Opinion ID: 382805
Heading Depth: 1
Heading Rank: 3

Heading: the joint venture interests

Text: 41 The plaintiffs argue that their interests in the joint ventures were investment contracts and therefore securities within the definitions stated in section 2(1) of the 1933 Act, 15 U.S.C. § 77b(1), and in section 3(a) (10) of the 1934 Act, 15 U.S.C. § 78c(a)(10). 11 We must therefore begin where all analyses of investment contracts start, with Securities & Exchange Commission v. W. J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946) (appeal from a judgment denying an injunction sought by the S.E.C.). In Howey the Supreme Court held that an offering of individual rows of trees in a citrus grove development, coupled with a contract for cultivating and marketing the trees and remitting the net proceeds to the investor, was an offering of an investment contract. The Court recognized that something more than fee simple interests in land, something different from a farm or orchard coupled with management services was needed to convert these sales of land into investment contracts. The Court found something more in the seller's plan to gather the plots together and manage them as one and in the dependence of the investors on that common enterprise. The seller explained to the investors that it was uneconomic to purchase the land without the management contract, and 85% of the land sold was so covered. Most investors were nonresidents and lacked the necessary knowledge, skill and equipment to care for the trees. The investors realized that they were part of a larger scheme, the success of which depended on the company's ability to manage a large grove. They were entirely dependent, therefore, on the efforts and abilities of the seller for any return on their investment. See also Securities & Exchange Commission v. C. M. Joiner Leasing Corp., 320 U.S. 344, 64 S.Ct. 120, 88 L.Ed. 88 (1943) (sale of oil leases conditioned on promoter's agreement to drill exploratory well) (appeal from a judgment denying an injunction sought by the S.E.C.). 42 In deciding Howey the Court defined an investment contract as follows: 43 In other words, an investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of a promoter or a third party. 44 328 U.S. at 298-99, 66 S.Ct. at 1102-1103. As this court has recognized, the test requires three distinct elements: (1) an investment of money; (2) in a common enterprise; and (3) on an expectation of profits to be derived solely from the efforts of individuals other than the investor. Securities & Exchange Commission v. Koskot International, Inc., 497 F.2d 473 (5th Cir. 1974) (pyramid franchise scheme) (reversing a dismissal for failure to state a claim). The joint venture interests in this case involve the most often litigated of these factors-the expectation of profits solely from the efforts of (others). 45 Although the Court used the word solely in the Howey decision, it should not be interpreted in the most literal sense. The Supreme Court has repeatedly emphasized that economic reality is to govern over form and that the definitions of the various types of securities should not hinge on exact and literal tests. International Brotherhood of Teamsters, Chauffeurs, Warehousemen & Helpers of America v. Daniel, 439 U.S. 551, 99 S.Ct. 790, 796, 58 L.Ed.2d 808 (1979); United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 848, 95 S.Ct. 2051, 2058, 44 L.Ed.2d 621 (1975); Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 553, 19 L.Ed.2d 564 (1967); Howey, supra, 328 U.S. at 298, 66 S.Ct. at 1102. 46 A broad definition of solely was developed in Securities & Exchange Commission v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476 (9th Cir. 1973), cert. denied, 414 U.S. 821, 94 S.Ct. 117, 38 L.Ed.2d 53 (1973) (appeal from the granting of a preliminary injunction sought by the S.E.C.). There the Court of Appeals for the Ninth Circuit was faced with a pyramid franchise scheme which depended for its success on the efforts of the promoters (who were to actually sell the product, a series of motivational seminars called Dare to be Great) but nevertheless required an effort on the part of the investors (who received a commission for new prospects brought to the promoters). Although profits were not strictly to come solely from the efforts of the promoters who gave the sales pitch and ran the program, the court held that the scheme was an investment contract: 47 We hold, however, that in light of the remedial nature of the legislation, the statutory policy of affording broad protection to the public, and the Supreme Court's admonitions that the definition of securities should be a flexible one, the word solely should not be read as a strict or literal limitation on the definition of an investment contract, but rather must be construed realistically, so as to include within the definition those schemes which involve in substance, if not form, securities .... 48 Strict interpretation of the requirement that profits to be earned must come solely from the efforts of others has been subject to criticism.... Adherence to such an interpretation could result in a mechanical, unduly restrictive view of what is and what is not an investment contract. It would be easy to evade by adding a requirement that the buyer contribute a modicum of effort. Thus the fact that the investors here were required to exert some efforts if a return were to be achieved should not automatically preclude a finding that (the scheme) is an investment contract. To do so would not serve the purpose of the legislation. Rather we adopt a more realistic test, whether the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise. 49 474 F.2d at 482 (emphasis added). 