Court Opinion

ID: 2970007
Source: CourtListenerOpinion
Date Created: 2015-09-22 16:02:05.108607+00
Date Added: 2024-06-11T13:14:58.257411
License: Public Domain

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 DS

81,7('67$7(6&28572)$33($/6
              )257+(6,;7+&,5&8,7
                BBBBBBBBBBBBBBBBB

0855$< +,// 38%/,&$7,216 ;
,1&D0LFKLJDQ&RUSRUDWLRQ 
526$5< 7$.(21(                     
                                      1R
352'8&7,216 /,0,7('                 
3$571(56+,3D0LFKLJDQ              !
                                    
OLPLWHGSDUWQHUVKLS                
          3ODLQWLIIV$SSHOODQWV 
                                    
            Y                      
                                    
                                    
$%& &20081,&$7,216 ,1& 
DND$%&,QFDQGIND          
&DSLWDO&LWLHV$%&,QF           
GED:s55DGLR                    
          'HIHQGDQW$SSHOOHH 
                                    
                                   1
       $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
      IRUWKH(DVWHUQ'LVWULFWRI0LFKLJDQDW'HWURLW
    1Rn5REHUW+&OHODQG'LVWULFWsXGJH
              $UJXHG'HFHPEHU
          'HFLGHGDQG)LOHG$XJXVW
  %HIRUH:(//)25'6,/(5DQG%$7&+(/'(5
                 &LUFXLWsXGJHV

                            
     0XUUD\+LOO3XEOLFDWLRQVHWDO             1R
      Y$%&&RPPXQLFDWLRQV

                    BBBBBBBBBBBBBBBBB
                         &2816(/
$5*8('  0D\HU 0RUJDQURWK 025*$1527+ 	
025*$1527+ 6RXWKILHOG 0LFKLJDQ IRU $SSHOODQWV
+HUVFKHO3)LQN+21,*0$10,//(56&+:$57=	
&2+1 'HWURLW 0LFKLJDQ IRU $SSHOOHH  21 %5,()
0D\HU0RUJDQURWKsHIIUH\%0RUJDQURWK025*$1527+
	025*$1527+6RXWKILHOG0LFKLJDQIRU$SSHOODQWV
+HUVFKHO3)LQN+21,*0$10,//(56&+:$57=	
&2+1'HWURLW0LFKLJDQIRU$SSHOOHH
                    BBBBBBBBBBBBBBBBB
                        23,1,21
                    BBBBBBBBBBBBBBBBB
  $/,&( 0 %$7&+(/'(5 &LUFXLW sXGJH  3ODLQWLIIV
0XUUD\ +LOO 3XEOLFDWLRQV ,QF DQG 5RVDU\ 7DNH2QH
3URGXFWLRQV /WG mSODLQWLIIVl EURXJKW WKLV DFWLRQ DJDLQVW
$%& &RPPXQLFDWLRQV GED :s5 5DGLR m:s5l UDLVLQJ
IHGHUDOFODLPVRIFRS\ULJKWLQIULQJHPHQWDQGYLRODWLRQRIWKH
/DQKDP $FW DQG VWDWH ODZ FODLPV RI FRQYHUVLRQ XQMXVW
HQULFKPHQW TXDQWXP PHUXLW DQG XQIDLU FRPSHWLWLRQ  7KH
GLVWULFWFRXUW JUDQWHGVXPPDU\MXGJPHQWWR:s5RQDOORI
SODLQWLIIVjFODLPVDQGGLVPLVVHGWKHDFWLRQDQGSODLQWLIIVILOHG
WKLV WLPHO\ DSSHDO  %HFDXVH ZH FRQFOXGH WKDW SODLQWLIIVj
FRS\ULJKW DQG /DQKDP $FW FODLPV DUH ZLWKRXW PHULW WKDW
SODLQWLIIVKDYHIDLOHGWRVWDWHDFODLPIRUXQIDLUFRPSHWLWLRQ
DQGWKDWSODLQWLIIVjUHPDLQLQJVWDWHODZFODLPVDUHSUHHPSWHG
ZHDIILUPWKHMXGJPHQWRIGLVPLVVDO
                     ,%$&.*5281'
  7KHSODLQWLIIFRUSRUDWLRQVDUHRZQHGE\'HWURLWFRPSRVHU
DQGSURGXFHU%REE\/DXUHO7KLVVWRU\LQYROYHV/DXUHOKLV
QRZGHFHDVHGIULHQG'HWURLWUDGLRSHUVRQDOLW\s30F&DUWK\
DQG 'HWURLW UDGLR VWDWLRQ :s5  )RU  \HDUV 0F&DUWK\
KRVWHGDSRSXODUPRUQLQJUDGLRSURJUDPRQ:s5%HFDXVH
1R              0XUUD\+LOO3XEOLFDWLRQVHWDO         
                              Y$%&&RPPXQLFDWLRQV

WKH\ZHUHIULHQGV0F&DUWK\RIWHQSURPRWHG/DXUHOjVYDULRXV
PXVLFDQGILOPSURMHFWVRQKLVPRUQLQJUDGLRVKRZ
  ,QWKHHDUO\
V/DXUHOEHJDQSURGXFLQJDPRYLHFDOOHG
WKH526$5< 085'(56mWKH0RYLHl7KH0RYLHZDVEDVHG
XSRQDQRYHOZULWWHQE\D'HWURLWQRYHOLVWDQGVHWLQ'HWURLW
7KH0RYLHLWVHOIZDVILOPHGLQ'HWURLW,QRQHVFHQHRIWKH
PRYLHDVDFWRU'RQDOG6XWKHUODQGHQWHUVDGLQHUHDUO\LQWKH
PRUQLQJDUDGLRFDQEHKHDUGSOD\LQJLQWKHEDFNJURXQGDQG
s3 0F&DUWK\jV YRLFH LV KHDUG VD\LQJ m*RRG PRUQLQJ
'HWURLW7KLVLVs3RQs5LQWKH$0+DYHDVZHOOGD\l
mWKH /LQHl  7KH /LQH ZDV VDLG RYHU D VRQJ WKDW ZDV DQ
RULJLQDO FRPSRVLWLRQ RI /DXUHOjV QDPHG sHDQHWWH  /DXUHO
UHJLVWHUHGERWKsHDQHWWHDQGWKH526$5< 085'(56ZLWKWKH
8QLWHG6WDWHV&RS\ULJKW2IILFH
  $IWHUWKHILOPZDVFRPSOHWHG/DXUHOUHUHFRUGHGsHDQHWWH
ZLWKVRPHVLPSOHO\ULFVs3s3s3s3s30F&DUWK\
IRU0F&DUWK\WRXVHDVDWKHPHVRQJIRUKLVPRUQLQJUDGLR
VKRZms3jV7KHPHlRUmWKH6RQJl,WLVXQGLVSXWHGWKDW
/DXUHODSSHDUHGRQ0F&DUWK\jVVKRZWKHGD\WKH6RQJZDV
XQYHLOHG,WLVXQGLVSXWHGWKDW/DXUHOUHFHLYHGUR\DOWLHVXQGHU
:s5jVmSHUSURJUDPlOLFHQVHZLWKWKH$PHULFDQ6RFLHW\RI
&RPSRVHUV $XWKRUV DQG 3XEOLVKHUV m$6&$3l DOWKRXJK
XQGHU WKH WHUPV RI :s5jV $6&$3 OLFHQVH :s5 GLG QRW
VSHFLILFDOO\LQVWUXFW$6&$3WRSD\WKRVHUR\DOWLHVWR/DXUHO
$6&$3GLVWULEXWHGDSRUWLRQRI:s5jVIODWUDWHSD\PHQWWR
/DXUHODIWHU/DXUHODGYLVHG$6&$3WKDWWKH6RQJsHDQQHWWH
UHYLVHGDQGUHQDPHGDVs3jV7KHPHZDVEHLQJSOD\HGGDLO\
RQ:s5:s5FODLPVWKDW/DXUHOJDYHERWK0F&DUWK\DQG
:s5DQRQH[FOXVLYHOLFHQVHWRXVHWKH6RQJRUWKHWKHPH
VRQJDQGWKDWQRSD\PHQWWHUPVZHUHGLVFXVVHG/DXUHORQ
WKH RWKHU KDQG FODLPV WKDW WKH OLFHQVH ZDV OLPLWHG WR
0F&DUWK\jVRZQSHUVRQDOXVHRQKLVPRUQLQJVKRZWKDWWKH
UR\DOWLHVZHUHDFULWLFDOSDUWRIWKHGHDODQGWKDWWKHOLFHQVH
QHFHVVDULO\H[SLUHGXSRQ0F&DUWK\jVGHDWK
  0F&DUWK\GLHGXQH[SHFWHGO\LQ$XJXVW2QWKHGD\
RI0F&DUWK\jVGHDWK:s5SURGXFHUVIDFHGZLWKWKHSURVSHFW
     0XUUD\+LOO3XEOLFDWLRQVHWDO               1R       1R              0XUUD\+LOO3XEOLFDWLRQVHWDO       
      Y$%&&RPPXQLFDWLRQV                                                                          Y$%&&RPPXQLFDWLRQV

RI WKH QH[W GD\jV PRUQLQJ VKRZ DQG QR KRVW FRPSLOHG D       WKHGLVWULFWFRXUWWKHODZRQFHUWDLQUHOHYDQWDVSHFWVRIWKLV
mWULEXWHlVKRZFRQVLVWLQJRIPHPRUDEOHELWVDQGSLHFHVIURP            ODZVXLW ZDV XQVHWWOHG  %HFDXVH ZH EHOLHYH WKH SODLQWLIIV
0F&DUWK\jVSURJUDPVRYHUWKH\HDUV7KHEURDGFDVWWKDWQH[W           SUHVHQWHGRQHRUPRUHFRORUDEOHDOEHLWPHULWOHVVFODLPVWR
PRUQLQJRSHQHGZLWKWKHIDPLOLDUWKHPHVRQJWKDWKDGRSHQHG            WKHGLVWULFWFRXUWZHUHYHUVHWKHDZDUGRIDWWRUQH\VIHHV
DQGFORVHG0F&DUWK\jVPRUQLQJVKRZIRUQHDUO\ILYH\HDUV
                                                                                               &21&/86,21
   7KH WULEXWH VKRZ ZDV EURDGFDVW WKH PRUQLQJ DIWHU
0F&DUWK\jV GHDWK  3XEOLF LQWHUHVW LQ WKH EURDGFDVW ZDV          )RU WKH IRUHJRLQJ UHDVRQV ZH DIILUP WKH GLVWULFW FRXUWjV
LPPHGLDWHDQGSHUYDVLYH,QWKHZHHNVIROORZLQJKLVGHDWK            MXGJPHQWGLVPLVVLQJWKHSODLQWLIIVjDFWLRQEXWZHUHYHUVHWKH
0F&DUWK\jVZLIHDQGVRQDQG:s5H[HFXWLYHVFRQFOXGHGWKDW             GLVWULFWFRXUWjVDZDUGRIDWWRUQH\VIHHVWR:s5
WKHWULEXWHVKRZKDGVLJQLILFDQWPDUNHWSRWHQWLDODQGFRXOGEH
D SRZHUIXO IXQGUDLVLQJ WRRO IRU WKH QHZO\ IRUPHG s 3
0F&DUWK\)RXQGDWLRQmWKH)RXQGDWLRQl7KH)RXQGDWLRQ
KDGEHHQFUHDWHGWRVXSSRUWDQGHQFRXUDJHPHGLFDOUHVHDUFK
LQWR YDULRXV EORRG GLVRUGHUV LQFOXGLQJ WKH RQH WKDW NLOOHG
0F&DUWK\
   :s5 HPSOR\HHV ZRUNHG RQ WKHLU RZQ WLPH WR HGLW WKH
EURDGFDVWnHOLPLQDWLQJQHZVZHDWKHUDQGFRPPHUFLDOVnDQG
WRREWDLQWKHUHOHDVHVUHTXLUHGWRFRQYHUWWKHEURDGFDVWLQWRD
PLQXWHUHFRUGLQJIRUGLVWULEXWLRQmWKH5HFRUGLQJlZKLFK
ZDVDYDLODEOHIRUVDOHMXVWLQWLPHIRUWKH&KULVWPDVVHDVRQLQ
:s5DFWLYHO\SURPRWHGVDOHVRIWKH5HFRUGLQJDQGD
PDLORUGHU ILUPZDVHPSOR\HGWRGLVWULEXWHWKH5HFRUGLQJ
7KH5HFRUGLQJKDGVLJQLILFDQWVDOHVWRWDOLQJDURXQG
FRSLHV  $OO RI WKH SURFHHGV ZHUH WXUQHG RYHU WR WKH
)RXQGDWLRQ  ,W LV XQGLVSXWHG WKDW :s5 GLG QRW HDUQ DQ\
SURILWV IRU LWV UROH LQ GLVWULEXWLQJ WKH 5HFRUGLQJ KRZHYHU
/DXUHO DUJXHV WKDW :s5 GLG UHFHLYH VRPHWKLQJ RI
YDOXHnSXEOLFDFFODLPQRWRULHW\DQGJRRGZLOOnIRULWVUROH
LQWKLVFKDULWDEOHHQGHDYRU,WLVDOVRXQGLVSXWHGWKDWQRRQH
VRXJKW /DXUHOjV SHUPLVVLRQ WR LQFOXGH WKH 6RQJ LQ WKH
5HFRUGLQJDQGWKDW/DXUHOZDVQRWFUHGLWHGZLWKDXWKRUVKLSRI
WKH6RQJRQWKHLQVHUWSDFNDJHGZLWKWKHFDVVHWWHWDSHVDQG
&'jVZKLOHRWKHUDUWLVWVDQGSURGXFHUVZHUHFUHGLWHGRQWKH
LQVHUWIRUWKHLUUHVSHFWLYHFRQWULEXWLRQV
 3ODLQWLIIV DOVR FRPSODLQ DERXW DQ DGYHUWLVLQJ FDPSDLJQ
PRXQWHGE\:s5IURPPLGXQWLO0F&DUWK\jVGHDWKLQ
       0XUUD\+LOO3XEOLFDWLRQVHWDO               1R       1R               0XUUD\+LOO3XEOLFDWLRQVHWDO         
         Y$%&&RPPXQLFDWLRQV                                                                           Y$%&&RPPXQLFDWLRQV

