text:
    Honore de St. Aubin et al., Respondents, v Robert F. Flacke, as Commissioner of Environmental Conservation of the State of New York, Appellant.
    Argued June 3, 1986;
    decided July 10, 1986

      POINTS OF COUNSEL

      Robert Abrams, Attorney-General (John G. Proudfit, Robert Hermann, Ezra I. Bialik, Stuart Miller and Jane Levine of counsel), for appellant.
    I. A taking claim is not ripe for review if a landowner fails to pursue a variance to obtain a reasonable use for his property. (Hodel v Virginia Surface Min. & Reclamation Assn., 452 US 264; Spears v Berle, 48 NY2d 254; Matter of Forrest v Evershed, 7 NY2d 256; Dodge Mill Land Corp. v Town of Amherst, 61 AD2d 216; Pompa Constr. Corp. v City of Saratoga Springs, 706 F2d 418; Wambat Realty Corp. v State of New York, 41 NY2d 490.) II. In a regulatory taking proceeding, the State does not have the burden of establishing the reasonable probability that a required local zoning variance for the State’s suggested use would be granted. (Chase

      Manhattan Bank v State of New York, 103 AD2d 211; Spears v Berle, 48 NY2d 254; Penn Cent. Transp. Co. v New York City, 438 US 104; Pompa Constr. Corp. v City of Saratoga Springs, 706 F2d 418; Northern Westchester Professional Park Assoc. v Town of Bedford, 60 NY2d 492; Matter of National Merritt v Weist, 41 NY2d 438.) III. Petitioners did not prove beyond a reasonable doubt that the economic value of the property as regulated would be destroyed. (Northern Westchester Professional Park Assoc. v Town of Bedford, 60 NY2d 492; Matter of National Merritt v Weist, 41 NY2d 438; Penn Cent. Transp. Co. v New York City, 438 US 104; Hadacheck v Los Angeles, 239 US 394; Haas & Co. v City of San Francisco, 605 F2d 1117; McGowan v Cohalan, 41 NY2d 434; Agins v Tiburon, 447 US 255.)

      Michael Bradie for respondents.
    I. A taking under ECL 25-0404 has been established and is ripe for review. (Spears v Berle, 48 NY2d 254; Flushing Natl. Bank v Municipal Assistance Corp., 40 NY2d 731; San Diego Gas & Elec. Co. v San Diego, 450 US 621.) II. The Commissioner failed to bear his burden of going forward with the evidence to support the valuation he offered. (Spears v Berle, 48 NY2d 254; Masten v State of New York, 11 AD2d 370, 9 NY2d 796.) III. The decisions below find and affirm a taking of the entirety of petitioners’ wetlands. IV. Petitioners’ tidal wetlands have no value and both appraisers so found. (Vernon Park Realty v City of Mount Vernon, 307 NY 493; FGL & L Prop. v City of Rye, 66 NY2d 111.)
   OPINION OF THE COURT

Simons, J.

Petitioners own 103 acres of real property contained in four contiguous parcels located in the Town of Hempstead. Because part of the land has been classified as tidal wetlands, respondent Commissioner of Environmental Conservation has denied them a permit to fill in the wetland portion and develop the acreage into 607 single-family residences. Accordingly, they instituted this proceeding pursuant to ECL 25-0404 to review respondent’s denial of their application or, alternatively, if the court found respondent’s action proper, to obtain a declaration that regulation of the properties constitutes a taking without just compensation in violation of the Federal and State Constitutions (US Const 5th Amend; NY Const, art I, § 7). Special Term upheld respondent’s denial of the application but con-eluded that petitioners had proven a taking. It ordered respondent to either grant petitioners’ requested application or commence proceedings to condemn the wetlands portions of their properties. The Appellate Division affirmed (see, 109 AD2d 481) and the matter is now before us by our leave.