50 This court was faced with an identical scheme (in fact, a subsidiary of Glenn W. Turner Enterprises) in Securities and Exchange Commission v. Koskot International, Inc., supra. After considering the historical derivation of the Howey standard and its development in recent years, we adopted the test explicated by the Ninth Circuit in Turner and held the scheme to be an investment contract. 497 F.2d at 479-85. Moreover, the Supreme Court has altogether omitted the word solely in its most recent formulation of the investment contract definition. In United Housing Foundation, Inc. v. Forman, supra (holding that stock in a housing cooperative that entitled the owner to the use of an apartment, but not to any cash return, was not a security) (appeal from the granting of a motion to dismiss for lack of subject matter jurisdiction), the Court quoted the investment contract definition from Howey and restated it as an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. 421 U.S. at 852, 95 S.Ct. at 2060. 51 The plaintiffs argue that they meet this liberalized form of the third prong of the Howey test by virtue of the significant role left to Godwin Investments in the promotional materials: 52 The significance of the manager's efforts to the enterprise involved in this case are acknowledged by promotional sales materials and deposition testimony .... The managers were to plan uses for the property, obtain zoning changes, refinance, manage condemnation proceedings, and develop, lease or sell the property to return a profit. 53 Appellants' Brief 31. They argue that, since these central tasks were to be performed by the manager, the scheme allowed the investors to rely on others for those essential managerial efforts which affect the failure or success of the enterprise, and, accordingly, that the venture interests were securities under Howey and its progeny. However, whether the role actually played by the plaintiffs in the management of the Property was so significant that their joint venture interests cannot be securities is an issue that was not developed to any significant degree by any of the litigants in the district court. None of the affidavits or briefs in support of the defendants' motions under Rules 12(b)(1) and 56 discusses the extent of the plaintiffs' actual participation in the management of the Property. 12 Instead, the battle was joined over the question whether the powers possessed by the joint venturers in the joint venture agreements were so significant that, regardless of the degree to which such powers were exercised, the investments could not have been premised on a reasonable expectation of profits to be derived from the management efforts of others. The issue, then, as posed by the parties, is whether meaningful powers possessed by the venturers under the joint venture agreements are enough to preclude as a matter of law a finding that the venture interests were securities. 54 Although this issue has not previously arisen in the Fifth Circuit, a number of courts elsewhere have dealt with a variety of situations in which investors retained substantial control but in fact remained passive. The question has been faced in the context of franchise agreements, the sale of oil and gas leases, the sale of real estate, and the sale of partnership or joint venture interests. Insofar as the power retained by the investors is a real one which they are in fact capable of exercising, courts have uniformly refused to find securities in such cases. 55 In Mr. Steak, Inc. v. River City Steak, Inc., 460 F.2d 666 (10th Cir. 1972), affirming 334 F.Supp. 640 (D.Colo.1970), the Court of Appeals for the Tenth Circuit affirmed a dismissal, for failure to state a claim, of alleged federal securities claims arising out of a franchise agreement which envisioned substantial operation by the franchisor but left some meaningful control in the hands of the franchisee. The agreement provided that the franchisor (Mr. Steak) would construct and equip the establishment, train the manager, set a number of restrictions on the operation of the restaurant (including product standards, initial hiring, uniforms and the opening of the restaurant), manage the franchise's financial affairs and in fact retain the right to dismiss the manager for non-compliance with its requests. The franchisee (River City Steak) retained the right to direct the daily operation of the restaurant, and had the power to dismiss the manager and other employees. In fact, the franchisee exercised none of its powers and left the entire operation of the restaurant to the franchisor. Nevertheless, the district court-after adopting a liberal interpretation of the Howey standard-refused to find this arrangement a security: 56 (The agreements) contemplated that River City Steak would play an active, if severely circumscribed, role in the conduct of the restaurant. It is also evident that neither a manager nor subsidiary personnel would be totally unresponsive to River City Steak, which had the power to terminate their employment. In fact, a reading of both contracts suggests to us that the role of the franchisee was envisioned as a flexible one, depending upon the business expertise and inclination of the franchisee. Most duties mentioned in the franchise agreement could be performed by the franchisee, or delegated to the manager. That River City Steak delegated performance of those duties and ignored daily operations does not affect the nature of its powers, nor change the essential fact that River City Steak abandoned what rights of control and participation it did have. 57 324 F.Supp. at 645, quoted at 460 F.2d at 669. 