author: EDWARDS, Circuit Judge.

text:
    The NORTH AMERICAN COAL CORPORATION, Plaintiff-Appellee, v. LOCAL UNION 2262, UNITED MINE WORKERS OF AMERICA, et al., Defendants-Appellants.
    No. 73-1629.
    United States Court of Appeals, Sixth Circuit.
    Argued Nov. 27, 1973.
    Decided May 10, 1974.

      Daniel B. Edelman, Washington, D. C., for defendants-appellants; Joseph A. Yablonski, Lewis D. Sargentich, Washington, D. C., on brief.
    Jerry A. Fullmer, Cleveland, Ohio, and Edward H. Laylin, Columbus, Ohio, for plaintiff-appellee.
    Before EDWARDS, Circuit Judge, McALLISTER, Senior Circuit Judge, and JOINER, District Judge.

       Honorable Charles W. Joiner, United States District Judge for the Eastern District of Michigan, Southern Division, sitting by designation.

   EDWARDS, Circuit Judge.

In this appeal Local 2262 of the United Mine Workers of America, seeks relief from a preliminary injunction which enjoined the local union and its officers from continuing, encouraging, and picketing in support of a work stoppage at North American’s Powhatan #3 Mine in Jacobsburg, Ohio. This is also an appeal from judgments finding the eight officers and the local union itself in criminal contempt of the court’s injunction under 18 U.S.C. § 401(3) (1970) and assessing penalties therefor.

This litigation originated in a work stoppage at Powhatan #3 over the case of a miner, who after missing two days of work, was not allowed to return without a doctor’s slip. The District Judge originally denied a temporary restraining order but orally required that the company resume negotiations on the grievance and that the union order return to work. Negotiations were resumed and the men did return to work for two shifts, but again left their jobs.

At a hearing on April 12 no formal proofs were taken from the plaintiff, but the parties agreed that there was a strike, and that the contract between the company and the union contained a compulsory arbitration clause. The District Judge thereupon declared that the burden of proof that an injunction should not issue was upon the UMW. He issued the temporary injunction, however, after refusing to take proofs pertaining to the equities between the parties and without any proofs as to the issue of irreparable damage.

After the issuance of the preliminary injunction, the union called a meeting where testimony indicates that the union officers urged resumption of work, but it is clear that in fact no work was resumed. Thereafter on two successive dates, after the officers and the union had been cited for contempt, the judge entered orders finding first, two of the officers and then six more of the local union officers in' criminal contempt. The District Judge sentenced them to 30 days in jail, but subsequently suspended the sentences.

It is the appellants’ claim as to these sentences that there was no proof at the hearings that any of the eight officers had authorized or encouraged the work stoppage, and on the contrary, that the undisputed proof was that each of the eight officers had urged the men to go back to work. The only finding of fact on this issue which the District Judge appears to have made (other than the ultimate findings of contempt) was that the officers had made “valiant efforts” to get the men back to work.

The District Judge’s reasoning at the April 13, 1973, hearing pertaining to the individual contempt findings and sentences as to appellants Phillips and Smith is fully set forth below:

“THE COURT: On April 12, 1973, this Court issued an order upon specified named individual Defendants enjoining them collectively and severally from doing specific acts. A Union is a voluntary organization of members who seek a common goal. The officers of that Union must accept responsibility for the acts thereof. This Court is not willing to allow its orders to be defied.
In this particular matter and at this particular time, the Court represents the United States of America. No one is going to defy this Court’s order.
Accordingly, the Court finds that Russell Phillips and Oscar Smith as officers of Local Union 2262 are guilty of contempt of Court. The Court will remand such Defendants to the custody of the United States Marshal for a period of 30 days for such contempt. The execution of this sentence will be delayed until 1:30 P.M. on Monday, April 16 at which time the Court will hear as to the contempt of the other named Defendants.
The Court will take into consideration at that time the status of the mine in question and whether or not it is operating.
The Court will reserve the question as to a monetary fine against Local 2262 and hold this matter for a further hearing. Pending such hearing, however, the Plaintiffs are hereby ordered to hold all checkoff funds in escrow pending a further determination and instruction by this Court.
This is a matter that should not have reached this point. On two separate occasions this Court has gone beyond its legal obligation in an effort to compromise the differences between the parties. On Tuesday, April 10, the Court made a specific effort for the parties to adhere to the agreement that is binding upon them. That effort was unsuccessful.
On Thursday, April 12, this Court issued an order requiring the parties to proceed in accordance with the contract between them and that order was disobeyed.
No person should mistake forebearanee for weakness. No person, no group, no Company will defy the United States District Court.
Mr. Osterman, you may adjourn the Court.”

The District Judge’s reasoning at the April 16 hearing concerning the balance of the local union officers is set forth fully below:

“THE COURT: The Court is aware .today as it was aware on Friday that there is a difference between the individuals who are here before this Court and the large number of members of this Local Union, a difference in the sense that they as officers are identifiable whereas the bulk of the Union is not identifiable. This is a very difficult problem. It has been a difficult problem for a number of years. We have reached a point in our relationship between Management and Unions that we place a burden on both. We have passed the point where Management can hire and fire at will with or without just cause, and we have also passed the point where a Union may strike as it will with or without just cause.
For reasons that escape this Court, in this particular situation despite numerous efforts to explain in as simple terms as possible, this Union and these Defendants simply refused to understand what the Court was saying, and I will say it once more. There is no right to strike under this agreement so long as the contract is in effect.
You have a right to process grievances and this Court stands ready to assist in processing grievances. No one is going to make a mockery out of that process by delay, by refusal, or by clouding the issue, and I impose upon Management as I imposed upon them last week the obligation to meet with you promptly, to deal with you fairly, and to process this grievance in accordance with the contract.
If you cannot agree, the matter goes to an impartial Umpire.
If you can't agree upon an Umpire and if both sides so require, the Court will appoint one. The Court is willing to assist so that there be a prompt disposition of a grievance.
Now, next week, any time there is a grievance, this is your Court. These are your laws and they are intended to be fair laws. I repeat again, anytime, anyplace, this Court is ready to assist in the prompt settlement of industrial grievances, but when this Court makes an order, it will be obeyed, and this Court made an order and these Defendants violated that order.
Accordingly, the Court finds that Fred [e] rick Clark, Nick Corise, Paul Mackinaw, William Lawrence, Jacob Schramm, Frank Del Vecc[h]io have each been guilty of contempt of Court and the Court does, therefore, impose a sentence upon each of them of 30 days incarceration.
The Court is aware of the fact that as of this time the mine is back in operation. The contempt of the Court’s order no longer issues and, therefore, the sentences heretofore imposed as well as those imposed upon Russell Phillips and Oscar Smith on Friday, April 13, are hereby suspended.
There is likewise a question of whether or not the Local Union itself as an entity has been guilty of contempt of Court and whether or not this Plaintiff is entitled to damages. That matter will come before this Court in Columbus, Ohio at 3:00 P.M. Wednesday, April 18, and the sole issue at that time will be whether or not the Union itself should be held in either civil or criminal contempt of Court.”

At still another hearing upon April 18, 1973, the District Judge took testimony upon plaintiff-appellee’s claims of losses in tonnage and profits due to the strike. The District Judge concluded:

“THE COURT: The Court is going to take this matter under advis[ejment. Let me make just one or two observations: This has been an unpleasant task presented to this Court over the past week and a half. I am well aware of the fact that none of the participants have gained over this incident. This Company has lost money, substantial sums of money. Individuals of this Union have been held in contempt. Men have lost wages. This Union is facing consideration at this time of a fine, and I would point out further that all of this was totally unnecessary. In this room just over a week ago the Court made its position known and urged as strongly as it could that the parties seek a peaceful settlement of this dispute.
Unpleasant or not, however, an order of this Court was issued and despite the valiant efforts and I recognize that the best efforts were made by individuals, nevertheless, this Union did stay out on strike and did violate the express terms of this Court’s order.
All of these matters will be taken into consideration and the Court will issue an order promptly.
Mr. Walters, you may adjourn the Court.”

The order entered thereafter provided:

“Disobedience of this Court’s order, however, is another matter. There has been a willful and deliberate disregard thereof. To accept the defense that the officers of the Union were helpless to prevent the occurrence, would serve only to reward irresponsibility and encourage disrespect. See (Easor [Eazor] Express, Inc. v. International Brotherhood of Teamsters, 41 U.S.L.W. 2549 (W.D.Pa. April 11, 1973) No person, however provoked; no organization, however powerful, may with impunity flout the lawful order of the United States District Court.
Accordingly, the Court finds that defendant, Local Union 2262, United Mine Workers of America, from 4:00 P.M., Thursday, April 12, 1973 until 12:01 A.M., Monday, April 16, 1973, acted in contempt of this Court’s order. During that period of time, four shifts of miners, members of the bargaining unit of Defendant, failed to report for work as ordered. The Court does, therefore, assess a fine against said Defendant in the sum of two hundred fifty dollars ($250.00) for each of such shifts, or a total of One Thousand Dollars ($1,000.00.)”

The three questions posed by this appeal, as we see them, are:

1) Is the temporary injunction issued by the District Judge valid?

2) Are the contempt sentences applicable to the individual officers on the basis of their vicarious liability for the strike valid sentences ?

3) Is the contempt sentence against Local 2262 valid?

As to the first question pertaining to the temporary injunction, the District Judge erred both in shifting the burden of proof to the defendants and in failing and refusing to take testimony and make findings on the equities between the parties and on irreparable damage. See Boys Markets v. Retail Clerks Union, 398 U.S. 235, 90 S.Ct. 1583, 26 L.Ed.2d 199 (1970), as recently interpreted by this court in Detroit Newspaper Publishers Ass’n v. Detroit Typographical Union, 471 F.2d 872 (6th Cir. 1972), cert. denied, 411 U.S. 967, 93 S.Ct. 2149, 36 L.Ed.2d 687 (1973).