I

The Tidal Wetlands Act was enacted in 1973. It was designed to "preserve and protect tidal wetlands, and to prevent their despoliation and destruction, giving due consideration to the reasonable economic and social development of this state” (ECL 25-0102). The legislative findings state that tidal wetlands constitute "one of the most vital and productive areas of our natural world” and that their "protection and preservation” are held to be "essential” (L 1973, ch 790, § 1). Thus, the act provides that properties designated by the Commissioner of Environmental Conservation as tidal wetlands of the State (ECL 25-0201), just as those designated freshwater wetlands (ECL 24-0301 et seq.), are subject to "rigorous regulation” (cf. Spears v Berle, 48 NY2d 254, 260). Any form of dredging or filling, or the erection of any structures within or immediately adjacent to inventoried wetlands which may substantially impair or alter their natural condition, is prohibited without a permit (ECL 25-0401 [1], [2]) and to obtain a permit, an applicant must demonstrate that the proposed activity will be "in complete accord with the policy and provisions” of the act (ECL 25-0402 [1]).

Since wetlands restrictions are far more stringent than most other regulations — restricting development per se — the Legislature has provided property owners with a unique remedy against an unconstitutional taking within the context of the regulatory scheme itself. Thus, if a permit is denied or the permit offered is more limited in scope than that sought, the owner may seek judicial review of the administrative denial in a two-step proceeding. If the court finds that the permit denial is supported by substantial evidence, then a second determination is made in the same proceeding to determine whether the restriction constitutes an unconstitutional taking requiring compensation. The taking determination is made on the basis of a full evidentiary hearing and if the landowner prevails the Commissioner is directed, at his option, to either grant the requested permit or institute condemnation proceedings (ECL 25-0404; cf. Spears v Berle, supra, at p 261).

This appeal involves a judicial determination made under this statutory procedure and requires resolution of three issues: first, whether petitioners’ claims, instituted before petitioners had sought and been denied a variance or rezoning of the properties by the Hempstead Town Board, are ripe for judicial review; second, if they are, did the courts below err in placing the burden on respondent to prove that there existed a reasonable probability that petitioners could obtain a rezoning of the subject parcels; and third, if petitioners had that burden, does the evidence in the record support their claim.

There should be a reversal. Although the matter is ripe for review, the courts below erroneously shifted to respondent the burden of proving that there was a reasonable probability of rezoning and thus required him to prove that the property could be economically developed.

II

Petitioners’ properties are located in the community of Lido Beach between Lido Boulevard on the south and Reynolds Channel on the north. Respondent has designated 81 acres of it bordering the channel as tidal wetlands and the remaining 22 acres as uplands. Under the restrictions on development found in the act and applicable regulations, a permit is required for construction of single or multifamily dwellings on either wetlands or uplands (see, ECL 25-0401 — 25-0403; 6 NYCRR 661.5-661.11). There is this difference, however; development is a presumptively incompatible use for wetlands while it is classified as a generally compatible use for uplands (6 NYCRR 661.5 [a], [b]; ECL 25-0401). Once a permit is granted other restrictions apply. The most significant of these are the requirements that lots must have a minimum area of 20,000 square feet and that there must be a 75-foot setback from the edge of the wetlands to a principal dwelling (6 NYCRR 661.6 [a] [1], [5]). Cluster zoning is specifically provided for, however, and respondent may also grant variances from these restrictions (see, 6 NYCRR 661.6 [a] [6]; 661.13).

In addition to the restrictions imposed under the authority of the Environmental Conservation Law, the Town of Hemp-stead has zoned petitioners’ properties as Residence B, a classification permitting only single-family dwellings on lots having a minimum size of 6,000 square feet. In 1972, before enactment of the Tidal Wetlands Act, petitioners applied to the Town Board to rezone the entire tract to multifamily development. The applications were denied.

The Tidal Wetlands Act became effective on September 1, 1973 and petitioners’ properties were tentatively designated as wetlands and were, therefore, subject to the act’s moratorium on development while all such lands were inventoried and final boundaries drawn (see, ECL 25-0201 — 25-0202). In October and November 1973, petitioners applied to respondent for hardship permits seeking permission to fill the entire 103 acres for the purpose of constructing single-family dwellings in compliance with the Town zoning regulations (see, ECL 25-0202 [2]). The applications were denied without prejudice to the filing of new applications for development of the upland portions of the tract.

