Gerald M. Hocking v. Maylee Dubois and Vitousek & Dick Realtors, Inc., a Hawaii Corporation

839 F.2d 560 56 USLW 2492 , Fed. Sec. L. Rep. P 93,622 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 Feb. 13, 1986. Decided Feb. 10, 1988. Patrick C. Clary, Las Vegas, Nev., for plaintiff-appellant. John P. Foley and John C. Morrell, Las Vegas, Nev., for defendants-appellees. Appeal from the United States District Court for the District of Nevada. Before GOODWIN, HUG and REINHARDT, Circuit Judges. REINHARDT, Circuit Judge: 1 This is an action for fraud brought under the federal securities laws against a real estate agent and the broker that employed her. Appellant Hocking based federal jurisdiction on the claim that the real estate agent offered a "security" within the meaning of the federal securities laws. He also alleged pendent state causes of action for fraud. The district court entered summary judgment, concluding that it lacked subject matter jurisdiction because no security was involved. On appeal, the central issue is whether the real estate agent's alleged conduct, if true, constituted the offering…

This is an action for fraud brought under the federal securities laws against a real estate agent and the broker that employed her. Appellant Hocking based federal jurisdiction on the claim that the real estate agent offered a “security” within the meaning of the federal securities laws. He also alleged pendent state causes of action for fraud. The district court entered summary judgment, concluding that it lacked subject matter jurisdiction because no security was involved. On appeal, the central issue is whether the real estate agent’s alleged conduct, if true, constituted the offering of an “investment contract” within the meaning of the federal securities laws. There is no dispute that the agent, Dubois, transmitted an offer to sell a condominium unit from the owner to the plaintiff. There is, however, a genuine issue of fact whether the offer included an option to participate in a rental pool operated by the developer of the condominium complex. 1 The ques *563 tion is whether that fact is a material one. We hold that it is, and that the offer of a condominium with an option to participate in a rental pool arrangement constitutes the offer of an investment contract under the…

dissenting:

I respectfully dissent.

The essential issue in this case is whether an “investment contract” was offered to Hocking. The majority correctly notes that, under some circumstances, a real estate offering can constitute an “investment contract” and thus a “security” within the meaning of the federal security laws. The Supreme Court has defined an investment contract in SEC v. W.J. Howey Co., 328 U.S. 293, 298-99 , 66 S.Ct. 1100, 1103 , 90 L.Ed. 1244 (1946), as follows:

My basic disagreement with the majority is that while the securities laws may well extend to a promotion by a developer who offers a condominium with a management arrangement giving the buyer the comfort of doing nothing but collecting the checks from the developer’s efforts, they do not extend to this attenuated transaction. The Libermans sold their unit to Hocking. They had no authority to commit Aetna or HCP to allow Hocking to participate in the rental pool. Although Aetna may well have offered the Libermans an investment contract, the Libermans did not buy the investment contract; they simply bought a parcel of real property. That is all they were selling — a parcel of real property.

Just because a…