58 The Tenth Circuit has since been faced with a case analogous to Mr. Steak, Inc. but in the context of the sale of an oil and gas interest. In Ballard & Cordell Corporation v. Zoller & Dannenberg Exploration, Ltd., 544 F.2d 1059 (10th Cir. 1976) (appeal from the dismissal, for failure to state a claim, of counterclaims based on federal securities law), cert. denied, 431 U.S. 965, 97 S.Ct. 2921, 53 L.Ed.2d 1060 (1977), the defendants (two oil exploration firms) had offered to purchase a 50% working interest in two wells and lease units; after the plaintiffs accepted the offer, the defendants tried to back out, and the plaintiffs sued to enforce the contract. The defendants then asserted in a counterclaim that the transaction created an investment contract because of their dependence on the independent operator who held the lease. 13 No return was possible unless the operator chose to drill. But the court denied the existence of an investment contract, relying on terms in the operating agreement which gave the defendants considerable power over the operation. The agreement allowed them to withhold their consent for the incurrence of operating expenses over $5,000, for the drilling of new wells on the unit area, and for the reworking, plugging back or deepening of existing wells. In the event of disagreement, a dissenting party would be allowed not to participate in the proposed operation, and the defendants were also to participate in the selection of a new operator, should the present one sell his rights. 59 The Court of Appeals for the Eighth Circuit has twice faced the case of a purchaser of real estate who simultaneously with the purchase enters into a contract of management with the vendor, yet retains ultimate control of the operation. In Fargo Partners v. Dain Corp., 540 F.2d 912 (8th Cir. 1976) (appeal from a dismissal for lack of subject matter jurisdiction), the plaintiff purchased a 248-unit apartment complex in a transaction in which it signed a management agreement granting back to the vendor an exclusive right to manage the property, including all of the marketing, renting, maintenance and financial activities attendant to running an apartment complex. The agreement provided, however, that it could be cancelled by the purchaser upon thirty days' notice. The court found that no investment contract was created by the transaction: 60 We recognize that the statement in Howey that in an investment contract the investor relies solely on the efforts of the promoter or another is not taken as a literal requirement of the test.... Where the investors' duties were nominal or insignificant, their roles were perfunctory or ministerial, or they lacked any real control over the enterprise, the courts have found investment contracts.... It is clear, however, that Fargo's role was a significant one despite the management contract. Fargo retained ultimate control of the operation of the apartment complex by reserving the right to fire Candletree as its manager on thirty days' notice. Whether it chose to exercise that right or was content to give Candletree a free hand is irrelevant; the power to control the business was in Fargo's hands. Mr. Steak, Inc. v. River City Steak, Inc., 460 F.2d 666, 670 (10th Cir. 1972). 61 540 F.2d at 914-15 (emphasis in original). The court came to the same conclusion when faced with a similar transaction involving some of the same parties but more seriously restricting the purchaser's right to change the management. In Schultz v. Dain Corp., 568 F.2d 612 (8th Cir. 1978) (appeal from a dismissal for lack of subject matter jurisdiction), the apartment complex purchaser entered into a three-year non-revocable management contract with the vendors. Still the transaction did not create an investment contract. The purchaser had negotiated the contract himself and delegated his responsibility to an agent for a limited period of time, after which he was free to negotiate a new management arrangement. Therefore the investor had retained ultimate control over the apartment complex and had not purchased a security. 62 These cases from the Tenth and Eighth Circuits-dealing in turn with the purchase of franchise, oil and gas, and real estate interests-are consistent in their treatment of latent investor control. In each case the actual control exercised by the purchaser is irrelevant. So long as the investor has the right to control the asset he has purchased, he is not dependent on the promoter or on a third party for those essential managerial efforts which affect the failure or success of the enterprise. But a complication is added where the investment asset is not owned directly, but is held instead through a joint venture or general partnership. While the partnership per se may have full ownership powers over the asset, each individual partner has only his proportionate vote in the partnership. 63 Nevertheless the courts that have ruled on the issue have held that a general partnership or joint venture interest generally cannot be an investment contract under the federal securities acts. In New York Stock Exchange, Inc. v. Sloan, 394 F.Supp. 1303 (S.D.N.Y. 1975), the District Court for the Southern District of New York granted summary judgment against general partners of a member firm who had brought a counterclaim against the New York Stock Exchange for failure to enforce the Exchange's rules. The court held that general partnerships were not securities, regardless of the actual participation of the partners: 64 The fact that a partner may choose to delegate his day-to-day managerial responsibilities to a committee does not diminish in the least his legal right to a voice in partnership matters, nor his responsibility under state law for acts of the partnership.... These factors critically distinguish the status of a general partner from that of the purchaser of an investment contract who in law as well as in fact is a passive investor. 