U.S. Court of Appeals for the Sixth Circuit, 2002

Beverly Health v. NLRB

Beverly Health v. NLRB
U.S. Court of Appeals for the Sixth Circuit · Decided July 25, 2002

Beverly Health v. NLRB

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 D S

81,7('67$7(6&28572)$33($/6 )257+(6,;7+&,5&8,7 BBBBBBBBBBBBBBBBB

%(9(5/< +($/7+ $1' ; 5(+$%,/,7$7,21 6(59,&(6  ,1&HWDO   1RV  3HWLWLRQHUV  &URVV5HVSRQGHQWV !   Y   1$7,21$/ /$%25 5(/$7,216  %2$5'   5HVSRQGHQW  &URVV3HWLWLRQHU  2Q3HWLWLRQIRU5HYLHZDQG&URVV$SSOLFDWLRQ IRU(QIRUFHPHQWRIDQ2UGHURIWKH 1DWLRQDO/DERU5HODWLRQV%RDUG 1RV&$          $UJXHG sXQH 'HFLGHGDQG)LOHG sXO\ %HIRUH &/$<DQG*,/0$1&LUFXLWsXGJHV +$<1(6 'LVWULFWsXGJH

7KH +RQRUDEOH :LOOLDP s +D\QHV sU 8QLWHG 6WDWHV 'LVWULFW sXGJH IRU WKH 0LGGOH 'LVWULFW RI 7HQQHVVHH VLWWLQJ E\ GHVLJQDWLRQ

  %HYHUO\+HDOWKDQG 1RV  5HKDELOLWDWLRQY1/5% BBBBBBBBBBBBBBBBB &2816(/ $5*8('   7KRPDV 3 'RZG /,77/(5 0(1'(/621 %DOWLPRUH 0DU\ODQG IRU 3HWLWLRQHUV  8VKD 'KHHQDQ 1$7,21$//$%255(/$7,216%2$5':DVKLQJWRQ '&IRU5HVSRQGHQW&UDLJ%HFNHU&KLFDJR,OOLQRLVIRU ,QWHUYHQRU  21 %5,()   7KRPDV 3 'RZG /,77/(5 0(1'(/621%DOWLPRUH0DU\ODQGIRU3HWLWLRQHUV8VKD 'KHHQDQ $LOHHQ $ $UPVWURQJ &KDUOHV 3 'RQQHOO\ sU 1$7,21$//$%255(/$7,216%2$5':DVKLQJWRQ '&IRU5HVSRQGHQW&UDLJ%HFNHU&KLFDJR,OOLQRLVIRU ,QWHUYHQRU BBBBBBBBBBBBBBBBB 23,1,21 BBBBBBBBBBBBBBBBB +$<1(6 'LVWULFW sXGJH  %HYHUO\ +HDOWK DQG 5HKDELOLWDWLRQ 6HUYLFHV DQG LWV ZKROO\ RZQHG VXEVLGLDU\ %HYHUO\(QWHUSULVHV3HQQV\OYDQLD,QF FROOHFWLYHO\m%HYHUO\ +HDOWKl DSSHDOWKH1DWLRQDO/DERU5HODWLRQV%RDUGjVRUGHU ILQGLQJ WKDW %HYHUO\ +HDOWK YLRODWHG 6HFWLRQV  D   DQG   RI WKH 1DWLRQDO /DERU 5HODWLRQV $FW mWKH $FWl  E\ XQLODWHUDOO\LPSOHPHQWLQJGLVFLSOLQDU\ZRUNUXOHVPRGLI\LQJ ZRUN VFKHGXOHV DQG DOWHULQJ WKH MRE GXWLHV RI FHUWDLQ HPSOR\HHV DIWHU WKH H[SLUDWLRQ RI LWV FROOHFWLYH EDUJDLQLQJ DJUHHPHQWZLWKWKH8QLRQ $FWLQJRQXQIDLUODERUSUDFWLFHFKDUJHVILOHGE\WKH8QLRQ WKH1DWLRQDO/DERU5HODWLRQV%RDUG mWKH%RDUGl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sXGJH m$/sl LVVXHG D GHFLVLRQ ILQGLQJ PHULW LQ PRVW RI WKH 8QLRQjV DOOHJDWLRQV  7KH %RDUG DIILUPHG WKH $/sjV ILQGLQJV DQG FRQFOXVLRQVZLWKPLQRUPRGLILFDWLRQV%HYHUO\+HDOWKILOHG DSHWLWLRQVHHNLQJUHYLHZRIRQO\WZRDVSHFWVRIWKH%RDUGjV RUGHU   WKHILQGLQJWKDW%HYHUO\+HDOWKYLRODWHGWKH$FWE\ XQLODWHUDOO\FKDQJLQJWKHZRUNVFKHGXOHVRIFHUWDLQHPSOR\HHV DQGE\XQLODWHUDOO\LPSOHPHQWLQJQHZGLVFLSOLQDU\UXOHV DQG  WKHILQGLQJWKDWGLVFLSOLQDU\UXOHZDVXQODZIXO7KH %RDUGILOHGDFURVVDSSOLFDWLRQIRUHQIRUFHPHQWRIWKHRUGHU )RUWKHUHDVRQVVHWIRUWKEHORZZH'(1<%HYHUO\+HDOWKjV SHWLWLRQIRUUHYLHZDQG*5$17WKH%RDUGjVDSSOLFDWLRQIRU HQIRUFHPHQW ,%$&.*5281' %HYHUO\ +HDOWK RSHUDWHV D QXPEHU RI QXUVLQJ KRPHV WKURXJKRXW 3HQQV\OYDQLD LQFOXGLQJ &DOHGRQLD 0DQRU *UDQGYLHZ +HDOWKFDUH &HQWHU DQG %HYHUO\ 0DQRU RI /DQFDVWHU m'XNHl  IDFLOLWLHV  6HUYLFH (PSOR\HHV ,QWHUQDWLRQDO8QLRQ$)/&,2&/&DQGLWV/RFDOVDQG  FROOHFWLYHO\WKHm8QLRQl UHSUHVHQWVHSDUDWHEDUJDLQLQJ XQLWVRIVHUYLFHDQGPDLQWHQDQFHHPSOR\HHVXQLWVDW%HYHUO\ +HDOWKjV 3HQQV\OYDQLD IDFLOLWLHV  $W WKH 'XNH IDFLOLW\ WKH PRVW UHFHQW FROOHFWLYHEDUJDLQLQJ DJUHHPHQW m&%$l FRYHULQJWKRVHHPSOR\HHVH[WHQGHGIURP'HFHPEHU  WR'HFHPEHU $WWKH*UDQGYLHZIDFLOLW\WKHPRVW UHFHQWFRQWUDFWUDQIURP0DUFK WR'HFHPEHU   7KH PDQDJHPHQWULJKWV FODXVH RI WKH SDUWLHVj &%$V SURYLGHG 7KH(PSOR\HUUHWDLQVWKHH[FOXVLYHULJKWWRPDQDJHWKH IDFLOLW\ WRGLUHFWFRQWURODQGVFKHGXOHLWVRSHUDWLRQVDQG WKHZRUNIRUFHDQGWRPDNHDQ\DQGDOOGHFLVLRQVDIIHFWLQJ WKH EXVLQHVV ZKHWKHU RU QRW VSHFLILFDOO\ PHQWLRQHG  %HYHUO\+HDOWKDQG 1RV  1RV  %HYHUO\+HDOWKDQG  5HKDELOLWDWLRQY1/5% 5HKDELOLWDWLRQY1/5% KHUHLQ6XFKSUHURJDWLYHVDXWKRULW\DQGIXQFWLRQVVKDOO GLVFLSOLQDU\UXOHVUHYLVLQJDQGUHGXFLQJFHUWDLQHPSOR\HHVj LQFOXGHEXWDUHQRWOLPLWHGWRWKHVROHDQGH[FOXVLYHULJKW ZRUN VFKHGXOHV DQG UHYLVLQJ /31V MRE GHVFULSWLRQV DQG WR GXWLHV D +LUH SURPRWH GHPRWH OD\RII DVVLJQ WUDQVIHU &,VWKH%RDUGLVHQWLWOHGWRVXPPDU\DIILUPDQFHRILWV VXVSHQGGLVFKDUJHRUGLVFLSOLQHDVVRFLDWHVIRUMXVWFDXVH XQFRQWHVWHGILQGLQJV" E 6HOHFWDQGGHWHUPLQHWKHQXPEHURILWVDVVRFLDWHV %HYHUO\+HDOWKGRHVQRWFRQWHVWWKH%RDUGj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† H  SHUIRUPDQFH E\ DVVRFLDWHV RI WKH (PSOR\HU DQGRU WR FRQWUDFWWKHVDPH )XUWKHU WKLV &RXUW KDV UHSHDWHGO\ JUDQWHG VXPPDU\ HQIRUFHPHQW RI D %RDUGjV RUGHU LQ VLWXDWLRQV VXFK DV WKLV L (VWDEOLVKLQFUHDVHRUGHFUHDVHWKHQXPEHURIZRUN ZKHUHDUHVSRQGHQWGRHVQRWFKDOOHQJHWKH%RDUGjVILQGLQJV VKLIWVDQGWKHLUVWDUWLQJDQGRUHQGLQJWLPHV 6HHHJ1/5%Y7UL6WDWH:DUHKRXVH 