Supreme Court Denies Certiorari And Upholds Ninth Circuit Decision Rejecting Securities Fraud Claim By Condo Purchasers
On February 24, 2014, the U.S. Supreme Court denied certiorari in the Ninth Circuit case Salameh v. Tarsadia Hotel, effectively rejecting a securities fraud claim by purchasers of hotel condominiums and affirming one method of publicly offering hotel-condo units outside the purview of federal and state securities law. 726 F.3d 1124, 1128 (2013).
In 2006, the Hard Rock Hotel San Diego began offering ownership interests in individual condo units. Salameh, 726 F.3d at 1128. The units were subject to restrictions imposed by the city of San Diego that both (i) limited an owner's personal use to a maximum of 28 days per year and (ii) required that the units be managed at all times by the Hard Rock Hotel. After purchasing the units, each purchaser was given the opportunity to enter into a rental management agreement operated by the hotel. The rental management agreement stated that Tarsadia Hotel would be the exclusive management agent for the hotel and the units.
In December 2009, the plaintiffs brought a class action against the defendants alleging that, although the unit sales were marketed as real estate transactions, they were, in fact, investment contracts or securities that had been offered for sale in violation of securities laws.
The issue before the court was whether the hotel condominium sales and subsequent rental management agreements constituted a single transaction requiring compliance with federal and state securities laws. The District Court held in favor of the defendants and the Ninth Circuit affirmed and held that the purchase agreements, when coupled with the rental management agreements, did not constitute the sale of securities.
The Ninth Circuit noted that an eight- to 15-month gap between when the owners purchased the condo units and when they entered into the rental management agreements suggested that these were distinct transactions that did not require compliance with securities regulations. Furthermore, the...
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