Avenue Capital Management II, L.P. v. Schaden

Avenue and Fortress (plaintiffs), investment funds, took equity in a Quiznos-restructuring deal that created a manager-managed LLC to run the company. Avenue and Fortress together controlled enough of the LLC to appoint and remove most managers, review company books, and amend the LLC agreement. After Quiznos's finances deteriorated, Avenue and Fortress sued Quiznos's managers and officers (defendants) for securities fraud, claiming their investment was an investment contract subject to securities law. The district court dismissed the complaint, and the plaintiffs appealed.