Dcd Programs, Ltd., et al., Plaintiffs/appellants, v. Hill, Farrer & Burrill, Plaintiff/appellee, v. Michael W. Leighton, et al., Defendants/appellees, 942 F.2d 791 (9th Cir. 1991)

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U.S. Court of Appeals for the Ninth Circuit - 942 F.2d 791 (9th Cir. 1991) Argued and Submitted July 12, 1991. Decided Aug. 15, 1991

Before REINHARDT and FERNANDEZ, Circuit Judges, and CROCKER,*  District Judge.



The Court reviews de novo the district court's determination that contracts between the limited partnerships and the Leighton scheme corporations did not constitute investment contracts as a matter of law. S.E.C. v. Goldfield Deep Mines Co. of Nevada, 758 F.2d 459, 462 (9th Cir. 1985).


DCD Programs, et al. ("DCD") appeals the district court's denial of their motion to file a fifth amended and supplemental complaint following a denial of their motion for summary judgment. The district court held that there was no investment contract as a matter of law.

In their motion for summary judgment, DCD made a showing that the contracts between the Leighton scheme corporations and the limited partnerships were within the elements of the three-prong test of S.E.C. v. W.J. Howey Co., 328 U.S. 293, 301 (1946). The Leighton scheme, examined in its substance, not just by its form, could therefore be considered in terms of "investment contracts." Tcherepnin v. Knight, 389 U.S. 332, 336 (1967).

(1) The monies raised by the formation of the limited partnerships were invested in the enterprise in such a manner that subjected the partnerships to financial loss. Hector v. Weins, 533 F.2d 429, 432 (9th Cir. 1976); El Khadem v. Equity Securities Corp., 494 F.2d 1224 (9th Cir. 1974), cert. denied, 419 U.S. 900 (1974). (2) There is a direct correlation between the Leighton scheme corporations and the monies received from the limited partnerships; their fortunes were clearly linked, therefore establishing vertical commonality. Goldfield Mines, supra, at p. 463. (3) Since the general partner had contractual power to delegate the undeniably significant managerial functions to another, and did so by delegating such authority to a Leighton scheme corporation, the element of passivity of the investors is met. S.E.C. v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476, 482 (9th Cir. 1973). Moreover, the fact that the limited partnerships were created for tax shelter purposes does not negate this element. Goldfield Mines, supra, at pp. 463-464.

Therefore, this Court holds that at a minimum, DCD has shown enough to raise a genuine issue of material fact. Appellees have raised no fact as of this time that would as a matter of law negate any of the Howey elements, especially in regards to the role of Mr. Currens.1  As a result of this holding we need not reach the question of the Fifth Amended Complaint.



Honorable Myron D. Crocker, United States District Judge, Eastern District of California, sitting by designation


This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3


That role may be pivotal to an ultimate decision, since it bears not only upon the securities issue but also upon standing itself. The investors' funds must be deemed to have been contributed to the partnerships, and by them to the Leighton interests. Currens' knowledge, abilities, and activities may therefore be indispensable components in determinations regarding the knowledge, abilities and activities of the partnerships themselves