Kalamazoo River v. Rockwell Intl Corp

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

.$/$0$=22 5,9(5 678'< ;
*5283 
3ODLQWLII$SSHOODQW 
 1R

Y !


52&.:(// ,17(51$7,21$/ 
&25325$7,21 
'HIHQGDQW$SSHOOHH 

1
$SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
IRUWKH:HVWHUQ'LVWULFWRI0LFKLJDQDW*UDQG5DSLGV
1Rn5REHUW+ROPHV%HOO&KLHI'LVWULFWsXGJH
$UJXHG2FWREHU
'HFLGHGDQG)LOHG'HFHPEHU
%HIRUHs21(60225(DQG*,/0$1&LUFXLWsXGJHV
BBBBBBBBBBBBBBBBB
&2816(/
$5*8('sHURPH7:ROI6211(16&+(,11$7+
526(17+$/.DQVDV&LW\0LVVRXULIRU$SSHOODQWsRVHSK
& %DVWD '<.(0$ *266(77 'HWURLW 0LFKLJDQ IRU
$SSHOOHH21%5,()sHURPH7:ROIsDPHV/0RHOOHU
$P\ ( %DXPDQ 'DYLG 6 /DGZLJ 6211(16&+(,1


 .DODPD]RR5LYHU6WXG\*URXS 1R
Y5RFNZHOO,QWjO&RUS

1$7+  526(17+$/ .DQVDV &LW\ 0LVVRXUL $ODQ &
%HQQHWW /$: :($7+(56  5,&+$5'621 *UDQG
5DSLGV 0LFKLJDQ IRU $SSHOODQW  .DWKU\Q s +XPSKUH\
'<.(0$*266(77'HWURLW0LFKLJDQIRU$SSHOOHH
*,/0$1sGHOLYHUHGWKHRSLQLRQRIWKHFRXUWLQZKLFK
0225( s MRLQHG  s21(6 s SS  GHOLYHUHG D
VHSDUDWHFRQFXUULQJRSLQLRQ
BBBBBBBBBBBBBBBBB
23,1,21
BBBBBBBBBBBBBBBBB
521$/'/((*,/0$1&LUFXLWsXGJH7KH.DODPD]RR
5LYHU6WXG\*URXS.56*DQXQLQFRUSRUDWHGDVVRFLDWLRQRI
SDSHU PDQXIDFWXUHUV EURXJKW VXLW LQ IHGHUDO GLVWULFW FRXUW
SXUVXDQW WR WKH &RPSUHKHQVLYH (QYLURQPHQWDO 5HVSRQVH
&RPSHQVDWLRQ DQG /LDELOLW\ $FW RI  &(5&/$ 
86& ††  VHHNLQJ FRQWULEXWLRQ IURP 5RFNZHOO
,QWHUQDWLRQDO&RUSRUDWLRQIRUWKHODWWHUjVUROHLQFRQWDPLQDWLQJ
WKH.DODPD]RR5LYHUZLWKSRO\FKORULQDWHGELSKHQ\OV3&%V
,QDELIXUFDWHGEHQFKWULDOWKHGLVWULFWFRXUWILUVWGHWHUPLQHG
WKDW5RFNZHOOjVUHOHDVHRI3&%VLQWRWKH.DODPD]RR5LYHU
ZDVVLJQLILFDQWHQRXJKIRULWWRIDFHOLDELOLW\XQGHU&(5&/$
%XW WKH GLVWULFW FRXUW XOWLPDWHO\ GHFOLQHG WR DOORFDWH DQ\
UHVSRQVHFRVWVWR5RFNZHOOILQGLQJWKDWLWVUHOHDVHRI3&%V
ZDVPLQXVFXOHOHVVWKDQRQHKXQGUHWKRILQFRPSDULVRQ
ZLWKWKDWRIWKHFRPSDQLHVFRPSULVLQJWKH.56*)RUWKH
UHDVRQVVHWIRUWKEHORZZH$)),50WKHMXGJPHQWRIWKH
GLVWULFWFRXUW
,%$&.*5281'
7KLVFDVHDULVHVIURPWKHSUHVHQFHRI3&%VLQDSRUWLRQRI
WKH.DODPD]RR5LYHUORFDWHGLQWKHVWDWHRI0LFKLJDQ7KH
VXEVWDQFHLVDV\QWKHWLFOLTXLGZLWKPDQ\LQGXVWULDOXVHV,WLV
DOVR D KD]DUGRXV PDWHULDO WKDW SRVHV VLJQLILFDQW KHDOWK DQG
HQYLURQPHQWDOULVNV%HFDXVHRIWKHVHULVNVWKHPDQXIDFWXUH
RI 3&%V FHDVHG LQ WKH V  $W DSSUR[LPDWHO\ WKH VDPH
 .DODPD]RR5LYHU6WXG\*URXS 1R 1R .DODPD]RR5LYHU6WXG\*URXS 
Y5RFNZHOO,QWjO&RUS Y5RFNZHOO,QWjO&RUS

FRXUWjV FRQFOXVLRQ GHVSLWH D UDWKHU SLQFKHG YLHZ RI WKH WLPH WKH VWDWH DJHQF\ QRZ NQRZQ DV WKH 0LFKLJDQ
VWDWXWHDQG&21&85LQWKHFRXUWjVRSLQLRQ 'HSDUWPHQW RI (QYLURQPHQWDO 4XDOLW\ 0'(4 EHJDQ
VWXG\LQJ WKH OHYHO RI 3&%V LQ WKH .DODPD]RR 5LYHU  7KH
0'(4FRPSOHWHGLWVLQLWLDOLQYHVWLJDWLRQLQFRQFOXGLQJ
WKDW D PLOH VWUHWFK RI WKH 5LYHU ZDV FRQWDPLQDWHG ZLWK
3&%V  7KLV VWUHWFK EHJLQV DW WKH FRQIOXHQFH RI WKH
.DODPD]RR 5LYHU ZLWK 3RUWDJH &UHHN DQG FRQWLQXHV
GRZQVWUHDPWRWKH$OOHJDQ&LW\'DP
%DVHGXSRQWKHILQGLQJVRIWKH0'(4WKH8QLWHG6WDWHV
(QYLURQPHQWDO3URWHFWLRQ$JHQF\(3$SODFHGWKLVSRUWLRQ
RI WKH 5LYHU DORQJ ZLWK D WKUHHPLOH SRUWLRQ RI 3RUWDJH
&UHHN RQ WKH 1DWLRQDO 3ULRULWLHV /LVW DV D 6XSHUIXQG 6LWH
SXUVXDQW WR †  RI &(5&/$  86& † 
FROOHFWLYHO\WKH6LWH7KH(3$VXEVHTXHQWO\DXWKRUL]HGWKH
0'(4WRFRQGXFWDQ(QGDQJHUPHQW5LVN$VVHVVPHQW(5$
RIWKH6LWH)ROORZLQJWKH(5$WKH0'(4LGHQWLILHGWKUHH
SDSHU PLOOV DV EHLQJ SRWHQWLDOO\ UHVSRQVLEOH IRU WKH 3&%
FRQWDPLQDWLRQ *HRUJLD3DFLILF &RUSRUDWLRQ 0LOOHQQLXP
+ROGLQJV,QFRUSRUDWHGDQG3ODLQZHOO,QFRUSRUDWHG7KHVH
FRPSDQLHV WKHQ HQWHUHG LQWR DQ $GPLQLVWUDWLYH 2UGHU E\
&RQVHQW $2& WKDW UHTXLUHG WKHP WR IXQG D 5HPHGLDO
,QYHVWLJDWLRQDQG)HDVLELOLW\6WXG\5,)6DWWKH6LWHDQGLWV
VXUURXQGLQJ DUHD  )RUW sDPHV 2SHUDWLQJ &RPSDQ\ ODWHU
DJUHHGWRVKDUHWKHFRVWVRIWKH5,)6MRLQLQJZLWKWKHRWKHU
FRPSDQLHVWRIRUPWKH.56*
3XUVXDQW WR WKH$2&WKH5,)6HQFRPSDVVHGDPLOH
VWUHWFKRIWKH.DODPD]RR5LYHUUXQQLQJERWKXSVWUHDPDQG
GRZQVWUHDPIURPWKH6LWH7KLVH[SDQGHGDUHDLQFOXGHGWKH
SRUWLRQ RI WKH 5LYHU WKDW LV DGMDFHQW WR WKH IRUPHU VLWH RI
5RFNZHOOjV PDQXIDFWXULQJ IDFLOLW\ LQ $OOHJDQ 0LFKLJDQ
)URPDSSUR[LPDWHO\WR5RFNZHOOEXLOWXQLYHUVDO
MRLQWVIRUWKHDXWRPRWLYHLQGXVWU\DWLWV$OOHJDQIDFLOLW\
,Q  WKH .56* EURXJKW VXLW DJDLQVW 5RFNZHOO DQG
VHYHUDORWKHUFRPSDQLHVLQWKH8QLWHG6WDWHV'LVWULFW&RXUW
IRUWKH:HVWHUQ'LVWULFWRI0LFKLJDQ7KH.56*DOOHJHGWKDW
WKHVHFRPSDQLHVZHUHSDUWO\UHVSRQVLEOHIRUFRQWDPLQDWLQJ
 .DODPD]RR5LYHU6WXG\*URXS 1R 1R .DODPD]RR5LYHU6WXG\*URXS 
Y5RFNZHOO,QWjO&RUS Y5RFNZHOO,QWjO&RUS

