On Tuesday, the Ninth Circuit ruled to dismiss a putative class action case that claimed the operator of San Diego's Hard Rock Hotel caused buyers of its condominium-style units to lose millions of dollars. The court determined that the units' sales didn't constitute a sale of a security.

The panel of three judges ruled that, because there was an eight- to 15-month gap between the real estate purchase and the execution of a rental management agreement, the transactions were distinct and therefore didn’t amount to securities sales.

The buyers argued that the units and rental agreement were part of a package. They claimed Tarsadia Hotel portrayed the units as an investment opportunity: the owners would rent them to hotel guests and the rent would cover the costs of the condos. The rental management agreement, however, required that the owners pay 57 percent of rental to the company and many of the owners could not pay their mortgages.

Daniel M. Benjamin of Ballard Spahr, an attorney for Playground Destination Properties, the co-defendant, said that his client was pleased with the ruling.

"The intersection of securities laws and real estate is an important issue for developers and brokers," said Mr. Benjamin. "This decision provides important guidance going forward."

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Commercial Litigation
Consumer Class Action Litigation