Avenue Capital Management II, L.P. and Fortress (plaintiffs), investment funds, bought equity in Quiznos as part of a restructuring of Quiznos’s debt. The transaction created a manager-managed limited-liability company (LLC) to operate Quiznos. Avenue owned 70 percent of the LLC, and Fortress owned 10 percent. Through their combined holdings, Avenue and Fortress could appoint and remove without cause eight managers, including the chair of the board. Those appointed managers could choose the ninth manager. In addition, Avenue and Fortress had the power to review Quiznos’s books, receive financial statements, and amend the LLC agreement if they so chose. The board had managerial control over Quiznos’s operations, and even had the power to dissolve the LLC. After the transaction, Quiznos’s financial conditions substantially declined. Avenue and Fortress sued Quiznos managers and officers for securities fraud, alleging that they had fraudulently misrepresented the company’s financial condition. The district court dismissed the complaint for failure to state a claim. Avenue and Fortress appealed, arguing that their debt transactions constituted investment contracts.