0F&DUWK\jVWKHPHRQWKHPRUQLQJVKRZIRUZKLFKSODLQWLIIV                $XJXVWLQZKLFK:s5FRPPLVVLRQHGDQDUWLVWWRFUHDWH
UHFHLYHGWKHH[SHFWHGUR\DOWLHV                                          DVHULHVRIELOOERDUGVWRSURPRWH0F&DUWK\jVPRUQLQJVKRZ
                                                                          7KHELOOERDUGVZHUHGHVLJQHGZLWKDJUDIILWLVW\OHSULQWRQD
   6LPLODUO\WKHUHLVQREDVLVRQZKLFKSODLQWLIIVFDQFODLPD           SODLQEDFNJURXQGVSRUWLQJRQHRIWZRVORJDQVnms3RQs5
FRQWUDFWLPSOLHGLQIDFWLQYROYLQJWKH/LQHRUWKH$UW:RUN              LQWKH$0lDQGms30DNHV0\0RUQLQJl$FFRUGLQJWR
7KHUHLVQRHYLGHQFHZKDWVRHYHULQWKHUHFRUGIURPZKLFKD                SODLQWLIIVWKH/LQHms3RQs5LQWKH$0lZDVDQRULJLQDO
MXU\ FRXOG ILQG WKDW SODLQWLIIV DQG :s5 KDG DQ\ NLQG RI         OLQH VSHFLILFDOO\ FUHDWHG E\ /DXUHO IRU WKH 0RYLH  :s5
PHHWLQJRIWKHPLQGVZLWKUHJDUGWRXVHRIRUSD\PHQWIRUWKH             GLVSXWHV/DXUHOjVFODLPWKDWKHDXWKRUHGWKH/LQHFODLPLQJ
/LQHRUWKH$UW:RUN7RWKHFRQWUDU\WKHUHFRUGLVFOHDUWKDW          WKDW 0F&DUWK\ KDG XVHG LW ORQJ EHIRUH LW DSSHDUHG LQ WKH
:s5QHYHUYLHZHGHLWKHUWKH/LQHRUWKH$UW:RUNDVKDYLQJ                0RYLH3ODLQWLIIVIXUWKHUDOOHJHWKDWLQFUHDWLQJEURFKXUHVWR
DQ\WKLQJWRGRZLWKWKHSODLQWLIIVWKHUHLVQRHYLGHQFHWKDW             SURPRWHWKH0RYLH/DXUHOFRPPLVVLRQHGDJURXSRIVHFRQG
HLWKHU ZDV HYHU GLVFXVVHG E\ RU ZDV WKH VXEMHFW RI               JUDGHVWXGHQWVWRZULWHRXWE\KDQGWKH7HQ&RPPDQGPHQWV
FRUUHVSRQGHQFH EHWZHHQ WKH SDUWLHV DQG SODLQWLIIV QHYHU            2QH VWXGHQWjV YHUVLRQ ZDV VHOHFWHG DQG SXEOLVKHG LQ D
EURXJKW WR :s5jV DWWHQWLRQ WKHLU FODLPV RI ZURQJIXO                VRXYHQLUSURJUDPWKDWZDVGLVWULEXWHGDWWKH0RYLHjVSUHPLHU
DSSURSULDWLRQXQWLOORQJDIWHU:s5KDGEHJXQXVLQJWKH/LQH               mWKH$UWZRUNl3ODLQWLIIVFODLPWKDWWKHOHWWHULQJVW\OHXVHG
DQGWKH$UW:RUNRQWKHELOOERDUGV                                      RQ:s5jVELOOERDUGVZDVFRSLHGIURPWKH0RYLHjVVRXYHQLU
                                                                          SURJUDPZLWKWKHLQWHQWLRQRIFDSLWDOL]LQJRQ0F&DUWK\jVUROH
* $WWRUQH\jV)HHV                                                        LQWKHILOP:s5GLVSXWHVWKLVDOOHJDWLRQDQGFODLPVWKDWLWV
                                                                          DUWLVWVFUHDWHGWKHELOOERDUGVZLWKRXWDQ\UHIHUHQFHZKDWVRHYHU
   :HUHYLHZDQDZDUGRIDWWRUQH\IHHVXQGHU86&              WRSODLQWLIIVjFODLPHG$UWZRUN
IRU DEXVH RI GLVFUHWLRQ  6HH 5RQDOG 0D\RWWH 	 $VVRF Y
0*& %OGJ &R  :/  DW 
 WK &LU sXO\             ,Q HDUO\  /DXUHO EHJDQ SUHVVLQJ KLV FODLPV DJDLQVW
,QWKLVFDVHWKHGLVWULFWFRXUWDZDUGHGDWWRUQH\IHHV            :s56HYHUDOOHWWHUVZHUHH[FKDQJHGLQZKLFK/DXUHORUKLV
EHFDXVHLWEHOLHYHGWKHSODLQWLIIVjFODLPVZHUHXWWHUO\GHYRLG            DWWRUQH\H[SUHVVHG/DXUHOjVGLVFRQWHQWRYHU:s5jVXVHRIWKH
RIPHULW,QKLVKDUVKFULWLFLVPRIWKHSODLQWLIIVWKHWULDOMXGJH      6RQJ LQ WKH 5HFRUGLQJ DQG WKH /LQH DQG $UWZRUN RQ WKH
ZURWHmWKLVFDVHLVPRVWQRWDEOHIRUWKHYROXPLQRXVEXUGHQ               ELOOERDUGVZLWKRXWILUVWREWDLQLQJKLVSHUPLVVLRQRUJLYLQJKLP
LWLPSRVHGRQGHIHQGDQWDQGWKHFRXUW(DFKRISODLQWLIIVj               FUHGLW RU UR\DOWLHV  :KHQ WKH SDUWLHV FRXOG QRW DJUHH WKLV
FDXVHVRIDFWLRQDUHIUDXJKWZLWKGHIHFWVHYHQPRUHQXPHURXV              ODZVXLWHQVXHG
WKDQWKRVHGHDOWZLWKKHUHl,WZDVRQWKLVEDVLVDORQHWKDWWKH
GLVWULFWFRXUWRUGHUHGWKHSD\PHQWRI:s5jVDWWRUQH\IHHV                                       ,,7+(&/$,06
   8QTXHVWLRQDEO\WKHGLVWULFWFRXUWKDVWKHDELOLW\WRLPSRVH             3ODLQWLIIV ILOHG D VL[FRXQW FRPSODLQW LQ IHGHUDO GLVWULFW
DWWRUQH\ IHHV LQ IULYRORXV DQG REMHFWLYHO\ XQUHDVRQDEOH             FRXUW DOOHJLQJ FODLPV XQGHU IHGHUDO VWDWXWRU\ ODZ DQG
ODZVXLWV6HH)RJHUW\Y)DQWDV\ ,QF86               0LFKLJDQFRPPRQODZ&RXQWV,DQG,,VRXQGHGLQIHGHUDO
Q    &RQWUDU\ WR WKH GLVWULFW FRXUWjV DVVHVVPHQW      ODZ&RXQW,FKDUJHGGHIHQGDQWVZLWKYLRODWLQJWKH&RS\ULJKW
KRZHYHUZHEHOLHYHWKDWDWWKHWLPHWKLVOLWLJDWLRQZDVEHIRUH           $FWEHFDXVHWKHGHIHQGDQWVDOOHJHGO\PDUNHWHGEURDGFDVWHG
                                                                          DQG RWKHUZLVH XVHG WKH 6RQJ WKH /LQH DQG WKH $UWZRUN
                                                                          &RXQW,,DFFXVHGWKHGHIHQGDQWVRIYLRODWLQJWKH/DQKDP$FW
                                                                         EHFDXVH WKH\ GLVSOD\HG WKH /LQH DQG WKH $UWZRUN RQ
     $FFRUGLQJO\ ZH VHH QR QHHG WR GLVFXVV ODFKHV RU WLPH OLPLWDWLRQV
     0XUUD\+LOO3XEOLFDWLRQVHWDO             1R      1R                 0XUUD\+LOO3XEOLFDWLRQVHWDO       
      Y$%&&RPPXQLFDWLRQV                                                                          Y$%&&RPPXQLFDWLRQV

