The Ninth Circuit Court of Appeals dealt a setback to buyers of condominium units at downtown San Diego's Hard Rock Hotel, rejecting their efforts to recoup what they claim are millions of dollars in losses.

A three-judge appellate court panel upheld the dismissal of a class action lawsuit filed by the condo buyers, who alleged that offering the sale of the units together with a rental-management program constituted the sale of a security. They argued that the hotel owners never filed with the U.S. Securities and Exchange Commission or the California Department of Corporations because they wanted to avoid scrutiny by regulators.

But the Ninth Circuit concluded that the purchasers failed to provide any evidence that securities laws were violated.

Ballard Spahr of counsel Daniel M. Benjamin, who represented Playground Destination Properties, the sales broker for the condos, said the litigation had the potential for dampening interest in the hotel-condominium market. "Hotel-condominiums represent an attractive opportunity for many people interested in owning vacation properties," he said. "Plaintiffs' lawsuit put that industry at risk. The court's decision affirming the dismissal of the lawsuit thus is a welcome development. Hopefully, it will clear the way for future developments as the economy recovers."

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Commercial Litigation