WKH 6LWH ZLWK 3&%V  ,W WKHUHIRUH VRXJKW FRQWULEXWLRQ IURP ,Q WKH VSHFLILF FRQWH[W RI UHVSRQVH FRVWV DOORFDWLRQ LQ
WKHP IRU WKH FRVWV DVVRFLDWHG ZLWK ERWK WKH 5,)6 DQG WKH &(5&/$FRQWULEXWLRQDFWLRQVIHGHUDOFRXUWVKDYHGLUHFWO\
IXWXUH FOHDQXS RI WKH 6LWH  $OWKRXJK WKH .56* DVVHUWHG KHOGWKDWDGLVWULFWFRXUWjVDOORFDWLRQRIUHVSRQVHFRVWVZLOOQRW
YDULRXVEDVHVIRULWVULJKWWRFRQWULEXWLRQWKHGLVWULFWFRXUW EHVHWDVLGHXQOHVVLWLVGHWHUPLQHGWKDWWKHFRXUWDEXVHGLWV
DQG WKH SDUWLHV IRFXVHG H[FOXVLYHO\ RQ WKH .56*jV GLVFUHWLRQ 0H\HU  )G DW  $GGLWLRQDOO\ LQ WKHVH
FRQWULEXWLRQ FODLP SXUVXDQW WR † I RI &(5&/$  FDVHV WKH IDFWXDO ILQGLQJV XQGHUO\LQJ WKH GLVWULFW FRXUWjV
86&†I7KH.56*jVFRQWULEXWLRQFODLPVDJDLQVW DOORFDWLRQRIUHVSRQVHFRVWVPD\EHVHWDVLGHRQO\LIFOHDUO\
WKHRWKHUFRPSDQLHVVXEVHTXHQWO\VHWWOHGRUZHUHRWKHUZLVH HUURQHRXV6KUR\HU)GDW0\FROOHDJXHFRUUHFWO\
UHVROYHG OHDYLQJ RQO\ LWV FODLP IRU FRQWULEXWLRQ DJDLQVW FRQFOXGHVWKDWWKHUHZDVQRWKLQJHUURQHRXVDERXWWKHGLVWULFW
5RFNZHOOIRUUHVROXWLRQE\WKHGLVWULFWFRXUW FRXUWjVIDFWXDOILQGLQJVQRUZDVWKHUHDQ\DEXVHRIGLVFUHWLRQ
KHUH+RZHYHU,VWLOOEHOLHYHWKHUHVXOWLQWKLVFDVHLVERWK
$SURFHGXUDOUXOLQJE\WKHGLVWULFWFRXUWELIXUFDWHGWKHWULDO WURXEOLQJDQGDQRPDORXV
RIWKH.56*jVFRQWULEXWLRQFODLPDJDLQVW5RFNZHOOLQWRWZR
VWDJHV ZLWK WKH ILUVW OLPLWHG WR OLDELOLW\ DQG WKH VHFRQG 'HVSLWH&RQJUHVVjVLQWHQWWRFUHDWHmDVWURQJLQFHQWLYHERWK
IRFXVHGRQWKHDOORFDWLRQRIUHVSRQVHFRVWV%RWKVWDJHVZHUH IRUSUHYHQWLRQRIUHOHDVHVDQGYROXQWDU\FOHDQXSRIUHOHDVHV
WULHG WR WKH EHQFK  $W WKH OLDELOLW\ VWDJH WKH GLVWULFW FRXUW E\UHVSRQVLEOHSDUWLHVl5RFNZHOODNQRZQSROOXWHUKDVEHHQ
HPSOR\HGDmWKUHVKROGRIVLJQLILFDQFHlVWDQGDUGRIOLDELOLW\ DOORZHGWRHVFDSHUHVSRQVHFRVWVRQWKHJURXQGVWKDWLWV3&%
DVWDQGDUGODWHUUHMHFWHGE\WKLVFRXUW$VDUWLFXODWHGE\WKH UHOHDVH ZDV VXIILFLHQWO\ mLQFRQVHTXHQWLDOl WR UHPRYH WKH
GLVWULFWFRXUWWKLVVWDQGDUGLPSRVHG&(5&/$OLDELOLW\ZKHUH MXVWLILFDWLRQIRUDOORFDWLRQRIFRVWV7KXVZHDUHOHIWZLWKQR
DGHIHQGDQWjVUHOHDVHRIKD]DUGRXVPDWHULDOLVRIVXIILFLHQW mGHILQLWH DQG ILUP FRQYLFWLRQ WKDW D PLVWDNH KDV EHHQ
VLJQLILFDQFHWRMXVWLI\UHVSRQVHFRVWV.DODPD]RR5LYHU6WXG\ FRPPLWWHGlE\DNQRZQSROOXWHU/RJDQ)GDWWK
*URXSY0HQDVKD&RUS)GWK&LU &LU
GHVFULELQJ WKH WKUHVKROG RI VLJQLILFDQFH VWDQGDUG  7KH
GLVWULFWFRXUWGHWHUPLQHGWKDWWKH.56*DQG5RFNZHOOKDG *UDQWHG5RFNZHOOjV3&%UHOHDVHZDVPLQLPDO+RZHYHU
ERWKUHOHDVHGDVXIILFLHQWDPRXQWRI3&%VWRIDFHOLDELOLW\ †DLPSRVHVVWULFWOLDELOLW\IRUDQ\UHOHDVHWKDWFDXVHVD
XQGHU WKH WKUHVKROG RI VLJQLILFDQFH VWDQGDUG  ,W REVHUYHG SODLQWLII WR LQFXU UHVSRQVH FRVWV $OWKRXJK WKH HTXLWDEOH
KRZHYHU WKDW 5RFNZHOOjV UHOHDVH RI 3&%V DSSHDUHG WR EH DQDO\VLVSURYLVLRQRI†ISURYLGHVIRUMXGLFLDOGLVFUHWLRQ
PLQLPDO LQ FRPSDULVRQ WR WKH UHOHDVH RI 3&%V E\ WKH ZLWK UHJDUG WR WKH FRVW DSSRUWLRQPHQW DPRQJ 353V WKH
PHPEHUVRIWKH.56*$OWKRXJKWKLVFRXUWODWHUUHMHFWHGWKH VWDWXWRU\SXUSRVHRI&(5&/$DQGWKHSULQFLSOHVRIHTXLW\
WKUHVKROG RI VLJQLILFDQFH VWDQGDUG EHFDXVH LW LPSURSHUO\ UHTXLUHWKDWHDFK353SD\LWVIDLUVKDUHRIUHVSRQVHFRVWVQR
UHTXLUHV WKH SODLQWLII WR VKRZ WKDW D GHIHQGDQWjV UHOHDVH RI PDWWHUKRZODUJHRUVPDOO,QGHHGQR353VKRXOGSD\PRUH
KD]DUGRXVPDWHULDOVFDXVHGUHVSRQVHFRVWVVHHLGDWWKH WKDQWKHLUVKDUHEXWQHLWKHUVKRXOGDQ\SDUW\SD\OHVV+HUH
DGRSWLRQ RI D ORZHU OLDELOLW\ VWDQGDUG GLG QRW LQXUH WR WKH KRZHYHU5RFNZHOOSD\VQRWKLQJ
EHQHILW RI 5RFNZHOO  7KH GLVWULFW FRXUWjV ILQGLQJ WKDW
5RFNZHOOKDGUHOHDVHGDVXIILFLHQWDPRXQWRI3&%VWREHKHOG $FFRUGLQJO\ E\ QRW DOORFDWLQJ DQ\ UHVSRQVH FRVWV WR D
SRWHQWLDOO\OLDEOHHYHQXQGHUWKHPRUHRQHURXVWKUHVKROGRI NQRZQ SROOXWHU WKH RXWFRPH LQ WKLV FDVH FRQWUDYHQHV WKH
VLJQLILFDQFH VWDQGDUG ZRXOG REYLRXVO\ QRW FKDQJH ZKHQ LPSRUWDQW UHPHGLDO SXUSRVHV RI &(5&/$  1HYHUWKHOHVV
VXEMHFWHGWRWKHORZHUVWDQGDUG EHFDXVH,EHOLHYHWKDWWKHGLVFUHWLRQUHJDUGLQJDOORFDWLRQRI
FRVWV VKRXOG UHPDLQ ZLWK WKH GLVWULFW FRXUW , MRLQ LQ WKLV
 .DODPD]RR5LYHU6WXG\*URXS 1R 1R .DODPD]RR5LYHU6WXG\*URXS 
Y5RFNZHOO,QWjO&RUS Y5RFNZHOO,QWjO&RUS