'LVWULEXWLQJ,QF )G WK&LU   m6LQFHWKHUHVSRQGHQWVGLG M 7UDQVIHURUUHORFDWHDQ\RUDOORIWKHRSHUDWLRQVRI QRW PDNH D WLPHO\ FKDOOHQJH WR WKH %RDUG V ILQGLQJV WKRVH WKH EXVLQHVV WR DQ\ ORFDWLRQ RU WR GLVFRQWLQXH VXFK ILQGLQJVDUHHQWLWOHGWRVXPPDU\HQIRUFHPHQWl ,QDGGLWLRQ RSHUDWLRQV WKHUH LV VXEVWDQWLDO HYLGHQFH LQ WKH UHFRUG WR VXSSRUW WKH N 'HWHUPLQHWKHZRUNFODVVLILFDWLRQVRIDVVRFLDWHV %RDUGjVILQGLQJWKDW%HYHUO\+HDOWKYLRODWHG6HFWLRQ D  DQGMREGHVFULSWLRQFRQWHQW E\SURPXOJDWLQJDQGPDLQWDLQLQJGLVFLSOLQDU\UXOHDQGE\ VXVSHQGLQJHPSOR\HH2QHLWD6D\ O 3URPXOJDWHSRVWDQGHQIRUFHUHDVRQDEOHUXOHVDQG ,,,&21&/86,21 UHJXODWLRQV SROLFLHV DQG SURFHGXUHV JRYHUQLQJ WKH FRQGXFWDQGDFWLRQRIDVVRFLDWHVGXULQJWKHZRUNKRXUV )RUWKHUHDVRQVVHWIRUWKDERYHZH'(1<%HYHUO\+HDOWKjV SHWLWLRQIRUUHYLHZDQG(1)25&(WKH%RDUGj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jV R 'LVFRQWLQXHDQ\GHSDUWPHQWRUEUDQFK ULJKWWREDUJDLQDQGDVVXFKFDQQRWFRQWLQXHDXWRPDWLFDOO\ ZLWKWKHRWKHUWHUPVDQGFRQGLWLRQVRIHPSOR\PHQWZKHQD S ,QWURGXFH QHZ DQG LPSURYHG PHWKRGV RI FRQWUDFWH[SLUHV RSHUDWLRQV :HFRQFOXGHWKDWWKH%RDUGjVUHOLDQFHRQ%XFN&UHHN&RDO T (VWDEOLVK FKDQJH FRPELQH RU DEROLVK MRE 1/5%   DQG+ROLGD\,QQRI9LFWRUYLOOH FODVVLILFDWLRQV DQG GHWHUPLQH MRE FRQWHQW DQG 1/5%     ZDV MXVWLILHG DQG WKDW WKH %RDUGjV TXDOLILFDWLRQV DQG LQWHUSUHWDWLRQ RI WKH $FW ZDV SHUPLVVLEOH DQG UHDVRQDEO\ GHIHQVLEOH U 6HWVWDQGDUGVRISHUIRUPDQFHRIWKHDVVRFLDWHV  3XUSRVHVRIWKH1/5$ $QGLQDOOUHVSHFWVFDUU\RXWLQDGGLWLRQWKHRUGLQDU\ DQG FXVWRPDU\ IXQFWLRQV RI PDQDJHPHQW H[FHSW DV )LQDOO\ %HYHUO\ +HDOWK FRQWHQGV WKDW WKH %RDUGjV VSHFLILFDOO\ DOWHUHG RU PRGLILHG E\ WKH WHUPV RI WKLV LQWHUSUHWDWLRQ RI WKH $FW LV XQUHDVRQDEOH EHFDXVH LW LV $JUHHPHQW LQFRPSDWLEOH ZLWK WKH 1/5$jV JRDO RI PDLQWDLQLQJ VWDEOH EDUJDLQLQJUHODWLRQVKLSV)LUVW%HYHUO\+HDOWKDVVHUWVWKDWWKH 7KH8QLRQDOVRUHSUHVHQWVDXQLWRIOLFHQVHGSUDFWLFDOQXUVHV %RDUGjV UHIXVDO WR H[WHQG WKH PDQDJHPHQWULJKWV FODXVH m/31Vl  DW *UDQGYLHZ  $OWKRXJK WKH %RDUG FHUWLILHG WKH H[DFHUEDWHV WKH GLIILFXOWLHV DVVRFLDWHG ZLWK QHJRWLDWLQJ D 8QLRQDVWKHFROOHFWLYHEDUJDLQLQJUHSUHVHQWDWLYHRIWKH/31V UHSODFHPHQWFRQWUDFW6HFRQG%HYHUO\+HDOWKFRQWHQGVWKH XQLW IRU %RDUG &DVH 1R 5&  %HYHUO\ +HDOWK KDV %RDUGjVGHFLVLRQDFWVWRFKDQJHWKHEDODQFHQHJRWLDWHGE\WKH UHIXVHGWREDUJDLQFRQWHQGLQJWKDW/31VZHUHVXSHUYLVRUVDV SDUWLHV GHILQHGE\6HFWLRQ  RIWKH$FWDQGWKHUHIRUHZHUHQRW HQWLWOHGWRUHSUHVHQWDWLRQ$IWHUWKHFORVHRIWKHKHDULQJLQ :HGLVDJUHHDQGILQGWKDWWKH%RDUGjVLQWHUSUHWDWLRQRIWKH WKLVFDVHEXWEHIRUHWKH$/sLVVXHGLWVRSLQLRQWKH&RXUWRI $FWLVFRQVLVWHQWZLWKWKHSXUSRVHVRI6HFWLRQ D  RIWKH $SSHDOV IRU WKH 'LVWULFW RI &ROXPELD &LUFXLW HQIRUFHG WKH $FWDVWDWXWHZKLFKLVLQWHQGHGWRSURWHFWHPSOR\HHjVULJKWV %RDUGjVRUGHUUHTXLULQJ%HYHUO\+HDOWKWREDUJDLQZLWKWKH WREDUJDLQWKURXJKWKHLUUHSUHVHQWDWLYHV 8QLRQRQEHKDOIRIWKH/31V$WWKHWLPHRIWKHXQIDLUODERU SUDFWLFHVDWLVVXHWKH/31VGLGQRWKDYHD&%$ )RUWKHVHUHDVRQVWKH%RDUGjVLQWHUSUHWDWLRQRIWKH1/5$ LV SHUPLVVLEOH DQG UHDVRQDEO\ GHIHQVLEOH  :H DIILUP WKH ,Q2FWREHURI WKHSDUWLHVFRPPHQFHGQHJRWLDWLRQVIRU %RDUGjVFRQFOXVLRQWKDWWKHPDQDJHPHQWULJKWVFODXVHKHUH VXFFHVVRUVHUYLFHDQGPDLQWHQDQFHDJUHHPHQWVIRUWKH'XNH GLG QRW FRQWLQXH DIWHU WKH WHUPLQDWLRQ RI WKH FRQWUDFW DQG DQG *UDQGYLHZ &%$V WKDW ZHUH VFKHGXOHG WR H[SLUH RQ FRQVHTXHQWO\WKDW%HYHUO\+HDOWKYLRODWHG6HFWLRQV D  'HFHPEHU     1R DJUHHPHQW ZDV UHDFKHG E\ WKH DQG   RI WKH $FW E\ XQLODWHUDOO\ LPSOHPHQWLQJ UHYLVHG SDUWLHV E\ 'HFHPEHU     7KH SDUWLHV H[WHQGHG DOO  %HYHUO\+HDOWKDQG 1RV  1RV  %HYHUO\+HDOWKDQG  5HKDELOLWDWLRQY1/5% 5HKDELOLWDWLRQY1/5% DVSHFWVRIWKHFRQWUDFWXQWLOsDQXDU\ DWZKLFKSRLQW KDYLQJ FKRVHQ QRW WR DGRSW WKH FRQWUDFW FDQQRW DV D WKH FRQWUDFWV WHUPLQDWHG SXUVXDQW WR D OHWWHU IURP %HYHUO\ JHQHUDOSURSRVLWLRQUHO\RQWKHPDQDJHPHQWULJKWVFODXVH +HDOWK VWDWLQJ WKDW LW ZRXOG QRW H[WHQG WKH DJUHHPHQWV WRSURPXOJDWHQHZUXOHVXQLODWHUDOO\ZLWKRXWDIIRUGLQJ %HYHUO\+HDOWKDQGWKH8QLRQDJUHHGWRPDLQWDLQWKHVWDWXV WKHXQLRQDQRSSRUWXQLW\WREDUJDLQ)XUWKHUWKHUHLVQR TXR GXULQJ WKH SRVWsDQXDU\  EDUJDLQLQJ WLPH IUDPH DV LQGLFDWLRQLQWKHPDQDJHPHQWULJKWVFODXVHDWLVVXHKHUH UHTXLUHGE\ODZ$WWKHWLPHRIWKH&%$WHUPLQDWLRQWKH WKDWLWZDVLQWHQGHGWRRXWOLYHWKHFRQWUDFW SDUWLHVKDGQRWUHDFKHGDQLPSDVVHLQQHJRWLDWLRQV ,G DW   6HH DOVR %XFN &UHHN &RDO  1/5%  $,PSOHPHQWDWLRQRI1HZ'LVFLSOLQDU\3ROLFLHV    IROORZLQJ+ROLGD\,QQ  m0RUHRYHUZHQRWHWKDWD ZDLYHU RI EDUJDLQLQJ ULJKWV FRQWDLQHG LQ D FRQWUDFWXDO :KLOH QHJRWLDWLRQV FRQWLQXHG EHWZHHQ WKH SDUWLHV PDQDJHPHQWULJKWVSURYLVLRQQRUPDOO\LVOLPLWHGWRWKHWLPH %HYHUO\jV/DERU5HODWLRQV0DQDJHU5RQDOG6W&\UVHQWD GXULQJ ZKLFK WKH FRQWUDFW WKDW FRQWDLQV LW LV LQ HIIHFWl OHWWHUGDWHG$SULO WRWKH8QLRQjVFKLHIQHJRWLDWRU )XUQLWXUH5HQWRUVRI$PHULFDY1/5%)G sRKQ+DHUWRLQIRUPKLPWKDW%HYHUO\+HDOWKZRXOGPRGLI\ G&LU   KROGLQJWKDWWKHPDQDJHPHQWULJKWVFODXVHGLG DQG VWDQGDUGL]H LWV GLVFLSOLQDU\ SROLF\ DW WKH XQLRQ QRWVXUYLYHWKHH[SLUDWLRQRIDFRQWUDFWEHFDXVHWKHUHZDVQR UHSUHVHQWHGIDFLOLWLHVHIIHFWLYHsXQH 7KLVOHWWHUDOVR FOHDU ZDLYHU RI WKH ULJKW WR QHJRWLDWH ZKHQ WKH FRQWUDFW UHIOHFWHGWKDWWKHFKDQJHVZRXOGmUHPDLQLQHIIHFWXQWLOVXFK VSHFLILHGWKDWLWZRXOGHQGDVRIDVSHFLILFGDWHEXWZRXOG WLPH DV PDQDJHPHQW GHWHUPLQHV WKDW IXUWKHU FKDQJHV DUH UHRSHQWRGLVFXVVmRQO\ZDJHVl  QHFHVVDU\l7KHQHZSROLF\VWDWHGWKDWIDLOXUHWRIROORZWKH QHZ UXOHV ZRXOG UHVXOW LQ GLVFLSOLQH XS WR DQG LQFOXGLQJ %HYHUO\+HDOWKFRQWHQGVWKDWWKHWZRFDVHVUHOLHGXSRQE\ GLVFKDUJH WKH%RDUGKDYHOLPLWHGDSSOLFDWLRQDQGGRQRWDSSO\WRWKH FDVHDWKDQG 7KH QHZO\ LQVWLWXWHG UXOH  SURYLGHG WKDW mUHIXVLQJ WR FRRSHUDWH LQ WKH LQYHVWLJDWLRQ RI DQ\ DOOHJDWLRQ RI SDWLHQW +ROLGD\ ,QQ RQO\ VWRRG IRU WKDW SURSRVLWLRQ LQ WKH UHVLGHQW QHJOHFWRUDEXVHRUDQ\RWKHUDOOHJHGYLRODWLRQRI VXFFHVVRUVKLS FRQWH[W DQG WKH %RDUGjV FLWDWLRQ RI WKH FRPSDQ\UXOHVODZVRUJRYHUQPHQWUHJXODWLRQVlZRXOGUHVXOW VDPHSULQFLSOHLQ%XFN&UHHNZDVOLPLWHGWRWKHFRQWH[W LQ D VXVSHQVLRQ SHQGLQJ DQ LQYHVWLJDWLRQ IRU GLVFKDUJH RIDVXEVHTXHQWO\QHJRWLDWHGWHQWDWLYHDJUHHPHQWWKDWZDV )XUWKHUUXOHLPSRVHGWKHVDPHSHQDOW\IRUmPDNLQJIDOVH UHMHFWHGE\WKHHPSOR\HHV7KHVWDWHPHQWVKRXOGQRWEH RU PLVOHDGLQJ ZRUNUHODWHG VWDWHPHQWV FRQFHUQLQJ WKH UHDG DV D SULQFLSOH DSSOLFDEOH WR RUGLQDU\ FRQWUDFW FRPSDQ\WKHIDFLOLW\RUIHOORZDVVRFLDWHVl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mZRUN UXOHV DQG SUDFWLFH SURPXOJDWHG E\ YLUWXH RI WKH PDQDJHPHQWULJKWV FODXVH GXULQJ WKH WHUP 0D\ +DHUVHQWDOHWWHUWR6W&\UVWDWLQJWKDWWKH RI WKH FRQWUDFWl GR QRW H[SLUH ZLWK WKH FRQWUDFW WHUPLQDWLRQ EXW DUH 8QLRQjV SRVLWLRQ ZDV WKDW %HYHUO\ +HDOWK FRXOG QRW LQVWHDG mNHSW LQ SODFH E\ YLUWXH RI 6HFWLRQ  D  l ,G DW  HPSKDVLV DGGHG  :H ILQG WKDW WKLV ODQJXDJH LV FRQVLVWHQW ZLWK 6KHOO 2LO  %HYHUO\+HDOWKDQG 1RV  1RV  %HYHUO\+HDOWKDQG  5HKDELOLWDWLRQY1/5% 5HKDELOLWDWLRQY1/5% WKH PDQDJHPHQWULJKWV FODXVH RI WKH &%$ DQG QRW WKH XQLODWHUDOO\PRGLI\ZRUNUXOHVDWXQLRQUHSUHVHQWHGIDFLOLWLHV H[LVWHQFHRIWKHPDQDJHPHQWULJKWVFODXVHLWVHOIWKDWDOORZV 6W &\UUHVSRQGHGWKDWWKHPRGLILFDWLRQRIWKHGLVFLSOLQDU\ WKHHPSOR\HUjVSDVWSUDFWLFHRIXQLODWHUDOFKDQJHWRVXUYLYH SROLFLHVZDVSHUPLWWHGE\WKHPDQDJHPHQWULJKWVFODXVHRIWKH WKHWHUPLQDWLRQRIWKHFRQWUDFW H[SLUHG &%$ DQG WKHUHIRUH WKDW %HYHUO\ +HDOWK ZDV QRW UHTXLUHGWREDUJDLQRYHUWKHPDWWHUVWDWLQJ +HUH %HYHUO\ +HDOWK KDV QRW LQWURGXFHG HYLGHQFH RI LWV SULRUH[HUFLVHRIWKHPDQDJHPHQWULJKWVFODXVHLHKDVQRW 8QGHURXUDJUHHPHQWVWKHVXEVWDQFHRIWKHGLVFLSOLQDU\ LQWURGXFHGHYLGHQFHRIDSDWWHUQRIXQLODWHUDOFKDQJHWRZRUN UXOHV FRGHV RU FRQGXFW DUH DW WKH GLVFUHWLRQ RI VFKHGXOHVDQGGLVFLSOLQDU\UXOHVGXULQJWKHWHUPRIWKHSDUWLHVj PDQDJHPHQW2QO\GLVFLSOLQDU\SURFHGXUHV JULHYDQFH &%$  5DWKHU %HYHUO\ +HDOWK DWWHPSWV WR MXVWLI\ LWV SRVW DUELWUDWLRQ  KDYH EHHQ WKH VXEMHFW RI QHJRWLDWLRQ DQG WHUPLQDWLRQ FKDQJHV EDVHG RQ WKH PHUH H[LVWHQFH RI WKH FRQWUDFW  7KLV LV DIILUPHG E\ WKH PDQDJHPHQWjV ULJKW PDQDJHPHQWULJKWV FODXVH LQ WKH H[SLUHG FRQWUDFW FODXVH WKH ]LSSHU FODXVH SDVW SUDFWLFH DQG XVXDO &RQVHTXHQWO\ %HYHUO\ +HDOWKjV SRVWH[SLUDWLRQ XQLODWHUDO SUDFWLFHVRIFROOHFWLYHEDUJDLQLQJ FKDQJHV WR ZRUN VFKHGXOHV DQG GLVFLSOLQDU\ UXOHV DUH LQFRQVLVWHQWZLWKHVWDEOLVKHGFDVHSUHFHGHQW ,QDOHWWHUGDWHGsXQH +DHUUHSHDWHGWKH8QLRQjV UHTXHVW WR EDUJDLQ RYHU WKH QHZ UXOHV  ,Q D OHWWHU GDWHG  +ROLGD\,QQRI9LFWRUYLOOH&DVH3UHFHGHQW sXQH    6W &\U UHVSRQGHG WKDW %HYHUO\ +HDOWKjV SRVLWLRQUHJDUGLQJWKHGLVFLSOLQDU\UXOHVUHPDLQHGXQFKDQJHG +HUHWKH$/sFRQFOXGHGDQGWKH%RDUGDJUHHGWKDWmWKH $W WKH QH[W EDUJDLQLQJ VHVVLRQ RQ sXO\    6W &\U PDQDJHPHQWULJKWVSURYLVLRQODQJXDJHDPRXQWHGWRDZDLYHU DGYLVHGWKH8QLRQWKDWWKHQHZGLVFLSOLQDU\SROLF\LQFOXGLQJ E\WKH8QLRQVRIWKHLUULJKWWREDUJDLQRQWKLVVXEMHFWGXULQJ UXOHV  DQG  KDG EHHQ LPSOHPHQWHG LQ DOO RI %HYHUO\ WKHWHUPRIWKHFRQWUDFW:KHQWKHFRQWUDFWH[SLUHGVRGLG +HDOWKjV3HQQV\OYDQLDIDFLOLWLHV+DHUUHLWHUDWHGWKH8QLRQjV WKH8QLRQVjZDLYHUl ,Q FRQFOXGLQJWKDWWKHPDQDJHPHQW UHTXHVWWREDUJDLQRYHUWKHQHZSROLF\%HYHUO\+HDOWKDJDLQ ULJKWVFODXVHGLGQRWVXUYLYHWKHWHUPLQDWLRQRIWKHXQGHUO\LQJ UHVSRQGHG WKDW WKH\ ZHUH QRW UHTXLUHG WR EDUJDLQ RYHU WKH FRQWUDFWWKH%RDUGFLWHG%XFN&UHHN&RDO1/5% PDWWHU    DQG +ROLGD\ ,QQ RI 9LFWRUYLOOH  1/5%     7KH 1/5%jV *HQHUDO &RXQVHO ILOHG D FRPSODLQW FRQWHQGLQJWKDWWKHLPSOHPHQWDWLRQRIWKHGLVFLSOLQDU\SROLF\ ,Q+ROLGD\,QQRI9LFWRUYLOOHWKH%RDUGDGGUHVVHGWKHLVVXH YLRODWHG 6HFWLRQ  D   RI WKH $FW DW WKH *UDQGYLHZ DQG RIZKHWKHUDPDQDJHPHQWULJKWVFODXVHRXWOLYHVWKHWHUPRID 'XNHIDFLOLWLHVZKHUHWKH&%$VKDGH[SLUHG FRQWUDFWWRDSSO\WRDVXFFHVVRUHPSOR\HUZKRGRHVQRWDGRSW WKHFRQWUDFW7KH%RDUGVWDWHG %6XVSHQVLRQRI2QHLWDsDQH6D\ $PDQDJHPHQWULJKWVFODXVHLVQRWDWHUPDQGFRQGLWLRQ 2Q$XJXVW 8QLRQ6WHZDUG2QHLWD6D\DQG*ORULD RI HPSOR\PHQW LQ WKH VDPH VHQVH    *LYHQ WKH &XOSWKHQ3UHVLGHQWRI/RFDOYLVLWHG7DPDUD0RQWHOO HVWDEOLVKHG UXOH WKDW VXFK ZDLYHUV PXVW EH FOHDU DQG WKH *UDQGYLHZ DGPLQLVWUDWRU WR GLVFXVV SUREOHPV WKDW XQPLVWDNDEOH 0HWURSROLWDQ (GLVRQ &R Y 1/5%  HPSOR\HHVKDGUDLVHGZLWK6D\FRQFHUQLQJVXSHUYLVRU'RQQD 86    WKHZDLYHUQRUPDOO\ZRXOGEH 3XOHRj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jSDVWSUDFWLFHUHJDUGLQJGHFLVLRQVLQYROYLQJWKRVH FRQFOXGHGWKDW6D\ZRXOGEHJLYHQWKHRSSRUWXQLW\WRUHWXUQ VDPH WHUPV DQG FRQGLWLRQV RI HPSOR\PHQW DOVR PXVW WRZRUNDIWHUDWZRZHHNVXVSHQVLRQ FRQWLQXHDIWHUFRQWUDFWH[SLUDWLRQ7KHSDVWSUDFWLFHLV FRQWUROOHGE\WKH0DQDJHPHQW5LJKWVFODXVH6RORQJDV $WDEDUJDLQLQJVHVVLRQRQ$XJXVW +DHUUDLVHGWKH DQHPSOR\HUFRQWLQXHVWRPDNHGHFLVLRQVLQDFFRUGDQFH LVVXH RI WKH VXVSHQVLRQ DV DQ H[DPSOH RI ZKDW WKH 8QLRQ ZLWKWKH0DQDJHPHQW5LJKWVFODXVHWKHUHKDVEHHQQR REMHFWHGWRXQGHUUXOHDQGDVRQHRIWKHUHDVRQVWKDWWKH FKDQJHLQWKHVWDWXVTXRDQGQRXQODZIXOXQLODWHUDO 8QLRQZDQWHGWREDUJDLQRYHUWKHQHZGLVFLSOLQDU\SROLFLHV FKDQJHXQGHU6HFWLRQ D  RIWKH$FW %HYHUO\+HDOWKjVUHSUHVHQWDWLYHDJDLQUHLWHUDWHGWKDW%HYHUO\ +HDOWKZRXOGQRWEDUJDLQDERXWLWVGLVFLSOLQDU\SROLF\+DHU (PSKDVLVLQRULJLQDO %HYHUO\+HDOWKIXUWKHUFRQWHQGVWKDW WKHQ TXHVWLRQHG KRZ %HYHUO\ +HDOWK FRXOG GLVWLQJXLVK m>L@QYLHZRIWKH%RDUGjVXQH[SODLQHGGHSDUWXUHIURPWKHZHOO EHWZHHQDIDOVHVWDWHPHQWDQGDJHQXLQHPLVXQGHUVWDQGLQJ UHDVRQHG6KHOO2LOOLQHRIFDVHVQRGHIHUHQFHLVGXHWRWKH %HYHUO\+HDOWKUHVSRQGHGWKDWVXFKLVVXHVZHUHUHVROYHGLQ %RDUGjVFRQFOXVLRQRIODZLQWKLVSDUWLFXODUFDVHl WKHJULHYDQFHSURFHGXUHV :HLQWHUSUHW6KHOO2LODQGLWVSURJHQ\DVVWDQGLQJIRUWKH &5HYLVLRQRI:RUN6FKHGXOHVDQG&KDQJHLQ/31sRE SURSRVLWLRQWKDWLIDQHPSOR\HUKDVIUHTXHQWO\HQJDJHGLQD 'HVFULSWLRQ SDWWHUQ RI XQLODWHUDO FKDQJH XQGHU WKH PDQDJHPHQWULJKWV FODXVH GXULQJ WKH WHUP RI WKH &%$ WKHQ VXFK D SDWWHUQ RI 2Q 0D\    0RQWHOO VXPPRQHG &XOS DQG 8QLRQ XQLODWHUDO FKDQJH EHFRPHV D mWHUP DQG FRQGLWLRQ RI 6WHZDUG/DUU\:LQJHUWRDPHHWLQJDWWKHIDFLOLW\0RQWHOO HPSOR\PHQWlDQGWKDWDVLPLODUXQLODWHUDOFKDQJHDIWHUWKH DGYLVHGWKHPWKDWGXHWRDGHFOLQHLQWKHQXPEHURIUHVLGHQWV WHUPLQDWLRQRI&%$LVSHUPLVVLEOHWRPDLQWDLQWKHVWDWXVTXR 7KXVLWLVWKHDFWXDOSDVWSUDFWLFHRIXQLODWHUDODFWLYLW\XQGHU  %HYHUO\+HDOWKDQG 1RV  1RV  %HYHUO\+HDOWKDQG 5HKDELOLWDWLRQY1/5% 5HKDELOLWDWLRQY1/5% 7KXV WKH LVVXH EHIRUH XV LV ZKHWKHU WKH %RDUGjV WKH ZRUN VFKHGXOHV RI QXUVHVj DLGHV DQG HPSOR\HHV LQ WKH LQWHUSUHWDWLRQ RI WKH 1/5$ o WKDW WKH PDQDJHPHQWULJKWV GLHWDU\ KRXVHNHHSLQJ DQG ODXQGU\ GHSDUWPHQWV ZRXOG EH FODXVHGRHVQRWVXUYLYHWKHWHUPLQDWLRQRIWKHFRQWUDFWoLV UHGXFHG EDVHGRQDmSHUPLVVLEOHLQWHUSUHWDWLRQlRIWKHVWDWXWH%HYHUO\ +HDOWKFRQWHQGVWKDWWKH%RDUGj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†† ZRXOGEHODLGRII D   D   G $XQLRQFDQZDLYHLWVVWDWXWRU\ ULJKW WR EDUJDLQ EXW VXFK D ZDLYHU PXVW EH mFOHDU DQG 2Q0D\ +DHUVHQWDOHWWHUWR0RQWHOORQEHKDOIRI XQPLVWDNDEOHl0HWURSROLWDQ(GLVRQ&RY1/5%86 WKH8QLRQGHPDQGLQJEDUJDLQLQJRYHUWKHUHGXFWLRQLQZRUN     $PDQDJHPHQWULJKWVFODXVHLVDZDLYHURI KRXUV  7KH OHWWHU FRQFOXGHG E\ UHTXHVWLQJ WKDW 0RQWHOO WKHXQLRQjVULJKWWREDUJDLQRYHUWKHVHPDWWHUV FRQWDFW WKH 8QLRQ LPPHGLDWHO\ WR VFKHGXOH D EDUJDLQLQJ PHHWLQJEXWVKHGLGQRWDQVZHUWKHOHWWHU+DHUVXEVHTXHQWO\ )LUVW%HYHUO\+HDOWKFRQWHQGVWKDWWKHPDQDJHPHQWULJKWV FDOOHG0RQWHOODERXWWKHZRUNUHGXFWLRQLVVXHEXWVKHGLGQRW FODXVHLVDWHUPDQGFRQGLWLRQRIHPSOR\PHQWZKLFKVXUYLYHV JHWEDFNWRKLP WKH H[SLUDWLRQ RI WKH FRQWUDFW EHFDXVH LW UHODWHV WR WKH HPSOR\HUHPSOR\HH UHODWLRQVKLS UDWKHU WKDQ WKH HPSOR\HU 2QsXQH +DHUVHQW6W&\UDOHWWHUZKLFKLQSDUW XQLRQUHODWLRQVKLS6HFRQG%HYHUO\+HDOWKFRQWHQGVWKDWWKH FRQFHUQHGWKHGLVFLSOLQDU\SROLF\DQGPHQWLRQHGWKDWKHKDG PDQDJHPHQWULJKWVFODXVHLVDSDVWSUDFWLFHXQGHUZKLFKWKH QRWUHFHLYHGDUHVSRQVHWRKLV0D\ OHWWHU6W&\U FRPSDQ\ LV SHUPLWWHG WR PDNH XQLODWHUDO FKDQJHV SRVW UHVSRQGHGLQDOHWWHUGDWHGsXQH WKDWWKHUHGXFWLRQLQ WHUPLQDWLRQWRPDLQWDLQWKHVWDWXVTXRFLWLQJ6KHOO2LO ZRUNKRXUVZDVmQHFHVVLWDWHGE\IDOOLQJFHQVXVDQGDQHHGWR 1/5%   DQGLWVOLQHRIFDVHV