Markva v. Haveman

U.S. Court of Appeals for the Sixth Circuit

Markva v. Haveman

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,&+$5' 0$5.9$ '($11$ ; 0$5.9$ %(9(5/<  /$1*6'21DQG3(**<   1R 27/(5RQEHKDOIRI  WKHPVHOYHVDQGDOORWKHUV !  VLPLODUO\VLWXDWHG  3ODLQWLIIV$SSHOOHHV   Y    s$0(6 . +$9(0$1 s5LQ  KLVRIILFLDOFDSDFLW\DV  'LUHFWRU0LFKLJDQ  'HSDUWPHQWRI&RPPXQLW\  +HDOWKDQG'28*/$6 (  +2:$5'LQKLVRIILFLDO   FDSDFLW\DV'LUHFWRU  0LFKLJDQ)DPLO\  ,QGHSHQGHQFH$JHQF\  'HIHQGDQWV$SSHOODQWV   1 $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH(DVWHUQ'LVWULFWRI0LFKLJDQDW%D\&LW\ 1Rn'DYLG0/DZVRQ'LVWULFWsXGJH $UJXHG $SULO

  0DUNYDHWDOY+DYHPDQHWDO 1R

'HFLGHGDQG)LOHG sDQXDU\ %HIRUH '$8*+75(<DQG0225(&LUFXLWsXGJHV (&212086'LVWULFWsXGJH BBBBBBBBBBBBBBBBB &2816(/ $5*8('   :LOOLDP 5 0RUULV 2)),&( 2) 7+( $77251(<*(1(5$/62&,$/6(59,&(6',9,6,21 /DQVLQJ 0LFKLJDQ IRU $SSHOODQWV  sDFTXHOLQH 'RLJ &(17(5 )25 &,9,/ s867,&( 6DJLQDZ 0LFKLJDQ IRU $SSHOOHHV21%5,() :LOOLDP50RUULV2)),&(2) 7+( $77251(< *(1(5$/ 62&,$/ 6(59,&(6 ',9,6,21/DQVLQJ0LFKLJDQIRU$SSHOODQWVsDFTXHOLQH 'RLJ 7HUUL / 6WDQJO &(17(5 )25 &,9,/ s867,&( 6DJLQDZ0LFKLJDQIRU$SSHOOHHV5RFKHOOH%REURII$$53 )281'$7,21 /,7,*$7,21 :DVKLQJWRQ '& IRU $PLFXV&XULDH BBBBBBBBBBBBBBBBB 23,1,21 BBBBBBBBBBBBBBBBB 0$57+$&5$,*'$8*+75(<&LUFXLW sXGJH7KLV DSSHDODULVHVIURPDFODVVDFWLRQFKDOOHQJHWRWKDWSRUWLRQRI WKH0LFKLJDQ0HGLFDLGSODQjVPHWKRGRORJ\IRUFDOFXODWLQJ HOLJLELOLW\ DQG EHQHILWV IRU UHODWLYHV FDULQJ IRU GHSHQGHQW FKLOGUHQ WKDW WUHDWV QRQSDUHQWV GLIIHUHQWO\ IURP SDUHQWV 8QGHU 0LFKLJDQjV SODQ mPHGLFDOO\ QHHG\l FDUHWDNHUV RI GHSHQGHQWFKLOGUHQPXVWLQFXUDVSHFLILFDPRXQWRIPRQWKO\ RXWRISRFNHW H[SHQVHV IRU PHGLFDO FDUH EHIRUH WKH\ DUH HOLJLEOHWRUHFHLYH0HGLFDLGEHQHILWV WKHKLJKHUDQDSSOLFDQWjV mFRXQWDEOHlKRXVHKROGLQFRPHWKHPRUHPRQH\WKHDSSOLFDQW PXVWmVSHQGGRZQlEHIRUHEHQHILWVDUHDYDLODEOH:KHQD

7KH +RQRUDEOH 3HWHU & (FRQRPXV 8QLWHG 6WDWHV 'LVWULFW sXGJH IRU WKH 1RUWKHUQ 'LVWULFW RI 2KLR VLWWLQJ E\ GHVLJQDWLRQ 1R 0DUNYDHWDOY+DYHPDQHWDO 

SDUHQWFDUHWDNHUDSSOLHVIRU0HGLFDLG0LFKLJDQDOORZVWKH SDUHQWWRH[FOXGHIURPFRXQWDEOHLQFRPHDQDPRXQWDOORFDWHG IRUWKHFDUHRIWKHGHSHQGHQWFKLOGUHQ+RZHYHUWKRVHQRQ SDUHQWUHODWLYHVDFWLQJDVFDUHWDNHUVZKRDSSO\IRU0HGLFDLG DUHQRWHQWLWOHGWRGHGXFWDVLPLODUSRUWLRQIURPWKHLULQFRPH WRUHIOHFWWKHILQDQFLDOQHHGVRIWKHFKLOGUHQXQGHUWKHLUFDUH $VDUHVXOWQRQSDUHQWFDUHWDNHUVSD\DKLJKHUGHGXFWLEOHLQ RUGHUWRUHFHLYH0HGLFDLGEHQHILWVWKDQGRSDUHQWFDUHWDNHUV 7KLV VXLW ZDV EURXJKW E\ D FODVV RI mPHGLFDOO\ QHHG\l JUDQGSDUHQWVZKRDUHUDLVLQJWKHLUJUDQGFKLOGUHQEHFDXVHWKH FKLOGUHQjV SDUHQWV KDYH GLHG RU DUH RWKHUZLVH DEVHQW  2Q EHKDOI RI WKHPVHOYHV DQG VLPLODUO\VLWXDWHG QRQSDUHQW UHODWLYH FDUHWDNHUV WKH SODLQWLIIV VXHG WKH GLUHFWRUV RI WKH 0LFKLJDQ 'HSDUWPHQW RI &RPPXQLW\ +HDOWK DQG WKH 0LFKLJDQ )DPLO\ ,QGHSHQGHQFH $JHQF\ XQGHU  86& †   DUJXLQJ WKDW 0LFKLJDQjV SROLF\ RI FDOFXODWLQJ 0HGLFDLG HOLJLELOLW\ DQG EHQHILW OHYHOV GLIIHUHQWO\ IRU QRQ SDUHQWDQGSDUHQWFDUHWDNHUVYLRODWHVWKHIHGHUDO0HGLFDLGODZ DQGLWVLPSOHPHQWLQJUHJXODWLRQV7KHGHIHQGDQWVPDLQWDLQ WKDWWKHGLVWLQFWLRQEHWZHHQSDUHQWDQGQRQSDUHQWFDUHWDNHUV LVMXVWLILHGEHFDXVHSDUHQWVXQOLNHQRQSDUHQWUHODWLYHVDUH OHJDOO\UHVSRQVLEOHIRUWKHFKLOGUHQjVILQDQFLDOQHHGV $OWKRXJKWKHGLVWULFWFRXUWDJUHHGZLWKWKHGHIHQGDQWVWKDW 0LFKLJDQj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

