U.S. Court of Appeals for the Sixth Circuit, 2001

Wrench LLC v. Taco Bell Corp

Wrench LLC v. Taco Bell Corp
U.S. Court of Appeals for the Sixth Circuit · Decided July 6, 2001

Wrench LLC v. Taco Bell Corp

Opinion

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

:5(1&+ //&D0LFKLJDQ ; /LPLWHG/LDELOLW\&RPSDQ\  s26(3+ 6+,(/'6 7+20$6   1R  5,1.6  3ODLQWLIIV$SSHOODQWV !   Y   7$&2 %(// &253  'HIHQGDQW$SSHOOHH   $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH:HVWHUQ'LVWULFWRI0LFKLJDQDW*UDQG5DSLGV 1R n*RUGRQs4XLVW'LVWULFWsXGJH $UJXHG 6HSWHPEHU 'HFLGHGDQG)LOHG sXO\ %HIRUH %$7&+(/'(5DQG&2/(&LUFXLWsXGJHV *5$+$0'LVWULFWsXGJH

7KH +RQRUDEOH sDPHV / *UDKDP 8QLWHG 6WDWHV 'LVWULFW sXGJH IRU WKH 6RXWKHUQ 'LVWULFW RI 2KLR VLWWLQJ E\ GHVLJQDWLRQ

  :UHQFK//&HWDOY7DFR%HOO&RUS 1R  BBBBBBBBBBBBBBBBB &2816(/ $5*8(' sHIIUH\2%LUNKROG:$51(5125&5266 s8'' //3 *UDQG 5DSLGV 0LFKLJDQ IRU $SSHOODQWV 5DQGDOO*/LWWRQ35,&(+(1(9(/'&223(5'H:,77  /,7721 *UDQG 5DSLGV 0LFKLJDQ IRU $SSHOOHH 21 %5,()   sHIIUH\ 2 %LUNKROG 'RXJODV $ 'R]HPDQ 9DOHULH36LPPRQV:$51(5125&5266 s8''//3 *UDQG5DSLGV0LFKLJDQIRU$SSHOODQWV5DQGDOO*/LWWRQ 35,&( +(1(9(/' &223(5 'H:,77  /,7721 *UDQG5DSLGV0LFKLJDQ5LFKDUGs2j%ULHQ3DXO(9HLWK 6,'/(< $867,1&KLFDJR,OOLQRLV$UWKXU6)ULHGPDQ )5,('0$1:$1* %/(,%(5*3&1HZ<RUN1HZ <RUNIRU$SSHOOHH BBBBBBBBBBBBBBBBB 23,1,21 BBBBBBBBBBBBBBBBB s$0(6/*5$+$0'LVWULFWsXGJH7KLVFDVHUDLVHVD TXHVWLRQRIILUVWLPSUHVVLRQLQWKLVFLUFXLWUHJDUGLQJWKHH[WHQW WRZKLFKWKH&RS\ULJKW$FWSUHHPSWVVWDWHODZFODLPVEDVHG RQ EUHDFK RI DQ LPSOLHGLQIDFW FRQWUDFW  3ODLQWLIIV $SSHOODQWV:UHQFK//&sRVHSK6KLHOGVDQG7KRPDV5LQNV EURXJKWWKLVGLYHUVLW\DFWLRQDJDLQVW'HIHQGDQW$SSHOOHH7DFR %HOO&RUSRUDWLRQ m7DFR%HOOl FODLPLQJEUHDFKRILPSOLHG FRQWUDFWDQGYDULRXVWRUWVUHODWHGWR7DFR%HOOjVDOOHJHGXVHRI DSSHOODQWVjLGHDV,QWKUHHVHSDUDWHRSLQLRQVWKHGLVWULFWFRXUW IRXQGWKDWWKH&RS\ULJKW$FW86&†SUHHPSWHGDOO RIDSSHOODQWVjFODLPVLQFOXGLQJWKRVHEDVHGRQEUHDFKRIDQ LPSOLHGLQIDFW FRQWUDFW  2Q WKDW EDVLV DV ZHOO DV RQ WKH DOWHUQDWHJURXQGWKDWDSSHOODQWVjFRQFHSWODFNHGWKHQRYHOW\ QHFHVVDU\ WR VXVWDLQ WKHLU FODLPV WKH GLVWULFW FRXUW JUDQWHG VXPPDU\MXGJPHQWWR7DFR%HOO$SSHOODQWVQRZDSSHDOWKH GLVWULFW FRXUWjV JUDQW RI VXPPDU\ MXGJPHQW DQG DUJXH WKH IROORZLQJ   WKDWWKHGLVWULFWFRXUWHUUHGLQLWVSUHHPSWLRQ DQDO\VLVXQGHUERWKWKHmVXEMHFWPDWWHUlDQGmHTXLYDOHQF\l SURQJVRI86&† D DQG  WKDWWKHGLVWULFWFRXUW  :UHQFK//&HWDOY7DFR%HOO&RUS 1R  1R  :UHQFK//&HWDOY7DFR%HOO&RUS  JHQHUDOO\ EXW WKDW QRYHOW\ WR WKH EX\HU ZRXOG VXIILFH WR HUUHG LQ KROGLQJ WKDW QRYHOW\ ZDV UHTXLUHG WR VXVWDLQ WKHLU VXSSRUWDFRQWUDFWEDVHGFODLP6HH1DGHOY3OD\%\3OD\ LPSOLHGLQIDFWFRQWUDFWFODLPDQGIXUWKHUWKDWWKHLULGHDVDQG 7R\V 1RYHOWLHV,QF)G QG&LU FRQFHSWVODFNHGQRYHOW\DVDPDWWHURIODZ)RUWKHUHDVRQV m>7@KH$SIHOFRXUWFODULILHGWKDWWKHORQJVWDQGLQJUHTXLUHPHQW WKDWIROORZZH5(9(56(WKHMXGJPHQWRIWKHGLVWULFWFRXUW WKDW DQ LGHD KDYH RULJLQDOLW\ RU JHQHUDO QRYHOW\ LQ RUGHU WR DQGUHPDQGWKLVFDVHIRUIXUWKHUSURFHHGLQJV VXSSRUWDPLVDSSURSULDWLRQFODLPGRHVQRWDSSO\WRFRQWUDFW FODLPV)RUFRQWUDFWEDVHGFODLPVLQVXEPLVVLRQRILGHD ,%$&.*5281' FDVHVDVKRZLQJRIQRYHOW\WRWKHEX\HUZLOOVXSSO\VXIILFLHQW FRQVLGHUDWLRQWRVXSSRUWDFRQWUDFWl  $SSHOODQWV7KRPDV5LQNVDQGsRVHSK6KLHOGVDUHFUHDWRUV RI WKH m3V\FKR &KLKXDKXDl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j LGHDV SULRU WR GLVFORVXUH  $FFRUGLQJO\ ZH ILQG WKDW WKH ,QsXQH 6KLHOGVDQG5LQNVDWWHQGHGDOLFHQVLQJWUDGH GLVWULFW FRXUW HUUHG LQ JUDQWLQJ VXPPDU\ MXGJPHQW WR WKH VKRZLQ1HZ<RUN&LW\ZKHUHWKH\ZHUHDSSURDFKHGE\WZR DSSHOOHHRQWKHJURXQGWKDWDSSHOODQWVIDLOHGWRVKRZWKDWWKHLU 7DFR%HOOHPSOR\HHV5XG\3ROODNDYLFHSUHVLGHQWDQG(G LGHDVZHUHQRYHORURULJLQDO $OIDUR D FUHDWLYH VHUYLFHV PDQDJHU  3ROODN DQG $OIDUR H[SUHVVHGLQWHUHVWLQWKH3V\FKR&KLKXDKXDFKDUDFWHUZKLFK ,,,&21&/86,21 WKH\WKRXJKWZRXOGDSSHDOWR7DFR %HOOjVFRUHFRQVXPHUV PDOHV DJHG HLJKWHHQ WR WZHQW\IRXU  3ROODN DQG $OIDUR 7KHMXGJPHQWRIWKHGLVWULFWFRXUWLV5(9(56('DQGWKLV REWDLQHGVRPH3V\FKR&KLKXDKXDPDWHULDOVWRWDNHZLWKWKHP DFWLRQ LV 5(0$1'(' WR WKH GLVWULFW FRXUW IRU IXUWKHU EDFNWR7DFR%HOOj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jVYLFHSUHVLGHQW RIEUDQGPDQDJHPHQWDVZHOODVWR7DFR%HOOjVWKHQRXWVLGH DGYHUWLVLQJDJHQF\%R]HOO:RUOGZLGH$OIDURDOVRWHVWHGWKH 3V\FKR&KLKXDKXDPDUNHWLQJFRQFHSWZLWKIRFXVJURXSVWR  :UHQFK//&HWDOY7DFR%HOO&RUS 1R  1R  :UHQFK//&HWDOY7DFR%HOO&RUS  JDXJHFRQVXPHUUHDFWLRQWRWKHGHVLJQVVXEPLWWHGE\5LQNV 5HHYHV 3GDW6LQFHWKH0LFKLJDQ DQG6KLHOGV FRXUWLQ6DUYHUTXRWHG5HHYHVRQWKHUHTXLUHPHQWRIQRYHOW\ LQDQDFWLRQEDVHGRQFRQYHUVLRQDQGZHQWRQWRKROGWKDWWKH 'XULQJWKLVWLPHSHULRG5LQNVWROG$OIDURWKDWLQVWHDGRI SODLQWLIIj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jFKDUDFWHUDQGDOWKRXJK GLVWULFWFRXUWUHOLHGKHDYLO\RQ1HZ<RUNFDVHV6HH:UHQFK QRVSHFLILFQXPEHUVZHUHPHQWLRQHG$OIDURXQGHUVWRRGWKDW ,,,)6XSSGDW:HWKLQNLWXQOLNHO\WKDW0LFKLJDQ LI7DFR%HOOXVHGWKH3V\FKR&KLKXDKXDFRQFHSWLWZRXOG ZRXOGIROORZWKH1HZ<RUNSRVLWLRQRQQRYHOW\LQOLJKWRI