BBBBBBBBBBBBBBBBBBBBBB )ROORZLQJWKHOLDELOLW\VWDJHWKHGLVWULFWFRXUWFRQVLGHUHG
WKHSURSHUDOORFDWLRQRIUHVSRQVHFRVWVEHWZHHQWKH.56*
&21&855(1&( DQG5RFNZHOO7KHGLVWULFWFRXUWLGHQWLILHGWKUHHIDFWRUVDV
BBBBBBBBBBBBBBBBBBBBBB JHQHUDOO\UHOHYDQWWRWKHDOORFDWLRQRIUHVSRQVHFRVWVWKH
UHODWLYH TXDQWLWLHV RI 3&%V UHOHDVHG E\ WKH SDUWLHV  WKH
1$7+$1,(/5s21(6&LUFXLWsXGJHFRQFXUULQJ:KLOH UHODWLYHWR[LFLW\RIWKRVH3&%VDQGWKHFRRSHUDWLRQRIWKH
,FRQFXULQWKHMXGJPHQWUHDFKHGE\sXGJH*LOPDQjVZHOO SDUWLHVZLWKWKHUHJXODWRU\DXWKRULWLHV$IWHUWKHFRXUWIRXQG
UHDVRQHGRSLQLRQ,ZULWHVHSDUDWHO\WRHPSKDVL]HWKHUHPHGLDO WKDW WKH ODWWHU WZR IDFWRUV GLG QRW IDYRU DQ\ SDUWLFXODU
SXUSRVHRI&(5&/$0\FROOHDJXHFRUUHFWO\FRQFOXGHVWKDW DOORFDWLRQRIUHVSRQVHFRVWVLWIRFXVHGRQWKHUHODWLYHTXDQWLW\
WKH GLVWULFW FRXUWjV IDFWXDO ILQGLQJV GLG QRW REOLJDWH LW WR RI3&%VUHOHDVHGE\5RFNZHOOYHUVXVWKHDPRXQWUHOHDVHGE\
DOORFDWHUHVSRQVHFRVWVWR5RFNZHOO+RZHYHULWLVLPSRUWDQW WKH.56*7KHGLVWULFWFRXUWGHWHUPLQHGWKDW5RFNZHOOKDG
WR DGGUHVV WKH &(5&/$jV FHQWUDO SXUSRVH EHFDXVH WKH OLNHO\ UHOHDVHG QR PRUH WKDQ  SRXQGV RI 3&%V IURP LWV
RXWFRPHLQWKLVFDVHSUHVHQWVDWURXEOLQJDQRPDO\ $OOHJDQIDFLOLW\,QFRQWUDVWWKHFRXUWIRXQGWKDWWKHPHPEHUV
RIWKH.56*KDGUHOHDVHGmKXQGUHGVRIWKRXVDQGVRISRXQGVl
&RQJUHVVHQDFWHG&(5&/$mWRHQVXUHSURPSWDQGHIILFLHQW RI 3&%V LQWR WKH 5LYHU  %DVHG XSRQ WKHVH ILQGLQJV WKH
FOHDQXS RI KD]DUGRXV ZDVWH VLWHV DQG WR SODFH WKH FRVWV RI GLVWULFWFRXUWGLGQRWDOORFDWHDQ\UHVSRQVHFRVWVWR5RFNZHOO
WKRVHFOHDQXSVRQ>SRWHQWLDOO\UHVSRQVLEOHSDUWLHVm353Vl@l 7KH.56*QRZDSSHDOVWKHGLVWULFWFRXUWjVGHFLVLRQ
8QLWHG6WDWHVY$N]R&RDWLQJVRI$PHULFD)G
 WK &LU   7KLV FRXUW VWUHVVHG WKH UHPHGLDO ,,$1$/<6,6
SXUSRVH RI &(5&/$ LQ LWV RSLQLRQ ZKLFK RYHUWXUQHG WKH
GLVWULFW FRXUWjV mWKUHVKROG RI VLJQLILFDQFH VWDQGDUGl $ 6WDQGDUGRIUHYLHZ
m&(5&/$jV FHQWUDO SXUSRVH >LV@ IDFLOLWDWLQJ WKH SURPSW
FOHDQXSRIKD]DUGRXVZDVWHl.DODPD]RR5LYHU6WXG\*URXS $GLVWULFWFRXUWjVDOORFDWLRQRIUHVSRQVHFRVWVLQD&(5&/$
Y0HQDVKD&RUS)GWK&LUVHHDOVR FRQWULEXWLRQDFWLRQZLOOQRWEHVHWDVLGHXQOHVVZHGHWHUPLQH
 &21* 5(&   VWDWLQJ WKDW E\ HQDFWLQJ WKDW WKH FRXUW DEXVHG LWV GLVFUHWLRQ  8QLWHG 6WDWHV Y 5:
&(5&/$ &RQJUHVV LQWHQGHG WR FUHDWH mD VWURQJ LQFHQWLYH 0H\HU,QF)GWK&LU$QDEXVHRI
ERWK IRU SUHYHQWLRQ RI UHOHDVHV DQG YROXQWDU\ FOHDQXS RI GLVFUHWLRQLVIRXQGZKHUHZHDUHOHIWZLWKWKHmGHILQLWHDQG
UHOHDVHV E\ UHVSRQVLEOH SDUWLHVl  ,Q 0HQDVKD WKLV FRXUW ILUPFRQYLFWLRQWKDWWKHWULDOFRXUWFRPPLWWHGDFOHDUHUURURI
UHDVRQHG WKDW &(5&/$ FRQWULEXWLRQ SODLQWLIIV VKRXOG QRW MXGJPHQWl/RJDQY'D\WRQ+XGVRQ&RUS)G
mIDFH WKH SURVSHFW RI EHLQJ UHTXLUHG WR HVWDEOLVK WKDW D WK&LU
SDUWLFXODUGHIHQGDQWLQIDFWFRQWULEXWHGDWOHDVWDPLQLPDOO\
VLJQLILFDQW VKDUH RI WKH ZDVWHV DW LVVXHl EHFDXVH LW ZRXOG 7KH IDFWXDO ILQGLQJV XQGHUO\LQJ WKH GLVWULFW FRXUWjV
GHWHU FRQWULEXWLRQ SODLQWLIIV IURP FRRSHUDWLQJ ZLWK WKH DOORFDWLRQRIUHVSRQVHFRVWVPD\EHVHWDVLGHRQO\LIFOHDUO\
JRYHUQPHQW0HQDVKD)GDW7KLVFRXUWWKXVKHOG HUURQHRXV6FKUR\HUY)UDQNHO)GWK
WKDW WKH WKUHVKROG RI VLJQLILFDQFH VWDQGDUG ZDV FRQWUDU\ WR &LU   $ IDFWXDO ILQGLQJ LV FOHDUO\ HUURQHRXV ZKHUH
&(5&/$jVUHPHGLDOSXUSRVHEHFDXVHLWmFRXOGGLVFRXUDJH DOWKRXJK WKHUH LV HYLGHQFH WR VXSSRUW WKDW ILQGLQJ mWKH
SDUWLHVIURPYROXQWDU\FOHDQXSHIIRUWVDQGIURPVHWWOHPHQWl UHYLHZLQJFRXUWRQWKHHQWLUHHYLGHQFHLVOHIWZLWKWKHGHILQLWH
,G DQG ILUP FRQYLFWLRQ WKDW D PLVWDNH KDV EHHQ FRPPLWWHGl
 .DODPD]RR5LYHU6WXG\*URXS 1R 1R .DODPD]RR5LYHU6WXG\*URXS 
Y5RFNZHOO,QWjO&RUS Y5RFNZHOO,QWjO&RUS

