWKHUSODLQWLIIV¶FRXQVHOFRXOGQRWEHUHDFKHG7KH
GLVWULFWFRXUWGHWHUPLQHGWKDWWKHSODLQWLIIVKDGEHHQDIIRUGHG
DOOWKHSURFHVVWKDWWKH\ZHUHGXHDQGKDGZDLYHGWKHLUGXH
SURFHVVULJKWVE\UHIXVLQJWRDWWHQGWKHKHDULQJ7KHFRXUW
IRXQGQRSUREOHPZLWKWKHPDQQHULQZKLFKWKHKHDULQJZDV
SURYLGHG WR WKH SODLQWLIIV E\ WKH VFKRRO ERDUG JLYHQ WKH
H[LJHQWFLUFXPVWDQFHVFUHDWHGE\WKHLPPLQHQWVWDUWRIWKH
VFKRRO\HDU7KHGLVWULFWFRXUWWKHUHE\LQHIIHFWGLVVROYHGLWV
SULRU LQMXQFWLRQ 7KLV WLPHO\ DSSHDO IROORZHG 7KH
GHIHQGDQWV DOVR FURVVDSSHDOHG WKH GLVWULFW FRXUW¶V RULJLQDO
UXOLQJLQIDYRURIWKHSODLQWLIIVRQWKHLUGXHSURFHVVFODLP
,,$1$/<6,6
$3UHOLPLQDU\,QMXQFWLRQ6WDQGDUG
:KHQGHFLGLQJZKHWKHUWRLVVXHDSUHOLPLQDU\LQMXQFWLRQ
WKHGLVWULFWFRXUWFRQVLGHUVWKHIROORZLQJIRXUIDFWRUV
ZKHWKHU WKH PRYDQW KDV D ³VWURQJ´ OLNHOLKRRG RI
VXFFHVV RQ WKH PHULWV ZKHWKHU WKH PRYDQW ZRXOG
RWKHUZLVHVXIIHULUUHSDUDEOHLQMXU\ ZKHWKHULVVXDQFH
RIDSUHOLPLQDU\LQMXQFWLRQZRXOGFDXVHVXEVWDQWLDOKDUP
WRRWKHUVDQG ZKHWKHUWKHSXEOLFLQWHUHVWZRXOGEH
VHUYHGE\LVVXDQFHRIDSUHOLPLQDU\LQMXQFWLRQ
0F3KHUVRQY0LFKLJDQ+LJK6FK$WKOHWLF$VV¶Q)G
WK &LU HQ EDQF TXRWLQJ 6DQGLVRQ Y

-- 7 of 12 --

/HDU\HWDOY'DHVFKQHU 1RV
0LFKLJDQ+LJK6FK$WKOHWLF$VV¶Q)G WK
&LU 7KHVH IDFWRUV DUH WR EH EDODQFHG DJDLQVW RQH
DQRWKHU DQG VKRXOG QRW EH FRQVLGHUHG SUHUHTXLVLWHV WR WKH
JUDQW RI D SUHOLPLQDU\ LQMXQFWLRQ 6HH 8QLWHG )RRG
&RPPHUFLDO:RUNHUV8QLRQ/RFDOY6RXWKZHVW2KLR
5HJ¶O 7UDQVLW $XWK )G WK &LU
0F3KHUVRQ)GDW
7KLVFRXUWUHYLHZVWKHGLVWULFWFRXUW¶VGHFLVLRQIRUDQDEXVH
RIGLVFUHWLRQ6HH0F3KHUVRQ)GDW7KXV³WKH
GLVWULFWFRXUW¶VμZHLJKLQJDQGEDODQFLQJRIWKHHTXLWLHVRID
SDUWLFXODUFDVHLVRYHUUXOHGRQO\LQWKHUDUHVWRIFDVHV¶´,G
TXRWLQJ6DQGLVRQ)GDW 0RUHRYHUWKHGLVWULFW
FRXUW¶VIDFWXDOILQGLQJVPXVWEHFOHDUO\HUURQHRXVLQRUGHUIRU
WKLVFRXUWWRILQGWKDWLWDEXVHGLWVGLVFUHWLRQ6HH8)&:
)G DW ,I SXUH OHJDO FRQFOXVLRQV DUH LQYROYHG LQ WKH
GLVWULFWFRXUW¶VGHWHUPLQDWLRQKRZHYHUWKRVHFRQFOXVLRQVDUH
VXEMHFWWRGHQRYRUHYLHZ6HH0F3KHUVRQ)GDW
%)LUVW$PHQGPHQW5HWDOLDWLRQ&ODLP
$ SXEOLF HPSOR\HH ZKR ZRXOG VXFFHHG RQ D FODLP RI
UHWDOLDWLRQ LQ YLRODWLRQ RI WKH )LUVW $PHQGPHQW PXVW
GHPRQVWUDWH
WKDWWKHSODLQWLIIZDVHQJDJHGLQDFRQVWLWXWLRQDOO\
SURWHFWHGDFWLYLW\ WKDWWKHGHIHQGDQW¶VDGYHUVHDFWLRQ
FDXVHGWKHSODLQWLIIWRVXIIHUDQLQMXU\WKDWZRXOGOLNHO\
FKLOODSHUVRQRIRUGLQDU\ILUPQHVVIURPFRQWLQXLQJWR
HQJDJHLQWKDWDFWLYLW\DQG WKDWWKHDGYHUVHDFWLRQ
ZDV PRWLYDWHG DW OHDVW LQ SDUW DV D UHVSRQVH WR WKH
H[HUFLVHRIWKHSODLQWLII¶VFRQVWLWXWLRQDOULJKWV
%ORFKY5LEDU)G WK&LU VHHDOVR
0W+HDOWK\&LW\6FK'LVW%GRI(GXFY'R\OH86
,I WKH SODLQWLII PDNHV WKLV VKRZLQJ WKH
EXUGHQ WKHQ VKLIWV WR WKH GHIHQGDQW WR VKRZ E\ D
SUHSRQGHUDQFHRIWKHHYLGHQFH³WKDWLWZRXOGKDYHWDNHQWKH
