Tung Chan, Securities Commissioner for the State of Colorado v. HEI Resources, Inc. f/k/a Heartland Energy, Inc. Charles Reed Cagle Brandon Davis Heartland Energy Development Corporation John Schiffner and James , 2022 CO 36 ( 2022 )

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<div class="ldml-decision"><div class="ldml-decision"><div href="/vid/906883046" data-vids="906883046" class="ldml-header header ldml-header content__heading content__heading--depth1" data-content-heading-label="Header"><p class="ldml-metadata"><span class="ldml-cite"><b class="ldml-bold">2022 CO 36</b></span></p><p class="ldml-metadata"><b class="ldml-bold"> <span class="ldml-party"><span class="ldml-name">Tung Chan, Securities</span> <span class="ldml-role">Commissioner</span></span> for the <span class="ldml-party"><span class="ldml-name">State of Colorado</span>, <span class="ldml-role">Petitioner</span></span> </b><b class="ldml-bold"> v. </b><b class="ldml-bold"> <span class="ldml-party"><span class="ldml-name">HEI Resources, Inc.</span></span> f/k/a <span class="ldml-party"><span class="ldml-name">Heartland Energy, Inc.</span></span>; <span class="ldml-party"><span class="ldml-name">Charles Reed Cagle</span></span>; <span class="ldml-party"><span class="ldml-name">Brandon Davis</span></span>; <span class="ldml-party"><span class="ldml-name">Heartland Energy Development Corporation</span></span>; <span class="ldml-party"><span class="ldml-name">John Schiffner</span></span>; and <span class="ldml-party"><span class="ldml-name">James</span> <span class="ldml-role">Respondents</span></span> </b></p><p class="ldml-metadata"><span class="ldml-cite"><b class="ldml-bold">No. 20SC595</b></span></p><p class="ldml-metadata"><b class="ldml-bold"><span class="ldml-court">Supreme Court of Colorado</span>, En Banc</b></p><p class="ldml-metadata"><span class="ldml-date"><b class="ldml-bold">June 27, 2022</b></span></p></div>
<div class="ldml-casehistory"><p data-paragraph-id="313" class="ldml-paragraph ">
<span data-paragraph-id="313" data-sentence-id="326" class="ldml-sentence">Certiorari to the <span class="ldml-entity">Colorado Court of Appeals Court of Appeals</span>
<span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_326"><span class="ldml-cite">Case No. 18CA1769</span></a></span></span>
<span class="ldml-pagenumber" data-id="pagenumber_405" data-val="1" data-page_type="bare_number"></span></p></div><div class="ldml-counsel header ldml-header content__heading content__heading--depth1" data-content-heading-label="Counsel"><p data-paragraph-id="405" class="ldml-paragraph no-indent mt-2">
<span data-paragraph-id="405" data-sentence-id="418" class="ldml-sentence">Attorneys for <span class="ldml-entity"><span class="ldml-role">Petitioner</span></span>: <span class="ldml-entity"><span class="ldml-lawyer">Philip J. Weiser</span></span>, <span class="ldml-entity">Attorney General</span>
<span class="ldml-entity">Robert W. Finke</span>, First Assistant <span class="ldml-entity">Attorney General</span> <span class="ldml-entity">Jodanna L.
Haskins</span>, Senior Assistant <span class="ldml-entity">Attorney General</span> <span class="ldml-entity">Janna K. Fischer</span>,
Assistant <span class="ldml-entity">Attorney General</span> Denver, Colorado</span>
</p><p data-paragraph-id="647" class="ldml-paragraph no-indent mt-2">
<span data-paragraph-id="647" data-sentence-id="660" class="ldml-sentence">Attorneys for <span class="ldml-entity"><span class="ldml-role">Respondents</span></span> <span class="ldml-entity">Heartland Energy Development
Corporation</span> and <span class="ldml-entity"><span class="ldml-lawyer">Brandon Davis</span></span>: <span class="ldml-lawfirm">Munck Wilson Mandala LLP</span> <span class="ldml-entity">Shain
A. Khoshbin S. Wallace</span> Dunwoody Chase <span class="ldml-entity">A. Cobern Dallas</span>, Texas
<span class="ldml-lawfirm">Holland & Hart, LLP</span> <span class="ldml-entity">Marcy G. Glenn Denver</span>, Colorado</span>
<span class="ldml-pagenumber" data-id="pagenumber_894" data-val="2" data-page_type="bare_number"></span></p><p data-paragraph-id="894" class="ldml-paragraph no-indent mt-2">
<span data-paragraph-id="894" data-sentence-id="907" class="ldml-sentence">Attorneys for <span class="ldml-entity"><span class="ldml-role">Respondents</span></span> <span class="ldml-entity">HEI Resources, Inc.</span> and <span class="ldml-entity"><span class="ldml-lawyer">Charles
Reed Cagle</span></span>: <span class="ldml-lawfirm">Thomas Law LLC</span> <span class="ldml-entity">Jeffrey R. Thomas Denver</span>, Colorado</span>
</p><p data-paragraph-id="1028" class="ldml-paragraph no-indent mt-2">
<span data-paragraph-id="1028" data-sentence-id="1041" class="ldml-sentence">Attorneys for <span class="ldml-entity"><span class="ldml-role">Respondents</span></span> <span class="ldml-entity">John Schiffner</span> and <span class="ldml-entity"><span class="ldml-lawyer">James Pollak</span></span>:
Otto Law <span class="ldml-entity">Otto K. Hilbert, II</span> Denver, Colorado</span>
</p><p data-paragraph-id="1147" class="ldml-paragraph no-indent mt-2">
<span data-paragraph-id="1147" data-sentence-id="1160" class="ldml-sentence">Attorneys for <span class="ldml-lawyerrole">Amicus Curiae</span> National Federation of
Independent Business: <span class="ldml-lawfirm">Robinson Waters & O'Dorisio,
P.C.</span> <span class="ldml-entity">Tracy L. Ashmore Denver</span>, Colorado</span>
</p><p data-paragraph-id="1303" class="ldml-paragraph no-indent mt-2">
<span data-paragraph-id="1303" data-sentence-id="1316" class="ldml-sentence">Attorneys for <span class="ldml-lawyerrole">Amicus Curiae</span> North American Securities
Administrators Association, Inc.: <span class="ldml-entity">North American Securities
Administrators Association, Inc.</span> <span class="ldml-entity">Kameron Hillstrom
Washington</span>, District of <span class="ldml-lawfirm">Columbia Ballard Spahr LLP</span> <span class="ldml-entity">Theodore
J. Hartl Denver</span>, Colorado</span>
<span class="ldml-pagenumber" data-id="pagenumber_1571" data-val="3" data-page_type="bare_number"></span></p></div><div class="ldml-opinion"><h2 class="ldml-opinionheading content__heading content__heading--depth1" data-content-heading-label="Opinion (HART)"><span data-paragraph-id="1571" class="ldml-paragraph ">
<span data-paragraph-id="1571" data-sentence-id="1584" class="ldml-sentence"><b class="ldml-bold">OPINION</b></span>
<span class="ldml-pagenumber" data-id="pagenumber_1592" data-val="4" data-page_type="bare_number"></span></span></h2><p data-paragraph-id="1592" class="ldml-paragraph no-indent mt-4">
<span class="ldml-opinionauthor"><span data-paragraph-id="1592" data-sentence-id="1604" class="ldml-sentence"><span class="ldml-entity"><span class="ldml-entity"><span class="ldml-judge">HART</span></span>
JUSTICE</span></span>
</span></p><p data-paragraph-id="1618" class="ldml-paragraph ">
<span data-paragraph-id="1618" data-sentence-id="1629" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_1629"><span class="ldml-cite">¶1</span></a></span>
<span class="ldml-entity">This case</span> requires <span class="ldml-entity">us</span> to determine how <span class="ldml-entity">courts</span> should evaluate
whether an interest in a <span class="ldml-quotation quote">"general partnership"</span> is
an <span class="ldml-quotation quote">"investment contract"</span> under Colorado's
securities laws and thus a <span class="ldml-quotation quote">"security"</span> subject to
the laws and regulations of the <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_1629"><span class="ldml-cite">Colorado Securities Act,
§§ 11-51-101</span></a></span> to -1008, C.R.S. <span class="ldml-parenthetical">(<span class="ldml-entity">2021</span>)</span> <span class="ldml-parenthetical">(the
<span class="ldml-quotation quote">"CSA"</span>)</span>.</span> <span data-paragraph-id="1618" data-sentence-id="1948" class="ldml-sentence">An investment contract is undefined in <span class="ldml-entity">the
statute</span>, but Colorado has long followed federal law in
applying the test set forth in <span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_1948"><span class="ldml-refname"><em class="ldml-emphasis">Securities & Exchange
Commission v. W.J. Howey Co.</em></span>, <span class="ldml-cite">328 U.S. 293, 298-99</span>
<span class="ldml-parenthetical">(<span class="ldml-date">1946</span>)</span></a></span>, which provides that an investment contract must be
<span class="ldml-parenthetical">(1)</span> a contract, transaction, or scheme whereby a person
invests money <span class="ldml-parenthetical">(2)</span> in a common enterprise <span class="ldml-parenthetical">(3)</span> in which the
person is led to expect profits derived from the
entrepreneurial or managerial efforts of others.</span> <span data-paragraph-id="1618" data-sentence-id="2428" class="ldml-sentence">General
partnerships ordinarily do not satisfy the third element of
<span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_2428"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span></a></span> because general partners control and direct
the venture.</span> <span data-paragraph-id="1618" data-sentence-id="2562" class="ldml-sentence">But in some instances, an investor or-as here-a
security regulator claims that a contract or scheme that
purports to be a general partnership in form is
<em class="ldml-emphasis">actually</em> an investment contract in operation.</span> <span data-paragraph-id="1618" data-sentence-id="2764" class="ldml-sentence">In
those instances, the majority of state and <span class="ldml-entity">federal courts</span>
have turned to the opinion of the <span class="ldml-entity">United States Court of
Appeals for the Fifth Circuit</span> in <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_2764"><span class="ldml-refname"><em class="ldml-emphasis">Williamson v.
Tucker</em></span>, <span class="ldml-cite">645 F.2d 404</span> <span class="ldml-parenthetical">(<span class="ldml-court">5th Cir.</span> <span class="ldml-date">1981</span>)</span></a></span>, for guidance on
how to assess whether the form of the venture is somehow
belied by the economic realities of its operation.</span>
<span class="ldml-pagenumber" data-id="pagenumber_3097" data-val="5" data-page_type="bare_number"></span></p><p data-paragraph-id="3097" class="ldml-paragraph ">
<span data-paragraph-id="3097" data-sentence-id="3108" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_3108"><span class="ldml-cite">¶2</span></a></span>
<span class="ldml-entity">We</span> conclude here that the <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_3108"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> framework
applies in Colorado.</span> <span data-paragraph-id="3097" data-sentence-id="3180" class="ldml-sentence">That, however, does not fully answer the
questions <span class="ldml-entity">we</span> are presented with in this dispute, as
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_3180"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> has been interpreted in various ways.</span> <span data-paragraph-id="3097" data-sentence-id="3324" class="ldml-sentence">As
relevant here, some <span class="ldml-entity">courts</span>, including the division below,
have suggested that ventures denominated as general
partnerships are entitled to a <span class="ldml-quotation quote">"strong presumption"</span>
that <span class="ldml-entity">they</span> are <em class="ldml-emphasis">not</em> investment contracts.</span> <span data-paragraph-id="3097" data-sentence-id="3533" class="ldml-sentence"><span class="ldml-referencechain"><em class="ldml-emphasis"><span class="ldml-signal">See</span> </em><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_3324" data-refglobal="case:chanvheires,inc,2020coa87"><span class="ldml-refname"><em class="ldml-emphasis">Chan
v. HEI Res., Inc.</em></span>, <span class="ldml-cite">2020 COA 87</span></a></span>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_3324"><span class="ldml-cite">¶¶ 32-33</span></a></span></span>, <span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference"><span class="ldml-cite">490
P.3d 789, 799-800</span> <span class="ldml-parenthetical">(<span class="ldml-quotation quote">"<span class="ldml-refname"><em class="ldml-emphasis">HEI II</em></span>"</span>)</span></a></span>.</span> <span data-paragraph-id="3097" data-sentence-id="3620" class="ldml-sentence"><span class="ldml-entity">We</span> reject
the notion that general partnerships are entitled to any
presumption that might imply that <span class="ldml-entity">a plaintiff</span> bears a burden
of proof greater than the preponderance of the evidence
burden generally applicable in civil litigation.</span> <span data-paragraph-id="3097" data-sentence-id="3857" class="ldml-sentence">That said,
<span class="ldml-entity">we</span> acknowledge, as <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_3857"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> did, that <span class="ldml-entity">a plaintiff</span>
will have a <span class="ldml-quotation quote">"difficult factual burden"</span> to carry
when seeking to establish by a preponderance of the evidence
that a venture holding the legal status of a general
partnership is not in operation a general partnership.</span> <span data-paragraph-id="3097" data-sentence-id="4142" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_3857"><span class="ldml-cite">645
F.2d at 416</span></a></span>.</span>
</p><p data-paragraph-id="4160" class="ldml-paragraph ">
<span data-paragraph-id="4160" data-sentence-id="4171" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_4171"><span class="ldml-cite">¶3</span></a></span>
Beyond the question of how to describe the weight of the
burden borne by <span class="ldml-entity">plaintiffs</span> in disputes like this one, <span class="ldml-entity">the
parties</span> here further disagree over exactly how to apply the
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_4171"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> framework.</span> <span data-paragraph-id="4160" data-sentence-id="4375" class="ldml-sentence">In remanding <span class="ldml-entity">this case</span> for
proceedings consistent with this opinion, <span class="ldml-entity">we</span> focus on three
aspects of that application.</span> <span data-paragraph-id="4160" data-sentence-id="4493" class="ldml-sentence">First, <span class="ldml-entity">a court</span> evaluating
whether general partners lack the ability to direct the
venture may find that their general business knowledge and
expertise is in fact sufficient
<span class="ldml-pagenumber" data-id="pagenumber_4671" data-val="6" data-page_type="bare_number"></span>
to permit them to exercise their partnership powers.</span> <span data-paragraph-id="4160" data-sentence-id="4726" class="ldml-sentence">While
industry-specific experience may be relevant, if the general
partners lack such experience, that fact alone does not make
the partnership an investment contract.</span> <span data-paragraph-id="4160" data-sentence-id="4897" class="ldml-sentence">Second, if general
partners themselves would not be able to serve in the place
of the manager, that does not necessarily make the
partnership an investment contract; rather, <span class="ldml-entity">a plaintiff</span> must
prove that the general partners cannot realistically replace
the manager <em class="ldml-emphasis">at all</em>.</span> <span data-paragraph-id="4160" data-sentence-id="5174" class="ldml-sentence">Third, <span class="ldml-entity">we</span> conclude that a
particular venture's <span class="ldml-quotation quote">"economic realities"</span> can
appropriately be considered as part of the
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_5174"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> framework.</span>
</p><p data-paragraph-id="5314" class="ldml-paragraph ">
<span data-paragraph-id="5314" data-sentence-id="5325" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_5325"><span class="ldml-cite">¶4</span></a></span>
As <span class="ldml-entity">we</span> describe in detail below, whether <span class="ldml-entity">respondents</span> have sold
securities has been in dispute for over a decade.</span> <span data-paragraph-id="5314" data-sentence-id="5442" class="ldml-sentence">Today, <span class="ldml-entity">we</span>
do not resolve that factual dispute.</span> <span data-paragraph-id="5314" data-sentence-id="5490" class="ldml-sentence">The question before <span class="ldml-entity">us</span>
is not whether <em class="ldml-emphasis">these particular interests</em> are
securities.</span> <span data-paragraph-id="5314" data-sentence-id="5573" class="ldml-sentence">Rather, the question is a broader one: How should
<span class="ldml-entity">a court</span> assess <span class="ldml-entity">a plaintiff</span>'s claim that a particular
<span class="ldml-quotation quote">"general partnership"</span>-which, as everyone appears to
agree, in its bona fide form would not be a security-is in
fact operating as an investment contract and thus is a
security under the CSA?</span>
</p><div class="ldml-section"><section class="ldml-heading content__heading content__heading--depth1" data-confidences="very_high" data-types="background" data-content-heading-label="
I.
