Chan v. HEI Resources, Inc.

2022 CO 36. No. 20SC595. Colorado Securities Act—Investment Contracts—General Partnerships.

June 27, 2022

This case required the Supreme Court to determine how courts should evaluate whether an interest in a “general partnership” is an “investment contract” for purposes of the Colorado Securities Act (CSA), CRS §§ 11-51-101 to -1008. General partnerships ordinarily are not investment contracts because general partners control and direct the venture, but in certain circumstances, a venture denominated a general partnership may be an investment contract in operation.

Here, the Court adopted the generally accepted framework from Williamson v. Tucker, 645 F.2d 404 (5th Cir. 1981), for how to assess whether a general partnership is in fact an investment contract. The Court concluded that the CSA does not allow for a “strong presumption” that general partnership interests are not securities—or for any presumption or burden beyond that necessarily created by the plaintiff’s burden of proof. The Court further concluded that (1) a court evaluating whether general partners lack the ability to direct the venture may find that their general business knowledge and expertise is sufficient to permit them to exercise their partnership powers; (2) if general partners themselves would not be able to serve in the place of the manager, that does not necessarily make the partnership an investment contract; and (3) a particular venture’s “economic realities” can appropriately be considered as part of the Williamson framework.

Accordingly, the Court reversed the Court of Appeals’ judgment on whether courts should apply a “strong presumption” and remanded the case to the trial court for further findings.