Koch v. Hankins

A group of doctors and dentists (collectively, the investors) (plaintiffs) invested in general partnerships formed to produce jojoba. The investors were encouraged to participate in the scheme by their accountants and lawyers who promoted the partnership (collectively, the promoters) (defendants). The scheme involved 35 general partnerships, each of which owned 80 acres of land for a total of approximately 2,700 acres. The land, though divided into general partnerships, was managed together. Each general partnership purchased supplies from the same supplier and paid for the same management team headed by foreman Franklin W. Rogers. The general partnership also shared a common partnership agreement. Each general partnership consisted of one operating general partner and various other general partners. The operating general partner was in charge of administering the general partners’ decisions. The general partners had control over the business of the partnership. However, the investors, as general partners, argued that their actions in regard to the general partnership were passive. The investors and promoters disagreed about whether the general partnerships were securities under the Securities Act of 1933 and the Securities Exchange Act of 1934. The investors argued that the investments were investment contracts. The promoters argued that the investments were not securities. The promoters filed a motion for summary judgment, which the district court granted. In doing so, the district court held that the investments were not securities. The investors appealed.