65 394 F.Supp. at 1314. 66 In Hirsch v. duPont, 396 F.Supp. 1214 (S.D.N.Y.), aff'd, 553 F.2d 750 (2d Cir. 1977), the District Court for the Southern District of New York again granted summary judgment on this issue. The plaintiffs were general partners of a brokerage firm which had been liquidated; its assets had been sold to a second brokerage firm, which as part of the deal agreed to sell general partnership interests in itself to certain partners of the liquidated firm. The court followed its earlier reasoning in Sloan and held that the partnership interests were not securities. But the court added an important reason for its holding: 67 (S)ome courts have stated that the reason Howey excluded the investor who participates in the enterprise from the protection of the disclosure and fraud provisions of the securities laws is that an investor does not need such protection where he obtains a degree of managerial control which affords access to information about the issuer.... The fact that the investor performs nominal services or physical labor gives him no access whatever to information about the issuer and affords no reason for depriving him of the protection of the securities laws. 68 (B)y virtue of their managerial powers and express rights of inspection, (the general partners in this case) could inform themselves as to the condition of the business and, through their efforts, promote its success. 69 396 F.Supp. at 1222. Similar reasoning was behind the dismissal of a federal securities claim in Oxford Finance Companies, Inc. v. Harvey, 385 F.Supp. 431 (E.D. Pa. 1974). The plaintiff had entered into a joint venture with the defendant for the improvement of a parcel of real estate, and was suing for alleged violations of the anti-fraud provisions of the securities acts. But the joint venture agreement had required the approval of the plaintiff for most managerial decisions, and provided for joint control of capital withdrawals. The court held that no investment contract was created, because the control over managerial decisions and over capital withdrawals was each enough to afford the plaintiff significant protection of its investment. 70 The same result has been reached by those state courts which have considered the effect of latent partnership control. In Polikoff v. Levy, 55 Ill.App.2d 229, 204 N.E.2d 807, cert. denied, 382 U.S. 903, 86 S.Ct. 237, 15 L.Ed.2d 156 (1965), the Illinois Court of Appeals held that a joint venture interest in a motel was not a security. Although the defendant had sold a number of interests in the property and the plaintiff had taken no part in its management, the court found that the plaintiff was adequately protected by his equal right of control over the property and right to know what is going on. Since the plaintiff had assumed the role of a joint venturer, he did not pay his money with the expectation that future profits from the venture would come solely from the efforts of others. The Texas Court of Civil Appeals came to the same conclusion when faced with the sale of joint venture interests in a tract of undeveloped land near Dallas, Texas. In McConathy v. Dal Mac Commercial Real Estate, Inc., 545 S.W.2d 871 (Tex.Civ.App.-Texarkana 1976, no writ), the court found that the investors expected to hold the property for appreciation and therefore were not dependent on its manager. Where the only management duties of the managing venturer were the maintenance and protection of the property-insuring it, paying taxes and so forth-the court held that an association of persons in a joint venture lacked the essential element of reliance on the managerial, operational or developmental efforts of others. See also Oakley v. Rosen, 76 Cal.App.2d 310, 173 P.2d 55 (1946). 71 Although general partners and joint venturers may not individually have decisive control over major decisions, they do have the sort of influence which generally provides them with access to important information and protection against a dependence on others. Moreover, partnership powers are not in the nature of a nominal role in the enterprise which a seller of investment contracts would include in order to avoid the securities laws; on the contrary, one would expect such a promoter to insist on ultimate control over the investment venture. An investor who is offered an interest in a general partnership or joint venture should be on notice, therefore, that his ownership rights are significant, and that the federal securities acts will not protect him from a mere failure to exercise his rights. 72 It should be clear from the context of the cases discussed above, however, that 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. All of these cases presume that the investor-partner is not in fact dependent on the promoter or manager for the effective exercise of his partnership powers. If, for example, the partner has irrevocably delegated his powers, or is incapable of exercising them, or is so dependent on the particular expertise of the promoter or manager that he has no reasonable alternative to reliance on that person, then his partnership powers may be inadequate to protect him from the dependence on others which is implicit in an investment contract. 