Salameh v. Tarsadia Hotel, Corp.
| Citation | 726 F.3d 1124 |
| Decision Date | 13 August 2013 |
| Docket Number | No. 11–55479.,11–55479. |
| Parties | Tamer SALAMEH; Real Estate 4 Hospitality, LLC, A California Limited Liability Company; Aleksey Kats; Diana Kats; Mitchell J. Pereira; Gary A. Torretta; Robert Alvarenga; Alexis Cosio; Cesar Mota; Denis B. Rothe, Jr.; Charlene Schrufer; David R. Bushy; Dale Curtis; Zondra Schmidt; Dolores Green; Christy Jeske; Tazia Reyna; Mary L. Wee Song; Kerry L. Steigerwalt; Beth Steigerwalt; Stuart M. Wolman; Jeffrey E. Lubin; Barbara L. Lubin, Individually and as Co–Trustees of the Lubin Family Trust Dated 26 March 2002; Mikael Havluciyan; Therese Havluciyan, Individually and as Co–Trustees of the Havluciyan Family Trust; Sadoux Kim, Individually and on Behalf of a Class of All Others Similarly Situated, Virginia Gallanosa; Jose Gallanosa; Joey Clement; Kevin Henry; Andrew Paul; Steven Paul; Vito Micale; Philip Gutirrez; Barbara Behrle; Thomas Behrle; Danon Slinkard; Kim Henry; Sylvia Hoerr; Matthew Hoerr, Plaintiffs–Appellants, v. TARSADIA HOTEL, a California corporation; Tushar Patel, an individual; B.U. Patel, an individual; Gregory Casserly, an individual; 5th Rock LLC, a Delaware limited liability company; MPK One, LLC, a California limited liability company; Playground Destination Properties, a corporation; Gaslamp Holdings, LLC, a California limited liability company; Professional Mortgage Partners, Inc., Defendants–Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
OPINION TEXT STARTS HERE
Michael J. Aguirre (argued), Christopher S. Morris, and Maria C. Severson, Aguirre, Morris & Severson LLP, San Diego, CA, for Plaintiffs–Appellants.
Frederick H. Kranz (argued) and Lynn T. Galuppo, Cox, Castle & Nicholson LLP, Irvine, CA; Jonathan S. Kitchen and Ali P. Hamidi, Cox, Castle & Nicholson LLP, San Francisco, CA, for Defendants–Appellees Tarsadia Hotels, Tushar Patel, B.U. Patel, Gregory Casserly, 5th Rock, LLC, MKP One, LLC, and Gaslamp Holdings, LLC.
Daniel M. Benjamin (argued) and Thomas W. McNamara, Ballard Spahr LLP, San Diego, CA, for Defendant–Appellee Playground Destination Properties, Inc.
Mark D. Cahn, Jacob H. Stillman, Randall W. Quinn, William K. Shirey, Securities and Exchange Commission, Washington, D.C., for Amicus Curiae Securities and Exchange Commission.
Benjamin G. Shatz, Timi A. Hallem, and Jason T. Taketa, Manatt, Phelps & Phillips, LLP, Los Angeles, CA, for Amici Curiae The Real Estate Roundtable and The National Association of Realtors.
Appeal from the United States District Court for the Southern District of California, Dana M. Sabraw, District Judge, Presiding. D.C. No. 3:09–cv–02739–DMS–CAB.
Before: RONALD M. GOULD and N. RANDY SMITH, Circuit Judges, and SHARON L. GLEASON, District Judge.*
A transaction that looks nothing like a sale of stock and involving such diverse items as citrus groves and vacation homes may qualify as a sale of a security under federal law. See SEC v. W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946); Hocking v. Dubois, 885 F.2d 1449 (9th Cir.1989) (en banc). Here, we must decide whether Plaintiffs–Appellants have alleged the sale of a security based on their purchase of condominiums in the Hard Rock Hotel San Diego. We hold that Plaintiffs have not adequately alleged facts showing that they were offered the real-estate and rental-management contracts as a package. And they have not alleged facts showing that they were induced to buy the condominiums by the rental-management agreement. For these reasons, Plaintiffs have not alleged the sale of a security, and so all of Plaintiffs' claims were properly dismissed.
Plaintiffs–Appellants, purchasers of condominiums in the Hard Rock Hotel San Diego, brought a putative class action against the Hotel's developer, operator, broker, and related entities. Because the district court dismissed the complaint on the pleadings, the facts come from the second amended complaint, except where otherwise noted.