Relevant Facts and Procedural History
" data-specifier="I" data-parsed="true" data-id="heading_5871" data-ordinal_end="1" data-ordinal_start="1" data-value="I.
Relevant Facts and Procedural History" id="heading_5871" data-format="upper_case_roman_numeral"><span data-paragraph-id="5871" class="ldml-paragraph ">
<b class="ldml-bold"><span data-paragraph-id="5871" data-sentence-id="5882" class="ldml-sentence">I.</span>
<span data-paragraph-id="5871" data-sentence-id="5885" class="ldml-sentence">Relevant Facts and Procedural History</span></b>
</span></section><p data-paragraph-id="5923" class="ldml-paragraph ">
<span data-paragraph-id="5923" data-sentence-id="5934" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_5934"><span class="ldml-cite">¶5</span></a></span>
Between approximately <span class="ldml-entity">2004</span> and <span class="ldml-entity">2008</span>, <span class="ldml-entity">respondents</span> <span class="ldml-entity">HEI
Resources, Inc.</span> <span class="ldml-parenthetical">(<span class="ldml-quotation quote">"<span class="ldml-localname">HEI</span>"</span>)</span>, and the <span class="ldml-entity">Heartland
Development Corporation</span> <span class="ldml-parenthetical">(<span class="ldml-quotation quote">"<span class="ldml-localname">HEDC</span>"</span>)</span>, both corporations
whose principal place of business is Colorado, formed,
capitalized, and operated eight separate joint ventures
related to the exploration and drilling
<span class="ldml-pagenumber" data-id="pagenumber_6244" data-val="7" data-page_type="bare_number"></span>
of oil and gas wells.</span><span data-paragraph-id="5923" data-sentence-id="6267" class="ldml-sentence"><span class="ldml-parenthetical"><sup class="ldml-superscript">[<a href="#note-ftn.FN1" class="ldml-noteanchor" id="note-ref-ftn.FN1">1</a>]</sup></span> <span class="ldml-entity">They</span> solicited investors for what <span class="ldml-entity">they</span>
called Los Ojuelos Joint Ventures by cold calling thousands
of individuals from all over the country.</span> <span data-paragraph-id="5923" data-sentence-id="6413" class="ldml-sentence">To those
individuals who expressed interest in the ventures,
<span class="ldml-entity">respondents</span> mailed promotional material and a confidential
information memorandum, which described features of the
ventures and disclosed certain risks.</span> <span data-paragraph-id="5923" data-sentence-id="6631" class="ldml-sentence">Those who joined the
ventures became <span class="ldml-entity">parties</span> to an agreement organized as a
general partnership under the <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_6631"><span class="ldml-cite">Texas Revised Partnership
Act</span></a></span>.</span><span data-paragraph-id="5923" data-sentence-id="6770" class="ldml-sentence"><span class="ldml-parenthetical"><sup class="ldml-superscript">[<a href="#note-ftn.FN2" class="ldml-noteanchor" id="note-ref-ftn.FN2">2</a>]</sup></span>
Each of the eight ventures ultimately included between
forty-six and ninety investors.</span> <span data-paragraph-id="5923" data-sentence-id="6862" class="ldml-sentence">These investors each signed a
joint venture agreement that explained that the investors are
<span class="ldml-quotation quote">"general partners"</span> with a variety of rights and
responsibilities but delegated the day-to-day management
duties for the ventures to HEDC.</span> <span data-paragraph-id="5923" data-sentence-id="7096" class="ldml-sentence">HEI and HEDC did not
register the ventures as securities, nor did <span class="ldml-entity">they</span> file a
notice of exemption from registration.</span> <span data-paragraph-id="5923" data-sentence-id="7215" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-signal"><em class="ldml-emphasis">See</em></span> <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_7096"><span class="ldml-cite">§
11-51-301, C.R.S.</span> <span class="ldml-parenthetical">(<span class="ldml-date">2021</span>)</span></a></span></span>.</span>
<span class="ldml-pagenumber" data-id="pagenumber_7248" data-val="8" data-page_type="bare_number"></span></p><p data-paragraph-id="7248" class="ldml-paragraph ">
<span data-paragraph-id="7248" data-sentence-id="7259" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_7259"><span class="ldml-cite">¶6</span></a></span>
In <span class="ldml-entity">2009</span>, the Securities Commissioner for the <span class="ldml-entity">State of
Colorado</span> <span class="ldml-parenthetical">(<span class="ldml-quotation quote">"the Commissioner"</span>)</span> initiated this
enforcement action.</span> <span data-paragraph-id="7248" data-sentence-id="7384" class="ldml-sentence">The Commissioner's complaint alleged
that <span class="ldml-entity">respondents</span> had violated the CSA by, among other things,
offering and selling unregistered securities to investors
nationwide through the use of unlicensed sales
representatives and in the guise of general partnerships.</span> <span data-paragraph-id="7248" data-sentence-id="7650" class="ldml-sentence">The
Commissioner alleged that HEDC and HEI used the general
partnership form deliberately in order to avoid regulation.</span>
<span data-paragraph-id="7248" data-sentence-id="7772" class="ldml-sentence">Each of the Commissioner's claims required that the
Commissioner prove that the general partnerships were
securities, so the trial was bifurcated to permit resolution
of that threshold question.</span>
</p><p data-paragraph-id="7970" class="ldml-paragraph ">
<span data-paragraph-id="7970" data-sentence-id="7981" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_7981"><span class="ldml-cite">¶7</span></a></span>
In <span class="ldml-entity">2010</span>, the Commissioner moved for partial summary judgment,
arguing that an application of the framework set out in
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_7981"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span>, as well as consideration of other
economic realities of the general partnerships, demonstrates
that the ventures were in fact investment contracts.</span>
<span data-paragraph-id="7970" data-sentence-id="8267" class="ldml-sentence"><span class="ldml-entity">Respondents</span> filed <span class="ldml-entity">cross-motions</span>, asking <span class="ldml-entity">the trial court</span> to
conclude precisely the opposite-that, under the
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_8267"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> framework, the ventures were in fact
operating as general partnerships and therefore were not
investment contracts.</span>
</p><p data-paragraph-id="8505" class="ldml-paragraph ">
<span data-paragraph-id="8505" data-sentence-id="8516" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_8516"><span class="ldml-cite">¶8</span></a></span>
<span class="ldml-entity">The trial court</span> granted partial summary judgment in
<span class="ldml-entity">respondents</span>' favor.</span> <span data-paragraph-id="8505" data-sentence-id="8592" class="ldml-sentence">First, <span class="ldml-entity">the trial court</span> agreed with
<span class="ldml-entity">respondents</span> that under <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_8592"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> the general
partnerships are presumed not to be securities.</span> <span data-paragraph-id="8505" data-sentence-id="8723" class="ldml-sentence">In reaching
this conclusion, <span class="ldml-entity">the
<span class="ldml-pagenumber" data-id="pagenumber_8759" data-val="9" data-page_type="bare_number"></span>
court</span> referred to <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_8723"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> as creating a
<span class="ldml-quotation quote">"strong presumption"</span> that interests in general
partnerships are not securities.</span>
</p><p data-paragraph-id="8886" class="ldml-paragraph ">
<span data-paragraph-id="8886" data-sentence-id="8897" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_8897"><span class="ldml-cite">¶9</span></a></span>
Second, <span class="ldml-entity">the trial court</span> ruled that the Commissioner's
claims with respect to two of <span class="ldml-entity">the <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_8897"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span>
tests</span><span class="ldml-parenthetical"><sup class="ldml-superscript">[<a href="#note-ftn.FN3" class="ldml-noteanchor" id="note-ref-ftn.FN3">3</a>]</sup></span> failed as a matter of law.</span> <span data-paragraph-id="8886" data-sentence-id="9037" class="ldml-sentence"><span class="ldml-entity">The court</span>
described the first test as requiring that, in the
partnership agreements, the relationship among <span class="ldml-entity">the parties</span> is
tantamount to a limited partnership rather than a general
partnership-that is, the agreements themselves <span class="ldml-quotation quote">"restrict
the non-managing venturers' rights as to make the titular
general partnership really a limited partnership."</span></span> <span data-paragraph-id="8886" data-sentence-id="9390" class="ldml-sentence">And
it found that the agreements at issue here do not include
such restrictions.</span>
<span class="ldml-pagenumber" data-id="pagenumber_9473" data-val="10" data-page_type="bare_number"></span></p><p data-paragraph-id="9473" class="ldml-paragraph ">
<span data-paragraph-id="9473" data-sentence-id="9484" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_9484"><span class="ldml-cite">¶10</span></a></span>
<span class="ldml-entity">The court</span> described the third <span class="ldml-entity"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_9484"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> test</span> as
requiring that the non- managing partners are so dependent on
some unique ability of the manager that <span class="ldml-entity">they</span> cannot
realistically replace the manager.</span> <span data-paragraph-id="9473" data-sentence-id="9689" class="ldml-sentence">This, too, <span class="ldml-entity">the trial court</span>
concluded the Commissioner had failed to show.</span>
</p><p data-paragraph-id="9764" class="ldml-paragraph ">
<span data-paragraph-id="9764" data-sentence-id="9775" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_9775"><span class="ldml-cite">¶11</span></a></span>
Remaining in contention were the second test, which requires
that the partners be incapable of intelligently exercising
their partnership powers because of a lack of experience and
knowledge, and whatever other economic realities of the
ventures might be relevant.</span>
</p><p data-paragraph-id="10049" class="ldml-paragraph ">
<span data-paragraph-id="10049" data-sentence-id="10060" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_10060"><span class="ldml-cite">¶12</span></a></span>
<span class="ldml-entity">The case</span> proceeded to a bench trial in <span class="ldml-entity">July 2013</span> to determine
whether the ventures were securities.</span> <span data-paragraph-id="10049" data-sentence-id="10165" class="ldml-sentence"><span class="ldml-entity">The trial court</span>
determined that the second <span class="ldml-entity"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_10165"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> test</span> requires
asking <span class="ldml-quotation quote">"whether the partners are so inexperienced or
unknowledgeable in business affairs <em class="ldml-emphasis">generally</em>, not
whether <span class="ldml-entity">they</span> are experienced and sophisticated in the
particular industry or area in which the partnership engages
and <span class="ldml-entity">they</span> have invested,"</span> that <span class="ldml-entity">they</span> were <span class="ldml-quotation quote">"incapable
of intelligently exercising their partnership powers."</span></span>
<span data-paragraph-id="10049" data-sentence-id="10565" class="ldml-sentence"><span class="ldml-entity">The court</span> looked to the investors as a whole and found that
<span class="ldml-entity">they</span> were not so inexperienced or unknowledgeable in business
affairs that <span class="ldml-entity">they</span> were unable to exercise their partnership
powers intelligently.</span> <span data-paragraph-id="10049" data-sentence-id="10772" class="ldml-sentence"><span class="ldml-entity">The trial court</span> then looked to various
<span class="ldml-quotation quote">"catch-all economic realities"</span> as alternative bases
for assessing whether the interests could qualify as
investment contracts, but there, too, <span class="ldml-entity">the court</span> found that
the Commissioner failed to prove by a
<span class="ldml-pagenumber" data-id="pagenumber_11019" data-val="11" data-page_type="bare_number"></span>
preponderance of the evidence that the interests were
securities.</span> <span data-paragraph-id="10049" data-sentence-id="11088" class="ldml-sentence">Accordingly, <span class="ldml-entity">the court</span> concluded that the
interests were not investment contracts and entered judgment
vacating the setting of the remainder of the bifurcated
trial.</span>
</p><p data-paragraph-id="11257" class="ldml-paragraph ">
<span data-paragraph-id="11257" data-sentence-id="11268" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_11268"><span class="ldml-cite">¶13</span></a></span>
The Commissioner appealed, arguing that <span class="ldml-entity">the trial court</span> erred
<span class="ldml-parenthetical">(1)</span> when it applied a <span class="ldml-quotation quote">"strong presumption"</span> that
general partnership interests are not securities, and <span class="ldml-parenthetical">(2)</span>
when it failed to narrow the focus from investors'
<em class="ldml-emphasis">general</em> relevant business experience and knowledge
to <em class="ldml-emphasis">industry-specific</em> experience and knowledge.</span> <span data-paragraph-id="11257" data-sentence-id="11595" class="ldml-sentence">A
division of <span class="ldml-entity">the court of appeals</span> reversed.</span> <span data-paragraph-id="11257" data-sentence-id="11641" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/888325377" data-vids="888325377" class="ldml-reference" data-prop-ids="sentence_11595"><span class="ldml-refname"><em class="ldml-emphasis">Rome v. HEI
Res., Inc.</em></span>, <span class="ldml-cite">2014 COA 160</span></a></span>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_11595"><span class="ldml-cite">¶ 61</span></a></span></span>, <span class="ldml-entity"><a href="/vid/888325377" data-vids="888325377" class="ldml-reference"><span class="ldml-cite">411 P.3d 851, 863</span>
<span class="ldml-parenthetical">(<span class="ldml-quotation quote">"<span class="ldml-refname"><em class="ldml-emphasis">HEI I</em></span>"</span>)</span></a></span>.</span> <span data-paragraph-id="11257" data-sentence-id="11715" class="ldml-sentence">The division rejected the
strong presumption, <span class="ldml-entity"><a href="/vid/888325377" data-vids="888325377" class="ldml-reference" data-prop-ids="sentence_11715"><span class="ldml-cite"><em class="ldml-emphasis">id.</em></span></a></span> at <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_11715"><span class="ldml-cite">¶ 41</span></a></span>, <span class="ldml-entity"><a href="/vid/888325377" data-vids="888325377" class="ldml-reference" data-prop-ids="sentence_11715"><span class="ldml-cite">411 P.3d at
860</span></a></span>, concluded that the second <span class="ldml-entity"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_11715"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> test</span> looks
to investors' collective experience in <span class="ldml-quotation quote">"the specific
business of the venture,"</span> <span class="ldml-entity"><a href="/vid/888325377" data-vids="888325377" class="ldml-reference" data-prop-ids="sentence_11715"><span class="ldml-cite"><em class="ldml-emphasis">id.</em></span></a></span> at <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_11715"><span class="ldml-cite">¶ 58</span></a></span>, <span class="ldml-entity"><a href="/vid/888325377" data-vids="888325377" class="ldml-reference" data-prop-ids="sentence_11715"><span class="ldml-cite">411
P.3d at 863</span></a></span>, and then remanded for reconsideration of
<span class="ldml-quotation quote">"the second and third <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_11715"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> <span class="ldml-parenthetical">[tests]</span> and
any other <span class="ldml-quotation quote">'catch-all'</span> economic realities,"</span>
<span class="ldml-entity"><a href="/vid/888325377" data-vids="888325377" class="ldml-reference" data-prop-ids="sentence_11715"><span class="ldml-cite"><em class="ldml-emphasis">id.</em></span></a></span> at <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_11715"><span class="ldml-cite">¶ 61</span></a></span>, <span class="ldml-entity"><a href="/vid/888325377" data-vids="888325377" class="ldml-reference" data-prop-ids="sentence_11715"><span class="ldml-cite">411 P.3d at 863</span></a></span>.</span>
</p><p data-paragraph-id="12114" class="ldml-paragraph ">
<span data-paragraph-id="12114" data-sentence-id="12125" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_12125"><span class="ldml-cite">¶14</span></a></span>
On remand in <span class="ldml-entity">2016</span>, looking to the same record from the <span class="ldml-entity">2013</span>
trial, <span class="ldml-entity">the trial court</span> ruled that the ventures were
securities.</span> <span data-paragraph-id="12114" data-sentence-id="12256" class="ldml-sentence">Specifically, <span class="ldml-entity">the trial court</span> found that the
Commissioner <span class="ldml-parenthetical">(1)</span> met the second <span class="ldml-entity"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_12256"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> test</span> by
showing that the partners collectively lacked experience with
drilling and oil and gas exploration and thus were incapable
of intelligently exercising their partnership powers; <span class="ldml-parenthetical">(2)</span> met