Following completion of the inventory proceedings, respondent finally designated petitioners’ parcels as wetlands. In 1979 and 1980, petitioners reapplied for permits seeking essentially the same development they had requested in 1973. At the public hearing, they conceded that there had been no substantial change in the wetlands since 1973, they did not contest the basis of the 1974 denial of the similar request and they presented no witnesses or other evidence in support of the applications. Predictably, their applications were denied, once again without prejudice to the submission of new applications to develop the upland portions of the properties. Instead, petitioners commenced this proceeding.

Special Term found that respondent’s denial was supported by substantial evidence and set the matter down for trial on petitioners’ taking claim. Approximately nine months before trial, respondent submitted to petitioners’ counsel, in compliance with our decision in Spears v Berle (48 NY2d 254, 263, n 4, supra), a letter and accompanying map outlining the uses of the upland properties that he would permit. He proposed two alternative methods of development. The first recommended division of the uplands into 52 lots each containing 20,000 square feet. Although some of the lots bordering on the wetlands boundary contained wetlands within them, the proposal retained the 75-foot setback for each principal dwelling from the wetlands boundary in accordance with the regulations (see, 6 NYCRR 661.6 [a] [1]) but proposed that each lot could be occupied by a two-family duplex or condominium, the type of housing included under the definition of "principal building” in the wetland regulations (see, 6 NYCRR 661.4 [z]). Second, respondent stated that cluster development of the uplands, apparently using the wetlands as the open space, would be permitted (see, 6 NYCRR 661.6 [a] [6]; cf. Matter of Friends of Shawangunks v Knowlton, 64 NY2d 387).

At the taking trial, the parties’ appraisers were in substantial agreement on the value of the properties without the wetlands restrictions. They differed on their "after values”, however, agreeing that the upland area could be developed but disagreeing on the form that development could take. Petitioners’ appraiser premised his after value on strict compliance with the existing requirements of both the local zoning ordinance and the wetland regulations without considering the possibility of any variances or changes in them. Based upon this, he concluded that the uplands could be developed into 29 single-family dwellings sited on lots of 20,000 square feet. Respondent’s appraiser based his "after value” on respondent’s January 1982 letter proposal, assuming that petitioners could obtain changes in zoning to allow multifamily or cluster development on the uplands parcels. According to respondent’s appraiser this would yield at least 52 building lots with 104 residential units.

The key to determining after value was the effect of the Town zoning on the property. On this issue, it was undisputed that the only change to multifamily use in Lido Beach occurred in 1957 and involved a parcel near petitioners’ properties subsequently developed into a 224-unit condominium. Three other applications to rezone from Residence B (single family) to Residence C-A (multifamily) along Lido Boulevard had been denied in the 1960’s and, as noted, the applications of petitioners Lyons and the estate of de St. Aubin for the same relief had been denied in 1972. Requests to rezone for cluster development had fared much better, however; the only such application since an amendment of the ordinance in 1979 had been granted, and resulted in the construction of condominiums in Atlantic Beach, five miles from petitioners’ properties.

Special Term placed the burden of resolving the zoning issue on respondent and finding that he had failed to establish the underlying assumption of his appraisal report, that there was a reasonable probability of a variance or rezoning of the properties to liberalize the restrictions of the local zoning ordinance, it rejected the after values in his appraisal and accepted the after values in petitioners’ appraisal which demonstrated a percentage loss in value for each parcel ranging from 86.01% to 96.25%. On this evidence, the court concluded that respondent’s determination affected a taking of petitioners’ property without just compensation and ordered respondent to either vacate his denial of the permit application and permit petitioners to fill and develop the entire 103 acres of land or commence condemnation proceedings to acquire the wetlands portion of the property within 60 days. The Appellate Division affirmed for substantially the same reasons.