The Hotel is a twelve-story, mixed-use development with commercial space and 420 condominium units. Through television and print advertising, the public was offered the opportunity to buy condominiums in the Hotel. Plaintiffs each did so and later signed a rental-management agreement. Plaintiffs complain that the Purchase Contract they executed with 5th Rock, LLC not only sold them their condominiums but also obligated them to enter into the Rental Management Agreement with Tarsadia Hotels. Even though these contracts were executed with distinct entities eight to fifteen months apart,1 Plaintiffs allege that these contracts together form an investment contract because Plaintiffs have no control over their units and expect a profit only through the efforts of the Hotel developer and operator. For example, Plaintiffs were not issued keys to their units but had to obtain keys from the Hotel operator when staying in their units. The units had to be operated as part of the Hotel, and certain Defendants were responsible for daily management, operation, and marketing of the units. Plaintiffs also note that a local zoning ordinance prohibited them from occupying their units for more than 28 days per year.
Plaintiffs contend that this alleged investment contract did not comply with federal and state securities laws. Plaintiffs' second amended complaint alleges eight claims for relief: (1) misrepresentation and omission in violation of § 12(a)(2) of the Securities Act of 1933; (2) misrepresentation and omission in violation of § 10(b) of the Securities Exchange Act of 1934; (3) sale of an unqualified security in violation of California Corporations Code §§ 25110, 25503, and 25504.1; (4) misrepresentation and omission in violation of California Corporations Code §§ 25401, 25501, and 25504.1; (5) rescission against an unlicensed broker-dealer under California Corporations Code § 25501.5; (6) control-person liability under California Corporations Code § 25504; (7) common-law fraudulent misrepresentation; and (8) common-law fraudulent concealment.
Defendants are Tarsadia Hotels, the Hotel operator; 5th Rock, LLC, the developer; Gaslamp Holdings, LLC, the owner of the land on which the Hotel sits; MPK One, LLC, the controlling entity that manages 5th Rock; Tushar Patel, Chairman of Tarsadia Hotels; B.U. Patel, Vice Chairman and founder of Tarsadia Hotels; Greg Casserly, President of Tarsadia Hotels; and Playground Destination Properties, Inc., a real-estate brokerage.2 Plaintiffs allege that Defendants, although separate legal entities, were “agents” or “co-conspirators” in perpetrating the fraud. But Plaintiffs allege no other facts describing Defendants' relationships with each other.
The district court dismissed the second amended complaint. The court's analysis turned primarily on its holding that Plaintiffs had not alleged that the condominium units constituted a security. Alternatively, the district court held that the securities claims were time-barred and that the fraud claims were not pleaded with the particularity required by Federal Rule of Civil Procedure 9(b). The district court denied leave to amend because “Plaintiffs have had ample opportunity to properly plead a case and have failed to do so.”
This timely appeal followed.
We review de novo the district court's dismissal of a complaint under Federal Rule of Civil Procedure 12(b)(6). N. Cnty. Cmty. Alliance, Inc. v. Salazar, 573 F.3d 738, 741 (9th Cir.2009). “If support exists in the record, [a] dismissal [for failure to state a claim] may be affirmed on any proper ground, even if the district court did not reach the issue or relied on different grounds or reasoning.” Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1295 (9th Cir.1998).
“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Zixiang Li v. Kerry, 710 F.3d 995, 999 (9th Cir.2013) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)) (internal quotation marks omitted). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. The plausibility standard requires more than the sheer possibility or conceivability that a defendant has acted unlawfully. See id. at 678–79, 129 S.Ct. 1937. “Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (citation and internal quotation marks omitted). “[B]are assertions” are insufficient. Id. at 681, 129 S.Ct. 1937;see also Coto Settlement v. Eisenberg, 593 F.3d 1031, 1034 (9th Cir.2010). We “discount[ ] conclusory statements, which are not entitled to the presumption of truth, before determining whether a claim is plausible.” Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir.2012).
We review a district court's decision to dismiss a complaint with prejudice for abuse of discretion. Okwu v. McKim, 682 F.3d 841, 844 (9th Cir.2012). A district court abuses its discretion if it applies the wrong legal rule or if its “application of the [correct] rule was illogical, implausible, or without support in the record.” In re Korean Air Lines Co., Ltd., 642 F.3d 685, 698 & n. 11 (9th Cir.2011) (citing United States v. Hinkson, 585 F.3d 1247, 1251 (9th Cir.2009) (en banc)).
The crux of Plaintiffs' claims is that the sale of the hotel condominiums and the later Rental Management Agreement together constituted the sale of a security. We disagree and hold that the transactions did not constitute the sale of a security.
We review de novo whether a transaction is the sale of a security. Hocking, 885 F.2d at 1454. “Both section 2 of the Securities Act of 1933, 15 U.S.C. § 77b(1) (1982), and section 3 of the...
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