KDYHWRSD\DSSHOODQWV 6DUYHU%HWKDWDVLWPD\WKHFRQIOLFWEHWZHHQWKH&DOLIRUQLD DQG1HZ<RUNDXWKRULWLHVUHIHUUHGWRLQ5HHYHVZDVODUJHO\ ,Q 6HSWHPEHU   5LQNV DQG 6KLHOGV KLUHG 6WUDWHJ\ UHVROYHGE\D GHFLVLRQRI1HZ<RUNjVKLJKHVWDSSHOODWH /LFHQVLQJ m6WUDWHJ\l DOLFHQVLQJDJHQWWRUHSUHVHQW:UHQFK FRXUW LQ $SIHO Y 3UXGHQWLDO%DFKH 6HFV ,QF  1(G LQLWVGHDOLQJVZLWK7DFR%HOO5HSUHVHQWDWLYHVIURP6WUDWHJ\   1<  ZKHUHLQWKH1HZ<RUN&RXUWRI$SSHDOV FRQWDFWHG $OIDUR DERXW 7DFR %HOOjV LQWHUHVW LQ WKH 3V\FKR H[SUHVVO\UHMHFWHGWKHSURSRVLWLRQWKDWQRYHOW\LVUHTXLUHGLQ &KLKXDKXD FRQFHSW DQG SUHVHQWHG KLP ZLWK DGGLWLRQDO DOOFDVHVLQYROYLQJGLVFORVXUHRILGHDV PDWHULDOVIRUSUHVHQWDWLRQWR7DFR%HOOjVDGYHUWLVLQJDJHQF\ 7KHVHPDWHULDOVGHVFULEHG3V\FKR&KLKXDKXDDVmLUUHYHUHQWl 'HIHQGDQWGRHVQRWFODLPWKDWLWZDVDZDUHRIWKHLGHD mHGJ\lDQGmVSLF\lZLWKDQmRYHUWKHWRSlDWWLWXGHDQGDQ EHIRUHSODLQWLIIVGLVFORVHGLWEXWUDWKHUFRQFHGHVWKDWWKH mLQVDWLDEOHFUDYLQJlIRU7DFR%HOOIRRG7KURXJKRXWWKHODWH LGHDFDPHIURPWKHP:KHQDVHOOHUjVFODLPDULVHVIURP VXPPHUDQGIDOORI $OIDURFRQWLQXHGKLVGLVFXVVLRQV DFRQWUDFWWRXVHDQLGHDHQWHUHGLQWRDIWHUWKHGLVFORVXUH ZLWK:UHQFKDERXWGHYHORSLQJ3V\FKR&KLKXDKXDIRU7DFR RI WKH LGHD WKH TXHVWLRQ LV QRW ZKHWKHU WKH EX\HU %HOOjVXVH PLVDSSURSULDWHGSURSHUW\IURPWKHVHOOHUEXWZKHWKHUWKH LGHD KDG YDOXH WR WKH EX\HU DQG WKXV FRQVWLWXWHV YDOLG 2Q1RYHPEHU 6WUDWHJ\UHSUHVHQWDWLYHVIRUZDUGHG FRQVLGHUDWLRQ,QVXFKDFDVHWKHEX\HUNQRZVZKDWKH DOLFHQVLQJSURSRVDOWR$OIDUR7KHSURSRVDOSURYLGHGWKDW RUVKHLVEX\LQJDQGKDVDJUHHGWKDWWKHLGHDKDVYDOXH 7DFR%HOOZRXOGSD\:UHQFKDIHHEDVHGXSRQDSHUFHQWDJH DQG WKH &RXUW ZLOO QRW RUGLQDULO\ JR EHKLQG WKDW RI WKH PRQH\ VSHQW RQ DGYHUWLVLQJ  D SHUFHQWDJH RI 7DFR GHWHUPLQDWLRQ7KHODFNRIQRYHOW\LQDQGRILWVHOIGRHV %HOOj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l  ,G  7KH 6DUYHU FRXUW GLG QRW LPSRVH D ILQDOL]H D IRUPDO SUHVHQWDWLRQ IHDWXULQJ 3V\FKR &KLKXDKXD UHTXLUHPHQWRIQRYHOW\RQSODLQWLIIjVFRQWUDFWFODLP WKDWZDVWREHJLYHQWR7DFR%HOOjVPDUNHWLQJGHSDUWPHQWLQ HDUO\ 0DUFK    $W WKLV PHHWLQJ DSSHOODQWV H[KLELWHG $VQRWHGDERYHWKH6DUYHUFRXUWTXRWHGZLWKDSSURYDOWKH H[DPSOHV RI SRVVLEOH 3V\FKR &KLKXDKXD SURPRWLRQDO GHFLVLRQRIWKH6XSUHPH&RXUWRI$ODVNDLQ5HHYHVY$O\HVND PDWHULDOV DQG DOVR RUDOO\ SUHVHQWHG VSHFLILF LGHDV IRU 3LSHOLQH6HUYLFHV&R,Q5HHYHVSODLQWLIIKDGSURSRVHGWKH WHOHYLVLRQFRPPHUFLDOVIHDWXULQJDOLYHGRJPDQLSXODWHGE\ LGHDRIFUHDWLQJDYLVLWRUFHQWHUDWDORFDWLRQZKHUHYLVLWRUjV FRPSXWHU JUDSKLFV LPDJLQJ  7KHVH LGHDV LQFOXGHG D FRXOG YLHZ WKH $ODVND RLO SLSHOLQH  +H EURXJKW DQ DFWLRQ FRPPHUFLDOLQZKLFKDPDOHGRJSDVVHGXSDIHPDOHGRJLQ DOOHJLQJWRUWDQGFRQWUDFWFODLPVDJDLQVWWKHSLSHOLQHVHUYLFLQJ RUGHUWRJHWWR7DFR%HOOIRRG FRPSDQ\ ZKLFK VXEVHTXHQWO\ HVWDEOLVKHG VXFK D YLVLWRU FHQWHU7KH6XSUHPH&RXUWRI$ODVNDKHOGWKDWWKHHOHPHQW :KLOH $OIDUR ZDV PHHWLQJ ZLWK DSSHOODQWV DQRWKHU RIQRYHOW\ZDVQRWUHTXLUHGIRUSODLQWLIIjVLPSOLHGFRQWUDFW PDUNHWLQJ ILUP 7/3 3DUWQHUVKLS m7/3l  ZDV DOVR FODLP SURPRWLQJ DSSHOODQWVj 3V\FKR &KLKXDKXD WR 7DFR %HOO PDUNHWLQJH[HFXWLYHV7/3SUHVHQWHGVHYHUDOLGHDVLQFOXGLQJ 5HO\LQJODUJHO\RQFDVHVIURP1HZ<RUN$O\HVNDDUJXHV WKH3V\FKR&KLKXDKXDFRQFHSWWR7DFR%HOOLQDQWLFLSDWLRQRI WKDW QRYHOW\ DQG RULJLQDOLW\ VKRXOG EH UHTXLUHG LQ DQ DQ XSFRPLQJ VXPPHU SURPRWLRQ  7/3 KDG GLVFRYHUHG LPSOLHGLQIDFWFODLP5HHYHVUHVSRQGVWKDWZHVKRXOG 3V\FKR &KLKXDKXD DW D WUDGH VKRZ LQ 1HZ <RUN DQG KDG IROORZ&DOLIRUQLDjVH[DPSOHDQGQRWUHTXLUHQRYHOW\DVDQ UHFHLYHG 6WUDWHJ\jV FRQVHQW WR XVH WKH LPDJH LQ LWV HVVHQWLDOHOHPHQWRIWKLVVRUWRIFODLP SUHVHQWDWLRQ$OIDURZDVQRWDZDUHRI7/3jVSUHVHQWDWLRQ )ROORZLQJWKHSUHVHQWDWLRQ7DFR%HOOFRQGXFWHGDVHULHVRI ,GHDEDVHG FODLPV DULVH PRVW IUHTXHQWO\ LQ WKH IRFXV JURXSV WR UHVHDUFK WKH UHDFWLRQ WR 7/3jV SURSRVDOV HQWHUWDLQPHQWFHQWHUVRI1HZ<RUNDQG&DOLIRUQLDEXW 3V\FKR&KLKXDKXDZDVUHFHLYHGSRVLWLYHO\E\FRQVXPHUVEXW 1HZ<RUNUHTXLUHVQRYHOW\ZKHUHDV&DOLIRUQLDGRHVQRW 7DFR%HOOGHFLGHGQRWWRXVHDQ\RI7/3j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jVUROH LPSUHVVHGZLWK6WUDWHJ\jVSUHVHQWDWLRQ WR HYDOXDWH WKH DGHTXDF\ RI WKH FRQVLGHUDWLRQ DJUHHG XSRQE\WKHSDUWLHV&DUUROOY/HH$UL]RQD 2Q 0DUFK    7DFR %HOO KLUHG D QHZ DGYHUWLVLQJ 3G     7KHEDUJDLQVKRXOGEHOHIWLQ DJHQF\7%:$&KLDW'D\ m&KLDW'D\l 7DFR%HOODGYLVHG WKHKDQGVRIWKHSDUWLHV,ISDUWLHVYROXQWDULO\FKRRVHWR &KLDW'D\WKDWLWZDQWHGDFDPSDLJQUHDG\WRODXQFKE\sXO\ EDUJDLQ IRU DQ LQGLYLGXDOjV VHUYLFHV LQ GLVFORVLQJ RU  WKDWZRXOGUHFRQQHFW7DFR%HOOZLWKLWVFRUHJURXSRI GHYHORSLQJDQRQQRYHORUXQRULJLQDOLGHDWKH\KDYHWKH FRQVXPHUV  &KXFN %HQQHWW DQG &OD\ :LOOLDPV ZHUH SRZHUWRGRVR GHVLJQDWHGDVWKHFUHDWLYHGLUHFWRUVRI7DFR%HOOjVDFFRXQW  :UHQFK//&HWDOY7DFR%HOO&RUS 1R  1R  :UHQFK//&HWDOY7DFR%HOO&RUS  2Q sXQH    %HQQHWW DQG :LOOLDPV SURSRVHG D 1HYHUWKHOHVVPDQ\FRXUWVGRUHTXLUHQRYHOW\LQDQDFWLRQ FRPPHUFLDOWR7DFR%HOOLQZKLFKDPDOH&KLKXDKXDZRXOG EDVHGXSRQDQLPSOLHGFRQWUDFWWKHRU\RQWKHJURXQG WKDW SDVVXSDIHPDOH&KLKXDKXDWRJHWWRDSHUVRQVHDWHGRQD WKHUHFDQEHQRFRQVLGHUDWLRQIRUDQLPSOLHGSURPLVHWRSD\ EHQFKHDWLQJ7DFR%HOOIRRG%HQQHWWDQG:LOOLDPVVD\WKDW