SURYLGHGWRFKLOGUHQDQGWKHLUFDUHWDNHUV7KHGHIHQGDQWVDOVR VXIIHUHGDQµLQMXU\LQIDFWjWKDWLVFRQFUHWHSDUWLFXODUL]HGDQG DUJXHWKDWWKHSODLQWLIIVKDYHIDLOHGWRGHPRQVWUDWHWKHLQMXU\ DFWXDO RU LPPLQHQW    WKH LQMXU\ LV IDLUO\ WUDFHDEOH WR WKH QHFHVVDU\ IRU VWDQGLQJ EHFDXVH RWKHU ZHOIDUH EHQHILWV WKDW FRQGXFWRIWKHGHIHQGDQWV DQG  WKHUHTXHVWHGUHOLHIZRXOG WKHLUJUDQGFKLOGUHQUHFHLYHoEHQHILWVWKHVHFKLOGUHQZRXOG OLNHO\UHGUHVVWKHLQMXU\VXIIHUHGjl0DUNYD)6XSSDW QRWEHHQWLWOHGWRUHFHLYHLIWKH\ZHUHOLYLQJZLWKWKHLUSDUHQWV  FLWLQJ)ULHQGVRIWKH(DUWK,QFY/DLGODZ(QY6HUYV o RIIVHW WKH LQFUHDVHV LQ WKH SODLQWLIIVj VSHQG GRZQ 86  m7KHWHVWIRUPRRWQHVVLV REOLJDWLRQV ZKHWKHUWKHUHOLHIVRXJKWZRXOGLIJUDQWHGPDNHDGLIIHUHQFH WRWKHOHJDOLQWHUHVWRIWKHSDUWLHVl*UHHQY1HYHUV )G )RUWKHUHDVRQVVHWRXWEHORZZHFRQFOXGHWKDWWKHGLVWULFW  WK&LU  FLWDWLRQVRPLWWHG  FRXUW SURSHUO\ LQWHUSUHWHG DQG DQDO\]HG WKH UHOHYDQW ODZ $FFRUGLQJO\ZHDIILUPWKHGLVWULFWFRXUWj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jSROLF\RIGLIIHUHQWLDWLQJEHWZHHQSDUHQWDQGQRQ 86&†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mFDUHWDNHUUHODWLYHHOLJLELOLW\lFDWHJRU\ ZHUH FDOFXODWHG LQ WKH VDPH PDQQHU DV WKDW RI SDUHQWV IRU0HGLFDLGEHQHILWVHVWDEOLVKHGE\86&† G D LL  :KHWKHUHQIRUFHPHQWRIWKHGLVWULFWFRXUWjVRUGHUZRXOGDV 6HH0DUNYD)6XSSGDWm&DUHWDNHUUHODWLYHVlDUH WKH GHIHQGDQWV FRQWHQG mXQIDLUO\l EHQHILW WKH GHSHQGHQW DGXOWV o SDUHQWV RU RWKHU FORVH UHODWLYHV o ZLWK ZKRP D FKLOGUHQLQWKHLUFDUHLVIRUSXUSRVHVRIVWDQGLQJLUUHOHYDQW mGHSHQGHQW FKLOGl LV OLYLQJ  6HH LG DW   7KH QDPHG )LQDOO\ DV WKH GLVWULFW FRXUW QRWHG DWWULEXWLQJ WR WKH SODLQWLIIVLQWKLVFDVHDUHJUDQGSDUHQWVZKRDUHUDLVLQJRQHRU JUDQGSDUHQWV WKH )DPLO\ ,QGHSHQGHQW 3URJUDP EHQHILWV WKH PRUH RI WKHLU JUDQGFKLOGUHQ EHFDXVH WKHLU JUDQGFKLOGUHQjV FKLOGUHQUHFHLYHZRXOGYLRODWHWKHDQWLGHHPLQJSURYLVLRQV SDUHQWVKDYHGLHGRUDUHRWKHUZLVHXQDEOHWRFDUHIRUWKHP HYHQLIWKHEHQHILWVDUJXDEO\UHGXFHWKHDPRXQWRIPRQH\WKH 6HHLGDW 7KH\DUHDOOmPHGLFDOO\QHHG\lPHDQLQJ JUDQGSDUHQWVKDYHWRVSHQGWRPHHWWKHJUDQGFKLOGUHQjVQRQ PHGLFDOH[SHQVHV6HH0DUNYD)6XSSGDW  $ GHSHQGHQW FKLOG LV m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l  86& †  D     0DUNYDHWDOY+DYHPDQHWDO 1R 1R 0DUNYDHWDOY+DYHPDQHWDO 

