Matek v. Murat
| Decision Date | 25 November 1988 |
| Docket Number | 86-6372 and 87-5592,86-6302,86-6371,86-6303,Nos. 86-6292,s. 86-6292 |
| Citation | 862 F.2d 720 |
| Parties | Fed. Sec. L. Rep. P 94,108, RICO Bus.Disp.Guide 7091 Budimir MATEK; Eleanor Matek; Martin Matek; Marijan Dusevic; Mario Forgiarini; Mary L. Forgiarini; John Zivkovic; Judith Zivkovic; Vinco Marich; Cvita Marich, Plaintiffs, and Rex Martin; Carolyn Martin; David A. Hill; Diane S. Hill; Ruth Thayer, Plaintiffs-Appellants, v. Joseph MURAT; Veronica M. Murat; Chester J. Hummel; Celia A. Hummel; Ronald A. Lebetsamer; Minor, Popeny & Lebetsamer; Port Welding & Machine Works, Inc. Profit Sharing Trust Fund; West Coast Diesel, Inc.; Orange Production Credit Association, Defendants-Appellees. Budimir MATEK; Eleanor Matek; Martin Matek; Marijan Dusevic; Mario Forgiarini; Mary L. Forgiarini, Plaintiffs, and Rex Martin; Carolyn Martin; David A. Hill; Diane S. Hill; Ruth Thayer, Plaintiffs-Appellees, v. Joseph MURAT; Veronica M. Murat; Port Welding & Machine Works, Inc. Profit Sharing Trust Fund; West Coast Diesel, Inc., Defendants-Appellants. Budimir MATEK; Eleanor Matek; Martin Matek; Marijan Dusevic; Mario Forgiarini; Mary L. Forgiarini; John Zivkovic; Judith Zivkovic; Vinco Marich; Cvita Marich, Plaintiffs-Appellants, and Rex Martin; Carolyn Martin; David A. Hill; Diane S. Hill; Ruth Thayer, Plaintiffs, v. Joseph MURAT; Veronica M. Murat; Chester J. Hummel; Celia A. Hummel; Ronald A. Lebetsamer; Minor, Popeney & Lebetsamer; Port Welding & Machine Works, Inc. Profit Sharing Trust Fund; West Coast Diesel, Inc.; Orange Production Credit Association, Defendants-Appellees. Budimir MATEK; Eleanor Matek; Martin Matek; Marijan Dusevic; Mario Forgiarini; Mary L. Forgiarini; Rex Martin; Carolyn M. Martin; David A. Hill; Diane S. Hill; Ruth Thayer, Plaintiffs-Appellees, v. Joseph MURAT; Veronica M. Murat; Chester J. Hummel; Celia A. Hummel; Port Welding & Machine Works, Inc. Profit Sharing Trust Fund; West Coast Diesel, Inc., Defendants, and Ronald A. Lebetsamer; Minor, Popeney & Lebetsamer, Defendants-Appellants. Budimir MATEK; Eleanor Matek; Martin Matek; Marijan Dusevic; Rex Martin; |
| Court | U.S. Court of Appeals — Ninth Circuit |
Nelson H. Chan, and William J. Hickey, Borton, Petrini & Conron, Bakersfield, Cal., for plaintiffs-appellants.
Mark Kester Brown, Kinsella, Boesch, Fujikawa & Towle, Los Angeles, Cal., for plaintiffs-appellees.
Raphael Metzger, Seal Beach, Cal., for defendants-appellees-appellants.
Howard M. Jaffe and David B. Rosenman, Lewis, D'Amato, Brisbois & Bisgaard, Los Angeles, Cal., and Michael Fate, Culver City, Cal., for defendants-appellees and defendants-appellants, Lebetsamer and Minor, Popeney & Lebetsamer.
Appeal from the United States District Court for the Central District of California.
Before PREGERSON, CANBY and WIGGINS, Circuit Judges.
The major issue in this appeal is whether the appellants' general partnership interests are securities under the federal securities laws. The lower court held that the interests were not securities, stayed the appellants' RICO claims pending this appeal, and dismissed pendent state claims. The district court also denied the Murats' motion for execution on bonds given by the appellants to secure an injunction. Matek v. Murat, 638 F.Supp. 775, 784 (C.D.Cal.1986). We AFFIRM the district court's summary judgment as to the securities claims, the stay of the RICO claims, and the dismissal of the state claims. We order execution on the surety bonds.