the third <span class="ldml-entity"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_12256"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> test</span> by showing that no general
partner could have
<span class="ldml-pagenumber" data-id="pagenumber_12617" data-val="12" data-page_type="bare_number"></span>
capably replaced the managing partner, and thus the general
partners were dependent on HEI and HEDC's unique
managerial skills; and <span class="ldml-parenthetical">(3)</span> showed that the ventures'
other economic realities-demonstrated by a range of
facts-supported a conclusion that the interests were
securities.</span> <span data-paragraph-id="12114" data-sentence-id="12903" class="ldml-sentence"><span class="ldml-entity">The case</span> proceeded to a bench trial, and <span class="ldml-entity">the
trial court</span> found that <span class="ldml-entity">respondents</span> had violated provisions of
the CSA.</span>
</p><p data-paragraph-id="13021" class="ldml-paragraph ">
<span data-paragraph-id="13021" data-sentence-id="13032" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_13032"><span class="ldml-cite">¶15</span></a></span>
This time around, <span class="ldml-entity">respondents</span> appealed.</span> <span data-paragraph-id="13021" data-sentence-id="13077" class="ldml-sentence">A division of <span class="ldml-entity">the
court of appeals</span> ruled on only the threshold issue-whether
the interests were securities-and issued a limited remand.</span>
<span data-paragraph-id="13021" data-sentence-id="13215" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_13077"><span class="ldml-refname"><em class="ldml-emphasis">HEI II</em></span></a></span>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_13077"><span class="ldml-cite">¶ 61</span></a></span></span>, <span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference"><span class="ldml-cite">490 P.3d at 804</span></a></span>.</span> <span data-paragraph-id="13021" data-sentence-id="13246" class="ldml-sentence">Disagreeing with
<span class="ldml-entity"><a href="/vid/888325377" data-vids="888325377" class="ldml-reference" data-prop-ids="sentence_13246"><span class="ldml-refname"><em class="ldml-emphasis">HEI I</em></span></a></span>, this division reversed <span class="ldml-entity">the trial court</span> and
remanded with instructions to <span class="ldml-quotation quote">"make factual findings as
to whether the interests are investment contracts under the
second and third <span class="ldml-entity"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_13246"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> tests</span>, applying the
presumption, and based on the existing record alone."</span></span>
<span data-paragraph-id="13021" data-sentence-id="13536" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_13536"><span class="ldml-cite"><em class="ldml-emphasis">Id.</em></span></a></span> at <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_13536"><span class="ldml-cite">¶ 42</span></a></span>, <span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_13536"><span class="ldml-cite">490 P.3d at 800-01</span></a></span>.</span> <span data-paragraph-id="13021" data-sentence-id="13569" class="ldml-sentence">Regarding the
second <span class="ldml-entity"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_13569"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> test</span>, the division concluded that
<span class="ldml-quotation quote">"although venture-specific experience is unquestionably
relevant, it isn't necessarily required"</span> because the
material question is whether, <span class="ldml-quotation quote">"considering the nature of
the business, the partners collectively possess sufficient
knowledge and experience to intelligently exercise their
powers."</span></span> <span data-paragraph-id="13021" data-sentence-id="13933" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_13933"><span class="ldml-cite"><em class="ldml-emphasis">Id.</em></span></a></span> at <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_13933"><span class="ldml-cite">¶ 47</span></a></span>, <span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_13933"><span class="ldml-cite">490 P.3d at 801</span></a></span>.</span> <span data-paragraph-id="13021" data-sentence-id="13963" class="ldml-sentence">As
to the third <span class="ldml-entity"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_13963"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> test</span>, the division concluded
that <span class="ldml-entity">the trial court</span>'s focus on whether the investors
themselves possessed the skills necessary to replace the
managing partner was <span class="ldml-quotation quote">"too narrow."</span></span> <span data-paragraph-id="13021" data-sentence-id="14169" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_14169"><span class="ldml-cite"><em class="ldml-emphasis">Id.</em></span></a></span> at
<span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_14169"><span class="ldml-cite">¶ 51</span></a></span>, <span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_14169"><span class="ldml-cite">490 P.3d at 803</span></a></span>.</span> <span data-paragraph-id="13021" data-sentence-id="14200" class="ldml-sentence">And examining the <span class="ldml-quotation quote">"other
economic realities,"</span> the division concluded that,
<span class="ldml-pagenumber" data-id="pagenumber_14278" data-val="13" data-page_type="bare_number"></span>
consistent with <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_14200"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> itself, <span class="ldml-quotation quote">"there may
be considerations in addition to the three
<span class="ldml-entity"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_14200"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> tests</span> that bear on whether an ostensible
general partnership interest is an investment contract,"</span>
but the same facts that would lead to the conclusion that the
interests fail <span class="ldml-entity">the <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_14200"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> tests</span>
<span class="ldml-quotation quote">"shouldn't be repackaged under a <span class="ldml-quotation quote">'catch-all
economic realities'</span> test . . . absent some articulable
reason akin to <span class="ldml-entity">the <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_14200"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> tests</span>. . . ."</span></span>
<span data-paragraph-id="13021" data-sentence-id="14726" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_14726"><span class="ldml-cite"><em class="ldml-emphasis">Id.</em></span></a></span> at <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_14726"><span class="ldml-cite">¶ 56</span></a></span>, <span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_14726"><span class="ldml-cite">490 P.3d at 803</span></a></span>.</span> <span data-paragraph-id="13021" data-sentence-id="14756" class="ldml-sentence">The Commissioner
petitioned for certiorari, which <span class="ldml-entity">we</span> granted.</span><span data-paragraph-id="13021" data-sentence-id="14818" class="ldml-sentence"><span class="ldml-parenthetical"><sup class="ldml-superscript">[<a href="#note-ftn.FN4" class="ldml-noteanchor" id="note-ref-ftn.FN4">4</a>]</sup></span></span>
</p></div><div class="ldml-section"><section class="ldml-heading content__heading content__heading--depth1" data-confidences="very_high" data-types="analysis" data-content-heading-label="
II.
Analysis
" data-specifier="II" data-parsed="true" data-id="heading_14821" data-ordinal_end="2" data-ordinal_start="2" data-value="II.
Analysis" id="heading_14821" data-format="upper_case_roman_numeral"><span data-paragraph-id="14821" class="ldml-paragraph ">
<b class="ldml-bold"><span data-paragraph-id="14821" data-sentence-id="14832" class="ldml-sentence">II.</span>
<span data-paragraph-id="14821" data-sentence-id="14836" class="ldml-sentence">Analysis</span></b>
</span></section><p data-paragraph-id="14845" class="ldml-paragraph ">
<span data-paragraph-id="14845" data-sentence-id="14856" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_14856"><span class="ldml-cite">¶16</span></a></span>
<span class="ldml-entity">We</span> begin by stating the applicable standard of review and the
principles governing statutory construction.</span> <span data-paragraph-id="14845" data-sentence-id="14968" class="ldml-sentence"><span class="ldml-entity">We</span> then explain
the meaning of <span class="ldml-quotation quote">"investment contract"</span> under Colorado
and federal law before <span class="ldml-entity">we</span> turn to <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_14968"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span>-which
essentially sets out an approach to determining whether a
joint venture or general partnership satisfies the third
prong of the investment contract test established by <span class="ldml-entity">the
Supreme Court in <span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_14968"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span></a></span></span>.</span> <span data-paragraph-id="14845" data-sentence-id="15289" class="ldml-sentence"><span class="ldml-entity">We</span> conclude that
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_15289"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> does not require
<span class="ldml-pagenumber" data-id="pagenumber_15337" data-val="14" data-page_type="bare_number"></span>
starting with a <span class="ldml-quotation quote">"strong presumption"</span> that a general
partnership is not a security.</span> <span data-paragraph-id="14845" data-sentence-id="15423" class="ldml-sentence">Neither is such a presumption
an appropriate gloss on <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_15423"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span>'s insights
because it suggests that general partnerships are protected
from the reach of the securities laws by imposition of a
heightened burden of proof that is not included in state or
federal securities laws.</span> <span data-paragraph-id="14845" data-sentence-id="15706" class="ldml-sentence">Instead, what <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_15706"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span>
recognized, and <span class="ldml-entity">we</span> accept here, is simply that a venture
operating as a bona fide general partnership will likely not
satisfy the third prong of the <span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_15706"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span></a></span> investment
contract test because general partners are not passive
investors.</span> <span data-paragraph-id="14845" data-sentence-id="15968" class="ldml-sentence"><span class="ldml-entity">The <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_15968"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> opinion</span> elaborated three
distinct factual scenarios that could demonstrate that a
general partnership in name might nonetheless satisfy <span class="ldml-entity">the
<span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_15968"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span></a></span> test</span>.</span> <span data-paragraph-id="14845" data-sentence-id="16138" class="ldml-sentence"><span class="ldml-entity">We</span> conclude here that
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_16138"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span>'s elaboration of these scenarios is a
helpful approach, and <span class="ldml-entity">we</span> consider four aspects of the
approach that <span class="ldml-entity">the parties</span> contest and that received different
treatment in the two different division opinions below.</span>
</p><div class="ldml-section"><section class="ldml-heading content__heading content__heading--depth2" data-confidences="very_high,very_high" data-types="backgroundlaw,standardofreview" data-content-heading-label="
A.
Standard of Review and General Principles
" data-specifier="A" data-parsed="true" data-id="heading_16385" data-ordinal_end="1" data-ordinal_start="1" data-value="A.
Standard of Review and General Principles" id="heading_16385" data-format="upper_case_letters"><span data-paragraph-id="16385" class="ldml-paragraph ">
<b class="ldml-bold"><span data-paragraph-id="16385" data-sentence-id="16396" class="ldml-sentence">A.</span>
<span data-paragraph-id="16385" data-sentence-id="16399" class="ldml-sentence">Standard of Review and General Principles</span></b>
</span></section><p data-paragraph-id="16441" class="ldml-paragraph ">
<span data-paragraph-id="16441" data-sentence-id="16452" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_16452"><span class="ldml-cite">¶17</span></a></span>
<span class="ldml-entity">We</span> review questions of statutory interpretation de novo.</span>
<span data-paragraph-id="16441" data-sentence-id="16513" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/890504259" data-vids="890504259" class="ldml-reference" data-prop-ids="sentence_16452"><span class="ldml-refname"><em class="ldml-emphasis">Thompson v. People</em></span>, <span class="ldml-cite">2020 CO 72</span></a></span>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_16452"><span class="ldml-cite">¶ 22</span></a></span></span>, <span class="ldml-entity"><a href="/vid/890504259" data-vids="890504259" class="ldml-reference"><span class="ldml-cite">471 P.3d
1045, 1051</span></a></span>.</span> <span data-paragraph-id="16441" data-sentence-id="16573" class="ldml-sentence">In interpreting <span class="ldml-entity">a statute</span>, <span class="ldml-entity">we</span> aim to identify and
then give effect to the General Assembly's intent.</span>
<span data-paragraph-id="16441" data-sentence-id="16675" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/890504259" data-vids="890504259" class="ldml-reference" data-prop-ids="sentence_16573"><span class="ldml-cite"><em class="ldml-emphasis">Id.</em></span></a></span></span>
</p><p data-paragraph-id="16679" class="ldml-paragraph ">
<span data-paragraph-id="16679" data-sentence-id="16690" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_16690"><span class="ldml-cite">¶18</span></a></span>
As directed by <span class="ldml-entity">the legislature</span>, <span class="ldml-entity">we</span> construe provisions of the
CSA broadly to effectuate its purposes <span class="ldml-quotation quote">"to protect
investors and maintain public confidence in securities
markets while avoiding unreasonable burdens on participants
in capital
<span class="ldml-pagenumber" data-id="pagenumber_16940" data-val="15" data-page_type="bare_number"></span>
markets."</span></span> <span data-paragraph-id="16679" data-sentence-id="16952" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_16690"><span class="ldml-cite">§ 11-51-101<span class="ldml-headnoteanchor"><span class="ldml-parenthetical">(2)</span></span>, C.R.S.</span> <span class="ldml-parenthetical">(<span class="ldml-date">2021</span>)</span></a></span>.</span> <span data-paragraph-id="16679" data-sentence-id="16983" class="ldml-sentence">The CSA is
<span class="ldml-quotation quote">"remedial in nature."</span></span> <span data-paragraph-id="16679" data-sentence-id="17017" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_16983"><span class="ldml-cite"><em class="ldml-emphasis">Id.</em></span></a></span></span> <span data-paragraph-id="16679" data-sentence-id="17021" class="ldml-sentence">Further, its
provisions are to be coordinated with referenced federal law
<span class="ldml-quotation quote">"to the extent coordination is consistent with both the
purposes and of the provisions of"</span> the CSA.</span> <span data-paragraph-id="16679" data-sentence-id="17198" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_17021"><span class="ldml-cite">§
11-51-101<span class="ldml-headnoteanchor"><span class="ldml-parenthetical">(3)</span></span></span></a></span>.</span> <span data-paragraph-id="16679" data-sentence-id="17215" class="ldml-sentence">Indeed, <span class="ldml-entity">we</span> have consistently recognized that
<span class="ldml-quotation quote">"insofar as the provisions and purposes of our <span class="ldml-entity">statute</span>
parallel those of the federal <span class="ldml-entity">enactments</span>, such federal
authorities are highly persuasive."</span></span> <span data-paragraph-id="16679" data-sentence-id="17409" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_17215" data-refglobal="case:caglevmathersfamtr,2013co7"><span class="ldml-refname"><em class="ldml-emphasis">Cagle v. Mathers
Fam. Tr.</em></span>, <span class="ldml-cite">2013 CO 7</span></a></span>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_17215"><span class="ldml-cite">¶ 19</span></a></span></span>, <span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/888310957" data-vids="888310957" class="ldml-reference"><span class="ldml-cite">295 P.3d 460, 465</span></a></span>
<span class="ldml-parenthetical">(<span class="ldml-cert">quoting</span> <span class="ldml-entity"><a href="/vid/889084303" data-vids="889084303" class="ldml-reference"><span class="ldml-refname"><em class="ldml-emphasis">Lowery v. Ford Hill Inv. Co.</em></span>, <span class="ldml-cite">556 P.2d
1201, 1204</span> <span class="ldml-parenthetical">(<span class="ldml-court">Colo.</span> <span class="ldml-date">1976</span>)</span></a></span>)</span></span>.</span><span data-paragraph-id="16679" data-sentence-id="17546" class="ldml-sentence"><span class="ldml-parenthetical"><sup class="ldml-superscript">[<a href="#note-ftn.FN5" class="ldml-noteanchor" id="note-ref-ftn.FN5">5</a>]</sup></span></span>
</p></div><div class="ldml-section"><section class="ldml-heading content__heading content__heading--depth2" data-ordinal_end="2" data-content-heading-label="
B.
The Meaning
of &quot;Investment
Contract&quot; in the CSA
" data-specifier="B" data-parsed="true" data-id="heading_17549" data-ordinal_start="2" data-value="B.