86&† G D LL 7KHGLVWULFWFRXUWSURSHUO\IRXQG WKDW DOWKRXJK WKHLU LQFRPHV DUH WRR KLJK WR HQWLWOH WKHP WR WKDW WKH GLIIHUHQW PHWKRGRORJLHV XVHG LQ GHWHUPLQLQJ FDVK DVVLVWDQFH XQGHU JHQHUDO ZHOIDUH SURJUDPV WKH\ HOLJLELOLW\DQGEHQHILWDPRXQWVIRUSDUHQWVDQGQRQSDUHQWV QRQHWKHOHVVTXDOLI\IRU0HGLFDLGEHFDXVHWKHLULQFRPHVGR YLRODWHGWKHVHSURYLVLRQVEHFDXVHWKH\mUHVXOWLQQRQSDUHQW QRWFRYHUWKHFRVWVRIWKHPHGLFDOFDUHWKH\QHHG6HHLGDW FDUHWDNHUV EHLQJ EXUGHQHG ZLWK VLJQLILFDQWO\ KLJKHU VSHQG m0HGLFDOO\QHHG\lLQGLYLGXDOVTXDOLI\IRU0HGLFDLG GRZQDPRXQWVWKDQSDUHQWFDUHWDNHUVl6HH0DUNYD) E\VKRZLQJWKDWWKHLUmFRXQWDEOHLQFRPHlPLQXVWKHLUPHGLFDO 6XSSGDW H[SHQVHVIDOOVEHORZWKHDSSOLFDEOHLQFRPHOLPLWFDOOHGWKH mSURWHFWHGLQFRPHOHYHOl,IDQDSSOLFDQWjVLQFRPHH[FHHGV 7KHGHIHQGDQWVFRQWHQGWKDWWKHHTXDOLQmDPRXQWGXUDWLRQ WKH SURWHFWHG LQFRPH OHYHO WKHQ 0HGLFDLG EHQHILWV DUH QRW DQGVFRSHlUHTXLUHPHQWSHUWDLQVRQO\WRWKHW\SHRIVHUYLFHV WULJJHUHG XQWLO WKH DSSOLFDQW LQFXUV D VSHFLILF DPRXQW RI RIIHUHGoHJmZKHWKHUDVWDWH0HGLFDLGSURJUDPPD\FRYHU PRQWKO\RXWRISRFNHWH[SHQVHVIRUPHGLFDOFDUH6HHLGDW D SDUWLFXODU VHUYLFH IRU VRPH PHPEHUV RI D JURXS EXW QRW  7KLVGHGXFWLEOHUHIHUUHGWRWKURXJKRXWWKLVOLWLJDWLRQDV RWKHUVl o DQG WKDW LQ DQ\ HYHQW WKLV UHTXLUHPHQW SURKLELWV WKHmVSHQGGRZQlLVFDOFXODWHGDVWKHGLIIHUHQFHEHWZHHQWKH RQO\XQUHDVRQDEOHGLVWLQFWLRQV+RZHYHUZHILQGQRVXSSRUW DSSOLFDQWjVFRXQWDEOHLQFRPHDQGWKHSURWHFWHGLQFRPHOHYHO LQWKHVWDWXWHRUWKHFDVHODZIRUVXFKDOLPLWHGUHDGLQJ 6HH&)5† 'RWKHSODLQWLIIVKDYHVWDQGLQJ" 0LFKLJDQjV )DPLO\ ,QGHSHQGHQFH $JHQF\jV 3URJUDP (OLJLELOLW\ 0DQXDO VHWV IRUWK WKH SROLFLHV WKDW JRYHUQ WKH )LQDOO\ WKH GHIHQGDQWV DUJXH WKDW WKH SODLQWLIIV ODFN mFDUHWDNHUUHODWLYHl0HGLFDLGFDWHJRU\IRUUHFLSLHQWVLQWKDW VWDQGLQJ WR EULQJ WKLV VXLW EHFDXVH WKH\ UHFHLYH DGGLWLRQDO VWDWH,QFDOFXODWLQJHOLJLELOLW\DQGEHQHILWOHYHOVIRUWKRVH SXEOLF ZHOIDUH EHQHILWV WKDW H[FHHG WKH GLIIHUHQFHV LQ WKHLU ZLWKLQWKLVFDWHJRU\0LFKLJDQGRHVQRWLQFOXGHGHSHQGHQW mVSHQGGRZQVlDQGWKXVHOLPLQDWHWKHLULQMXU\LQIDFW7KH FKLOGUHQ OLYLQJ LQ WKH KRPH ZLWKLQ WKH FDUHWDNHUjV IDPLO\ GLVWULFWFRXUWSURSHUO\UHMHFWHGWKLVDUJXPHQW JURXS IRU 0HGLFDLG SXUSRVHV  $FFRUGLQJO\ WKH SURWHFWHG LQFRPHOHYHORIHDFKFDUHWDNHUGRHVQRWULVHZLWKWKHQXPEHU $VWKHGLVWULFWFRXUWQRWHGmIHGHUDOFRXUWVDUHHPSRZHUHG RIFKLOGUHQOLYLQJLQWKHKRXVHKROG+RZHYHUZKHQDSDUHQW WRDGMXGLFDWHRQO\µFDVHVjDQGµFRQWURYHUVLHVjl0DUNYD FDUHWDNHU DSSOLHV IRU mFDUHWDNHU UHODWLYHl 0HGLFDLG WKH ) 6XSS G DW  FLWLQJ 86 &RQVW DUW ,,, †   0LFKLJDQ DJHQFLHV UHGXFH WKH DPRXQW RI WKH SDUHQW $FFRUGLQJO\SODLQWLIIVPXVWKDYHDmFRQFUHWHSULYDWHLQWHUHVW FDUHWDNHUjVFRXQWDEOH RUmEXGJHWHGl LQFRPHE\DSURUDWD LQ WKH RXWFRPH RI WKH VXLWl  6HH /XMDQ Y 'HIHQGHUV RI DPRXQWWRDFFRXQWIRUWKHQHHGVRIHDFKRIKLVRUKHUFKLOGUHQ :LOGOOLIH86   m7RSRVVHVVVWDQGLQJD 6HH0DUNYD)6XSSGDW %HFDXVHSDUHQW SODLQWLII VHHNLQJ DQ LQMXQFWLRQ PXVW VKRZ WKDW   VKH KDV FDUHWDNHUV ZKRVH EXGJHWHG LQFRPH H[FHHGV WKHLU SURWHFWHG LQFRPH DUH UHTXLUHG WKHPVHOYHV WR SD\ PHGLFDO H[SHQVHV HTXDOWRWKHGLIIHUHQFHEHWZHHQWKHWZR WKHVRFDOOHGmVSHQG  $00  86& †  D D  & VWDWLQJ WKDW LWV SURYLVLRQV DSSO\ GRZQl DORZHUEXGJHWHGLQFRPHPHDQVDORZHUVSHQGGRZQ WR mDQ\ JURXS RI LQGLYLGXDOV GHVFULEHG LQ VHFWLRQ  G D    m  REOLJDWLRQ 86& †  G D LL GHILQLQJ FRYHUHG LQGLYLGXDOV DV mUHODWLYHV VSHFLILHG LQ VHFWLRQ  E  RI WKLV WLWOH ZLWK ZKRP D FKLOG LV OLYLQJ LI VXFK FKLOG 7KH 0LFKLJDQ DJHQFLHV GR QRW DSSO\ WKLV SURUDWLRQ LV RU ZRXOG LI QHHG\ EH D GHSHQGHQW FKLOG XQGHU SDUW $ RI VXEFKDSWHU ,9 RI WKLV FKDSWHUl  6HH DOVR 0DUNYD   ) 6XSS G DW  m,W LV PHWKRGRORJ\ WR FDUHWDNHUV ZKR DUH QRW WKH ELRORJLFDO RU XQFRQWHVWHG WKDW WKH SODLQWLIIV LQ WKLV >FDVH@ DUH LQ WKH µFDUHWDNHU UHODWLYHj DGRSWLYH SDUHQWV RI WKH FKLOGUHQ XQGHU WKHLU FDUH   ,Q 0HGLFDLG HOLJLELOLW\ JURXS GHILQHG E\  86& †   D LL  3DUHQWV FDOFXODWLQJWKHVSHQGGRZQDPRXQWWKDWDQRQSDUHQWUHODWLYH DQG JUDQGSDUHQWV DUH ERWK PHPEHUV RI WKDW JURXSl  0DUNYDHWDOY+DYHPDQHWDO 1R 1R 0DUNYDHWDOY+DYHPDQHWDO 