VDPHDFWLRQHYHQLQWKHDEVHQFHRIWKHSURWHFWHGFRQGXFW´
-DFNVRQ Y /HLJKWRQ )G WK &LU
TXRWDWLRQRPLWWHG VHHDOVR0W+HDOWK\86DW
1RV /HDU\HWDOY'DHVFKQHU
'DHVFKQHU FLWHV FDVHV IRU WKH SURSRVLWLRQ WKDW DSSHOODQWV ZKR GR QRW UDLVH
DQ DUJXPHQW RQ DSSHDO ZDLYH WKDW DUJXPHQW EXW KH FLWHV QR VXFK FDVHV
VXJJHVWLQJ WKH VDPH LV WUXH IRU DSSHOOHHV ,QGHHG WKLV FRXUW FDQ DIILUP WKH
GLVWULFW FRXUW RQ DQ\ EDVLV VXSSRUWHG E\ WKH UHFRUG 6HH :DUGD Y
&RPPLVVLRQHU )G Q WK &LU FHUW GHQLHG 86

,QFRQVLGHULQJWKHSODLQWLIIV¶FODLPVIRUYLRODWLRQRIWKHLU
GXHSURFHVVULJKWVWKLVFRXUWXQGHUWDNHVDWZRVWHSDQDO\VLV
)LUVW ZH GHWHUPLQH ZKHWKHU WKH SODLQWLIIV KDYH D SURSHUW\
LQWHUHVW WKDW HQWLWOHV WKHP WR GXH SURFHVV SURWHFWLRQ 6HH
&OHYHODQG %G RI (GXF Y /RXGHUPLOO 86
³3URSHUW\LQWHUHVWVRIFRXUVHDUHQRWFUHDWHGE\WKH
&RQVWLWXWLRQ5DWKHUWKH\DUHFUHDWHGDQGWKHLUGLPHQVLRQV
DUHGHILQHGE\H[LVWLQJUXOHVRUXQGHUVWDQGLQJVWKDWVWHPIURP
DQ LQGHSHQGHQW VRXUFH VXFK DV VWDWH ODZ ² UXOHV RU
XQGHUVWDQGLQJVWKDWVHFXUHFHUWDLQEHQHILWVDQGWKDWVXSSRUW
FODLPVRIHQWLWOHPHQWWRWKRVHEHQHILWV´%RDUGRI5HJHQWVRI
6WDWH&ROOHJHVY5RWK86 $FRQWUDFW
VXFK DV D FROOHFWLYH EDUJDLQLQJ DJUHHPHQW PD\ FUHDWH D
SURSHUW\LQWHUHVW6HHHJLGDW-RKQVWRQ7D\ORUY
*DQQRQ)G WK&LU 6HFRQGLIWKH
SODLQWLIIVKDYHVXFKDQLQWHUHVWWKLVFRXUWPXVWWKHQGHWHUPLQH
³ZKDWSURFHVVLVGXH´/RXGHUPLOO86DW TXRWLQJ
0RUULVVH\ Y %UHZHU 86 7KLV
GHWHUPLQDWLRQLVRQHRIIHGHUDOODZDQGWKXVLVQRWOLPLWHGE\
WKHSURFHGXUHVWKDWWKHVWDWHPD\KDYHGHHPHGWREHDGHTXDWH
ZKHQLWFUHDWHGWKHSURSHUW\ULJKW6HHLG
([LVWHQFHRID3URSHUW\,QWHUHVW
7KHGLVWULFWFRXUWFRUUHFWO\GHFLGHGWKDWWKH&%$EHWZHHQ
WKHVFKRROERDUGDQGWKH-&7$FUHDWHGIRUWKHSODLQWLIIVD
SURSHUW\LQWHUHVWLQWKHLUSRVLWLRQVDW$WNLQVRQ6HFWLRQ'RI
WKDW &%$ DSSDUHQWO\ SURYLGHV WKDW WHDFKHUV PD\ QRW EH
WUDQVIHUUHGZLWKLQWKHVFKRROGLVWULFWH[FHSWRQDVKRZLQJRI
³JRRGFDXVH´DQG³H[WHQXDWLQJFLUFXPVWDQFHV´-$DW
6HFWLRQ' 7KLVUHTXLUHPHQWLVDWOHDVWDVVWULQJHQWDVWKRVH
IRXQGLQRWKHUFDVHVLQWKH6XSUHPH&RXUWDQGWKLVFRXUWWR
FUHDWHDSURSHUW\LQWHUHVWLQFRQWLQXHGHPSOR\PHQWVXFKDV

-- 8 of 12 --

/HDU\HWDOY'DHVFKQHU 1RV
LQWHUSUHWDWLRQ
7KH SODLQWLIIV GR QRW KRZHYHU GLVFXVV WKH GLVWULFW FRXUW¶V GHQLDO RI
WKHLU PRWLRQ WR KROG 'DHVFKQHU LQ FRQWHPSW IRU UHIXVLQJ WR UHLQVWDWH WKH
SODLQWLIIV WR WKHLU RULJLQDO SRVLWLRQV WKHUHIRUH ZH GHHP WKDW LVVXH ZDLYHG
RQ DSSHDO
'DHVFKQHU DOVR DUJXHV WKDW WKH SODLQWLIIV KDYH ³ZDLYHG´ WKH LVVXH RI
ZKHWKHU WKH\ KDG D SURSHUW\ LQWHUHVW LQ WKHLU HPSOR\PHQW E\ QRW
UHVSRQGLQJ WR 'DHVFKQHU¶V FURVVDSSHDO RQ WKLV EDVLV LQ WKHLU UHSO\ EULHI
7KLV FRXUW FDQQRW EH IRUFHG WR UHYHUVH WKH GLVWULFW FRXUW GXH PHUHO\ WR WKH
FURVVDSSHOOHHV¶ IDLOXUH WR UHVSRQG WR WKH FURVVDSSHOODQW¶V DUJXPHQWV