In Boys Markets the Supreme Court held:

“Our holding in the present case is a narrow one. We do not undermine the vitality of the Norris-LaGuardia Act. We deal only with the situation in which a collective-bargaining contract contains a mandatory grievance adjustment or arbitration procedure. Nor does it follow from what we have said that injunctive relief is appropriate as a matter of course in every case of a strike over an arbitrable grievance. The dissenting opinion in Sinclair (Sinclair Refining Co. v. Atkinson, 370 U.S. 195, 82 S.Ct. 1328, 8 L.Ed.2d 440) suggested the following principles for the guidance of the district courts in determining whether to grant injunctive relief — principles that we now adopt:
‘A District Court entertaining an action under § 301 may not grant injunctive relief against concerted activity unless and until it decides that the case is one in which an injunction would be appropriate despite the Norris-LaGuardia Act. When a strike is sought to be enjoined because it is over a grievance which both parties are contractually bound to arbitrate, the District Court may issue no injunctive order until it first holds that the contract does have that effect; and the employer should be ordered to arbitrate, as a condition of his obtaining an injunction against the strike. Beyond this, the District Court must, of course, consider whether issuance of an injunction would be warranted under ordinary principles of equity — whether breaches are occurring and will continue, or have been threatened and will be committed; whether they have caused or will cause irreparable injury to the employer; and whether the employer will suffer more from the denial of an injunction than will the union from its issuance.’ 370 U.S., at 228 (Emphasis in original.)” Boys Markets v. Retail Clerks Union, 398 U.S. 235, 253-254, 90 S.Ct. 1583, 1594, 26 L.Ed.2d 199 (1970). (Italics added.)

The District Judge properly construed Boys Markets as holding that where a collective bargaining agreement contained a mandatory arbitration clause, injunctive relief may be appropriate regardless of the provisions of the Norris-LaGuardia Act, 29 U.S.C. §§ 101-115 (1970). See Gateway Coal Co. v. United Mine Workers of America, 414 U.S. 368, 94 S.Ct. 629, 38 L.Ed.2d 583 (1974). However, he ignored the equitable considerations, including proof of irreparable injury, which must underlie all injunctive relief as set forth in the underlined sentence in the Boys Markets quotation above.

This court recently emphasized this same point in a case where it was the employer who was the target of the injunction. The language employed is exactly in point here:

“The fatal defects in the decision of the District Court were: (1) its failure to weigh the equities between the parties and to determine whether the employer would suffer more from the granting of the injunction than the Union from its denial, as required by Boys Market, Inc. v. Retail Clerks Union, Local 770, 398 U.S. 235, 254, 90 S.Ct. 1583, 26 L.Ed.2d 199 (1970); and (2) the absence of a showing of irreparable harm to employees as mandated by Boys Markets.” Detroit Newspaper Publishers Ass’n v. Detroit Typographical Union, supra at 875.

Although what we have said above requires vacation of the temporary injunction, we also comment that the burden of proof remains upon the party seeking the extraordinary relief involved in a court’s use of the injunctive power until all necessary elements to the issuance of an injunction have been established. As Justice Marshall stated:

“The burden was on the employers to show that they were entitled to a preliminary injunction, not on the Union to show that they were not.” Granny Goose Foods, Inc. v. Teamsters, 415 U.S. 423, 94 S.Ct. 1113, 39 L.Ed.2d 435 (1974). (Decided March 4, 1974).

Of course, even if the District Court’s injunction was invalid for the reasons we have outlined, it is settled law that it still must be obeyed until and unless it is overturned on appeal. United States v. United Mine Workers of America, 330 U.S. 258, 67 S.Ct. 677, 91 L.Ed. 884 (1947); Gompers v. Buck’s Stove & Range Co., 221 U.S. 418, 31 S.Ct. 492, 55 L.Ed. 797 (1911). Hence, we pass on to consideration of the contempt proceedings.

We must likewise vacate the contempt sentences imposed upon the eight officers of Local 2262. Their defense was that the strike was a “wildcat” strike and that it was never authorized by the union or by any of its officers. There is not a line of testimony that any one of those found guilty of criminal contempt ever did anything to initiate, encourage or continue the strike. The sworn testimony on the contrary was that they repeatedly sought to terminate it by conveying the orders of the court and by themselves ordering the miners back to work. The District Judge apparently had no doubts about the good faith of these efforts. This record contains no findings of subterfuge applicable to the alleged contemnors and, as quoted above, the District Judge on the contrary praised them for their “valiant efforts.”

We are, of course, aware that dissimulation is as possible in a labor-management controversy as in any other. See Judge Prettyman’s analysis in International Union v. United States, 85 U.S.App.D.C. 149, 177 F.2d 29, cert. denied, 338 U.S. 871, 70 S.Ct. 140, 94 L.Ed. 535 (1949). But such a charge must be made and heard on sworn testimony, followed by findings of fact by the District Judge. Here dissimulation on the part of the local union officers was not even suggested, much less testified to or made the subject of a judicial finding. And contrary to the expressed view of the District Judge, there is simply no such thing as vicarious liability of an individual for criminal contempt. Aside from regulatory offenses, intent is an element of every crime. Morissette v. United States, 342 U.S. 246, 250, 72 S.Ct. 240, 96 L.Ed. 288 (1952).

The fundamental error of law recited above obviates the necessity of our ruling upon appellants’ claims of entitlement to a new trial on this issue because of deprivation of the normal attributes and protections of a criminal trial.

Procedural errors, however, do require vacation of the criminal contempt judgment and sentence of $1,000 fine as to the local union and the remand of that case for retrial.

Review of this record convinces us that the District Judge conceived of these criminal contempt proceedings as being in the nature of summary proceedings. Summary proceedings are, however, limited to contempts committed in the, presence of the court where the court has witnessed and heard all of the relevant facts. Thus Rule 42(a) and (b) of the Federal Rules of Criminal Procedure provides:

“(a) Summary Disposition. A criminal contempt may be punished summarily if the judge certifies that he saw or heard the conduct constituting the contempt and that it was committed in the actual presence of the court. The order of contempt shall recite the facts and shall be signed by the judge and entered of record.
(b) Disposition Upon Notice and Hearing. A criminal contempt except as provided in subdivision (a) of this rule shall be prosecuted on notice. The notice shall state the time and place of hearing, allowing a reasonable time for the preparation of the defense, and shall state the essential facts constituting the criminal contempt charged and describe it as such. The notice shall be given orally by the judge in open court in the presence of the defendant or, on application of the United States attorney or of an attorney appointed by the court for that purpose, by an order to show cause or an order of arrest. The defendant is entitled to a trial by jury in any case in which an act of Congress so provides. He is entitled to admission to bail as provided in these rules. If the contempt charged involves disrespect to or criticism of a judge, that judge is disqualified from presiding at the trial or hearing except with the defendant’s consent. Upon a verdict or finding of guilt the court shall enter an order fixing the punishment.” Fed.R.Crim.P. 42(a) & (b).

In In re Oliver the Supreme Court of the United States held:

“Except for a narrowly limited category of contempts, due process of law as explained in the Cooke case (Cooke v. United States, 267 U.S. 517, 45 S.Ct. 390, 69 L.Ed. 767) requires that one charged with contempt of court be advised of the charges against him, have a reasonable opportunity to meet them by way of defense or explanation, have the right to be represented by counsel, and have a chance to testify and call other witnesses in his behalf, either by way of defense or explanation.” In re Oliver, 333 U.S. 257, 275, 68 S.Ct. 499, 508, 92 L.Ed. 682 (1948).

In this regard the Eighth Circuit has held:

“Rule 42(b) does not relieve the prosecution of its burden to establish guilt beyond a reasonable doubt. The order to show cause is merely a method of serving notice of the alleged violation of an order. United States v. United Mine Workers, 330 U.S. 258, 296-297, 67 S.Ct. 677, 91 L.Ed. 884 (1947). The alleged contemnor is at all times clothed with the presumption of innocence and the Government has the continuing burden of proving his guilt. Yates v. United States, 316 F.2d 718 (10th Cir. 1963); James v. United States, 275 F.2d 332, 335 (8th Cir.), cert. denied, 362 U.S. 989, 80 S.Ct. 1077, 4 L.Ed.2d 1022 (1960); Nilva v. United States, 227 F.2d 74, 80 (8th Cir. 1955), aff’d, 352 U.S. 385, 77 S.Ct. 431, 1 L.Ed.2d 415 (1957).” In re Van Meter, 413 F.2d 536, 538 (8th Cir. 1969).

It has been clear to Congress for many years that imposition upon unions of vicarious liability for the unauthorized acts of individuals could easily mean the elimination of labor unions as a social institution in America. The clearest expression of Congressional concern is, of course, in the Norris-LaGuardia Act and, specifically, in Section 6 thereof.

Irresponsible or violent acts by individual workers (or by agents provocateur) if automatically attributable to the union on the scene could, of course, serve to destroy it. But "such vicarious liability is repugnant to due process of law. And this circuit has repeatedly recognized that unions may only be held responsible for the authorized or ratified actions of its officers and agents. See Blue Diamond Coal Co. v. United Mine Workers of America, 436 F.2d 551 (6th Cir. 1970), cert. denied, 402 U.S. 930, 91 S.Ct. 1525, 28 L.Ed.2d 863 (1971); Lewis v. Benedict Coal Corp., 259 F.2d 346 (6th Cir. 1958), aff’d by an equally divided Court, 361 U.S. 459, 80 S.Ct. 489, 4 L.Ed.2d 442 (1960); Garmeada Coal Co. v. International Union, United Mine Workers of America, 230 F.2d 945 (6th Cir. 1956).

In each of these cases this court recognized that where a union did not call, authorize, or encourage a strike, and, on the contrary, employed its authority to oppose it, no liability for an unauthorized or wildcat strike could be attributed to the union.