8QLWHG6WDWHVY8QLWHG6WDWHV*\SVXP&R86 ,,,&21&/86,21

)RU DOO RI WKH UHDVRQV VHW IRUWK DERYH ZH $)),50 WKH
% 7KH GLVWULFW FRXUW GLG QRW DEXVH LWV GLVFUHWLRQ LQ MXGJPHQWRIWKHGLVWULFWFRXUW
GHFOLQLQJWRDOORFDWHUHVSRQVHFRVWVWR5RFNZHOO
 $KROGLQJRISRWHQWLDOOLDELOLW\GRHVQRWSUHFOXGHD
]HURDOORFDWLRQRIUHVSRQVHFRVWV
7KH.56*DUJXHVWKDWWKHGLVWULFWFRXUWjVUHIXVDOWRDOORFDWH
UHVSRQVH FRVWV WR 5RFNZHOO LV LQFRQVLVWHQW ZLWK LWV HDUOLHU
FRQFOXVLRQWKDW5RFNZHOOIDFHGOLDELOLW\XQGHU&(5/&$IRU
UHOHDVLQJ3&%VLQWRWKH.DODPD]RR5LYHU6SHFLILFDOO\WKH
.56* PDLQWDLQV WKDW WKH GLVWULFW FRXUW FDQQRW ORJLFDOO\
GHFOLQH WR DOORFDWH UHVSRQVH FRVWV WR 5RFNZHOO DIWHU
GHWHUPLQLQJWKDWLWIDFHGOLDELOLW\XQGHUWKHQRZGLVFUHGLWHG
WKUHVKROGRIVLJQLILFDQFHVWDQGDUG:HGLVDJUHH
$WWKHDOORFDWLRQVWDJHRIWKHWULDOWKHGLVWULFWFRXUWIRFXVHG
RQ WKH UHODWLYH TXDQWLWLHV RI 3&%V UHOHDVHG LQWR WKH
.DODPD]RR 5LYHU E\ WKH SDUWLHV  %XW LQ GHWHUPLQLQJ WKDW
5RFNZHOOIDFHGOLDELOLW\XQGHU&(5&/$WKHGLVWULFWFRXUWGLG
QRWPDNHVSHFLILFILQGLQJVZLWKUHJDUGWRWKHDPRXQWRI3&%V
UHOHDVHG E\ 5RFNZHOO YHUVXV WKH DPRXQW UHOHDVHG E\ WKH
.56*7KHGLVWULFWFRXUWH[SOLFLWO\VWDWHGWKDWDWWKHOLDELOLW\
VWDJHLWZDVmQRWFDOOHGXSRQWRTXDQWLI\5RFNZHOOjVUHOHDVH
RI 3&%V WR WKH 5LYHUl  ,W LQVWHDG IRFXVHG RQ ZKHWKHU
5RFNZHOOjV UHOHDVH RI 3&%V ZDV mPRUH WKDQ LQFLGHQWDO RU
VSRUDGLFl  7KH GLVWULFW FRXUW XOWLPDWHO\ FRQFOXGHG WKDW
5RFNZHOO IDFHG OLDELOLW\ XQGHU &(5&/$ DIWHU ILQGLQJ WKDW
5RFNZHOO UHOHDVHG 3&%V LQ mPHDVXUDEOH RU GHWHFWDEOH
TXDQWLWLHVl7KLVILQGLQJGLGQRWREOLJDWHWKHGLVWULFWFRXUWWR
DOORFDWHUHVSRQVHFRVWVWR5RFNZHOOLUUHVSHFWLYHRIWKHFRXUWjV
VSHFLILFDQDO\VLVRIWKHUHODWLYHDPRXQWRI3&%VUHOHDVHGE\
5RFNZHOOYHUVXVWKH.56*
 7KH8QLWHG6WDWHV&RXUWRI$SSHDOVIRUWKH6HYHQWK&LUFXLW
IDFHGWKLVYHU\LVVXHLQ30&,QFY6KHUZLQ:LOOLDPV&R
)GWK&LU,Q30&WKH6HYHQWK&LUFXLW
KHOG WKDW WKH GLVWULFW FRXUW GLG QRW DEXVH LWV GLVFUHWLRQ LQ
 .DODPD]RR5LYHU6WXG\*URXS 1R 1R .DODPD]RR5LYHU6WXG\*URXS 
Y5RFNZHOO,QWjO&RUS Y5RFNZHOO,QWjO&RUS