LIWKHLGHDGRHVQRWFRQVWLWXWHmSURSHUW\l6HH1LPPHURQ WKH\FRQFHLYHGRIWKHLGHDIRUWKLVFRPPHUFLDORQHGD\DVWKH\ &RS\ULJKW † >%@ DW    7KH DXWKRUV RI ZHUH HDWLQJ 0H[LFDQ IRRG DW D VLGHZDON FDIp DQG VDZ D 1LPPHURQ&RS\ULJKWKDYHFULWLFL]HGWKLVYLHZ5HIHUULQJ &KLKXDKXDWURWWLQJGRZQWKHVWUHHWZLWKQRPDVWHURUKXPDQ VSHFLILFDOO\ WR WKH GLVVHQWLQJ RSLQLRQ RI IRUPHU &DOLIRUQLD LQWHUYHQWLRQmRQDPLVVLRQl%HQQHWWDQG:LOOLDPVFRQWHQG &KLHIsXVWLFH7UD\QRULQ6WDQOH\Y&ROXPELD%URDG6\V WKDWWKLVLPDJHFDXVHGWKHPMRLQWO\WRFRQFHLYHRIWKHLGHDRI 3G &DO  WKHDXWKRUVRI1LPPHURQ&RS\ULJKW XVLQJD&KLKXDKXDDVDZD\RISHUVRQLI\LQJWKHLQWHQVHGHVLUH VWDWH IRU 7DFR %HOO IRRG  :LOOLDPV VXEVHTXHQWO\ ZURWH DQ DGYHUWLVHPHQW VFULSW XVLQJ D &KLKXDKXD ZKLFK 7DFR %HOO ,IDVVXJJHVWHGDERYHDQLPSOLHGFRQWUDFWLVUHJDUGHGDV GHFLGHGWRSURGXFHDVDWHOHYLVLRQFRPPHUFLDO DQDJUHHPHQWWRSD\IRUWKHGLVFORVXUHRIDQLGHDUDWKHU WKDQ IRU WKH LGHD LWVHOI &KLHI sXVWLFH 7UD\QRUjV    :KHQ LQ sXQH   $OIDUR OHDUQHG WKDW &KLDW'D\ ZDV UHPDUNV ORVH PXFK RI WKHLU SHUVXDVLYHQHVV  ,W ZRXOG SODQQLQJWRXVHD&KLKXDKXDLQDFRPPHUFLDOKHFRQWDFWHG VHHPWREHDSHUIHFWO\UHDVRQDEOHDVVXPSWLRQWKDWRQH +LOODJDLQDERXWWKHSRVVLELOLW\RIXVLQJ3V\FKR&KLKXDKXD ZRXOGREOLJDWHKLPVHOIWRSD\IRUWKHGLVFORVXUH RI DQ +LOOSDVVHG$OIDURRQWR&KULV0LOOHUD7DFR%HOODGYHUWLVLQJ LGHDWKDWKHZRXOGRWKHUZLVHEHOHJDOO\IUHHWRXVHEXW PDQDJHU DQG WKH OLDLVRQ EHWZHHQ 7DFR %HOOjV PDUNHWLQJ WKDW LQ IDFW KH ZRXOG EH XQDEOH WR XVH ZLWKRXW VXFK GHSDUWPHQWDQG&KLDW'D\2QsXQH $OIDURJDYH GLVFORVXUH6RPHVXEVHTXHQWGHFLVLRQVLQ&DOLIRUQLDDQG 3V\FKR &KLKXDKXD PDWHULDOV WR 0LOOHU DORQJ ZLWK D QRWH HOVHZKHUHKDYHUHFRJQL]HGWKDWWKHQRYHOW\UHTXLUHPHQW VXJJHVWLQJWKDW7DFR%HOOFRQVLGHUXVLQJ3V\FKR&KLKXDKXD VKRXOGQRWEHLQMHFWHGE\WKHFRXUWLQLPSOLHGFRQWUDFW DVDQLFRQDQGDVDFKDUDFWHULQLWVDGYHUWLVLQJ0LOOHUVHQW DFWLRQV WKHVHPDWHULDOVWR&KLDW'D\ZKLFKUHFHLYHGWKHPVRPHWLPH EHWZHHQsXQHDQGsXO\  1LPPHU RQ &RS\ULJKW † >%@ DW   IRRWQRWHV RPLWWHG  7DFR %HOO DLUHG LWV ILUVW &KLKXDKXD FRPPHUFLDO LQ WKH QRUWKHDVWHUQ8QLWHG6WDWHVLQsXO\ DQGUHFHLYHGDYHU\ 6DUYHUWHOOVXVZKHUH0LFKLJDQOLNHO\VWDQGVRQWKLVLVVXH SRVLWLYHFRQVXPHUUHDFWLRQ2QWKDWEDVLV7DFR%HOOGHFLGHG ,Q6DUYHUSODLQWLIIEURXJKWDQDFWLRQDJDLQVWKHUHPSOR\HU WKDWWKH&KLKXDKXDZRXOGEHWKHIRFXVRILWV PDUNHWLQJ VHHNLQJGDPDJHVIRUFRQYHUVLRQDQGEUHDFKRIFRQWUDFWEDVHG HIIRUWV DQG ODXQFKHG D QDWLRQZLGH DGYHUWLVLQJ FDPSDLJQ RQWKHDOOHJDWLRQWKDWGHIHQGDQWDSSURSULDWHGDQLGHDZKLFK IHDWXULQJ&KLKXDKXDFRPPHUFLDOVLQODWH'HFHPEHU  VKHVXEPLWWHGWKURXJKDQHPSOR\HHVXJJHVWLRQSURJUDP7KH FRXUWUHMHFWHGSODLQWLIIjVFRQYHUVLRQFDXVHRIDFWLRQILQGLQJ $SSHOODQWVEURXJKWVXLWLQsDQXDU\ DOOHJLQJEUHDFKRI WKDWSODLQWLIIjVLGHDmZDVQHLWKHUQRYHOQRUXQLTXHlDQGmGLG LPSOLHGLQIDFWFRQWUDFWDVZHOODVYDULRXVWRUWDQGVWDWXWRU\ QRW FRQVWLWXWH SURSHUW\ VXEMHFW WR D FRQYHUVLRQ FDXVH RI FODLPVXQGHU0LFKLJDQDQG&DOLIRUQLDODZ$SSHOOHHILOHGD DFWLRQl6DUYHU1:GDW7KH6DUYHUFRXUWZHQW PRWLRQWRGLVPLVVZKLFKWKHGLVWULFWFRXUWJUDQWHGLQSDUWDQG RQ WR KROG KRZHYHU WKDW SODLQWLII KDG VWDWHG D EUHDFK RI GHQLHGLQSDUW6HH:UHQFK//&Y7DFR%HOO&RUS1R  FRQWUDFW FODLP VWDWLQJ mWR WKH H[WHQW WKDW SODLQWLII VHHNV &9 :/DW  8634G :' FRPSHQVDWLRQIRUIRUPXODWLQJGUDIWLQJDQGVXEPLWWLQJKHU 0LFK sXQH     m:UHQFK ,l   $OWKRXJK WKH GLVWULFW LGHDSXUVXDQWWRGHIHQGDQWjVHPSOR\HHVXJJHVWLRQSURJUDP  :UHQFK//&HWDOY7DFR%HOO&RUS 1R  1R  :UHQFK//&HWDOY7DFR%HOO&RUS  ,WKHGLVWULFWFRXUWFLWHG6DUYHUY'HWURLW(GLVRQ&R FRXUW GLVPLVVHG DSSHOODQWVj XQMXVW HQULFKPHQW FRQYHUVLRQ 1:G   0LFK &W $SS    LQ VXSSRUW RI LWV DQGGLOXWLRQFODLPVRQWKHEDVLVWKDWWKH\ZHUHSUHHPSWHGE\ FRQFOXVLRQWKDW0LFKLJDQZRXOGUHFRJQL]HVXFKDFODLP6HH WKH&RS\ULJKW$FWVHH:UHQFK, :/DW  :UHQFK, :/DW /DWHULQ:UHQFK,,,WKH WKH FRXUW KHOG WKDW DSSHOODQWVj PLVDSSURSULDWLRQ DQG XQIDLU GLVWULFW FRXUW UHOLHG SULPDULO\ RQ 1HZ <RUN FDVH ODZ WR FRPSHWLWLRQFODLPVZHUHQRWSUHHPSWHGEHFDXVHWKH\UHTXLUHG VXSSRUWLWVILQGLQJWKDWDSSHOODQWVjLGHDVDQGFRQFHSWVZHUH DSSHOODQWV WR SURYH DQ mH[WUD HOHPHQWl QRW UHTXLUHG IRU D QRWQRYHODVDPDWWHURIODZ7KHGLVWULFWFRXUWVHHPVWRKDYH FRS\ULJKWLQIULQJHPHQWFODLPQDPHO\WKHH[LVWHQFHRIDOHJDO DVVXPHG ZLWKRXW IXUWKHU GLVFXVVLRQ WKDW LI WKH QRYHOW\ UHODWLRQVKLSDULVLQJIURPDQLPSOLHGFRQWUDFW6HHLGDW  UHTXLUHPHQW DSSOLHG WR DSSHOODQWVj FRQYHUVLRQ DQG 7KHGLVWULFWFRXUWDOVRJUDQWHGDSSHOODQWVOHDYHWRDPHQGWKHLU PLVDSSURSULDWLRQFODLPVLWZRXOGDOVRDSSO\WRDSSHOODQWVj FRQYHUVLRQFODLPVRWKDWLWPLJKWVXUYLYHSUHHPSWLRQ6HHLG LPSOLHGLQIDFWFRQWUDFWFODLP DW   &RQYHUVLRQ LV EDVHG RQ SURSHUW\ ODZ SULQFLSDOV  6HH ,QDVHFRQGSXEOLVKHGGHFLVLRQWKHGLVWULFWFRXUWGHQLHG 6DUYHU1:GDW&RXUWVKDYHXVXDOO\UHIXVHGWR DSSHOOHHjVUHQHZHGPRWLRQWRGLVPLVVDSSHOODQWVjWRUWFODLPV SURWHFWLGHDVRQDSURSHUW\WKHRU\EXWZKHQWKH\KDYHLWKDV WRWKHH[WHQWWKDWWKH\GHULYHGIURPDQDOOHJHGLPSOLHGLQIDFW JHQHUDOO\ EHHQ VXEMHFW WR WKH UHTXLUHPHQWV RI QRYHOW\ DQG FRQWUDFW6HH:UHQFK//&Y7DFR%HOO&RUS)6XSSG FRQFUHWHQHVV6HH1LPPHURQ&RS\ULJKW†DWWR    :'0LFK   m:UHQFK,,l +RZHYHUWKH    ,Q 6DUYHU WKH 0LFKLJDQ FRXUW TXRWHG WKH