ELOOERDUGVDQGEHFDXVHWKH\XVHGWKH6RQJLQWKH5HFRUGLQJ          )     7KH0HULWVRIWKH&ODLP'HVLJQDWHGm4XDQWXP0HUXLWl
ZLWKRXWJLYLQJ/DXUHOFUHGLW
                                                                      (YHQLIZHZHUHWRGLVUHJDUG0LFKLJDQjVZHOOHVWDEOLVKHG
  &RXQWV,,,WKURXJK9,VRXQGHGLQ0LFKLJDQFRPPRQODZ             ODZ GLVWLQJXLVKLQJ EHWZHHQ FRQWUDFWV LPSOLHG LQ ODZ DQG
&RXQW ,,, VRXJKW UHFRYHU\ IRU WKH WRUW RI FRQYHUVLRQ DQG   FRQWUDFWVLPSOLHGLQIDFWVXFKWKDWZHFRXOGFRQVWUXH&RXQW
DFFXVHG GHIHQGDQWV RI FRQYHUWLQJ SODLQWLIIVj LGHDV DQG        9DVSOHDGLQJDFODLPIRUEUHDFKRIDFRQWUDFWLPSOLHGLQIDFW
FRQFHSWVnWKH 6RQJ WKH /LQH DQG WKH $UWZRUNnIRU WKHLU       ZHZRXOGEHFRQVWUDLQHGWRFRQFOXGHWKDWWKHFODLPDOWKRXJK
RZQ XVH LQ WKH PDUNHWLQJ FDPSDLJQ IRU 0F&DUWK\jV             QRW SUHHPSWHG FRXOG QRW VXUYLYH GHIHQGDQWVj PRWLRQ IRU
)RXQGDWLRQWKDWIROORZHG0F&DUWK\jVXQWLPHO\GHDWK&RXQW          VXPPDU\MXGJPHQW:HKDYHVHDUFKHGWKHHQWLUHUHFRUGRI
,9GLGWKHVDPHXQGHUWKHUXEULFRIXQMXVWHQULFKPHQW&RXQW       WKLV FDVH IRU VRPH HYLGHQFH WKDW ZRXOG SHUPLW D MXU\ WR
9 VRXJKW UHFRYHU\ XQGHU WKH HTXLWDEOH WKHRU\ RI TXDQWXP     FRQFOXGHZLWKUHJDUGWRDQ\SURPLVHE\:s5WRSD\SODLQWLIIV
PHUXLW DOOHJLQJ WKDW GHIHQGDQW :s5 DOZD\V NQHZ WKDW          IRUWKH6RQJWKH/LQHRUWKH$UW:RUNWKDWmWKHPLQGVRIWKH
SODLQWLIIVLQWHQGHGWREHSDLGIRUDQ\XVHRIWKHLULGHDVDQG       SDUWLHV>PHW@E\UHDVRQRIZRUGVRUFRQGXFWl&DVFDGHQ
FRQFHSWV$QG&RXQW9,DOOHJHGXQIDLUFRPSHWLWLRQXQGHU            1:DW:HKDYHIRXQGQRWHYHQDVFLQWLOODRIHYLGHQFH
0LFKLJDQ FRPPRQ ODZ DQG FKDUJHG WKDW WKH GHIHQGDQWV          WRWKDWHIIHFW3ODLQWLIIVGRQRWGLVSXWHWKDWWKH\GLGLQIDFW
DSSURSULDWHGSODLQWLIIVj6RQJ/LQHDQG$UWZRUNWRGHFHLYH         UHFHLYHWKHUR\DOWLHVWKH\H[SHFWHGIRUs30F&DUWK\jVXVHRI
WKHSXEOLFDERXWZKRRULJLQDWHGWKHVHZRUNV                        WKH6RQJRQWKHPRUQLQJSURJUDP%REE\/DXUHOWHVWLILHGLQ
                                                                    KLV GHSRVLWLRQ WKDW KH FRPSRVHG WKH 6RQJ IRU s3 WKDW KH
                       ,,,$1$/<6,6                               LQWHQGHGWKDWs3ZRXOGXVHWKH6RQJDVKLVWKHPHVRQJRQ
                                                                    WKHPRUQLQJSURJUDPWKDWKHXQGHUVWRRGIURPDPHHWLQJZLWK
$ 6WDQGDUGRI5HYLHZ                                               0U/RQJRI:s5WKDWWKH6RQJZRXOGEHXVHGWKDWZD\DQG
                                                                    :s5ZRXOGSD\UR\DOWLHVWR/DXUHOWKURXJK$6&$3/DXUHO
   :H UHYLHZ GH QRYR D GLVWULFW FRXUWjV JUDQW RI VXPPDU\   ZDVH[SOLFLWO\DVNHGm:DVWKHUHHYHUDQH[SUHVVHGGLVFXVVLRQ
MXGJPHQW6HH$OOHQY0LFKLJDQ'HSjWRI&RUUHFWLRQV          RIWKHSD\PHQWRIUR\DOWLHV"l/DXUHOUHVSRQGHG
)GWK&LU6XPPDU\MXGJPHQWLVSURSHU
LImWKHSOHDGLQJVGHSRVLWLRQVDQVZHUVWRLQWHUURJDWRULHVDQG          <HV EHFDXVH ZH GLG QRW FKDUJH o , UHPHPEHU WKDW
DGPLVVLRQVRQILOHWRJHWKHUZLWKWKHDIILGDYLWVLIDQ\VKRZ           EHFDXVHZHGLGQRWFKDUJHKLPIRUSURGXFWLRQ,GLGQjW
WKDWWKHUHLVQRJHQXLQHLVVXHDVWRDQ\PDWHULDOIDFWDQGWKDW          LQWHQGWRGRWKDW,GLGQjWFKDUJHKLPDFUHDWLYHIHHDQG
WKHPRYLQJSDUW\LVHQWLWOHGWRDMXGJPHQWDVDPDWWHURIODZl          ZKDW ZDV LQ LW IRU XV ZRXOG EH WKDW ZH ZRXOG UHFHLYH
)(' 5 &,9 3 F:KHQUHYLHZLQJDPRWLRQIRUVXPPDU\              UR\DOWLHVWKURXJK$6&$37KDWZDVWKHRQO\WKLQJLQLW
MXGJPHQWZHPXVWYLHZWKHHYLGHQFHDQGDQ\LQIHUHQFHVWKDW              IRUXV
PD\EHGUDZQIURPWKHHYLGHQFHLQWKHOLJKWPRVWIDYRUDEOH
WRWKHQRQPRYLQJSDUW\6HH0DWVXVKLWD(OHF,QGXV&RY         1RZKHUHLQ/DXUHOjVGHSRVLWLRQRULQDQ\RWKHUSDUWRIWKH
=HQLWK5DGLR&RUS86FLWLQJ8QLWHG         UHFRUG LV WKHUH DQ\ HYLGHQFH WKDW SODLQWLIIV GLVFXVVHG ZLWK
6WDWHV Y 'LHEROG ,QF  86    SHU     DQ\RQHDVVRFLDWHGZLWK:s5DQ\RWKHUXVHRIRUSD\PHQWIRU
FXULDP                                                           WKH6RQJ,QWKHDEVHQFHRIDQ\VXFKHYLGHQFHWKHUHLVVLPSO\
                                                                    QREDVLVXSRQZKLFKDMXU\FRXOGFRQFOXGHWKDWWKHPLQGVRI
                                                                    WKHSODLQWLIIVDQG:s5HYHUPHWZLWKUHJDUGWRSD\PHQWWRWKH
                                                                    SODLQWLIIVIRUDQ\XVHRIWKH6RQJRWKHUWKDQWKHXVHDVs3
    0XUUD\+LOO3XEOLFDWLRQVHWDO                1R       1R               0XUUD\+LOO3XEOLFDWLRQVHWDO          
      Y$%&&RPPXQLFDWLRQV                                                                            Y$%&&RPPXQLFDWLRQV

  UHSURGXFWLRQ SHUIRUPDQFH GLVWULEXWLRQ RU GLVSOD\               % &RS\ULJKW,QIULQJHPHQWRIWKH6RQJ
  ZKHUHDV DQ DFWLRQ EDVHG RQ D FRQWUDFW LPSOLHG LQ IDFW
  UHTXLUHVWKHH[WUDHOHPHQWRIDSURPLVHWRSD\IRUWKHXVH               7KH GLVWULFW FRXUW KHOG WKDW LW ODFNHG MXULVGLFWLRQ RYHU
  RI WKH ZRUN ZKLFK LV LPSOLHG IURP WKH FRQGXFW RI WKH        /DXUHOjV FRS\ULJKW LQIULQJHPHQW FODLP UHODWLQJ WR WKH 6RQJ
  SDUWLHV                                                              EHFDXVH SODLQWLIIV KDG QHYHU UHJLVWHUHG WKH 6RQJ ZLWK WKH
                                                                        &RS\ULJKW2IILFHWKHRULJLQDOZRUNsHDQHWWHZDVUHJLVWHUHG
7DFR %HOO  )G   &RQWUDFWV LPSOLHG LQ ODZ ZH        EXWWKHGHULYDWLYHZRUNs3jV7KHPHZDVQRW7KHFRXUW
FRQFOXGHG PHHW WKH HTXLYDOHQF\ UHTXLUHPHQW RI WKH                IXUWKHUKHOGWKDWDOWKRXJKLWKDGMXULVGLFWLRQRYHUWKHFODLP
SUHHPSWLRQDQDO\VLVZKLOHFRQWUDFWVLPSOLHGLQIDFWPD\QRW           WKDW:s5jVXVHRIWKH6RQJLQIULQJHGWKHXQGHUO\LQJZRUN
7KHFRQWUDFWFODLPHGLQ7DFR%HOOLQFOXGHGWKHH[WUDHOHPHQW            WKLV FODLP ZDV ZDLYHG EHFDXVH /DXUHO JDYH WKH 6RQJ WR
RI D SURPLVH WR SD\ UHTXLULQJ SURRI RI DQ HQIRUFHDEOH         0F&DUWK\WKHUHE\JUDQWLQJDOLFHQVHDWOHDVWE\LPSOLFDWLRQ
SURPLVH ZKLFK LQ WXUQ ZRXOG UHTXLUH SURRI RI WKH PXWXDO       )LQDOO\WKHFRXUWKHOGWKDWWKH)RXQGDWLRQWKHRUJDQL]DWLRQ
DVVHQWRIWKHSDUWLHVDQGDEUHDFKRIWKDWSURPLVH,G               WKDWZLWKRXWTXHVWLRQDFWXDOO\SURILWHGIURPWKHVDOHVRIWKH
                                                                        5HFRUGLQJFRQWDLQLQJWKH6RQJZDVQRWDSDUW\WRWKHODZVXLW
   +HUH SODLQWLIIV KDYH SOHG WZR LPSOLHGLQODZ FRQWUDFW         DQG :s5 ZDV QRW OLDEOH IRU WKH )RXQGDWLRQjV FRQGXFW
FODLPV3ODLQO\&RXQW,9WKHFODLPIRUXQMXVWHQULFKPHQW            %HFDXVHZHDJUHHWKDWSODLQWLIIVFDQQRWEULQJDQDFWLRQIRU
GHSHQGVRQQRWKLQJPRUHWKDQ:s5jVXQDXWKRUL]HGXVHRI                  LQIULQJHPHQWRIWKHLUFRS\ULJKWRQWKH6RQJEHFDXVHLWZDVQRW
SODLQWLIIVjZRUN%HFDXVHWKDWFODLPPHHWVWKHHTXLYDOHQF\              UHJLVWHUHGZLWKWKH8QLWHG6WDWHV&RS\ULJKW2IILFHZHQHHG
UHTXLUHPHQW RI WKH SUHHPSWLRQ DQDO\VLV ZH KROG WKDW LW LV     QRWDGGUHVVWKHUHPDLQLQJLVVXHVUHODWLQJWRWKLVLQIULQJHPHQW
SUHHPSWHG$QGXQOHVVWKHODQJXDJHRIH[SHFWDWLRQLQ&RXQW             FODLP GLVFXVVHG E\ WKH GLVWULFW FRXUWnZKHWKHU :s5 KDG D
9LVVXIILFLHQWWRDGGDQHOHPHQWnQDPHO\WKHHOHPHQWRID               OLFHQVHWRXVHWRWKH6RQJDQGZKHWKHUWKH)RXQGDWLRQVKRXOG
SURPLVH WR SD\nWR WKH DFWV RI UHSURGXFWLRQ SHUIRUPDQFH         KDYHEHHQQDPHGDVDSDUW\WRWKHODZVXLW
GLVWULEXWLRQRUGLVSOD\WKDWFRQVWLWXWHWKHXQDXWKRUL]HGXVHRI
SODLQWLIIVj ZRUN WKH FODLP GHQRPLQDWHG TXDQWXP PHUXLW               :LWKYHU\OLPLWHGH[FHSWLRQVQRWUHOHYDQWKHUHUHJLVWUDWLRQ
OLNHZLVH GHSHQGV RQ QRWKLQJ PRUH WKDQ WKDW XQDXWKRUL]HG          LVDSUHUHTXLVLWHWRILOLQJDFRS\ULJKWLQIULQJHPHQWVXLW6HH
ZRUNDQGLVSUHHPSWHG                                                   86& D m>1@R DFWLRQ IRU LQIULQJHPHQW RI WKH
                                                                        FRS\ULJKWLQDQ\8QLWHG6WDWHVZRUNVKDOOEHLQVWLWXWHGXQWLO
   :H WKLQN WKDW SODLQWLIIVj DOOHJDWLRQ WKDW :s5 NQHZ RI        UHJLVWUDWLRQ RI WKH FRS\ULJKW FODLP KDV EHHQ PDGH LQ
SODLQWLIIVjLQWHQWLRQWREHSDLGIRUWKHXVHRISODLQWLIIVjZRUN        DFFRUGDQFH ZLWK WKLV WLWOHl  ,Q WKLV FDVH WKH 6RQJ LV D
LVQRWDQDOOHJDWLRQWKDW:s5SURPLVHGWRSD\DQGGRHVQRW             mGHULYDWLYHZRUNl6HH86&m$µGHULYDWLYHZRUNj
SXUSRUW WR UDLVH D FODLP RI DQ LPSOLHGLQIDFW FRQWUDFW  $   LVDZRUNEDVHGXSRQRQHRUPRUHSUHH[LVWLQJZRUNV$
FODLP WKDW RQH SDUW\ ZDV DZDUH RI WKH H[SHFWDWLRQV RI WKH     ZRUN FRQVLVWLQJ RI HGLWRULDO UHYLVLRQV DQQRWDWLRQV
RWKHULVDIDUFU\IURPDFODLPWKDWWKHILUVWSDUW\DJUHHGWRD        HODERUDWLRQV RU RWKHU PRGLILFDWLRQV ZKLFK DV D ZKROH
FRXUVHRIFRQGXFWWKDWZRXOGIXOILOOWKRVHH[SHFWDWLRQV:H            UHSUHVHQW DQ RULJLQDO ZRUN RI DXWKRUVKLS LV D µGHULYDWLYH
WKHUHIRUH KROG WKDW SODLQWLIIVj FODLP LQ &RXQW 9 LV H[DFWO\    ZRUNjl  3ODLQWLIIV UHJLVWHUHG D FRS\ULJKW RQ WKH RULJLQDO
ZKDW SODLQWLIIV GHQRPLQDWHG LWnD FODLP IRU UHFRYHU\ LQ           ZRUNsHDQHWWHEXWGLGQRWVHSDUDWHO\UHJLVWHUDFRS\ULJKWIRU
TXDQWXPPHUXLWIRUDFRQWUDFWSODLQWLIIVFRQWHQGVKRXOGEH              WKH GHULYDWLYH ZRUN s3jV 7KHPH  :KHWKHU D VHSDUDWH
LPSOLHGLQODZ:HKROGWKDWWKLVFODLPOLNHWKHFODLPIRU            UHJLVWUDWLRQIRUDGHULYDWLYHZRUNLVUHTXLUHGLVTXHVWLRQRI
XQMXVWHQULFKPHQWLVSUHHPSWHG                                        ILUVWLPSUHVVLRQLQWKLVMXULVGLFWLRQDQGWKHDQVZHULVXQVHWWOHG
        0XUUD\+LOO3XEOLFDWLRQVHWDO                   1R        1R              0XUUD\+LOO3XEOLFDWLRQVHWDO        
         Y$%&&RPPXQLFDWLRQV                                                                               Y$%&&RPPXQLFDWLRQV