ZLWKRXWGLVWLQJXLVKLQJEHWZHHQWKHGLIIHUHQWW\SHVRI3&%V GHFOLQLQJWRDOORFDWHUHVSRQVHFRVWVWRDSROOXWHUZKRDGPLWWHG
7KH FRXUW QRWHG WKDW WKH 0'(4 WUHDWV DOO 3&%V WKH VDPH WRGXPSLQJWR[LFZDVWH,GDW7KHFRXUWH[SODLQHGWKDW
EHFDXVH HYHU\ W\SH RI 3&% FRQWDLQV WR[LQV  $OWKRXJK WKH WKHSROOXWHUjVmVSLOOVPD\KDYHEHHQWRRLQFRQVHTXHQWLDOWR
HYLGHQFH SUHVHQWHG E\ WKH .56* DGHTXDWHO\ VXSSRUWV D DIIHFWWKHFRVWRIFOHDQLQJXSVLJQLILFDQWO\DQGLQWKDWHYHQW
ILQGLQJWKDW$URFORULVPRUHWR[LFWKDQ$URFORU D]HURDOORFDWLRQWR>WKHSROOXWHU@ZRXOGEHDSSURSULDWHl,G
ZHDUHQRWOHIWZLWKDmGHILQLWHDQGILUPFRQYLFWLRQlWKDWWKH $VLQWKHFDVHEHIRUHXVWKHRWKHUSROOXWHULQ30&ZDVIRXQG
GLVWULFWFRXUWHUUHGLQIROORZLQJWKHDSSURDFKRIWKH0'(4 UHVSRQVLEOHIRUVXEVWDQWLDOO\DOORIWKHWRWDOFRQWDPLQDWLRQRI
8QLWHG6WDWHVY8QLWHG6WDWHV*\SVXP&R86 WKHVLWH,G
0RUHRYHULQOLJKWRIWKHGLVWULFWFRXUWjVILQGLQJZLWK
UHJDUGWRWKHKXJHGLVSDULW\LQWKHUHODWLYHTXDQWLWLHVRI3&%V 6HHNLQJWRGLVWLQJXLVKWKH30&GHFLVLRQWKH.56*SRLQWV
UHOHDVHGE\WKHSDUWLHVDGHWHUPLQDWLRQWKDW$URFORULV RXW WKDW WKH FRXUW LQ 30& XVHG D VWDQGDUG WKDW LPSRVHG
VRPHZKDW PRUH WR[LF WKDQ $URFORU  ZRXOG QRW OLNHO\ OLDELOLW\ QR PDWWHU KRZ VPDOO WKH UHOHDVH RI KD]DUGRXV
KDYHDOWHUHGWKHFRXUWjVDOORFDWLRQRIUHVSRQVHFRVWV PDWHULDO$OLDELOLW\GHWHUPLQDWLRQXQGHUWKLVVWDQGDUGGRHV
QRW QHFHVVDULO\ UHTXLUH DQ DOORFDWLRQ RI UHVSRQVH FRVWV
7KH .56* QH[W DUJXHV WKDW WKH GLVWULFW FRXUWjV DFFRUGLQJ WR WKH .56* EHFDXVH OLDELOLW\ PD\ EH LPSRVHG
FRQVLGHUDWLRQ RI WKH FRRSHUDWLRQ IDFWRU ZDV mGHILFLHQWl DEVHQW D ILQGLQJ RI DQ\ VLJQLILFDQW UHOHDVH 8QGHU WKH
6SHFLILFDOO\ WKH .56* SRLQWV WR HYLGHQFH VKRZLQJ WKDW WKUHVKROG RI VLJQLILFDQFH VWDQGDUG RI OLDELOLW\ PLVWDNHQO\
5RFNZHOO GLG QRW IXOO\ FRRSHUDWH ZLWK WKH UHJXODWRU\ HPSOR\HG E\ WKH GLVWULFW FRXUW DW WKH OLDELOLW\ SKDVH LQ WKH
DXWKRULWLHV  5RFNZHOO DFFRUGLQJ WR WKH .56* IDLOHG WR SUHVHQWFDVHKRZHYHUWKH.56*DUJXHVWKDWDGHWHUPLQDWLRQ
SURYLGH LPSRUWDQW GDWD WR WKHVH DXWKRULWLHV DQG mFRQWULYHG RI OLDELOLW\ QHFHVVDULO\ PHDQV WKDW WKH FRXUW IRXQG WKDW WKH
VWRULHVlLQDQDWWHPSWWRmH[SODLQDZD\lLWVUHVSRQVLELOLW\IRU GHIHQGDQW KDG UHOHDVHG D VLJQLILFDQW DPRXQW RI KD]DUGRXV
UHOHDVLQJ3&%VLQWRWKH.DODPD]RR5LYHU PDWHULDO
7KH GLVWULFW FRXUW KRZHYHU LQ IDFW UHFRJQL]HG WKDW 7KH.56*PLVVHVWKHPDUNKRZHYHUEHFDXVHWKHFRXUWLQ
5RFNZHOO KDG QRW IXOO\ FRRSHUDWHG ZLWK WKH UHJXODWRU\ 30& ZDV QRW FRQFHUQHG ZLWK ZKHWKHU WKH SROOXWHU KDG
DXWKRULWLHV%XWWKHFRXUWQHYHUWKHOHVVGHWHUPLQHGWKDWWKH UHOHDVHGDVLJQLILFDQWDPRXQWRIKD]DUGRXVPDWHULDO,QVWHDG
FRRSHUDWLRQ IDFWRU GLG QRW ZHLJK LQ IDYRU RI WKH .56* WKHFRXUWORRNHGWRZKHWKHUWKHSROOXWHUjVUHOHDVHRIKD]DUGRXV
EHFDXVHLWIRXQGmDODFNRIIXOOFRRSHUDWLRQE\ERWKSDUWLHVl PDWHULDOZDVWRRLQFRQVHTXHQWLDOLQFRPSDULVRQWRWKDWRIWKH
(PSKDVLV DGGHG  7KH .56* RIIHUV QR UHEXWWDO WR WKH RWKHUSROOXWHUWRVLJQLILFDQWO\DIIHFWFOHDQXSFRVWV,G,Q
GLVWULFWFRXUWjVGHWHUPLQDWLRQWKDWOLNH5RFNZHOOLWWRRGLG RWKHUZRUGVZKHUHWKHRWKHUUHVSRQVLEOHSDUWLHVUHOHDVHYDVW
QRWIXOO\FRRSHUDWHZLWKWKHUHJXODWRU\DXWKRULWLHV TXDQWLWLHV RI KD]DUGRXV PDWHULDO D GHIHQGDQWjV UHOHDVH RI
ZKDWVWDQGLQJDORQHZRXOGEHDVLJQLILFDQWDPRXQWRIVXFK
$FFRUGLQJO\ZHFRQFOXGHWKDWWKHGLVWULFWFRXUWUHDVRQDEO\ PDWHULDOPLJKWKDYHQRLPSDFWRQWKHWRWDOFRVWRIFOHDQLQJXS
GHWHUPLQHGWKDWERWKWKHWR[LFLW\DQGFRRSHUDWLRQIDFWRUVZHUH DFRQWDPLQDWHGVLWH
QRWGHWHUPLQDWLYHLQWKHDOORFDWLRQRIUHVSRQVHFRVWVLQWKH
SUHVHQWFDVH 7KLVLVQRWWRVD\WKDWDGHIHQGDQWFDQDOZD\VDYRLGSD\LQJ
UHVSRQVHFRVWVZKHUHLWVUHOHDVHGRHVQRWVLJQLILFDQWO\DIIHFW
FOHDQXSFRVWV,IIRUH[DPSOHDOORIWKHUHVSRQVLEOHSDUWLHV
KDYH HDFK UHOHDVHG RQO\ D UHODWLYHO\ VPDOO DPRXQW RI
 .DODPD]RR5LYHU6WXG\*URXS 1R 1R .DODPD]RR5LYHU6WXG\*URXS 
Y5RFNZHOO,QWjO&RUS Y5RFNZHOO,QWjO&RUS