IROORZLQJ GLVWULFWFRXUWJUDQWHGDSSHOOHHjVPRWLRQWRVWULNHDSSHOODQWVj ODQJXDJHIURP5HHYHVY$O\HVND3LSHOLQH6HUY&R 3G FODLPVWRWKHH[WHQWWKDWWKH\GHULYHGIURPDWKHRU\RITXDVL  $OD   SHUFXULDP FRQWUDFW RU LPSOLHGLQODZ FRQWUDFW  6HH :UHQFK ,,  )6XSSGDW  7KHGLVWULFWFRXUWUHDVRQHGWKDWVXFK m7RSURWHFWDQLGHDXQGHUDSURSHUW\WKHRU\UHTXLUHVWKDW DOOHJDWLRQVZHUHLQFRQVLVWHQWZLWKWKHFRXUWjVSULRUUXOLQJLQ WKHLGHDSRVVHVVSURSHUW\OLNHWUDLWV&RXUWVFRQVLGHUWKH :UHQFK , WKDW DSSHOODQWVj XQMXVW HQULFKPHQW FODLP ZDV HOHPHQWVRIQRYHOW\RURULJLQDOLW\QHFHVVDU\IRUDFODLP SUHHPSWHG6HHLG RIµRZQHUVKLSjLQDQLGHDRUFRQFHSW7KHVHHOHPHQWV GLVWLQJXLVKSURWHFWDEOHLGHDVIURPRUGLQDU\LGHDVWKDWDUH $W WKH FORVH RI GLVFRYHU\ WKH GLVWULFW FRXUW JUDQWHG IUHHO\ DYDLODEOH IRU RWKHUV WR XVH  ,W LV WKH HOHPHQW RI DSSHOOHHjVPRWLRQIRUVXPPDU\MXGJPHQW6HH:UHQFK//& RULJLQDOLW\RUQRYHOW\WKDWOHQGVYDOXHWRWKHLGHDLWVHOIl Y7DFR%HOO&RUS)6XSSG :'0LFK m:UHQFK,,,l 7KHGLVWULFWFRXUWGHWHUPLQHGWKDWWKHUHZDV 6DUYHU  1:G DW  TXRWLQJ 5HHYHV  3G DW VXIILFLHQWHYLGHQFHWRVXSSRUWDSSHOODQWVjDOOHJDWLRQVWKDWWKH   SDUWLHV KDG HQWHUHG LQWR DQ LPSOLHGLQIDFW FRQWUDFW  6HH :UHQFK ,,,  ) 6XSS G DW   7KH GLVWULFW FRXUW 0RVW FRXUWV DSSO\ D GLIIHUHQW UXOH WR FRQWUDFW FODLPV QHYHUWKHOHVV KHOG WKDW DSSHOODQWVj FRQWUDFW FODLP ZDV PRGLI\LQJWKHUHTXLUHPHQWRIQRYHOW\LQVRPHFLUFXPVWDQFHV SUHHPSWHGXQGHUWKH&RS\ULJKW$FWEHFDXVHLQWKHFRXUWjV DQGGLVSHQVLQJZLWKLWDOWRJHWKHULQRWKHUV7KHUHDVRQIRUWKH YLHZ DSSHOODQWVj ULJKW WR EH SDLG XQGHU WKH FRQWUDFW ZDV GLVWLQFWLRQLVWKLV SURSHUW\ULJKWVDUHULJKWVDJDLQVWWKHZRUOG HTXLYDOHQW WR WKH H[FOXVLYH ULJKWV WKDW WKH &RS\ULJKW $FW DQG FRXUWV DUH JHQHUDOO\ XQZLOOLQJ WR DFFRUG WKDW NLQG RI SURWHFWLRQ WR LGHDV  FRQWUDFW ULJKWV RQ WKH RWKHU KDQG DUH OLPLWHGWRWKHFRQWUDFWLQJSDUWLHVDQGLWVKRXOGEHIRUWKHPWR  $SSHOO GHFLGHLIDQLGHDLVVXIILFLHQWO\YDOXDEOHWREHSXUFKDVHG6HH HH KDV QRW FKDOOHQJHG WKH GLVWULFW FRXUWjV UXOLQJ WKDW LQVRIDU DV SUHHPSWLRQ LV FRQFHUQHG DSSHOODQWVj WRUW FODLPV VWDQG RU IDOO ZLWK WKHLU 1LPPHURQ&RS\ULJKW†DW †>%@DW FRQWUDFW FODLPV  :UHQFK//&HWDOY7DFR%HOO&RUS 1R  1R  :UHQFK//&HWDOY7DFR%HOO&RUS  JUDQWVWRDXWKRUV6HHLGDW%DVHGRQWKHFRXUWjV SURYLQJ WKDW DSSHOOHH XVHG DSSHOODQWVj 3V\FKR &KLKXDKXD UHDVRQLQJLQ:UHQFK,DQG:UHQFK,,DSSHOODQWVjUHPDLQLQJ FRQFHSW7KHGLVWULFWFRXUWGLGQRWDJUHHZLWKDSSHOODQWVWKDW WRUW FODLPV  FRQYHUVLRQ PLVDSSURSULDWLRQ DQG XQIDLU 7DFR %HOOjV &KLKXDKXD VWURQJO\ UHVHPEOHG 3V\FKR FRPSHWLWLRQZHUHDOVRSUHHPSWHG6HHLG$OWKRXJKWKH &KLKXDKXD EXW QHYHUWKHOHVV IRXQG WKDW 7DFR %HOO ZDV QRW GLVWULFW FRXUW UHMHFWHG DSSHOOHHjV DUJXPHQW WKDW VXPPDU\ HQWLWOHGWRVXPPDU\MXGJPHQWRQWKHEDVLVRILWVDIILUPDWLYH MXGJPHQW ZDV ZDUUDQWHG EDVHG RQ DSSHOOHHjV HYLGHQFH RI GHIHQVHRILQGHSHQGHQWFUHDWLRQ6HH:UHQFK,,,)6XSS mLQGHSHQGHQWFUHDWLRQlWKHFRXUWIRXQGDVDPDWWHURIODZWKDW G DW   6SHFLILFDOO\ WKH GLVWULFW FRXUW IRXQG WKDW DSSHOODQWVjH[SUHVVLYHZRUNZDVQRWQRYHORURULJLQDODQG WHVWLPRQ\ IURP 7DFR %HOOjV LQWHUHVWHG ZLWQHVVHV RQ WKH WKXVGLVPLVVHGDSSHOODQWVjFODLPVRQWKDWDGGLWLRQDOJURXQG TXHVWLRQRILQGHSHQGHQWFUHDWLRQE\LWVHOIZDVLQVXIILFLHQWWR 6HHLG VXSSRUWVXPPDU\MXGJPHQW,G 7KHLVVXHVEHIRUHXVRQDSSHDODUH   ZKHWKHUWKHGLVWULFW :HDJUHHZLWKWKHGLVWULFWFRXUWjVFRQFOXVLRQWKDWWKHLVVXH FRXUWHUUHGLQILQGLQJWKDWDSSHOODQWVjLPSOLHGLQIDFWFRQWUDFW RILQGHSHQGHQWFUHDWLRQSUHVHQWVJHQXLQHLVVXHVRIPDWHULDO FODLPLVSUHHPSWHGE\WKH&RS\ULJKW$FW DQG  ZKHWKHUWKH IDFW GLVWULFWFRXUWHUUHGLQILQGLQJWKDWQRYHOW\ZDVUHTXLUHGDVDQ HOHPHQWRIDSSHOODQWVjLPSOLHGLQIDFWFRQWUDFWFODLPDQGLI &1RYHOW\ VR ZKHWKHU WKH GLVWULFW FRXUW HUUHG LQ LWV ILQGLQJ WKDW DSSHOODQWVjLGHDVDQGFRQFHSWVZHUHQRWQRYHODVDPDWWHURI $SSHOODQWVDVVHUWWKDWWKHGLVWULFWFRXUWHUUHGLQGHWHUPLQLQJ ODZ WKDWQRYHOW\ZDVUHTXLUHGWRVXVWDLQWKHLUFRQWUDFWFODLP7KH GLVWULFWFRXUWIRXQGWKDW0LFKLJDQODZUHTXLUHGDSSHOODQWVWR ,,',6&866,21 SURYH WKH RULJLQDOLW\ RU QRYHOW\ RI WKHLU LGHDV LQ RUGHU WR PDLQWDLQWKHLUFODLPVFRQFOXGLQJWKDWDSSHOODQWVjLGHDVZHUH 7KLV FRXUW UHYLHZV D GLVWULFW FRXUWjV JUDQW RI VXPPDU\ QRW QRYHO EHFDXVH WKH\ mPHUHO\ FRPELQHG WKHPHV DQG MXGJPHQWGHQRYR6HH$OOHQY0LFK'HSjWRI&RUU H[HFXWLRQV WKDW KDG EHHQ XVHG PDQ\ WLPHV LQ D YDULHW\ RI )G    WK &LU    6XPPDU\ MXGJPHQW LV FRPPHUFLDOV IRU GLIIHUHQW SURGXFWVl  :UHQFK ,,,  DSSURSULDWH ZKHUH mWKH SOHDGLQJV GHSRVLWLRQV DQVZHUV WR )6XSSGDW7KHGLVWULFWFRXUWWKXVJUDQWHGVXPPDU\ LQWHUURJDWRULHV DQG DGPLVVLRQV RQ ILOH WRJHWKHU ZLWK WKH MXGJPHQWLQIDYRURIDSSHOOHHRQWKLVDOWHUQDWLYHEDVLV6HHLG DIILGDYLWVLIDQ\VKRZWKDWWKHUHLVQRJHQXLQHLVVXHDVWRDQ\ DW:HFRQFOXGHWKDWWKHGLVWULFWFRXUWHUUHGLQILQGLQJ PDWHULDO IDFW DQG WKDW WKH PRYLQJ SDUW\ LV HQWLWOHG WR D WKDW0LFKLJDQODZUHTXLUHVQRYHOW\LQDFRQWUDFWEDVHGFODLP MXGJPHQWDVDPDWWHURIODZl)HG5&LY3 F 7KH PRYLQJSDUW\KDVWKHLQLWLDOEXUGHQRIVKRZLQJWKHDEVHQFHRI ,Q:UHQFK,,,WKHGLVWULFWFRXUWEHJDQLWVGLVFXVVLRQRIWKH DJHQXLQHLVVXHRIPDWHULDOIDFWDVWRDQHVVHQWLDOHOHPHQWRI LVVXHRIQRYHOW\ZLWKDUHIHUHQFHWRLWVGHFLVLRQLQ:UHQFK,, WKHQRQPRYLQJSDUW\jVFDVH6HH6WUHHWYs&%UDGIRUG )6XSSGDW LQZKLFKQRYHOW\ZDVGLVFXVVHGLQWKH &R  )G   WK &LU    FLWLQJ &HORWH[ FRQWH[W RI DSSHOODQWVj PLVDSSURSULDWLRQ DQG FRQYHUVLRQ &RUSY&DWUHWW86   $QLVVXHRIIDFWLV FODLPV6HH:UHQFK,,,)6XSSGDWFLWLQJ:UHQFK mJHQXLQHlLIWKHHYLGHQFHLVVXFKWKDWDUHDVRQDEOHMXU\FRXOG ,,  ) 6XSS G DW    ,Q WKLV VHFWLRQ RI LWV :UHQFK ,, UHWXUQDYHUGLFWIRUWKHQRQPRYDQW6HH$QGHUVRQY/LEHUW\ GHFLVLRQ WKH GLVWULFW FRXUW DGGUHVVHG WKH LVVXH RI ZKHWKHU /REE\ ,QF  86       2QFH WKH PRYLQJ 0LFKLJDQZRXOGUHFRJQL]HDQDFWLRQIRUFRQYHUVLRQRIDQLGHD SDUW\VDWLVILHVLWVEXUGHQmWKHEXUGHQVKLIWVWRWKHQRQPRYLQJ mµLI WKH LGHD ZDV QRYHO RU RULJLQDO DQG IXUQLVKHG E\ WKH SDUW\ WR VHW IRUWK VSHFLILF IDFWV VKRZLQJ D WULDEOH LVVXHl SODLQWLIIWRWKHGHIHQGDQWSXUVXDQWWRDOHJDOUHODWLRQVKLSjl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†>%@>@>D@VXSUD 7DFR %HOO DUJXHV WKDW WKLV FRQFOXVLRQ ZDV HUURQHRXV DQG DVVHUWVWKDWWKHUHFRUGFRQWDLQVQRHYLGHQFHRIDQHQIRUFHDEOH 1LPPHURQ&RS\ULJKW†>%@>@>J@DWQ FRQWUDFW  :H DJUHH ZLWK WKH GLVWULFW FRXUWjV ILQGLQJ WKDW DSSHOODQWVSUHVHQWHGVXIILFLHQWHYLGHQFHWRVXUYLYHVXPPDU\ +HUHDSSHOODQWVjLPSOLHGLQIDFWFRQWUDFWFODLPFRQWDLQVWKH MXGJPHQW RQ WKH TXHVWLRQ RI ZKHWKHU DQ LPSOLHGLQIDFW HVVHQWLDOHOHPHQWRIH[SHFWDWLRQRIFRPSHQVDWLRQZKLFKLVDQ FRQWUDFW H[LVWHG XQGHU 0LFKLJDQ ODZ  :H PXVW WKHUHIRUH HOHPHQWQRWHQYLVLRQHGE\†6HH&DVFDGHQ1:DW GHWHUPLQHZKHWKHUDSSHOODQWVjLPSOLHGLQIDFWFRQWUDFWFODLP  m3ODLQWLIIVFDQQRWUHFRYHURQWKHWKHRU\RIDFRQWUDFW LVSUHHPSWHGE\IHGHUDOODZ LPSOLHG LQ IDFW IRU WKH ZRUN ZDV QRW GRQH     XQGHU FLUFXPVWDQFHV DXWKRUL]LQJ SODLQWLIIV WR HQWHUWDLQ DQ $3UHHPSWLRQ H[SHFWDWLRQRISD\IURPGHIHQGDQWVl  6HFWLRQRIWKH&RS\ULJKW$FWSURYLGHVWKDW :HFRQFOXGHWKDWWKHGLVWULFWFRXUWHUUHGZLWKUHVSHFWWRWKH HTXLYDOHQF\SURQJRIWKHSUHHPSWLRQDQDO\VLVDQGILQGWKDW 2QDQGDIWHUsDQXDU\ DOOOHJDORUHTXLWDEOHULJKWV DSSHOODQWVj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†  D      ,Q VXP XQGHU †  D VWDWH LPSURSHUXVHRIDSSHOODQWVjLGHDVE\VKRZLQJWKDWWKHLGHDV FRPPRQODZRUVWDWXWRU\FODLPLVSUHHPSWHGLI   WKHZRUN ZHUHLQGHSHQGHQWO\FUHDWHG$SSHOODQWVGLVDJUHHDQGFRQWHQG LVZLWKLQWKHVFRSHRIWKHmVXEMHFWPDWWHURIFRS\ULJKWlDV WKDW WKH\ KDYH SUHVHQWHG VWURQJ FLUFXPVWDQWLDO HYLGHQFH VSHFLILHGLQ86&†† DQG  WKHULJKWVJUDQWHG XQGHUVWDWHODZDUHHTXLYDOHQWWRDQ\H[FOXVLYHULJKWVZLWKLQ WKHVFRSHRIIHGHUDOFRS\ULJKWDVVHWRXWLQ86&† 6HH+DUSHU 5RZ3XEOLVKHUV,QFY1DWLRQ(QWHUSULVHV 7KLV IRRWQRWH LQ 1LPPHU RQ &RS\ULJKW DSSHDUV LQ WKH VDPH VHFWLRQ )G   G&LU  UHYjGRQRWKHUJURXQGV FLWHG E\ WKH (QGHPRO FRXUW IRU WKH SURSRVLWLRQ WKDW DOO LPSOLHG FRQWUDFW FODLPV DUH SUHHPSWHG 86    VHHDOVR1DWLRQDO%DVNHWEDOO$VVjQY  :UHQFK//&HWDOY7DFR%HOO&RUS 1R  1R  :UHQFK//&HWDOY7DFR%HOO&RUS  0RWRUROD ,QF  )G   G &LU    8QLWHG DUHWKH\SURPLVHV7KH\DUHREOLJDWLRQVFUHDWHGE\ODZ 6WDWHVH[UHO%HUJHY%GRI7UXVWHHVRIWKH8QLYRI$OD IRUUHDVRQVRIMXVWLFHj4XDVLFRQWUDFWXDOUHFRYHU\LV )G WK&LU  (KDWY7DQQHU)G EDVHGXSRQEHQHILWDFFHSWHGRUGHULYHGIURPZKLFKWKH  WK&LU  &RXUWVDQGFRPPHQWDWRUVKDYH ODZLPSOLHVDQREOLJDWLRQWRSD\l$QLPSOLHGLQIDFW GHVFULEHG WKLV SUHHPSWLRQ DQDO\VLV DV HQFRPSDVVLQJ D FRQWUDFW RQ WKH RWKHU KDQG LV D FRQVHQVXDO DJUHHPHQW mVXEMHFW PDWWHU UHTXLUHPHQWl DQG D mJHQHUDO VFRSHl RU SUHVHQWLQJWKHVDPHHOHPHQWVDVDUHIRXQGLQDQH[SUHVV mHTXLYDOHQF\lUHTXLUHPHQW6HH1DWLRQDO%DVNHWEDOO$VVjQ FRQWUDFW H[FHSW WKDW LQ DQ LPSOLHG LQ IDFW FRQWUDFW WKH )GDW 0HOYLOOH%1LPPHU 'DYLG1LPPHU SURPLVHLVQRWH[SUHVVHGLQZRUGVEXWLVUDWKHULPSOLHG 1LPPHURQ&RS\ULJKW†>%@>@>@DWWR  IURPWKHSURPLVRUjVFRQGXFW >KHUHLQDIWHU1LPPHURQ&RS\ULJKW@ 1LPPHURQ&RS\ULJKW†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†  E  H[SUHVVO\ H[FOXGHV LQWDQJLEOH LGHDV DQG FRQFHSWV HOHPHQWLQDGGLWLRQWRDQDFWRIUHSURGXFWLRQSHUIRUPDQFH IURPWKHVXEMHFWPDWWHURIFRS\ULJKW GLVWULEXWLRQRUGLVSOD\ZKHUHDVDQDFWLRQEDVHGRQDFRQWUDFW LPSOLHGLQIDFWUHTXLUHVWKHH[WUDHOHPHQWRIDSURPLVHWRSD\ IRUWKHXVHRIWKHZRUNZKLFKLVLPSOLHGIURPWKHFRQGXFWRI  WKHSDUWLHV7KHDXWKRUVRI1LPPHURQ&RS\ULJKWH[SODLQWKH 6HFWLRQ  SURYLGHV VLJQLILFDQFHRIWKLVGLIIHUHQFHLQWKHLUDQDO\VLVRIWKH1LQWK †  6XEMHFW PDWWHU RI FRS\ULJKW ,Q JHQHUDO &LUFXLWjV GHFLVLRQ LQ 'HO 0DGHUD 3URSV Y 5KRGHV D &RS\ULJKW SURWHFWLRQ VXEVLVWV LQ DFFRUGDQFH ZLWK WKLV WLWOH *DUGQHU,QF)G  WK&LU   LQZKLFKWKH LQ RULJLQDO ZRUNV RI DXWKRUVKLS IL[HG LQ DQ\ WDQJLEOH PHGLXP RI FRXUW KHOG WKDW DQ XQMXVW HQULFKPHQW FODLP EDVHG RQ H[SUHVVLRQ QRZ NQRZQ RU ODWHU GHYHORSHG IURP ZKLFK WKH\ FDQ &DOLIRUQLDODZZDVSUHHPSWHG EH SHUFHLYHG UHSURGXFHG RU RWKHUZLVH FRPPXQLFDWHG HLWKHU GLUHFWO\ RU ZLWK WKH DLG RI D PDFKLQH RU GHYLFH :RUNV RI ,Q'HO0DGHUDKRZHYHUWKHFRXUWjVGLVSRVLWLRQRIWKH DXWKRUVKLS LQFOXGH WKH IROORZLQJ FDWHJRULHV  OLWHUDU\ ZRUNV SUHHPSWLRQDUJXPHQWPD\KDYHEHHQGLFWXPJLYHQWKH  PXVLFDO ZRUNV LQFOXGLQJ DQ\ DFFRPSDQ\LQJ ZRUGV FRXUWj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jV GHFLVLRQ LQ'HO 0DGHUD 3URSHUWLHV IRU WKH DXWKRUVKLS H[WHQG WR DQ\ LGHD SURFHGXUH SURFHVV V\VWHP SURSRVLWLRQ WKDW LPSOLHGLQIDFW FRQWUDFWV DUH SUHHPSWHG  :UHQFK//&HWDOY7DFR%HOO&RUS 1R  1R  :UHQFK//&HWDOY7DFR%HOO&RUS  XQDXWKRUL]HGUHSURGXFWLRQDQGXVHDSURPLVHWRSD\SODLQWLII ,Q:UHQFK,WKHGLVWULFWFRXUWIRXQGWKDWDSSHOODQWVjFODLPV IRUXVHRIKLVSURGXFWl .DW]'RFKUHUPDQQ (SVWHLQ,QF IHOOZLWKLQWKHVXEMHFWPDWWHURIFRS\ULJKWmEHFDXVHWKH\DUH Y +RPH %R[ 2IILFH 1R  &,9  73*    :/ SUHPLVHGXSRQLGHDVDQGFRQFHSWVIL[HGLQDWDQJLEOHPHGLXP  DW  6'1<0DU   m.'