DPRQJWKH&LUFXLWV2XUUHYLHZRIWKHLVVXHSHUVXDGHVXVWKDW                      7KHUHDUHWZRNLQGVRILPSOLHGFRQWUDFWVRQHLPSOLHG
DFRS\ULJKWRZQHUPXVWIRUPDOO\UHJLVWHUDGHULYDWLYHZRUN                       LQIDFWDQGWKHRWKHULPSOLHGLQODZ7KHILUVWGRHVQRW
ZLWKWKH8QLWHG6WDWHV&RS\ULJKW2IILFHDVDSUHUHTXLVLWHWR                     H[LVWXQOHVVWKHPLQGVRIWKHSDUWLHVPHHWE\UHDVRQRI
ILOLQJDVXLWIRULQIULQJHPHQWRIWKDWGHULYDWLYHZRUN                          ZRUGVRUFRQGXFW7KHVHFRQGLVTXDVLRUFRQVWUXFWLYH
                                                                                 DQGGRHVQRWUHTXLUHDPHHWLQJRIPLQGVEXWLVLPSRVHG
   :H ILUVW ORRN WR WKH OLWHUDO ODQJXDJH RI WKH FRS\ULJKW               E\ILFWLRQRIODZWRHQDEOHMXVWLFHWREHDFFRPSOLVKHG
VWDWXWHV   86& D UHTXLUHV WKDW WKH FRS\ULJKW EH             HYHQLQFDVHQRFRQWUDFWZDVLQWHQGHG
UHJLVWHUHGEHIRUHLWFDQEHDVVHUWHGDVDEDVLVIRULQIULQJHPHQW                    ,Q RUGHU WR DIIRUG WKH UHPHG\ GHPDQGHG E\ H[DFW
LQIHGHUDOFRXUW6HH0*%+RPHV,QFY$PHURQ+RPHV                        MXVWLFHDQGDGMXVWVXFKUHPHG\WRDFDXVHRIDFWLRQWKH
,QF)GWK&LU6HFWLRQRI                      ODZ VRPHWLPHV LQGXOJHV LQ WKH ILFWLRQ RI D TXDVL RU
WKHFRS\ULJKWVWDWXWHLQSDUWLFXODUGLVWLQJXLVKHVWKHQDWXUHRI                  FRQVWUXFWLYHFRQWUDFWZLWKDQLPSOLHGREOLJDWLRQWRSD\
DFRS\ULJKWLQDGHULYDWLYHZRUNIURPWKHFRS\ULJKWLQDQ\                       IRUEHQHILWVUHFHLYHG7KHFRXUWVKRZHYHUHPSOR\WKH
SUHH[LVWLQJZRUN                                                                ILFWLRQ ZLWK FDXWLRQ DQG ZLOO QHYHU SHUPLW LW LQ FDVHV
                                                                                 ZKHUHFRQWUDFWVLPSOLHGLQIDFWPXVWEHHVWDEOLVKHGRU
    7KH FRS\ULJKW LQ D FRPSLODWLRQ RU GHULYDWLYH ZRUN                     VXEVWLWXWHRQHSURPLVRURUGHEWRUIRUDQRWKHU
    H[WHQGVRQO\WRWKHPDWHULDOFRQWULEXWHGE\WKHDXWKRURI
    VXFKZRUNDVGLVWLQJXLVKHGIURPWKHSUHH[LVWLQJPDWHULDO                  &DVFDGHQY0DJU\WD1:0LFK7KH
    HPSOR\HGLQWKHZRUNDQGGRHVQRWLPSO\DQ\H[FOXVLYH                     0LFKLJDQFRXUWVKDYHH[SODLQHGWKDWWKHHTXLWDEOHGRFWULQHRI
    ULJKWLQWKHSUHH[LVWLQJPDWHULDO7KHFRS\ULJKWLQVXFK                  XQMXVW HQULFKPHQW PD\ SURYLGH WKH UHPHG\ IRU D FODLP RI
    ZRUNLVLQGHSHQGHQWRIDQGGRHVQRWDIIHFWRUHQODUJH                     EUHDFKRIDQLPSOLHGLQODZFRQWUDFWRUTXDVLFRQWUDFW6HH
    WKH VFRSH GXUDWLRQ RZQHUVKLS RU VXEVLVWHQFH RI DQ\              HJ.DPPHU$VSKDOW3DYLQJ&RY(DVW &KLQD7RZQVKLS
    FRS\ULJKW SURWHFWLRQ LQ WKH SUHH[LVWLQJ PDWHULDO                     6FK  1: G   0LFK   )XUWKHU WKH
    HPSKDVLVDGGHG                                                           0LFKLJDQFRXUWVKDYHKHOGWKDWZKHUHDSDUW\VHHNVWRHQIRUFH
                                                                               DQRUDODJUHHPHQWWKHFRXUWZLOOHTXDWHmUHFRYHU\XQGHUWKH
86&E7KHVHWZRVWDWXWHVUHDGWRJHWKHULQGLFDWH                HTXLWDEOHWKHRU\RIFRQWUDFWLPSOLHGLQODZZLWKUHFRYHU\LQ
WKDWWKHGHULYDWLYHZRUNLVGLVWLQFWIURPWKHSUHH[LVWLQJZRUN                TXDQWXP PHUXLWl  ,Q UH (VWDWH RI 0F.LP Y &RUQHOO 
DQGWKHUHIRUHWKHGHULYDWLYHZRUNPXVWEHUHJLVWHUHGEHIRUH                  1:G0LFK&W$SS
DQLQIULQJHPHQWVXLWPD\EHEURXJKW
                                                                                 5HFRJQL]LQJ WKH LPSRUWDQFH RI WKH GLVWLQFWLRQ EHWZHHQ
                                                                               FRQWUDFWVLPSOLHGLQIDFWDQGWKRVHLPSOLHGLQODZZHKHOGLQ
                                                                              7DFR%HOO
      3ODLQWLIIV DUJXH WKDW EHFDXVH XQGHU D GHULYDWLYH ZRUNV PD\ EH
FRS\ULJKWHG UHJLVWUDWLRQ RI D GHULYDWLYH ZRUN LV QRW PDQGDWRU\ 7KLV
DUJXPHQW FRQIXVHV FRS\ULJKW ZLWK UHJLVWUDWLRQ $Q DXWKRU PD\ KDYH D                )RUWKHSXUSRVHRIWKHSUHHPSWLRQDQDO\VLVWKHUHLVD
FRS\ULJKW LQ DOO ZRUNV RI DXWKRUVKLS UHJDUGOHVV RI ZKHWKHU KH UHJLVWHUV WKDW     FUXFLDO GLIIHUHQFH EHWZHHQ D FODLP EDVHG RQ TXDVL
FRS\ULJKW    7KH UHJLVWUDWLRQ UHTXLUHPHQW XQGHU VHFWLRQ E LV D             FRQWUDFWLHDFRQWUDFWLPSOLHGLQODZDQGDFODLPEDVHG
MXULVGLFWLRQDO SUHUHTXLVLWH WR WKH ULJKW RI WKH KROGHU WR HQIRUFH WKH
FRS\ULJKW LQ IHGHUDO FRXUW
                                                                                 XSRQDFRQWUDFWLPSOLHGLQIDFW,QWKHIRUPHUWKHDFWLRQ
                                                                                 GHSHQGVRQQRWKLQJPRUHWKDQWKHXQDXWKRUL]HGXVHRI
    3ODLQWLIIV FLWH 626 ,QF Y 3D\GD\ ,QF  )G  WK &LU        WKHZRUN7KXVDQDFWLRQEDVHGRQDFRQWUDFWLPSOLHGLQ
 IRU WKH SURSRVLWLRQ WKDW GHULYDWLYH ZRUNV HQMR\ FRS\ULJKW VWDWXV          ODZ UHTXLUHV QR H[WUD HOHPHQW LQ DGGLWLRQ WR DQ DFW RI
7KLV LV XQGRXEWHGO\ WUXH 3ODLQWLIIV FOHDUO\ HQMR\ D FRS\ULJKW LQ ERWK
    0XUUD\+LOO3XEOLFDWLRQVHWDO               1R       1R                  0XUUD\+LOO3XEOLFDWLRQVHWDO              
      Y$%&&RPPXQLFDWLRQV                                                                              Y$%&&RPPXQLFDWLRQV