In the Blue Diamond case this court held:

“Nothing herein is intended to hold that the bargaining contract should be read as imposing liability upon UMW for spontaneous or wildcat strikes in which it had no part by way of causing or prolonging such strikes. The District Judge told the jury:
‘This suit is against the United Mine Workers of America. The local union is not a party to the contract, nor is it being sued in this action. Defendant United Mine Workers of America would not be liable for the action of the officers or individual members of the local union unless it is shown the United Mine Workers of America authorized, participated in, or ratified the acts of the local union or individual members after express knowledge of such acts, which are claimed to be violations of the contract.’ ” Blue Diamond Coal Co. v. United Mine Workers of America, supra at 556.

Appellants also seek reversal claiming error in the fact that jury trial was neither tendered nor waived in the District Court. In this regard appellants rely on Bloom v. Illinois, 391 U.S. 194, 88 S.Ct. 1477, 20 L.Ed.2d 522 (1968), where the Supreme Court held that a jury trial is a constitutional right in criminal contempt charges involving other than petty offenses. We do not reach or pass on this issue, however, since the record clearly demonstrates that it was not presented below.

While we are unable to find any evidence to support a guilty finding on the contempt charge pertaining to the eight individual officers, and hence we believe the charges as to them must be dismissed, the situation is somewhat different as to the local union. Clearly there was a strike which did continue after issuance of the injunction. The strike was the subject of discussion at local union meetings. There was effective support for the strike voiced at one such meeting. Whether such actions and sentiments can properly be attributed to the local union so as to prove guilt beyond reasonable doubt should be the subject of testimony and findings on remand of the local union contempt charge.

The judgments appealed from are vacated. The application for preliminary injunction is remanded to the District Court for rehearing upon the standards set forth above, unless in the meantime the issues have become moot. The judgments of conviction as to the eight local union officers are vacated and the case is remanded for dismissal of the contempt proceedings as to them. The judgment of conviction and sentence as to the local union are vacated and the contempt charge as to it is remanded for rehearing on the standards set forth above.

      . In this § 391 action, agency proofs are governed by 29 U.S.C. § 185(e) (1970).

      . “No officer or member of any association or organization, and no association or organization participating or interested in a labor dispute, shall be held responsible or liable in any court of the United States for the unlawful acts of individual officers, members, or agents, except upon clear proof of actual participation in, or actual authorization of, such acts, or of ratification of such acts after actual knowledge thereof.” Norris-LaGuardia Act, 29 U.S.C. § 106 (1970).

      . The District Judge cited and appears to have relied solely upon Eazor Express, Inc. v. International Brotherhood of Teamsters, 357 F.Supp. 158 (W.D.Pa.1973). Not only is the fact situation in Eazor markedly different from the facts of the instant case but the statements of law in this District Court opinion are in marked contrast to those of the Sixth Circuit cited above. We decline to follow Eazor.

      . On rehearing of criminal contempt proceedings concerning Local Union 2262, if a jury trial is demanded, the court should note the following authority as arguably applicable to the issue: 18 U.S.C. § 3692; Bloom v. Illinois, 391 U.S. 194, 88 S.Ct. 1477, 20 L.Ed.2d 522 (1968); United States v. R. L. Polk & Co., 438 F.2d 377 (6th Cir. 1971).


source: Caselaw Access Project

author: TIMBERS, Circuit Judge:

license: Public Domain

text:
    James Scott KREAGER, Plaintiff-Appellant, v. GENERAL ELECTRIC COMPANY et al., Defendants-Appellees. James Scott KREAGER, Plaintiff-Appellant, v. GENERAL ELECTRIC COMPANY et al, Defendants-Appellees.
    Nos. 124, 637, Dockets 73-1987, 73-2577.
    United States Court of Appeals, Second Circuit.
    Argued Jan. 7, 1974.
    Decided May 13, 1974.
    Certiorari Denied Oct. 15, 1974.
    See 95 S.Ct. 111.

      James Scott Kreager, New York City, plaintiff-appellant pro se in both appeals.
    Phil E. Gilbert, Jr., New York City (Elihu Inselbuch, Robert G. Bernstein and Gilbert, Segall & Young, New York City, on the brief), for General Electric Co., Fred J. Borch, Herman L. Weiss, John B. McKitterick, John P. Donohue, David W. Burke, Donald D. Scarff, Thomas Castle and Robert J. Diefenthaler (defendants-appellees in No. 73-1987) and for General Electric Co., Herman L. Weiss, David W. Burke, John B. McKitterick, John P. Donohue and Luther Earl Birdzell, Jr., (defendants-appellees in No. 73-2577).
    Ernest S. Meyers, New York City (Jules E. Yarnell and LaPorte & Meyers, New York City, on the brief), for International Telephone and Telegraph Corp., Harold S. Geneen, Raymond L. Brittenham, Henry E. Bowes, Robert J. Theis, James Paul Jannuzzo, James A. O’Connell, John T. Thompson, Cornell Remsen and Edward J. Fitzpatrick (defendants-appellees in No. 73-1987).
    Peter J. Gartland, New York City (Peter A. Dankin and Wender, Murase & White, New York City, on the brief), for Toshiba America, Inc. (defendantappellee in Nos. 73-1987 and 73-2577) and for Toyko Shibaura Electric Co., Ltd. (defendant-appellee in No. 73-2577).
    Before DANAHER, LUMBARD' and TIMBERS, Circuit Judges.

       Senior Judge of tlie United States Court of Appeals for the District of Columbia Circuit, sitting by designation.

   TIMBERS, Circuit Judge:

These consolidated appeals bring up for review the dismissal of private antitrust litigation that this pro se appellant has had pending in one form or another in the district court for more than six years.

In Kreager (Mercu-Ray Industries, Inc.) v. General Electric Company, et al. (No. 73-1987), Kreager appeals pro se from a judgment entered in the Southern District of New York after a jury trial before Edward Weinfeld, District Judge. At the close of all of the evidence, the court dismissed the claims under Section 2 of the Sherman Act, all pendent claims based upon fraud and deceit (these claims not having been pleaded but having been considered by the court to have been tried), and all claims against certain of the individual defendants. The court submitted the conspiracy claims under Section 1 of the Sherman Act to the jury which returned a verdict in favor of all defendants. Judgment dismissing this action was entered June 27, 1973.

On the same day, June 27, Kreager commenced a second action but asserted essentially the identical claims as those in the action dismissed earlier that day. In due course an order was entered on September 25, 1973 in this action in the Southern District of New York, Kevin T. Duffy, District Judge, dismissing the complaint on the ground of res judicata, the second action being barred by the judgment dismissing the first action. It is from the order dismissing this second action that Kreager appeals pro se in Kreager v. General Electric Company, et al. (No. 73-2577).

Since we find no merit in either appeal, we affirm.

I.

The essential facts underlying both appeals may be briefly summarized.

Kreager is the president and sole stockholder of Mercu-Ray Industries, Inc., an Ohio corporation. Mercu-Ray transacts no business. Its only asset is a patent issued in 1957 relating to an advertising sign. The sign features a glass tubular bulb which requires no direct electrical connections but is activated by energy transmitted over high frequency radio waves. Despite claims that commercial acceptance of the sign would revolutionize the lighting industry, Kreager has been wholly unsuccessful in his countless attempts to interest others in marketing the device. The patent has never been licensed. The sign has never been manufactured or sold commercially.

During the summer of 1967, Kreager approached representatives of the corporate defendants, General Electric Company (GE) and International Telephone and Telegraph Corporation (ITT). He sought their help in the development and production of his sign. Both agreed to evaluate its commercial possibilities. Kreager made simultaneous importunate demands upon both for an immediate response. Eventually they both advised Kreager on September 7, 1967 that they were not interested in his proposals. One of the reasons given by GE was the prohibitive cost of the necessary hand blown glass tubing. Unconvinced, Kreager contacted representatives of Toshiba America, Inc. (Toshiba) to inquire whether its Japanese affiliates were equipped to manufacture the tubing. On September 11, 1967, he received a negative response.

Predicated on these three rejections, two on the same day, Kreager commenced the first of his private antitrust actions in the Southern District of New York on March 5, 1968. He sued in the name of his wholly owned corporation, Mercu-Ray. He alleged that GE, ITT, Toshiba and certain officers and employees of GE and ITT had conspired during the period July 28, 1967 to September 1967 to prevent Mercu-Ray’s commercial exploitation of its product and to monopolize the development, manufacture and sale of electronic advertising signs, all in violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2 (1970). After the pleadings were closed and extensive discovery had taken place, the action was tried before Judge Weinfeld and a jury in June 1973 with the result stated above.

The complaint in Kreager’s second action, commenced simultaneously with the dismissal of the first, virtually tracked the complaint in the prior action, except that it alleged that the defendants continued their conspiracy against MercuRay by defending the first action. Kreager substituted himself for MercuRay as plaintiff in the second action; he dropped ITT, its officers and employees, and several of the GE officers and employees; and he added Luther E. Birdzell, Jr., a GE employee, and Tokyo Shibaura Electric Co., Ltd. (Toshiba’s Japanese parent) as parties defendant. Upon motions by defendants to dismiss on various grounds, Judge Duffy, by a memorandum and order dated September 25, 1973, dismissed the action, stating that “[t]he prior action disposed of all of the claims asserted here. There must be a termination of the litigation.”

II.

In the first action (No. 73-1987), we hold that Judge Weinfeld correctly dismissed at the close of all of the evidence the claims under Section 2 of the Sherman Act. Section 2 prohibits the monopolization of, or any attempt or conspiracy to monopolize, “any part of the trade or commerce among the several States.” 15 U.S.C. § 2 (1970). It is axiomatic that “[i]n order to fall within § 2, the monopolist must have both the power to monopolize, and the intent to monopolize” the relevant market. United States v. Aluminum Co. of America, 148 F.2d 416, 432 (2 Cir. 1945). Mercu-Ray failed to offer any proof defining the relevant market. It failed to prove that any of the corporate defendants had the requisite monopoly power or any intent to monopolize, coupled with a “dangerous probability” of success. Lorain Journal Co. v. United States, 342 U.S. 143, 153 (1951); Swift & Co. v. United States, 196 U.S. 375, 396 (1905). Since there was a total failure of proof on the Section 2 claims, they were properly dismissed without submission to the jury. McElhenney Co. v. Western Auto Supply Co., 269 F.2d 332, 339 (4 Cir. 1959); Mackey v. Sears Roebuck & Co., 237 F.2d 869, 873 (7 Cir. 1956), cert. dismissed, 355 U.S. 865 (1957).