The Meaning
of &quot;Investment
Contract&quot; in the CSA" id="heading_17549" data-format="upper_case_letters"><span data-paragraph-id="17549" class="ldml-paragraph ">
<span data-paragraph-id="17549" data-sentence-id="17560" class="ldml-sentence"><b class="ldml-bold">B.</b></span>
<span data-paragraph-id="17549" data-sentence-id="17563" class="ldml-sentence"><b class="ldml-bold">The</b> <b class="ldml-bold">Meaning</b>
<b class="ldml-bold">of</b> <span class="ldml-quotation quote"><b class="ldml-bold">"Investment</b>
<b class="ldml-bold">Contract"</b></span><b class="ldml-bold"> in the CSA</b></span>
</span></section><p data-paragraph-id="17611" class="ldml-paragraph ">
<span data-paragraph-id="17611" data-sentence-id="17622" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_17622"><span class="ldml-cite">¶19</span></a></span>
This dispute hinges on whether the ventures established by
HEI and HEDC are <span class="ldml-quotation quote">"investment contracts"</span> and
therefore securities under the CSA.</span> <span data-paragraph-id="17611" data-sentence-id="17768" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-signal"><em class="ldml-emphasis">See</em></span> <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="embeddedsentence_17805,sentence_17622"><span class="ldml-cite">§
11-51-201<span class="ldml-parenthetical">(17)</span>, C.R.S.</span> <span class="ldml-parenthetical">(<span class="ldml-date">2021</span>)</span></a></span> <span class="ldml-parenthetical">(<span class="ldml-embeddedsentence">including <span class="ldml-quotation quote">"investment
contract"</span> in definition of <span class="ldml-quotation quote">"security"</span></span>)</span></span>.</span>
<span data-paragraph-id="17611" data-sentence-id="17868" class="ldml-sentence"><span class="ldml-quotation quote">"Investment contract"</span> is not defined in the CSA,
but <span class="ldml-entity">we</span> have adopted as our own the three-part test set forth
by <span class="ldml-entity">the Supreme Court in <span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_17868"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span></a></span></span>, when it interpreted
the same term's meaning under the federal securities
acts.</span> <span data-paragraph-id="17611" data-sentence-id="18092" class="ldml-sentence"><em class="ldml-emphasis">See
<span class="ldml-pagenumber" data-id="pagenumber_18096" data-val="16" data-page_type="bare_number"></span>
Thompson</em>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_18092"><span class="ldml-cite">¶ 26</span></a></span>, <span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/890504259" data-vids="890504259" class="ldml-reference" data-prop-ids="sentence_18092"><span class="ldml-cite">471 P.3d at 1052</span></a></span> <span class="ldml-parenthetical">(<span class="ldml-embeddedsentence"><span class="ldml-relatingauthority">noting</span> that
<span class="ldml-entity">we</span> adopted <span class="ldml-entity">the <span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="embeddedsentence_18131"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span></a></span> test</span> in <span class="ldml-entity">1976</span></span>)</span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/889084303" data-vids="889084303" class="ldml-reference" data-prop-ids="sentence_18092"><span class="ldml-refname"><em class="ldml-emphasis">Lowrey</em></span>,
<span class="ldml-cite">556 P.2d at 1204-05</span></a></span></span>.</span> <span data-paragraph-id="17611" data-sentence-id="18210" class="ldml-sentence">Under <span class="ldml-entity">the <span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_18210"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span></a></span> test</span> <span class="ldml-quotation quote">"an
<span class="ldml-quotation quote">'investment contract'</span> is: <span class="ldml-parenthetical">(1)</span>a contract, transaction,
or scheme whereby a person invests his or her money <span class="ldml-parenthetical">(2)</span>in a
common enterprise and <span class="ldml-parenthetical">(3)</span> is led to expect profits
<span class="ldml-parenthetical">[substantially]</span> derived from the entrepreneurial or
managerial efforts of others."</span></span> <span data-paragraph-id="17611" data-sentence-id="18488" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/888886112" data-vids="888886112" class="ldml-reference" data-prop-ids="sentence_18210"><span class="ldml-refname"><em class="ldml-emphasis">Toothman v. Freeborn
& Peters</em></span>, <span class="ldml-cite">80 P.3d 804, 811</span> <span class="ldml-parenthetical">(<span class="ldml-court">Colo.App.</span> <span class="ldml-date">2002</span>)</span></a></span><span class="ldml-referenceseparator">;</span> <em class="ldml-emphasis"><span class="ldml-signal">see</span>
</em><span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_18210"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span>, <span class="ldml-cite">328 U.S. at 298-99</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/890110638" data-vids="890110638" class="ldml-reference" data-prop-ids="sentence_18210"><span class="ldml-refname"><em class="ldml-emphasis">Lawrence v. People</em></span>,
<span class="ldml-cite">2021 CO 28</span></a></span>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_18210"><span class="ldml-cite">¶ 31</span></a></span></span>, <span class="ldml-entity"><a href="/vid/890110638" data-vids="890110638" class="ldml-reference"><span class="ldml-cite">486 P.3d 269, 276</span></a></span>.</span> <span data-paragraph-id="17611" data-sentence-id="18644" class="ldml-sentence">The advantage of
this test is that it <span class="ldml-quotation quote">"is capable of adaptation to meet
the countless and variable schemes devised by those who seek
the use of the money of others on the promise of
profits."</span></span> <span data-paragraph-id="17611" data-sentence-id="18840" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_18644"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span>, <span class="ldml-cite">328 U.S. at 299</span></a></span>.</span> <span data-paragraph-id="17611" data-sentence-id="18864" class="ldml-sentence">The approach
thus serves the purposes of the CSA as a remedial <span class="ldml-entity">statute</span>
designed to be broad in scope.</span> <span data-paragraph-id="17611" data-sentence-id="18968" class="ldml-sentence"><em class="ldml-emphasis">See Thompson</em>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_18968"><span class="ldml-cite">¶
24</span></a></span>, <span class="ldml-entity"><a href="/vid/890504259" data-vids="890504259" class="ldml-reference" data-prop-ids="sentence_18968"><span class="ldml-cite">471 P.3d at 1051-52</span></a></span>.</span>
</p></div><div class="ldml-section"><section class="ldml-heading content__heading content__heading--depth2" data-ordinal_end="3" data-content-heading-label="
C. The
Williamson Tests
" data-specifier="C" data-parsed="true" data-id="heading_19010" data-ordinal_start="3" data-value="C. The
Williamson Tests" id="heading_19010" data-format="upper_case_letters"><span data-paragraph-id="19010" class="ldml-paragraph ">
<span data-paragraph-id="19010" data-sentence-id="19021" class="ldml-sentence">C.</span> <span data-paragraph-id="19010" data-sentence-id="19024" class="ldml-sentence">The
<em class="ldml-emphasis">Williamson</em> Tests</span>
</span></section><p data-paragraph-id="19046" class="ldml-paragraph ">
<span data-paragraph-id="19046" data-sentence-id="19057" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_19057"><span class="ldml-cite">¶20</span></a></span>
The question that confronts <span class="ldml-entity">us</span> here, and that confronted the
Fifth Circuit in <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_19057"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span>, is whether a venture
that is denominated as a general partnership can meet the
third prong of <span class="ldml-entity">the <span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_19057"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span></a></span> test</span>-that the investors
expect to make a profit substantially derived from the
efforts of others.</span> <span data-paragraph-id="19046" data-sentence-id="19359" class="ldml-sentence">In analyzing this question, the Fifth
Circuit first concluded that passive investments and general
partnerships are generally distinct, given the nature of
general partnerships.</span> <span data-paragraph-id="19046" data-sentence-id="19540" class="ldml-sentence"><span class="ldml-referencechain"><em class="ldml-emphasis"><span class="ldml-signal">See</span> </em><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_19359"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span>, <span class="ldml-cite">645 F.2d at
422</span></a></span></span>.</span> <span data-paragraph-id="19046" data-sentence-id="19574" class="ldml-sentence">It then set out three non-exhaustive tests that might
prove that a general partnership interest is an
<span class="ldml-quotation quote">"investment contract"</span> within the federal acts'
<span class="ldml-pagenumber" data-id="pagenumber_19727" data-val="17" data-page_type="bare_number"></span>
definitions of <span class="ldml-quotation quote">"securities."</span></span> <span data-paragraph-id="19046" data-sentence-id="19758" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_19574"><span class="ldml-cite"><em class="ldml-emphasis">Id.</em> at 417,
419-23</span></a></span>.</span> <span data-paragraph-id="19046" data-sentence-id="19779" class="ldml-sentence">Although several <span class="ldml-entity">decisions of <span class="ldml-entity">the court of appeals</span></span>
have cited <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_19779"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> approvingly, <span class="ldml-referencechain"><em class="ldml-emphasis"><span class="ldml-signal">see</span>
</em><span class="ldml-entity"><a href="/vid/888886112" data-vids="888886112" class="ldml-reference" data-prop-ids="sentence_19779"><span class="ldml-refname"><em class="ldml-emphasis">Toothman</em></span>, <span class="ldml-cite">80 P.3d at 811</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/888515757" data-vids="888515757" class="ldml-reference" data-prop-ids="sentence_19779"><span class="ldml-refname"><em class="ldml-emphasis">Feigin v. Digital
Interactive Assocs.</em>, <em class="ldml-emphasis">Inc.</em></span>, <span class="ldml-cite">987 P.2d 876, 882</span>
<span class="ldml-parenthetical">(<span class="ldml-court">Colo.App.</span> <span class="ldml-date">1999</span>)</span></a></span><span class="ldml-referenceseparator">;</span> <em class="ldml-emphasis"><span class="ldml-signal">see also</span> </em><span class="ldml-entity"><a href="/vid/891939766" data-vids="891939766" class="ldml-reference" data-prop-ids="sentence_19779"><span class="ldml-refname"><em class="ldml-emphasis">Joseph v. Mieka Corp.</em></span>,
<span class="ldml-cite">2012 COA 84</span></a></span>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_19779"><span class="ldml-cite">¶¶ 18-22</span></a></span></span>, <span class="ldml-entity"><a href="/vid/891939766" data-vids="891939766" class="ldml-reference" data-prop-ids="sentence_19779"><span class="ldml-cite">282 P.3d 509, 514-15</span></a></span>, <span class="ldml-entity">we</span>
have not previously considered whether it should apply when
evaluating general partnerships under the CSA.</span> <span data-paragraph-id="19046" data-sentence-id="20168" class="ldml-sentence">This is the
question <span class="ldml-entity">we</span> turn to now.</span>
</p><p data-paragraph-id="20206" class="ldml-paragraph ">
<span data-paragraph-id="20206" data-sentence-id="20217" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_20217"><span class="ldml-cite">¶21</span></a></span>
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_20217"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> identified three features of general
partnerships.</span> <span data-paragraph-id="20206" data-sentence-id="20284" class="ldml-sentence">First, general partners maintain control of the
business venture.</span> <span data-paragraph-id="20206" data-sentence-id="20351" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_20284"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span>, <span class="ldml-cite">645 F.2d at 421-22</span></a></span>.</span>
<span data-paragraph-id="20206" data-sentence-id="20383" class="ldml-sentence">This is true even if <span class="ldml-entity">they</span> delegate day-to-day management
responsibilities, <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_20383"><span class="ldml-cite"><em class="ldml-emphasis">id.</em> at 421</span></a></span>, though the joint and
several liability for debts and obligations that attends
general partnership typically incentivizes active engagement
or wise delegation of management duties, <span class="ldml-referencechain"><em class="ldml-emphasis"><span class="ldml-signal">see</span> </em><span class="ldml-entity"><a href="/vid/892110669" data-vids="892110669" class="ldml-reference" data-prop-ids="sentence_20383"><span class="ldml-refname"><em class="ldml-emphasis">Secs. &
Exch. Comm'n v. Merch. Cap., LLC</em></span>, <span class="ldml-cite">483 F.3d 747,
755-56</span> <span class="ldml-parenthetical">(<span class="ldml-court">11th Cir.</span> <span class="ldml-date">2007</span>)</span></a></span></span>.</span> <span data-paragraph-id="20206" data-sentence-id="20741" class="ldml-sentence">Second, general partners have rights
to access information.</span> <span data-paragraph-id="20206" data-sentence-id="20802" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_20741"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span>, <span class="ldml-cite">645 F.2d at
421-22, 424</span></a></span>.</span> <span data-paragraph-id="20206" data-sentence-id="20840" class="ldml-sentence">Third, relatedly, because the <span class="ldml-quotation quote">"partnership
powers are not in the nature of a nominal role in the
enterprise,"</span> <span class="ldml-quotation quote">"<span class="ldml-parenthetical">[a]</span>n investor who is offered an
interest in a general partnership or joint venture should be
on notice . . . that his ownership rights are significant,
and that the federal securities acts will not protect him
from a mere failure to exercise his rights."</span></span>
<span data-paragraph-id="20206" data-sentence-id="21212" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_20840"><span class="ldml-cite"><em class="ldml-emphasis">Id.</em> at 422</span></a></span>.</span>
<span class="ldml-pagenumber" data-id="pagenumber_21224" data-val="18" data-page_type="bare_number"></span></p><p data-paragraph-id="21224" class="ldml-paragraph ">
<span data-paragraph-id="21224" data-sentence-id="21235" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_21235"><span class="ldml-cite">¶22</span></a></span>
In sum, general partners have the <span class="ldml-quotation quote">"sort of influence
which generally provides them with . . . protection against a
dependence on others."</span></span> <span data-paragraph-id="21224" data-sentence-id="21380" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_21235"><span class="ldml-cite"><em class="ldml-emphasis">Id.</em></span></a></span></span> <span data-paragraph-id="21224" data-sentence-id="21384" class="ldml-sentence">In contrast,
dependence on others <span class="ldml-quotation quote">"is implicit in an investment
contract."</span></span> <span data-paragraph-id="21224" data-sentence-id="21461" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_21384"><span class="ldml-cite"><em class="ldml-emphasis">Id.</em> at 423</span></a></span>.</span>
</p><p data-paragraph-id="21473" class="ldml-paragraph ">
<span data-paragraph-id="21473" data-sentence-id="21484" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_21484"><span class="ldml-cite">¶23</span></a></span>
But <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_21484"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> made clear that <span class="ldml-quotation quote">"the mere fact
that an investment takes the form of a general partnership or
joint venture does not inevitably insulate it from the reach
of the federal securities laws."</span></span> <span data-paragraph-id="21473" data-sentence-id="21694" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_21484"><span class="ldml-cite"><em class="ldml-emphasis">Id.</em> at 422</span></a></span>.</span>
<span data-paragraph-id="21473" data-sentence-id="21706" class="ldml-sentence">This is because <span class="ldml-quotation quote">"in searching for the meaning and scope
of the word <span class="ldml-quotation quote">'security'</span> in <span class="ldml-entity">the Act</span><span class="ldml-parenthetical">[s]</span>, form should be
disregarded for substance and the emphasis should be on
economic reality."</span></span> <span data-paragraph-id="21473" data-sentence-id="21893" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/892744479" data-vids="892744479" class="ldml-reference" data-prop-ids="embeddedsentence_21957,sentence_21706"><span class="ldml-refname"><em class="ldml-emphasis">United Hous. Found., Inc. v.