ra

The core of the problem is that development of the property is regulated by two separate branches of government, the State, implementing the Tidal Wetlands Act, and the Town, which regulates the use of the land under its zoning powers. Each government’s regulations are both more and less restrictive than the other. Thus, the State has placed a greater premium on open space, requiring 20,000 square-foot lots, but permitted multiple or cluster zoning, while the Town permits smaller building lots, 6,000 square feet, but restricts building to single-family residences. Conceivably, the two schemes could be harmonized, even without rezoning, by building one single-family residence on each 6,000 square-foot lot in a clustering arrangement but respondent has not argued the point. Instead, he contends that in this action petitioners attack only the State’s regulations and that those regulations do not foreclose the economic use of the property. Petitioners rest on the restrictive literal language of both State and Town regulations and claim they are afflicted by the worst of both worlds.

A.

We turn first to the ripeness issue.

Respondent relies on Williamson County Planning Commn. v Hamilton Bank (473 US 172) and similar cases and contends that until petitioners seek a variance or rezoning of the properties from the Town either granting or denying permission to develop the properties for uses he will permit, i.e., multifamily or cluster development, it is impossible to ascertain whether they can obtain a reasonable return on their land despite the wetlands restrictions. Petitioners contend that in light of the past denials of such requests, including the 1972 requests involving these same parcels, it would be futile to require them to request a zoning change from the Hempstead Town Board. We agree with petitioners that their taking claim is ripe for review but not with their reasoning.

The doctrine of ripeness is intended to avoid premature adjudication or review of administrative action. It rests upon the idea that courts should not decide the economic impact of regulation until the full extent of the regulation has been finally fixed and the amount of damage caused by it is measurable. Until the agency has formalized its decision and its impact is felt in a concrete way, the courts should avoid becoming entangled in abstract or hypothetical problems or interfering with administrative policies (see, MacDonald, Sommer & Frates v Yolo County, 477 US —, 91L Ed 2d 285,294-296). In Williamson, the Supreme Court held that a taking claim was not ripe for review until the county agencies charged with implementing land development regulations had reached a final decision on the application of the regulations to the property at issue. We recently applied that decision in Church of St. Paul & St. Andrew v Barwick (67 NY2d 510), a case involving the New York City Landmark Commission. In both Williamson and Church of St. Paul & St. Andrew, however, the agency or branch of government regulating the property was before the court. In this case two independent regulatory bodies, one local and one State, have concurrent jurisdiction over the manner in which petitioners’ properties may be developed. The landowner must accommodate the interests of both but only one of them is before the court.

There were two agencies involved in the Williamson case, the Planning Board and the Zoning Board, and the Supreme Court held that the proceeding was not ripe for review. Its decision did not purport to require a landowner to apply for administrative relief from one regulating body before presenting a taking claim against another, however, and it may be significant that in Williamson both regulators were agencies of the county government. That ruling should not be extended to prevent determination of this case. Conceivably, there are agencies other than the Zoning Board also interested in development of this land, such as a Town or County Planning Board, and to require the landowners to seek relief from one or more regulators in different branches of government as a necessary precondition to bringing suit against the Commissioner on a taking claim could create a bureaucratic nightmare (see, MacDonald, Sommer & Frates v Yolo County, 477 US —, 91 L Ed 2d 285, 295, n 7, supra; see, e.g., Town of Lima v Harper, 55 AD2d 405, affd 43 NY2d 980). Respondent’s decision, inasmuch as he does not fault petitioners for not seeking a variance of the State regulations, is final and it may be reviewed.

The problem, of course, is that petitioners control the success of their taking claim by the simple expedient of resting on the literal language of the zoning ordinance when an application for relief might readily be granted by the Town. That danger can be avoided by requiring the petitioner to prove that relief from the zoning restriction is not reasonably to be expected.

B.