We also hold that the court correctly dismissed at the close of all of the evidence pendent fraud and deceit claims, since there was not a shred of evidence to establish the requisite elements of such a cause of action. Channel Master Corp. v. Aluminum Limited Sales, Inc., 4 N.Y.2d 403, 151 N.E.2d 833, 176 N.Y.S.2d 259 (1958).

With respect to the conspiracy claims under Section 1 of the Sherman Act which were submitted to the jury, the only evidence offered by Mercu-Ray in support of such claims was the coincidence of the dates of defendants’ rejection of Kreager’s proposals. Such parallel business behavior, without more, does not establish an illegal agreement in violation of the Sherman Act. First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 286-88 (1968); Theatre Enterprises, Inc. v. Paramount Film Distributing Corp., 346 U.S. 537, 541 (1954). The jury verdict in favor of defendants correctly reflected the absence of credible evidence of a conspiracy in restraint of trade in violation of Section 1 of the Sherman Act.

III.

In the second action (No. 73-2577), we hold that Judge Duffy correctly dismissed the complaint on the ground of res judicata, since the second action was barred by the judgment dismissing the first. In short, the court correctly concluded that Kreager, as the sole shareholder of Mercu-Ray, was bound by the dismissal of the first action brought in the name of his corporation.

In Zdanok v. Glidden Company, Durkee Famous Foods Division, 327 F.2d 944, 955 (2 Cir.), cert. denied, 377 U.S. 934 (1964), we held that three faetors are required to support a defense of res judicata: (1) there must have been a “final judgment on the merits” in the prior action; (2) the identical issues sought to be raised in the second action must have been decided in the prior action; and (3) the party against whom the defense is asserted must have been a party or in privity with a party to the prior action.

In the instant case, clearly the first two factors stated above are present: there was a final judgment on the merits in the Mercu-Ray case, and Kreager sought in the second action to relitigate the identical issues that had been decided in the prior action. Aside from the claims of fraud and deceit in the first action which were not pleaded but were considered by Judge Weinfeld, the complaint in the second action is essentially a carbon copy of the first. Both allege substantially the same conspiracy to prevent the development and to monopolize the development, manufacture and marketing of the Mercu-Ray product. Virtually the same wrongful conduct and substantially the same overt acts are alleged. Both conspiracies are said to have begun on the same day, June 20, 1967. The only significant differences between the two complaints are that Kreager has substituted himself for Mercu-Ray as plaintiff, has increased the ad damnum from $9.6 million to $750 million and has juggled the defendants.

As for the third requirement stated in Zdanok to support a defense of res judicata, we hold that the fact that Mercu-Ray rather than Kreager was the plaintiff in the first action is not fatal to the defense. It is well settled that a stockholder is not a person injured in his business or property within the meaning of the antitrust laws. Kreager lacked standing to bring a private antitrust action to recover damages for injuries allegedly sustained by his corporation. Productive Inventions, Inc. v. Trico Products Corp., 224 F.2d 678, 679 (2 Cir. 1955), cert. denied, 350 U.S. 936 (1956); Westmoreland Asbestos Co., Inc. v. Johns-Manville Corp., 30 F.Supp. 389, 391 (S.D.N.Y.1939), aff’d on opinion below, 113 F.2d 114 (2 Cir. 1940). And, while not denominated a party, Kreager participated in and effectively controlled the first action. He was present in court throughout the trial, attended conferences in chambers and was the corporation’s principal witness. He had an identity of interest with MercuRay and was bound by the judgment against it. Astron Industrial Associates, Inc. v. Chrysler Motors Corp., 405 F.2d 958, 961 (5 Cir. 1968); 1B Moore, Federal Practice ¶[ 0.411 [10], at 1658 (2d ed. 1965).

We therefore hold that Judge Duffy properly sustained the defense of res judicata raised on the motions to dismiss by defendants who were parties to the prior action, i. e., GE, its officers and employees (with the exception of Birdzell), as well as Toshiba. And absent any requirement of mutuality, Zdanok v. Glidden Company, supra, 327 F.2d at 955; cf. Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313 (1971), we hold that Kreager was estopped from relitigating the same issues against Tokyo Shibaura and Birdzell as well.

We have carefully considered all of appellant’s claims of error on both appeals and find them without merit.

Affirmed.

      . On October 25, 1973, we granted the motion of counsel for Mercu-Ray to be relieved as such, and we reaffirmed our order of July 17, 1973 denying Kreager leave to appeal pro se on behalf of the corporation. See Shapiro, Bernstein & Co. v. Continental Record Co., 386 F.2d 426, 427 (2 Cir. 1967).
      On November 1, 1973, after being informed of an alleged assignment of Mercu-Ray’s claims to Kreager, we granted leave to amend the caption of the appeal in No. 73-1987 to read James Scott Kreager v. General Electric Company, et al.

      . The jury returned a special verdict on the Section 1 conspiracy issue by answering in the negative the following written question submitted pursuant to Fed.R.Civ.P. 49(a) with respect to the remaining defendants: “Do you find that plaintiff has established by a preponderance of the evidence that during the time period in issue (July 28, 1967 to on or about September 7, 1967) any of the following defendants entered into a conspiracy and combination to prevent production and distribution of plaintiff’s illuminating sign, resulting in an unreasonable restraint of trade: [remaining defendants named] ?”

      . The patent was assigned to the corporation for nominal consideration in 1957. Neither Kreager nor any one associated with him invented the device. It is described as a long-lasting, cold-burning, neon-type, point-of-purchase advertising sign.

      . The reasons for Kreager’s marketing difficulties are not hard to fathom. The concept of radio activated gas filled tubular bulbs is not new. No similar product has ever proved commercially successful. Potential FCC regulatory problems arising from the device’s interference with wireless communication transmissions, as well as high production costs, make other point-of-purchase advertising more advantageous competitively.

      . Toshiba is a subsidiary of Tokyo Shibaura Electric Co., Ltd. It is partially owned by GE.

      . Kreager’s further reliance in support of this claim on the fact that Toshiba is partially owned by GE is frivolous.

      . Following the formulation stated by Justice Traynor in Bernhard v. Bank of America, 19 Cal.2d 807, 811-13, 122 P.2d 892, 894-95 (1942).

      . In connection with Kreager’s claim of separate identities, we note that he is the appellant before us from the judgments in both actions.


author: GEWIN, Circuit Judge:

text:
    SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellant, v. KOSCOT INTERPLANETARY, INC., et al., Defendants-Appellees.
    No. 73-2339.
    United States Court of Appeals, Fifth Circuit.
    July 15, 1974.

      Richard E. Nathan, Asst. Gen. Counsel, David J. Romanski, Atty., David Ferber, Sol., S. E. C., Washington, D. C., James E. Long, John M. Kelly, S. E. C., Atlanta, Ga., for plaintiff-appellant.
    Jeffrey Allen Tew, Miami, Fla., for Turner Enterprises.
    Theodore I. Koskoff, Bridgeport, Conn., for G. Turner.
    Before RIVES, GEWIN and RONEY, Circuit Judges.
   GEWIN, Circuit Judge:

This appeal emanates from a district court order denying an injunction sought by the Securities & Exchange Commission (SEC) against Koscot Interplanetary, Inc., (Koscot) for allegedly violating the federal securities laws. Specifically, the SEC maintained that the pyramid promotion enterprise operated by Koscot was within the ambit of the term security, as employed by the Securities Act of 1933 and the Securities Exchange Act of 1934, that as such it had to be registered with the SEC pursuant to the ’33 Act, and that the manner in which Koscot purveyed its enterprise to potential investors contravened the anti-fraud provisions of the ’34 Act. In a comprehensive opinion, reported at 365 F.Supp. 588 (N.D.Ga.1973), the district court denied the injunction holding that the Koscot Scheme did not involve the sale of a security. Because of our disagreement with the district court’s reasoning, we reverse.

I

A. The Koscot Scheme

The procedure followed by Koscot in the promotion of its enterprise can be synoptically chronicled. A subsidiary of Glen W. Turner Enterprises, Koscot thrives by enticing prospective investors to participate in its enterprise, holding out as a lure the expectation of galactic profits. All too often, the beguiled investors are disappointed by paltry returns.

The vehicle for the lure is a multi-level network of independent distributors, purportedly engaged in the business of selling a line of cosmetics. At the lowest level is a “beauty advisor” whose income is derived solely from retail sales of Koscot products made available at a discount, customarily of 45%. Those desirous of ascending the ladder of the Koscot enterprise may also participate on a second level, that of supervisor or retail manager. For an investment of $1,000, a supervisor receives cosmetics at a greater discount from retail price, typically 55%, to be sold either directly to the public or to be held for wholesale distribution to the beauty advisors. In addition, a supervisor who introduces a prospect to the Koscot program with whom a sale is ultimately consummated receives $600 of the $1,000 paid to Koscot. The loftiest position in the multilevel scheme is that of distributor. An investment of $5,000 with Koscot entitles a distributor to purchase cosmetics at an even greater discount, typically 65%, for distribution to supervisors and retailers. Moreover, fruitful sponsorship of either a supervisor or distributor brings $600 or $3,000 respectively to the sponsor.

The SEC does not contend that the distribution of cosmetics is amenable to regulation under the federal securities laws. ■ Rather, it maintains that the marketing of cosmetics and the recruitment aspects of Koscot’s enterprise are separable and that only the latter are within the definition of a security. That the district court acknowledged the fragmentation discerned by the SEC is witnessed by the following observation:

“Many if not all of the persons, seeking to become Koscot distributors are attracted by the lure of money to be earned by high-pressure recruiting of other persons into the Koscot program, rather than the sale of the cosmetics themselves.”