The plaintiffs comprise two distinct groups: the "Matek" group, primarily composed of Croatian immigrants who settled in the San Pedro, California, area after World War II, and the "Martin" group composed of various people living in Bakersfield, California. The defendants include Joseph Murat (a Croatian immigrant), Chester Hummel, a business associate of Murat, and the law firm of Minor, Popeney & Lebetsamer, the drafters of a partnership agreement at issue in this case.
Sometime in 1979, the Murats purchased an old Navy vessel with the intent of converting it into an ocean going fish processing plant. In order to finance the venture, the Murats formed a general partnership and invited the plaintiffs to invest in it. The Minor, Popeney & Lebetsamer law firm prepared a solicitation document and a partnership agreement to set up the partnership. After preparation of the agreement, the Murats solicited the plaintiffs to join the partnership. Eventually, twelve people invested $100,000 each to finance construction work on the vessel and provide start-up capital for the enterprise. Unfortunately, the venture failed and various creditors foreclosed on loans made to the partnership.
The plaintiffs brought various claims against Murat, Hummel and the law firm alleging violations of Sec. 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78(j), RICO claims under 18 U.S.C. Sec. 1964, and pendent state fraud and misrepresentation claims. In April, 1986, the defendants moved for an order specifying material facts existing without substantial controversy as to the securities claims. The motion also sought a ruling that the plaintiffs' general partnership interests were not securities. The court found that the general partnership interests of the plaintiffs did not fit the definition of an "investment contract" under securities law and granted summary judgment to the defendants. The court certified its order for an immediate appeal under Fed.R.Civ.P. 54(b). (Matek, 638 F.Supp. at 784.)
Early on in the protracted litigation of this case, the lower court (J. Lydick) enjoined the defendants from transferring or selling various promissory notes given by the plaintiffs to the defendants and enjoined the defendants from pursuing judicial foreclosure proceedings on various
deeds of trust securing the promissory notes. The court also issued a writ of attachment against some real property held by the Murats in the amount of $526,628 based on the court's preliminary determination that the plaintiffs would prevail on the merits of their claims. The Mateks posted a $50,000 surety bond against the preliminary injunction. See Fed.R.Civ.P. 65(c) (). The Mateks also posted a $7,500 surety bond against the writ of attachment. After summary adjudication of the plaintiffs' claims in favor of the defendants, the defendants moved for vacation of the preliminary injunction and the writ of attachment. The court found that the writ of attachment was vacated by "operation of law" but did not disturb the preliminary injunction. The defendants subsequently moved for summary adjudication and execution on the plaintiffs' obligations on the surety bonds. The court denied the defendants' execution motion as premature. The court certified this order for an immediate appeal under Fed.R.Civ.P. 54(b). The appellants timely appealed. The Murat appellees appealed the denial of their motion for execution on the bonds.
The lower court treated the appellants' motion to dismiss as one for summary judgment. Matek, 638 F.Supp. at 777 n. 2. 1 A grant of summary judgment is reviewed de novo. Darring v. Kincheloe, 783 F.2d 874, 876 (9th Cir.1986).
The court below found that the appellants' interests were general partnership interests and not securities. The Securities Act of 1933, 15 U.S.C. Secs. 77a-77bbbb and the Securities Exchange Act of 1934, 15 U.S.C. Secs. 78a-78kk, define "security" similarly. 2
The term "security" means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, ... investment contract ... or, in general, any interest or instrument commonly known as a "security...."
15 U.S.C. Sec. 77(b)(1)(Sec. 2(1) of the Securities Act of 1933).
The remedial nature of the securities acts requires that their language be interpreted liberally. Tcherepnin, 389 U.S. at 336, 88 S.Ct. at 553. General partnership interests are not included among the enumerated types of securities. 3 The parties, however, dispute whether the plaintiffs' interests are "investment contracts," one of the most litigated parts of the definition. In making this determination, form should not control over substance and the emphasis of the examination must be the economic reality of the transaction. Id. at 336, 88 S.Ct. at 553. The securities acts protect those without inside access to information In SEC v. W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946), the Court defined "investment contracts" for the purposes of the 1934 Act: "The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others." Id. at 301, 66 S.Ct. at 1104. As in most cases dealing with the Howey test, the present case revolves around whether the plaintiffs' profits were to come solely from the efforts of the defendants. The Ninth Circuit interpreted the Howey formula in SEC v. Glenn W. Turner Enters., Inc., 474 F.2d 476 (9th Cir.), cert. denied, 414 U.S. 821, 94 S.Ct. 117, 38 L.Ed.2d 53 (1973) (). In Glenn Turner, this court determined that a literal application of the word "solely" in the Howey test might preclude finding various instruments to be securities if an investor put forth even a minimum of effort in relation to his investment. The court stated...
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