Both the Securities Act of 1933 and the California Corporate Securities Law of 1968 define the term “security” by providing a long and varied list of financial instruments and contractual relationships. Neither law mentions timeshare vacation points in ipsissimis verbis. Nonetheless, an unlisted instrument or relationship may be a security if it can be identified with one of of the listed terms such as “investment contract”.
In Scott v. Bluegreen Vacations Unlimited, Inc., 2020 U.S. Dist. LEXIS 107212, the plaintiffs purchased “Owner Beneficiary Rights” that included the right to an annual allotment of “Vacation Points” representing the opportunity to use and enjoy The Club at Big Bear Village (and other vacation properties in the defendant’s portfolio). After becoming unhappy with their purchase, the plaintiffs sued alleging claims under both the Securities Act and the CSL. The defendants moved to dismiss on the basis that the purchased rights were not securities.
Applying the definition of an “investment contract” adopted by the U.S. Supreme Court in SEC v. W.J. Howey Co., 328 U.S. 293 (1946), Judge Anthony W. Ishii ruled that the purchased rights were not securities under either the federal or state definitions. In particular, he noted that the Vacation Points were for the use and enjoyment of the purchaser and not transferable.
Judge Ishii’s ruling should not be understood to mean that a time share arrangement can never come within the definition of a “security”. An arrangement’s status as a security is not determined by nomenclature but by the particular facts and circumstances involved.