ELOOERDUGVDORQJWKH'HWURLWKLJKZD\VDQGWKDWWKHDUWZRUN              1H[WZHORRNWRSUHFHGHQWVIURPRWKHUMXULVGLFWLRQVWKDW
HPSOR\HGRQLWVELOOERDUGVZURQJIXOO\DSSURSULDWHGWKHVW\OH           GLVFXVVWKHUHJLVWUDWLRQUHTXLUHPHQWVXQGHU&DVHODZ
RI WKH $UWZRUN LQ SODLQWLIIVj VRXYHQLU EURFKXUHV  ,Q RWKHU   RQWKLVLVVXHLVVSDUVHEXWWKHPDMRULW\UXOHDSSHDUVWREHWKDW
ZRUGV SODLQWLIIV DUJXH WKDW :s5 WRRN WKHLU ZRUNV DQG          DVHSDUDWHUHJLVWUDWLRQLVUHTXLUHGIRUGHULYDWLYHZRUNV)RU
UHSURGXFHGWKHPGLVWULEXWHGWKHPSXEOLFO\SHUIRUPHGDQG              H[DPSOHWKH)LIWK&LUFXLWKHOGWKDWWKHGLVWULFWFRXUWKDGQR
GLVSOD\HGWKHPDQGPDGHGHULYDWLYHZRUNVIURPWKHP(DFK             MXULVGLFWLRQ WR FRQVLGHU D FRS\ULJKW KROGHUjV FODLP RI
RIWKHVHDFWLRQVZRXOGLQDQGRILWVHOILQIULQJHRQHRIWKH          LQIULQJHPHQWRILWVWHHVKLUWGHVLJQVZKHQLWKDGUHJLVWHUHG
H[FOXVLYH ULJKWV VHW RXW LQ   IXUWKHUPRUH QR HOHPHQW    RQO\EODFNDQGZKLWHOLQHGUDZLQJVRIWKHGHVLJQVDQGWKHWHH
HLWKHULQDGGLWLRQWRRULQVWHDGRIWKHVHDFWLRQVLVUHTXLUHGWR       VKLUW GHVLJQV ZHUH GHULYDWLYH ZRUNV RI WKH SUHH[LVWLQJ OLQH
FRQVWLWXWH WKH VWDWH ODZ FDXVH RI DFWLRQ  :H WKHUHIRUH       GUDZLQJV6HH&UHDWLRQV8QOLPLWHG,QFY0F&DLQ)G
FRQFOXGH WKDW SODLQWLIIVj FRQYHUVLRQ FODLP VDWLVILHG WKH         WK&LU6LPLODUO\DGLVWULFWFRXUWLQ1HZ
HTXLYDOHQF\ UHTXLUHPHQW RI WKH SUHHPSWLRQ DQDO\VLV DQG LV       <RUN IRXQG WKDW LW KDG MXULVGLFWLRQ WR FRQVLGHU SODLQWLIIVj
SUHHPSWHGE\WKH&RS\ULJKW$FW6HHDOVR8QLWHG6WDWHVH[             FRS\ULJKW LQIULQJHPHQW FODLP RQO\ EHFDXVH WKH SODLQWLIIV
UHO%HUJHY%GRI7UXVWHHVRIWKH8QLYRI$OD )G           UHJLVWHUHG WKH  YHUVLRQ RI +DQG\PDQ D VRQJ DV D
  WK &LU  ILQGLQJ FRQYHUVLRQ FODLP            GHULYDWLYHZRUNRIWKHYHUVLRQRI+DQG\PDQWKHUHE\
SUHHPSWHG'DERXEY*LEERQV)GWK&LU              FRPSO\LQJ ZLWK WKH UHTXLUHPHQWV RI  86&   6HH
VDPH                                                          sRQHVY9LUJLQ5HFRUGV/WG)6XSS
                                                                       6'1<
   E  8QMXVW (QULFKPHQW DQG 4XDQWXP 0HUXLW  3ODLQWLIIV
GHQRPLQDWH&RXQW,9RIWKHFRPSODLQWm8QMXVW(QULFKPHQWl                :H DFNQRZOHGJH WKDW WKHUH DUH FDVHV WKDW SHUPLW
DQG &RXQW 9 m4XDQWXP 0HUXLWl  ,Q &RXQW ,9 SODLQWLIIV        LQIULQJHPHQWVXLWVWRSURFHHGRQUHJLVWHUHGGHULYDWLYHZRUNV
DOOHJH WKDW :s5 mZDV XQMXVWO\ HQULFKHG DV D UHVXOW RI         HYHQWKRXJKVRPHRIWKHXQGHUO\LQJIRXQGDWLRQDOZRUNVZHUH
'HIHQGDQWjV LQWHQWLRQDO DQG ZURQJIXO DSSURSULDWLRQ DQG           QRWIRUPDOO\UHJLVWHUHG7KRVHFDVHVGLVWLQJXLVKFRS\ULJKWHG
LPSURSHUXVHRILWKHRULJLQDOLGHDVDQGFRQFHSWVFRQWDLQHG        PDWHULDOLQZKLFKERWKWKHSUHH[LVWLQJDQGGHULYDWLYHZRUNV
LQ3ODLQWLII5RVDU\7DNH2QHjVIHDWXUHPRWLRQSLFWXUHDQG           DUH DXWKRUHG E\ WKH VDPH SHUVRQ IURP ZRUNV LQ ZKLFK WKH
LL3ODLQWLIIVjSURSULHWDU\LGHDVFRQFHSWVVWUDWHJLHVDQGWLH     DXWKRUV DUH GLIIHUHQW  )RU H[DPSOH WKH GLVWULFW FRXUW LQ
LQV IRU PDUNHWLQJ DQG H[SORLWLQJ WKH IHDWXUH ILOP DQG WKH     .DQVDVKDVKHOG
0XVLFDO&RPSRVLWLRQLQFOXGLQJEXWQRWOLPLWHGWRWKHXVHRI
WKH$UW:RUNl,Q&RXQW9WKHSODLQWLIIVDOOHJHWKDW:s5               >$@QRZQHURIDUHJLVWHUHGFRS\ULJKWLQDGHULYDWLYHZRUN
mZDVDZDUHWKDW3ODLQWLIIVLQWHQGHGWREHIXOO\FRPSHQVDWHG              GRHVQRWKDYHWRUHJLVWHUVHSDUDWHO\WKHSUHH[LVWLQJZRUN
LQWKHHYHQWWKDW'HIHQGDQWGHVLUHGWRPDNHXVHRI3ODLQWLIIVj           EHIRUH EULQJLQJ DQ LQIULQJHPHQW DFWLRQ EDVHG RQ WKH
RULJLQDO LGHDV FRQFHSWV VWUDWHJLHV DQG WLHLQV LQ DQ\          GHULYDWLYH ZRUN  7KH FRXUW ILQGV WKDW WKLV UHVXOW LV
PDQQHUlDQGWKDW:s5GLGLQIDFWPDNHXVHRIWKRVHLGHDV             FRQVLVWHQWZLWKWKHSULQFLSOHVRIWKH&RS\ULJKW$FW)LUVW
FRQFHSWVVWUDWHJLHVDQGWLHLQVE\DSSURSULDWLQJWKHPZLWKRXW           ;HUR[ LV WKH DXWKRU RI WKH SUHH[LVWLQJ ZRUNV DQG
FRPSHQVDWLQJSODLQWLIIV
  )RU DW OHDVW  \HDUV 0LFKLJDQ ODZ KDV GLVWLQJXLVKHG        sHDQHWWH DQG s3jV 7KHPH %XW WKH TXHVWLRQ EHIRUH WKLV &RXUW LV ZKHWKHU
EHWZHHQ FRQWUDFWV LPSOLHG LQ ODZ DQG FRQWUDFWV LPSOLHG LQ      WKH ODFN RI D IRUPDO UHJLVWUDWLRQ VWULSV WKH IHGHUDO FRXUW RI MXULVGLFWLRQ WR

IDFW                                                                  KHDU SODLQWLIIVj FODLP WKDW :s5 KDV LQIULQJHG WKH FRS\ULJKW LQ s3jV
                                                                       7KHPH   )RU WKH UHDVRQV GLVFXVVHG KHUHLQDIWHU ZH FRQFOXGH WKDW LW GRHV
    0XUUD\+LOO3XEOLFDWLRQVHWDO                    1R      1R               0XUUD\+LOO3XEOLFDWLRQVHWDO        
      Y$%&&RPPXQLFDWLRQV                                                                               Y$%&&RPPXQLFDWLRQV

  WKHUHIRUHFRS\ULJKWSURWHFWLRQZDVH[WHQGHGDVVRRQDV                  WKHPLVWKHH[SUHVVLRQRIDQLGHDZKLFKLVWKHHVVHQFHRIWKH
  WKHYHUVLRQVRIWKHVRIWZDUHDQGPDQXDOVZHUHmIL[HGLQ                  VXEMHFWPDWWHURIWKH$FW$FFRUGLQJO\ZHFRQFOXGHWKDWWKH
  DQ\WDQJLEOHPHGLXPRIH[SUHVVLRQlZLWKRXWUHJDUGWR                     VXEMHFW PDWWHU UHTXLUHPHQW RI WKH SUHHPSWLRQ DQDO\VLV LV
  UHJLVWUDWLRQV6HFRQGWKH&RS\ULJKW$FWGRHVQRWUHTXLUH               VDWLVILHG
  VHSDUDWHUHJLVWUDWLRQRIHDFKDQGHYHU\FRPSRQHQWSDUWRI
  DFRS\ULJKWHGZRUNSDUWLFXODUO\ZKHUHWKHDXWKRURIWKH                       (TXLYDOHQF\5HTXLUHPHQW
  GHULYDWLYHZRUNLVWKHXQFRQWHVWHGDXWKRURIHDFKRIWKH
  FRPSRQHQWSDUWV                                                           :HKHOGLQ7DFR%HOOWKDW

                                 