SODLQWLIIVZHUHWKHUHIRUHHQWLWOHGWRVRPHPLQLPDOGHJUHHRI
SUHGHSULYDWLRQGXHSURFHVVLQFOXGLQJQRWLFHDVWDWHPHQWRI
UHDVRQVIRUWKHWUDQVIHUDQGDQRSSRUWXQLW\WREHKHDUGDQG
WKDW WKH\ KDG QRW UHFHLYHG WKLV SURFHVV 7KH GLVWULFW FRXUW
QRWHGWKDWWKHSRVWGHSULYDWLRQJULHYDQFHSURFHGXUHRXWOLQHG
LQ WKH &%$ ZDV QRW VXIILFLHQW 7KXV WKH GLVWULFW FRXUW
HQMRLQHG WKH WUDQVIHU XQWLO WKH SODLQWLIIV ZHUH DIIRUGHG GXH
SURFHVV7KDWFRXUWVXEVHTXHQWO\IRXQGKRZHYHUWKDWWKH
VFKRROERDUGKDGDIIRUGHGVXIILFLHQWSURFHVVWRWKHPZKHQLW
QRWLILHGWKHPRQHPRUQLQJWKDWWKH\ZRXOGKDYHDKHDULQJD
IHZKRXUVODWHUDQGWKDWWKHSODLQWLIIVZDLYHGWKLVSURFHVVE\
QRWDWWHQGLQJWKHKHDULQJ
7KHSODLQWLIIVQRZDUJXHWKDWWKHSURFHVVDIIRUGHGE\WKH
VFKRRO ERDUG ZDV LQVXIILFLHQW 6SHFLILFDOO\ WKH SODLQWLIIV
FODLPWKDWWKH\ZHUHJLYHQLQVXIILFLHQWWLPH²DIHZKRXUV²
WR SUHSDUH DGHTXDWHO\ IRU WKH KHDULQJ DQG WKDW WKH VFKRRO
ERDUGLQGLFDWHGWKDWLWZRXOGSURFHHGWRWUDQVIHUWKHSODLQWLIIV
UHJDUGOHVVRIWKHRXWFRPHRIWKHKHDULQJ7KH\WKXVDSSHDO
WKHGLVWULFWFRXUW¶VGHQLDORIWKHLU³0RWLRQLQ)XUWKHUDQFHRI
3UHOLPLQDU\,QMXQFWLRQ´'DHVFKQHUDUJXHVLQUHVSRQVHWKDW
WKH SURFHVV DIIRUGHG WKH SODLQWLIIV ZDV FRQVWLWXWLRQDOO\
VXIILFLHQWJLYHQWKHSDUWLFXODUFLUFXPVWDQFHVRIWKLVFDVH,Q
KLVFURVVDSSHDO'DHVFKQHUDOVRDUJXHVWKDWWKHSODLQWLIIVKDG
QRSURSHUW\LQWHUHVWLQWKHLUSRVLWLRQVDW$WNLQVRQLQWKHILUVW
SODFHDQGWKHUHIRUHWKDWWKH\ZHUHQRW HQWLWOHGWRDQ\GXH
SURFHVVEHIRUHEHLQJWUDQVIHUUHG
1RV /HDU\HWDOY'DHVFKQHU
:KHQWKHSODLQWLIILVDSXEOLFHPSOR\HHVKHPXVWPDNH
DGGLWLRQDO VKRZLQJV WR GHPRQVWUDWH WKDW KHU FRQGXFW ZDV
SURWHFWHG )LUVW WKH HPSOR\HH PXVW VKRZ WKDW KHU VSHHFK
WRXFKHGRQPDWWHUVRISXEOLFFRQFHUQ6HH&RQQLFNY0\HUV
86 6HFRQGWKHHPSOR\HH¶VLQWHUHVW
³LQ FRPPHQWLQJ XSRQ PDWWHUV RI SXEOLF FRQFHUQ´ PXVW EH
IRXQGWRRXWZHLJK³WKHLQWHUHVWRIWKH6WDWHDVDQHPSOR\HU
LQSURPRWLQJWKHHIILFLHQF\RIWKHSXEOLFVHUYLFHVLWSHUIRUPV
WKURXJKLWVHPSOR\HHV´3LFNHULQJY%RDUGRI(GXF
86 VHH&RQQLFN86DW%RJHU
Y :D\QH &RXQW\ )G WK &LU
:KHWKHUWKHSODLQWLII¶VVSHHFKFRQVWLWXWHGSURWHFWHGFRQGXFW
LV D TXHVWLRQRIODZUHYLHZHGE\WKLVFRXUWGHQRYR 6HH
&RQQLFN86DWQ/DQJIRUGY/DQH)G
WK&LU
7KHGLVWULFWFRXUWIRXQGWKDWDOWKRXJKWKHSODLQWLIIV¶VSHHFK
ZDV ODUJHO\ RQ PDWWHUV RI SXEOLF FRQFHUQ DQG WKHUHIRUH
FRQVWLWXWHGSURWHFWHGVSHHFKXQGHUWKH)LUVW$PHQGPHQWWKH
SODLQWLIIV KDG IDLOHG WR VKRZ WKDW WKHLU VSHHFK ZDV D
VXEVWDQWLDO RU PRWLYDWLQJ IDFWRU LQ WKH GHFLVLRQ WR WUDQVIHU
WKHP&RQFOXGLQJWKDWWKHSODLQWLIIVGLGQRWVKRZDOLNHOLKRRG
RIVXFFHVVRQWKHPHULWVWKHGLVWULFWFRXUWUHIXVHGWRJUDQWD
SUHOLPLQDU\LQMXQFWLRQRQWKLVEDVLV
3URWHFWHG$FWLYLW\
$V WKH GLVWULFW FRXUW IRXQG WKH YDVW PDMRULW\ RI WKH
SODLQWLIIV¶VSHHFKLQYROYHGPDWWHUVRISXEOLFFRQFHUQ7KH
