Hocking v. Dubois

• Citation: 885 F.2d 1449
• Decision Date: 21 September 1989
• Docket Number: No. 85-1932,85-1932
• Parties: , Fed. Sec. L. Rep. P 94,710 Gerald M. HOCKING, Plaintiff-Appellant, v. Maylee DUBOIS and Vitousek & Dick Realtors, Inc., a Hawaii corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1449

885 F.2d 1449

58 USLW 2223, Fed. Sec. L. Rep. P 94,710

Gerald M. HOCKING, Plaintiff-Appellant, v. Maylee DUBOIS and Vitousek & Dick Realtors, Inc., a Hawaii

corporation, Defendants-Appellees.

No. 85-1932.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 7, 1988.

Decided Sept. 21, 1989.

Patrick C. Clary, Las Vegas, Nev., for plaintiff-appellant.

Samuel H. Gruenbaum, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the District of Nevada.

Before GOODWIN, Chief Judge, BROWNING, SCHROEDER, FLETCHER, NELSON, NORRIS, WIGGINS, BRUNETTI, NOONAN, O'SCANNLAIN and TROTT, Circuit Judges.

GOODWIN, Chief Judge:

Gerald M. Hocking, a disappointed purchaser of a unit in a condominium complex in Hawaii sued the brokers who sold the unit, claiming violations of the antifraud provisions of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j (1982), and Rule 10b-5, 17 C.F.R. Sec. 240.10b-5 (1988). He appeals a summary judgment in favor of the brokers.

After a three-judge panel's decision had reversed the summary judgment, ¹ the court The district court noted that "this action lies close to the edge of those transactions which have been found to be regulated by the Securities Act as investment contracts," but concluded that Hocking had not raised a triable issue of material fact as to whether DuBois had offered him a "security."

granted rehearing en banc and the case was reargued on supplemental briefs focused upon the question whether the transaction at the heart of this case involved a "security" within the meaning of the federal security laws.

At best we can ascertain from the present record, ² and reading it in the light most favorable to Hocking, the facts are as follows: ³

Hocking was a resident of Las Vegas, Nevada. Following a visit to Hawaii, Hocking became interested in purchasing a condominium there as an investment. Deposition at 12, 52. Dubois was a real estate agent licensed in Hawaii, employed by defendant Vitousek & Dick Realtors, Inc. Dubois met Hocking through her husband, one of Hocking's co-workers. Deposition at 12.

Dubois agreed to search for a condominium for Hocking, and in the spring of 1979 proposed that Hocking purchase a condominium in the resort complex at 2121 Ala Wai, Honolulu, which had been listed with Vitousek & Dick. Deposition at 7-8. The resort complex was developed by Aetna Life Insurance Company, and was still under construction at that time. Deposition at 33. Hocking had told Dubois that he wanted to buy a condominium directly from the developer, to be a "first person buyer." Deposition at 8. In fact, the condominium unit sold to Hocking was owned by Tovik and Yaacov Liberman, who had purchased from the developer. Agreement of Sale, ER at 10, 19. Hocking did not independently inquire into who was developing the complex at 2121 Ala Wai, but relied on Dubois' assurances that he would be purchasing directly from the developer. (At this stage of the record the question of buying directly from the developer or in the "secondary" market is only of evidentiary value in shedding light on the terms of sale). Hocking had no contact with Aetna, and he knew of no connection between defendants and the builders of the condominium complex. Deposition at 101-102.

Dubois told Hocking, according to his deposition, that "the investment would be handled [for him] by a local company, or her company or someone that she would help [him] get in touch with." Deposition at 8. She informed Hocking that a rental pool arrangement (RPA) would be available to Hocking if he were to purchase the condominium. She also told him that the condominiums were renting for an average of $100 a day, from which he calculated the monthly income would be $2,000 to $3,000 per month. Affidavit at 2. He relied on the expected rental income to cover his monthly payments and provide additional Hocking entered into an agreement to purchase the condominium from the Libermans. He signed the agreement on June 23, 1979 in Nevada, and Tovik Liberman signed on July 2, 1979 in Hawaii. Agreement of Sale, ER at 19. Hocking also entered into several agreements with Hotel Corporation of the Pacific (HCP) concerning rental of the condominium.

income. Id. While Dubois expressed no requirement that Hocking participate in the rental pool arrangement, Hocking testified that but for the availability of the rental pool arrangement he would not have purchased the condominium. Deposition at 62-63.