KD]DUGRXVPDWHULDOWKHQHDFKLQGLYLGXDOUHOHDVHLQLVRODWLRQ %DVHG RQ DOO RI WKH DERYH ZH FRQFOXGH WKDW WKH GLVWULFW
ZRXOG KDYHOLWWOHLPSDFWRQWKHWRWDOFRVWRIFOHDQLQJXSD FRXUWjV IDFWXDO GHWHUPLQDWLRQ WKDW 5RFNZHOO OLNHO\ UHOHDVHG
FRQWDPLQDWHG VLWH  1HYHUWKHOHVV D FRXUW IDFHG ZLWK WKHVH OHVVWKDQSRXQGVRI3&%VLQWRWKH.DODPD]RR5LYHULVQRW
FLUFXPVWDQFHV FRXOG UHDVRQDEO\ DOORFDWH D SRUWLRQ RI WKH FOHDUO\HUURQHRXV:HWKHUHIRUHQHHGQRWDGGUHVVWKH.56*jV
UHVSRQVHFRVWVWRHDFKSDUW\%XWWKLVLVQRWWKHVLWXDWLRQLQ FKDOOHQJHWRWKHRWKHUHYLGHQFHWKDWWKHGLVWULFWFRXUWFLWHGDV
WKH SUHVHQW FDVH  7KH GLVWULFW FRXUW FRQFOXGHG WKDW WKH FRUURERUDWLQJ%DUULFNjVRSLQLRQ
FRPSDQLHVFRPSULVLQJWKH.56*HDFKUHOHDVHGH[SRQHQWLDOO\
PRUH3&%VLQWRWKH.DODPD]RR5LYHUWKDQ5RFNZHOOVRWKDW  7KHGLVWULFWFRXUWGLGQRWHUULQGHWHUPLQLQJWKDWWKH
5RFNZHOOjVUHOHDVHZLOOKDYHHVVHQWLDOO\QRHIIHFWRQWKHDV IDFWRUVFRQFHUQLQJWKHUHODWLYHWR[LFLW\RIWKH3&%V
\HWXQGHWHUPLQHGFOHDQXSFRVWV UHOHDVHG E\ WKH SDUWLHV DQG WKH FRRSHUDWLRQ RI WKH
SDUWLHVZLWKWKHUHJXODWRU\DXWKRULWLHVGLGQRWIDYRU
(YHQ DVVXPLQJ WKDW WKH GLVWULFW FRXUWjV OLDELOLW\ DQ\SDUWLFXODUDOORFDWLRQRIUHVSRQVHFRVWV
GHWHUPLQDWLRQGLGQRWUHTXLUHDQDOORFDWLRQRIIXWXUHFOHDQXS
FRVWVWR5RFNZHOOWKH.56*DUJXHVWKDWWKLVGHWHUPLQDWLRQ 7KHGLVWULFWFRXUWUHFRJQL]HGWKDWLQJHQHUDOWKHUHODWLYH
VKRXOGKDYHDWOHDVWOHGWKHGLVWULFWFRXUWWRUHTXLUH5RFNZHOO WR[LFLW\RIWKH3&%VUHOHDVHGE\WKHSDUWLHVDQGWKHSDUWLHVj
WRSD\IRUWKHVRPHRIWKHFRVWVDVVRFLDWHGZLWKWKH5,)6 FRRSHUDWLRQZLWKWKHUHJXODWRU\DXWKRULWLHVDUHERWKUHOHYDQW
7KHVHFRVWVDFFRUGLQJWRWKH.56*VKRXOGEHDOORFDWHGWR IDFWRUVLQDOORFDWLQJUHVSRQVHFRVWV,WGHWHUPLQHGKRZHYHU
5RFNZHOO HYHQ LI LW UHOHDVHG D UHODWLYHO\ VPDOO DPRXQW RI WKDW QHLWKHU IDFWRU RIIHUHG DQ\ JXLGDQFH DV WR WKH SURSHU
3&%V LQWR WKH 5LYHU  6SHFLILFDOO\ WKH .56* DUJXHV WKDW DOORFDWLRQRIUHVSRQVHFRVWVLQWKHSUHVHQWFDVH7KH.56*
&(5&/$DXWKRUL]HVWKHDOORFDWLRQRILQYHVWLJDWLRQFRVWVWR FKDOOHQJHVWKLVGHWHUPLQDWLRQDUJXLQJWKDWERWKIDFWRUVIDYRU
DQ\SDUW\WKDWFUHDWHGDUHDVRQDEOHULVNRIFRQWDPLQDWLQJD DOORFDWLQJUHVSRQVHFRVWVWR5RFNZHOO
VLWH
)LUVWWKH.56*FRQWHQGVWKDWWKHGLVWULFWFRXUWHUURQHRXVO\
,Q VXSSRUW RI LWV DUJXPHQW WKH .56* FLWHV sRKQVRQ Y IRXQGWKDW5RFNZHOODQGWKH.56*PHPEHUVKDGUHOHDVHG
sDPHV/DQJOH\2SHUDWLQJ&R)GWK&LU 3&%V RI DSSUR[LPDWHO\ WKH VDPH WR[LFLW\  7KH .56*
VWDWLQJWKDWDSODLQWLIIPD\UHFRYHUWKHFRVWVDVVRFLDWHG PDLQWDLQVWKDW$URFORUWKHW\SHRI3&%WKDW5RFNZHOO
ZLWK HQYLURQPHQWDO WHVWLQJ RU VDPSOLQJ mRQO\ LI WKH SDUW\ UHOHDVHGLQWRWKH.DODPD]RR5LYHULVPRUHWR[LFWKDQ$URFORU
VHHNLQJWRUHFRYHUFRVWVKDVDQREMHFWLYHO\UHDVRQDEOHEHOLHI  WKH W\SH RI 3&% WKDW LWV PHPEHUV UHOHDVHG LQWR WKH
WKDWWKHGHIHQGDQWjVUHOHDVHRUWKUHDWHQHGUHOHDVHRIKD]DUGRXV 5LYHU$FFRUGLQJWRWKH.56*$URFORUELRDFFXPXODWHV
VXEVWDQFHV ZRXOG FRQWDPLQDWH KLV RU KHU SURSHUW\l DQG LQILVKDWDPXFKKLJKHUUDWHWKDQ$URFORUDIDFWWKDWWKH
/DQVIRUG&RDOGDOHsRLQW:DWHU$XWKY7RQROOL&RUS)G .56*LQVLVWVLVVLJQLILFDQWEHFDXVHWKHFRQFHUQVDERXW3&%
G&LUVWDWLQJWKDW&(5&/$OLDELOLW\IRU OHYHOVLQILVKDUHDOOHJHGO\mGULYLQJWKHUHVSRQVHLQWKLVFDVHl
HQYLURQPHQWDO LQYHVWLJDWLRQ FRVWV UHTXLUHV DPRQJ RWKHU 7KH.56*IXUWKHUDUJXHVWKDWLQWHUPVRIFDUFLQRJHQLFULVN
WKLQJVWKDWmWKHUHZDVDUHDVRQDEOHULVNDOWKRXJKRQHWKDW WKH (3$ FRQVLGHUV $URFORU  PRUH WR[LF WKDQ $URFORU
PD\QRWPDWHULDOL]HWKDWWKHGHIHQGDQWjVUHOHDVHRUWKUHDWHQHG 
UHOHDVH RI KD]DUGRXV VXEVWDQFHV ZRXOG FRQWDPLQDWH WKH
SODLQWLIIjVSURSHUW\l %XW WKH GLVWULFW FRXUW KDG D UHDVRQDEOH EDVLV IRU WUHDWLQJ
$URFORUDQGDVHTXDOO\WR[LF,QSDUWLFXODUWKH
0'(4 LVVXHV ILVK DGYLVRULHV DQG RWKHU UHJXODWRU\ FULWHULD
 .DODPD]RR5LYHU6WXG\*URXS 1R 1R .DODPD]RR5LYHU6WXG\*URXS 
Y5RFNZHOO,QWjO&RUS Y5RFNZHOO,QWjO&RUS