VXEMHFWVRIVWXGHQWGLVFLSOLQHDQGWKHDSSURSULDWHHGXFDWLRQDO
SURJUDP WR EH LPSOHPHQWHG DUH XQGRXEWHGO\ PDWWHUV RI
FRQFHUQWRWKHFRPPXQLW\DWODUJH6HH-DFNVRQ)GDW
GHVFULELQJ PDWWHUV RI SXEOLF FRQFHUQ DV PDWWHUV RI
³SROLWLFDOVRFLDORURWKHUFRQFHUQWRWKHFRPPXQLW\´ TXRWLQJ
&RQQLFN86DW /HDU\¶VFRPPHQWVVXJJHVWLQJ
WKDW WKH SURSRVHG HGXFDWLRQDO FKDQJHV ZRXOG UHVXOW LQ
YLRODWLRQV RI WKH ODZ PRUHRYHU DUH XQGRXEWHGO\ RI WKH
KLJKHVWSXEOLFFRQFHUQVLQFHWKH\KLQWDWSRVVLEOHZURQJGRLQJ
E\SXEOLFRIILFLDOV&I%ORFK)GDW ³7KH)LUVW
$PHQGPHQW FOHDUO\ SURWHFWV WKH %ORFKV¶ ULJKW WR FULWLFL]H

-- 9 of 12 --

/HDU\HWDOY'DHVFKQHU 1RV
5LEDULQKLVUROHDVDSXEOLFRIILFLDO´ %DUQHVY0F'RZHOO
)G WK &LU QRWLQJ WKDW FKDUJHV RI
SXEOLF FRUUXSWLRQ DUH HQWLWOHG WR FRQVWLWXWLRQDO SURWHFWLRQ
FHUWGHQLHG86
'HWHUPLQLQJ ZKHWKHU WKH SODLQWLIIV¶ LQWHUHVW LQ VSHDNLQJ
RXWZHLJKHG WKH VFKRRO GLVWULFW¶V LQWHUHVW LQ SHUIRUPLQJ LWV
IXQFWLRQHIILFLHQWO\UHTXLUHVD³SDUWLFXODUL]HGEDODQFLQJ´RI
WKHYDULRXVLQWHUHVWVDWVWDNHDQG LI DQHPSOR\HH¶VVSHHFK
³VXEVWDQWLDOO\ LQYROYHG PDWWHUV RI SXEOLF FRQFHUQ´ DQ
HPSOR\HU PD\ EH UHTXLUHG WR PDNH D SDUWLFXODUO\ VWURQJ
VKRZLQJWKDWWKHHPSOR\HH¶VVSHHFKLQWHUIHUHGZLWKZRUNSODFH
IXQFWLRQLQJEHIRUHWDNLQJDFWLRQ&RQQLFN86DW
,QWKHSODLQWLIIV¶IDYRUDVQRWHGDERYHLVWKHIDFWWKDW
PRVW RI WKHLU VSHHFK XQTXHVWLRQDEO\ LQYROYHG LPSRUWDQW
PDWWHUV RI JUHDW SXEOLF FRQFHUQ ,Q 'DHVFKQHU¶V IDYRU
KRZHYHULVWKHIDFWWKDWWKH$WNLQVRQVFKRROZDVXQGRXEWHGO\
LQ D VWDWH RI QHDUFULVLV DQG UDGLFDO DQG GHFLVLYH DFWLRQ
DSSHDUHG WR EH UHTXLUHG LQ RUGHU WR LPSURYH WKH VFKRRO¶V
IXQFWLRQLQJWKXVWKHVFKRROERDUG¶VLQWHUHVWLQSHUIRUPLQJLWV
IXQFWLRQHIILFLHQWO\ZDVSDUWLFXODUO\VWURQJ$GGLQJWRWKH
VWUHQJWKRI'DHVFKQHU¶VFDVHLVHYLGHQFHVXJJHVWLQJWKDWWKH
SODLQWLIIV¶VSHHFKZDVRIWHQFRQGXFWHGLQDGLVUXSWLYHPDQQHU
)RUH[DPSOH/HDU\ZDVNQRZQWR³\HOO´DWKHUFROOHDJXHV
DQG :LOOLDPV DSSDUHQWO\ YLVLWHG +RZDUG TXLWH RIWHQ DQG
FRQVLVWHQWO\ TXHVWLRQHG KHU DXWKRULW\ DV SULQFLSDO 6HH
&RQQLFN86DW KROGLQJWKDWWKH)LUVW$PHQGPHQW
GRHV QRW UHTXLUH DQ HPSOR\HU WR ³WROHUDWH DFWLRQ ZKLFK KH
UHDVRQDEO\EHOLHYHGZRXOGGLVUXSWWKHRIILFHXQGHUPLQHKLV
DXWKRULW\DQGGHVWUR\FORVHZRUNLQJUHODWLRQVKLSV´ HPSKDVLV
DGGHG 0F*LOOY%RDUGRI(GXF)G WK
&LU FI3LFNHULQJ86DW QRWLQJWKDWWKH
HPSOR\HUVFKRRO¶VLQWHUHVWLQOLPLWLQJDWHDFKHU¶VVSHHFKLVQRW
JUHDWZKHQWKRVHSXEOLFVWDWHPHQWV³DUHQHLWKHUVKRZQQRU
FDQ EH SUHVXPHG WR KDYH LQ DQ\ ZD\ HLWKHU LPSHGHG WKH
WHDFKHU¶V SURSHU SHUIRUPDQFH RI KLV GDLO\ GXWLHV LQ WKH
FODVVURRPRUWRKDYHLQWHUIHUHGZLWKWKHUHJXODURSHUDWLRQRI
WKH VFKRROV JHQHUDOO\´ IRRWQRWH RPLWWHG )LQDOO\ WR WKH
H[WHQWWKDWWKHSODLQWLIIV¶VSHHFKRFFXUUHGLQSULYDWH²VXFK
DVLQWKHSULQFLSDO¶VRIILFHRULQIRUPDOO\ZLWKLQWKHZDOOVRI