365 F.Supp. at 590. And since case-law countenances the fragmented approach which the SEC presses upon us, see SEC v. United Benefit Life Insur. Co., 387 U.S. 202, 207, 87 S.Ct. 1557, 1559, 18 L.Ed. 2d 673, 677 (1967); SEC v. Glen W. Turner Enterprises, Inc., 474 F.2d 476 (9th Cir.), cert. denied 414 U.S. 821, 94 S.Ct. 117, 38 L.Ed.2d 53 (1973), it is upon the promotional aspects that we focus in determining whether Koscot did offer a security.

The modus operandi of Koscot and its investors is as follows. Investors solicit prospects to attend Opportunity Meetings at which the latter are introduced to the Koscot scheme. Significantly, the investor is admonished not to mention the details of the business before bringing the prospect to the meeting, a technique euphemistically denominated the “curiosity approach.” The Koscot manual describes the reasoning behind the approach and its operation in the following manner:

“DON’T GO INTO DETAILS. Never explain the program to a prospect before bringing him to an Opportunity Meeting. Do not mention Kosmetics or give any particulars, as many people will prejudge the program and decide it is not for them before they see the presentation.
USE THE CURIOSITY APPROACH. When you invite a prospect to an Opportunity Meeting, arouse his curiosity. Tell him you have discovered a wonderful financial opportunity that will fit him like a glove! Or, tell him you have seen a money tree and would like for him to take a look at it.”

Thus, in the initial stage, an investor’s sole task is to attract individuals to the meeting.

Once a prospect’s attendance at a meeting is secured, Koscot employees, frequently in conjunction with investors, undertake to apprise prospects of the “virtues” of enlisting in the Koscot plan. The meeting is conducted in conformity with scripts prepared by Koscot. Indeed, Koscot distributes a bulletin which states: “. . . this program is to be presented by the script. It is strongly recommended that you consider replacing any individual who does not present the program verbatim.” The principal design of the meetings is to foster an illusion of affluence. Investors and Koscot employees are instructed to drive to meetings in expensive cars, preferably Cadillacs, to dress expensively, and to flaunt large amounts of money. It is intended that prospects will be galvanized into signing a contract by these ostentations displayed in the evangelical atmosphere of the meetings. Go-Tours, characterized by similar histrionics, are designed to achieve the same goal.

The final stage in the promotional scheme is the consummation of the sale. If a prospect capitulates at either an Opportunity Meeting or a Go-Tour, an investor will not be required to expend any additional effort. Less fortuitous investors whose prospects are not as quickly enticed to invest do have to devote additional effort to consummate a sale, the amount of which is contingent upon the degree of reluctance of the prospect.

B. The District Court

The district court rebuffed the SEC’s effort to subject Koscot’s promotional scheme to the federal securities laws. The SEC argued that the scheme qualified as a profit-sharing arrangement, an interest commonly known as a security, and an investment contract. The profit-sharing theory was rejected because in the district court’s view, a successful recruiting distributor receives not a share of Koscot’s profit but rather a fixed fee. 365 F.Supp. 590-591. The court refused to endorse the SEC’s position that the pyramid arrangement constituted an interest “commonly known as a security” for two reasons. First, even under a traditional approach, under which the essential inquiry is how the interest is viewed in legal and financial circles, the question of whether a pyramid arrangement fell within the definition was still a polemical one; and second, the risk capital theory, which allegedly would encompass the Koscot arrangement, was of such recent vintage and had such a mixed reception with the courts that it should not be applied in lieu of the traditional definition.

Of more immediate concern is the reasoning employed by the district court in rejecting the SEC’s contention that Koscot sold “investment contracts,” for it is our disagreement with this conclusion that prompts us to reverse. The district court correctly cited the following language from SEC v. W. J. Howey Co., 328 U.S. 293, 298-299, 66 S.Ct. 1100, 1103, 90 L.Ed. 1244, 1249 (1946), as the standard controlling its disposition of the case.

“[A]n investment contract for purposes of the Securities Act means 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. .” (emphasis added)

This test subsumes within it three elements: first, that there is an investment of money; second, that the scheme in which an investment is made functions as a common enterprise; and third, that under the scheme, profits are derived solely from the efforts of individuals other than the investors. See, e. g., SEC v. Glen W. Turner Enterprises, 474 F.2d 476 (9th Cir.), cert. denied, 414 U.S. 821, 94 S.Ct. 117, 38 L.Ed.2d 53 (1973); 1050 Tenants v. Jakobson, 365 F.Supp. 1171, 1176 (S.D.N.Y.1973). The district court pretermitted a consideration of the first two elements in finding that the third component of the test was not satisfied because Koscot investors expended effort in soliciting recruits to meetings, in participating in the conduct of meetings, and in attempting to consummate the sale of distributorships and subdistributorships. Moreover, it specifically rejected the less idolatrous adherence to the Howey language manifest in SEC v. Glen W. Turner Enterprises, Inc., supra, reasoning that the Ninth Circuit’s interpretation was antagonistic to the literal approach of both this Circuit and the Supreme Court.

II

Thus, we are called upon to address that which the court below did not consider — whether the Koscot scheme satisfies the first two elements of the Howey test — and that which the district court did consider — whether the scheme satisfies the third component of the test. The latter inquiry entails, in the first instance, a determination of whether the “solely from the efforts of others” standard is to be literally or functionally applied. We address these issues seriatim.

A. The First Two Elements

Since it cannot be disputed that purchasers of supervisorships and distributorships made an investment of money, cf. SEC v. Glen W. Turner Enterprises, Inc., supra, at 481, our initial concern is whether the Koscot scheme functions as a common enterprise. As defined by the Ninth Circuit, “[a] common enterprise is one in which the fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment or of third parties.” SEC v. Glen W. Turner Enterprises, Inc., supra at 482 n. 7. The critical factor is not the similitude or coincidence of investor input, but rather the uniformity of impact of the promoter’s efforts.

That this definition comports with the standard applied by the Supreme Court and this Circuit is witnessed by an examination of the reasoning employed in Howey, supra, and in Blackwell v. Bentsen, 203 F.2d 690 (5th Cir. 1953), cert. dismissed, 347 U.S. 925, 74 S.Ct. 528, 98 L.Ed. 1078 (1954). In Howey, the Court of Appeals had concluded that an investment contract did not exist where the management and cultivation of citrus acreage was entrusted to the promoter, with the rate of the investor’s return to be measured by the produce of the acreage he owned. The Court of Appeals explained that:

“Here it is quite clear that each purchaser looked for the income from his investment to the fruitage of his own grove and not to the fruitage of the groves as a whole. It is quite clear, too, that each purchaser’s income was in no sense dependent upon the purchase or development of other tracts than his own except in the sense that as grove owners generally prospered, each owner of a grove would.” (emphasis added)

151 F.2d 714, 717 (5th Cir. 1945). In reversing, the Supreme Court emphasized not whether profits were pooled, but rather the fact that the feasibility and success of the enterprise, in attracting individuals to invest, and in cultivating, harvesting and marketing the citrus products, rested on the availability of the Howey Company’s management:

“Such persons [investors] have no desire to occupy the land or to develop it themselves; they are attracted solely by the prospects of a return on their investment. Indeed, individual development of the plots of land that are offered and sold would seldom be economically feasible due to their small size. Such tracts gain utility as citrus groves only when cultivated and developed as component parts of a larger area. A common enterprise managed by respondents or third parties with adequate personnel and equipment is therefore essential if the investors are to achieve their paramount aim of a return on their investments.” (emphasis added)

328 U.S. at 300, 66 S.Ct. at 1103, 90 L.Ed. at 1250. Moreover, in Blackwell v. Bentsen, supra, involving investments in a tract which was part of an 800 acre unit to be developed and marketed as a citrus grove, this Court implicitly rejected any requirement of coterminality of investor input. For there, investors were permitted to sell the produce of their own acreage if they elected to do so.

Similarly, here, the fact that an investor’s return is independent of that of other investors in the scheme is not decisive. Rather, the requisite commonality is evidenced by the fact that the fortunes of all investors are inextricably tied to the efficacy of the Koseot meetings and guidelines on recruiting prospects and consummating a sale. See SEC v. Glen W. Turner Enterprises, Inc., supra at 482; United States v. Herr, 338 F.2d 607 (7th Cir. 1964), cert. denied, 382 U.S. 999, 86 S.Ct. 563, 15 L.Ed.2d 487, rehearing denied, 383 U.S. 922, 86 S.Ct. 898, 15 L.Ed.2d 679 (1966); cf. Marshall v. Lamson Bros, and Co., 368 F.Supp. 486, 488 (S.D.Iowa 1974); Mitzner v. Cardet International, Inc. et al., 358 F.Supp. 1262, 1265 (N.D.Ill.1973).

B. The Third Element — Solely from the Efforts of Others

As was noted earlier, the critical issue in this case is whether a literal or functional approach to the “solely from the efforts of others’’ test should be adopted, i. e., whether the exertion of some effort by an investor is inimical to the holding that a promotional scheme falls within the definition of an investment contract. We measure the viability of the SEC’s advocacy of a functional approach by its compatibility with the remedial purposes of the federal securities acts, the language employed and the derivation of the test utilized in Howey, and the decisions in this circuit and other federal courts.