FDUHWDNHULVUHTXLUHGWRLQFXUEHIRUHVKHFDQUHFHLYH0HGLFDLG VWDWHjVSODQLVUHDVRQDEOHIURPDSROLF\VWDQGSRLQWEXWUDWKHU EHQHILWVWKHGHIHQGDQWVGRQRWGHGXFWIURPWKHFDUHWDNHUjV ZKHWKHULWFRPSOLHVZLWKWKHUHTXLUHPHQWV&RQJUHVVSURYLGHG EXGJHWHGLQFRPHDQDPRXQWDWWULEXWDEOHWRWKHILQDQFLDOQHHGV LQWKH0HGLFDLGVWDWXWHDQGUHJXODWLRQV7KHGLVWULFWFRXUW RIWKHGHSHQGHQWFKLOGUHQXQGHUKLVRUKHUFDUH6HHLGDW SURSHUO\IRXQGWKDW0LFKLJDQjVSROLF\IDLOHGWR PHHWWKHVH     $V D UHVXOW mFDUHWDNHU UHODWLYHl 0HGLFDLG UHTXLUHPHQWV DSSOLFDQWVZKRDUHWKHSDUHQWVRIWKHFKLOGUHQXQGHUWKHLUFDUH DUH HQWLWOHG WR JUHDWHU EHQHILWV WKDQ RWKHUZLVH VLPLODUO\ 7KH GLVWULFW FRXUW DOVR IRXQG FRUUHFWO\ WKDW WKH VLWXDWHGmFDUHWDNHUUHODWLYHl0HGLFDLGDSSOLFDQWVZKRDUHQRW PHWKRGRORJ\XVHGE\WKHGHIHQGDQWVWRGHWHUPLQHSODLQWLIIVj WKH ELRORJLFDO RU DGRSWLYH SDUHQWV RI WKH FKLOGUHQ LQ WKHLU HOLJLELOLW\LVLQFRPSOLDQFHZLWK86&† D D   KRXVHKROG  7KH SODLQWLIIV DUJXH WKDW 0LFKLJDQjV SROLF\ RI ZKLFK UHTXLUHV WKDW WKH GHIHQGDQWV UHDVRQDEO\ HYDOXDWH DQ WUHDWLQJSDUHQWDQGQRQSDUHQWFDUHWDNHUUHODWLYHVGLIIHUHQWO\ DSSOLFDQWjV UHVRXUFHV DQG FRQVLGHU mRQO\ VXFK LQFRPH DQG YLRODWHV WKH IHGHUDO 0HGLFDLG VWDWXWH DQG LWV LPSOHPHQWLQJ UHVRXUFHVlWKDWDUHmDYDLODEOHWRWKHDSSOLFDQWVl0DUNYD UHJXODWLRQV )6XSSGDW$VGLVFXVVHGDERYHDGLVWLQFWLRQ EHWZHHQSDUHQWDQGQRQSDUHQWUHODWLYHFDUHJLYHUVLVQRWSHU ,QJUDQWLQJVXPPDU\MXGJPHQWWRWKHSODLQWLIIVWKHGLVWULFW VHXQUHDVRQDEOH GLIIHUHQWPHWKRGVRIFDOFXODWLQJWKHmLQFRPH FRXUW KHOG WKDW WKH GHIHQGDQWVj SROLF\ RI XVLQJ GLIIHUHQW DQG UHVRXUFHVl DYDLODEOH WR SDUHQW DQG QRQSDUHQW UHODWLYH PHWKRGRORJLHV YLRODWHG IHGHUDO 0HGLFDLG ODZ LQ WKUHH FDUHJLYHUVLVOLNHZLVHQRWSHUVHXQUHDVRQDEOHEXWLVLOOHJDOLQ UHVSHFWV  )LUVW WKH GLVWULFW FRXUW KHOG WKDW WKH GHIHQGDQWVj WKLV LQVWDQFH EHFDXVH LW YLRODWHV RWKHU SURYLVLRQV RI WKH SROLF\ YLRODWHG  86& †  D D  & L ,,,  DQG  DSSOLFDEOHVWDWXWHVDQGUHJXODWLRQV &)5 †  G   ZKLFK UHTXLUH VWDWHV WR XVH D mFRPSDUDEOHlPHWKRGRORJ\WRGHWHUPLQHWKHEHQHILWVIRUmDOO 7KHGLVWULFWFRXUWZDVDOVRFRUUHFWLQGHWHUPLQLQJWKDW SHUVRQV ZLWKLQ HDFK FDWHJRU\ RI DVVLVWDQFH    ZLWKLQ DQ WKH GHIHQGDQWVj SRO L F\ Y L R O DW HG   86& HOLJLELOLW\JURXSloLQWKLVFDVHDOOPHGLFDOO\QHHG\UHODWLYH † D D  & L ,, DQG&)5† E  ZKLFK FDUHWDNHUVZKHWKHUSDUHQWRUQRQSDUHQW6HH0DUNYD) UHTXLUHVWDWHVWRSURYLGHHTXDOmDPRXQWVGXUDWLRQDQGVFRSHl 6XSSGDW6HFRQGWKHGLVWULFWFRXUWIRXQGWKDWWKH RI0HGLFDLGFRYHUDJHWRVLPLODUO\VLWXDWHGFDUHWDNHUUHODWLYHV SROLF\ YLRODWHG  86& †   D  & L ,,  DQG  8QGHU86&† D D  & L ,, 0HGLFDLGSODQVDUH &)5 †  E   ZKLFK UHTXLUH VWDWHV WR SURYLGH UHTXLUHGWRLQFOXGHDGHVFULSWLRQRImWKHDPRXQWGXUDWLRQDQG VHUYLFHVWKDWDUHmHTXDOLQDPRXQWGXUDWLRQDQGVFRSHIRUDOO VFRSHRIPHGLFDODVVLVWDQFHPDGHDYDLODEOHWRLQGLYLGXDOVLQ UHFLSLHQWV ZLWKLQ WKH JURXSl RI PHGLFDOO\ QHHG\ UHODWLYH WKHJURXSl7KHmFRYHUHGPHGLFDOO\QHHG\JURXSlLQWKLVFDVH FDUHWDNHUV6HH0DUNYD)6XSSGDW7KLUGWKH LV0LFKLJDQjVmFDUHWDNHUUHODWLYHlHOLJLELOLW\JURXSGHILQHGE\ GLVWULFW FRXUW KHOG WKDW WKH SROLF\ YLRODWHG  86& † D D  & L ,,, DQG&)5† G  DV PRGLILHGE\86&† X D ZKLFKUHTXLUHVWDWHVWR XVH D PHWKRGRORJ\ IRU GHWHUPLQLQJ 0HGLFDLG HOLJLELOLW\ RI QRQSDUHQWUHODWLYHFDUHWDNHUVWKDWLVQRPRUHUHVWULFWLYHWKDQ WKH PHWKRGRORJ\  LQ HIIHFW RQ sXO\    WR GHWHUPLQH FDVK DVVLVWDQFH HOLJLELOLW\ IRU WKH PRVW FORVHO\UHODWHG  7KH GHIHQGDQWVj DUJXPHQW WKDW HQIRUFHPHQW RI WKH GLVWULFW FRXUWjV FDWHJRULFDOO\QHHG\JURXS6HH0DUNYD)6XSSGDW RUGHU ZRXOG XQIDLUO\ EHQHILW WKH GHSHQGHQW FKLOGUHQ XQGHU WKH FDUH RI QRQ +RZHYHUWKHGLVWULFWFRXUWUHMHFWHGWKHSODLQWLIIVj SDUHQW FDUHWDNHUV EHFDXVH WKHVH FKLOGUHQ DOUHDG\ UHFHLYH )DPLO\ FODLPWKDWWKHGHIHQGDQWVjSROLF\YLRODWHGWKHUHTXLUHPHQWLQ ,QGHSHQGHQFH 3URJUDP EHQHILWV WKDW WKH\ ZRXOG QRW EH HOLJLEOH WR UHFHLYH LI WKH\ ZHUH OLYLQJ ZLWK WKHLU SDUHQWV IDLOV IRU WKH VDPH UHDVRQ  0DUNYDHWDOY+DYHPDQHWDO 1R 1R 0DUNYDHWDOY+DYHPDQHWDO 