1RV /HDU\HWDOY'DHVFKQHU
,Q IDFW 6HFWLRQ ' GRHV QRW VD\ WKDW WKH 6XSHULQWHQGHQW PD\ HIIHFW
WUDQVIHUV ³RQO\´ IRU WKH UHDVRQV VXJJHVWHG E\ WKH DSSHOODQW KRZHYHU ERWK
SDUWLHV DSSHDU WR XQGHUVWDQG WKH ODQJXDJH RI 6HFWLRQ ' DV SHUPLWWLQJ
WUDQVIHUV RQO\ IRU WKRVH UHDVRQV :H GR QRW WKHUHIRUH TXHVWLRQ WKDW
/LOODUGY6KHOE\&RXQW\%GRI(GXF)G WK
&LU :HGRQRWEHOLHYHKRZHYHUWKDW'DHVFKQHUFDQ
LQVXODWHKLPVHOIIURPOLDELOLW\IRUYLRODWLQJWKHSODLQWLIIV¶)LUVW
$PHQGPHQWULJKWVPHUHO\E\VKRZLQJWKDWKHGLGQRWNQRZ
WKH SODLQWLIIVSHUVRQDOO\6HH7D\ORUY0LFKLJDQ'HS¶WRI
&RUUHFWLRQV)G WK&LU QRWLQJWKDWD
VXSHUYLVRUQHHGQRWNQRZWKHLQMXUHGSDUW\SHUVRQDOO\WREH
KHOGOLDEOHIRUWKDWSDUW\¶VLQMXULHVUDWKHU³WKHFRUUHFWLQTXLU\
LV ZKHWKHU KH KDG NQRZOHGJH DERXW WKH VXEVWDQWLDO ULVN RI
VHULRXVKDUPWRDSDUWLFXODUFODVVRISHUVRQV´ 0RUHRYHU
EHFDXVH'DHVFKQHUZDVSULPDULO\UHVSRQVLEOHIRUDSSURYLQJ
WKHWUDQVIHURIWHDFKHUVKHFRXOGSRVVLEO\EHKHOGUHVSRQVLEOH
IRUIDLOLQJWRSHUIRUPKLVMRESURSHUO\RUIRUDFTXLHVFLQJLQ
WKHFRQVWLWXWLRQDOYLRODWLRQVUHVXOWLQJIURPKLVGHOHJDWLRQRI
WKLV UHVSRQVLELOLW\ 6HH LG DW VHH JHQHUDOO\ /HHU Y
0XUSK\)G WK&LU QRWLQJWKH³PRUH
JHQHUDOL]HG´DSSURDFKWRFDXVDWLRQLQVXLWVVHHNLQJLQMXQFWLYH
UHOLHIDVRSSRVHGWRGDPDJHV :LOOLDPVY%HQQHWW)G
WK &LU VDPH ,Q SDUWLFXODU
'DHVFKQHUPLJKWEHOLDEOHLIWKHSODLQWLIIVFDQVKRZWKDWKH
HQFRXUDJHGKLVVXERUGLQDWHVWRWUDQVIHUWHDFKHUVZKRZHUH
SDUWLFXODUO\ YRFDO LQ VSHDNLQJ RXW DJDLQVW VFKRRO SROLF\
WKURXJKKLVPDQGDWHWRWUDQVIHUWKRVHWHDFKHUVZKRZHUHQRW
³WHDPSOD\HUV´
&'XH3URFHVV&ODLP
7KH GLVWULFW FRXUW IRXQG IRU WKH SODLQWLIIV RQ WKHLU GXH
SURFHVVFODLPFRQFOXGLQJWKDWWKH&%$EHWZHHQWKH-&7$
DQGWKH%RDUGRI(GXFDWLRQZKLFKSURYLGHGWKDWDWHDFKHU
FRXOG EH WUDQVIHUUHG RQO\ ³IRU JRRG FDXVH DQG H[WHQXDWLQJ
FLUFXPVWDQFHV DV PD\ EH QHFHVVDU\ IRU WKH HIILFLHQW
RSHUDWLRQRIWKHVFKRROGLVWULFW´-$DW &%$†' JDYH
WKHSODLQWLIIVDSURSHUW\LQWHUHVWLQWKHLUSDUWLFXODUSRVLWLRQV
ZLWKLQWKHVFKRROGLVWULFW7KHGLVWULFWFRXUWIRXQGWKDWWKH

-- 10 of 12 --

/HDU\HWDOY'DHVFKQHU 1RV
352&('85( † DW G HG QRWLQJ WKDW WKH SODLQWLII
JHQHUDOO\ PXVW VKRZ DW OHDVW VRPH SUREDELOLW\ RI VXFFHVV RQ WKH PHULWV LQ
RUGHU WR REWDLQ D SUHOLPLQDU\ LQMXQFWLRQ :H QRQHWKHOHVV QRWH WKDW LW LV
JHQHUDOO\ XVHIXO IRU WKH GLVWULFW FRXUW WR DQDO\]H DOO IRXU RI WKH SUHOLPLQDU\
LQMXQFWLRQ IDFWRUV HVSHFLDOO\ VLQFH RXU DQDO\VLV RI RQH RI WKH IDFWRUV PD\
GLIIHU VRPHZKDW IURP WKH GLVWULFW FRXUW¶V ,Q WKH LQVWDQW FDVH KRZHYHU
WKH GLVWULFW FRXUW¶V GHFLVLRQ GHSHQGHG HQWLUHO\ RQ LWV UHVROXWLRQ RI D IDFWXDO
GLVSXWH DV WR ZKHWKHU WKH SODLQWLIIV KDG VKRZQ WKDW WKHLU SURWHFWHG FRQGXFW
PRWLYDWHG WKHLU WUDQVIHU DQG ZH DUH UHTXLUHG WR GHIHU WR WKDW UHVROXWLRQ
