Iguaçu, Inc. v. Antonio Cabrera Mano Filho

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
IGUAÇU, INC.,
Plaintiff-Appellee,
v.
ANTONIO CABRERA MANO FILHO,
Defendant-Appellant.
No. 13-17544
D.C. No. 3:09-cv-00380-RS
MEMORANDUM*
IGUAÇU, INC.,
Plaintiff-Appellee,
v.
ANTONIO CABRERA MANO FILHO,
Defendant-Appellant.
No. 14-17099
D.C. No. 3:09-cv-00380-RS
On Appeal from the United States District Court
for the Northern District of California
Richard Seeborg, District Judge, Presiding
FILED
FEB 24 2016
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
* This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.

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Argued and Submitted February 10, 2016
Before: HAWKINS and MURGUIA, Circuit Judges; and MURPHY,**
District Judge.
Plaintiff Iguaçu, Inc. sued Defendant Antonio Cabrera for unpaid
commissions on a contract. Cabrera argued that Iguaçu had acted as an
unregistered broker of securities, making the agreement void for illegality. The
district court, however, found that the interests sold by Cabrera were not securities
and that the economic reality of the transaction was the purchase of a participatory
interest in a joint venture, not the kind of passive investment that characterizes
securities. Cabrera appealed. We affirm.
The interests purchased in the projects were quotas, or membership interests,
in limitadas, the Brazilian equivalent of an LLC. The transactions resulted in joint
ventures in which all members were actively engaged in management. Cabrera
admits that the transactions’ resulting interests were not securities, yet urges us to
consider the interests as securities during the time Iguaçu was seeking out
investment partners. But “[t]he Supreme Court has long instructed that securities
law places emphasis on economic reality and disregards form for substance.”
S.E.C. v. M&A W., Inc., 538 F.3d 1043, 1053 (9th Cir. 2008). Thus, we must view
transactions as a whole. Doing so, it is apparent that the transactions here are not of
** The Honorable Stephen Joseph Murphy, III, United States District
Judge for the Eastern District of Michigan, sitting by designation.

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the kind contemplated by the securities laws.
The economic reality of the transactions was the investment in limitadas
with full expectation of shared management and operation thereof. The record
indicates that Iguaçu was not attempting to find mere buyers of shares of Cabrera’s
properties, but to introduce investors who could serve as active partners: partners
who at the very least would be obligated to arrange marketing of the venture’s
product.
The securities laws were not intended to apply to those transactions. The
Supreme Court has consistently recognized that investments resulting in active
management are not to be considered securities and has defined an investment
contract “for purposes of the Securities Act [as] a contract, transaction or scheme
whereby a person invests his money in a common enterprise and is led to expect
profits solely from the efforts of the promoter or a third party.” S.E.C. v. W.J.
Howey Co., 328 U.S. 293, 298–99 (1946). Active management is contrasted with
pure “profit-seeking business venture” investment, when “investors provide the
capital and share in the earnings and profits; the promoters manage, control and
operate the enterprise.” Id. at 300.
To hold Iguacu liable for brokering securities on the basis that, at one point,
the interests it helped to sell consisted of a corporation-analogue's stock, would
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ignore the purpose, result and substance of the transaction – which was an active
investment in a joint venture.
AFFIRMED.
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