Foxfield Villa Associates, LLC, et al. v. Paul Robben, et al.

Paul Robben fraudulently induced Rich Bartlett and his wife Dena along with Ernie Straub (“Straub”) to invest in Robben’s real estate venture called Foxfield Villa Associates, LLC (“FVA”). Robben told Rich Bartlett and Straub they were part of a “select group of investors.” Robben admittedly convinced the investors that Robben would solely manage the enterprise and distribute the profits, structuring contracts and implementing resolutions accordingly. Petitioners claim that they purchased “investment contracts” subject to federal securities laws. The Tenth Circuit disagreed invoking a six-part “objective” test only applicable to limited liability companies (“LLCs”) which varies drastically from the test applied to limited and general partnerships. In doing so, the Tenth Circuit’s LLC-only test further splintered an already non-uniform standard to determine whether defrauded investors were “led to expect profits solely from the efforts of others.” S.E.C. v. W.J. Howey Co., 328 U.S. 293, 301 (1946). The Tenth Circuit’s label-driven, LLC-only test constitutes a split with other circuits in that the Second, Fifth, and Ninth Circuits’ expectation-of-profits analysis focuses on the totality of the circumstances by employing the same test regardless of the statelaw entity’s nominal title affording federal securities law protections to investors similarly situated as Petitioners unlike the Tenth Circuit’s LLC-only framework.