A landowner who claims that land regulation has effected a taking of his property bears the heavy burden of overcoming the presumption of constitutionality that attaches to the regulation and of proving every element of his claim beyond a reasonable doubt (see, Northern Westchester Professional Park Assoc. v Town of Bedford, 60 NY2d 492, 500; Spears v Berle, 48 NY2d 254, 263, supra; McGowan v Cohalan, 41 NY2d 434, 436; Matter of National Merritt v Weist, 41 NY2d 438, 445). That burden remains upon him throughout the case and never shifts to the State. Only when the landowner establishes a prima facie case by presenting evidence of sufficient "quality and weight” to permit the trier of fact to decide in his favor does the State have any burden at all and then it has only a practical burden of going forward with evidence in rebuttal or risk an adverse determination by the trier of fact rather than a legal obligation that is essential to avoiding judgment as a matter of law (see, Spears v Berle, supra, at p 263; Northern Westchester Professional Park Assoc. v Town of Bedford, supra, at pp 500-501 [comparing burden of proof in confiscation case with shifting burden in area variance case]; Richardson, Evidence §§ 95-96, at 71-73 [Prince 10th ed]; cf. Chase Manhattan Bank v State of New York, 103 AD2d 211, 221).

The landowners’ burden is not easily satisfied. Manifestly, restrictions imposed by the State in the exercise of its police power interfere with the use of the restricted property. They are justified, however, if they are reasonably related to the public health, safety and welfare and are not confiscatory. Such restrictions characteristically diminish the value of privote property, frequently unevenly, but a property owner does not prove a taking solely by evidence that the value has been reduced by the regulation, even if it has been substantially reduced (see, e.g., McGowan v Cohalan, 41 NY2d 434, supra [79% diminution in value]; Euclid v Ambler Realty Co., 272 US 365 [75% diminution in value]; Hadacheck v Sebastian, 239 US 394 [87% diminution in value]; see also, Matter of Grimpel Assoc. v Cohalan, 41 NY2d 431 [holding that the amount of diminution’s not dispositive on the issue]). To be successful he must establish that the regulation attacked so restricts his property that he is precluded from using it for any purpose for which it is reasonably adapted (Levitt v Incorporated Vil. of Sands Point, 6 NY2d 269, 273; Arverne Bay Constr. Co. v Thatcher, 278 NY 222, 226). Stated another way, the property owner must show by "dollars and cents” evidence that under no use permitted by the regulation under attack would the properties be capable of producing a reasonable return; the economic value, or all but a bare residue of the economic value, of the parcels must have been destroyed by the regulations at issue (Spears v Berle, supra, at p 263; Marcus Assoc. v Town of Huntington, 45 NY2d 501, 506; Penn Cent. Transp. Co. v City of New York, 42 NY2d 324, 329-331, affd 438 US 104; French Investing Co. v City of New York, 39 NY2d 587, 596, appeal dismissed 429 US 990).

Petitioners contend that in applying this rule permissible use must be interpreted literally and narrowly and that the value of their property after wetland regulation must be judged in terms of the uses permitted by zoning laws as they then existed. The regulation challenged, however, derives from the Tidal Wetlands Act, not the zoning ordinance, and petitioners can no more rely in this proceeding on the fixed consequences of the Town’s zoning laws than they could rest on the contributing confiscatory effect of a restrictive deed covenant limiting development to single-family homes. Obviously, the two regulations working together have a synergistic adverse effect on the property presenting a dilemma to the landowners and if they challenge the Town’s zoning in a separate proceeding, they may be confronted with the same argument respondent makes here. Neither set of regulations is immutable, however: both contain provisions for change by variance or amendment. If petitioners attack only one set of regulations, then they must establish that the restricting effect of the other is fixed. Petitioners have chosen to attack respondent’s regulations but these regulations, standing alone, are broad enough to permit economic use of the land and if petitioners claim that respondent’s regulations do not permit economic use of the land because of the restrictions imposed by the nonparty Town, then they must assume the burden of proving that the impediment to use imposed by the Town is constant because there is no reasonable probability that the Town will approve any change (cf. MacDonald, Sommer & Frates v Yolo County, All US — [dissenting slip opn of White, J.], 91 L Ed 2d 285, 300-301, supra).