On June 29, 1979 he signed a rental management agreement (RMA) appointing HCP exclusive agent to manage his condominium. ER at 24. He also entered into an Individual Agency Rental Agreement for Pooled Operation, the RPA, executed on July 5, 1979, to become effective on December 20, 1979. Supplemental ER at 240. This agreement placed Hocking's condominium in HCP's rental pool. ⁴

Finally, on July 21, 1979, he signed an addendum to the RPA, which HCP executed on July 31, 1979. Supplemental ER at 243. Among other things, this addendum postponed the effective date of the RPA until the earlier of December 31, 1982 or that time when the developer had sold all the units in the development.

Hocking testified in his affidavit that Dubois presented these agreements to him and assured him they were mere standard forms, and further, that he neither read nor fully understood the agreements he signed. Affidavit at 4.

The rental management agreement gave Hocking the right to terminate the RMA upon 30-days written notice, with termination effective at the end of any current lease. The RPA's termination provisions are more complicated. During the initial year of pooled operation Hocking had the right to terminate at any time upon 15-days notice. In subsequent years he could terminate the RPA once annually upon 90-days notice. HCP reserved the right to terminate should the number of units participating in the rental pool fall below 40 percent of the total number of units in the complex. The condominium owners could collectively terminate the RPA upon an election to do so by 75% of those participating in the RPA. The RPA was to terminate on December 31, 1984. Finally, HCP was given the option to renew the RPA for two additional five-year terms.

Hocking alleges that his investment was entirely passive, and that he relied on Dubois to select, manage, and protect his investment. Third Amended Complaint at 2-3. He relinquished control of his investment at the time he purchased it and had access to his unit for only two weeks each year. Affidavit at 3. He knew that approximately fifty other condominium owners participated in the rental pooling arrangement. Id. When he visited the building in Hawaii, he observed that it was operated like a hotel, and he received copies of brochures and advertisements which HCP distributed on the mainland. Id.

Hocking purchased the condominium for $115,000, with a downpayment of $24,000 and installment payments on the remaining portion of the purchase price through June 1982, at which time all unpaid amounts were to become due. Hocking's complaint states that he "cancelled" his investment when this balloon payment came due. Third Amended Complaint at 4. The failure to make the payment apparently caused the forfeiture of his prior payments. He claims the loss of his investment was caused by the failure to receive the expected rental income, and by further misrepresentations of Dubois concerning appreciation in the value of the condominium and her efforts to resell the condominium in 1981 and 1982. Third Amended Complaint at 3-5; Affidavit at 2-3.

We are in general agreement with the three-judge panel's statement of our function in reviewing a summary judgment We review the grant of summary judgment de novo. SEC v. Belmont Reid & Co., 794 F.2d 1388, 1390 (9th Cir.1986). Our task is identical to the trial court's: while viewing the evidence in the light most favorable to Hocking, we must determine whether the defendants have shown that there are no disputed issues of material fact and that they are entitled to judgment as a matter of law. Alaska v. United States, 754 F.2d 851, 853 (9th Cir.), cert. denied, 474 U.S. 968, 106 S.Ct. 333, 88 L.Ed.2d 317 (1985). We also review de novo the district court's determination whether a transaction is a security. Belmont Reid & Co., 794 F.2d at 1390.

839 F.2d at 563.

The Supreme Court has provided further guidance on the appropriateness of summary judgment in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Celotex tells us that on an issue where the plaintiff has the burden of proof, as Hocking does here, the defendant may move for summary judgment by simply pointing out the absence of facts to support the plaintiff's claim, "identifying those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any' which it believes demonstrate the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323, 106 S.Ct. at 2553. "[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322, 106 S.Ct. at 2552.

Defendants' joint motion for summary judgment identified portions of the pleadings and other materials which they believed demonstrated the absence of a genuine issue of material fact. Defendants claimed they were entitled to summary judgment because: (1) Hocking had no contact with the developer, Aetna; (2) Hocking alleged no connection between defendants and Aetna; (3) Hocking did not depend on HCP to increase the value of his condominium; (4) Hocking was not required to enter into the RPA as a condition of purchasing the condominium; (5) defenda...