GLVFHUQ WKH UDWLRQDOH EHKLQG &RQJUHVVLRQDO SROLF\ 86&† D D  WKDWWKHVWDWHmUHDVRQDEO\HYDOXDWHl KRZHYHUEHFDXVHWKHRXWFRPHLVFOHDUO\UHIOHFWHGLQWKH DQDSSOLFDQWjVUHVRXUFHVILQGLQJWKDWWKHGHIHQGDQWVjSROLF\ DSSOLFDEOHVWDWXWHVWRWKHH[WHQWWKDWDQ\WKLQJZLWKLQWKH ZDVmQRWXQUHDVRQDEOHSHUVHl6HH0DUNYD)6XSSG IHGHUDOVRFLDOZHOIDUHOHJLVODWLRQFDQEHGHHPHGmFOHDUl DW 0DUNYD  ) 6XSS G DW  FLWDWLRQV RPLWWHG   2Q $V D UHVXOW WKH GLVWULFW FRXUW SHUPDQHQWO\ HQMRLQHG WKH DSSHDOWKHGHIHQGDQWVRIIHUQRDXWKRULW\WKDWUHTXLUHVXVWR GHIHQGDQWV IURP mXVLQJ D PHWKRGRORJ\ WR GHWHUPLQH WKH UHYHUVHWKHGLVWULFWFRXUWRQWKLVLVVXH 0HGLFDLG HOLJLELOLW\ DQG EHQHILW DPRXQW LQFOXGLQJ WKH PRQWKO\ VSHQG GRZQ DPRXQW IRU WKH SODLQWLIIV DQG WKH 7KHGHIHQGDQWVDOVRDUJXHWKDWWKHGLVWULFWFRXUWHUUHGLQ PHPEHUV RI WKH >FHUWLILHG FODVV@ WKDW LV GLIIHUHQW IURP WKH IDLOLQJWRFRQVLGHUWKHHIIHFWRI&)5† F WKH PHWKRGRORJ\XVHGWRGHWHUPLQHWKH0HGLFDLGHOLJLELOLW\DQG UHJXODWLRQQRWHGDERYHWKDWSURYLGHVVLPSO\WKDWmWKHDJHQF\ EHQHILW DPRXQWV LQFOXGLQJ VSHQG GRZQ DPRXQWV IRU PXVW XVH WKH UHTXLUHPHQWV IRU ILQDQFLDO UHVSRQVLELOLW\ RI PHGLFDOO\QHHG\SDUHQWUHODWLYHFDUHWDNHUVl7KHFRXUWDOVR UHODWLYHV VSHFLILHG LQ † l   7KH GLVWULFW FRXUW GLG RUGHUHG WKH GHIHQGDQWV WR SURYLGH LQWHULP DQG ILQDO KRZHYHU FRQVLGHU DQG GLVFXVV WKH ILQDQFLDO UHVSRQVLELOLW\ QRWLILFDWLRQWRDOOFODVVPHPEHUVRIWKHSURFHGXUHVQHFHVVDU\ UHTXLUHPHQWV RI  &)5 †  DV ZHOO DV WKH DQWL WRREWDLQWKHFRUUHFWDPRXQWRIEHQHILWV GHHPLQJ SURYLVLRQ LQ WKH VWDWXWH LWVHOI  86& † D D  ' RQZKLFKWKHUHJXODWLRQVDUHEDVHG$IWHU )ROORZLQJWKHILOLQJRIWKHGHIHQGDQWVjQRWLFHRIDSSHDOWKH FRQVLGHULQJ WKHVH SURYLVLRQV WKH GLVWULFW FRXUW UHMHFWHG WKH GLVWULFW FRXUW GHQLHG WKHLU UHTXHVW IRU D VWD\ EXW ZH GHIHQGDQWVj DUJXPHQW WKDW WKHVH SURYLVLRQV SURKLELWHG RU VXEVHTXHQWO\ UHYHUVHG WKDW RUGHU DQG HQWHUHG D VWD\ RI WKH RWKHUZLVH H[FXVHG WKHP IURP FRPSO\LQJ ZLWK WKH RWKHU LQMXQFWLRQSHQGLQJDSSHDO UHTXLUHPHQWVRIWKHVWDWXWH6HH0DUNYD)6XSSGDW 2QDSSHDOWKHGHIHQGDQWVGRQRWRIIHUDFRPSHOOLQJ ',6&866,21 H[SODQDWLRQIRUZK\&)5† F ZRXOGSURYLGH DQ\PRUHVXSSRUWIRUWKHLUDUJXPHQWWKDQGRWKHSURYLVLRQVWR :H UHYLHZ GH QRYR D GLVWULFW FRXUWjV RUGHU JUDQWLQJ ZKLFKLWUHIHUV VXPPDU\MXGJPHQWVHHsRKQVRQY(FRQ'HY&RUS  )G    WK &LU   DQG ZH DIILUP mLI WKH )LQDOO\ 0LFKLJDQ DUJXHV WKDW HYHQ LI WKH DQWLGHHPLQJ SOHDGLQJV GHSRVLWLRQV DQVZHUV WR LQWHUURJDWRULHV DQG SURYLVLRQGRHVQRWUHTXLUHWKHVWDWHWRWUHDWSDUHQWVDQGQRQ DGPLVVLRQVRQILOHWRJHWKHUZLWKWKHDIILGDYLWVLIDQ\VKRZ SDUHQWV GLIIHUHQWO\ LW PHDQV WKDW VXFK D GLVWLQFWLRQ LV WKDWWKHUHLVQRJHQXLQHLVVXHDVWRDQ\PDWHULDOIDFWDQGWKDW UHDVRQDEOH  +RZHYHU DV WKH GLVWULFW FRXUW QRWHG LQ WKH WKHPRYLQJSDUW\LVHQWLWOHGWRDMXGJPHQWDVDPDWWHURIODZl SDVVDJHFLWHGDERYHWKHUHOHYDQWLQTXLU\LVQRWZKHWKHUWKH )HG5&LY3 F :KHQUHYLHZLQJDPRWLRQIRUVXPPDU\ MXGJPHQW ZH YLHZ WKH HYLGHQFH DQG GUDZ DOO UHDVRQDEOH LQIHUHQFHWKHUHIURP LQWKHOLJKWPRVWIDYRUDEOHWRWKHQRQ  PRYLQJSDUW\6HH:LOOLDPVY,QWjO3DSHU&R)G 7KH GHIHQGDQWV DUJXH WKDW  &)5 †  F  XQOLNH  &)5 †   PXVW KDYH EHHQ LQWHQGHG WR JRYHUQ WKH GHWHUPLQDWLRQ  WK &LU    6XPPDU\ MXGJPHQW PXVW EH HQWHUHG RI FDUHWDNHU UHODWLYHVj HOLJLELOLW\ IRU EHQHILWV UDWKHU WKDQ VLPSO\ mDJDLQVW D SDUW\ ZKR IDLOV WR PDNH D VKRZLQJ VXIILFLHQW WR GHSHQGHQW FKLOGUHQjV HOLJLELOLW\ IRU EHQHILWV EHFDXVH RWKHUZLVH  &)5 HVWDEOLVKWKHH[LVWHQFHRIDQHOHPHQWHVVHQWLDOWRWKDWSDUW\jV †  F ZRXOG EH D mQHHGOHVV UHSHWLWLRQl RI  &)5 †  +RZHYHU D EHWWHU UHDGLQJ RI WKH VWDWXWRU\ SURYLVLRQV LQGLFDWHV WKDW  FDVHDQGRQZKLFKWKDWSDUW\ZLOOEHDUWKHEXUGHQRISURRIDW &)5 †  F VLPSO\ FURVVUHIHUHQFHV  &)5 †  LQ RUGHU WULDOl&HORWH[&RUSY&DWUHWW86    WR PDNH WKH UHODWLRQVKLS EHWZHHQ WKHVH UHTXLUHPHQWV H[SOLFLW  0DUNYDHWDOY+DYHPDQHWDO 1R 1R 0DUNYDHWDOY+DYHPDQHWDO 

