U.S. Securities & Exchange Commission, Plaintiff-Appellee,
E. Andrew Schooler, Defendant-Appellant, and First Financial Planning Corporation, DBA Western Financial Planning Corporation, Defendant.
Submitted July 13, 2018 [*] Pasadena, California
from the United States District Court for the Southern
District of California D.C. No. 3:12-cv-02164-GPC-JMA Gonzalo
P. Curiel, District Judge, Presiding
C. Vess, Bryan C. Vess APC, San Diego, California; Philip H.
Dyson, Law Office of Philip H. Dyson, Las Mesa, California,
Stephen G. Yoder, Senior Litigation Counsel; John W. Avery,
Deputy Solicitor; Robert B. Stebbins, General Counsel;
Securities and Exchange Commission, Washington, D.C.; for
Before: Sandra S. Ikuta and N. Randy Smith, Circuit Judges,
and Stephen M. McNamee, [**] District Judge.
panel affirmed in part, and vacated in part, the district
court's judgment in favor of the U.S Securities &
Exchange Commission ("SEC") in a civil enforcement
action alleging federal securities law violations brought
against Louis Schooler and his company Western Financial
panel affirmed the district court's core holding that the
general partnership interests at issue were investment
contracts and qualified as securities under federal law, and
that Louis Schooler violated federal securities law by
selling unregistered securities and defrauding his investors.
Schooler died during the pendency of the appeal, and E.
Andrew Schooler (as executor of the estate) replaced him as
the named party on appeal. The panel vacated the civil
penalty ordered by the district court in light of Louis
Schooler's death. The panel also vacated and remanded the
disgorgement order for reconsideration in light of the
Supreme Court's decision in Kokesh v. SEC, 137
S.Ct. 1635 (2017), which altered the analysis for determining
the limitations period applicable to disgorgement.
panel affirmed the district court's judgment in all other
aspects. The panel affirmed entry of summary judgment for the
SEC on its claims under Section 17(a) of the Securities Act
of 1933, Section 10(b) of the Securities and Exchange Act of
1934, and Rule 10b-5 thereunder.
SMITH, Circuit Judge
an investment contract in the trappings of a general
partnership interest does not immunize that interest from the
federal securities laws. Our standard for identifying an
"investment contract" under federal securities law
has long been "flexible rather than . . . static";
it "is capable of adaptation to meet the countless and
variable schemes devised by those who seek the use of the
money of others on the promise of profits." See SEC
v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946). The
undisputed facts establish that the general partnership
interests at issue were stripped of the hallmarks of a
general partnership and marketed as passive investments.
Accordingly, we affirm the district court's core holding
that the general partnership interests at issue qualify as
securities under federal law and that Louis Schooler violated
federal securities law by selling unregistered securities and
defrauding his investors.
Schooler died during the pendency of the appeal, but E.
Andrew Schooler (as executor of his estate) replaced him as
the named party on appeal. In light of Louis Schooler's
death and intervening Supreme Court precedent, the Securities
and Exchange Commission (SEC) acknowledges that several
components of the district court's judgment require
vacatur or remand. Specifically, we vacate the civil penalty
ordered by the district court in light of Louis
Schooler's death. We also vacate and remand the disgorgement
order for reconsideration in light of the Supreme Court's
decision in Kokesh v. SEC, 137 S.Ct. 1635 (2017),
which alters the analysis for determining the limitations
period applicable to disgorgement. As noted above, we affirm
the district court's judgment in all other respects.
1978 and 2012 (when the SEC filed suit), Louis Schooler
individually and through his wholly owned company, First
Financial Planning Corporation d/b/a Western Financial
Planning Corporation (Western),  engaged in the business of
identifying tracts of land to purchase and sell to investors
by means of general partnership interests. Through these
alleged general partnership interests, each investor/partner
would own a fractional interest in the parcels to hold as a
speculative investment-in the hopes that the areas where the
land was located would become developed and the value of the
land would increase. Specifically, Schooler would identify a
tract of land, purchase it in the name of his company, and
then turn around and mark up the price (often by several
multiples of the price originally paid) to sell the land to
investors. Schooler sold interests in a general partnership
to the investors that would collectively hold the land
(typically with several other general partnerships). Schooler
marketed these general partnership interests to individuals
across the United States and ultimately sold 3, 400 such
interests over the lifetime of the operation.
2012, the SEC brought suit asserting a host of federal
securities law violations. The SEC sought a temporary
restraining order (TRO) and the appointment of a receiver.
The district court granted a TRO and eventually converted the
order to a preliminary injunction. The parties litigated the
case through summary judgment, where the district ...