73 Thus, a general partnership in which some agreement among the partners places the controlling power in the hands of certain managing partners may be an investment contract with respect to the other partners. Pawgun v. Silverstein, 265 F.Supp. 898 (S.D.N.Y. 1967). In such a case the agreement allocates partnership power as in a limited partnership, which has long been held to be an investment contract. See generally 3 Bloomenthal, Securities & Federal Corporate Law § 2.12(2) (1979). Similarly, one would not expect partnership interests sold to large numbers of the general public to provide any real partnership control; at some point there would be so many partners that a partnership vote would be more like a corporate vote, each partner's role having been diluted to the level of a single shareholder in a corporation. Such an arrangement might well constitute an investment contract. 74 A general partner or joint venturer who lacks the business experience and expertise necessary to intelligently exercise partnership powers may also be dependent on the investment's promoter or manager. This sort of dependence was absent in all of the cases, discussed supra, which found that passive but powerful investors did not purchase investment contracts. The decision in Mr. Steak, Inc. was premised in part on the failure of the franchisee to demonstrate that it lacked the requisite knowledge, skill or expertise to manage the restaurant. 324 F.Supp. at 645. The Court of Appeals for the Eighth Circuit was careful to note, in deciding Fargo Partners, that it was not a case where a small investor is helplessly reliant on the promoter's efforts because of lack of business knowledge, finances, or control over the operation. 540 F.2d at 915. The purchasers in Ballard & Cordell were themselves oil exploration firms; the partners in Sloan and Hirsch were professional brokers contesting the sale to them of partnerships in brokerage firms; and the partners in Oxford Finance Co. were business corporations. These purchasers or partners were well able to protect themselves. But the same might not be true in other cases. A scheme which sells investments to inexperienced and unknowledgeable members of the general public cannot escape the reach of the securities laws merely by labelling itself a general partnership or joint venture. Such investors may be led to expect profits to be derived from the efforts of others in spite of partnership powers nominally retained by them. 75 A 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. Even the most knowledgeable partner may be left with no meaningful option when there is no reasonable replacement for the investment's manager. For example, investors may be induced to enter a real estate partnership on the promise that the partnership's manager has some unique understanding of the real estate market in the area in which the partnership is to invest; the partners may have the legal right to replace the manager, but they could do so only by forfeiting the management ability on which the success of the venture is dependent. Or investors may purchase joint venture interests in an operating business in reliance on the managing partner's unusual experience and ability in running that particular business; again, a legal right of control would have little value if the partners were forced to rely on the manager's unique abilities. We must emphasize, however, that a reliance on others does not exist merely because the partners have chosen to hire another party to manage their investment. The delegation of rights and duties-standing alone-does not give rise to the sort of dependence on others which underlies the third prong of the Howey test. An investor who retains control over his investment has not purchased an interest in a common venture premised on the reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others, even if he has contracted with the vendor for the management of the property. Fargo Partners v. Dain Corp., supra; Schultz v. Dain Corp., supra. So long as the investor retains ultimate control, he has the power over the investment and the access to information about it which is necessary to protect against any unwilling dependence on the manager. It is not enough, therefore, that partners in fact rely on others for the management of their investment; a partnership can be an investment contract only when the partners are so dependent on a particular manager that they cannot replace him or otherwise exercise ultimate control. 76 All of this indicates that an investor who claims his general partnership or joint venture interest is an investment contract has a difficult burden to overcome. On the face of a partnership agreement, the investor retains substantial control over his investment and an ability to protect himself from the managing partner or hired manager. Such an investor must demonstrate that, in spite of the partnership form which the investment took, he was so dependent on the promoter or on a third party that he was in fact unable to exercise meaningful partnership powers. 14 A general partnership or joint venture interest can be designated a security only if the investor can establish, for example, that (1) an agreement among the parties 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 (2) the partner or venturer is so inexperienced and unknowledgeable in business affairs that he is incapable of intelligently exercising his partnership or venture powers; or (3) the partner or venturer is so dependent on some unique entrepreneurial or managerial ability of the promoter or manager that he cannot replace the manager of the enterprise or otherwise exercise meaningful partnership or venture powers. 