Foxfield Villa Associates v. Robben

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FILED United States Court of Appeals PUBLISH Tenth Circuit UNITED STATES COURT OF APPEALS July 31, 2020 Christopher M. Wolpert FOR THE TENTH CIRCUIT Clerk of Court _________________________________ FOXFIELD VILLA ASSOCIATES, LLC; RICHARD A. BARTLETT; ERNEST J. STRAUB, III; BARTLETT FAMILY REAL ESTATE FUND, LLC; PRES, LLC, Plaintiffs – Appellants, v. No. 18-3054 PAUL ROBBEN; RDC HOLDINGS, LLC, Defendants – Appellees. _________________________________ Appeal from the United States District Court for the District of Kansas (D.C. Nos. 2:12-CV-02528-CM and 2:13-CV-02120-CM-JPO) _________________________________ John M. Duggan (Deron A. Anliker with him on the briefs), Duggan Shadwick Doerr & Kurlbaum LLC, Overland Park, for Plaintiffs-Appellants. Robert M. Pitkin, Horn Aylward & Bandy, LLC, Kansas City, Missouri, for Defendants- Appellees. _________________________________ Before LUCERO, HARTZ, and CARSON, Circuit Judges. _________________________________ CARSON, Circuit Judge. _________________________________ We consider whether ownership interests in a limited liability company are securities under the Securities Exchange Act of 1934. The specific attributes of the LLC interests in this case compel us to conclude that they are not. We thus affirm the district court’s order declining to characterize the LLC interests as securities and granting summary judgment to the defendants on that basis. I. This appeal stems from an attempt to hold Defendant Paul Robben liable for securities fraud. In short, various Plaintiffs allege that Mr. Robben fraudulently induced them to purchase ownership interests in a Kansas limited liability company named Foxfield Villa Associates, LLC (“Foxfield”). Plaintiffs also argue that those interests were securities under the Securities Exchange Act of 1934. Plaintiffs thus maintain that Mr. Robben violated section 10(b) of the 1934 Act (its broad antifraud provision) and SEC Rule 10b-5 (an administrative regulation expounding upon that antifraud provision) when engaging in his allegedly deceitful conduct. See generally 2 15 U.S.C. § 78j(b) (codifying section 10(b));1 17 C.F.R. § 240.10b-5 (codifying SEC Rule 10b-5).2 The specifics are not so simple. The relevant complaint, for instance, contains 114 pages of allegations against Mr. Robben and his company RDC Holdings, LLC (“RDC”)—the other defendant in this case—describing their supposedly fraudulent 1 Section 10(b) contains the following language: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange . . . [t]o use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. 15 U.S.C. § 78j(b) (footnote omitted). 2 SEC Rule 10b-5 contains the following language: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice …

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