(jVDOOHJDWLRQ RI H[SUHVVLRQ QDPHO\ µVWRU\ERDUGVj DQG µSUHVHQWDWLRQ WKDW +%2 PDGH DQ LPSOLHG SURPLVH WR SD\ IRU LWV LGHD LV PDWHULDOVjIXUQLVKHGE\3ODLQWLIIVl :/DW  HQWLUHO\ VHSDUDWH DQG DSDUW IURP DQ\ FODLP IRU FRS\ULJKW 7KHGLVWULFWFRXUWUHDVRQHGWKDWDSSHOODQWVjVWDWHODZFODLPV LQIULQJHPHQW.'(jVFODLPIRUEUHDFKRILPSOLHGSURPLVH GHSHQGHGVXEVWDQWLDOO\XSRQZRUNVVXEMHFWWRWKHFRS\ULJKW WRSD\LVQRWSUHHPSWHGl SURWHFWLRQDQGGLGQRWDULVHVROHO\RXWRILQWDQJLEOHFRQFHSWV WKDWZHUHRUDOO\FRQYH\HGWR7DFR%HOO,G ,Q(QGHPRO(QWPjW%9Y7ZHQWLHWK7HOHYLVLRQ,QF1R &9 $%& %45;  :/8634G ,QUHDFKLQJWKLVFRQFOXVLRQWKHGLVWULFWFRXUWUHOLHGRQWKH  &'&DO6HSW   WKHFDVHSULQFLSDOO\UHOLHG )RXUWK &LUFXLWjV GHFLVLRQ LQ %HUJH LQ ZKLFK D SODLQWLII XSRQ E\ WKH GLVWULFW FRXUW WKH FRXUW IRXQG WKDW SODLQWLIIjV EURXJKW D VWDWH ODZ FRQYHUVLRQ DFWLRQ FODLPLQJ WKDW LPSOLHG FRQWUDFW FODLP ZDV SUHHPSWHG EHFDXVH LW IHOO GHIHQGDQWV KDG XVHG LGHDV DQG PHWKRGV FRQWDLQHG LQ mVTXDUHO\LQWRWKHFDWHJRU\RIFRQWUDFWFODLPVWKDWDOOHJHQR SODLQWLIIjVGLVVHUWDWLRQZLWKRXWKHUSHUPLVVLRQ6HH)G DGGLWLRQDOULJKWVRWKHUWKDQSURPLVLQJQRWWREHQHILWIURPWKH DW7KHSODLQWLIIFRQWHQGHGWKDWEHFDXVHLGHDV FRS\ULJKWHGZRUNl,GDW7KH(QGHPROFRXUWFLWHG DQGPHWKRGVDUHH[FOXGHGIURPFRS\ULJKWSURWHFWLRQXQGHU 1LPPHU RQ &RS\ULJKW † >%@>@>D@ DW   >J@ DW  †  KHU VWDWH ODZ FODLPV FRXOG QRW EH SUHHPSWHG XQGHU    IRU WKH SURSRVLWLRQ WKDW mLPSOLHG FRQWUDFWV DV D †7KHFRXUWUHMHFWHGWKLVDUJXPHQWRQWKHJURXQGWKDW VSHFLHV RI TXDVLFRQWUDFW µVKRXOG EH UHJDUGHG DV DQ WKHVFRSHRISURWHFWLRQDIIRUGHGXQGHUFRS\ULJKWODZLVQRWWKH mHTXLYDOHQWULJKWlDQGSUHHPSWHG>@jl,G,QWKHLQVWDQWFDVH VDPHDVWKHVFRSHRISUHHPSWLRQ5DWKHUWKHFRXUWFRQFOXGHG KRZHYHU DSSHOODQWVj FODLP LV QRW EDVHG RQTXDVLFRQWUDFW WKDW mWKH VKDGRZ DFWXDOO\ FDVW E\ WKH >&RS\ULJKW@ $FWjV LQVWHDGLWLVEDVHGXSRQDQLPSOLHGLQIDFWFRQWUDFWZKLFK SUHHPSWLRQLVQRWDEO\EURDGHUWKDQWKHZLQJRILWVSURWHFWLRQl XQGHU0LFKLJDQODZGRHVQRWH[LVWXQOHVVWKHPLQGVRIWKH ,GDW SDUWLHVPHHWE\UHDVRQRIZRUGVRUFRQGXFW $SSHOODQWVXUJHWKLVFRXUWWRUHMHFWWKLVFRQFOXVLRQIRUWKH 7KH DXWKRUV RI 1LPPHU RQ &RS\ULJKW ZDUQ DJDLQVW VDPH UHDVRQ XUJHG E\ WKH SODLQWLII LQ %HUJH  6SHFLILFDOO\ FRQIXVLQJ FRQWUDFWV LPSOLHG LQ ODZ TXDVLFRQWUDFW  DQG DSSHOODQWVDUJXHWKDW%HUJHGRHVQRWFRPSRUWZLWKDOLWHUDO FRQWUDFWVLPSOLHGLQIDFW UHDGLQJRI† E ZKLFKH[SUHVVO\H[FOXGHVLGHDVDQGRWKHU LQWDQJLEOH IRUPV RI H[SUHVVLRQ IURP FRS\ULJKW SURWHFWLRQ 8QIRUWXQDWHO\PDQ\FRXUWVLQGHDOLQJZLWKLGHDFDVHVIDLO $SSHOODQWVUHO\RQVHYHUDOGLVWULFWFRXUWFDVHVZKLFKKDYHKHOG WRGLVWLQJXLVKEHWZHHQDFRQWUDFWLPSOLHGLQODZDQGD WKDWEHFDXVHLGHDVDQGFRQFHSWVDUHQRWDIIRUGHGFRS\ULJKW FRQWUDFWLPSOLHGLQIDFW$QDFWLRQLQTXDVLFRQWUDFWLV QRW D WUXH FRQWUDFW VLQFH mµTXDVL FRQWUDFWV XQOLNH WUXH FRQWUDFWVDUHQRWEDVHGXSRQWKHDSSDUHQWLQWHQWLRQRI WKHSDUWLHVWRXQGHUWDNHWKHSHUIRUPDQFHVLQTXHVWLRQQRU  PHWKRG RI RSHUDWLRQ FRQFHSW SULQFLSOH RU GLVFRYHU\ UHJDUGOHVV 7KLV ODQJXDJH LV IRXQG LQ WKH  HGLWLRQ RI  1LPPHU RQ RI WKH IRUP LQ ZKLFK LW LV GHVFULEHG H[SODLQHG LOOXVWUDWHG RU &RS\ULJKW LQ † >%@>@>D@ DW  >J@ DW  WR  HPERGLHG LQ VXFK ZRUN  :UHQFK//&HWDOY7DFR%HOO&RUS 1R  1R  :UHQFK//&HWDOY7DFR%HOO&RUS  SURWHFWLRQ WKH\ DUH QRW ZLWKLQ WKH VXEMHFW PDWWHU RI ,QILQGLQJWKDWDSSHOODQWVjVWDWHODZFRQWUDFWFODLPLVQRW FRS\ULJKW SUHHPSWHGZHGRQRWHPEUDFHWKHSURSRVLWLRQWKDWDOOVWDWH ODZFRQWUDFWFODLPVVXUYLYHSUHHPSWLRQVLPSO\EHFDXVHWKH\ 7KHDSSHOODWHFRXUWVWKDWKDYHDGGUHVVHGWKLVTXHVWLRQKDYH LQYROYH WKH DGGLWLRQDO HOHPHQW RI SURPLVH  6HH HJ GLVDJUHHG ZLWK WKH UHDVRQLQJ RI WKH GHFLVLRQV FLWHG E\ =HLGHQEHUJ)GDW 7DTXLQRY7HOHG\QH0RQDUFK DSSHOODQWV KRZHYHU  7KH 6HFRQG )RXUWK DQG 6HYHQWK 5XEEHU   )G   WK &LU    DSSHQGL[  &LUFXLWV KDYH KHOG WKDW WKH VFRSH RI WKH &RS\ULJKW $FWjV 8QGHU WKDW UDWLRQDOH D FRQWUDFW ZKLFK FRQVLVWHG RQO\ RI D VXEMHFWPDWWHUH[WHQGVEH\RQGWKHWDQJLEOHH[SUHVVLRQVWKDW SURPLVHQRWWRUHSURGXFHWKHFRS\ULJKWHGZRUNZRXOGVXUYLYH FDQ EH SURWHFWHG XQGHU WKH $FW WR HOHPHQWV RI H[SUHVVLRQ SUHHPSWLRQHYHQWKRXJKLWZDVOLPLWHGWRRQHRIWKHH[FOXVLYH ZKLFKWKHPVHOYHVFDQQRWEHSURWHFWHG6HHHJ1DWLRQDO ULJKWVHQXPHUDWHGLQ86&†,IWKHSURPLVHDPRXQWV %DVNHWEDOO$VVjQ)GDW  KROGLQJWKDWVXEMHFW RQO\WRDSURPLVHWRUHIUDLQIURPUHSURGXFLQJSHUIRUPLQJ PDWWHURIFRS\ULJKWXQGHU†LQFOXGHVmXQFRS\ULJKWDEOHl GLVWULEXWLQJRUGLVSOD\LQJWKHZRUNWKHQWKHFRQWUDFWFODLPLV DVZHOODVmFRS\ULJKWDEOHlHOHPHQWV %HUJH)GDW SUHHPSWHG7KHFRQWUDU\UHVXOWZRXOGFOHDUO\YLRODWHWKHUXOH ILQGLQJWKDWmVFRSHDQGSURWHFWLRQDUHQRWV\QRQ\PVlDQG WKDW VWDWH ODZ ULJKWV DUH SUHHPSWHG ZKHQ WKH\ ZRXOG EH KROGLQJWKDWXQFRS\ULJKWDEOHLGHDVWKDWPDNHXSFRS\ULJKWDEOH