1. The Legal Standard

We begin our analysis by noting that the 1933 and 1934 Acts are remedial in nature, Affiliated Ute Citizens v. United States, 406 U.S. 128, 151, 92 S.Ct. 1456, 1471, 31 L.Ed.2d 741, 760 (1972); SEC v. W. J. Howey Co., supra, 328 U.S. at 299, 66 S.Ct. at 1103, 90 L.Ed. at 1250; Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 553, 19 L.Ed.2d 564, 569 (1967), and hence are to be broadly construed. Tcherepnin v. Knight, supra at 336, 88 S.Ct. at 553, 19 L.Ed.2d at 569; Ayers v. Wolfinbarger, 491 F.2d 8, 16 (5th Cir. 1974); SEC v. Glen W. Turner Enterprises, Inc., 474 F.2d at 480-481; Nor-Tex Agencies, Inc. v. Jones, 482 F.2d 1093, 1098 (5th Cir. 1973), cert. denied, 415 U.S. 977, 94 S.Ct. 1563, 39 L.Ed.2d 873 (1974); SEC v. MacElvain, 417 F.2d 1134, 1137 (5th Cir. 1969). This court recently reaffirmed these principles, noting in Small-wood v. Pearl Brewing Co., 489 F.2d 579, 592 (5th Cir. 1974), that “[t]he securities laws are intended to protect investors not merely to test the ingenuity of sophisticated corporate counsel.”

A literal application of the Howey test would frustrate the remedial purposes of the Act. As the Ninth Circuit noted in SEC v. Turner Enterprises, Inc., supra at 482, “[i]t would be easy to evade [the Howey test] by adding a requirement that the buyer contribute a modicum of effort.” See also Lino v. City Investing Co., 487 F.2d 689, 692-693 (3d Cir. 1973). The Supreme Court admonished against such a rigid and quixotic application, noting in Tcherepnin v. Knight, supra, 389 U.S. at 336, 88 S.Ct. at 553, 19 L.Ed.2d at 569, that in searching for the meaning and scope of the word security, form should be disregarded for substance, and proclaiming in SEC v. W. J. Howey Co., 328 U.S. at 301, 66 S.Ct. at 1104, 90 L.Ed. at 1251, that “[t]he statutory policy of affording broad protection to investors is not to be thwarted by unrealistic and irrelevant formulae.” It would be anomalous to maintain that the Court in Howey intended to formulate the type of intractable rule which it had decried. The admitted salutary purposes of the Acts can only be safeguarded by a functional approach to the Howey test.

Moreover, a close reading of the language employed in Howey and the authority upon which the Court relied suggests that, contrary to the view of the district court, we need not feel compelled to follow the “solely from the efforts of others” test literally. Nowhere in the opinion does the Supreme Court characterize the nature of the “efforts” that would render a promotional scheme beyond the pale of the definition of an investment contract. Clearly the facts presented no issue of how to assess a scheme in which an investor performed mere perfunctory tasks. Indeed, just prior to concluding that the sales of units of citrus grove development, coupled with contracts for cultivating, marketing and remitting the net proceeds to investors constituted sales of investment contracts, the Court observed that “the promoters manage, control and operate the enterprise.” 328 U.S. at 300, 66 S.Ct. at 1104, 90 L.Ed. at 1250 (emphasis added). One commentator has seized upon the italicized words in concluding that only schemes in which investors exercise managerial control are excluded from the definition of investment contracts. See Long, An Attempt to Return “Investment Contracts” to the Mainstream of Securities Regulation, 24 Okla.L.Rev. 135, 176 (1971).

The derivation of the “solely from the efforts of others” test also tends to belie a talismanic approach to its application. The Court reasoned in Howey that Congress intended that this test be applied because it had been crystallized by prior state court interpretations. 328 U.S. at 298 n. 4, 66 S.Ct. at 1103 n. 4, 90 L.Ed. at 1249 n. 4. In the only state case cited in the body of the opinion, State v. Gopher Tire & Rubber Co., 146 Minn. 52, 177 N.W. 937 (1920), the agreement signed by investors in the scheme contemplated that such investors would act as “booster agents” for the sale of Gopher Tire & Rubber Company’s goods. 146 Minn, at 56, 177 N.W. at 938. And in one of the cases cited in footnote 4 of Howey, supra, 328 U.S. at 298 n. 4, 66 S.Ct. at 1103, 90 L.Ed. at 1249, Stevens v. Liberty Packing Corp., 111 N.J.Eq. 61, 161 A. 193 (1932), the scheme envisioned even more substantial participation by an investor. Under the second of two plans devised for raising rabbits, an investor would raise rabbits sold to him by the company which would in turn then purchase the offspring for a fixed price per head. Despite the efforts that an investor with Liberty Packing Corp. might expend, the New Jersey court deemed the rabbit breeding scheme to involve an investment contract. Thus, it is apparent that neither Congress, in fashioning a definition of an investment contract nor the Court in interpolating this definition, could have relied upon crystallized authority endorsing a litmus formula. This observation militates against the conclusion that the test was intended to exclude from the definition of investment contract, any scheme where an investor contributed a nominal menial effort.

Subsequent case-law also supports the conclusion that the Howey test is not possessed of the talismanic quality ascribed to it by the court below. In SEC v. United Benefit Life Insurance Co., 387 U.S. 202, 87 S.Ct. 1557, 18 L.Ed.2d 673 (1967), the Supreme Court held that the accumulation provisions of an annuity contract constituted an investment contract. Significantly, Justice Harlan failed to cite Howey, but rather announced the test as being “ ‘what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect.’ ” 387 U.S. at 211, 87 S.Ct. at 1562, 18 L.Ed.2d at 680, quoting SEC v. C. M. Joiner Leasing Corp., 320 U.S. 344, 352, 353, 64 S.Ct. 120, 124, 125, 88 L.Ed. 88, 93, 94. Were the Howey definition to occupy the exalted position in investment contract adjudication attributed to it by Koscot, Justice Harlan inexorably would have relied upon it. We would note too that the Court of Appeals in both this Circuit and the Tenth and Second Circuits have on occasion deemed schemes to be investment contracts in reliance upon the aforementioned language from Joiner and not that from Howey. Compare Buie v. United States, 420 F.2d 1207, 1210 (5th Cir. 1969), cert. denied, 398 U.S. 932, 90 S.Ct. 1830, 26 L.Ed.2d 97 (1970) (sale of oil and gas leases to be operated by sellers), with Continental Marketing Corp. v. SEC, 387 F.2d 466 (10th Cir. 1967), cert. denied, 391 U.S. 905, 88 S.Ct. 1655, 20 L.Ed.2d 419 (1968) (sale of live beavers with purchasers exhorted to contract with a professional rancher to raise them), and Glen-Arden Commodities, Inc. v. Costantino, 493 F.2d 1027, 1034 (2d Cir. 1974) (sale of Scotch whiskey warehouse receipts).

Moreover, a significant number of federal courts invoking the Howey test, have either given it a broader more salutary application or endorsed such an application in principle. Thus, in several cases where the scheme required or envisioned the possibility of participation by an investor in the enterprise, courts nevertheless found an investment contract to exist. See Miller v. Central Chinchilla Group, Inc., 494 F.2d 414 (8th Cir. 1974) (investors purchased and raised Chinchillas which were then repurchased by promoters and sold by latter to new prospects); SEC v. Glen W. Turner, supra (promotion of self improvement courses by investors to new prospects); United States v. Herr, supra (investors in records and success manuals sold by American Sales Training Research Associates, Inc. (ASTRA), in addition to receiving higher returns for self distribution as opposed to distribution by ASTRA sales force, received additional money from bringing in other inactive distributors); Blackwell v. Bentsen, supra (deeds for citrus acreage and management contracts, with provision that purchasers are permitted to give directions as to the marketing of crops on their tract); 1050 Tenants v. Jakobson, 365 F.Supp. 1171 (S.D.N.Y.1973) (offering of shares of stock, entitling purchasers to proprietary leases in apartment at 1050 Park Avenue, which after closing date, was to be managed by tenants); Mitzner v. Cardet International, Inc. et al., 358 F.Supp. 1262 (N.D.Ill.1973) (scheme wherein area managers recruited area distributors who in turn found people to deliver Cardet brochures and pick up orders and deliver Cardet products to purchasers); SEC v. Addison, 194 F.Supp. 709 (N.D.Tex.1961) (in lieu of investing capital in potential profits of a mining company, workers were entitled to invest by participating in mining and other operations on a non-salaried basis). Two Circuits, while finding conventional franchise agreements beyond the reach of the securities laws, have explicitly endorsed the broader definition of investment contract. Compare Lino v. City Investing Co., 487 F.2d 689, 692 (3d Cir. 1973) with Nash & Associates, Inc. v. Lum’s of Ohio, 484 F.2d 392, 395 (6th Cir. 1973). See also L. M. H. Inc. v. Lewis, 371 F.Supp. 395, 397 (D.N.J.1974). The prevailing seholarly commentary comports with this view. E. g., Long, An Attempt to Return “Investment Contracts” to the Mainstream of Securities Regulation, 24 Okla.L.Rev. 135, 144 (1971); Coffey, The Economic Realities of a “Security”: Is There a More Meaningful Formula?, 18 W.Res.L.Rev. 367, 377 (1967); Comment, Pyramid Marketing Plans and Consumer Protection: State and Federal Regulation, 21 J. of Public Law 445, 460 (1972); Note, Securities Regulation of Pyramid Schemes, 51 Texas L.Rev. 788, 794 (1973); Note, Pyramid Schemes: Dare to be Regulated, 61 Geo.L.J. 1257, 1280 (1973).

In view of these developments and our analysis of the import of the language in and the derivation of the Howey test, we hold that the proper standard in determining whether a scheme constitutes an investment contract is that explicated by the Ninth Circuit in SEC v. Glen W. Turner Enterprises, Inc., supra. In that case, the court announced that the critical inquiry is “whether the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise.” Id. at 482.