7RSUHYDLORQDFODLPEURXJKWXQGHU86&† WKH DUJXPHQW  0HGLFDLGjV DQWLGHHPLQJ SURYLVLRQV FOHDUO\ SODLQWLIIVPXVWSURYHWKDWWKHGHIHQGDQWVDFWHGmXQGHUFRORURI SURKLELWWKHVWDWHIURPDWWULEXWLQJWRDQDSSOLFDQWWKHLQFRPH ODZl DQG WKDW WKH GHIHQGDQWVj FRQGXFW GHSULYHG WKHP RI D RIKRXVHKROGPHPEHUVZKRDUHQHLWKHUWKHDSSOLFDQWjVVSRXVH ULJKWSULYLOHJHRULPPXQLW\VHFXUHGE\WKH&RQVWLWXWLRQRUWKH RUSDUHQW+RZHYHUWKHVHFRQGKDOIRIWKHVWDWHjVDUJXPHQW ODZVRIWKH8QLWHG6WDWHV6HH$KOHUVY6FKHELO)G oWKDWEHFDXVHWKHLQFRPHRIQRQSDUHQWFDUHWDNHUVFDQQRWEH  WK&LU  FLWLQJ)ODJJ%URV,QFY%URRNV GHHPHGWKDWRIWKHFKLOGUHQXQGHUWKHLUFDUHmWKHUHYHUVHPXVW 86    7KHGHIHQGDQWVGRQRWGLVSXWH DOVREHWUXHlLQRWKHUZRUGVWKHQRQSDUHQWFDUHWDNHUVjFKLOG WKDWWKH\DFWHGXQGHUFRORURIODZ5DWKHUWKH\FRQWHVWWKH FDUHH[SHQVHVFDQQRWEHGHGXFWHGIURPWKHFDUHWDNHUVjLQFRPH GLVWULFWFRXUWjVGHWHUPLQDWLRQWKDWWKHLUIDLOXUHWRH[WHQGWKH LQFDOFXODWLQJWKHFDUHWDNHUVjHOLJLELOLW\IRU0HGLFDLGoGRHV SURUDWLRQ PHWKRGRORJ\ WR QRQSDUHQW DV ZHOO DV SDUHQW QRWIROORZ$VWKHGLVWULFWFRXUWFRQYLQFLQJO\H[SODLQHG FDUHWDNHUVYLRODWHGVHYHUDOSURYLVLRQVRIWKH0HGLFDLGVWDWXWH DQGLPSOHPHQWLQJUHJXODWLRQV 7KH GHIHQGDQWVj DUJXPHQW WKDW WKH mDQWLGHHPLQJl VWDWXWH  86& †  D D  '  DQG WKH 'RHV0LFKLJDQjVSROLF\YLRODWH0HGLFDLGVWDWXWRU\ FRUUHVSRQGLQJ UHJXODWLRQV  &)5 †    SURYLVLRQVDQGUHJXODWLRQV" SURKLELW WKHP IURP SURUDWLQJ JUDQGSDUHQWVj LQFRPH WR DFFRXQWIRUDVKDUHIRUDGHSHQGHQWJUDQGFKLOGLVEDVHG 7KHSODLQWLIIVDOOHJHWKDWWKHGHIHQGDQWVjSROLF\YLRODWHG RQDQDVVXPSWLRQWKDWWKHGHIHQGDQWVPXVWXWLOL]HDTXLG 86& †  D D  & L ,,,  DQG  &)5 SURTXRDSSURDFKZLWKLQWKHIDPLO\XQLW7KHGHIHQGDQWV †  G   ZKLFK SURYLGH WKDW LI D VWDWH DGRSWV D KDYHFLWHGQRDXWKRULW\ZKLFKVXSSRUWVWKHLUFODLPWKDW PHWKRGRORJ\ WR FDOFXODWH 0HGLFDLG EHQHILWV WKDW LV mOHVV WKH\PXVWDGRSWVXFKDQDSSURDFK$OWKRXJKLWPD\EH UHVWULFWLYHlWKDQWKHRQHXVHGIRUGHWHUPLQLQJHOLJLELOLW\IRU UHDVRQDEOHWRWUHDWLQFRPHWKDWLVmXQDYDLODEOHlWRRQH WKHUHODWHGFDVKDVVLVWDQFHSURJUDPLQHIIHFWRQsXO\  SHUVRQ ZLWKLQ D IDPLO\ XQLW DV EHLQJ mDYDLODEOHl WR WKHQ WKDW PHWKRGRORJ\ PXVW EH mFRPSDUDEOHl IRU DOO DQRWKHUSHUVRQLQWKDWXQLWWKHIHGHUDO0HGLFDLGVWDWXWHV DSSOLFDQWV ZLWKLQ DQ HOLJLELOLW\ JURXS  7KH SODLQWLIIV DOVR DQGUHJXODWLRQVGRQRWFRPSHOVXFKV\PPHWU\7RWKH DOOHJH WKDW 0LFKLJDQjV SROLF\ YLRODWHG  86& FRQWUDU\WKHVWDWXWRU\SURYLVLRQVQRWHGDERYHUHTXLUHWKH ††  D D  & L ,,,  DQG  D U   DV PRGLILHG E\ VWDWH DJHQF\ WR WUHDW SDUHQW DQG QRQSDUHQW FDUHWDNHU  X D DQG&)5 G  ZKLFKSURYLGHWKDW DSSOLFDQWVFRPSDUDEO\EXWWKH\SURKLELWWKHVWDWHDJHQF\ WKHPHWKRGRORJ\XVHGWRGHWHUPLQH0HGLFDLGHOLJLELOLW\DQG IURP WUHDWLQJ WKH UHVSHFWLYH FKLOGUHQ LQ WKHLU FDUH WKH EHQHILW OHYHOV IRU UHODWLYH FDUHWDNHUV PXVW QRW EH PRUH VDPHZD\ UHVWULFWLYHWKDQWKHPHWKRGRORJ\LQHIIHFWRQs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