RSHUDWHZLWKLQJRRGEXVLQHVVSUDFWLFHVDVSURYLGHGIRUXQGHU WKH0DQDJHPHQW5LJKWVRIWKH&%$DFODXVHZKLFKUHPDLQV  6KHOO2LO&DVH3UHFHGHQW HIIHFWLYHGXULQJSHULRGZKHQQRFRQWUDFWH[WHQVLRQH[LVWl ,Q6KHOO2LOWKHHPSOR\HUKDGWKHULJKWWRVXEFRQWUDFWZRUN $OVR LQ sXQH RI   *UDQGYLHZ LVVXHG QHZ MRE RXWXQLODWHUDOO\XQGHUWKHH[SLUHGFRQWUDFWDQGKDGURXWLQHO\ GHVFULSWLRQVWRWKH/31VUHFODVVLI\LQJWKHPDVmVXSHUYLVRUVl H[HUFLVHG WKDW ULJKW GXULQJ WKH WHUP RI WKH FRQWUDFW  7KH $OWKRXJK WKH QHZ MRE GHVFULSWLRQV LQYROYHG QHZ %RDUG IRXQG WKDW WKH HPSOR\HUjV SUDFWLFH RI FRQWLQXLQJ WR UHVSRQVLELOLWLHVIRUWKH/31VWKHDFWXDOGXWLHVDVSHUIRUPHG VXEFRQWUDFWZRUNXQLODWHUDOO\GLGQRWYLRODWH6HFWLRQ D  E\WKH/31VUHPDLQHGWKHVDPHDVEHIRUHZLWKWKHH[FHSWLRQ RIWKH$FWVWDWLQJ RIWKHIDFWWKDWWKH/31VEHJDQFRPSOHWLQJHYDOXDWLRQVRIWKH QXUVLQJDVVLVWDQWV7KH8QLRQGLGQRWUHTXHVWEDUJDLQLQJRYHU >,@WLVZHOOVHWWOHGWKDWQRWZLWKVWDQGLQJWKHWHUPLQDWLRQRI WKLVPDWWHUEHFDXVH%HYHUO\+HDOWKUHIXVHGWREDUJDLQZLWKWKH D ODERU FRQWUDFW WKH SDUWLHV SHQGLQJ LWV UHQHZDO RU 8QLRQ LQ RUGHU WR WHVW WKH %RDUGjV FHUWLILFDWLRQ LQ WKH UHQHJRWLDWLRQKDYHWKHULJKWDQGREOLJDWLRQWRPDLQWDLQ XQGHUO\LQJFHUWLILFDWLRQFDVH H[LVWLQJFRQGLWLRQVRIHPSOR\PHQW8QLODWHUDOFKDQJHV  %HYHUO\+HDOWKDQG 1RV  1RV  %HYHUO\+HDOWKDQG  5HKDELOLWDWLRQY1/5% 5HKDELOLWDWLRQY1/5% 2QsXO\ +DHUDJDLQUHSHDWHGWKH8QLRQjVUHTXHVW UHYLVLQJDQGUHGXFLQJFHUWDLQHPSOR\HHVjZRUNVFKHGXOHV IRUEDUJDLQLQJRQWKHLVVXHRIFKDQJHDQGUHGXFWLRQLQZRUN %HYHUO\ +HDOWK FRQWHQGV WKDW LWV XQLODWHUDO FKDQJHV WR WKH VFKHGXOHV+DHUDGYLVHG%HYHUO\+HDOWKWKDWWKH8QLRQKDG GLVFLSOLQDU\UXOHVDQGZRUNVFKHGXOHVZHUHDXWKRUL]HGE\WKH ILOHGDQXQIDLUODERUSUDFWLFHFKDUJHZLWKWKH%RDUG6W&\U PDQDJHPHQWULJKWVFODXVHRIWKHSDUWLHVjH[SLUHG&%$ZKLFK UHVSRQGHGWKDW%HYHUO\+HDOWKZDVQRWUHTXLUHGWREDUJDLQ LWFRQWHQGVVXUYLYHGWKHH[SLUDWLRQRIWKHFRQWUDFW7KH$/s RYHU WKH UHGXFHG KRXUV DQG VFKHGXOHV EHFDXVH LW ZDV D FRQFOXGHGDQGWKH%RDUGDJUHHGWKDWWKHPDQDJHPHQWULJKWV PDQDJHPHQWSUHURJDWLYHFRYHUHGE\WKHPDQDJHPHQWULJKWV FODXVH DPRXQWHG WR D ZDLYHU E\ WKH 8QLRQ DQG WKDW VXFK FODXVHRIWKHH[SLUHGFRQWUDFW ZDLYHU WHUPLQDWHG ZLWK WKH H[SLUDWLRQ RI WKH FRQWUDFW 5HVROXWLRQRIWKLVLVVXHWXUQVRQZKHWKHUWKHPDQDJHPHQW 3URFHGXUDO%DFNJURXQG ULJKWVFODXVHRIWKHSDUWLHVjH[SLUHG&%$UHPDLQHGLQHIIHFW DIWHU WKH WHUPLQDWLRQ RI WKH FRQWUDFW VR DV WR FRQVWLWXWH D %DVHGRQWKH8QLRQjVFKDUJHVDQGDPHQGHGFKDUJHVILOHGLQ ZDLYHURIWKH8QLRQjVULJKWWREDUJDLQRYHUWKHVHFKDQJHV   DQG   WKH %RDUG LVVXHG D VHULHV FRPSODLQWV VXEVHTXHQWO\FRQVROLGDWHGLQWRDQDPHQGHGFRPSODLQWWKDW $VQRWHGDERYHWKH$FWSURYLGHVWKDWLWLVDQXQIDLUODERU WKH%RDUGLVVXHGRQ0D\  SUDFWLFHIRUDQHPSOR\HUWRUHIXVHWREDUJDLQFROOHFWLYHO\ZLWK WKHUHSUHVHQWDWLYHVRIKLVHPSOR\HHV 86&† D   7KHODWWHUFRPSODLQWDOOHJHGWKDW%HYHUO\+HDOWKYLRODWHG RYHUVXFKLVVXHVDVmZDJHVKRXUVWHUPVDQGFRQGLWLRQVRI WKH $FW E\    PDLQWDLQLQJ GLVFLSOLQDU\ UXOHV WKDW YLRODWHG HPSOR\PHQWl    86& †  G   7KH $FW KRZHYHU LV 6HFWLRQ D  EHFDXVHWKH\ZHUHRYHUEURDGDQGWHQGHGWR VLOHQWRQWKHTXHVWLRQRIDQHPSOR\HUjVREOLJDWLRQWRPDLQWDLQ UHVWUDLQLQWHUIHUHZLWKDQGFRHUFHHPSOR\HHVLQWKHH[HUFLVH H[LVWLQJZDJHVKRXUVDQGRWKHUZRUNLQJFRQGLWLRQVDIWHUWKH RI WKHLU ULJKWV XQGHU 6HFWLRQ  RI WKH $FW    SURYLGLQJ H[SLUDWLRQRIDFROOHFWLYHEDUJDLQLQJDJUHHPHQW%HFDXVHWKH LQIRUPDWLRQWRHPSOR\HHVRQKRZWRREWDLQREMHFWRUVWDWXV UHVROXWLRQRIWKLVLVVXHLQYROYHVWKH%RDUGjVLQWHUSUHWDWLRQRI XQGHU&RPPXQLFDWLRQV:RUNHUVRI$PHULFDY%HFN86 WKH1DWLRQDO/DERU5HODWLRQV$FWWKHTXHVWLRQLVZKHWKHUWKH    LQYLRODWLRQRI6HFWLRQ D    VXVSHQGLQJ %RDUGjVmDQVZHULVEDVHGRQDSHUPLVVLEOHFRQVWUXFWLRQRIWKH HPSOR\HHV 2QHLWD sDQH 6D\ DQG 5REHUW 5HLG DV ZHOO DV VWDWXWHl&KHYURQ86$,QFY1DWXUDO5HVRXUFHV'HIHQVH VXVSHQGLQJ DQG WHUPLQDWLQJ HPSOR\HH 'HQLVH )ROW] LQ &RXQVHO,QF86   6HHDOVR1/5%Y YLRODWLRQRI6HFWLRQ D  DQG  XQLODWHUDOO\LPSOHPHQWLQJ 0DLQ6WUHHW7HUUDFH&DUH&WU)G WK&LU QHZGLVFLSOLQDU\SROLFLHVDQGZRUNUXOHVZLWKRXWEDUJDLQLQJ   FLWDWLRQVRPLWWHG  m>7@KH%RDUG VLQWHUSUHWDWLRQRIWKH ZLWKWKH8QLRQDQGXQLODWHUDOO\PRGLI\LQJZRUNKRXUVDQG 1/5$PXVWEHXSKHOGLIUHDVRQDEO\GHIHQVLEOHl $FFRUG VFKHGXOHVLQYLRODWLRQRI6HFWLRQ D  DQG   1/5% Y )RXQGU\ 'LY RI $OFRQ ,QGXVWULHV ,QF  )G  WK&LU  $IWHU D KHDULQJ WKH $/s LVVXHG D GHFLVLRQ ILQGLQJ WKDW %HYHUO\ +HDOWK KDG DFWHG ODZIXOO\ ZLWK UHVSHFW WR WKH IROORZLQJFODLPV   DGYLVLQJHPSOR\HHVRIWKHLUULJKWVXQGHU %HFN   WKHVXVSHQVLRQRIHPSOR\HH5REHUW5HLG DQG  WKH VXVSHQVLRQDQGWHUPLQDWLRQRI'HQLVH)ROW]  %HYHUO\ +HDOWK RULJLQDOO\ FRQWHQGHG WKDW LWV XQLODWHUDO PRGLILFDWLRQ RI /31 MRE GXWLHV DQG GHVFULSWLRQV ZDV SHUPLVVLEOH XQGHU WKH 