Ninth Circuit Rules In Favor Of Commercial Real Estate

Irvine, CA - (August 22, 2013) - The Ninth Circuit issued a landmark decision concluding that the sale of the condominium-hotel units at the Hard Rock Hotel in San Diego is not the sale of a security.  In Salameh, et al. v. Tarsadia Hotels, et al., (Case No. 11-55479), the Ninth Circuit affirmed the dismissal of the plaintiffs’ claims finding that they did not allege sufficient facts that would demonstrate that the condominium-hotel units constituted a “security.” Additionally, the court affirmed the lower court’s dismissal of the plaintiffs’ common law fraud claims.

“This is a significant victory for our client, our team and the other condo-hotel developers that have been wrongly targeted by disgruntled purchasers’ claims following the financial meltdown of 2008,” declared the Cox, Castle & Nicholson litigation partner, Frederick “Rick” Kranz, who argued the case before the Ninth Circuit.  Mr. Kranz and his team, including Jonathan Kitchen, Ali Hamidi and Lynn Galuppo, represented the developer and operator of the Hard Rock Hotel in San Diego.

This is the first Ninth Circuit published opinion to address squarely whether the sale of a condominium-hotel unit constitutes the sale of a security.  Prior to this decision, condo-hotel developers relied upon SEC guidelines to navigate through this unsettled area of law.  Condo-hotel developers now have solid criteria to implement in their condo-hotel sales programs.  The Ninth Circuit found it important that there was a significant time-gap between the signing of the purchase and sale agreement and the Rental Management Agreement.  

This putative class action was first filed in December 2009 in the U.S. Southern District of San Diego when purchasers of the Hard Rock Hotel condo-hotel units became dissatisfied following the dramatic downturn of the economy.  The plaintiffs argued that the sale of the condo-hotel units violated federal and state securities laws, and that they were fraudulently induced to enter into the purchase and sale agreements.  The plaintiffs failed after several opportunities given to them by the federal district court to allege adequately that the sale constituted the sale of a security.

The Ninth Circuit affirmed the federal district court’s dismissal of all claims asserted and entered judgment in favor of the developer-defendants. 

Cox, Castle & Nicholson LLP, a California law firm, has one of the largest concentrations of attorneys specializing in representing the real estate, construction, and financial services industries. For more than 45 years, the firm has represented public and privately held businesses, major financial institutions, pension funds, industry entrepreneurs, and public agencies in acquiring, developing, redeveloping, financing, leasing, managing and disposing of real estate assets.