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

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: 1 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. 2 After a three-judge panel's decision had reversed the summary judgment, 1 the court granted rehearing en banc and the case was reargued on supplemental briefs focused upon…

joined by Judge TROTT, dissenting:

Stated precisely, the issue in this case is whether a real estate broker can be held liable under the federal securities laws for marketing a condominium apartment whose buyer is entitled, but not obligated, to join a rental pool offered and managed by a party not affiliated with the seller. The majority believes that if the real estate broker markets the condominium apartment and rental pool as a “single package,” even if the parties offering them are unaffiliated, then the investment possibly amounts to the purchase of a “security” as defined in SEC v. W.J. Howey Co., 328 U.S. 293 , 66 S.Ct. 1100 , 90 L.Ed. 1244 (1946). Maj. op. at 1456-58. The majority is thus unwilling to grant summary judgment in favor of Dubois, believing that Hocking has raised material issues of fact regarding whether the condominium apartment and rental pool were marketed as a package and whether the sale involved an investment of money in a common enterprise with an expectation of profits produced by the efforts of others. Ante at 1458-1461.

Unlike the majority, I believe that holding a real estate broker liable for the sale of an individual condominium apartment…

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. § 78j (1982), and Rule 10b-5, 17 C.F.R. § 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 *1452 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.

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.”

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…

joined by Judges WIGGINS, BRUNETTI, O’SCANNLAIN and TROTT, dissenting:

This case involves the resale of a condominium apartment in a resort complex in Hawaii. The developer of the complex had offered the original condominium purchasers the opportunity to participate in a rental pool arrangement (RPA) run by Hotel Corporation of the Pacific (HCP). In an RPA, an agent is responsible for renting and managing all apartments that participate in the pool, and each owner receives a pro rata share of the rental income. It is not disputed that a sale of a condominium by a developer who also provides an RPA normally constitutes the sale of a security.

Here the resellers of the condominium, the Libermans, had elected not to participate in the RPA when they purchased their condominium from the developer. In reselling the condominium, the Libermans’ real estate agent, Dubois, informed the prospective buyer, Hocking, that the RPA was available should he wish to participate as a condominium owner. After buying the Li-bermans’ condominium, Hocking in fact became a participant in the RPA managed by *1463 HCP. Hocking has not alleged or proffered evidence that Dubois had any affiliation or…