LQFOXGH UHDVRQDEOH VWDQGDUGV    IRU GHWHUPLQLQJ 7KH SURYLVLRQV LQ TXHVWLRQ WLH WKH PHWKRGRORJ\ IRU HOLJLELOLW\IRUDQGWKHH[WHQWRIPHGLFDODVVLVWDQFHXQGHU GHWHUPLQLQJ HOLJLELOLW\ IRU 0HGLFDLG JURXSV WR WKH WKHSODQZKLFK PHWKRGRORJ\IRUGHWHUPLQLQJHOLJLELOLW\IRUDVVLVWDQFHXQGHU WKHZHOIDUHVWDWXWHVLQHIIHFWRQsXO\ WKHGDWHRQ ' GRQRWWDNHLQWRDFFRXQWWKHILQDQFLDOUHVSRQVLELOLW\ ZKLFKWKHIRUPHU$LGWR)DPLOLHVZLWK'HSHQGHQW&KLOGUHQ RI DQ\ LQGLYLGXDO IRU DQ\ DSSOLFDQW RU UHFLSLHQW RI $)'&  SURJUDP ZDV VXSHUFHGHG E\ DPHQGPHQWV WR WKH DVVLVWDQFH XQGHU WKH SODQ XQOHVV VXFK DSSOLFDQW RU 6RFLDO6HFXULW\$FW,WLVWKHUHIRUHQHFHVVDU\WRXQGHUVWDQG UHFLSLHQWLVVXFKLQGLYLGXDOjVVSRXVHRUVXFKLQGLYLGXDOjV KRZHOLJLELOLW\IRU$)'&EHQHILWVZDVGHWHUPLQHGSULRUWR FKLOGZKRLVXQGHU WKDW GDWH  8QGHU WKH IRUPHU $)'& PHWKRGRORJ\ EHQHILW OHYHOVIRUFDUHWDNHUVoZKHWKHUSDUHQWVRUQRQSDUHQWVoWRRN 8QGHUWKHKHDGLQJm)LQDQFLDOUHVSRQVLELOLW\RIUHODWLYHVl LQWRDFFRXQWWKHUHVRXUFHVFRQWULEXWHGE\HYHU\PHPEHURIWKH &)5† F SURYLGHVVLPSO\WKDWmWKHDJHQF\PXVW KRXVHKROGDQGWKHQHHGVRIHYHU\PHPEHULQWKHKRXVHKROG XVHWKHUHTXLUHPHQWVIRUILQDQFLDOUHVSRQVLELOLW\RIUHODWLYHV LQFOXGLQJ FKLOGUHQ  )RU SXUSRVHV RI FDOFXODWLQJ WKH VSHFLILHG LQ † l  7KH UHJXODWLRQ LQ  &)5 FDUHWDNHUjV EHQHILWV SDUHQWV DQG QRQSDUHQWV ZHUH WUHDWHG †LQWXUQSURYLGHV LGHQWLFDOO\86&†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jV VLEOLQJV  6HH  86& LQGLYLGXDOVXQGHU0HGLFDLGWKHDJHQF\PXVWDSSO\WKH † D    3DUHQWVDQGFKLOGUHQZRXOGQHFHVVDULO\ IROORZLQJUHTXLUHPHQWVDQGPHWKRGRORJLHV DOOEHFRQVLGHUHGSDUWRIWKHVDPH$)'&JURXSPHDQLQJWKDW  ([FHSWIRUDVSRXVHRIDQLQGLYLGXDORUDSDUHQWIRU WKHSDUHQWVjLQFRPHZDVDOZD\VDWWULEXWHGWRWKHFKLOG,IWKH D FKLOG ZKR LV XQGHU DJH  RU EOLQG RU GLVDEOHG WKH FKLOG OLYHG ZLWK D QRQSDUHQW FDUHWDNHU KRZHYHU WKH DJHQF\PXVWQRWFRQVLGHULQFRPHDQGUHVRXUFHVRIDQ\ FDUHWDNHUFRXOGFKRRVHZKHWKHUWRDSSO\IRU$)'&ZLWKWKH UHODWLYHDVDYDLODEOHWRDQLQGLYLGXDO (PSKDVLVDGGHG  FKLOGRUZKHWKHUWRDSSO\IRU$)'&IRUWKHFKLOGRQO\,IWKH FDUHWDNHU UHFHLYHG OLWWOH RU QR LQFRPH VKH ZRXOG OLNHO\ 7KLVDQWLGHHPLQJUXOHPHDQVWKDWWKHVWDWHLQFDOFXODWLQJ FKRRVHWREHLQFOXGHGLQWKHFKLOGjV$)'&JURXSIRUODUJHU GHSHQGHQWFKLOGUHQjVHOLJLELOLW\IRU0HGLFDLGLVQRWDOORZHG JURXSVUHFHLYHGJUHDWHUDVVLVWDQFH2QWKHRWKHUKDQGLIWKH WRFRQVLGHUQRQSDUHQWFDUHWDNHUVILQDQFLDOO\UHVSRQVLEOHIRU FDUHWDNHUjVLQFRPHZDVDERYHDFHUWDLQOHYHOVKHZRXOGPRVW WKH FKLOGUHQ XQGHU WKHLU FDUH  7KH GHIHQGDQWV DUJXH WKDW OLNHO\FKRRVHWRDSSO\IRU$)'&EHQHILWVIRUWKHFKLOGRQO\ EHFDXVHWKHVWDWHLVQRWDOORZHGWRDVVXPHZKHQFDOFXODWLQJ VRWKDWWKHFKLOGZRXOGQRWEHGLVTXDOLILHGEDVHGRQWKHQRQ GHSHQGHQWFKLOGUHQjVHOLJLELOLW\IRUEHQHILWVWKDWQRQSDUHQW SDUHQWFDUHWDNHUjVLQFRPH0LFKLJDQUHIHUVWRWKLVGLIIHUHQFH FDUHWDNHUV ZLOO FRQWULEXWH ILQDQFLDOO\ WR WKH GHSHQGHQW LQWKHWUHDWPHQWRISDUHQWVDQGQRQSDUHQWVXQGHU$)'&DV FKLOGUHQLQWKHLUKRXVHKROGWKHVWDWHLVOLNHZLVHQRWDOORZHG WKHmILQDQFLDOUHVSRQVLELOLW\GLVWLQFWLRQl ZKHQ FDOFXODWLQJ QRQSDUHQW FDUHWDNHUVj HOLJLELOLW\ IRU 0LFKLJDQjV FXUUHQW SURUDWLRQ SROLF\ DGRSWHG LQ   LV 0HGLFDLGWRGHGXFWDVKDUHUHIOHFWLQJWKHILQDQFLDOQHHGVRI OHVVUHVWULFWLYHWKDQWKHSROLF\LQHIIHFWRQsXO\ LQ WKH GHSHQGHQW FKLOGUHQ LQ WKH QRQSDUHQW FDUHWDNHUVj FDUH WZR UHVSHFWV  )LUVW ZKHUHDV WKH SULRU PHWKRGRORJ\ LQ 7KHUHLVDPSOHVXSSRUWIRUWKHILUVWKDOIRIWKHGHIHQGDQWVj  0DUNYDHWDOY+DYHPDQHWDO 1R 1R 0DUNYDHWDOY+DYHPDQHWDO 

