A Florida District Court dismissed condominium purchasers’ claims brought under Section 10 and Rule 10b-5 of the Securities Exchange Act of 1934, finding that the purchase agreements were not “investment contracts” under the securities laws.

The action arose from purchase contracts entered into between plaintiff purchasers and defendants, a condominium complex and agents involved in the sales. Plaintiffs alleged that they entered into the purchase contracts in reliance on misrepresentations concerning the price and projected success of the condominium complex, and sought to escape their obligations under the contracts and recover their deposits.

The Court found that because the purchase contracts were not “investment contracts,” plaintiffs could not state a cognizable securities claim. For an agreement to qualify as an investment contract, the investor must invest in a common enterprise and have been led to expect profits solely from the efforts of the promoter or a third party. Here, the purchase contracts provided that plaintiffs entered into the agreement with the understanding that any profits would be realized from their own actions and appreciation in market value was wholly outside of defendants’ control. In addition, the contracts did not emphasize investment value, and the plaintiffs purchased the condominiums primarily for personal use. The Court therefore held that the federal securities law did not apply and dismissed the complaint with prejudice. (Garcia v. Santa Maria Resort, Inc., 2007 WL 4127628 (S.D.Fla. Nov. 15, 2007))