7KHUHIRUH ZH DUH ERXQG LQ WKLV FDVH RQ UHYLHZ RI WKH GHQLDO RI WKH
SUHOLPLQDU\ LQMXQFWLRQ WR DFFHSW WKH GLVWULFW FRXUW¶V FRQFOXVLRQ WKDW WKH
SODLQWLIIV KDG QR OLNHOLKRRG RI VXFFHVV RQ WKH PHULWV DQG LW LV QRW
QHFHVVDU\ IRU XV WR UHPDQG LQ RUGHU IRU WKH GLVWULFW FRXUW WR DQDO\]H WKH
OLNHOLKRRG RI LUUHSDUDEOH KDUP WR WKH SODLQWLIIV WKH SRWHQWLDO IRU KDUP WR
RWKHUV DQG WKH SXEOLF LQWHUHVW LQ WKH LVVXDQFH RI WKH LQMXQFWLRQ
:H DVVXPH ZLWKRXW GHFLGLQJ WKDW WKH SURKLELWLRQ RQ UHVSRQGHDW
VXSHULRU OLDELOLW\ IRU PXQLFLSDO RIILFHUV DOVR DSSOLHV ZKHUH WKH SODLQWLIIV
DUH VHHNLQJ LQMXQFWLYH UHOLHI UDWKHU WKDQ GDPDJHV 6HH 5L]]R Y *RRGH
86 %DQQXP ,QF Y &LW\ RI )RUW /DXGHUGDOH
)G WK &LU %XW VHH &KDORX[ Y .LOOHHQ
)G WK &LU KROGLQJ WKDW SODLQWLIIV QHHG QRW VKRZ
DQ ³RIILFLDO SROLF\ RU FXVWRP´ LQ RUGHU WR KROG D PXQLFLSDOLW\ OLDEOH IRU
LQMXQFWLYH UHOLHI XQGHU †
%HFDXVH ZH KROG WKDW WKH GLVWULFW FRXUW¶V FRQFOXVLRQ
UHJDUGLQJ WKH FDXVDO UHODWLRQVKLS EHWZHHQ WKH SODLQWLIIV¶
VSHHFKDQGWKHLUWUDQVIHULVQRWFOHDUO\HUURQHRXVZHQHHGQRW
H[SUHVV DQ RSLQLRQ DERXW 'DHVFKQHU¶V DUJXPHQW WKDW KH
FDQQRWEHIRXQGOLDEOHEHFDXVHWKHSODLQWLIIVFDQQRWVKRZWKDW
'DHVFKQHU KLPVHOI ZKR XQGLVSXWHGO\ GLG QRW NQRZ WKH
SODLQWLIIVSHUVRQDOO\KDGDUHWDOLDWRU\PRWLYHLQDSSURYLQJWKH
WUDQVIHU+RZHYHUZHQRWHRXUGRXEWVDVWRWKHYDOLGLW\RI
WKLVFRQWHQWLRQ$VDVXSHUYLVRU'DHVFKQHUFDQEHKHOGOLDEOH
XQGHU†RQO\LIKH³HQFRXUDJHGWKHVSHFLILFLQFLGHQWRI
PLVFRQGXFWRULQVRPHRWKHUZD\GLUHFWO\SDUWLFLSDWHGLQLW´
RU ³DW OHDVW LPSOLFLWO\ DXWKRUL]HG DSSURYHG RU NQRZLQJO\
DFTXLHVFHGLQWKHXQFRQVWLWXWLRQDOFRQGXFWRIWKHRIIHQGLQJ
VXERUGLQDWH´%HOODP\Y%UDGOH\)G WK
&LU FHUWGHQLHG86 0HUHO\KDYLQJWKH
ULJKW WR FRQWURO HPSOR\HHV LV QRW HQRXJK VHH 0RQHOO
86DWQRULVPHUHO\EHLQJDZDUHRIWKHPLVFRQGXFWVHH
1RV /HDU\HWDOY'DHVFKQHU
WKHVFKRRO²WKHSRWHQWLDOO\GLVUXSWLYHPDQQHURIWKDWVSHHFK
DJDLQZHLJKVLQIDYRURIWKHVFKRROERDUG¶VLQWHUHVWLQOLPLWLQJ
LW6HH*LYKDQY:HVWHUQ/LQH&RQVRO6FK'LVW86
Q QRWLQJWKDWWKHWLPHPDQQHUDQGSODFH
LQ ZKLFK SULYDWH VSHHFK LV GHOLYHUHG PD\ EH D VLJQLILFDQW
IDFWRULQWKHGHWHUPLQDWLRQZKHWKHUWKHHPSOR\HU¶VHIILFLHQF\
LVWKUHDWHQHGE\WKDWVSHHFK
2Q EDODQFH KRZHYHU WKH SODLQWLIIV¶ VSHDNLQJ RXW RQ
GLVFLSOLQH FKRLFH RI HGXFDWLRQDO DSSURDFKHV DQG SRWHQWLDO
YLRODWLRQV RI WKH ODZ E\ WKH VFKRRO GLVWULFW LV RI VXIILFLHQW
SXEOLF LPSRUWDQFH WR RXWZHLJK WKH HPSOR\HU¶V LQWHUHVW LQ
OLPLWLQJ WKDW VSHHFK 0RUHRYHU WKH VFKRRO ERDUG KDV
HVVHQWLDOO\ FRQFHGHG WKH SRLQW 6HH $SSHOOHH¶V %U DW
7KXVZHKROGWKDWWKHSODLQWLIIV¶VSHHFKZDVSURWHFWHGE\WKH
)LUVW$PHQGPHQW
$GYHUVH$FWLRQ
7KH VFKRRO ERDUG GRHV QRW GLVSXWH WKDW WKH LQYROXQWDU\