Contrary to the view of the district court, our adoption of this test represents no fundamental departure from the standard we have previously applied. Indeed, our canvass of the cases presenting an investment contract issue to this court, see Nor-Tex Agencies, Inc. v. Jones, supra; SEC v. MacElvain, supra; Buie v. United States, supra; Lynn v. Caraway, 379 F.2d 943 (5th Cir. 1967), cert. denied, 393 U.S. 951, 89 S.Ct. 373, 21 L.Ed.2d 362 (1968); Moses v. Michael, 292 F.2d 614 (5th Cir. 1961); Roe v. United States, 287 F.2d 435 (5th Cir.), cert. denied, 368 U.S. 824, 82 S.Ct. 43, 7 L.Ed.2d 29 (1961), second appeal, 316 F.2d 617 (5th Cir. 1963); Blackwell v. Bentsen, supra; SEC v. W. J. Howey Co., 151 F.2d 714 (5th Cir. 1945), rev’d, 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946), reveals that it has only been in two instances that schemes have been deemed to fall without the definition. In Howey of course, the Supreme Court disabused us of our misguided reasoning. And in Lynn v. Caraway, supra, the sale of fractional undivided interests in oil and gas leases with the seller relinquishing all control to the purchaser could not have qualified as an investment contract under any conceivable legitimate test. The disposition in these two cases in no way militates against our adoption of a resilient standard which will allow for a practical and dynamic scrutiny of investment schemes. Indeed, the decision in Blackwell v. Bentsen, supra, may have presaged such an adoption, for there this court held an investment contract was established by a scheme involving deeds for citrus acreage and management contracts, despite the proviso in the management contracts that purchasers were permitted to direct the marketing of the produce from their particular tracts.

2. Application of the Test to the Instant Facts

Having concluded that the district court mispereeived the controlling standard, it becomes incumbent upon us to determine whether Koscot’s scheme falls with the standard adopted. The deference customarily tendered to fact findings rendered by a district court is inappropriate where, as here, the findings are tainted by application of an erroneous legal principle. See Rowe v. General Motors Corp., 457 F.2d 348, 356 n. 15 (5th Cir. 1972); United States v. Jacksonville Terminal Co., 451 F.2d 418, 423-424 (5th Cir. 1971); United States v. Pickett’s Food Service, 360 F.2d 338, 341 (5th Cir. 1966); Ferran v. Flemming, 293 F.2d 568, 571 (5th Cir. 1961).

Our task is greatly simplified by the Ninth Circuit’s decision in SEC v. Glen W. Turner Enterprises, Inc., supra. The promotional scheme confronting the Ninth Circuit is largely paralleled by that exposed before this court. Dare to be Great, (Dare) which like Koscot, is a subsidiary of Turner Enterprises, offered five plans in its self-improvement program, three of which entitled an investor to earn money for coaxing additional prospects into the Dare fold. To a purchaser of a plan denominated Adventure III, costing $2,000, Dare proffered tutelage on sales motivation and sales ability and authority to sell Adventures I, II and III. Remuneration for a sale of each plan amounted to $100, $300 and $900 respectively. Dare bestowed the same benefits upon investors of Adventure IV but with the additional opportunity to receive $2,500 compensation for sales of Adventure- IV to new prospects. This plan cost $5,000. A purchaser of the $1,000 plan would receive basically the same benefits as would a purchaser of Adventure II, i. e., the sales material, and was empowered to sell the plan. Financial gain would inure to him after his seller consummated a sale with two prospects steered by him to his seller. The purchaser would then be entitled to sell plans on his own, being remunerated at $400 per sale. Alternatively a purchaser who lures three people into the scheme would be entitled to sell the $1,000 plan without buying it himself.

As in the Koscot scheme, the initial task of a purchaser of a Dare plan was to lure prospects to meetings, denominated Adventure Meetings. These were characterized by the same overzealous and emotionally charged atmosphere at which the illusion of affluence fostered in Opportunity Meetings was created and relied upon in securing sales. The Adventure Meetings were run according to script but, as the Ninth Circuit noted, “The Dare People, not the purchaser-‘salesmen’, run the meetings and do the selling.” 474 F.2d at 479. Considerable effort was exerted to consummate the sale at the Adventure Meeting, with the sale sometimes being closed by the investor but frequently by Dare salesmen. 474 F.2d at 479. The Ninth Circuit’s assessment of the significance of these facts was as follows:

“In this case, Dare’s source of income is from selling the Adventures and the Plan. The purchaser is sold the idea that he will get a fixed part of the proceeds of the sales. In essence, to get that share, he invests three things: his money, his efforts to find prospects and bring them to the meetings, and whatever it costs him to create an illusion of his own affluence. He invests them in Dare’s get-rich-quick scheme. What he buys is a share in the proceeds of the selling efforts of Dare. Those efforts are the sine qua non of the scheme; . those efforts are what produces the money which is to make him rich. In essence, it is the right to share in the proceeds of those efforts that he buys. In our view, the scheme is no less an investment contract merely because he contributes some effort as well as money to get into it.”

474 F.2d at 482. We conclude that the facts in the instant case can be evaluated along similar lines.

The recruitment role played by investors in Koscot coincides with that played by investors in Dare to be Great. That investors in the latter did not participate in Adventure Meetings while they do in the Koscot scheme is insignificant. Since Koscot’s Opportunity Meetings are run according to preordained script, the deviation from which would occasion disapprobation or perhaps exclusion from the meetings, the role of investors at these meetings can be characterized as little more than a perfunctory one. Nor does the fact that Koscot investors may have devoted more time than did Dare investors to closing sales transmute the essential congruity between the two schemes. The act of consummating a sale is essentially a ministerial not managerial one, see Mitzner v. Cardet International, Inc. et al., supra at 1267-1268, one which does not alter the fact that the critical determinant of the success of the Koscot Enterprise lies with the luring effect of the opportunity meetings. As was noted earlier, investors are cautioned to employ the “curiosity approach” in attracting prospects. Once attendance is secured, the sales format devised by Koscot is thrust upon the prospect. An investor’s sole contribution in following the script is a nominal one. Without the scenario created by the Opportunity Meetings and Go-Tours, an investor would invariably be powerless to realize any return on his investment.

Ill

We confine our holding to those schemes in which promoters retain immediate control over the essential managerial conduct of an enterprise and where the investor’s realization of profits is inextricably tied to the success of the promotional scheme. Thus, we acknowledge that a conventional franchise arrangement, wherein the promoter exercises merely remote control over an enterprise and -the investor operates largely unfettered by promoter mandates presents a different question than the one posed herein. But the Koscot scheme does not qualify as a conventional franchising arrangement.

We are mindful of the caveat expressed by Justice Brennan, concurring in SEC v. Variable Annuity Life Insurance Co., 359 U.S. 65, 80, 79 S.Ct. 618, 626, 3 L.Ed.2d 640, 649 (1959), that courts should not assume that merely because subjection of a particular scheme to federal regulation is desirable, it has been accomplished. But as Justice Brennan also noted, “[o]ne must apply a test in terms of the purposes of the Federal Acts.” Id. See also SEC v. C. M. Joiner Leasing Corp., supra, 320 U.S. at 350, 64 S.Ct. at 123, 88 L.Ed. at 93. The test we adopt comports with the principal purpose of the Securities Acts, as announced in Smallwood v. Pearl Brewing Company, supra. It also comports with the observation of the Supreme Court in SEC v. W. J. Howey Co., supra, 328 U.S. at 299, 66 S.Ct. at 1103, 90 L.Ed. at 1250, that the definition of securities “embodies a flexible rather than a static principle, one that 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.” We merely endorse a test which is resilient enough to encompass the egregious promotional scheme purveyed by Koseot.

Accordingly, this cause is reversed and remanded for further proceedings consistent with this opinion.

Reversed and remanded.

      . Section 2(1) of the Securities Act of 1933, 15 U.S.C. § 77b (1) (1970) provides as follows :
      “(1) the term ‘security’ means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a ‘security’, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.”

      . Section 5, 15 U.S.C. § 77e (1970).

      . The definition of security enunciated in § 3(a) (10) of the Securities Exchange Act of 1934, 15 U.S.C. § 78c(a) (10) (1970) is substantially identical to that contained in the Securities Act. See Tcherepnin v. Knight, 389 U.S. 332, 335-336, 88 S.Ct. 548, 552-553, 19 L.Ed.2d 564, 569 (1967). It is claimed that Koscot violated § 10(b), 15 U.S.C. § 78j(b) (1970) and Rule 10b-5, 17 C.F.R. 240.106-5 (1973).
      In addition to the aforementioned relief, the SEG sought the appointment of an equity receiver and an order directing an accounting of Koscot’s operations.

      . The district court left little doubt that the scheme is fraudulent. It noted the following :
      “In reviewing the record in this case, it is plain that defendants’ program is a get-rich-quick scheme in the worst sense. Poor, unwary persons have been induced by high-pressure sales tactics to part with their money, and very few have harvested the large returns they were led to believe were common for those participating in the program.”
      365 F.Supp. at 590 (N.D.Ga.1973). Koscot does not seriously contest this characterization. Moreover, the record compels the conclusion that Koscot practices were fraudulent.
      The district court initially stayed the entry of its judgment because it had been notified by the Judicial Panel on Multi-District Litigation that transfer of this case along with a plethora of others was being considered. Upon being apprised by the Panel on MultiDistrict Litigation that the motion to transfer had been tentatively denied, the district court lifted the stay. (R. 1038). See In Re Glen W. Turner Enterprises Litigation, 355 F.Supp. 1402 (Jud.Pan.Mult.Lit.1973). According to the Judicial Panel on Multi-District Litigation, Glen W. Turner Enterprises, Inc., and its two subsidiaries, Koscot and Dare to -be Great, are the subject of seventeen actions in ten federal districts. See 355 F.Supp. at 1405.

      . The district court in SEC v. Turner Enterprises, 348 F.Supp. 766, 776 (D.Or.1972), aff’d, 474 F.2d 476 (9th Cir. 1973), drew the contrary conclusion, reasoning that in the Dare to be Great Enterprises, “[w]hat the investors receive, afterall, is a right to a cut of the profits from other investors.” The Oregon district court dismissed as insignificant the fact that the entire profits are not distributed to all investors.

      . The parameters of the phrase “commonly known as a security”, like those of the phrase “interest in a profit sharing arrangement” are largely unrefined in federal law. They have, however, been defined by state courts. For an extended analysis of such developments, see Comment, Pyramid Marketing Plans and Consumer Protection: State & Federal Regulation, 21 J. of Public Law 445 (1972).

