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U.S. Agri to make lease payments to the Sterling Trust.
Additionally, funds from investor subscriptions in Utah I went to
reimburse Pace or U.S. Agri for any developmental expenses
incurred on the plantation prior to the incorporation of Utah I.
Utah I was not adequately capitalized for operation as a
business in the long term, as evidenced by Kellen's decision in
1991 to consolidate Utah I with 36 other jojoba limited
partnerships under contract with U.S. Agri into 1 large limited
partnership, Jojoba Plantation Ltd. Kellen and the other general
partners hoped that the creation of one large limited partnership
would enable them to reduce the costs of farming jojoba. By
1991, Jojoba Plantation was in chapter 7 bankruptcy. Kellen made
no attempt to pursue any of the limited partners who defaulted on
their promissory notes to Utah I.
On the record in the instant case, we agree with respondent
that Utah I did not pay the contract fees for research or
experimentation to be conducted by U.S. Agri on behalf of the
limited partnership. Rather, for the reasons discussed above, we
conclude that the moneys the limited partnership remitted to Utah
I for the putative research or experimentation, in actuality,
were paid for the limited partners' right to participate as
passive investors in the jojoba farming enterprise being operated
by U.S. Agri in Desert Center, California. In our view, the R&D
agreement was designed and entered into solely to provide a
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