Forman</em></span>, <span class="ldml-cite">421 U.S. 837, 848</span> <span class="ldml-parenthetical">(<span class="ldml-date">1975</span>)</span></a></span> <span class="ldml-parenthetical">(<span class="ldml-embeddedsentence"><span class="ldml-cert">quoting</span> <span class="ldml-entity"><a href="/vid/891454298" data-vids="891454298" class="ldml-reference" data-prop-ids="sentence_21706"><span class="ldml-refname"><em class="ldml-emphasis">Tcherepnin
v.</em> <em class="ldml-emphasis">Knight</em></span>, <span class="ldml-cite">389 U.S. 332, 336</span> <span class="ldml-parenthetical">(<span class="ldml-date">1967</span>)</span></a></span> <span class="ldml-parenthetical">(second
<span class="ldml-referencenote">alteration in the original</span>)</span></span>)</span><span class="ldml-referenceseparator">;</span> <em class="ldml-emphasis"><span class="ldml-signal">see also</span> </em><span class="ldml-entity"><a href="/vid/889084303" data-vids="889084303" class="ldml-reference" data-prop-ids="embeddedsentence_22088,sentence_21706"><span class="ldml-refname"><em class="ldml-emphasis">Lowery</em></span>, <span class="ldml-cite">556
P.2d at 1205</span></a></span> <span class="ldml-parenthetical">(<span class="ldml-quotation quote"><span class="ldml-embeddedsentence">"The hallmark of state and federal
securities regulation has always been close attention to the
facts of each case and a substantive appraisal of the
commercial realities of the offering."</span></span>)</span></span>.</span> <span data-paragraph-id="21473" data-sentence-id="22282" class="ldml-sentence">Thus, under the
third prong of <span class="ldml-entity">the <span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_22282"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span></a></span> test</span><em class="ldml-emphasis">, <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_22282"><span class="ldml-refname">Williamson</span></a></span></em>
explained, <span class="ldml-quotation quote">"a partnership <em class="ldml-emphasis">can</em> be an investment
contract <span class="ldml-parenthetical">[but]</span> only when the partners are so dependent on a
particular manager that <span class="ldml-entity">they</span> cannot replace him or otherwise
exercise ultimate control."</span></span> <span data-paragraph-id="21473" data-sentence-id="22541" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_22282"><span class="ldml-cite">645 F.2d at 424</span></a></span> <span class="ldml-parenthetical">(<span class="ldml-referencenote">emphasis
added</span>)</span></span>.</span> <span data-paragraph-id="21473" data-sentence-id="22576" class="ldml-sentence">With this in mind, the Fifth Circuit described three
circumstances, any one of which might demonstrate that a
particular general partnership interest satisfies <span class="ldml-entity">the
<span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_22576"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span></a></span> test</span>:</span>
</p><div class="ldml-embeddeddocument"><blockquote data-paragraph-id="b_22755" class="ldml-blockquote">
<span data-sentence-id="22756" class="ldml-sentence">A general partnership or joint venture interest can be
designated a security if the investor can establish, for
example, that <span class="ldml-parenthetical">(1)</span> an
<span class="ldml-pagenumber" data-id="pagenumber_22893" data-val="19" data-page_type="bare_number"></span>
agreement among <span class="ldml-entity">the parties</span> leaves so little power in the
hands of the partner or venturer that the arrangement in fact
distributes power as would a limited partnership; or <span class="ldml-parenthetical">(2)</span> the
partner or venturer is so inexperienced and unknowledgeable
in business affairs that <span class="ldml-entity">he</span> is incapable of intelligently
exercising his partnership or venture powers; or <span class="ldml-parenthetical">(3)</span> the
partner or venturer is so dependent on some unique
entrepreneurial or managerial ability of the promoter or
manager that <span class="ldml-entity">he</span> cannot replace the manager of the enterprise
or otherwise exercise meaningful partnership or venture
powers.</span>
</blockquote><p data-paragraph-id="23494" class="ldml-paragraph ">
<span data-paragraph-id="23494" data-sentence-id="23495" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference"><span class="ldml-cite"><em class="ldml-emphasis">Id.</em></span></a></span></span>
</p></div><p data-paragraph-id="23499" class="ldml-paragraph ">
<span data-paragraph-id="23499" data-sentence-id="23510" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_23510"><span class="ldml-cite">¶24</span></a></span>
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_23510"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> identified the unusual circumstances in
which a venture legally titled a general partnership might
nonetheless be an investment contract in light of the actual
economic realities at play.</span> <span data-paragraph-id="23499" data-sentence-id="23716" class="ldml-sentence">Because this approach allows for
individualized scrutiny of the economic realities of a given
instrument or scheme, and because it provides a clear means
of applying the third prong of <span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_23716"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span></a></span>, <span class="ldml-entity">we</span> conclude
that <span class="ldml-entity">the <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_23716"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> approach</span> does apply to the CSA.</span>
<span data-paragraph-id="23499" data-sentence-id="23976" class="ldml-sentence">That conclusion does not, however, fully answer the questions
<span class="ldml-entity">we</span> face here.</span> <span data-paragraph-id="23499" data-sentence-id="24053" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_24053"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> has been interpreted in
varying ways in state and <span class="ldml-entity">federal courts</span> around the country.</span>
<span data-paragraph-id="23499" data-sentence-id="24150" class="ldml-sentence"><span class="ldml-entity">We</span> explain below how it should be applied to the CSA.</span>
</p><p data-paragraph-id="24204" class="ldml-paragraph ">
<b class="ldml-bold"><span data-paragraph-id="24204" data-sentence-id="24215" class="ldml-sentence">1.</span>
</b><span data-paragraph-id="24204" data-sentence-id="24218" class="ldml-sentence"><b class="ldml-bold">There</b> <b class="ldml-bold">is</b> <b class="ldml-bold">No</b>
<span class="ldml-quotation quote"><b class="ldml-bold">"Strong</b>
<b class="ldml-bold">Presumption"</b></span> <b class="ldml-bold">under</b>
<b class="ldml-bold">the</b> <b class="ldml-bold">CSA</b>
<b class="ldml-bold">that</b> <b class="ldml-bold">a General Partnership is not an
Investment Contract</b></span>
</p><p data-paragraph-id="24323" class="ldml-paragraph ">
<span data-paragraph-id="24323" data-sentence-id="24334" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_24334"><span class="ldml-cite">¶25</span></a></span>
The division below interpreted <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_24334"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> as
establishing a <span class="ldml-quotation quote">"strong presumption"</span> that an entity
designated as a general partnership is not an investment
contract.</span> <span data-paragraph-id="24323" data-sentence-id="24505" class="ldml-sentence"><span class="ldml-entity">We</span> disagree.</span>
<span class="ldml-pagenumber" data-id="pagenumber_24518" data-val="20" data-page_type="bare_number"></span></p><p data-paragraph-id="24518" class="ldml-paragraph ">
<span data-paragraph-id="24518" data-sentence-id="24529" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_24529"><span class="ldml-cite">¶26</span></a></span>
<span class="ldml-entity">We</span> do recognize, as did <span class="ldml-entity">the <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_24529"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> court</span>, that a
bona fide general partnership will ordinarily not involve
passive investment and therefore will not satisfy the third
prong of <span class="ldml-entity">the <span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_24529"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span></a></span> test</span>.</span> <span data-paragraph-id="24518" data-sentence-id="24732" class="ldml-sentence">Indeed, the Commissioner
herself acknowledged that in a <span class="ldml-quotation quote">"legitimate"</span> general
partnership, <span class="ldml-quotation quote">"the general partners have the power to
affect the outcome of the business."</span></span><span data-paragraph-id="24518" data-sentence-id="24901" class="ldml-sentence"><span class="ldml-parenthetical"><sup class="ldml-superscript">[<a href="#note-ftn.FN6" class="ldml-noteanchor" id="note-ref-ftn.FN6">6</a>]</sup></span> As
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_24901"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> explained, because <span class="ldml-quotation quote">"meaningful
powers possessed by joint venturers under a joint venture
agreement do indeed preclude a finding that joint venture
interests are securities,"</span> <span class="ldml-entity">plaintiffs</span> <span class="ldml-quotation quote">"have an
extremely difficult factual burden"</span> if <span class="ldml-entity">they</span> are to prove
that investors in a titular general partnership actually
expected profits from the managerial efforts of others.</span> <span data-paragraph-id="24518" data-sentence-id="25289" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_24901" data-refglobal="case:645f3dat425"><span class="ldml-cite">645
F.3d at 425</span></a></span>.</span>
</p><p data-paragraph-id="25307" class="ldml-paragraph ">
<span data-paragraph-id="25307" data-sentence-id="25318" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_25318"><span class="ldml-cite">¶27</span></a></span>
In the years since <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_25318"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> was decided, the
difference between <span class="ldml-entity">the plaintiff</span>'s <span class="ldml-quotation quote">"difficult
factual burden"</span> to meet its burden of proof and a
<span class="ldml-quotation quote">"presumption"</span> about the status of general
partnerships has led to divergent articulations of
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_25318"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span>'s meaning in <span class="ldml-entity">courts</span> around the
country.</span> <span data-paragraph-id="25307" data-sentence-id="25616" class="ldml-sentence">On one hand, many <span class="ldml-entity">courts</span> do, as the division below
did, refer to a <span class="ldml-quotation quote">"presumption"</span> or <span class="ldml-quotation quote">"strong
<span class="ldml-pagenumber" data-id="pagenumber_25711" data-val="21" data-page_type="bare_number"></span>
presumption"</span> against classifying general partnerships as
securities.</span> <span data-paragraph-id="25307" data-sentence-id="25783" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-signal"><em class="ldml-emphasis">See, e.g.</em></span>, <span class="ldml-entity"><a href="/vid/885963084" data-vids="885963084" class="ldml-reference" data-prop-ids="sentence_25616"><span class="ldml-refname"><em class="ldml-emphasis">Secs. & Exch.
Comm'n v. Shields</em></span>, <span class="ldml-cite">744 F.3d 633, 643</span> <span class="ldml-parenthetical">(<span class="ldml-court">10th Cir.</span>
<span class="ldml-date">2014</span>)</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_25616" data-refglobal="case:rivannatrawlersunlimitedvthompsontrawlers,incno87-2516840f2d236,56uslw2512decidedfeb22,1988"><span class="ldml-refname"><em class="ldml-emphasis">Rivanna Trawlers Unltd. v. Thompson Trawlers,
Inc.</em></span>, <span class="ldml-cite">840 F.2d 236, 241</span> <span class="ldml-parenthetical">(<span class="ldml-court">4th Cir.</span> <span class="ldml-date">1988</span>)</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/891163339" data-vids="891163339" class="ldml-reference" data-prop-ids="sentence_25616"><span class="ldml-refname"><em class="ldml-emphasis">Youmans v.
Simon</em></span>, <span class="ldml-cite">791 F.2d 341, 346</span> <span class="ldml-parenthetical">(<span class="ldml-court">5th Cir.</span> <span class="ldml-date">1986</span>)</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/892110669" data-vids="892110669" class="ldml-reference" data-prop-ids="sentence_25616"><span class="ldml-refname"><em class="ldml-emphasis">Merch.
Cap.</em></span>, <span class="ldml-cite">483 F.3d at 755</span></a></span></span>.</span> <span data-paragraph-id="25307" data-sentence-id="26037" class="ldml-sentence">But others have done what the
<span class="ldml-entity"><a href="/vid/888325377" data-vids="888325377" class="ldml-reference" data-prop-ids="sentence_26037"><span class="ldml-refname"><em class="ldml-emphasis">HEI I</em></span></a></span> division did, and applied <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_26037"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span>
without invoking any <span class="ldml-quotation quote">"presumption."</span></span> <span data-paragraph-id="25307" data-sentence-id="26148" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-signal"><em class="ldml-emphasis">See,
e.g.</em></span>, <span class="ldml-entity"><a href="/vid/891961042" data-vids="891961042" class="ldml-reference" data-prop-ids="sentence_26037"><span class="ldml-refname"><em class="ldml-emphasis">Secs. & Exch. Comm'n v. Schooler</em></span>,
<span class="ldml-cite">905 F.3d 1107, 1112</span> <span class="ldml-parenthetical">(<span class="ldml-court">9th Cir.</span> <span class="ldml-date">2018</span>)</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/887367102" data-vids="887367102" class="ldml-reference" data-prop-ids="sentence_26037"><span class="ldml-refname"><em class="ldml-emphasis">Odom v. Slavik</em></span>,
<span class="ldml-cite">703 F.2d 212, 215</span> <span class="ldml-parenthetical">(<span class="ldml-court">6th Cir.</span> <span class="ldml-date">1983</span>)</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/890024276" data-vids="890024276" class="ldml-reference" data-prop-ids="sentence_26037"><span class="ldml-refname"><em class="ldml-emphasis">Secs. & Exch.
Comm'n v. Telecom Mktg., Inc.</em></span>, <span class="ldml-cite">888 F.Supp. 1160,
1165</span> <span class="ldml-parenthetical">(<span class="ldml-court">N.D.Ga.</span> <span class="ldml-date">1995</span>)</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/895357816" data-vids="895357816" class="ldml-reference" data-prop-ids="sentence_26037"><span class="ldml-refname"><em class="ldml-emphasis">McConnell v. Frank Howard Allen
& Co.</em></span>, <span class="ldml-cite">574 F.Supp. 781, 786</span> <span class="ldml-parenthetical">(<span class="ldml-court">N.D. Cal.</span> <span class="ldml-date">1983</span>)</span></a></span><span class="ldml-referenceseparator">;</span>
<span class="ldml-entity"><a href="/vid/889901398" data-vids="889901398" class="ldml-reference" data-prop-ids="sentence_26037"><span class="ldml-refname"><em class="ldml-emphasis">Corp. E. Assocs. v. Meester</em></span>, <span class="ldml-cite">442 N.W.2d 105, 107</span>
<span class="ldml-parenthetical">(<span class="ldml-court">Iowa</span> <span class="ldml-date">1989</span>)</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/887706611" data-vids="887706611" class="ldml-reference" data-prop-ids="sentence_26037"><span class="ldml-refname"><em class="ldml-emphasis">Casali v. Schultz</em></span>, <span class="ldml-cite">732 S.W.2d 836, 837</span>
<span class="ldml-parenthetical">(<span class="ldml-court">Ark.</span> <span class="ldml-date">1987</span>)</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_26037" data-refglobal="case:secsexchcommnvshreveportwirelesscabletelevisionpship,nociva94-1781,1998wl892948,at5-7ddcoct20,1998"><span class="ldml-refname"><em class="ldml-emphasis">Secs. & Exch. Comm'n v. Shreveport
Wireless Cable Television P'ship</em></span>, <span class="ldml-cite">No. Civ.A.
94-1781</span>, <span class="ldml-cite">1998 WL 892948, at *5-7</span> <span class="ldml-parenthetical">(<span class="ldml-court">D.D.C.</span> <span class="ldml-date">Oct. 20, 1998</span>)</span></a></span><span class="ldml-referenceseparator">;</span>
<em class="ldml-emphasis"><span class="ldml-signal">see also</span> </em><span class="ldml-entity"><a href="/vid/888515757" data-vids="888515757" class="ldml-reference" data-prop-ids="sentence_26037"><span class="ldml-refname"><em class="ldml-emphasis">Digital Interactive</em></span>, <span class="ldml-cite">987 P.2d at 882-83</span></a></span>
<span class="ldml-parenthetical">(<span class="ldml-cert">applying</span> <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_26037"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> to determine probable cause in
context of a challenge to a search warrant)</span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/891939766" data-vids="891939766" class="ldml-reference" data-prop-ids="sentence_26037"><span class="ldml-refname"><em class="ldml-emphasis">Mieka</em></span></a></span>,
<span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_26037"><span class="ldml-cite">¶ 22</span></a></span></span>, <span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/891939766" data-vids="891939766" class="ldml-reference" data-prop-ids="embeddedsentence_26880"><span class="ldml-cite">282 P.3d at 515</span></a></span> <span class="ldml-parenthetical">(<span class="ldml-embeddedsentence">declining to address whether a
presumption is appropriate</span>)</span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/895352401" data-vids="895352401" class="ldml-reference"><span class="ldml-refname"><em class="ldml-emphasis">Pfohl v. Pelican
Landing</em></span>, <span class="ldml-cite">567 F.Supp. 134, 137</span> <span class="ldml-parenthetical">(<span class="ldml-court">N.D. Ill.</span> <span class="ldml-date">1983</span>)</span></a></span>
<span class="ldml-parenthetical">(describing <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> without mentioning the
presumption)</span></span>.</span>
</p><p data-paragraph-id="27067" class="ldml-paragraph ">
<span data-paragraph-id="27067" data-sentence-id="27078" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_27078"><span class="ldml-cite">¶28</span></a></span>
<span class="ldml-entity">We</span> conclude here that the second approach is more consistent
with the CSA.</span> <span data-paragraph-id="27067" data-sentence-id="27158" class="ldml-sentence">First, the burden of proof in a civil action
such as the civil enforcement of securities laws <span class="ldml-quotation quote">"shall
be by a preponderance of the evidence."</span></span> <span data-paragraph-id="27067" data-sentence-id="27301" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_27158"><span class="ldml-cite">§
13-25-127<span class="ldml-parenthetical">(1)</span>, C.R.S.</span> <span class="ldml-parenthetical">(<span class="ldml-date">2021</span>)</span></a></span>.</span>
<span class="ldml-pagenumber" data-id="pagenumber_27333" data-val="22" data-page_type="bare_number"></span></p><p data-paragraph-id="27333" class="ldml-paragraph ">
<span data-paragraph-id="27333" data-sentence-id="27344" class="ldml-sentence">That
burden rests with <span class="ldml-entity">the plaintiff</span>-here, the Commissioner.</span> <span data-paragraph-id="27333" data-sentence-id="27406" class="ldml-sentence">As <span class="ldml-entity">we</span>
have explained in other contexts, in evidence law, a
presumption <span class="ldml-quotation quote">"shifts the burden of going forward to <span class="ldml-entity">the
party</span> against whom it is raised."</span></span> <span data-paragraph-id="27333" data-sentence-id="27557" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_27406" data-refglobal="case:kruegervaryno08sc63205p3d1150march16,2009"><span class="ldml-refname"><em class="ldml-emphasis">Krueger v.
