A panel of the Appeals Court upheld the standard from the US Supreme Court in W.J. Howey that a security's profits should come "solely" from the efforts of others. Villeneuve bought a distributorship and was given the responsibility of checking stock levels, reordering merchandise, collecting payments and other similar obligations in return for a percentage of the profits and an exclusive territory. He sued, alleging that the distributorship was a "security" and he was entitled to sue under federal securities laws. The panel upheld the District Court in that the distributorship was not a "security," but held that one prong of the proper standard to determine whether something is a security or not is whether the profits come "solely" from the efforts of others, and not "from the essential managerial efforts of others." The Appeals Court reheard the case, en banc, and determined that while the distributorship was not an investment contract, the profits to be realized could not be attributed to the efforts of others, so neither version of the test of a security was applicable to these facts. The panel decision was therefore vacated as to the proper test for a security.

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