                                       m>H@TXLYDOHQF\ H[LVWV LI WKH ULJKW GHILQHG E\ VWDWH ODZ
                                                                             PD\EHDEULGJHGE\DQDFWZKLFKLQDQGRILWVHOIZRXOG
  ;HUR[jVUHJLVWUDWLRQRIWKHGHULYDWLYHZRUNVLVVXIILFLHQW                 LQIULQJHRQHRIWKHH[FOXVLYHULJKWV&RQYHUVHO\LIDQ
  WR DOORZ DQ LQIULQJHPHQW FODLP EDVHG RQ FRS\LQJ RI                 H[WUDHOHPHQWLVUHTXLUHGLQVWHDGRIRULQDGGLWLRQWRWKH
  PDWHULDO HLWKHU QHZO\ DGGHG RU FRQWDLQHG LQ WKH                     DFWVRIUHSURGXFWLRQSHUIRUPDQFHGLVWULEXWLRQRUGLVSOD\
  XQGHUO\LQJZRUN                                                           LQRUGHUWRFRQVWLWXWHDVWDWHFUHDWHGFDXVHRIDFWLRQWKHUH
                                                                             LV QR SUHHPSWLRQ SURYLGHG WKDW WKH H[WUD HOHPHQW
,QUH,QGHS6HUY2UJV$QWLWUXVW/LWLJ)6XSS                FKDQJHVWKHQDWXUHRIWKHDFWLRQVRWKDWLWLVTXDOLWDWLYHO\
'.DQLQWHUQDOFLWDWLRQVRPLWWHG6LPLODUO\                GLIIHUHQWIURPDFRS\ULJKWLQIULQJHPHQWFODLP
DGLVWULFWFRXUWLQ&DOLIRUQLDFRQFOXGHG
                                                                           7DFR %HOO  )G DW   (DFK RI SODLQWLIIVj VWDWH ODZ
  :KHUHDVKHUHWKHDXWKRURIDFROOHFWLRQRUGHULYDWLYH                 FODLPVPXVWEHHYDOXDWHGLQOLJKWRIWKLVVWDQGDUG
  ZRUN LV DOVR WKH DXWKRU RI WKH SUHH[LVWLQJ ZRUN
  UHJLVWUDWLRQ RI WKH FROOHFWLRQ LV VXIILFLHQW      +HUH     D&RQYHUVLRQ7KHSODLQWLIIVFRQWHQGWKDW:s5XQODZIXOO\
  +XEEDUGZDVWKHDXWKRURIWKHXQGHUO\LQJZRUNDQGZDV                    FRQYHUWHGSODLQWLIIVjSURSHUW\LHWKH6RQJWKH/LQHDQGWKH
  DOVR WKH DXWKRU RI WKH FROOHFWLRQ RI KLV RZQ ZRUNV             $UWZRUN  8QGHU 0LFKLJDQ ODZ FRQYHUVLRQ LV GHILQHG
  $FFRUGLQJO\UHJLVWUDWLRQRIWKHFROOHFWLRQVWKDWLQFOXGH                JHQHUDOO\DVmDQ\GLVWLQFWDFWRIGRPDLQZURQJIXOO\H[HUWHG
  WKH ([KLELW $ ZRUNV FRQVWLWXWHV UHJLVWUDWLRQ RI WKH               RYHUDQRWKHUjVSHUVRQDOSURSHUW\LQGHQLDORIRULQFRQVLVWHQW
  XQGHUO\LQJZRUNV                                                        ZLWKWKHULJKWVWKHUHLQl6DUYHUY'HWURLW(GLVRQ&R
                                                                           1:G   0LFK &W $SS   7KH mJLVWl RI D
5HOLJLRXV 7HFK &WU Y 1HWFRP 2Q/LQH &RPPXQLFDWLRQ                 FRQYHUVLRQFODLPLVWKDWWKHGHIHQGDQWKDVLQWHUIHUHGZLWKWKH
6HUYV,QF)6XSS1'&DO                 SODLQWLIIjVFRQWURODQGXVHRILWVSURSHUW\6HHLGDW
  7KHVHFDVHVDUHUHFRQFLODEOHKRZHYHUZLWKWKHUXOHWKDWZH               3ODLQWLIIVjFRPSODLQWDOOHJHVWKDW:s5mGLGWDNHKROGDQG
DGRSWEHIRUHDQLQIULQJHPHQWVXLWFDQEHVXVWDLQHGEDVHGRQ              XVH IRU LWV RZQ EHQHILW WKH RULJLQDO LGHDV DQG FRQFHSWV
WKHGHULYDWLYHZRUNWKDWGHULYDWLYHZRUNPXVWEHUHJLVWHUHG              FRQWDLQHGLQWKHIHDWXUHILOPWKH5RVDU\0XUGHUVDVZHOODV
7KHVHFDVHVVSHDNRQO\WRWKHFLUFXPVWDQFHLQZKLFKLWLVWKH              WKHSURSULHWDU\LGHDVFRQFHSWVDQGVWUDWHJLHVIRUPDUNHWLQJ
GHULYDWLYH ZRUN RU FROOHFWLRQ WKDW ZDV UHJLVWHUHG DQG WKH        DQGH[SORLWLQJWKHIHDWXUHILOPDQGWKH0XVLFDO&RPSRVLWLRQl
SUHH[LVWLQJZRUNWKDWZDVQRW%HFDXVHDGHULYDWLYHZRUNLV               ,Q VXPPDU\ SODLQWLIIV FODLP WKDW :s5 ZURQJIXOO\
FXPXODWLYH RI WKH HDUOLHU ZRUN LW LV ORJLFDO WKDW WKH            LQFRUSRUDWHG WKH 6RQJ LQ WKH 5HFRUGLQJ DQG VROG WKH
UHJLVWUDWLRQ RI WKH GHULYDWLYH ZRUN ZRXOG UHODWH EDFN WR           5HFRUGLQJIRUSURILWWKDWLWZURQJIXOO\GLVSOD\HGWKH/LQHRQ
     0XUUD\+LOO3XEOLFDWLRQVHWDO                1R       1R                0XUUD\+LOO3XEOLFDWLRQVHWDO          
       Y$%&&RPPXQLFDWLRQV                                                                             Y$%&&RPPXQLFDWLRQV

  >$@VWDWHFRPPRQODZRUVWDWXWRU\FODLPLVSUHHPSWHGLI               LQFOXGHWKHRULJLQDOZRUNZKLOHUHJLVWUDWLRQRIWKHRULJLQDO
  WKHZRUNLVZLWKLQWKHVFRSHRIWKHµVXEMHFWPDWWHURI             PDWHULDOZRXOGQRWFDUU\IRUZDUGWRQHZGHULYDWLYHPDWHULDO
  FRS\ULJKWj DV VSHFLILHG LQ  86&  DQG
  WKHULJKWVJUDQWHGXQGHUVWDWHODZDUHHTXLYDOHQWWR                 :H WKLQN WKDW &RQJUHVV LQWHQGHG WKH MXULVGLFWLRQDO
  DQ\H[FOXVLYHULJKWVZLWKLQWKHVFRSHRIIHGHUDOFRS\ULJKW             UHTXLUHPHQWV RI D WR DGG FODULW\ DQG FHUWDLQW\ WR WKH
  DVVHWRXWLQ86&                                          HQIRUFHPHQWRIFRS\ULJKWVZHWKHUHIRUHDGRSWWKHUXOHWKDWD
                                                                         FRS\ULJKWRZQHUPXVWUHJLVWHULWVGHULYDWLYHZRUNVZLWKWKH
,GDW7KHUHIRUHWRGHWHUPLQHZKHWKHUSODLQWLIIVjVWDWH          8QLWHG6WDWHV&RS\ULJKW2IILFHDVDMXULVGLFWLRQDOSUHUHTXLVLWH
ODZFODLPVDUHSUHHPSWHGZHILUVWPXVWFRQVLGHUZKHWKHUWKH             WREULQJLQJDFRS\ULJKWLQIULQJHPHQWVXLW,QWKLVFDVHWKH
/LQH WKH 6RQJ DQG WKH $UWZRUN VDWLVI\ WKH VXEMHFW PDWWHU      SODLQWLIIVIRUPDOO\UHJLVWHUHGWKHRULJLQDOVRQJsHDQHWWHEXW
UHTXLUHPHQWVHFRQGZHPXVWFRQVLGHUZKHWKHUWKHVWDWHODZ              IDLOHG WR UHJLVWHU WKH GHULYDWLYH ZRUN s3jV 7KHPH
FDXVHVRIDFWLRQSOHGE\WKHSODLQWLIIVVDWLVI\WKHHTXLYDOHQF\          7KHUHIRUHZHKROGWKDWSODLQWLIIVDUHEDUUHGIURPEULQJLQJD
UHTXLUHPHQW2QO\LIERWKUHTXLUHPHQWVDUHVDWLVILHGZLOOWKH           DFWLRQIRUFRS\ULJKWLQIULQJHPHQWRIWKH6RQJ
VWDWHODZFODLPEHSUHHPSWHG
                                                                         & &RS\ULJKW,QIULQJHPHQWRIWKH/LQHDQGWKH$UWZRUN
  %HIRUH ZH DQDO\]H WKH LVVXH RI SUHHPSWLRQ XQGHU WKH
&RS\ULJKW$FWZHSDXVHWRHPSKDVL]HWKDWSUHHPSWLRQLQWKLV               7KH GLVWULFW FRXUW KHOG WKDW /DXUHOjV FODLP RI FRS\ULJKW
FDVH DV LQ DQ\ FDVH RI IHGHUDO SUHHPSWLRQ RI VWDWH ODZ LV   LQIULQJHPHQWZLWKUHVSHFWWRWKH/LQHDQGWKH$UWZRUNZDV
KLJKO\ GHSHQGHQW XSRQ WKH IDFWV SUHVHQWHG DQG WKH FODLPV         EDUUHGE\WKHVWDWXWHRIOLPLWDWLRQV+RZHYHUEHFDXVHZH
DFWXDOO\SOHGE\WKHSDUWLHV:LWKWKLVLQPLQGZHSURFHHGWR          FRQFOXGHWKDWQHLWKHUWKH/LQHQRUWKH$UWZRUNLVDPHQDEOHWR
WKHVSHFLILFVRISODLQWLIIVUHPDLQLQJVWDWHODZFODLPV                  FRS\ULJKWSURWHFWLRQDWDOOZHGHFOLQHWRFRQVLGHUZKHWKHU
                                                                         SODLQWLIIVjFODLPVDUHDOVREDUUHGE\WKHVWDWXWHRIOLPLWDWLRQV
      6XEMHFW0DWWHU5HTXLUHPHQW
                                                                           m7KH VLQH TXD QRQ RI FRS\ULJKW LV RULJLQDOLW\    WKDW LW
   7KHUH LV QR GLVSXWH WKDW WKH 6RQJ LV D ZRUN ZLWKLQ WKH     SRVVHVVHVDWOHDVWVRPHPLQLPDOGHJUHHRIFUHDWLYLW\l)HLVW
VXEMHFW PDWWHU RI FRS\ULJKW DV LW LV GHILQHG LQ  86&      3XEOLFDWLRQV,QFY5XUDO7HO6HUY&R86
7KH/LQHDQGWKH$UWZRUNKRZHYHUZHKDYH                    :s5 DUJXHV WKDW DOWKRXJK WKH 0RYLH WDNHQ DV D
DOUHDG\GHWHUPLQHGDUHQRWDPHQDEOHWRFRS\ULJKWSURWHFWLRQ             ZKROH ZDUUDQWV FRS\ULJKW SURWHFWLRQ LQGLYLGXDO OLQHV RI
%XWWKLVGHWHUPLQDWLRQGRHVQRWGLFWDWHWKHFRQFOXVLRQWKDWWKH          GLDORJXH DUH QRW DXWRPDWLFDOO\ HQWLWOHG WR FRS\ULJKW
VXEMHFWPDWWHUUHTXLUHPHQWKDVQRWEHHQVDWLVILHG,Q7DFR              SURWHFWLRQ:HDJUHHZLWKWKLVSRVLWLRQ
%HOO ZH DJUHHG ZLWK WKH UHDVRQLQJ RI WKRVH FLUFXLWV ZKLFK
KDYH KHOG WKDW mWKH VFRSH RI WKH &RS\ULJKW $FWjV VXEMHFW          7KH/LQHLVSURSHUO\FKDUDFWHUL]HGDVDSKUDVHRUVORJDQ
PDWWHUH[WHQGVEH\RQGWKHWDQJLEOHH[SUHVVLRQVWKDWFDQEH               7KHIHGHUDOUHJXODWLRQVVWDWHWKDWmZRUGVDQGVKRUWSKUDVHV
SURWHFWHG XQGHU WKH $FW WR HOHPHQWV RI H[SUHVVLRQ ZKLFK          VXFKDVQDPHVWLWOHVDQGVORJDQVlDUHQRWVXEMHFWWRFRS\ULJKW
WKHPVHOYHVFDQQRWEHSURWHFWHGl,GDW:HWKHUHIRUH              SURWHFWLRQ6HH&)5,QOLJKWRIWKLVUHJXODWLRQ
KHOGWKDWmWKHVFRSHRIWKH&RS\ULJKW$FWjVVXEMHFWPDWWHULV            WKH)LUVW&LUFXLWFRQVLGHUHGZKHWKHUFHUWDLQSKUDVHVFRQWDLQHG
EURDGHUWKDQWKHVFRSHRIWKH$FWjVSURWHFWLRQVl,G+HUH
DOWKRXJKWKH/LQHDQGWKH$UWZRUNODFNWKHOHYHORIFUHDWLYLW\
QHFHVVDU\WRFRPHZLWKLQWKHSURWHFWLRQRIWKH$FWHDFKRI                  
                                                                              7KHVH UHJXODWLRQV DUH SURPXOJDWHG E\ WKH 5HJLVWHU RI &RS\ULJKWV
                                                                         XQGHU WKH DXWKRULW\ RI  86&  
    0XUUD\+LOO3XEOLFDWLRQVHWDO              1R      1R             0XUUD\+LOO3XEOLFDWLRQVHWDO        
      Y$%&&RPPXQLFDWLRQV                                                                       Y$%&&RPPXQLFDWLRQV

