Tamer Salameh v. Tarsadia Hotel
2013 U.S. App. LEXIS 16712
| 9th Cir. | 2013Background
- Purchasers bought condominiums in the Hard Rock Hotel San Diego and later signed separate Rental Management Agreements (RMAs) with the hotel operator; the RMA executions occurred roughly 8–15 months after the purchase contracts.
- Plaintiffs alleged the purchase plus the later RMA together constituted an "investment contract" (a security) because owners lacked control, could only profit via hotel management, and local zoning limited owner occupancy.
- Plaintiffs brought federal securities claims (§12(a)(2), §10(b)), multiple California securities claims, control-person and rescission claims, and common-law fraud and concealment claims.
- The district court dismissed all claims for failure to allege a security, statute-of-limitations issues on securities claims, and lack of Rule 9(b) particularity for fraud claims; leave to amend was denied.
- On appeal the Ninth Circuit reviewed de novo whether the transactions constituted a security under Howey and Hocking and reviewed denial of leave to amend for abuse of discretion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the condominium sale + later RMA constituted an "investment contract"/security | The purchase and RMA formed a single package; Plaintiffs had no control and expected profits from operator efforts | Contracts were separate transactions signed months apart; no allegation RMA was presented or promoted at sale | No — Plaintiffs failed to plead the sale of a security because they did not allege the RMA induced the purchase or was offered as a package |
| Whether promotional materials (Hotel Guide, RMA FAQs) show inducement at purchase | Materials show the RMA and purchase were presented together | Complaint fails to allege those materials were given before or at purchase | Not enough — complaint does not allege timing showing those materials induced the purchase |
| Whether common-law fraud claims survive where theory depends on sale of a security | Fraud claims flow from alleged misrepresentation that a security was sold and that RMA was mandatory | Because no security was sold and pleading lacks specificity, fraud claims fail | Dismissed — fraud theory depends on sale of a security and claims also fail Rule 9(b) particularity requirements |
| Whether denial of leave to amend was an abuse of discretion | Plaintiffs argued they could cure defects with additional facts | District court had previously given amendment opportunities and instructions; plaintiffs did not supply promised facts | No abuse — court permissibly denied leave given prior chances and lack of proffered facts |
Key Cases Cited
- SEC v. W.J. Howey Co., 328 U.S. 293 (investment-contract test: investment of money in a common enterprise with expectation of profits from others' efforts)
- Hocking v. Dubois, 885 F.2d 1449 (9th Cir. en banc) (sale of condominium plus rent-pooling could present a genuine issue whether a security was offered when contracts were presented as a package)
- United Hous. Found., Inc. v. Forman, 421 U.S. 837 (substance over form; ordinary real-estate purchases for personal use are not securities)
- Tcherepnin v. Knight, 389 U.S. 332 (context for analyzing whether an instrument is a security)
- SEC v. C.M. Joiner Leasing Corp., 320 U.S. 344 (investment-contract concept reaches novel devices)
- SEC v. Rubera, 350 F.3d 1084 (use of promotional representations in assessing whether a transaction constituted a security)