902 F. 2d 1579 - Thomas v. Bird 1-2000

MEMORANDUM**

Appellants ("Thomas") brought this action against the appellees ("Bird") under (1) Secs. 12(1) and 12(2) of the Securities Act of 1933 [hereinafter 1933 Act]; (2) Secs. 11 and 10(b) of the Securities Exchange Act of 1934 [hereinafter 1934 Act]; and (3) Secs. 1961(d) and 1964 of the Racketeer Influenced and Corrupt Organizations Act [hereinafter RICO]. Thomas also asserted several pendent state claims.1 Pursuant to Federal Rule of Civil Procedure 12(b)(6), the district court dismissed the securities and RICO claims with prejudice. The court then dismissed the remaining state claims without prejudice.

We have jurisdiction under 28 U.S.C. Sec. 1291 and affirm.

* Thomas alleges that, beginning in 1981, he was solicited for cash contributions to limited partnerships Bird had organized for the purpose of acquiring low-income, federally subsidized housing. In 1983, Thomas began investing in Bird's projects. The written agreements designated Thomas as a "co-general partner" with "co-equal" duties and liabilities. The agreements did not spell out the details of those responsibilities. However, they did state that they were governed by California law.

We review de novo a Rule 12(b)(6) dismissal for failure to state a claim. Kruso v. International Telephone & Telegraph Corp., 872 F.2d 1416, 1421 (9th Cir.1989). Dismissal is appropriate if it appears beyond doubt that the plaintiff can prove no set of facts in support of her claim entitling her to the relief she requests. Love v. United States, 871 F.2d 1488, 1491 (9th Cir.1989).

Thomas' primary argument on appeal is that the agreements are "securities" within the meaning of Sec. 2(1) of the 1933 Act and Sec. 3(a)(1) of the 1934 Act. Specifically, Thomas claims that although the agreements in question designate him as a general partner, he was treated like a limited partner, with no more control or power over his investment than a purchaser of ordinary securities. Thus, he concludes, the agreements constitute the sort of passive investment the federal securities laws were intended to protect.

We have previously held that although we should apply the terms of the 1933 and 1934 Acts liberally, we may not apply them to general partnership interests. See Matek v. Murat, 862 F.2d 720 (9th Cir.1988). We determine whether a given interest is a general partnership by looking at the expectations of the parties at the time of the original transaction. Id. at 729.

Unlike the contract in Matek, the agreements in this case do not set out that the significant powers concomitant with a general partnership. Nevertheless, because the California law governed the partnership agreements, we look to it to determine Thomas' respective rights and responsibilities.

Because each of the agreements involved a limited partnership, we turn initially to California's version of the Uniform Limited Partnership Act, Cal.Corp.Code Secs. 15501-15533 (West 1977 & Supp.1990).2 Section 15509(1) provides that those designated as general partners in limited partnerships enjoy, with certain exceptions not relevant here, the rights of general partners in a general partnerships. Turning next to California's version of the Uniform Partnership Act, Cal.Corp.Code Secs. 1501-15045, we note that such partners have substantial powers. For example, those designated as general partners have equal rights of management and control. See Cal.Corp.Code Sec. 15018(e). They also enjoy the right to inspect and copy the partnership books, as well as the right to receive information and accountings upon demand. See Cal.Corp.Code Secs. 15019-22.

Because the agreements in this case did not deny Thomas his statutory rights, the contractual provisions incorporating California law vested him with substantial managerial powers which enabled him to protect his investment.3 Accordingly, the district court correctly determined that Thomas cannot establish that the agreements were "securities." See Matek, 862 F.2d at 731-32.

Because we hold that Thomas cannot allege that the agreements constituted securities, dismissal of his RICO claim was also appropriate. See 18 U.S.C. Sec. 1961(d) and Sec. 1964.

Finally, because we hold that the district court properly dismissed Thomas' federal claims before trial, dismissal of his pendent state claims without prejudice was appropriate. See United Mine Workers v. Gibbs, 383 U.S. 715, 726 (1966); McCarthy v. Mayo, 827 F.2d 1310, 1317 (9th Cir.1987).

For these reasons, the decision of the district court is AFFIRMED.