1H[WWKH.56*PDLQWDLQVWKDWWKHGLVWULFWFRXUWHUUHGLQ %RWKsRKQVRQDQG/DQVIRUG&RDOGDOHDGGUHVVWKHVKRZLQJ
GHFOLQLQJ WR DFFHSW 'U &UXPULQHjV HVWLPDWH RI WKH 3&% UHTXLUHGWRHVWDEOLVKDSDUW\jVOLDELOLW\IRULQYHVWLJDWLRQFRVWV
FRQFHQWUDWLRQ LQ WKH RLOV GLVFKDUJHG E\ 5RFNZHOO  'U LQDQDFWLRQEURXJKWE\DODQGRZQHUSXUVXDQWWR†DRI
&UXPULQH HVWLPDWHG WKDW WKHVH RLOV FRQWDLQHG HLWKHU  RU &(5&/$86&†D$OLDELOLW\GHWHUPLQDWLRQ
 3&% GHSHQGLQJ RQ WKH SDUWLFXODU W\SH RI RLO  7KH KRZHYHU LV MXVW WKH ILUVW HOHPHQW RI D FRQWULEXWLRQ FODLP
GLVWULFW FRXUW UHDVRQDEO\ UHMHFWHG WKLV HVWLPDWH EDVHG XSRQ XQGHU † I  m5HFRYHU\ RI UHVSRQVH FRVWV E\ D SULYDWH
%DUULFNjVWHVWLPRQ\WKDWLWLVmSK\VLFDOO\LPSRVVLEOHlIRURLOV SDUW\ XQGHU &(5&/$ LV D WZRVWHS SURFHVV  ,QLWLDOO\ D
FRQWDLQLQJ  RU  3&% WR EH UHGXFHG WR D 3&% SODLQWLIIPXVWSURYHWKDWDGHIHQGDQWLVOLDEOHXQGHU&(5&/$
FRQFHQWUDWLRQRIRQO\WKHFRQFHQWUDWLRQRIWKHRLO 2QFHWKDWLVDFFRPSOLVKHGWKHGHIHQGDQWjVVKDUHRIOLDELOLW\
IRXQGLQWKHJURXQGZDWHUDWWKHVLWHRIWKH$OOHJDQIDFLOLW\,Q LVDSSRUWLRQHG LQDQHTXLWDEOHPDQQHUl.DODPD]RR5LYHU
DGGLWLRQWKHGLVWULFW FRXUWSRLQWHGRXWWKDW'U&UXPULQHjV 6WXG\*URXSY0HQDVKD&RUS)GWK
HVWLPDWHIDLOHGWRWDNHLQWRDFFRXQWWKDWEHJLQQLQJLQWKHHDUO\ &LU  LQWHUQDO TXRWDWLRQ PDUNV DQG FLWDWLRQ RPLWWHG
V 5RFNZHOO LQFUHDVLQJO\ XVHG ZDWHUVROXEOH RLOV WKDW 1HLWKHUsRKQVRQQRU/DQVIRUG&RDOGDOHKROGWKDWDGHIHQGDQW
PLJKWQRWKDYHFRQWDLQHG3&%VDWDOO ZKR LV VXEMHFW WR OLDELOLW\ IRU LQYHVWLJDWLRQ FRVWV PXVW
QHFHVVDULO\ EH DOORFDWHG D VKDUH RI WKRVH FRVWV LQ D
)LQDOO\WKH.56*DUJXHVWKDW%DUULFNjVRSLQLRQLVUHEXWWHG FRQWULEXWLRQ DFWLRQ  $FFRUGLQJO\ WKHVH FDVHV SURYLGH QR
E\RWKHUHYLGHQFHVKRZLQJWKDW5RFNZHOOLQIDFWUHOHDVHGD JXLGDQFH DV WR WKH SURSHU DOORFDWLRQ RI VXFK FRVWV LQ WKH
ODUJHDPRXQWRI3&%VLQWRWKH5LYHU7KH.56*VSHFLILFDOO\ SUHVHQWFDVH
UHOLHVXSRQDIHZVHGLPHQWVDPSOHVJDWKHUHGIURPWKH5LYHU
WKDWFRQWDLQHGHOHYDWHGOHYHOVRI$URFORUWKHW\SHRI 7KHGLVWULFWFRXUWKDVEURDGGLVFUHWLRQWRDOORFDWHWKHFRVWV
3&% WKDW 5RFNZHOO XVHG DW LWV $OOHJDQ IDFLOLW\  2QH VXFK DVVRFLDWHG ZLWK WKH 5,)6  )UDQNOLQ &RXQW\ &RQYHQWLRQ
VDPSOHLGHQWLILHGDVm%5lZDVUHFRYHUHGPLOHVIURP )DFLOLWLHV$XWKY$P3UHPLHU8QGHUZULWHUV,QF)G
WKH$OOHJDQIDFLOLW\DQGFRQWDLQHGDYHU\KLJKOHYHORI$URFORU WK&LUm7KHDSSRUWLRQPHQWRI&(5&/$
7KH.56*FRQWHQGVWKDW%5DVZHOODVVL[RWKHU OLDELOLW\XQGHU†IDPRQJYDULRXVUHVSRQVLEOHSDUWLHVLV
VHGLPHQWVDPSOHVZLWKKLJK$URFORUOHYHOVSURYHWKDW DQHTXLWDEOHXQGHUWDNLQJZLWKLQWKHEURDGGLVFUHWLRQRIWKH
5RFNZHOOUHOHDVHGDODUJHDPRXQWRI3&%VLQWRWKH5LYHU GLVWULFWFRXUWl,QDOORFDWLQJWKHVHFRVWVWKHGLVWULFWFRXUWLV
DXWKRUL]HG WR FRQVLGHU DQ\ mHTXLWDEOH IDFWRUVl WKDW LW
,QRXUYLHZWKHGLVWULFWFRXUWSURSHUO\GHWHUPLQHGWKDWWKHVH FRQVLGHUHGmDSSURSULDWHl86&†I7KHGLVWULFW
VDPSOHVZHUHRIOLPLWHGSUREDWLYHYDOXH$VWKHGLVWULFWFRXUW FRXUWjV GHFLVLRQ QRW WR DOORFDWH DQ\ FRVWV IRU WKH 5,)6 WR
SRLQWHG RXW %DUULFN JDWKHUHG DSSUR[LPDWHO\  VHGLPHQW 5RFNZHOO ZDV EDVHG XSRQ LWV ILQGLQJ WKDW WKH .56* ZDV
VDPSOHV IURP mDUHDV RI WKH ULYHU LQ ZKLFK RLOV ZRXOG EH UHVSRQVLEOHIRUPRUHWKDQRIWKH3&%VLQWKH5LYHU
H[SHFWHG WR DFFXPXODWH GRZQVWUHDP RI 5RFNZHOOl  2QO\ $OWKRXJKWKH.56*FKDOOHQJHVWKLVILQGLQJDFKDOOHQJHWKDW
VHYHQRIWKHVDPSOHVFRQWDLQHGKLJKOHYHOVRI$URFORU ZH DGGUHVV LQ 3DUW ,,% EHORZ LW IDLOV WR VKRZ WKDW WKH
7KHVHVDPSOHVFRPSULVLQJOHVVWKDQRIWKHWRWDOQXPEHU GLVWULFWFRXUWDEXVHGLWVGLVFUHWLRQLQORRNLQJWRWKHUHODWLYH
RIVDPSOHVUHPRYHGIURPWKH5LYHUZHUHDSSDUHQWDQRPDOLHV TXDQWLWLHVRI3&%VUHOHDVHGE\WKHSDUWLHVLQDOORFDWLQJFRVWV
WKDW QHLWKHU SDUW\ FRXOG H[SODLQ  7KHLU SUHVHQFH GRHV QRW IRUWKH5,)6
GLVFUHGLW %DUULFNjV RSLQLRQ UHJDUGLQJ WKH DPRXQW RI 3&%V
UHOHDVHGE\5RFNZHOO 7KH.56*IXUWKHUDUJXHVWKDWWKHGLVWULFWFRXUWjVIDLOXUHWR
DOORFDWHUHVSRQVHFRVWVWR5RFNZHOODIWHUILQGLQJWKDWLWKDG
 .DODPD]RR5LYHU6WXG\*URXS 1R 1R .DODPD]RR5LYHU6WXG\*URXS 
Y5RFNZHOO,QWjO&RUS Y5RFNZHOO,QWjO&RUS