Ary</em></span>, <span class="ldml-cite">205 P.3d 1150, 1154</span> <span class="ldml-parenthetical">(<span class="ldml-court">Colo.</span> <span class="ldml-date">2009</span>)</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-signal"><em class="ldml-emphasis">see also</em></span>
<span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_27406"><span class="ldml-cite">CRE 301</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/892718530" data-vids="892718530" class="ldml-reference" data-prop-ids="sentence_27406"><span class="ldml-refname"><em class="ldml-emphasis">People v. Hoskin</em></span>, <span class="ldml-cite">2016 CO 63</span></a></span>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_27406"><span class="ldml-cite">¶ 10</span></a></span></span>,
<span class="ldml-entity"><a href="/vid/892718530" data-vids="892718530" class="ldml-reference"><span class="ldml-cite">380 P.3d 130, 134</span></a></span>.</span> <span data-paragraph-id="27333" data-sentence-id="27682" class="ldml-sentence">Because <span class="ldml-entity">the plaintiff</span> already bears the
burden of proof in a civil enforcement action, the concept of
a <span class="ldml-quotation quote">"presumption"</span> being applied on top of that burden
suggests some kind of heightened threshold that <span class="ldml-entity">the plaintiff</span>
must reach.</span> <span data-paragraph-id="27333" data-sentence-id="27914" class="ldml-sentence">Indeed, at least one <span class="ldml-entity">court</span> has said as much.</span>
<span data-paragraph-id="27333" data-sentence-id="27959" class="ldml-sentence"><span class="ldml-referencechain"><em class="ldml-emphasis"><span class="ldml-signal">See</span> </em><span class="ldml-entity"><a href="/vid/891163339" data-vids="891163339" class="ldml-reference" data-prop-ids="embeddedsentence_27989,sentence_27914"><em class="ldml-emphasis"><span class="ldml-refname">Youmans</span>,</em> <span class="ldml-cite">791 F.2d at 346</span></a></span> <span class="ldml-parenthetical">(<span class="ldml-quotation quote"><span class="ldml-embeddedsentence">"<span class="ldml-parenthetical">[A]</span> strong
presumption remains that a general partnership or joint
venture interest is not a security.</span> <span class="ldml-embeddedsentence"><span class="ldml-entity">A party</span> seeking to prove
the contrary must bear a heavy burden of proof."</span></span>)</span></span>.</span> <span data-paragraph-id="27333" data-sentence-id="28172" class="ldml-sentence">The
CSA includes no such heightened burden for <span class="ldml-entity">a plaintiff</span>
seeking to prove that a general partnership is operating as
an investment contract.</span>
</p><p data-paragraph-id="28318" class="ldml-paragraph ">
<span data-paragraph-id="28318" data-sentence-id="28329" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_28329"><span class="ldml-cite">¶29</span></a></span>
Second, application of a presumption beyond the established
burden of proof ignores a core tenet of securities law:
<span class="ldml-entity">Courts</span> should look to the substantive, economic realities of
a particular instrument, scheme, or transaction when
determining whether it fits the definition of a security.</span>
<span data-paragraph-id="28318" data-sentence-id="28626" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_28329" data-refglobal="case:caglevmathersfamtr,2013co7"><span class="ldml-refname"><em class="ldml-emphasis">Cagle</em></span></a></span>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_28329"><span class="ldml-cite">¶ 26</span></a></span></span>, <span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/888310957" data-vids="888310957" class="ldml-reference"><span class="ldml-cite">295 P.3d at 467</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/889084303" data-vids="889084303" class="ldml-reference"><span class="ldml-refname"><em class="ldml-emphasis">Lowery</em></span>,
<span class="ldml-cite">556 P.2d at 1205</span></a></span><span class="ldml-referenceseparator">;</span> <em class="ldml-emphasis"><span class="ldml-signal">see also</span> </em><span class="ldml-entity"><a href="/vid/890642239" data-vids="890642239" class="ldml-reference"><span class="ldml-refname"><em class="ldml-emphasis">Landreth Timber Co. v.
Landreth</em></span>, <span class="ldml-cite">471 U.S. 681, 686</span> <span class="ldml-parenthetical">(<span class="ldml-date">1985</span>)</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/886666599" data-vids="886666599" class="ldml-reference"><span class="ldml-refname"><em class="ldml-emphasis">Int'l Bhd.
of Teamsters, Chauffeurs, Warehousemen & Helpers of Am.
v. Daniel</em></span>, <span class="ldml-cite">439 U.S. 551, 558</span> <span class="ldml-parenthetical">(<span class="ldml-date">1979</span>)</span></a></span><span class="ldml-referenceseparator">;</span>
<span class="ldml-entity"><a href="/vid/891454298" data-vids="891454298" class="ldml-reference"><span class="ldml-refname"><em class="ldml-emphasis">Tcherepnin</em></span>, <span class="ldml-cite">389 U.S. at 336</span></a></span></span>.</span> <span data-paragraph-id="28318" data-sentence-id="28887" class="ldml-sentence">And while the economic
realities of a general partnership that is in fact operating
as a general partnership
<span class="ldml-pagenumber" data-id="pagenumber_29000" data-val="23" data-page_type="bare_number"></span>
will tend to show that it is not an investment contract, the
obligation to look at economic realities requires an
examination not only of form but also of the substance of a
particular venture.</span>
</p><p data-paragraph-id="29199" class="ldml-paragraph ">
<span data-paragraph-id="29199" data-sentence-id="29210" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_29210"><span class="ldml-cite">¶30</span></a></span>
Accordingly, <span class="ldml-entity">courts</span> evaluating whether a general partnership
is an investment contract under the CSA should not start with
any presumption beyond that necessarily created by the fact
that <span class="ldml-entity">the plaintiff</span> carries the burden of proof to demonstrate
that a particular interest is a security.</span> <span data-paragraph-id="29199" data-sentence-id="29506" class="ldml-sentence">Instead, <span class="ldml-entity">courts</span>
should examine the economic realities of the venture,
requiring <span class="ldml-entity">the plaintiff</span> to demonstrate the existence of an
investment contract by a preponderance of the evidence.</span>
<span data-paragraph-id="29199" data-sentence-id="29694" class="ldml-sentence"><span class="ldml-entity">Respondents</span> argue that the presumption plays an important
role in business: It lends transactions a degree of
predictability and certainty because it not only alerts
investors who join partnerships that the securities laws will
not protect them, but it also clarifies for promoters how to
comply with regulatory requirements.</span> <span data-paragraph-id="29199" data-sentence-id="30025" class="ldml-sentence">Yet just as the form of
a venture cannot insulate it from the reach of the securities
laws, the absence of a presumption will not convert a venture
into an investment contract if it is not one under
<span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_30025"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span></a></span>.</span> <span data-paragraph-id="29199" data-sentence-id="30235" class="ldml-sentence"><span class="ldml-entity">We</span> are not today altering the definition of
investment contract, nor are <span class="ldml-entity">we</span> departing from other <span class="ldml-entity">courts</span>
in recognizing that the economic realities of a bona fide
general partnership are such that ordinarily it would not be
an investment contract.</span>
<span class="ldml-pagenumber" data-id="pagenumber_30486" data-val="24" data-page_type="bare_number"></span></p><p data-paragraph-id="30486" class="ldml-paragraph ">
<span data-paragraph-id="30486" data-sentence-id="30497" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_30497"><span class="ldml-cite">¶31</span></a></span>
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_30497"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> offers helpful guidance on how to analyze
the substantive, economic realities of a particular general
partnership.</span> <span data-paragraph-id="30486" data-sentence-id="30629" class="ldml-sentence"><span class="ldml-entity">We</span> turn now to the three aspects of this
guidance about which <span class="ldml-entity">the parties</span> disagree.</span>
</p></div><div class="ldml-section"><section class="ldml-heading content__heading content__heading--depth2" data-ordinal_end="4" data-content-heading-label="
D. The
Williamson Framework
" data-specifier="D" data-parsed="true" data-id="heading_30714" data-ordinal_start="4" data-value="D. The
Williamson Framework" id="heading_30714" data-format="upper_case_letters"><span data-paragraph-id="30714" class="ldml-paragraph ">
<span data-paragraph-id="30714" data-sentence-id="30725" class="ldml-sentence">D.</span> <span data-paragraph-id="30714" data-sentence-id="30728" class="ldml-sentence">The
<em class="ldml-emphasis">Williamson</em> Framework</span>
</span></section><p data-paragraph-id="30754" class="ldml-paragraph ">
<span data-paragraph-id="30754" data-sentence-id="30765" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_30765"><span class="ldml-cite">¶32</span></a></span>
As <span class="ldml-entity">we</span> have discussed, general partnership interests are not
ordinarily investment contracts because <span class="ldml-entity">they</span> grant partners
control over significant decisions of the enterprise.</span>
<span data-paragraph-id="30754" data-sentence-id="30946" class="ldml-sentence">However, <span class="ldml-entity">they</span> may be investment contracts when <span class="ldml-quotation quote">"the
general partner in fact retains little ability to control the
profitability of the investment."</span></span> <span data-paragraph-id="30754" data-sentence-id="31096" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/892110669" data-vids="892110669" class="ldml-reference" data-prop-ids="sentence_30946"><span class="ldml-refname"><em class="ldml-emphasis">Merch. Cap.</em></span>,
<span class="ldml-cite">483 F.3d at 755</span></a></span>.</span> <span data-paragraph-id="30754" data-sentence-id="31127" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_31127"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> identified three
specific situations in which that might occur.</span> <span data-paragraph-id="30754" data-sentence-id="31203" class="ldml-sentence">Two of those
are in dispute here.</span>
</p><div class="ldml-section"><section class="ldml-heading content__heading content__heading--depth3" data-ordinal_end="1" data-content-heading-label="
1.
Williamson Test Two
" data-specifier="1" data-parsed="true" data-id="heading_31238" data-ordinal_start="1" data-value="1.
Williamson Test Two" id="heading_31238" data-format="number"><span data-paragraph-id="31238" class="ldml-paragraph ">
<span data-paragraph-id="31238" data-sentence-id="31249" class="ldml-sentence">1.</span>
<span data-paragraph-id="31238" data-sentence-id="31252" class="ldml-sentence"><em class="ldml-emphasis">Williamson</em> Test Two</span>
</span></section><p data-paragraph-id="31272" class="ldml-paragraph ">
<span data-paragraph-id="31272" data-sentence-id="31283" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_31283"><span class="ldml-cite">¶33</span></a></span>
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_31283"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> recognized that a general partnership may
be an investment contract if <span class="ldml-quotation quote">"the partner or venturer is
so inexperienced and unknowledgeable in business affairs that
<span class="ldml-entity">he</span> is incapable of intelligently exercising his partnership
or venture power."</span></span> <span data-paragraph-id="31272" data-sentence-id="31542" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_31283"><span class="ldml-cite">645 F.2d at 424</span></a></span>.</span> <span data-paragraph-id="31272" data-sentence-id="31559" class="ldml-sentence">The logic of this
exception is straightforward: A partner who cannot exercise
powers intelligently is dependent upon the investment's
promoter or manager.</span> <span data-paragraph-id="31272" data-sentence-id="31717" class="ldml-sentence"><span class="ldml-referencechain"><em class="ldml-emphasis"><span class="ldml-signal">See</span> </em><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_31559"><span class="ldml-cite"><em class="ldml-emphasis">id.</em> at 423</span></a></span></span>.</span> <span data-paragraph-id="31272" data-sentence-id="31733" class="ldml-sentence">Dependent
investors cannot protect themselves, are led to expect
profits from the efforts of others, and thus require the
protection of securities laws.</span> <span data-paragraph-id="31272" data-sentence-id="31889" class="ldml-sentence"><span class="ldml-referencechain"><em class="ldml-emphasis"><span class="ldml-signal">See</span> </em><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_31889"><span class="ldml-cite"><em class="ldml-emphasis">id.</em></span>
<span class="ldml-pagenumber" data-id="pagenumber_31897" data-val="25" data-page_type="bare_number"></span>
<span class="ldml-cite">¶34</span></a></span></span>
The Commissioner argues that <span class="ldml-entity">courts</span> should look to
investors' venture- or industry-specific knowledge.</span> <span data-paragraph-id="31272" data-sentence-id="32017" class="ldml-sentence"><span class="ldml-entity">She</span>
urges <span class="ldml-entity">us</span> to conclude that only that specific knowledge will
ensure that investors can exercise partnership powers
intelligently.</span> <span data-paragraph-id="31272" data-sentence-id="32153" class="ldml-sentence">But <span class="ldml-entity">we</span> think that approach would be too
narrow.</span> <span data-paragraph-id="31272" data-sentence-id="32202" class="ldml-sentence">Certainly, as the division below recognized,
specialized knowledge or lack thereof may be relevant to the
question of whether investors can exercise their partnership
powers.</span> <span data-paragraph-id="31272" data-sentence-id="32380" class="ldml-sentence">But it does not follow that a lack of
industry-specific knowledge, regardless of the nature of the
underlying venture or the partner's level of
sophistication, renders that partner dependent on the
manager.</span> <span data-paragraph-id="31272" data-sentence-id="32591" class="ldml-sentence">In <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_32591"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span>, for example, <span class="ldml-entity">the court</span>
concluded that an investor's position as a corporate
director in the food production industry constituted adequate
knowledge and experience for a real estate venture.</span>
<span data-paragraph-id="31272" data-sentence-id="32799" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_32591"><span class="ldml-cite"><em class="ldml-emphasis">Id.</em> at 424-25</span></a></span><span class="ldml-referenceseparator">;</span> <em class="ldml-emphasis"><span class="ldml-signal">see also</span> </em><span class="ldml-entity"><a href="/vid/892959148" data-vids="892959148" class="ldml-reference" data-prop-ids="sentence_32591"><span class="ldml-refname"><em class="ldml-emphasis">Robinson v. Glynn</em></span>,
<span class="ldml-cite">349 F.3d 166, 170-72</span> <span class="ldml-parenthetical">(<span class="ldml-court">4th Cir.</span> <span class="ldml-date">2003</span>)</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_32591" data-refglobal="case:holdenvhagopianno90-15183978f2d1115,61uslw2348july15,1992"><span class="ldml-refname"><em class="ldml-emphasis">Holden v.