mDVVXPH>G@ WKDW DOO   RI D SDUHQW>V@ LQFRPH ZDV HDFKFDWHJRU\ RI DVVLVWDQFH DJHGRUEOLQGRUGLVDEOHGRU DYDLODEOH WR PHHW WKH QHHGV RI HDFK FKLOG>@l WKH  $)'&UHODWHG ZLWKLQDQHOLJLELOLW\JURXSl  UHYLVLRQ LQ HIIHFW DW WKH WLPH WKDW WKLV DFWLRQ ZDV ILOHG mDSSRUWLRQHG D SDUHQWjV LQFRPH DPRQJ WKH VSRXVH DQG 7KH GLVWULFW FRXUW DOVR SURSHUO\ IRXQG WKDW WKH FXUUHQW FKLOGUHQVXSSRUWHGE\WKDWSDUHQWl0DUNYD)6XSSG PHWKRGRORJ\  IRU GHWHUPLQLQJ 0HGLFDLG EHQHILWV IRU QRQ DW6HFRQGXQGHUWKH SURYLVLRQXQOLNHWKHHDUOLHU SDUHQWFDUHWDNHUVLVPRUHUHVWULFWLYHWKDQWKHSUHsXO\  RQHmLQFRPHGHHPHGDYDLODEOHWRDFKLOGIRUWKHSXUSRVHRI PHWKRGRORJ\IRUGHWHUPLQLQJ$)'&EHQHILWVIRUWKLVFODVV DVVHVVLQJ WKH FKLOGjV HOLJLELOLW\ IRU EHQHILWV LV GHHPHG 8QGHUWKHIRUPHUPHWKRGRORJ\EHQHILWOHYHOVIRUQRQSDUHQW XQDYDLODEOHWRWKHSDUHQWZKHQDVVHVVLQJWKHSDUHQWjV RZQ FDUHWDNHUVOLNHSDUHQWVZHUHGHWHUPLQHGZLWKUHIHUHQFHWRWKH HOLJLELOLW\IRUEHQHILWVl6HHLG LQFRPHDQGQHHGVRIHYHU\RQHLQWKHKRXVHKROGLQFOXGLQJ FKLOGUHQ8QGHUWKHFXUUHQWPHWKRGRORJ\XVHGIRUQRQSDUHQW 2QDSSHDOWKHGHIHQGDQWVGRQRWGLVSXWHWKDWWKHFXUUHQW FDUHWDNHUVE\FRQWUDVWQHLWKHUWKHLQFRPHQRUWKHQHHGVRI SROLF\LVOHVVUHVWULFWLYHWKDQWKHSROLF\LQHIIHFWRQsXO\ WKH FKLOGUHQ DUH WDNHQ LQWR DFFRXQW LQ FDOFXODWLQJ WKH  5DWKHUWKH\WDNHLVVXHZLWKWKHGLVWULFWFRXUWjVILQGLQJ FDUHWDNHUVjEHQHILWVDQGQHLWKHUWKHLQFRPHQRUWKHQHHGVRI WKDWWKHFXUUHQWSROLF\LVQRWmFRPSDUDEOHlIRUDOOPHPEHUVRI WKH FDUHWDNHUV DUH WDNHQ LQWR DFFRXQW LQ FDOFXODWLQJ WKH WKH HOLJLELOLW\ JURXS  7KH GHIHQGDQWV DUJXH WKDW HOLJLELOLW\ FKLOGUHQjVEHQHILWV$VDUHVXOWDVWKHGLVWULFWFRXUWIRXQG UHTXLUHPHQWVDQGEHQHILWOHYHOVDUHFRPSDUDEOHIRUSDUHQWDQG mWKH VPDOOHU JURXS VL]H IRU FXUUHQW QRQSDUHQW DSSOLFDQWV QRQSDUHQW FDUHWDNHUV mWR WKH H[WHQW WKH\ DUH ILQDQFLDOO\ SURWHFWVOHVVLQFRPHDQGUHVXOWVLQIHZHUEHQHILWVGXHWRWKH UHVSRQVLEOHIRUFKLOGUHQLQWKHLUFDUHl7KH\FLWHWKHVRFDOOHG KLJKHU VSHQG GRZQ DPRXQW WKDW UHVXOWVl  0DUNYD  ) mILQDQFLDOUHVSRQVLELOLW\GLVWLQFWLRQlUHFRJQL]HGLQWKH$)'& 6XSSGDW7KXVm>D@OWKRXJKFKLOGUHQDSSOLFDQWVIRU SURJUDP DV SUHFHGHQW IRU WUHDWLQJ SDUHQWV DQG QRQSDUHQWV DVVLVWDQFH LQ VXFK KRXVHKROGV PD\ EH EHWWHU RII XQGHU WKH GLIIHUHQWO\XQGHUWKH0HGLFDLGSURJUDP >VXSHUFHGLQJ@ PHWKRGRORJ\ EHFDXVH QRQSDUHQW LQFRPH FDQQRWEHGHHPHGDYDLODEOHWRWKHPWKRVHWKDWFDUHIRUWKHP :HFRQFOXGHWKDWWKLVDUJXPHQWLVZLWKRXWPHULW%RWK VXFKDVWKHSODLQWLIIVLQWKLVFDVHGRQRWIDUHDVZHOOl,GDW SDUHQWVDQGQRQSDUHQWVZKRFDUHIRUGHSHQGHQWFKLOGUHQDUH %HFDXVHWKHFXUUHQWPHWKRGRORJ\IRUGHWHUPLQLQJWKH PHPEHUVRIWKHmFDUHWDNHUUHODWLYH0HGLFDLGHOLJLELOLW\JURXSl 0HGLFDLGEHQHILWVRIQRQSDUHQWFDUHWDNHUDSSOLFDQWVLVPRUH GHILQHG E\  86& †  G D LL   6HH 0DUNYD  ) UHVWULFWLYH WKDQ WKH SUHsXO\   PHWKRGRORJ\ XVHG WR 6XSSGDW FLWLQJ86&† D   7KHUHLV FDOFXODWH$)'&EHQHILWVIRUWKHVDPHJURXSWKHGLVWULFWFRXUW VLPSO\ QR EDVLV LQ WKH UHOHYDQW VWDWXWH RU UHJXODWLRQV WR FRUUHFWO\IRXQGWKDWWKHGHIHQGDQWVjSROLF\YLRODWHG86& GLVWLQJXLVK DPRQJ LQGLYLGXDOV LQ WKH mPHGLFDOO\ QHHG\l † D D  & L ,,, DQG&)5† G   mFDUHWDNHUUHODWLYHlJURXSEDVHGRQILQDQFLDOUHVSRQVLELOLW\RU D Q \ R W K H U  V X F K  FULWHULD  6HH  86& 1RUGRZHILQGDQ\PHULWLQWKHGHIHQGDQWVjFRQWHQWLRQWKDW †  D D  & L ,,,  D 0HGLFDLG SODQ PXVW LQFOXGH D WKHmDQWLGHHPLQJlSURYLVLRQVRIWKHIHGHUDO0HGLFDLGODZo GHVFULSWLRQ RI mWKH VLQJOH VWDQGDUG WR EH HPSOR\HG LQ 86&† D D  ' DQG&)5†† F DQG GHWHUPLQLQJ LQFRPH DQG UHVRXUFH HOLJLELOLW\ IRU DOO VXFK  D  o SUHFOXGH WKHP IURP H[WHQGLQJ WR QRQSDUHQW JURXSVDQGWKHPHWKRGRORJ\WREHHPSOR\HGLQGHWHUPLQLQJ FDUHWDNHU UHODWLYHV WKH VDPH SURUDWLRQ PHWKRGRORJ\ IRU VXFK HOLJLELOLW\   l  HPSKDVLV DGGHG   &)5 FRQVLGHULQJWKHGHSHQGHQWFKLOGUHQjVQHHGVWKDWLVXVHGIRU † G   m7KHOHVVUHVWULFWLYHPHWKRGRORJ\DSSOLHG GHWHUPLQLQJSDUHQWFDUHWDNHUVj0HGLFDLGHOLJLELOLW\8QGHU XQGHUWKLVVHFWLRQPXVWEHFRPSDUDEOHIRUDOOSHUVRQVZLWKLQ 86&† D D  VWDWHVDUHUHTXLUHGWR

Reference

Status
Published