All Seasons Resorts, Inc. v. Abrams, 68 N.Y.2d 81 (1986)
An interest is a security under New York’s Martin Act if it constitutes a participation interest or investment in real estate with the expectation of financial profit or return or meets the broader definition of a security as an investment of money in a common enterprise with profits to come solely from the efforts of others.
Summary
All Seasons Resorts, Inc. (ASR) sought a declaratory judgment to prevent the New York Attorney General from applying the Martin Act’s registration requirements to its campground memberships. ASR argued that these memberships, which grant non-exclusive use of recreational facilities, are not securities. The Court of Appeals held that ASR memberships are not securities under the Martin Act because they do not offer financial profit, an ownership interest, or control over ASR’s management, and are sold for personal recreational use, not investment purposes.
Facts
ASR, a Washington corporation, owns and operates campgrounds in several states. It markets memberships in these campgrounds, offering members the non-exclusive right to use recreational facilities. Members pay an initial fee and annual dues. The membership agreement specifies that members acquire no ownership interest in ASR or its assets, no right to income or distributions, and no voting rights. Members represent they are buying the memberships for personal use, not for resale or profit. Transfer of memberships is restricted to prevent speculative investment.
Procedural History
ASR filed a declaratory judgment action against the Attorney General, seeking a determination that its memberships are not securities and an injunction against enforcement of the Martin Act. Special Term granted summary judgment to ASR, holding that the memberships are not securities. The Appellate Division reversed, finding the memberships to be participation interests in real estate. The Court of Appeals reversed the Appellate Division and reinstated the Special Term’s judgment.
Issue(s)
Whether ASR’s campground memberships are securities under General Business Law § 352-e, requiring registration under the Martin Act.
Holding
No, because ASR memberships do not constitute participation interests or investments in real estate, nor do they fall within the general definition of securities under the Martin Act.
Court’s Reasoning
The Court analyzed whether ASR memberships fall within the specific categories listed in § 352-e (1)(a), specifically “participation interests or investments in one or more real estate ventures” and “cooperative interests in realty”, and also under the broader definition of “securities” under § 352. The Court applied a substance-over-form approach, emphasizing economic reality and looking to decisions construing federal securities laws as persuasive authority.
The Court determined that ASR memberships are not investments because they lack the essential characteristic of an expectation of financial profit or return. Members receive no profit, share in no gain, and acquire no interest in ASR’s assets. The memberships also do not constitute “participation interests in real estate” because members obtain no rights to share in profits or gains.
The Court also found that the memberships do not fit within the term “cooperative interests in realty” because members hold no stock in ASR and no ownership or leasehold interest in any of its property. The agreement specifies that a membership is “only a license for nonexclusive use of recreational facilities.”
The Court then applied the Howey test, derived from Securities & Exch. Commn. v Howey Co., asking whether the transaction “involve[d] an investment of money in a common enterprise with profits to come solely from the efforts of others.” The Court found that the ASR membership did not satisfy the Howey test because there was no expectation of financial gain or profit. The Attorney General argued for a broader “risk capital” test, focusing on the risk of loss and expectation of future benefits. However, the Court found that even under this test, ASR memberships would not be considered securities because the business was already established, and members received immediate use of facilities.
The court noted, “There is certainly nothing about the ASR membership which would whet the ‘foolish cupidity’ of the ‘inexperienced, confiding and credulous investor’” (quoting People v Smith Co., 230 App. Div. 268, 269).