      . The thrust of the inquiry under the risk capital test is whether the investor has subjected his money to the risk of an enterprise over which lie exercises no managerial control. See SEC v. Glen W. Turner Enterprises, Inc., 348 F.Supp. 766, 773-774 (D.Or.1972), aff’d, 474 F.2d 476 (9th Cir.), cert. denied, 414 U.S. 82, 94 S.Ct. 117, 38 L.Ed.2d 53 (1973). The Oregon district court, unlike the district court below, concluded that this approach had sufficient judicial support to warrant its application in determining whether an interest is commonly known as a security.
      We would note that there is some overlap between the risk capital approach, as employed by the district court in Turner in determining whether an interest is commonly known as a security, and the managerial control test utilized by the Court of Appeals in Turner in defining whether an investment contract exists. The overlap can be ascribed to the fact that the element of managerial control is implicit in the risk capital test as derived from Silver Hills Country Club v. Sobieski, 55 Cal.2d 811, 13 Cal.Rptr. 186, 361 P.2d 906 (1961). See Note, Pyramid Schemes: Dare Be Regulated, 61 Geo.L.J. 1257, 1279 (1973). The risk capital apXiroach is discussed in further detail in Comment, Pyramid Marketing Plans and Consumer Protection: State and Federal Regulation, 21 J. of Public Law 445, 457-464 (1973) and Note, Pyramid Schemes: Dare Be Regulated, supra.

      . A more stringent interpretation of the commonality requirement is reflected in Milnarik v. M-S Commodities Inc., 457 F.2d 274 (7th Cir.), cert. denied, 409 U.S. 887, 93 S.Ct. 113, 34 L.Ed.2d 144 (1972). Investors there deposited money with one Nelson, with the understanding that he could employ the funds at liis discretion to trade in commodity futures. Although all investors relied on Nelson’s discretion, the court found the requisite commonality absent because there was no evidence that Nelson traded in a uniform manner or that investors shared ratably in profits derived from his purchases of futures. See also Wasnowic v. Chicago Bd. of Trade et al., 352 F.Supp. 1066 (M.D.Pa.1972), aff’d without opinion, 491 F.2d 752 (3d Cir. 1973), cert. denied, -U.S.-, 94 S.Ct. 2407, 40 L.Ed.2d 773, No. 73-1409, 42 U.S.L.W. 3628 (May 14, 1974); Stuckey v. duPont Glore Forgan Inc., 59 F.R.D. 129, 131 (N.D.Cal.1973). Contra, Marshall v. Lamson Bros. & Co., supra; Berman v. Orimer Trading, Inc., 291 F.Supp. 701, 702 (S.D.N.Y.1968).

      . The remedial purposes of the Securities Act of 1933, were expressed as follows:
      “The aim is to prevent further exploitation of the public by the sale of unsound, fraudulent, and worthless securities through misrepresentation; to place adequate and true information before the investor; to protect honest enterprise, seeking capital by honest presentation against the competition afforded by dishonest securities offered to the public through crooked promotion, . . .”

        See Senate Committee on Banking & Currency, S.Rep.No.47, 73d Cong., 1st Sess. 1 (1933).

      . The district court discounted State v. Gopher Tire & Rubber Co. as a case materially different from the one presented before it, noting that in the Gopher Tire program, an investor’s return was not directly linked to his own effort. See 365 F.Supp. at 591 n. I. We discern no material distinction in this respect between the Koscot program and that offered in Stevens v. Liberty Packing Corp., supra, a fact which attenuates the import of the district court’s observations concerning the Gopher Tire ease.

      . The Supreme Court also cited four circuit court cases as support for the “solely from the efforts of others” test. See SEC v. W. J. Howey Co., 328 U.S. at 299. n. 5, 66 S.Ct. at 1104, 90 L.Ed. at 1250, n. 5. An examination of these cases suggests that the word “solely” or alternatively entirely, was not irrevocably entrenched in federal law. In SEC v. Crude Oil Corp. of America, 93 F.2d 844 (7th Cir. 1937), the court did not mention the word entirely. In SEC v. Universal Service Ass’n, 106 F.2d 232, 237 (7th Cir. 1939), the Seventh Circuit defined an investment contract as “[t]he investment of money with the expectation of profit through the efforts of [others].” In Atherton v. United States, 128 F.2d 463 (9th Cir. 1942), while noting that purchasers looked entirely to the efforts of promoters to make their investment a propitious one, the court announced the legal principle to which it was adhering as follows: “[i]n cases where the investor looks to the promoter to determine the success of the investment, it has uniformly been held by the federal courts that unit transactions of this general character involve the sale of a security. . . . ” Id. at 465. The Ninth Circuit subsequently ascribed the derivation of an “entirely” test to Atherton and SEC v. Joiner Leasing Corp., 320 U.S. 344, 64 S.Ct. 120, 88 L.Ed. 88 (1943), in Penfield Co. of Cal. v. SEC, 143 F.2d 746 (9th Cir. 1944). We find nothing in the Joiner opinion, however, that compels an endorsement of an “entirely” or “solely” standard.

      . The Tenth Circuit in Andrews v. Blue, 489 F.2d 367 (10th Cir. 1973) may have sub silentio endorsed a more resilient approach to the test. In this case, Andrews engaged in a joint venture involving real estate with Blue and Austin, pursuant to which Andrews contributed $36,899.22 and agreed to use his real estate expertise as a consultant for the enterprise. In holding an investment contract to exist, the court noted that Andrews’ role as a consultant was only a nominal one and that Andrews in fact possessed no managerial status. Id. at 375. Significantly, however, the court had previously observed that “Andrews invested the agreed sum and devoted substantial time to the development of the property [which was the subject of the joint venture].” Id. at 371 (emphasis added).

      . In several other cases, the federal courts have given limited expression to a functional application of the Ilowey test by emphasizing that it is the managerial role performed by an investor that differentiates an enterprise from one involving a conventional investment contract. Such emphasis, implying, as it does, that the exertion of some effort by an investor is not antagonistic to a finding that an investment contract exists, belies a literal application of the Ilowey test. Thus, in Mr. Steak, Inc. v. River City Steak, 460 F.2d 666 (10th Cir. 1972), aff’g, 324 F.Supp. 640 (D.Colo.1970), involving a counterclaim to an action for breach of a franchise agreement, the Tenth Circuit quoted the district court’s characterization of restaurant franchise as follows:
      “. . . [Defendant has not endeavored to show that it was prevented from directing the operations of the restaurant or that it lacked the requisite knowledge, skill or expertise to undertake that task. * * * We contrast the usual investor-promoter situation, where the shill of ingenuity of the investor does not determine the success or failure of the venture and where the investor’s fortunes parallel those of the promoter, to the present situation, where River City Steak’s enterprise stands or falls independently of Mr. Steak’s success or failure.” (emphasis added).
      460 F.2d at 670, quoting 324 F.Supp. at 645. In Wieboldt v. Metz, 355 F.Supp. 255, 260 (S.D.N.Y.1973), the district court acknowledged that the risk capital approach which it deemed to have been applied by the Ninth Circuit in Turner provides useful input in determining whether a franchise is a security. Finally, in Beefy Trail, Inc. v. Beefy King Intl., Inc., 348 F.Supp. 799, 805 (M.D.Fla.1972), the court held a restaurant franchise not to fall within the ambit of the term investment contract, reasoning that this was not a situation where the investor’s predominant concern was accrual of financial gain attributable to the efforts of others unknown to and outside the control of the investor.

      . This test derives support from the language employed in Lino v. City Investing Co., supra; Nash & Associates Inc. v. Lum’s of Ohio, supra; 1050 Tenants v. Takobson, supra; Mitzner v. Cardet International Inc., et al., supra: and the cases cited in note 13 supra, where the element of investor managerial control was emphasized as a critical index in determining whether or not an investment contract existed.
      This test also comports with the position adopted by the SEC. Securities Act Release No. 5211 (Nov. 30, 1971), reported in 1971-72 Transfer Binder CCH Fed.Sec.L.Rep. # 98446, provides as follows :
      “It must be emphasized that the assignment of nominal or limited responsibilities to the participant does not negative the existence of an investment contract; where the duties assigned are so narrowly ' circumscribed as to involve little real choice of action or where the duties assigned would in any event have little direct effect upon receipt by the participant of the benefits promised by the promoters, a security may be found to exist. As the Supreme Court has held, emphasis must be placed upon economic reality. See Securities and Exchange Commission v. W. J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946). While the Commission has not taken the position that a franchise arrangement necessarily involves the offer and sale of a security, in the Commission’s view a security is offered or sold where the franchisee is not required to make significant efforts in the operation of the franchise in order to obtain the promised return.”
      Since a ruling fashioned by an agency charged with administering a statute, though not dispositive, is entitled to great weight, e. g., Zeller v. Bogue Electric Maufacturing Corp., 476 F.2d 795, 800 (2d Cir. 1973), we must pay heed to the SEC’s position.

      . In addition to misconceiving this court’s approach to prior investment contract adjudications, the district court overstated the prophylactic bent assumed by the Ninth Circuit which decided Turner. We note that in Chapman v. Rudd Paint and Varnish Company, 409 F.2d 635 (9th Cir. 1969), the Ninth Circuit ritualistically applied the “solely from the efforts of [others]” test to a distributorship of a product known as “Run-Guard,” a substance designed to prevent runs in nylon hosiery. Thus, after observing that the brochure utilized by Rudd Paint and Varnish Company to attract distributors minimized the amount of effort required by a distributor and maximized that required of the franchisor, the court maintained that “. . . the very fact that the brochure emphasizes the amount of assistance the company will provide implies that the distributor is also to contribute an effort." Id. at 641 (emphasis added). This reasoning can hardly be deemed the harbinger of the result reached in Turner, where the Ninth Circuit did not even allude to Chapman in adopting a more functional test.