LQWKHSODLQWLIIjVPDUNHWLQJEURFKXUHZHUHFRS\ULJKWDEOH6HH       ( 3UHHPSWLRQE\WKH&RS\ULJKW$FW
&00&DEOH5HS,QFY2FHDQ&RDVW3URSHUWLHV ,QF
)GVW&LU,QWKDWFDVHDPDUNHWLQJILUPKDG          /DXUHO EULQJV D QXPEHU RI VWDWHODZ FODLPV UHODWLQJ WR
GHVLJQHGDFDOOLQFRQWHVWDQGFHUWDLQSXEOLFLW\PDWHULDOVWR        :s5jVXVHRIWKH6RQJWKH/LQHDQGWKH$UWZRUN$VZH
SURPRWHWKHFRQWHVW7KHWZRSKUDVHVDWLVVXHZHUHmLI\RXjUH       GLVFXVVPRUHIXOO\EHORZZHEHOLHYHWKDWHDFKRISODLQWLIIVj
VWLOOµRQWKHFORFNjDWTXLWWLQJWLPHlDQGmFORFNLQDQGPDNH        VWDWHODZFODLPVKDVEHHQSUHHPSWHGE\RIWKH&RS\ULJKW
 DQ KRXUl  7KH &RXUW UHMHFWHG WKH PDUNHWLQJ ILUPjV      $FW6HH86&
DUJXPHQW WKDW WKH SKUDVHV ZHUH VXEMHFW WR FRS\ULJKW
SURWHFWLRQ6HHLGDWm,WLVD[LRPDWLFWKDWFRS\ULJKWODZ     6HFWLRQRIWKH&RS\ULJKW$FWGHILQHVWKHVFRSHRIWKH
GHQLHVSURWHFWLRQWRµIUDJPHQWDU\ZRUGVDQGSKUDVHVjDQGWR          $FWjVSUHHPSWLYHUHDFK,QSHUWLQHQWSDUWLWSURYLGHV
µIRUPV RI H[SUHVVLRQ GLFWDWHG VROHO\ DW IXQFWLRQDO
FRQVLGHUDWLRQVj RQ WKH JURXQGV WKDW WKHVH PDWHULDOV GR QRW     D >$@OOOHJDORUHTXLWDEOHULJKWVWKDWDUHHTXLYDOHQWWR
H[KLELWWKHPLQLPDOOHYHORIFUHDWLYLW\QHFHVVDU\WRZDUUDQW           DQ\RIWKHH[FOXVLYHULJKWVZLWKLQWKHJHQHUDOVFRSHRI
FRS\ULJKW SURWHFWLRQl  7KH &RXUW FRQFOXGHG WKDW HYHQ         FRS\ULJKW DV VSHFLILHG E\ VHFWLRQ  LQ ZRUNV RI
WKRXJKWKHSODLQWLIIKDGREWDLQHGDFRS\ULJKWLQWKHEURFKXUHV         DXWKRUVKLS WKDW DUH IL[HG LQ D WDQJLEOH PHGLXP RI
FRQWDLQLQJWKHSKUDVHVmFRS\ULJKWSURWHFWLRQGRHVQRWH[WHQG          H[SUHVVLRQ DQG FRPH ZLWKLQ WKH VXEMHFW PDWWHU RI
WR >WKH SKUDVHVj@ RUGLQDU\ HPSOR\PHQW SKUDVHRORJ\ ZKLFK          FRS\ULJKWDVVSHFLILHGE\VHFWLRQVDQGZKHWKHU
ODFNVWKHPLQLPDOOHYHORIRULJLQDOLW\l,GDW                 >@SXEOLVKHGRUXQSXEOLVKHGDUHJRYHUQHGH[FOXVLYHO\
                                                                       E\WKLVWLWOH7KHUHDIWHUQRSHUVRQLVHQWLWOHGWRDQ\VXFK
  6LPLODUO\LQWKLVFDVHSODLQWLIIVREWDLQHGDFRS\ULJKWRQWKH      ULJKW RU HTXLYDOHQW ULJKW LQ DQ\ VXFK ZRUN XQGHU WKH
HQWLUH0RYLHZKLFKFRQWDLQHGWKH/LQHXVHGE\:s5LQLWV              FRPPRQODZRUVWDWXWHVRIDQ\6WDWH
DGYHUWLVLQJFDPSDLJQ+RZHYHUWKH/LQHLVQRWKLQJPRUH
WKDQDVKRUWSKUDVHRUVORJDQGLFWDWHGWRVRPHGHJUHHE\WKH          E 1RWKLQJLQWKLVWLWOH DQQXOVRUOLPLWVDQ\ULJKWVRU
IXQFWLRQDOFRQVLGHUDWLRQVLQKHUHQWLQFRQYH\LQJWKHGHVLUHG            UHPHGLHVXQGHUWKHFRPPRQODZRUVWDWXWHVRIDQ\6WDWH
LQIRUPDWLRQ DERXW 0F&DUWK\jV PRUQLQJ VKRZ LH ZKRVH           ZLWKUHVSHFWWRn
PRUQLQJVKRZZKDWUDGLRVWDWLRQDQGZKDWWLPH
                                                                          VXEMHFW PDWWHU WKDW GRHV QRW FRPH ZLWKLQ WKH
  1HLWKHULVWKH/LQHDmUHDGLO\UHFRJQL]DEOHlSRUWLRQRIWKH            VXEMHFWPDWWHURIFRS\ULJKWDVVSHFLILHGE\VHFWLRQV
0RYLHDVZHUHWKHGLVSXWHGOLQHVFRQVLGHUHGE\WKHFRXUWLQ               DQG  LQFOXGLQJ ZRUNV RI DXWKRUVKLS QRW
8QLYHUVDO&LW\6WXGLRV,QFY.DPDU,QGXVWULHV,QF              IL[HGLQDQ\WDQJLEOHPHGLXPRIH[SUHVVLRQRU>@
8634:/6'7H[,QWKDWFDVH
WKHGLVWULFWFRXUWFRQFOXGHGWKDWWKHOLQHVm,ORYH\RX(7l            DFWLYLWLHVYLRODWLQJOHJDORUHTXLWDEOHULJKWVWKDW
DQGm(7SKRQHKRPHlVSRNHQE\(7LQWKHILOPRIWKH                 DUH QRW HTXLYDOHQW WR DQ\ RI WKH H[FOXVLYH ULJKWV
VDPHQDPHZHUHmUHDGLO\UHFRJQL]DEOHWRWKHOD\REVHUYHUDV             ZLWKLQWKHJHQHUDOVFRSHRIFRS\ULJKWDVVSHFLILHGE\
NH\ OLQHV RI GLDORJXH IURP WKH FRS\ULJKWHG PRYLH DQG            VHFWLRQ
WKHUHIRUH WKH WHVW IRU FRS\ULJKW LQIULQJHPHQW KDV EHHQ       86&
VDWLVILHGl,GDW
                                                                       $VZHH[SODLQHGLQRXUUHFHQWGHFLVLRQLQ:UHQFK//&Y
                                                                     7DFR%HOO)GWK&LU
       0XUUD\+LOO3XEOLFDWLRQVHWDO                   1R         1R               0XUUD\+LOO3XEOLFDWLRQVHWDO          
         Y$%&&RPPXQLFDWLRQV                                                                                 Y$%&&RPPXQLFDWLRQV

KLVJLIWH[SOLFLWDQGKLVVXEVHTXHQWO\DOORZLQJ:s5WRSOD\                       :s5FRQWHQGVWKDWXQOLNHWKHOLQHVLQ.DPDU,QGXVWULHVWKH
WKH6RQJZLWKRXWREMHFWLRQIRUQHDUO\ILYH\HDUV%HFDXVHWKH                  /LQHLQGLVSXWHKHUHLVDPLQRUSDUWLQWKHRYHUDOO0RYLHDQG
FRQIXVLRQDUJXHGE\SODLQWLIIVLVQRWFRQIXVLRQE\FRQVXPHUV                   WKDWWKLVIDFWDORQHLVIDWDOWRSODLQWLIIVjFODLPRIFRS\ULJKW
ZKLFKLVZKDWWKH/DQKDP$FWZDVHQDFWHGWRSURWHFWDJDLQVW                    LQIULQJHPHQW7KHPLVDSSURSULDWLRQRIHYHQDVPDOOSRUWLRQ
WKHGHIHQGDQWVjDFWLRQVGLGQRWYLRODWHWKH/DQKDP$FW6HH                    RI D FRS\ULJKWHG ZRUN KRZHYHU PD\ FRQVWLWXWH DQ
JHQHUDOO\$JHH)GDW                                                 LQIULQJHPHQW XQGHU FHUWDLQ FLUFXPVWDQFHV  6HH 8QLYHUVDO
                                                                                3LFWXUHV&RY+DUROG/OR\G&RUS)GWK
  3ODLQWLIIV DOVR EULQJ D FODLP RI XQIDLU FRPSHWLWLRQ XQGHU             &LUmµ7RFRQVWLWXWHDQLQYDVLRQRIDFRS\ULJKWLWLVQRW
0LFKLJDQ VWDWH ODZ  7KH DQDO\VLV RI D FODLP XQGHU                    QHFHVVDU\WKDWWKHZKROHRIDZRUNVKRXOGEHFRSLHGQRUHYHQ
0LFKLJDQjVODZRIXQIDLUFRPSHWLWLRQLVVLPLODUWRWKHDQDO\VLV                 DODUJHSRUWLRQRILWLQIRUPRUVXEVWDQFHEXWWKDWLIVRPXFK
RI D IHGHUDO /DQKDP $FW FODLP  6HH 7ZR 0HQ DQG D                    LVWDNHQWKDWWKHYDOXHRIWKHRULJLQDOLVVHQVLEO\GLPLQLVKHG
7UXFN,QWjO,QFY7ZR0HQDQGD7UXFN.DODPD]RR,QF                       RU WKH ODERUV RI WKH RULJLQDO DXWKRU DUH VXEVWDQWLDOO\ WR DQ
 ) 6XSS   :' 0LFK   7KXV IRU WKH              LQMXULRXVH[WHQWDSSURSULDWHGE\DQRWKHUWKDWLVVXIILFLHQWWR
VDPH UHDVRQV GHVFULEHG DERYH SODQWLIIV KDYH IDLOHG WR VHW              FRQVWLWXWHDQLQIULQJHPHQWjl+RZHYHUZKHQDVLQJOHOLQH
IRUWKDVWDWHODZFODLPRIXQIDLUFRPSHWLWLRQ                                  RI D ODUJHU FRS\ULJKWHG ZRUN LV DSSURSULDWHG E\ DQ DOOHJHG
                                                                                LQIULQJHUWKHWHVWLVZKHWKHUmWKHZRUNLVUHFRJQL]DEOHE\DQ
   )XUWKHUPRUHXQGHU0LFKLJDQODZJHQHUDOO\WKHUHFDQEHQR                   RUGLQDU\REVHUYHUDVKDYLQJEHHQWDNHQIURPWKHFRS\ULJKWHG
XQIDLUFRPSHWLWLRQZKHQWKHSDUWLHVDUHQRWFRPSHWLWRUVLQWKH                  VRXUFHl  ,G LQWHUQDO TXRWDWLRQ PDUNV RPLWWHG VHH DOVR
PDUNHWSODFH6HH%RURQ2LO&RY&DOODQDQ1:G                         :KLWQH\ Y 5RVV sXQJQLFNHO ,QF  ) 6XSS  
0LFK&W$SS7KHH[FHSWLRQWRWKDWUXOH                     6'1<m+HUHRQO\WZROLQHVDUHFODLPHGWRKDYH
RFFXUV ZKHQ WKH D SDUW\ KDV mDQ RXWVWDQGLQJ DQG ZLGHO\                 EHHQDSSURSULDWHGIURPSODLQWLIIVjO\ULF7KLVZRXOGQRW
NQRZQQDPHPDGHYDOXDEOHE\WKHRZQHUlDQGWKHQDPHLV                         SUHYHQW UHFRYHU\ LI WKH OLQHV FODLPHG WR KDYH EHHQ
SLUDWHGE\DQRWKHUSDUW\,G3ODLQWLIIVDUJXHWKDWEHFDXVHWKH               DSSURSULDWHGFRQVWLWXWHDQLPSRUWDQWDQGYLWDOSDUWRIWKHWZR
0RYLHLVVRZHOONQRZQDQGWKH/LQHDQG6RQJDUHVRIDPLOLDU                    FRPSRVLWLRQVUDWKHUWKDQEHLQJPHUHO\LQFLGHQWDORUWULYLDOl
WRWKHSXEOLF:s5jVXVHDPRXQWVWRXQIDLUFRPSHWLWLRQ$W
WKHVDPHWLPHSODLQWLIIVDGPLWWKHLUEXVLQHVVLQWHUHVWVGRQRW                   ,Q WKLV FDVH LW LV FOHDU WKDW WKH GLVSXWHG /LQH VSRNHQ E\
LQDQ\ZD\FRPSHWHZLWK:s5jVLQWHUHVWV3ODLQWLIIVWDNHDQ                    0F&DUWK\ZDVQRWDQLQWHJUDOSDUWRIWKH0RYLHLWZDVPHUHO\
XQWHQDEOH SRVLWLRQ  (YHQ LI WKH H[FHSWLRQ IRU ZHOONQRZQ               DQ LQFLGHQWDO SDUW RI WKH EDFNJURXQG  0RUHRYHU WKH /LQH
WUDGHQDPHVZHUHDSSOLFDEOHLQWKLVVLWXDWLRQDYHU\GRXEWIXO                  GRHVQRWFRPHHYHQFORVHWREHLQJDVmUHDGLO\UHFRJQL]DEOHl
SURSRVLWLRQSODLQWLIIVKDYHSUHVHQWHGQRHYLGHQFHWRVXSSRUW                   LQ WHUPV RI LWV UHODWLRQVKLS WR WKH 0RYLH DV m(7 SKRQH
WKHFODLPWKDWWKHFRQWHQWVRIWKH0RYLHZHUHVRZHOONQRZQ                     KRPHlLVWRLWVPRYLHVRXUFH:HFRQFOXGHWKDWWKH/LQHLVDQ
LQWKHFRPPXQLW\DVWRLQYRNHWKHH[FHSWLRQ                                    LQVLJQLILFDQWSDUWRIDPXFKODUJHUZRUNDQGLWLVDSKUDVHRU
                                                                                VORJDQQRWZRUWK\RIFRS\ULJKWSURWHFWLRQLQLWVRZQULJKW
                                                                                WKHUHIRUHWKHUHFDQEHQRLQIULQJHPHQWLQWKLVFDVHDVDPDWWHU
                                                                                RIODZ
                                                                                  $VWRSODLQWLIIVjDOOHJHGFRS\ULJKWLQWKH$UWZRUNZHIDLO
      :KLOH LW LV SRVVLEOH WKDW SODLQWLIIVj VWDWHODZ XQIDLU FRPSHWLWLRQ LV
SUHHPSWHG E\ WKH IHGHUDO &RS\ULJKW $FW ZH GHFOLQH WR DGGUHVV WKLV              WRVHHKRZDVHFRQGJUDGHUjVKDQGZULWWHQUHQGLWLRQRIWKH7HQ
TXHVWLRQ DV ZH EHOLHYH SODLQWLIIVj FRPSODLQW IDLOV WR VWDWH D FODLP RI XQIDLU   &RPPDQGPHQWVHPERGLHVDQ\GHJUHHRIFUHDWLYLW\WKDWZRXOG
FRPSHWLWLRQ XQGHU 0LFKLJDQ VWDWH ODZ
       0XUUD\+LOO3XEOLFDWLRQVHWDO                   1R        1R                0XUUD\+LOO3XEOLFDWLRQVHWDO          
         Y$%&&RPPXQLFDWLRQV                                                                                 Y$%&&RPPXQLFDWLRQV

