Salameh v. Tarsadia Hotel

A securities investment contract will not be found without facts pleading the investment of money, a common enterprise, and an expectation of profits.

Plaintiffs purchased condominiums in the Hard Rock Hotel San Diego. All plaintiffs signed purchase agreements, and then signed rental agreements about a year later with a different company. Plaintiffs allege the rental agreement left no control over the condominiums, and had various requirements more typical of a security purchase. Plaintiffs brought a class action suit alleging the contracts did not comply with state and federal securities laws, and were fraudulently induced. The district court dismissed the complaint, finding the alleged condominiums did not constitute a security. The district court alternatively held the securities claims were time-barred, and the fraud claims were not pleaded with the required particularity. The Ninth Circuit also held the condominiums did not constitute a security purchase, because the alleged facts were not sufficient to show a security was sold. The panel held it was not shown the purchase contract and property management agreement were offered as a package, nor were the purchasers informed that the rental agreement was forthcoming, nor were they promised any portion of the profits. The panel further found the two contracts were not intended to be combined as a security purchase, as demonstrated by the year-long time gap, the involvement of two different companies, and the lack of coercion. Thus, the panel concluded a security sale was not alleged. As to the fraud claims, the panel held that because there was no sale of security, a security could not have been sold fraudulently. The panel held the complaint failed to adequately plead a common-law fraud claim as required by Fed. R. Civ. P. 9(b). Finally, the panel held the district court did not abuse its discretion by failing to give plaintiffs leave to amend, because they had ample time to properly plead their case. AFFIRMED.