Hagopian</em></span>, <span class="ldml-cite">978 F.2d 1115, 1121</span> <span class="ldml-parenthetical">(<span class="ldml-court">9th Cir.</span> <span class="ldml-date">1992</span>)</span></a></span></span>.</span>
<span data-paragraph-id="31272" data-sentence-id="32939" class="ldml-sentence">Undoubtedly, there are circumstances in which a lack of
specialized knowledge or experience would be probative of an
inability to exercise partnership powers meaningfully, and
<span class="ldml-entity">courts</span> should certainly look to that evidence when relevant.</span>
<span data-paragraph-id="31272" data-sentence-id="33179" class="ldml-sentence">But specialized knowledge is not always required.</span>
</p><p data-paragraph-id="33229" class="ldml-paragraph ">
<span data-paragraph-id="33229" data-sentence-id="33240" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_33240"><span class="ldml-cite">¶35</span></a></span>
The division below surveyed <span class="ldml-entity">cases</span> applying <span class="ldml-entity">this
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_33240"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> test</span> and set out a list of questions that
<span class="ldml-entity">courts</span> might consider when determining whether investors
possess sufficient knowledge or experience:</span>
<span class="ldml-pagenumber" data-id="pagenumber_33450" data-val="26" data-page_type="bare_number"></span></p><div class="ldml-embeddeddocument"><blockquote data-paragraph-id="b_33450" class="ldml-blockquote">
<span data-sentence-id="33451" class="ldml-sentence"><span class="ldml-parenthetical">(1)</span> Do the partners generally have some prior business
experience?</span>
</blockquote><blockquote data-paragraph-id="b_33519" class="ldml-blockquote">
<span data-sentence-id="33520" class="ldml-sentence"><span class="ldml-parenthetical">(2)</span> What was the nature of that experience, both in their
investing and in their other business dealings?</span>
</blockquote><blockquote data-paragraph-id="b_33627" class="ldml-blockquote">
<span data-sentence-id="33628" class="ldml-sentence"><span class="ldml-parenthetical">(3)</span> <span class="ldml-quotation quote">"Are the partners otherwise financially
sophisticated?"</span></span>
</blockquote><blockquote data-paragraph-id="b_33689" class="ldml-blockquote">
<span data-sentence-id="33690" class="ldml-sentence"><span class="ldml-parenthetical">(4)</span> Did the partners hold themselves out as being experienced
in business?</span>
</blockquote><blockquote data-paragraph-id="b_33766" class="ldml-blockquote">
<span data-sentence-id="33767" class="ldml-sentence"><span class="ldml-parenthetical">(5)</span> Do the partners in fact have experience in the same type
of business venture or industry?</span>
</blockquote><blockquote data-paragraph-id="b_33862" class="ldml-blockquote">
<span data-sentence-id="33863" class="ldml-sentence"><span class="ldml-parenthetical">(6)</span> Is the nature of this particular venture such that
industry- or venture-specific experience would be essential?</span>
</blockquote><blockquote data-paragraph-id="b_33980" class="ldml-blockquote">
<span data-sentence-id="33981" class="ldml-sentence"><span class="ldml-parenthetical">(7)</span> Did the partners consult <span class="ldml-entity">counsel</span> or indicate that <span class="ldml-entity">they</span>
would do so?</span>
</blockquote><blockquote data-paragraph-id="b_34054" class="ldml-blockquote">
<span data-sentence-id="34055" class="ldml-sentence"><span class="ldml-parenthetical">(8)</span> Did the partners in fact exercise partnership powers?</span>
</blockquote><blockquote data-paragraph-id="b_34113" class="ldml-blockquote">
<span data-sentence-id="34114" class="ldml-sentence"><span class="ldml-parenthetical">(9)</span>"Did the partners previously invest in one of <span class="ldml-entity">the
defendant</span>'s businesses?"</span>
</blockquote><blockquote data-paragraph-id="b_34193" class="ldml-blockquote">
<span data-sentence-id="34194" class="ldml-sentence"><span class="ldml-parenthetical">(10)</span> <span class="ldml-quotation quote">"How did the partnership acquire its members?"</span></span>
</blockquote><blockquote data-paragraph-id="b_34246" class="ldml-blockquote">
<span data-sentence-id="34247" class="ldml-sentence"><span class="ldml-parenthetical">(11)</span> How much meaningful access to information about the
venture is available to the partners?</span>
</blockquote></div><p data-paragraph-id="34343" class="ldml-paragraph ">
<span data-paragraph-id="34343" data-sentence-id="34344" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference"><span class="ldml-refname"><em class="ldml-emphasis">HEI II</em></span></a></span>, <span class="ldml-entity"><a class="ldml-reference"><span class="ldml-cite">¶ 48</span></a></span></span>, <span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference"><span class="ldml-cite">490 P.3d at 802</span></a></span>.</span> <span data-paragraph-id="34343" data-sentence-id="34375" class="ldml-sentence"><span class="ldml-entity">We</span> agree that
these questions, among others that might be appropriate to
the facts of a particular case, are helpful in evaluating the
economic realities of a venture to determine whether
investors are true general partners or are in fact passive
investors because of their inability to meaningfully exercise
their partnership powers.</span>
<span class="ldml-pagenumber" data-id="pagenumber_34716" data-val="27" data-page_type="bare_number"></span></p></div><div class="ldml-section"><section class="ldml-heading content__heading content__heading--depth3" data-ordinal_end="2" data-content-heading-label="
2.
Williamson Test Three
" data-specifier="2" data-parsed="true" data-id="heading_34716" data-ordinal_start="2" data-value="2.
Williamson Test Three" id="heading_34716" data-format="number"><span data-paragraph-id="34716" class="ldml-paragraph ">
<span data-paragraph-id="34716" data-sentence-id="34727" class="ldml-sentence">2.</span>
<span data-paragraph-id="34716" data-sentence-id="34730" class="ldml-sentence"><em class="ldml-emphasis">Williamson</em> Test Three</span>
</span></section><div class="ldml-embeddeddocument"><p data-paragraph-id="34752" class="ldml-paragraph ">
<span data-paragraph-id="34752" data-sentence-id="34763" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_34763"><span class="ldml-cite">¶36</span></a></span>
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_34763"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> recognized that,</span>
</p><blockquote data-paragraph-id="b_34795" class="ldml-blockquote">
<span data-sentence-id="34796" class="ldml-sentence"><span class="ldml-parenthetical">[a]</span> genuine dependence on others might also exist where the
partners are forced to rely on some particular
non-replaceable expertise on the part of a promoter or
manager.</span> <span data-sentence-id="34970" class="ldml-sentence">Even the most knowledgeable partner may be left with
no meaningful option when there is no reasonable replacement
for the investment's manager.</span>
</blockquote></div><p data-paragraph-id="35116" class="ldml-paragraph ">
<span data-paragraph-id="35116" data-sentence-id="35127" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference"><span class="ldml-cite">645
F.2d at 423</span></a></span>.</span> <span data-paragraph-id="35116" data-sentence-id="35145" class="ldml-sentence">Thus, a general partnership may be an investment
contract if <span class="ldml-quotation quote">"the partner or venturer is so dependent on
some unique entrepreneurial or managerial ability of the
promoter or manager that <span class="ldml-parenthetical">[<span class="ldml-entity">they</span>]</span> cannot replace the manager of
the enterprise or otherwise exercise meaningful partnership
or venture powers."</span></span> <span data-paragraph-id="35116" data-sentence-id="35454" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_35145"><span class="ldml-cite"><em class="ldml-emphasis">Id.</em> at 424</span></a></span>.</span>
</p><p data-paragraph-id="35466" class="ldml-paragraph ">
<span data-paragraph-id="35466" data-sentence-id="35477" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_35477"><span class="ldml-cite">¶37</span></a></span>
The dispute between <span class="ldml-entity">the parties</span> regarding this test hinges on
whether the Commissioner must prove only that the partners
themselves could not realistically step into the shoes of HEI
and HEDC if <span class="ldml-entity">they</span> wanted to, or whether the Commissioner must
prove that the partners could not exercise their partnership
powers to find a replacement manager who would fit <span class="ldml-entity">the bill</span>.</span>
</p><p data-paragraph-id="35853" class="ldml-paragraph ">
<span data-paragraph-id="35853" data-sentence-id="35864" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_35864"><span class="ldml-cite">¶38</span></a></span>
On that question, it is clear that partners can delegate
day-to-day management responsibilities but still retain
ultimate control over the business; <span class="ldml-entity">they</span> do not themselves
need to have the skills to manage the venture in place of the
manager.</span> <span data-paragraph-id="35853" data-sentence-id="36116" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-signal"><em class="ldml-emphasis">See, e.g.</em></span>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="embeddedsentence_36154,sentence_35864" data-refglobal="case:holdenvhagopianno90-15183978f2d1115,61uslw2348july15,1992"><span class="ldml-refname"><em class="ldml-emphasis">Holden</em></span>, <span class="ldml-cite">978 F.2d at
1123</span></a></span> <span class="ldml-parenthetical">(<span class="ldml-quotation quote"><span class="ldml-embeddedsentence">"A showing that the general partners do not
possess the skills or abilities required to fill the
manager's shoes
<span class="ldml-pagenumber" data-id="pagenumber_36271" data-val="28" data-page_type="bare_number"></span>
simply is insufficient."</span></span>)</span></span>.</span> <span data-paragraph-id="35853" data-sentence-id="36300" class="ldml-sentence"><span class="ldml-quotation quote">"So long as the investor
retains ultimate control, <span class="ldml-parenthetical">[<span class="ldml-entity">they</span> have]</span> the power over the
investment and the access to information about it which is
necessary to protect against any unwilling dependence on the
manager."</span></span> <span data-paragraph-id="35853" data-sentence-id="36516" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_36300"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span>, <span class="ldml-cite">645 F.2d at 424</span></a></span>.</span> <span data-paragraph-id="35853" data-sentence-id="36545" class="ldml-sentence">But if
the <span class="ldml-quotation quote">"partners are so dependent on a particular manager
that <span class="ldml-entity">they</span> cannot replace him or otherwise exercise ultimate
control,"</span> then the partners are not truly active
investors, and the venture might be an investment contract.</span>
<span data-paragraph-id="35853" data-sentence-id="36780" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_36545"><span class="ldml-cite"><em class="ldml-emphasis">Id.</em></span></a></span></span>
</p><p data-paragraph-id="36784" class="ldml-paragraph ">
<span data-paragraph-id="36784" data-sentence-id="36795" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_36795"><span class="ldml-cite">¶39</span></a></span>
On this test, <span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_36795"><span class="ldml-refname"><em class="ldml-emphasis">HEI II</em></span></a></span> remanded to <span class="ldml-entity">the trial court</span> for
further findings in part because it was not clear on the
record whether <span class="ldml-entity">the trial court</span> looked only to whether <em class="ldml-emphasis">the
partners themselves</em> could replace the manager.</span> <span data-paragraph-id="36784" data-sentence-id="37018" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_36795"><span class="ldml-refname"><em class="ldml-emphasis">HEI
II</em></span></a></span>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_36795"><span class="ldml-cite">¶¶ 50-52</span></a></span></span>, <span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference"><span class="ldml-cite">490 P.3d at 802-03</span></a></span>.</span> <span data-paragraph-id="36784" data-sentence-id="37057" class="ldml-sentence"><span class="ldml-entity">We</span> agree
that this question requires clarification of the record here.</span>
<span data-paragraph-id="36784" data-sentence-id="37129" class="ldml-sentence">On remand, <span class="ldml-entity">the court</span> should consider whether the general
partners can realistically, in accordance with their
partnership powers, find a reasonable replacement for the
manager.</span>
</p></div><div class="ldml-section"><section class="ldml-heading content__heading content__heading--depth3" data-ordinal_end="3" data-content-heading-label="
3.
Other Economic Realities
" data-specifier="3" data-parsed="true" data-id="heading_37309" data-ordinal_start="3" data-value="3.
Other Economic Realities" id="heading_37309" data-format="number"><span data-paragraph-id="37309" class="ldml-paragraph ">
<b class="ldml-bold"><span data-paragraph-id="37309" data-sentence-id="37320" class="ldml-sentence">3.</span>
<span data-paragraph-id="37309" data-sentence-id="37323" class="ldml-sentence">Other Economic Realities</span></b>
</span></section><p data-paragraph-id="37348" class="ldml-paragraph ">
<span data-paragraph-id="37348" data-sentence-id="37359" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_37359"><span class="ldml-cite">¶40</span></a></span>
To determine if a given instrument or scheme is a security
requires <span class="ldml-quotation quote">"close attention to the facts of each case and
a substantive appraisal of the commercial realities of the
offering."</span></span> <span data-paragraph-id="37348" data-sentence-id="37552" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/889084303" data-vids="889084303" class="ldml-reference" data-prop-ids="sentence_37359"><span class="ldml-refname"><em class="ldml-emphasis">Lowery</em></span>, <span class="ldml-cite">556 P.2d at 1205</span></a></span>.</span> <span data-paragraph-id="37348" data-sentence-id="37578" class="ldml-sentence">Consistent
with this approach, <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_37578"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> qualified its three
tests as nonexhaustive-<span class="ldml-entity">they</span> are examples of the unusual
situations in which a general partnership meets <span class="ldml-entity">the
<span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_37578"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span></a></span> test</span>, and <span class="ldml-entity">they</span>
<span class="ldml-pagenumber" data-id="pagenumber_37773" data-val="29" data-page_type="bare_number"></span>
were the tests that were relevant <span class="ldml-parenthetical">(and unsatisfied)</span> in that
particular case.</span> <span data-paragraph-id="37348" data-sentence-id="37853" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_37578"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span>, <span class="ldml-cite">645 F.2d at 424 n.15</span></a></span>.</span>
<span data-paragraph-id="37348" data-sentence-id="37887" class="ldml-sentence"><span class="ldml-entity">We</span> similarly recognize that the three tests are not exclusive
and cannot trump or restrict <span class="ldml-entity">courts</span>' obligation to look
to the <span class="ldml-quotation quote">"substantive economic realities underlying the
transaction,"</span> <span class="ldml-referencechain"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_37887" data-refglobal="case:caglevmathersfamtr,2013co7"><span class="ldml-refname"><em class="ldml-emphasis">Cagle</em></span></a></span>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_37887"><span class="ldml-cite">¶ 26</span></a></span></span>, <span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/888310957" data-vids="888310957" class="ldml-reference" data-prop-ids="sentence_37887"><span class="ldml-cite">295 P.3d at 467</span></a></span>
<span class="ldml-parenthetical">(<span class="ldml-cert">quoting</span> <span class="ldml-entity"><a href="/vid/892175162" data-vids="892175162" class="ldml-reference" data-prop-ids="sentence_37887"><span class="ldml-refname"><em class="ldml-emphasis">Viatica Mgmt.</em></span>, <span class="ldml-cite">55 P.3d at 266</span></a></span>)</span></span>.</span>
</p><p data-paragraph-id="38146" class="ldml-paragraph ">
<span data-paragraph-id="38146" data-sentence-id="38157" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_38157"><span class="ldml-cite">¶41</span></a></span>
The <span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_38157"><span class="ldml-refname"><em class="ldml-emphasis">HEI II</em></span></a></span> division cautioned that <span class="ldml-parenthetical">(1)</span>
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_38157"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span>'s three tests provide room for
analysis of a range of facts, and, <span class="ldml-parenthetical">(2)</span> if facts are perceived
to be relevant but do not fit one of the three exceptions,
then the economic realities that <span class="ldml-entity">the court</span> looks to should
<span class="ldml-quotation quote">"be articulated in terms of some relatively concrete
principle that will assist <span class="ldml-entity">the court</span> in deciding whether the
partners were <span class="ldml-quotation quote">'led to expect profits derived from the
entrepreneurial or managerial efforts of others.'</span>"</span></span>
<span data-paragraph-id="38146" data-sentence-id="38649" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_38157"><span class="ldml-refname"><em class="ldml-emphasis">HEI II</em></span></a></span>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_38157"><span class="ldml-cite">¶ 60</span></a></span></span>, <span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference"><span class="ldml-cite">490 P.3d at 804</span></a></span> <span class="ldml-parenthetical">(<span class="ldml-cert">quoting</span>
<span class="ldml-entity"><a href="/vid/888886112" data-vids="888886112" class="ldml-reference"><span class="ldml-refname"><em class="ldml-emphasis">Toothman</em></span>, <span class="ldml-cite">80 P.3d at 811</span></a></span>)</span></span>.</span> <span data-paragraph-id="38146" data-sentence-id="38715" class="ldml-sentence">Here, the Commissioner
asserts that <span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_38715"><span class="ldml-refname"><em class="ldml-emphasis">HEI II</em></span></a></span> disregarded
<span class="ldml-quotation quote">"longstanding,"</span> <span class="ldml-quotation quote">"well-established"</span>
federal and Colorado law by narrowing the catch-all, open
nature of the types of <span class="ldml-quotation quote">"economic realities"</span> <span class="ldml-entity">courts</span>
may consider when determining whether a general partnership
is an investment contract.</span> <span data-paragraph-id="38146" data-sentence-id="39007" class="ldml-sentence">But <span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_39007"><span class="ldml-refname"><em class="ldml-emphasis">HEI II</em></span></a></span> was not nearly
as restrictive as the Commissioner claims.</span> <span data-paragraph-id="38146" data-sentence-id="39077" class="ldml-sentence">Notably, it did
not clearly foreclose <span class="ldml-entity">the trial court</span> from considering the
various facts that the Commissioner puts forth as the
material facts in <span class="ldml-entity">this case</span> <span class="ldml-parenthetical">(facts that are not at issue
before <span class="ldml-entity">us</span> today)</span>.</span>
<span class="ldml-pagenumber" data-id="pagenumber_39285" data-val="30" data-page_type="bare_number"></span></p><p data-paragraph-id="39285" class="ldml-paragraph ">
<span data-paragraph-id="39285" data-sentence-id="39296" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_39296"><span class="ldml-cite">¶42</span></a></span>
An overly expansive approach to <span class="ldml-quotation quote">"economic
realities"</span> would effectively undermine the value of
applying <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_39296"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> to the particular context of
general partnership interests.</span> <span data-paragraph-id="39285" data-sentence-id="39478" class="ldml-sentence">As may be clear by now, <span class="ldml-entity">we</span>
find the logic of the <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_39478"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> framework
compelling, and <span class="ldml-entity">we</span> consider the framework bound by both the
principles of general partnerships and <span class="ldml-entity">the <span class="ldml-entity"><a href="/vid/888053901" data-vids="888053901" class="ldml-reference" data-prop-ids="sentence_39478"><span class="ldml-refname"><em class="ldml-emphasis">Howey</em></span></a></span>
test</span>.</span>
</p></div></div></div><div class="ldml-section"><section class="ldml-heading content__heading content__heading--depth1" data-confidences="very_high" data-types="conclusion" data-content-heading-label="
III.