UHQGHUWKHUHVXOWLQJZRUNDPHQDEOHWRFRS\ULJKWSURWHFWLRQ                    ZLWKRXW WKH DXWKRUjV SHUPLVVLRQ DQG ZLWKRXW FUHGLWLQJ WKH
7KHUH LV QR HYLGHQFH LQ WKH UHFRUG WKDW WKH FKLOGUHQ ZHUH            DXWKRUIRUWKHFRPSRVLWLRQ7KHDXWKRUDUJXHGDYLRODWLRQ
DVNHG WR FUHDWH DQ DUWLVWLF UHQGLWLRQ WKH DVVLJQPHQW ZDV              XQGHUWKH/DQKDP$FWEHFDXVHWKHSURGXFHUmPLVUHSUHVHQWHG
PHUHO\ WR FRS\ WKH WH[W RI WKH 7HQ &RPPDQGPHQWV LQ WKH               WKHVRXUFHRIWKHUHFRUGLQJRUDWOHDVWVXJJHVWHGWKDWLWRZQHG
FKLOGUHQjV RZQ KDQGZULWLQJ  7KH UHVXOW ZDV QRWKLQJ PRUH               DFRS\ULJKWLQWKHUHFRUGLQJl,GDW7KH&RXUWUHMHFWHG
WKDQZRUGVDQGSKUDVHVORQJVLQFHGHGLFDWHGWRWKHSXEOLF                     WKHFODLPEHFDXVHWKHUHZDVQRHYLGHQFHWKDWWKHEURDGFDVW
GRPDLQUHQGHUHGLQMXYHQLOHSHQPDQVKLS%HFDXVHWKHUHLV                    ZDVLQWHQGHGWRGHFHLYHWKHSXEOLFQRUZDVWKHUHDQ\IDFWXDO
QRWKLQJ LQ WKH $UWZRUN WKDW LV FRS\ULJKWDEOH SODLQWLIIVj               HYLGHQFHWKDWWKHSXEOLFZDVDFWXDOO\FRQIXVHG6HHLGsXVW
LQIULQJHPHQW FODLPV DV WR WKH $UWZRUN PXVW DOVR IDLO DV D            DVLQWKLVFDVHWKHDXWKRULQ$JHHZDVVHHNLQJFRPSHQVDWLRQ
PDWWHURIODZ                                                                 EHFDXVH KH GLG QRW UHFHLYH FUHGLW IRU FRPSRVLQJ WKH ZRUN
                                                                               7KH6HFRQG&LUFXLWUHMHFWHGDQH[WHQVLRQRIWKH/DQKDP$FW
' 7KH /DQKDP $FW DQG 8QIDLU &RPSHWLWLRQ XQGHU                           WR FRYHU FLUFXPVWDQFHV ZKHUH DQ DUWLVW KDG QRW UHFHLYHG
   0LFKLJDQ6WDWH/DZ                                                          SURSHU FUHGLW FRPPHQWLQJ WKDW GRLQJ VR mZRXOG VLPSO\
                                                                               WUDQVIRUPHYHU\FRS\ULJKWDFWLRQLQWRD/DQKDP$FWDFWLRQDV
  7KH/DQKDP$FWFUHDWHVDFDXVHRIDFWLRQDJDLQVWm>D@Q\                      ZHOOl ,G FLWLQJ 0HUFKDQW Y /\PRQ  ) 6XSS 
SHUVRQZKRXVHVLQFRPPHUFHDQ\IDOVHGHVLJQDWLRQRI               6'1<
RULJLQ    ZKLFK LV OLNHO\ WR FDXVH FRQIXVLRQ RU WR FDXVH
PLVWDNHRUWRGHFHLYHDVWRWKHRULJLQRIJRRGV              :HILQG$JHHSHUVXDVLYHDXWKRULW\RQIDFWVVXEVWDQWLDOO\
VHUYLFHV RU FRPPHUFLDO DFWLYLWLHV E\ DQRWKHU SHUVRQl               VLPLODUWRWKRVHSUHVHQWHGE\WKLVFDVH+HUHLWLVXQGLVSXWHG
86&D$,QRUGHUWRSUHYDLORQDFODLPXQGHU                   WKDWQRRQHZDVIDOVHO\FUHGLWHGIRUZULWLQJWKH6RQJRUWKH
WKH /DQKDP $FW SODLQWLIIV PXVW SURYH ERWK D IDOVH                     /LQH0RUHWRWKHSRLQWSODLQWLIIVKDYHQRWVXEPLWWHGDQ\
GHVLJQDWLRQDQGSXEOLFFRQIXVLRQ                                              HYLGHQFHRISXEOLFFRQIXVLRQDWWULEXWDEOHWRWKHIDFWWKDWWKH
                                                                               6RQJ ZDV LQFOXGHG LQ WKH 5HFRUGLQJ RU WKDW WKH /LQH DQG
   3ODLQWLIIVFODLPWKDW:s5jVXVHRIWKH/LQHDQG$UWZRUNRQ                  $UWZRUNZHUHXVHGRQWKHELOOERDUGV
LWVELOOERDUGVDQGWKH6RQJRQWKH5HFRUGLQJZLWKRXWJLYLQJ
/DXUHO FUHGLW LV D IDOVH GHVLJQDWLRQ RI RULJLQ DQG WKHUHIRUH            3ODLQWLIIVGRQRWVHULRXVO\FODLPWKDWWKH\KDYHSUHVHQWHG
YLRODWHVWKH/DQKDP$FW7KH6HFRQG&LUFXLWKDVFRQVLGHUHG                    DQ\ HYLGHQFH RI FRQVXPHU FRQIXVLRQ UHJDUGLQJ WKH 6RQJ
WKLVSUHFLVHTXHVWLRQDQGUHMHFWHGSODLQWLIIVjDUJXPHQWEDVHG                  /LQHDQG$UWZRUN,QVWHDGSODLQWLIIVDUJXHWKDWWKHIDFWWKDW
RQWKHVHFRQGSURQJRIWKHDQDO\VLVnSXEOLFFRQIXVLRQ6HH                     :s5HPSOR\HHVEHOLHYHG:s5RZQHGWKH6RQJLVVXIILFLHQW
$JHHY3DUDPRXQW&RPPXQLFDWLRQV,QF)GG                        HYLGHQFH RI FRQIXVLRQ  7KHUH ZDV XQGRXEWHGO\ FRQIXVLRQ
&LU                                                                    VXUURXQGLQJWKHH[WHQWRI:s5jVSHUPLVVLRQWRXVHWKH6RQJ
                                                                               EXWWKDWFRQIXVLRQZDVQRWFDXVHGE\:s5jVLQFOXVLRQRIWKH
  ,Q $JHH WKH FRXUW FRQVLGHUHG +DUG &RS\ D WHOHYLVLRQ                6RQJRQWKH5HFRUGLQJ,WZDVFDXVHGE\/DXUHOjVKDSKD]DUG
SURJUDP ZKLFK XVHG D FRS\ULJKWHG VRQJ LQ LWV SURJUDP                   mJLIWlRIWKH6RQJWR0F&DUWK\ZLWKRXWPDNLQJWKHWHUPVRI

     
     ,Q UHDFKLQJ WKLV FRQFOXVLRQ ZH GR QRW PHDQ WR WULYLDOL]H WKH VDQFWLW\
                                                                                   
                                                                                    :H GR QRW FRQVLGHU  :DOGPDQ   3XEOLVKLQJ &RUS Y /DQGROO ,QF 
RI WKH ZRUGV RI WKH 7HQ &RPPDQGPHQWV :H VLPSO\ FRQFOXGH WKDW QR RQH           )G   G &LU  DV GHQLJUDWLQJ WKH KROGLQJ LQ $JHH EHFDXVH
PD\ FODLP D FRS\ULJKW LQ WKDW WH[W DQG QRWKLQJ DERXW WKLV GHSLFWLRQ RI WKDW   LQ :DOGPDQ WKH DXWKRUjV QDPH ZDV VXEVWLWXWHG IRU WKDW RI WKH DFWXDO
WH[W LV VXIILFLHQWO\ FUHDWLYH WR ZDUUDQW FRS\ULJKW SURWHFWLRQ                 DXWKRU 7KRVH ZHUH QRW WKH IDFWV LQ HLWKHU $JHH RU WKH LQVWDQW FDVH