7KH$/sIRXQGWKDW%HYHUO\+HDOWKYLRODWHG6HFWLRQ D  PDQDJHPHQWULJKWV FODXVH RI WKH SDUWLHVj H[SLUHG &%$ 6XEVHTXHQWO\ DQG   RI WKH $FW E\ XQLODWHUDOO\ LPSOHPHQWLQJ UHYLVHG %HYHUO\ +HDOWK ZLWKGUHZ mWKH /31 HOHPHQW IURP LWV PDQDJHPHQW ULJKWV GLVFLSOLQDU\UXOHVKRXUVRIZRUNMREGHVFULSWLRQVDQGGXWLHV DUJXPHQWVl  %HYHUO\+HDOWKDQG 1RV  1RV  %HYHUO\+HDOWKDQG  5HKDELOLWDWLRQY1/5% 5HKDELOLWDWLRQY1/5% %'LGWKH%RDUGHUULQILQGLQJWKDW%HYHUO\+HDOWKYLRODWHG 7KH$/sDOVRFRQFOXGHGWKDW%HYHUO\+HDOWKYLRODWHG6HFWLRQ 6HFWLRQ  D   DQG   RI WKH $FW E\ XQLODWHUDOO\  D   RI WKH $FW E\ VXVSHQGLQJ HPSOR\HH 2QHLWD 6D\ IRU LPSOHPHQWLQJ UHYLVHG GLVFLSOLQDU\ UXOHV UHYLVLQJ DQG HQJDJLQJ LQ SURWHFWHG XQLRQ DFWLYLW\ 7KH $/s UXOHG WKDW UHGXFLQJFHUWDLQHPSOR\HHVjZRUNVFKHGXOHVDQGUHYLVLQJ %HYHUO\ +HDOWK YLRODWHG 6HFWLRQ  D   RI WKH $FW E\ /31VMREGHVFULSWLRQVDQGGXWLHV" SURPXOJDWLQJ DQG PDLQWDLQLQJ IDFLDOO\ LQYDOLG GLVFLSOLQDU\ UXOHVDQGZKLFKDUHmRYHUEURDGDQGWHQGWRLQWHUIHUH $Q HPSOR\HU YLRODWHV 6HFWLRQ  D   RI WKH $FW E\ ZLWKUHVWUDLQDQGFRHUFHHPSOR\HHVLQWKHH[HUFLVHRIWKHLU mLQWHUIHU>LQJ@ZLWKUHVWUDLQ>LQJ@RUFRHUF>LQJ@HPSOR\HHVLQ 6HFWLRQULJKWVl,QFRQFOXGLQJWKDWUXOHZDVXQODZIXO WKHH[HUFLVHRIWKHULJKWVJXDUDQWHHGLQVHFWLRQ>6HFWLRQ WKH$/sUHOLHGRQ&RRN3DLQW 9DUQLVK&R1/5% @RIWKLVWLWOHl 86&† D  )XUWKHUDQHPSOR\HU    DQG IRXQG WKDW DQ HPSOR\HH ZRXOG UHDVRQDEO\ YLRODWHV6HFWLRQ D  RIWKH$FWE\mUHIXV>LQJ@WREDUJDLQ FRQFOXGHWKDWKHRUVKHZRXOGULVNGLVFLSOLQHE\H[HUFLVLQJWKH FROOHFWLYHO\ZLWKWKHUHSUHVHQWDWLYHVRIKLVHPSOR\HHVVXEMHFW ULJKW QRW WR FRRSHUDWH LQ EXLOGLQJ D FDVH DJDLQVW D IHOORZ WRWKHSURYLVLRQVRIVHFWLRQ D RIWKLVWLWOHl 86& HPSOR\HH LQ D SHQGLQJ DUELWUDWLRQ  7KH $/s OLPLWHG KLV †  D    6HFWLRQ  G  RI WKH $FW GHILQHV WKH SDUWLHVj UHFRPPHQGHGUHPHG\RIUHVFLQGLQJWKHIDFLDOO\LQYDOLGUXOHV REOLJDWLRQWREDUJDLQFROOHFWLYHO\DVmWKHSHUIRUPDQFHRIWKH DQGDQGDQ\GLVFLSOLQHLVVXHGSXUVXDQWWRWKRVHUXOHV PXWXDOREOLJDWLRQRIWKHHPSOR\HUDQGWKHUHSUHVHQWDWLYHRI WRWKHIDFLOLWLHVOLVWHGE\WKH*HQHUDO&RXQVHOLQSDUDJUDSK WKHHPSOR\HHVWRPHHWDWUHDVRQDEOHWLPHVDQGFRQIHULQJRRG  E RIWKHDPHQGHGFRQVROLGDWHGFRPSODLQW IDLWKZLWKUHVSHFWWRZDJHVKRXUVWHUPVDQGFRQGLWLRQVRI HPSOR\PHQWl 86&† G  $IWHUFRQVLGHULQJWKHGHFLVLRQDQGWKHUHFRUGWKH%RDUG DIILUPHGWKH$/sjVUXOLQJV7KH%RDUGKRZHYHUUHOLHGRQ $QHPSOR\HUYLRODWHV6HFWLRQ D  RIWKH$FWLImZLWKRXW GLIIHUHQWJURXQGVLQKROGLQJWKDWWKHPDLQWHQDQFHRIUXOH EDUJDLQLQJ WR LPSDVVH LW HIIHFWV D XQLODWHUDO FKDQJH RI DQ YLRODWHG6HFWLRQ D  RIWKH$FW7KH%RDUGFRQFOXGHGWKDW H[LVWLQJWHUPRUFRQGLWLRQRIHPSOR\PHQWl/LWWRQ)LQDQFLDO UXOH  YLRODWHV 6HFWLRQ  D   EHFDXVH LW mFRPSHO>V@ 3ULQWLQJ 'LY Y 1/5%  86        FLWLQJ HPSOR\HHVWRFRRSHUDWHLQXQIDLUODERUSUDFWLFHLQYHVWLJDWLRQV 1/5% Y .DW]   86      $Q HPSOR\HUjV RUULVNGLVFLSOLQH>DQGWKXV@WKHUXOHYLRODWHVWKHORQJVWDQGLQJ mXQLODWHUDO FKDQJH LQ FRQGLWLRQV RI HPSOR\PHQW XQGHU SULQFLSOHHVWDEOLVKHGLQsRKQQLHjV3RXOWU\1/5% QHJRWLDWLRQ LV VLPLODUO\ D YLRODWLRQ RI †  D   IRU LW LV D     WKDW HPSOR\HHV PD\ QRW EH VXEMHFWHG WR FLUFXPYHQWLRQRIWKHGXW\WRQHJRWLDWHZKLFKIUXVWUDWHVWKH HPSOR\HULQWHUURJDWLRQVUHODWLQJWR6HFWLRQ DFWLYLW\WKDW REMHFWLYHVRI† D  PXFKDVGRHVDIODWUHIXVDOl.DW] UHDVRQDEO\WHQGWRFRHUFHWKHPWRPDNHVWDWHPHQWVDGYHUVHWR 86DW7KLV&RXUWKDVKHOGWKDWm>Z@RUNLQJKRXUVDQG WKHLU6HFWLRQLQWHUHVWWKRVHRIIHOORZHPSOR\HHRUWKRVHRI ZRUNGD\VDUHPDQGDWRU\VXEMHFWVRIFROOHFWLYHEDUJDLQLQJlDV WKHXQLRQl,QDGGLWLRQWKH%RDUGH[WHQGHGWKHUHPHG\IRU DUH m>F@RPSDQ\ UXOHV FRQFHUQLQJ HPSOR\HH GLVFLSOLQH PDLQWDLQLQJIDFLDOO\LQYDOLGUXOHVDQGWRLQFOXGHDOORI VPRNLQJ DQG  GUHVVl 66 .UHVJH &R Y 1/5%  )G %HYHUO\+HDOWKjVIDFLOLWLHVORFDWHGLQ3HQQV\OYDQLD QQDQG  WK&LU   FLWDWLRQVRPLWWHG  7KH%RDUGDOVRDGRSWHGWKHUHFRPPHQGHGRUGHURIWKH$/s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l)XUWKHUWKH%RDUGUHDVRQDEO\LQIHUUHGWKDWWKH HPSOR\HH2QHLWD6D\RUDQ\RWKHUHPSOR\HHIRUHQJDJLQJLQ PHUHPDLQWHQDQFHRIWKHUXOHZKLFKLVRYHUEURDGLQWKDWLW SURWHFWHGXQLRQDFWLYLW\ DSSOLHVWRODZVDQGUHJXODWLRQVVXFKDVXQIDLUODERUFKDUJHV ZRXOGKDYHDUHDVRQDEOHWHQGHQF\WRGLVFRXUDJHHPSOR\HHV 7KH%RDUGjVRUGHUDIILUPDWLYHO\UHTXLUHV%HYHUO\+HDOWKWR IURP HQJDJLQJ LQ 6HFWLRQ  SURWHFWHG DFWLYLWLHV RU ILOLQJ UHVFLQGWKHXQLODWHUDOO\LPSOHPHQWHGGLVFLSOLQDU\UXOHVDQG FKDUJHV  $VQRWHGDERYHWKLV&RXUWGHIHUVWRWKH%RDUGjV   UHVFLQG WKH XQODZIXO UHGXFWLRQ LQ KRXUV DQG WKH DVVHVVPHQWRIWKHOLNHO\LPSDFWRIHPSOR\HUFRQGXFWRQWKH XQODZIXOO\LVVXHGUHYLVHGMREGHVFULSWLRQVDQGGXWLHV DQGWR H[HUFLVHRIHPSOR\HHULJKWVDQGGRHVQRWGLVSODFHWKH%RDUGj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j6HFWLRQULJKWV%HYHUO\ GHWHUPLQHZKHWKHUWKH\DUHVXSSRUWHGE\VXEVWDQWLDOHYLGHQFH +HDOWKDVVHUWVWKDWLWKDVDPSOHEXVLQHVVMXVWLILFDWLRQIRUUXOH RQ WKH UHFRUG FRQVLGHUHG DV D ZKROH    86& †  H EHFDXVHIHGHUDOODZDQGVWDWHODZSODFHOHJDOREOLJDWLRQV .HQWXFN\*HQHUDO,QFY1/5%)G WK&LU RQQXUVLQJKRPHVWRLQYHVWLJDWHDQ\DOOHJDWLRQE\DSDWLHQWRI    m6XEVWDQWLDO HYLGHQFH FRQVLVWV RI VXFK UHOHYDQW SDWLHQWDEXVHRUQHJOHFW%HYHUO\+HDOWKIXUWKHUFRQWHQGVWKDW HYLGHQFHWKDWDµUHDVRQDEOHPLQGPLJKWDFFHSWDVDGHTXDWHWR m>L@IHPSOR\HHVFRXOGSUHYHQWWKHLQYHVWLJDWLRQRIVXFKFODLPV VXSSRUWDFRQFOXVLRQjl,G TXRWLQJ1/5%Y*HQHUDO6HF E\VLPSO\UHIXVLQJWRFRRSHUDWHWKHQDQXUVLQJKRPHFRXOG 6HUYV &RUS  )G   WK &LU    QRWPHHWLWVREOLJDWLRQVXQGHUIHGHUDODQGVWDWHODZl $GGLWLRQDOO\ mDV ORQJ DV WKH UHFRUG DV D ZKROH FRQWDLQV VXEVWDQWLDO HYLGHQFH VXSSRUWLQJ WKH 1/5%jV ILQGLQJV WKLV +HUHWKH%RDUGGLGQRWFRQFOXGHWKDW%HYHUO\+HDOWKGLG &RXUW PXVW VXVWDLQ WKRVH ILQGLQJ HYHQ LI ZH PLJKW KDYH QRWKDYHDEXVLQHVVMXVWLILFDWLRQIRUWKHVHJPHQWRIWKHUXOH UHDFKHGDGLIIHUHQWFRQFOXVLRQVXSRQGHQRYRUHYLHZl,77 UHJDUGLQJ HPSOR\HH FRRSHUDWLRQ ZLWK SDWLHQW DEXVH $XWRPRWLYHY1/5%)G WK&LU VHH LQYHVWLJDWLRQV QRU GLG WKH %RDUG VXJJHVW WKDW D FRPSDQ\ DOVR&RQWHFK'LY63;&RUSY1/5%)G  FRXOG QRW PDLQWDLQ D UXOH DERXW HPSOR\HU TXHVWLRQLQJ IRU WK&LU  .HQWXFN\*HQHUDO)GDW OHJLWLPDWH SXUSRVHV WKDW FRPSOLHG ZLWK WKH YROXQWDU\ UHTXLUHPHQWVHVWDEOLVKHGLQsRKQQLHjV3RXOWU\5DWKHUWKH 7KH%RDUGjVm>F@RQFOXVLRQVRIODZDUHVXEMHFWWRDGHQRYR %RDUGEDVHGLWVILQGLQJWKDWUXOHYLRODWHG6HFWLRQ D  UHYLHZDOWKRXJKWKHFRXUWZLOOXSKROGWKH%RDUG VSHUPLVVLEOH RQ WKH ILQGLQJV WKDW WKH UXOH ZDV RYHUEURDG DQG WKDW LQWHUSUHWDWLRQRIWKH1/5$ZKHUH&RQJUHVVKDVQRWVSRNHQWR HPSOR\HHVZHUHQRWLQIRUPHGWKDWFRRSHUDWLRQZDVYROXQWDU\ WKHFRQWUDU\RQWKHVDPHLVVXHl3HWHUVY1/5%)G )RUWKHVHUHDVRQVWKH&RXUWDIILUPVWKH%RDUGjVILQGLQJWKDW    WK&LU   FLWLQJ$XWRPDWLF6SULQNOHU&RUS %HYHUO\+HDOWKjVSURPXOJDWLRQDQGPDLQWHQDQFHRIUXOH RI$PHULFDY1/5%)G WK&LU   YLRODWHV6HFWLRQ D  RIWKH$FW  %HYHUO\+HDOWKDQG 1RV  1RV  %HYHUO\+HDOWKDQG  5HKDELOLWDWLRQY1/5% 5HKDELOLWDWLRQY1/5% +HUHEHFDXVHUXOHFRPSHOVHPSOR\HHFRRSHUDWLRQLQWKH $  ,V WKHUH VXIILFLHQW SURRI LQ WKH UHFRUG WR VXSSRUW WKH LQYHVWLJDWLRQRImODZVRUJRYHUQPHQWUHJXODWLRQVlWKH%RDUG %RDUGjVILQGLQJWKDW%HYHUO\+HDOWKYLRODWHG6HFWLRQ D  FRQFOXGHGWKDWWKHSODLQODQJXDJHDSSOLHGWRWKHLQYHVWLJDWLRQ RIWKH$FWE\SURPXOJDWLQJDQGPDLQWDLQLQJUXOH" RI WKH XQIDLU ODERU SUDFWLFH FKDUJHV  %\ FRPSHOOLQJ HPSOR\HHV WR FRRSHUDWH LQ XQIDLU ODERU SUDFWLFH FKDUJH $Q HPSOR\HU YLRODWHV 6HFWLRQ  D   RI WKH $FW E\ LQYHVWLJDWLRQVWKH%RDUGFRQFOXGHGWKDWWKHUXOHYLRODWHGWKH mLQWHUIHU>LQJ@ZLWKUHVWUDLQ>LQJ@RUFRHUF>LQJ@HPSOR\HHVLQ ORQJVWDQGLQJSULQFLSOHHVWDEOLVKHGLQsRKQQLHjV3RXOWU\WKDW WKHH[HUFLVHRIWKHULJKWVJXDUDQWHHGLQVHFWLRQ>6HFWLRQ HPSOR\HHV FDQQRW EH VXEMHFW WR HPSOR\HU LQWHUURJDWLRQV @RIWKLVWLWOHl 86&† D  6HFWLRQRIWKH$FW UHODWLQJWR6HFWLRQDFWLYLW\WKDWUHDVRQDEO\WHQGWRFRHUFH SURYLGHVWKDW WKHPWRPDNHVWDWHPHQWVDGYHUVHWRWKHLU6HFWLRQLQWHUHVW 7KH %RDUG FRQFOXGHG WKDW UXOH  LV D FOHDU YLRODWLRQ RI (PSOR\HHVVKDOOKDYHWKHULJKWWRVHOIRUJDQL]DWLRQWR 6HFWLRQ D  RIWKH$FWEHFDXVHFRRSHUDWLRQLVFRPSHOOHG IRUPMRLQRUDVVLVWODERURUJDQL]DWLRQVDQGWRHQJDJH DQGWKHUXOHIDLOVWRLQIRUPHPSOR\HHVRIWKHYROXQWDU\QDWXUH LQRWKHUFRQFHUWHGDFWLYLWLHVIRUWKHSXUSRVHRIFROOHFWLYH RIWKHHPSOR\HUjVLQYHVWLJDWLRQ EDUJDLQLQJRURWKHUPXWXDODLGRUSURWHFWLRQ>@ 7KH%RDUGIXUWKHUIRXQGWKHPHUHPDLQWHQDQFHRIUXOH  86&† XQODZIXO HYHQ ZLWKRXW HQIRUFHPHQW EHFDXVH WKH UXOH LV RYHUEURDGDQGmFKLOO>V@WKHH[HUFLVHRIHPSOR\HHULJKWVl  (YHQZKHUHmWKHHYLGHQFHGRHVQRWVKRZWKDWHPSOR\HHV ZHUH DFWXDOO\ LQWLPLGDWHG RU FRHUFHG E\ DQ HPSOR\HU V 7KH UXOH LQKLELWV SURWHFWHG FRQFHUWHG DFWLYLW\ FRQGXFWlDFRXUWPD\VWLOOILQGDYLRODWLRQRI6HFWLRQ D  (PSOR\HHVHQJDJHGLQSURWHFWHGDFWLYLW\UXQWKHULVNRI RIWKH$FW,77$XWRPRWLYH)GDW7KHSURSHU EHFRPLQJHPEURLOHGLQDQHPSOR\HULQYHVWLJDWLRQLQWRDQ LQTXLU\LVZKHWKHUWKHHYLGHQFHmGHPRQVWUDWH>V@WKDWWDNHQ DOOHJHGXQIDLUODERUSUDFWLFH7KHUXOHWKHQIRUFHVWKHP IURP WKH SRLQW RI YLHZ RI WKH HPSOR\HHV WKH UHDVRQDEOH WRIDFHGLVFLSOLQHRUFRRSHUDWHZLWKWKHHPSOR\HUGHVSLWH WHQGHQF\RIWKHHPSOR\HU VFRQGXFWRUVWDWHPHQWVLVµFRHUFLYH WKHLUSURWHFWHGULJKWWRPDNHFRPPRQFDXVHZLWKWKHLU LQHIIHFWjl,G TXRWLQJ3HDERG\&RDOY1/5%)G IHOORZHPSOR\HHV*LYHQWKHVHXQSDODWDEOHFKRLFHVWKH  WK &LU     8QGHU 0RQWJRPHU\ :DUG  &R Y UXOH ZRXOG FOHDUO\ KDYH WKH UHDVRQDEOH WHQGHQF\ WR 1/5%)G WK&LU  ZHGHIHUWRWKH%RDUGjV GLVFRXUDJH HPSOR\HHV IURP HQJDJLQJ LQ SURWHFWHG DVVHVVPHQW RI OLNHO\ LPSDFW RI HPSOR\HU FRQGXFW RQ WKH DFWLYLW\ZKLFKPLJKWEULQJWKHPXQGHUWKHHPSOR\HUjV