WUDQVIHURIWKHSODLQWLIIVZRXOGKDYHDVXIILFLHQWFKLOOLQJHIIHFW
WRTXDOLI\DVDQDGYHUVHDFWLRQXQGHUWKH)LUVW$PHQGPHQW
UHWDOLDWLRQDQDO\VLV6HH$SSHOOHH¶V%UDW7KLVSRVLWLRQ
LVVXSSRUWHGE\RXUFDVHODZ6HHHJ%RJHU)GDW

0RWLYDWLQJ)DFWRU
7KH PRVW SUREOHPDWLF DVSHFW RI WKH SODLQWLIIV¶ )LUVW
$PHQGPHQW FODLP LV VKRZLQJ WKDW WKHLU VSHHFK ZDV D
VXEVWDQWLDO RU PRWLYDWLQJ IDFWRU LQ WKH GHFLVLRQ WR WUDQVIHU
WKHP7KHGLVWULFWFRXUWIRXQGWKDWWKHSODLQWLIIVGLGQRWPDNH
DVXIILFLHQWVKRZLQJWKDWWKHLUWUDQVIHUZDVVRPRWLYDWHGIRU
WZRUHDVRQV)LUVWWKHFRXUWQRWHGWKDW+RZDUGKDGGHFLGHG
WROHDYHKHUSRVLWLRQDVSULQFLSDORI$WNLQVRQVKRUWO\EHIRUH
WKHWUDQVIHUVZHUHDUUDQJHGWKHUHIRUHWKHFRXUWFRQFOXGHG
+RZDUGZRXOGKDYHOLWWOHLQFHQWLYHWRJHWWKHSODLQWLIIVRXWRI
KHUZD\LIVKHZDVQRWVWD\LQJDW$WNLQVRQ6HFRQGWKHFRXUW
QRWHGWKDWWKHYDULRXVLQFLGHQWVRISURWHFWHGVSHHFKRFFXUUHG
RYHUDSHULRGRIVHYHUDO\HDUVZKLFKZHDNHQHGWKHLQIHUHQFH
RIUHWDOLDWLRQRUFDXVDWLRQ)XUWKHUPRUHLWDSSHDUVWKDWWKH

-- 11 of 12 --

/HDU\HWDOY'DHVFKQHU 1RV
GLVWULFWFRXUWFUHGLWHGWKHWHVWLPRQ\RI%RZOGVDQG+RZDUGDV
WRWKHUHDVRQVIRUWKHSODLQWLIIV¶WUDQVIHU7KHGLVWULFWFRXUW¶V
FRQFOXVLRQUHJDUGLQJFDXVDWLRQFRQFHUQVDTXHVWLRQRIIDFW
DQGLVWKHUHIRUHUHYLHZHGE\WKLVFRXUWIRUFOHDUHUURU6HH
/DQJIRUG)GDW
7KHSODLQWLIIVDGYDQFHQXPHURXVUHDVRQVZK\WKHGLVWULFW
FRXUW¶VFRQFOXVLRQLVIDXOW\3ULPDULO\WKH\WDNHLVVXHZLWK
WKH GLVWULFW FRXUW¶V LQWHUSUHWDWLRQ RI WKH IDFWV DUJXLQJ IRU
H[DPSOHWKDWWKHUHPRWHQHVVLQWLPHEHWZHHQWKHSODLQWLIIV¶
VSHHFK DQG WKH DOOHJHG UHWDOLDWLRQ LV GXH WR WKH IDFW WKDW
+RZDUG DQG %RZOGV KDG QR UHDO RSSRUWXQLW\ WR UHWDOLDWH
DJDLQVWWKHSODLQWLIIVEHIRUHWKHQ0RUHRYHUWKH\TXHVWLRQWKH
VSHFXODWLYHORJLFRIWKHGLVWULFWFRXUW¶VILQGLQJWKDW+RZDUG
KDGQRPRWLYHWRUHWDOLDWHDJDLQVWWKHSODLQWLIIVEHFDXVHVKH
ZDVOHDYLQJ)LQDOO\WKHSODLQWLIIVSRLQWWRFRSLRXVHYLGHQFH
WKDW FRXOG VXJJHVW WKDW %RZOGV¶V DQG +RZDUG¶V DVVHUWHG
UHDVRQV IRU PDUNLQJ WKHP IRU WUDQVIHU ZHUH SUHWH[WXDO
LQFOXGLQJ LQWHU DOLD WKH SODLQWLIIV¶ FRQVLVWHQWO\ KLJK
SHUIRUPDQFHHYDOXDWLRQV
7KH TXHVWLRQ ZKHWKHU WKH SODLQWLIIV¶ VSHHFK ZDV D
PRWLYDWLQJ IDFWRU LQ %RZOGV¶V DQG +RZDUG¶V GHFLVLRQ WR
UHFRPPHQGWKHPIRUWUDQVIHULVDFORVHRQH:HQRWHWKDWWKH
SURRI UHTXLUHG IRU WKH SODLQWLII WR REWDLQ D SUHOLPLQDU\
LQMXQFWLRQLVPXFKPRUHVWULQJHQWWKDQWKHSURRIUHTXLUHGWR
VXUYLYHDVXPPDU\MXGJPHQWPRWLRQIRUH[DPSOHDQGZH
WKHUHIRUHH[SUHVVQRRSLQLRQDVWRWKHXOWLPDWHPHULWVRIWKH
SODLQWLIIV¶ FDVH 6HH JHQHUDOO\ 'LUH[ ,VUDHO /WG Y
%UHDNWKURXJK0HG&RUS)G WK&LU
REVHUYLQJWKDWWKHVWDQGDUGIRUREWDLQLQJDSUHOLPLQDU\
LQMXQFWLRQLVKLJKHUWKDQWKHVWDQGDUGIRUVXUYLYLQJVXPPDU\
MXGJPHQW :LOOLDP * :LOFR[ '2 3& (PSOR\HHV¶
'HILQHG %HQHILW 3HQVLRQ 7UXVW Y 8QLWHG 6WDWHV )G
WK &LU QRWLQJ WKDW ³D WULDO FRXUW¶V
GLVSRVLWLRQRIWKHVXEVWDQWLYHLVVXHVMRLQHGRQDPRWLRQIRU
H[WUDRUGLQDU\ UHOLHI LV QRW GLVSRVLWLYH RI WKRVH VXEVWDQWLYH
LVVXHVRQWKHPHULWV´ 1DWLRQDO:LOGOLIH)HG¶QY%XUIRUG
)G '&&LU ³7RREWDLQDSUHOLPLQDU\
LQMXQFWLRQ>WKHSODLQWLII@QRWRQO\KDGWRGHPRQVWUDWHVSHFLILF
1RV /HDU\HWDOY'DHVFKQHU
%HFDXVH WKH GLVWULFW FRXUW IRXQG WKDW WKH SODLQWLIIV¶ WUDQVIHU ZDV QRW
PRWLYDWHG E\ WKHLU VSHHFK LW IRXQG WKDW WKH SODLQWLIIV GLG QRW KDYH D
VXEVWDQWLDO OLNHOLKRRG RI VXFFHVV RQ WKH PHULWV DQG WKHUHIRUH WKH GLVWULFW
FRXUW GLG QRW PDNH ILQGLQJV RQ WKH UHFRUG ZLWK UHVSHFW WR WKH UHPDLQLQJ
WKUHH IDFWRUV WR EH FRQVLGHUHG ZKHQ GHWHUPLQLQJ ZKHWKHU D SUHOLPLQDU\
LQMXQFWLRQ VKRXOG LVVXH 6LQFH WKH GLVWULFW FRXUW DSSDUHQWO\ FRQVLGHUHG
WKDW WKH IDLOXUH RI WKH SODLQWLIIV WR VKRZ D OLNHOLKRRG RI VXFFHVV RQ WKH
PHULWV ZDV VLJQLILFDQW HQRXJK WR SUHYHQW WKH LQMXQFWLRQ IURP LVVXLQJ VXFK
DGGLWLRQDO ILQGLQJV ZHUH QRW QHFHVVDU\ 6HH JHQHUDOO\ $PHULFDQ ,PDJLQJ
6HUYV ,QF Y (DJOH3LWFKHU ,QGXV ,QF ,Q UH (DJOH 3LWFKHU ,QGXV ,QF
)G WK &LU VWDWLQJ WKDW WKH GLVWULFW FRXUW LV QRW
UHTXLUHG WR PDNH ILQGLQJV RQ IDFWRUV WKDW DUH QRW GLVSRVLWLYH ZLWK UHVSHFW
WR WKH LVVXDQFH RI D SUHOLPLQDU\ LQMXQFWLRQ $ &+$5/(6 $/$1 :5,*+7
$57+85 5 0,//(5 0$5< .$< .$1( )('(5$/ 35$&7,&(
KDUP EXW DOVR FDUU\ WKH EXUGHQ RI SHUVXDVLRQ VKRZLQJ D
OLNHOLKRRG RI VXFFHVV RQ WKH PHULWV 2Q D PRWLRQ IRU
VXPPDU\MXGJPHQWDSODLQWLIIQHHGRQO\FUHDWHDMXU\LVVXH´
UHY¶GRQRWKHUJURXQGVVXEQRP/XMDQY1DWLRQDO:LOGOLIH
)HG¶Q86 7KLVLVEHFDXVHWKHSUHOLPLQDU\
LQMXQFWLRQLVDQ³H[WUDRUGLQDU\UHPHG\LQYROYLQJWKHH[HUFLVH
RIDYHU\IDUUHDFKLQJSRZHUZKLFKLVWREHDSSOLHGμRQO\LQ
>WKH@OLPLWHGFLUFXPVWDQFHV¶ZKLFKFOHDUO\GHPDQGLW´'LUH[
,VUDHO )G DW TXRWDWLRQ RPLWWHG DOWHUDWLRQ LQ
RULJLQDO VHHDOVR6WHQEHUJY&KHNHU2LO&R)G
WK&LU 0RUHRYHUWKHVWDQGDUGRIUHYLHZWKDW
WKLV FRXUW PXVW DSSO\ WR WKH GLVWULFW FRXUW¶V ILQGLQJV RQ D
SUHOLPLQDU\ LQMXQFWLRQ PRWLRQ LV KLJKO\ GHIHUHQWLDO 6HH
8)&:)GDW0F3KHUVRQ)GDW7KXV
ZH GR QRW GHFLGH ZKHWKHU ZH ZRXOG JUDQW D SUHOLPLQDU\
LQMXQFWLRQLIZHZHUHDFWLQJLQWKHSODFHRIWKHGLVWULFWFRXUW
QRUGRZHGHFLGHZKHWKHUVXPPDU\MXGJPHQWLVDSSURSULDWH
5DWKHUJLYHQWKHFORVHQHVVRIWKHTXHVWLRQDQGWKHIDFWWKDW
WKHSODLQWLIIV¶DUJXPHQWVZKLOHVKHGGLQJVRPHGRXEWRQWKH
GLVWULFW FRXUW¶V LQWHUSUHWDWLRQ RI WKH IDFWV GR QRW VKRZ WKH
GLVWULFWFRXUW¶VIDFWXDOILQGLQJVWREHFOHDUO\HUURQHRXVZH
DIILUPWKHGLVWULFWFRXUW¶VFRQFOXVLRQWKDWWKHSODLQWLIIVKDYH
QRWIRUWKHSXUSRVHRIWKHSUHOLPLQDU\LQMXQFWLRQVKRZQWKDW
WKH SODLQWLIIV¶ WUDQVIHU ZDV PRWLYDWHG E\ WKHLU SURWHFWHG
VSHHFK DQG WKHUHIRUH WKDW WKH SODLQWLIIV KDYH QRW VKRZQ D
VWURQJOLNHOLKRRGRIVXFFHVVRQWKHPHULWV

-- 12 of 12 --