15 77 Neither of the first two of these factors appears to be present in this case. In the first place, there is no representation or indication in the record that the partnership agreement did not really give the investors partnership powers. The plaintiffs do assert that they did not expect to exercise these powers, and that they in fact purchased their interests on the expectation that they would rely on Godwin Investments to make all management decisions. But they do not deny that the agreement allowed them to exercise ultimate control should they decide to do so, and it appears that, when trouble arose in late 1975, the plaintiffs did attend joint venture meetings and take a greater interest in important decisions. In the second place, it is clear that the plaintiffs were capable of exercising genuine control over the enterprise. Williamson was Chairman of the Board of Frito-Lay, Inc., at the same time as Lilley was its President; Lilley later succeeded Williamson as Chairman. Wilson and Blake were also high executives in Frito-Lay and had long been closely associated with Williamson and Lilley. The defendants' exhibits contain documents from previous ventures which indicate that Williamson and Lilley had already been members of other joint ventures organized by Godwin Investments, some of which involved tracts of raw land, before any of the joint ventures in question were organized. All of the plaintiffs were, previous to the formation of the joint ventures in question, close associates of William B. Oliver, now deceased, who had been Frito-Lay's President prior to becoming a stockholder and director, during his retirement, of Godwin Investments. On these facts, it is clear that the plaintiffs had the business experience and knowledge adequate to the exercise of partnership powers in a real estate joint venture. 78 The third factor is more problematic. The plaintiffs argue that they were dependent on Godwin Investment's promise to plan uses for the property, obtain zoning changes, refinance, manage condemnation proceedings, and develop, lease or sell the property to return a profit. Appellants' Brief 31. It is true that the Property would ultimately have to be developed or sold, and in the interim managed, before a profit could be returned on it; and it is true that Godwin Investments promised to perform these tasks. But this alone does not establish a dependence on Godwin Investments so great as to deprive the plaintiffs of their partnership powers. The plaintiffs must demonstrate that Godwin Investments was uniquely capable of such tasks or that the partners were incapable, within reasonable limits, of finding a replacement manager. Godwin Investment's promise must be more than a binding contract enforceable under state law; it must create the sort of dependence implicit in an investment contract. 79 There is virtually nothing in the record that is relevant to this precise question. Each of the plaintiffs makes only the vague statement, in his affidavit in opposition to the defendants' motions under Rules 12(b)(1) and 56, that I relied and was dependent upon the efforts of the manager of the Property. The issue is complicated by the confusion over the purposes for which the investment was made. Williamson stated in deposition that he did not expect the Property to be developed by the venture: 80 (A)t the time I went into this, I stated to them all that I wouldn't spend a dime on improving the property, and the way this was set up was for a short period turnover ... and I for one, expressed myself to the other joint venturers and to everybody concerned that I was not interested at any time to do any development .... 81 Williamson Deposition at 223-24. If the object of the deal was purely that which Williamson describes-to hold the land for short-term appreciation-it is difficult to imagine any genuine dependence on Godwin Investments. The only tasks mentioned by the plaintiffs that might conceivably involve some particular non-replaceable expertise during a period in which raw land is merely held for appreciation are the procuring of zoning changes and the management of condemnation proceedings. But Godwin Investments represented in its sales materials that it would either sell or develop the Property, and that one of these paths would be taken before 1978, the end of the interest-only period. Whatever the primary purpose of the investment, it does not appear that the plaintiffs' dependence on Godwin Investments was directly addressed by the district court or by the parties in discovery. Much is made of the expectations of the joint venturers-that they would play only a passive role-and of the powers they actually possessed-as partners, pursuant to joint venture agreements-but there is little in the record that bears on the dependence of the plaintiffs on the expertise of Godwin Investments. 82 We conclude, therefore, that a material issue of fact remains to be resolved in this case (thereby precluding summary judgment at this point): whether the plaintiffs were so dependent on the expertise of Godwin Investments for the management, sale or development of the Property that they could not effectively exercise their partnership powers. But we need not remand this case for further discovery on this point in order to rule on the district court's dismissal for lack of subject matter jurisdiction. Even assuming that the district court could have found and did find that no such dependence existed, we could not say that the plaintiffs' federal cause of action clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or that it is wholly insubstantial and frivolous. We recognize that the law places an extremely difficult burden on the plaintiffs if they are to establish that the joint venture interests they purchased are securities. Nevertheless it would be too great a stretch to say that their argument has no plausible foundation, and as our discussion of the law should indicate, their claim is by no means clearly foreclosed by a prior Supreme Court decision.