445 F. App'x 256
11th Cir.2011Background
- Plaintiffs purchased condominium units from Pulte in Vista Cay at Harbor Square and The Isles at Cay Commons (Orlando, Florida).
- Plaintiffs entered into separate management agreements with Osceola Management & Consulting, Inc. (OMC) for short-term rental of the units.
- Plaintiffs allege the transactions constitute investment contracts and violate federal securities laws; the district court dismissed as non-securities claims.
- Promotional materials and alleged affiliation between Pulte, The Wear Group, and OMC formed the alleged promotional scheme for a rental-pool program.
- Purchase agreements contain strong disclaimers, Entire Agreement clauses, and explicit non-reliance provisions, with a Short Term Rental addendum stating potential rental impacts and release of Pulte from liability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do the purchases and rental scheme constitute an investment contract under Howey? | Plaintiffs contend the scheme satisfies Howey three elements, including profits from others' efforts. | Defendants argue no investment contract exists absent mandatory participation in a rental scheme or reliance on others' efforts. | Investment contract exists when viewed as the overall scheme, not just closed purchase agreements. |
| Is the district court required to treat Pulte alone as the security issuer or the affiliate defendants as promotors? | Plaintiffs allege Pulte acted as an affiliate/promoter in promoting the investment scheme. | Defendants contend the purchase agreements themselves do not create a security or agency-level liability. | PFulte alone not liable; however, OMC, Murphy, Wear Group, and affiliate Pulte participation support securities claim under Howey. |
| Did the court properly consider purchase agreements under incorporation by reference? | Purchase agreements were not central to the securities claims and should not govern Howey analysis. | Purchase agreements are central to evaluating control under Howey and were properly considered. | Purchase agreements are central to the securities claims and properly considered; incorporation by reference allowed. |
Key Cases Cited
- SEC v. Edwards, 540 U.S. 389 (U.S. 2004) (investment contract includes profits from others' efforts in a common enterprise)
- SEC v. W.J. Howey Co., 328 U.S. 293 (U.S. 1946) (three-part Howey test: investment of money, in a common enterprise, with profits to be derived from the efforts of others)
- Williamson v. Tucker, 645 F.2d 404 (11th Cir. 1981) (limits on illusory control exception to Howey when investors retain meaningful control)
- Albanese v. Fla. Nat. Bank of Orlando, 823 F.2d 408 (11th Cir. 1987) (focus on amount of control investors retain under written agreements)
- Merchant Capital, LLC, 483 F.3d 747 (11th Cir. 2007) (look to representations beyond the contract to determine investment contract existence)
- SFM Holdings, Ltd. v. Banc of Am. Sec., LLC, 600 F.3d 1334 (11th Cir. 2010) (relationship-forming contracts are central to securities claims)
- Edwards, Payphones, Edwards, 540 U.S. 391 (U.S. 2004) (lease-back arrangements can qualify as investment contracts)