All Seasons Resorts, Inc. v. Abrams

• Decision Date: 11 July 1985
• Parties: , Blue Sky L. Rep. P 72,256 ALL SEASONS RESORTS, INC., Respondent, v. Robert ABRAMS, as Attorney-General of the State of New York, Appellant.
• Court: New York Supreme Court — Appellate Division

Page 516

491 N.Y.S.2d 516

109 A.D.2d 189, Blue Sky L. Rep. P 72,256

ALL SEASONS RESORTS, INC., Respondent, v. Robert ABRAMS, as Attorney-General of the State of New York,

Appellant.

Supreme Court, Appellate Division,

Third Department.

July 11, 1985.

Robert Abrams, Atty. Gen., New York City (Gerald J. Hurwitz, New York City, of counsel), for appellant.

Thomas S. West, Albany, for respondent.

Before MAHONEY, P.J., and MAIN, MIKOLL, YESAWICH and HARVEY, JJ.

MAHONEY, Presiding Justice.

Plaintiff is a corporation, organized under the laws of the State of Washington, which owns and operates 11 campgrounds. Although none of these are located in New York State, plaintiff intends to sell memberships and eventually build a campground in this State. The campsites consist, essentially, of parking sites for recreational vehicles along with hookups for electricity, fresh water and waste discharge, as well as other amenities and recreational improvements. Plaintiff markets "memberships" which give the purchaser the nonexclusive, nonspecific use of campground and parking sites and recreational facilities owned by plaintiff on a first-come, first-served basis. On the three summer holiday weekends, reservations are required. Two of the limits on use are that stays are limited to 14 days and for stays of five or more days, a waiting period is imposed before the next use. The fee for such a membership ranges from about $4,500 to $6,100. Thereafter, annual dues tied to the cost of living are charged.

Defendant, the Attorney-General of the State of New York, has taken the position that the memberships are "participation interests or investments in real estate" such that they are "securities" within the meaning of General Business Law § 352-e, requiring plaintiff to file an offering statement or prospectus and comply with other requirements. Plaintiff commenced this action seeking a declaration that its marketing of memberships does not fall within General Business Law § 352-e. Defendant, who is charged with enforcing the statute (General Business Law §§ 352, 352-e), moved to dismiss the complaint and such motion was converted into one for summary judgment (CPLR 3211[c] ). Special Term, in a thorough, well-reasoned decision, held that the memberships were neither an investment nor a participation interest in real estate, 127 Misc.2d 145, 485 N.Y.S.2d 673. This appeal by defendant ensued.

General Business Law article 23-A, New York's "blue sky" law, also referred to as the Martin Act, is a wide-ranging statute designed to regulate New York's securities market. The section at issue herein was designed to regulate offerings of real estate securities. The statute applies to:

* * * a public offering or sale * * * of securities constituted of participation interests or investments in real estate, mortgages or leases, including stocks, bonds, debentures, evidences of interest or indebtedness, limited partnership interests or other security or securities * * * when such securities consist primarily of participation interests or investments in one or more real estate ventures, including cooperative interests in realty * * * (General Business Law § 352-e[1][a] ).

The thrust of the statute, thus, is in two directions: investments in real estate and participation interests in real estate. We agree with Special Term, for the reasons stated in its decision, that the memberships offered by plaintiff do not constitute investments in real estate. Whether they can be categorized as participation interests in real estate is a more difficult matter.

Plaintiff contends that a membership is simply a license to use the property owned by it and is not a cooperative interest in realty. Special Term agreed, stressing that the intent of the Martin Act was not designed to protect all consumers from fraud, but to protect them in a narrow situation where their money was being invested with the expectation or hope of profit or capital gain. In our view, Special Term relied too heavily on the concept of profit. As stated above, the thrust of the statute is toward participation interests in real estate as well as investments therein. If the statute was intended to apply only to profit-oriented transactions, the Legislature could have written the statute to apply only to investments in real estate. The fact that the Legislature included participation interests along with the phrase "cooperative interests in realty" indicates that it intended that the statute cover nonprofit or "consumer-type" securities as well as investment...