DEULGJHGE\DQDFWZKLFKLQDQGRILWVHOIZRXOGLQIULQJHRQH ZRUNVDUHZLWKLQVXEMHFWPDWWHURIFRS\ULJKW 3UR&',QFY RI WKH H[FOXVLYH ULJKWV RI †   $V WKH DXWKRUV QRWH LQ  =HLGHQEHUJ)G WK&LU   ILQGLQJWKDW 1LPPHURQ&RS\ULJKW†>%@>@>D@DW m$OWKRXJKWKH XQFRS\ULJKWDEOH GDWD XQGHUO\LQJ D FRS\ULJKWDEOH FRPSXWHU YDVW PDMRULW\ RI FRQWUDFW FODLPV ZLOO SUHVXPDEO\ VXUYLYH SURJUDP DUH ZLWKLQ VXEMHFW PDWWHU RI FRS\ULJKW   $V WKH VFUXWLQ\QRQHWKHOHVVSUHHPSWLRQVKRXOGFRQWLQXHWRVWULNH 6HFRQG&LUFXLWUHDVRQHGWKHIDFWWKDWFRS\ULJKWDEOHPDWHULDO GRZQFODLPVWKDWWKRXJKGHQRPLQDWHGµFRQWUDFWjQRQHWKHOHVV FRQWDLQVXQFRS\ULJKWDEOHH[SUHVVLRQVVKRXOGQRWUHPRYHWKH FRPSODLQ GLUHFWO\ DERXW WKH UHSURGXFWLRQ RI H[SUHVVLYH ZRUN IURP WKH VXEMHFW PDWWHU RI FRS\ULJKW XQGHU †  PDWHULDOVl EHFDXVH RWKHUZLVH  mVWDWHV ZRXOG EH IUHH WR H[SDQG WKH SHULPHWHUVRIFRS\ULJKWSURWHFWLRQWRWKHLURZQOLNLQJRQWKH 2XUDQDO\VLVRIWKHSUHHPSWLRQLVVXHLVVXSSRUWHGE\WKH WKHRU\WKDWSUHHPSWLRQZRXOGEHQREDUWRVWDWHSURWHFWLRQRI IROORZLQJFDVHV $FRUQ6WUXFWXUHV,QFY6ZDQW])G PDWHULDOQRWPHHWLQJIHGHUDOVWDWXWRU\VWDQGDUGVl+DUSHU  WK&LU   GHIHQGDQWjVDJUHHPHQWWKDWLIKHXVHG 5RZ)GDW TXRWLQJ+55HS1R DW $FRUQjVEXLOGLQJSODQVWKHQKHZDVREOLJDWHGWRHLWKHUSD\   UHSULQWHGLQ 86&&$1   IRUWKHSODQVRUSXUFKDVHKLVEXLOGLQJPDWHULDOVIURP$FRUQ GLGQRWDULVHRXWRIWKHVXEMHFWPDWWHURIFRS\ULJKWDQGZDV QRWSUHHPSWHG %ULJQROLY%DOFK+DUG\ 6FKHLQPDQ,QF )6XSS 6'1<   ILQGLQJWKDWWKH  $00 0D\HU Y sRVLDK :HGJZRRG 6RQV /WG   ) 6XSS  EUHDFK RI FRQWUDFW FODLPV mLQYROYH DQ HOHPHQW EH\RQG  Q 6'1<   mVWDWH ODZV WKDW SURWHFW LGHDV DV GLVWLQFW IURP WKHLU H[SUHVVLRQ DUH ZLWKRXW WKH VXEMHFW PDWWHU RI FRS\ULJKWl &DQWHU Y :HVW 3XE &R   ) 6XSS G    :/  DW  1' &DO   ZLWKGUDZQ IURP SXEOLFDWLRQ m7R WKH H[WHQW 3ODLQWLIIV VHHN 7KH 6HYHQWK &LUFXLW LQ =HLGHQEHUJGLG TXDOLI\ VRPHZKDW LWV EURDG FRPSHQVDWLRQ IRU WKH XQGHUO\LQJ FRQFHSWV SURFHVVHV DQG SURFHGXUHV    KROGLQJ WKDW EHFDXVH FRQWUDFWV XQOLNH WKH &RS\ULJKW $FW GR QRW FUHDWH UDWKHU WKDQ WKH VSHFLILF H[SUHVVLRQ    >WKH@ FDXVH RI DFWLRQ LV QRW H[FOXVLYH ULJKWV EXW JHQHUDOO\ DIIHFW RQO\ WKHLU SDUWLHV WKH\ DUH QRW SUHHPSWHGl /DWWLH Y 0XUGDFK   8634G    :/  DW SUHHPSWHG VWDWLQJ m>:@H WKLQN LW SUXGHQW WR UHIUDLQ IURP DGRSWLQJ D UXOH  1' &DO sDQ    ILQGLQJ WKDW mLGHDV GR QRW FRPH XQGHU WKH WKDW DQ\WKLQJ ZLWK WKH ODEHO µFRQWUDFWj LV QHFHVVDULO\ RXWVLGH WKH VXEMHFW PDWWHU RI FRS\ULJKW DQG FODLPV EDVHG XSRQ WKHP DUH QRW SUHHPSWLRQ FODXVH WKH YDULDWLRQV DQG SRVVLELOLWLHV DUH WRR QXPHURXV WR SUHHPSWHGl  IRUHVHHl  )G DW   :UHQFK//&HWDOY7DFR%HOO&RUS 1R  1R  :UHQFK//&HWDOY7DFR%HOO&RUS  GDPDJHV DQG DQ\ DGGLWLRQDO SURILWV RI WKH LQIULQJHU RU :HMRLQRXUVLVWHUFLUFXLWVLQKROGLQJWKDWWKHVFRSHRIWKH VWDWXWRU\ GDPDJHV  DQG FRVWV DQG DWWRUQH\V IHHV  6HH  &RS\ULJKW$FWjVVXEMHFWPDWWHULVEURDGHUWKDQWKHVFRSHRI 86&††DQG7KHUHPHGLHVDYDLODEOH WKH $FWjV SURWHFWLRQV  7KH UHFRUG GHPRQVWUDWHV WKDW XQGHU FRS\ULJKW ODZ GR QRW LQFOXGH GDPDJHV IRU WKH DSSHOODQWV H[SHQGHG FRQVLGHUDEOH HIIRUW SUHSDULQJ DQG UHDVRQDEOH YDOXH RI WKH GHIHQGDQWVj XVH RI WKH ZRUN  6HH SUHVHQWLQJ WDQJLEOH H[SUHVVLRQV RI WKHLU 3V\FKR &KLKXDKXD %XVLQHVV7UHQGV$QDO\VWV,QFY)UHHGRQLD*URXS,QF FRQFHSWIRUDSSHOOHHZKLFKH[SUHVVLRQVLQFOXGHGVWRU\ERDUGV )G  QG&LU   VFULSWV GUDZLQJV FORWKLQJ GHVLJQV DQG SDFNDJLQJ  7KH SRVLWLRQQRZXUJHGE\DSSHOODQWVZRXOGUHTXLUHXVWRVHSDUDWH 7KHSURSRVLWLRQWKDWDVWDWHODZEUHDFKRIFRQWUDFWFODLP RXW DSSHOODQWVj LQWDQJLEOH LGHDV IURP WKHVH WDQJLEOH EDVHGXSRQDSURPLVHWRSD\IRUWKHXVHRIWKHZRUNLVQRW H[SUHVVLRQVDQGZRXOGDIIRUGDSSHOODQWVDVWDWHODZFODLPLQ SUHHPSWHGLVVXSSRUWHGE\DQHPLQHQWDXWKRULW\RQFRS\ULJKW WKHIDFHRIFOHDUFRQJUHVVLRQDOLQWHQWWRSUHHPSWVXFKDFWLRQ ODZ6HH1LPPHURQ&RS\ULJKW†>%@>@>D@DWWR $VWKH6HYHQWK&LUFXLWKDVQRWHGm>R@QHIXQFWLRQRI† D ZKLFKVWDWHV LVWRSUHYHQWVWDWHVIURPJLYLQJVSHFLDOSURWHFWLRQWRZRUNVRI DXWKRUVKLSWKDW&RQJUHVVKDVGHFLGHGVKRXOGEHLQWKHSXEOLF >D@%UHDFKRI&RQWUDFW$GYHUWLQJILUVWWRFRQWUDFWULJKWV GRPDLQZKLFKLWFDQDFFRPSOLVKRQO\LIµVXEMHFWPDWWHURI DQDXWKRUjVULJKWWRUR\DOWLHVXQGHUDSXEOLFDWLRQFRQWUDFW FRS\ULJKWjLQFOXGHVDOOZRUNVRIDW\SHFRYHUHGE\VHFWLRQV PD\ EH FRQGLWLRQHG XSRQ WKH SXEOLVKHUjV DFWV RI DQGHYHQLIIHGHUDOODZGRHVQRWDIIRUGSURWHFWLRQWR UHSURGXFWLRQDQGGLVWULEXWLRQRIFRSLHVRIWKHZRUNEXW WKHPl=HLGHQEHUJ)GDW7KXVZHFRQFOXGHWKDW WKHUHLVDOVRDQRWKHUFUXFLDODFWWKDWVWDQGVDVDFRQGLWLRQ WKHGLVWULFWFRXUWGLGQRWHUUZLWKUHVSHFWWRWKHVXEMHFWPDWWHU WRWKHSXEOLVKHUjVOLDELOLW\ WKHSXEOLVKHUjVSURPLVHWRSD\ SURQJRILWVSUHHPSWLRQDQDO\VLV WKH VWDWHG UR\DOW\  :LWKRXW D SURPLVH WKHUH LV QR FRQWUDFWZKLOHDSURPLVHRQWKHSDUWRIRQHZKRHQJDJHV (TXLYDOHQF\5HTXLUHPHQW LQXQOLFHQVHGUHSURGXFWLRQRUGLVWULEXWLRQLVQRWUHTXLUHG LQ RUGHU WR FRQVWLWXWH KLP D FRS\ULJKW LQIULQJHU 7KH VHFRQG SURQJ RI WKH SUHHPSWLRQ DQDO\VLV  WKH VR &HUWDLQO\SUHHPSWLRQVKRXOGEHGHQLHGWRWKHH[WHQW FDOOHG mHTXLYDOHQF\l RU mJHQHUDO VFRSHl UHTXLUHPHQW  WKDW D EUHDFK RI FRQWUDFW FDXVH RI DFWLRQ DOOHJHV PRUH DXJPHQWVWKHVXEMHFWPDWWHULQTXLU\E\DVNLQJZKHWKHUWKH WKDQ UHSURGXFWLRQ DGDSWDWLRQ HWF VLPSOLFWHU RI D VWDWHFRPPRQODZRUVWDWXWRU\DFWLRQDWLVVXHDVVHUWVULJKWV FRS\ULJKWHGZRUN )RRWQRWHVRPLWWHG  WKDW DUH WKH VDPH DV WKRVH SURWHFWHG XQGHU †  RI WKH &RS\ULJKW$FW8QGHU† D HYHQLIDSSHOODQWVjVWDWHODZ +HUH DV LQ WKH H[DPSOH JLYHQ LQ 1LPPHU RQ &RS\ULJKW WKHUHLVDQRWKHUFUXFLDODFWWKDWVWDQGVDVDFRQGLWLRQWRWKH DSSHOOHHjVOLDELOLW\WRZLW LWVSURPLVHWRSD\IRUWKHXVHRIWKH  ZRUN7KXVWKLVLVDFDVHLQZKLFKWKHEUHDFKRIFRQWUDFW 6HFWLRQ  SURYLGHV FDXVHRIDFWLRQDOOHJHVPRUHWKDQUHSURGXFWLRQDGDSWDWLRQ †  ([FOXVLYH ULJKWV LQ FRS\ULJKWHG ZRUNV HWFVLPSOLFWHU 6XEMHFW WR VHFWLRQV  WKURXJK  WKH RZQHU RI FRS\ULJKW XQGHU WKLV WLWOH KDV WKH H[FOXVLYH ULJKWV WR GR DQG WR DXWKRUL]H DQ\ RI WKH IROORZLQJ  WR UHSURGXFH WKH FRS\ULJKWHG ZRUN LQ FRSLHV RU  %XW VHH 'HOWDN ,QF Y $GYDQFHG 6\VWHPV ,QF  )G   SKRQRUHFRUGV  WK &LU   m7KH YDOXH RI WKH LQIULQJHUjV XVH LV D SHUPLVVLEOH EDVLV  WR SUHSDUH GHULYDWLYH ZRUNV EDVHG XSRQ WKH FRS\ULJKWHG IRU HVWLPDWLQJ DFWXDO GDPDJHVl  7KLV LVVXH LV GLVFXVVHG DW OHQJWK DW  ZRUN 1LPPHU RQ &RS\ULJKW † >$@ DW  WR    WR GLVWULEXWH FRSLHV RU SKRQRUHFRUGV RI WKH FRS\ULJKWHG ZRUN  :UHQFK//&HWDOY7DFR%HOO&RUS 1R  1R  :UHQFK//&HWDOY7DFR%HOO&RUS  FODLPVFRQFHUQZRUNVZLWKLQWKHVXEMHFWPDWWHURIFRS\ULJKW TXDVLRUFRQVWUXFWLYHDQGGRHVQRWUHTXLUHDPHHWLQJRI VXFKFODLPVZLOORQO\EHSUHHPSWHGLIWKH\DVVHUWULJKWVWKDW PLQGVEXWLVLPSRVHGE\ILFWLRQRIODZ>@ DUH mHTXLYDOHQW WR DQ\ RI WKH H[FOXVLYH ULJKWV ZLWKLQ WKH JHQHUDOVFRSHRIFRS\ULJKWDVVSHFLILHGE\VHFWLRQ>@l &DVFDGHQY0DJU\WD1: 0LFK   86&† D  7KHJLVWRIDSSHOODQWVjVWDWHODZLPSOLHGLQIDFW FRQWUDFW (TXLYDOHQF\H[LVWVLIWKHULJKWGHILQHGE\VWDWHODZPD\EH FODLPLVEUHDFKRIDQDFWXDOSURPLVHWRSD\IRUDSSHOODQWVj DEULGJHGE\DQDFWZKLFKLQDQGRILWVHOIZRXOGLQIULQJHRQH FUHDWLYH ZRUN  ,W LV QRW WKH XVH RI WKH ZRUN DORQH EXW WKH RIWKHH[FOXVLYHULJKWV6HH+DUSHU 5RZ)GDW IDLOXUHWRSD\IRULWWKDWYLRODWHVWKHFRQWUDFWDQGJLYHVULVHWR &RQYHUVHO\LIDQH[WUDHOHPHQWLVUHTXLUHGLQVWHDGRIRULQ WKHULJKWWRUHFRYHUGDPDJHV7KXVWKHVWDWHODZULJKWLVQRW DGGLWLRQWRWKHDFWVRIUHSURGXFWLRQSHUIRUPDQFHGLVWULEXWLRQ DEULGJHGE\DQDFWZKLFKLQDQGRILWVHOIZRXOGLQIULQJHRQH RU GLVSOD\ LQ RUGHU WR FRQVWLWXWH D VWDWHFUHDWHG FDXVH RI RIWKHH[FOXVLYHULJKWVJUDQWHGE\†VLQFHWKHULJKWWREH DFWLRQWKHUHLVQRSUHHPSWLRQSURYLGHGWKDWWKHH[WUDHOHPHQW SDLGIRUWKHXVHRIWKHZRUNLVQRWRQHRIWKRVHULJKWV FKDQJHV WKH QDWXUH RI WKH DFWLRQ VR WKDW LW LV TXDOLWDWLYHO\ GLIIHUHQW IURP D FRS\ULJKW LQIULQJHPHQW FODLP  6HH LG $QH[WUDHOHPHQWLVUHTXLUHGLQVWHDGRIRULQDGGLWLRQWRWKH 5RVFLV]HZVNLY$UHWH$VVRFLDWHV,QF)G WK DFWVRIUHSURGXFWLRQSHUIRUPDQFHGLVWULEXWLRQRUGLVSOD\LQ &LU    1DWLRQDO &DU 5HQWDO 6\V ,QF Y &RPSXWHU RUGHUWRFRQVWLWXWHWKHVWDWHFUHDWHGFDXVHRIDFWLRQ7KHH[WUD $VVRFV,QWQjO,QF )G WK&LU  :H HOHPHQW LV WKH SURPLVH WR SD\  7KLV H[WUD HOHPHQW GRHV ILQGWKDWDSSHOODQWVjVWDWHODZLPSOLHGLQIDFWFRQWUDFWFODLP FKDQJH WKH QDWXUH RI WKH DFWLRQ VR WKDW LW LV TXDOLWDWLYHO\ VXUYLYHVSUHHPSWLRQXQGHUWKHVHUXOHV GLIIHUHQW IURP D FRS\ULJKW LQIULQJHPHQW FODLP  7KH TXDOLWDWLYHGLIIHUHQFHLQFOXGHVWKHUHTXLUHPHQWRISURRIRIDQ 8QGHU 0LFKLJDQ ODZ m>D@Q LPSOLHG FRQWUDFW OLNH RWKHU HQIRUFHDEOH SURPLVH DQG D EUHDFK WKHUHRI ZKLFK UHTXLUHV FRQWUDFWVUHTXLUHVPXWXDODVVHQWDQGFRQVLGHUDWLRQl6SUX\WWH LQWHUDOLDSURRIRIPXWXDODVVHQWDQGFRQVLGHUDWLRQDVZHOO Y 'HSjW RI &RUU  1:G   0LFK    DVSURRIRIWKHYDOXHRIWKHZRUNDQGDSSHOOHHjVXVHWKHUHRI 0LFKLJDQGUDZVDFOHDUGLVWLQFWLRQEHWZHHQFRQWUDFWVLPSOLHG LQIDFWDQGFRQWUDFWVLPSOLHGLQODZ 7KLV TXDOLWDWLYH GLIIHUHQFH LV IXUWKHU UHIOHFWHG E\ WKH GLIIHUHQFH LQ WKH UHPHG\ DIIRUGHG E\ WKH VWDWH ODZ FODLP 7KHILUVWGRHVQRWH[LVWXQOHVVWKHPLQGVRIWKHSDUWLHV 8QGHU0LFKLJDQODZDSODLQWLIIjVUHPHG\IRUEUHDFKRIDQ PHHW E\ UHDVRQ RI ZRUGV RU FRQGXFW  7KH VHFRQG LV LPSOLHGLQIDFWFRQWUDFWLQFOXGHVUHFRYHU\RIWKHUHDVRQDEOH YDOXHRIWKHVHUYLFHVUHQGHUHGFRQVLGHULQJIDFWRUVVXFKDVWKH JHQHUDOSUDFWLFHRIWKHLQGXVWU\6HH5RFNZHOO %RQG,QF Y)O\LQJ'XWFKPDQ,QF1(G 0LFK&W WR WKH SXEOLF E\ VDOH RU RWKHU WUDQVIHU RI RZQHUVKLS RU E\ UHQWDO $SS  VHHDOVRsRKQVRQYsRQHV )6XSS OHDVH RU OHQGLQJ  LQ WKH FDVH RI OLWHUDU\ PXVLFDO GUDPDWLF DQG FKRUHRJUDSKLF  ('0LFK  UHYjGLQSDUWRQRWKHUJURXQGV ZRUNV SDQWRPLPHV DQG PRWLRQ SLFWXUHV DQG RWKHU DXGLRYLVXDO )G   WK &LU    &RPEHU 7RRO DQG 0ROG ZRUNV WR SHUIRUP WKH FRS\ULJKWHG ZRUN SXEOLFO\ (QJLQHHULQJ,QFY*HQHUDO0RWRUV&RUS)6XSS  LQ WKH FDVH RI OLWHUDU\ PXVLFDO GUDPDWLF DQG FKRUHRJUDSKLF  ('0LFK   ZRUNV SDQWRPLPHV DQG SLFWRULDO JUDSKLF RU VFXOSWXUDO ZRUNV LQFOXGLQJ WKH LQGLYLGXDO LPDJHV RI D PRWLRQ SLFWXUH RU RWKHU 8QGHU WKH &RS\ULJKW $FW UHPHGLHV IRU LQIULQJHPHQW DUH DXGLRYLVXDO ZRUN WR GLVSOD\ WKH FRS\ULJKWHG ZRUN SXEOLFO\ DQG  LQ WKH FDVH RI VRXQG UHFRUGLQJV WR SHUIRUP WKH FRS\ULJKWHG OLPLWHG WR LQMXQFWLRQV  LPSRXQGLQJ DQG GHVWUXFWLRQ RI ZRUN SXEOLFO\ E\ PHDQV RI D GLJLWDO DXGLR WUDQVPLVVLRQ LQIULQJLQJDUWLFOHV UHFRYHU\RIWKHFRS\ULJKWRZQHUjVDFWXDO

Case-law data current through December 31, 2025. Source: CourtListener bulk data.