UHOHDVHG3&%VLQWRWKH.DODPD]RR5LYHUGHIHDWVWKHFHQWUDO DPRXQWRIGLVFKDUJHGRLOV%DUULFNXVHGWKHHVWLPDWHRIIHUHG
SXUSRVH RI &(5&/$ QDPHO\ WKH SURPSW FOHDQXS RI E\'U.HQQHWK&UXPULQHWKH.56*jVH[SHUW%DUULFNWKHQ
KD]DUGRXVZDVWH$FFRUGLQJWRWKH.56*WKHGLVWULFWFRXUWjV HVWLPDWHG WKH FRQFHQWUDWLRQ RI 3&%V LQ WKRVH RLOV E\
DOORFDWLRQRIUHVSRQVHFRVWVLQWKLVFDVHHQFRXUDJHVSDUWLHVWR H[DPLQLQJWKHRLOVUHPDLQLQJLQWKHJURXQGZDWHUDWWKHVLWHRI
OLWLJDWH mLQ WKH KRSH RI REWDLQLQJ D ]HUR VKDUH UDWKHU WKDQ 5RFNZHOOjV$OOHJDQIDFLOLW\+HGHWHUPLQHGWKDWWKHVHRLOV
YROXQWDULO\MRLQLQJLQWKHLQYHVWLJDWLRQRUVHWWOLQJl%XWWKH FRQWDLQHGQRPRUHWKDQ3&%%DVHGXSRQKLV
DOORFDWLRQRIUHVSRQVHFRVWVLVKLJKO\IDFWLQWHQVLYHVRWKDWDQ DQDO\VLV RI WKHVH WZR HVWLPDWHV %DUULFN FRQFOXGHG WKDW
DOORFDWLRQRI]HURUHVSRQVHFRVWVLQDSDUWLFXODUFDVHSURYLGHV 5RFNZHOOKDGOLNHO\UHOHDVHGOHVVWKDQSRXQGVRI3&%V
OLWWOHLQFHQWLYHIRUGHIHQGDQWVLQRWKHUFRQWULEXWLRQDFWLRQVWR LQWRWKH5LYHU
UHMHFW UHDVRQDEOH VHWWOHPHQW RIIHUV RU ULVN WKH XQFHUWDLQWLHV
LQKHUHQWLQOLWLJDWLRQ 7KH .56* FKDOOHQJHV %DUULFNjV RSLQLRQ RQ VHYHUDO
JURXQGV)LUVWWKH.56*FRQWHQGVWKDW%DUULFNFRXOGQRW
)RUDOORIWKHVHUHDVRQVZHFRQFOXGHWKDWWKHGLVWULFWFRXUWjV DFFXUDWHO\HVWLPDWHWKHDPRXQWRI3&%VUHOHDVHGE\5RFNZHOO
OLDELOLW\GHWHUPLQDWLRQGLGQRWREOLJDWHLWWRDOORFDWHUHVSRQVH ZLWKRXW KDYLQJ WKH H[SHUWLVH WR SUHGLFW KRZ WKH RLOV
FRVWVWR5RFNZHOO GLVFKDUJHGIURP5RFNZHOOjVIDFLOLW\ZRXOGKDYHUHDFWHGRQFH
LQWKH5LYHU:HILQGQRPHULWLQWKLVDUJXPHQWKRZHYHU
 7KHGLVWULFWFRXUWGLGQRWHUULQILQGLQJWKDW5RFNZHOO EHFDXVH WKH .56* IDLOV WR H[SODLQ ZK\ %DUULFN QHHGHG WR
KDGUHOHDVHGDQLQFRQVHTXHQWLDODPRXQWRI3&%VLQ SRVVHVVVXFKH[SHUWLVHLQRUGHUWRIRUPDUHOLDEOHRSLQLRQDV
FRPSDULVRQWRWKHDPRXQWRI3&%VUHOHDVHGE\WKH WR 5RFNZHOOjV UHOHDVH RI 3&%V  7KH PDWKHPDWLFDO
PHPEHUVRIWKH.56* PHWKRGRORJ\ HPSOR\HG E\ %DUULFN DV ZHOO DV E\ 'U
&UXPULQH UHTXLUHV DQ DVVHVVPHQW RI RQO\ WKH DPRXQW RI
7KHUHODWLYHTXDQWLWLHVRI3&%VUHOHDVHGE\WKHSDUWLHVZDV GLVFKDUJHGRLODQGWKHFRQFHQWUDWLRQRI3&%VLQWKDWRLO7KLV
WKHGHFLVLYHIDFWRULQWKHGLVWULFWFRXUWjVDOORFDWLRQRIUHVSRQVH PHWKRGRORJ\ UHTXLUHV QR DQDO\VLV RI KRZ 3&%V WUDYHO RU
FRVWV,WIRXQGWKDW5RFNZHOOKDGOLNHO\UHOHDVHGOHVVWKDQ FKDQJHLQDULYHUHQYLURQPHQW
SRXQGVRI3&%VLQWRWKH.DODPD]RR5LYHU,QFRQWUDVWWKH
GLVWULFW FRXUW GHWHUPLQHG WKDW WKH .56* PHPEHUV KDG 7KH .56* IXUWKHU FODLPV WKDW %DUULFN KDG QR EDVLV IRU
UHOHDVHGVHYHUDOKXQGUHGWKRXVDQGSRXQGVRI3&%VLQWRWKH FRQFOXGLQJ WKDW WKH FRQFHQWUDWLRQ RI 3&%V LQ WKH RLO
5LYHU7KH.56*FRQFHGHVWKDWLWVRZQPHPEHUVUHOHDVHG GLVFKDUJHGE\5RFNZHOOZDVWKHVDPHDVWKHFRQFHQWUDWLRQLQ
PDVVLYH DPRXQWV RI 3&%V EXW PDLQWDLQV WKDW WKH GLVWULFW WKHRLOFXUUHQWO\IRXQGLQWKHJURXQGZDWHUDWWKHVLWHRIWKH
FRXUWHUUHGLQFRQFOXGLQJWKDW5RFNZHOOKDGUHOHDVHGVXFKD $OOHJDQ IDFLOLW\  %XW .56* GLG QRW FKDOOHQJH %DUULFNjV
VPDOODPRXQWRIWKHKD]DUGRXVVXEVWDQFH WHVWLPRQ\ RQ WKLV JURXQG DW WULDO  )XUWKHUPRUH %DUULFN
WHVWLILHG WKDW KLV DQDO\VLV RI WKH RLO LQ WKH JURXQGZDWHU
,QDVVHVVLQJ5RFNZHOOjVUHOHDVHRI3&%VWKHGLVWULFWFRXUW UHYHDOHGYHU\OLWWOHHYLGHQFHRIDQ\ZHDWKHULQJRUGHJUDGDWLRQ
JDYHFUHGHQFHWRWKHWHVWLPRQ\RI5REHUW%DUULFNDQH[SHUW WKXVGHPRQVWUDWLQJWKDWWKH3&%FRQFHQWUDWLRQRIWKHRLOLQ
LQHQYLURQPHQWDOFKHPLVWU\%DUULFNWHVWLILHGWKDWKHIRUPHG WKHJURXQGZDWHUZDVUHSUHVHQWDWLYHRIWKHFRQFHQWUDWLRQLQWKH
DQRSLQLRQDVWRWKHDPRXQWRI3&%VWKDW5RFNZHOOUHOHDVHG RLOVGLVFKDUJHGE\5RFNZHOO7KH.56*RIIHUHGQRHYLGHQFH
LQWRWKH.DODPD]RR5LYHUE\DQDO\]LQJHVWLPDWHVRIERWKWKH WRUHIXWHWKLVWHVWLPRQ\
DPRXQW RI RLO WKDW 5RFNZHOO KDG GLVFKDUJHG DQG WKH
FRQFHQWUDWLRQ RI 3&%V LQ WKRVH RLOV  :LWK UHJDUG WR WKH