## Facts

- Promoters organized 35 jojoba-farming general partnerships (about 80 acres each; roughly 2,700 acres total) marketed largely to professional investors, including accountants’ clients.
- Although the land was held by separate partnerships, operations were centralized: the same management team (headed by a foreman), common suppliers, and common partnership agreements.
- Each partnership had one “operating general partner” tasked with administering and implementing general partners’ decisions, and numerous investor general partners.
- Investors claimed they were functionally passive, relied on promoters and centralized managers, and expected profits (and tax benefits) primarily from others’ efforts.
- Investors sued under federal securities laws, alleging their general partnership interests were “investment contracts” (securities).
- The district court granted summary judgment for defendants, concluding the interests were not securities.
- After an intervening Ninth Circuit en banc decision addressing when nominal general partnership interests may be securities, investors sought relief from judgment under Federal Rule of Civil Procedure 60(b); the district court denied the motion.
- Investors appealed both the summary judgment and the denial of Rule 60(b) relief.

## Issues

1. Whether the investors’ general partnership interests constituted “investment contracts” (securities) under the Securities Act of 1933 and the Securities Exchange Act of 1934, given investors’ claimed passivity and reliance on others.
2. Whether the district court abused its discretion in denying Rule 60(b) relief based on intervening circuit authority concerning the “economic reality” of partnership interests.

## Decision

- The Ninth Circuit affirmed summary judgment for defendants, holding the general partnership interests were not securities on the undisputed record.
- The court concluded investors retained substantial, enforceable control powers and were not so dependent on promoters’ managerial efforts that they lacked meaningful control.
- The court affirmed the denial of Rule 60(b) relief, finding no abuse of discretion in declining to reopen the judgment under the intervening authority.

## Legal Principles

- An “investment contract” exists when there is (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits, (4) derived predominantly from the efforts of others.
- Courts apply an “economic reality” approach; labels such as “general partner” are relevant but not dispositive.
- Interests labeled as general partnership interests may be securities when investors, as a practical matter, cannot meaningfully exercise partnership powers and are effectively dependent on others’ managerial efforts.
- Retention of meaningful legal rights to control management, obtain information, vote on key decisions, and remove or replace managers weighs against treating the interest as a security, even if investors choose not to exercise those rights.
- Where partnership documents and undisputed structure show meaningful control rights, “security” status can be resolved at summary judgment, and intervening authority does not require relief absent a showing warranting reopening under Rule 60(b).

## Conclusion

The Ninth Circuit held that the jojoba general partnership interests were not investment contracts because the investors retained meaningful, enforceable control powers and were not dependent on promoters in a way that eliminated practical control; it therefore affirmed summary judgment for defendants and affirmed denial of Rule 60(b) reconsideration.


Koch v. Hankins, 928 F.2d 1471 (9th Cir. 1991)