Conclusion
" data-specifier="III" data-parsed="true" data-id="heading_39667" data-ordinal_end="3" data-ordinal_start="3" data-value="III.
Conclusion" id="heading_39667" data-format="upper_case_roman_numeral"><span data-paragraph-id="39667" class="ldml-paragraph ">
<b class="ldml-bold"><span data-paragraph-id="39667" data-sentence-id="39678" class="ldml-sentence">III.</span>
<span data-paragraph-id="39667" data-sentence-id="39683" class="ldml-sentence">Conclusion</span></b>
</span></section><p data-paragraph-id="39694" class="ldml-paragraph ">
<span data-paragraph-id="39694" data-sentence-id="39705" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_39705"><span class="ldml-cite">¶43</span></a></span>
When faced with an assertion that an interest in a general
partnership is an investment contract and thus within the
CSA's definition of a <span class="ldml-quotation quote">"security,"</span> <span class="ldml-entity">the plaintiff</span>
bears the burden of proving this claim by a preponderance of
the evidence.</span> <span data-paragraph-id="39694" data-sentence-id="39954" class="ldml-sentence">No presumption beyond that burden applies.</span>
<span data-paragraph-id="39694" data-sentence-id="39997" class="ldml-sentence">Accordingly, <span class="ldml-entity">we</span> reverse <span class="ldml-entity">the court of appeals</span>' judgment on
the question of whether <span class="ldml-entity">courts</span> should apply a <span class="ldml-quotation quote">"strong
presumption,"</span> and <span class="ldml-entity">we</span> remand <span class="ldml-entity">the case</span> to <span class="ldml-entity">the trial court</span>
for further findings consistent with this opinion.</span>
<span class="ldml-pagenumber" data-id="pagenumber_40219" data-val="31" data-page_type="bare_number"></span>
<span data-paragraph-id="39694" data-sentence-id="40220" class="ldml-sentence">---------</span>
</p></div></div><div class="ldml-notes content__heading content__heading--depth1" data-content-heading-label="Footnotes"><div class="ldml-note ldml-note"><p data-paragraph-id="40230" class="ldml-paragraph ">
<span data-paragraph-id="40230" data-sentence-id="40231" class="ldml-sentence"><span class="ldml-parenthetical"><sup class="ldml-superscript">[<a href="#note-ref-ftn.FN1" class="ldml-notemarker" id="note-ftn.FN1">1</a>]</sup></span> <span class="ldml-entity">Charles Reed Cagle</span>, HEI's
president; <span class="ldml-entity">Brandon Davis</span>, HEDC's president; and <span class="ldml-entity">John
Schiffner</span> and <span class="ldml-entity">James Pollak</span>, affiliates of and sales
representatives for HEI and HEDC, are also <span class="ldml-entity">respondents</span> in
this dispute.</span>
</p></div><div class="ldml-note ldml-note"><p data-paragraph-id="40441" class="ldml-paragraph ">
<span data-paragraph-id="40441" data-sentence-id="40442" class="ldml-sentence"><span class="ldml-parenthetical"><sup class="ldml-superscript">[<a href="#note-ref-ftn.FN2" class="ldml-notemarker" id="note-ftn.FN2">2</a>]</sup></span> The <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_40442"><span class="ldml-cite">Texas Revised Partnership Act</span></a></span> was
adopted in <span class="ldml-entity">1994</span> but has since been replaced with the <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_40442"><span class="ldml-cite">Texas
Business Organization Code</span></a></span>.</span> <span data-paragraph-id="40441" data-sentence-id="40572" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-signal"><em class="ldml-emphasis">See</em></span> <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_40442"><span class="ldml-refname">Tex. Bus. Orgs. Code</span>
<span class="ldml-cite">§§ 152, 154</span></a></span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/894262074" data-vids="894262074" class="ldml-reference" data-prop-ids="sentence_40442"><span class="ldml-refname"><em class="ldml-emphasis">Energy Transfer Partners, L.P. v.
Enter. Products Partners, L.P.</em></span>, <span class="ldml-cite">593 S.W.3d 732, 737 n.9</span>
<span class="ldml-parenthetical">(<span class="ldml-court">Tex.</span> <span class="ldml-date">2020</span>)</span></a></span></span>.</span> <span data-paragraph-id="40441" data-sentence-id="40714" class="ldml-sentence">The <span class="ldml-entity">Texas Supreme Court</span> has observed that the
new rules and the old rules for determining partnership
formation are <span class="ldml-quotation quote">"substantially the same."</span></span> <span data-paragraph-id="40441" data-sentence-id="40858" class="ldml-sentence"><span class="ldml-entity"><a href="/vid/884953495" data-vids="884953495" class="ldml-reference" data-prop-ids="sentence_40714"><span class="ldml-refname"><em class="ldml-emphasis">Ingram
v. Deere</em></span>, <span class="ldml-cite">288 S.W.3d 886, 894 n.4</span> <span class="ldml-parenthetical">(<span class="ldml-court">Tex.</span> <span class="ldml-date">2009</span>)</span></a></span>.</span>
</p></div><div class="ldml-note ldml-note"><p data-paragraph-id="40913" class="ldml-paragraph ">
<span data-paragraph-id="40913" data-sentence-id="40914" class="ldml-sentence"><span class="ldml-parenthetical"><sup class="ldml-superscript">[<a href="#note-ref-ftn.FN3" class="ldml-notemarker" id="note-ftn.FN3">3</a>]</sup></span> The Fifth Circuit described these
scenarios as the <span class="ldml-quotation quote">"limited circumstances"</span> in which a
general partnership would be a security because it would not
accord the general partners <span class="ldml-quotation quote">"meaningful powers,"</span>
<span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_40914"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span>, <span class="ldml-cite">645 F.2d at 425</span></a></span>-circumstances it also
called <span class="ldml-quotation quote">"factors,"</span> <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_40914"><span class="ldml-cite"><em class="ldml-emphasis">id.</em> at 424, 425, 427</span></a></span>.</span>
<span data-paragraph-id="40913" data-sentence-id="41207" class="ldml-sentence"><span class="ldml-entity">Courts</span> applying <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_41207"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> have since used a variety
of terms to refer to <span class="ldml-entity">these circumstances</span>.</span> <span data-paragraph-id="40913" data-sentence-id="41303" class="ldml-sentence"><span class="ldml-referencechain"><span class="ldml-signal"><em class="ldml-emphasis">E.g.</em></span>,
<span class="ldml-entity"><a href="/vid/892110669" data-vids="892110669" class="ldml-reference" data-prop-ids="embeddedsentence_41390,sentence_41207"><span class="ldml-refname"><em class="ldml-emphasis">Secs. & Exch. Comm'n. v. Merch. Cap</em>.,
<em class="ldml-emphasis">LLC</em></span>, <span class="ldml-cite">483 F.3d 747, 755</span> <span class="ldml-parenthetical">(<span class="ldml-court">11th Cir.</span> <span class="ldml-date">2007</span>)</span></a></span> <span class="ldml-parenthetical">(<span class="ldml-embeddedsentence"><span class="ldml-quotation quote">"three
situations"</span> that are each <span class="ldml-quotation quote">"factors"</span></span>)</span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a href="/vid/888325377" data-vids="888325377" class="ldml-reference" data-prop-ids="sentence_41207"><span class="ldml-refname"><em class="ldml-emphasis">Rome
v. HEI Res., Inc.</em></span>, <span class="ldml-cite">2014 COA 160</span></a></span>, <span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_41207"><span class="ldml-cite">¶ 12</span></a></span></span>, <span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/888325377" data-vids="888325377" class="ldml-reference" data-prop-ids="embeddedsentence_41501"><span class="ldml-cite">411 P.3d
851, 851</span></a></span> <span class="ldml-parenthetical">(<span class="ldml-embeddedsentence"><span class="ldml-quotation quote">"factors"</span> that form a <span class="ldml-quotation quote">"three-factor
test"</span></span>)</span><span class="ldml-referenceseparator">;</span> <span class="ldml-entity"><a class="ldml-reference" data-refglobal="case:rivannatrawlersunlimitedvthompsontrawlers,incno87-2516840f2d236,56uslw2512decidedfeb22,1988"><span class="ldml-refname"><em class="ldml-emphasis">Rivanna Trawlers Unltd. v. Thompson
Trawlers, Inc.</em></span>, <span class="ldml-cite">840 F.2d 236, 240</span> <span class="ldml-parenthetical">(<span class="ldml-court">4th Cir.</span> <span class="ldml-date">1988</span>)</span></a></span>
<span class="ldml-parenthetical">(<span class="ldml-quotation quote">"narrow exception<span class="ldml-parenthetical">[s]</span>"</span>)</span></span>.</span> <span data-paragraph-id="40913" data-sentence-id="41658" class="ldml-sentence"><span class="ldml-entity">We</span> refer to the three
scenarios as separate <span class="ldml-quotation quote">"tests"</span> because <span class="ldml-entity">they</span>
represent independent means for assessing whether the
partnership is an investment contract.</span> <span data-paragraph-id="40913" data-sentence-id="41819" class="ldml-sentence"><em class="ldml-emphasis">See HEI II</em>,
<span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_41819"><span class="ldml-cite">¶ 3</span></a></span> n.2, <span class="ldml-referencechain"><span class="ldml-entity"><a href="/vid/886317369" data-vids="886317369" class="ldml-reference" data-prop-ids="sentence_41819"><span class="ldml-cite">490 P.3d at 793 n.2</span></a></span> <span class="ldml-parenthetical">(<span class="ldml-embeddedsentence"><span class="ldml-relatingauthority">explaining</span> the use of
<span class="ldml-quotation quote">"tests"</span></span>)</span></span>.</span>
</p></div><div class="ldml-note ldml-note"><p data-paragraph-id="41895" class="ldml-paragraph ">
<span data-paragraph-id="41895" data-sentence-id="41896" class="ldml-sentence"><span class="ldml-parenthetical"><sup class="ldml-superscript">[<a href="#note-ref-ftn.FN4" class="ldml-notemarker" id="note-ftn.FN4">4</a>]</sup></span> <span class="ldml-entity">We</span> granted certiorari to review the
following issues:</span>
</p><div class="ldml-embeddeddocument"><blockquote data-paragraph-id="b_41954" class="ldml-blockquote">
<span data-sentence-id="41955" class="ldml-sentence">1.</span> <span data-sentence-id="41958" class="ldml-sentence"><span class="ldml-parenthetical">[REFRAMED]</span> Whether <span class="ldml-entity">the court of appeals</span> erred by
holding that Colorado should apply a <span class="ldml-quotation quote">"strong
presumption"</span> that a general partnership is not a
security.</span>
</blockquote><blockquote data-paragraph-id="b_42114" class="ldml-blockquote">
<span data-sentence-id="42115" class="ldml-sentence">2.</span> <span data-sentence-id="42118" class="ldml-sentence">Whether <span class="ldml-entity">the court of appeals</span> erred in its
<span class="ldml-entity">interpretation of <span class="ldml-entity">the <span class="ldml-entity"><a href="/vid/885932331" data-vids="885932331" class="ldml-reference" data-prop-ids="sentence_42118"><span class="ldml-refname"><em class="ldml-emphasis">Williamson</em></span></a></span> tests</span></span>.</span>
</blockquote></div></div><div class="ldml-note ldml-note"><p data-paragraph-id="42201" class="ldml-paragraph ">
<span data-paragraph-id="42201" data-sentence-id="42202" class="ldml-sentence"><span class="ldml-parenthetical"><sup class="ldml-superscript">[<a href="#note-ref-ftn.FN5" class="ldml-notemarker" id="note-ftn.FN5">5</a>]</sup></span><span class="ldml-entity">We</span> reject the Commissioner's
argument that this alignment with federal law where
appropriate does not encompass federal <span class="ldml-entity">case law</span>.</span> <span data-paragraph-id="42201" data-sentence-id="42336" class="ldml-sentence">As <span class="ldml-entity">we</span> said
recently in <em class="ldml-emphasis">Thompson</em>, <span class="ldml-quotation quote">"although <span class="ldml-entity">we</span> are not
bound by federal law in construing the CSA, <span class="ldml-entity">we</span> deem federal
authorities persuasive, given that the provisions and
purposes of the CSA parallel those of federal
<span class="ldml-entity">enactments</span>."</span></span> <span data-paragraph-id="42201" data-sentence-id="42568" class="ldml-sentence"><span class="ldml-entity"><a class="ldml-reference" data-prop-ids="sentence_42336"><span class="ldml-cite">¶ 26</span></a></span>, <span class="ldml-entity"><a href="/vid/890504259" data-vids="890504259" class="ldml-reference"><span class="ldml-cite">471 P.3d at 1052</span></a></span>.</span> <span data-paragraph-id="42201" data-sentence-id="42592" class="ldml-sentence"><span class="ldml-entity">We</span> have not
previously limited our understanding of what <span class="ldml-quotation quote">"federal
authorities"</span> includes to <span class="ldml-entity">legislative enactments</span> and <span class="ldml-entity">we</span>
decline to do so here.</span>
</p></div><div class="ldml-note ldml-note"><p data-paragraph-id="42739" class="ldml-paragraph ">
<span data-paragraph-id="42739" data-sentence-id="42740" class="ldml-sentence"><span class="ldml-parenthetical"><sup class="ldml-superscript">[<a href="#note-ref-ftn.FN6" class="ldml-notemarker" id="note-ftn.FN6">6</a>]</sup></span> Similarly, <em class="ldml-emphasis">amicus curiae</em>
<span class="ldml-entity">North American Securities Administrators Association, Inc.</span>,
writing in support of the Commissioner, explained, <span class="ldml-quotation quote">"In
an appropriately formed and structured general partnership,
the partners do not have such an expectation <span class="ldml-parenthetical">[of profits to
come from the efforts of others]</span> because <span class="ldml-entity">they</span> control the
enterprise."</span></span>
</p></div></div><p data-paragraph-id="43079" class="ldml-paragraph ">
<span data-paragraph-id="43079" data-sentence-id="43080" class="ldml-sentence">---------</span>
</p>
</div></div>
</div>
</div>