Silver Hills Country Club v. Sobieski

Partners attempting to launch a new for-profit country club (the partners) (defendants) raised money for the project through the sale of memberships in the club and planned to sell additional memberships to raise more money. The partners opened the club’s swimming pool and certain other amenities, with other features, including a golf course, still in development. The club’s membership application and bylaws stated that members had no right to the club’s income or assets. Memberships could be revoked only if a purchaser misbehaved or failed to pay periodic dues. California Commissioner of Corporations John Sobieski (commissioner) (plaintiff) issued a desist-and-refrain order, based on his determination that the memberships were securities under § 25008 of California’s Corporations Securities Act (state securities law). The partners moved to vacate the commissioner’s order, which he denied. The partners appealed to the state superior court, which overturned the commissioner’s decision and issued a writ of mandate to compel the commissioner to vacate the order. The commissioner appealed, arguing that the memberships were securities because (1) they conferred a beneficial interest in the club and (2) purchasers of memberships faced the kinds of risks that the state securities law was intended to protect against. The partners responded that memberships did not give purchasers any right to the club’s assets or income and that memberships were not purchased for investment but to enjoy the club.