H[HUFLVH RI HPSOR\HH ULJKWV EHFDXVH m>W@KH %RDUG LQ LWV VFUXWLQ\GXULQJDQXQIDLUODERUSUDFWLFHVLQYHVWLJDWLRQ H[SHUWLVHLVEHVWDEOHWRJDXJHZKHWKHUWKHHPSOR\HU VWKUHDW $OWHUQDWLYHO\LWFRXOGGLVFRXUDJHWKHPIURPH[HUFLVLQJ RI GLVFKDUJH IRU IDLOXUH WR DQVZHU D TXHVWLRQQDLUH LQKLELWV WKHLUSURWHFWHGULJKWWRILOHXQIDLUODERUSUDFWLFHFKDUJHV HPSOR\HHVIURPLQYRNLQJRUSDUWLFLSDWLQJLQHIIHFWLYH%RDUG IRUIHDURIEHFRPLQJHPEURLOHGLQVXFKDQLQYHVWLJDWLRQ SURFHHGLQJVl,GDW +HUHZHFRQFOXGHWKDWWKH%RDUGUHDVRQDEO\LQWHUSUHWHGWKH 7KHUHZDVVXIILFLHQWHYLGHQFHLQWKHUHFRUGWRVXSSRUWWKH VFRSHRIUXOHWRLQFOXGHWKHLQYHVWLJDWLRQRIXQIDLUODERU %RDUGjVILQGLQJWKDW%HYHUO\+HDOWKYLRODWHG6HFWLRQ D  FKDUJHFRPSODLQWVEDVHGXSRQWKHSODLQODQJXDJHRIWKHUXOH RIWKH$FWE\SURPXOJDWLQJDQGPDLQWDLQLQJGLVFLSOLQDU\UXOH ZKLFK RQ LWV IDFH FRPSHOV HPSOR\HH FRRSHUDWLRQ LQ WKH   7KH LVVXH LV ZKHWKHU WKH %RDUG HUUHG LQ ILQGLQJ WKDW LQYHVWLJDWLRQ RI m&RPSDQ\ UXOHV ODZV DQG JRYHUQPHQW %HYHUO\ +HDOWKjV PDLQWHQDQFH RI UXOH  ZKLFK FRPSHOV HPSOR\HHV WR FRRSHUDWH RU ULVN VXVSHQVLRQ LQ WKH  %HYHUO\+HDOWKDQG 1RV  1RV  %HYHUO\+HDOWKDQG  5HKDELOLWDWLRQY1/5% 5HKDELOLWDWLRQY1/5% LQYHVWLJDWLRQ mRI SDWLHQW UHVLGHQW  QHJOHFW RU DEXVH RU DQ\ HPSOR\HUjV GHIHQVHIRUWULDORIWKHFDVHl,GDW7KH RWKHUDOOHJHGYLRODWLRQRIFRPSDQ\UXOHVODZVRUJRYHUQPHQW mHPSOR\HUPXVWFRPPXQLFDWHWRWKHHPSOR\HHWKHSXUSRVHRI UHJXODWLRQVl LQWHUIHUHV ZLWK RU FRHUFHV HPSOR\HHV LQ WKH WKHTXHVWLRQLQJDVVXUHKLPWKDWQRUHSULVDOZLOOWDNHSODFH H[HUFLVHRIWKHLUSURWHFWHG6HFWLRQULJKWVWRHQJDJHLQXQLRQ DQGREWDLQKLVSDUWLFLSDWLRQRQDYROXQWDU\EDVLVl,G DFWLYLWLHV%HYHUO\+HDOWKFRQWHQGVWKDWWKH%RDUGHUUHGLQ HPSKDVLVDGGHG  VHYHUDOUHVSHFWV %HYHUO\+HDOWKEDVHVLWVFULWLFLVPRIWKH%RDUGjVUHOLDQFHRQ  1R 5DWLRQDO %DVLV DQG 5HOLDQFH RQ sRKQQLHjV sRKQQLHjV 3RXOWU\ RQ WKH JURXQGV WKDW WKH (LJKWK &LUFXLW 3RXOWU\ GHQLHGHQIRUFHPHQWRIWKHFDVH1/5%YsRKQQLHjV3RXOWU\ &R)G  WK&LU  DQGWKDWQXPHURXV %HYHUO\+HDOWKILUVWDUJXHVWKDWWKHUHZDVQRUDWLRQDOEDVLV FRXUWVKDYHGHFOLQHGWRIROORZsRKQQLHjV3RXOWU\DSSURDFKRI IRUWKHFRQFOXVLRQWKDWWKHUHLVDUHDVRQDEOHWHQGHQF\IRUUXOH UHTXLULQJDIILUPDWLYHZDUQLQJVWRHPSOR\HHVLQIDYRURIDQ  WR GLVFRXUDJH HPSOR\HHV IURP HQJDJLQJ LQ XQLRQ H[DPLQDWLRQ RI DOO WKH FLUFXPVWDQFHV WR GHWHUPLQH LI DFWLYLWLHV%HYHUO\+HDOWKFRQWHQGVDVIROORZV TXHVWLRQLQJLVFRHUFLYH+RZHYHUDVWKH%RDUGQRWHGHYHQ FRXUWV WKDW KDYH IROORZHG WKH mDOO WKH FLUFXPVWDQFHVl ,QRUGHUWRILQGWKDW5XOHYLRODWHGWKH$FWWKH%RDUG DSSURDFK KDYH QRW GLVDJUHHG ZLWK WKH EDVLF SUHPLVH WKDW HQJDJHGLQVWUHWFKHVRIORJLFWKDWKDYHQRUDWLRQDOEDVLV FRRSHUDWLRQLQVXFKLQYHVWLJDWLRQVPXVWDOZD\VEHYROXQWDU\ >7@KH%RDUGORRNHGRQO\DWWKHSRUWLRQRIWKH5XOH 6HH,77$XWRPRWLYH)GDW Q  VWDWLQJWKDWmZKLOH VWDWLQJ WKDW WKH UHIXVDO WR FRRSHUDWH DSSOLHG WR DQ\ HPSOR\LQJDFDVHE\FDVHDSSURDFKWKLV&LUFXLWKDVQHYHU LQYHVWLJDWLRQXQGHUmODZVlRUmJRYHUQPHQWUHJXODWLRQVl JRQH VR IDU DV WR UHMHFW WKH KROGLQJ RI sRKQQLHjV 3RXOWU\l 7KH%RDUGFRQFOXGHGWKDWWKLVODQJXDJHmFOHDUO\DSSOLHV UHTXLULQJDVVXUDQFHVWRWKHHPSOR\HHDQGSDUWLFLSDWLRQRQD WR WKH LQYHVWLJDWLRQ RI XQIDLU ODERU SUDFWLFH FKDUJHVl YROXQWDU\EDVLV  :KLOH WHFKQLFDOO\ SRVVLEOH WKHUH LV QRWKLQJ DERXW WKH ODQJXDJHRI5XOHWKDWZRXOGVXJJHVWWKDWWKH5XOH 7KLV&RXUWKDVDIILUPHGWKHYDOLGLW\RIWKHSULQFLSOHWKDWD ZDVGHYHORSHGWRDGGUHVVWKDWSUREOHPQRULVWKHUHDQ\ XQLRQHPSOR\HHjVSDUWLFLSDWLRQLQDQLQYHVWLJDWRU\LQWHUYLHZ UHFRUGHYLGHQFHRIWKHQXUVLQJKRPHVHYHUKDYLQJXVHG PXVW EH YROXQWDU\  $V ZH VWDWHG LQ DIILUPLQJ WKH %RDUGjV WKLV5XOHWRLQYHVWLJDWHXQIDLUODERUSUDFWLFHV ILQGLQJWKDWDFRPSDQ\FRHUFLYHO\LQWHUURJDWHGLWVHPSOR\HHV %HYHUO\ +HDOWK DOVR FULWLFL]HV WKH %RDUGjV UHOLDQFH RQ 7KH%RDUGIRXQGWKDWTXHVWLRQLQJPXVWRFFXULQDFRQWH[W sRKQQLHjV3RXOWU\ZKLFKKHOGWKDWmZKHUHDQHPSOR\HUKDVD IUHHIURPHPSOR\HUKRVWLOLW\PXVWQRWEHLWVHOIFRHUFLYH OHJLWLPDWHFDXVHWRLQTXLUHKHPD\H[HUFLVHWKHSULYLOHJHRI DQGWKDWHPSOR\HHSDUWLFLSDWLRQPXVWEHREWDLQHGRQD LQWHUURJDWLQJHPSOR\HHVRQPDWWHUVLQYROYLQJWKHLU6HFWLRQ YROXQWDU\EDVLVsRKQQLHjV3RXOWU\&R1/5%1R ULJKWVZLWKRXWLQFXUULQJ6HFWLRQ D  OLDELOLW\l1/5% 7KHUHYHUVDORIWKLVFDVHE\WKH(LJKWK&LUFXLW DW )G   KDVQRWEHHQUHJDUGHGDVDUHMHFWLRQRI WKHVHSULQFLSOHV 7KH %RDUG LQ sRKQQLHjV 3RXOWU\ DUWLFXODWHG WZR W\SHV RI OHJLWLPDWH SXUSRVHV IRU WKH LQTXLU\ LQFOXGLQJ   WKH 0RQWJRPHU\:DUG &R)GDW FLWLQJ1/5%Y YHULILFDWLRQRIDXQLRQjVFODLPHGPDMRULW\VWDWXVDQG  mWKH 1HXKRII%URV3DFNHUV,QF)G WK&LU   LQYHVWLJDWLRQRIIDFWVFRQFHUQLQJLVVXHVUDLVHGLQDFRPSODLQW ZKHUH VXFK LQWHUURJDWLRQ LV QHFHVVDU\ LQ SUHSDULQJ WKH

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