This burden is not unlike that imposed on landowners in condemnation cases who must prove the reasonable probability of obtaining a variance before a higher best use of property may be used, as the basis for an award, if that is their claim (see, Matter of City of New York [Shorefront High School— Rudnick], 25 NY2d 146, 149-150, remittitur amended 26 NY2d 748; Masten v State of New York, 11 AD2d 370, affd no opn 9 NY2d 796). It is even more appropriate that a landowner making a serious claim of confiscation demonstrate that he cannot obtain a reasonable return on his properties because "[i]f the courts were forced to look to the property as it is, rather than as it could be [landowners] could frustrate any land use restrictions” (Penn Cent. Transp. Co. v City of New York, 42 NY2d 324, 333, affd 438 US 104, supra).

The practicalities of the situation also require this result. If respondent must condemn the wetlands portion of petitioners’ properties to avoid full development of it, petitioners may wait until he does so and then seek a change in zoning for the remaining uplands, reasonably claiming the right to such development because of hardship created by the substantial change in circumstances. Thus, by doing nothing to ameliorate the impact of the existing regulations petitioners control the success of their taking claim and lose nothing in the force of a subsequent submission that they should have a zoning variance. They may profit from the condemnation of the wetlands and still retain the full potential value of the uplands. Before allowing this to happen and require respondent to make the drastic choice between condemning 81 acres of wetlands at a substantial highest and best use value — approximately 500 single-family lots could be developed under prewetlands zoning regulations — or giving up this ecologically valuable wetland completely, petitioners should be required to prove that the economic value of their land has been destroyed notwithstanding any reasonably probable change in its zoning. It may be that the best way for the landowner to meet this burden of proof is to establish that he sought a variance in good faith but was unsuccessful. We do not hold that variance proceedings are always required, however; other satisfactory evidence may exist to establish the landowner’s claim without resort to the full administrative process.

It is apparent from the decisions below that both courts put the burden of proof on the possibility of rezoning on respondent. Special Term found that his assumption that petitioners’ properties could be rezoned for two-family or cluster use "was never established by competent evidence”. In affirming, the Appellate Division stated that "Special Term properly found that [respondent] had failed to establish a reasonable probability of a change of zone to two-family homes” and held that its finding on that issue "cannot be faulted.” (109 AD2d, at pp 486, 487.) This allocation of the burden of proof constituted error and it cannot be found harmless. First, we are not presented with affirmed findings of fact that there is no reasonable probability of a change in zoning, but rather with findings that respondent did not sustain its burden of proving the probability of a change. When the burden of proof on this issue is properly imposed on petitioners, who must establish each element of a taking beyond a reasonable doubt, the record does not support the conclusion that petitioners have met that burden as a matter of law (cf. Fisch, New York Evidence § 1086, at 609-610 [2d ed]). Although it was undisputed that no application for rezoning from single-family residential to multifamily use had been granted in 20 years, the only specific denials of applications introduced occurred nearly 10 years prior to the hearing. Without evidence that more recent applications had been made and denied, this evidence provided little guidance of how present applications would be treated let alone applications suffering from the singular burden imposed on these lands. More significant, however, is petitioners’ concession that the only request for a rezoning to cluster use, made after amendment of the Town ordinance in 1979 allowed more cluster development, was granted for property only five miles from petitioners’ properties. This evidence presented a question of fact whether petitioners had met their heavy burden of proof. Accordingly, a new hearing is required in which the burden of proof is properly assigned to petitioners.

Respondent’s only other point requiring comment is his claim that there was not sufficient evidence of a taking because a State’s witness testified that the State would pay $5,000/acre for the wetlands. He contends that when the after value is computed using that price for the wetlands the property retained sufficient economic value to warrant dismissal of petitioners’ claim. We assume the court rejected the evidence on credibility grounds, as it was entitled to do, not because it thought the destruction in value was sufficient even if the wetlands were valued at $5,000/acre. We express no opinion on whether the State’s value for the wetlands when added to the value of the entire properties was sufficient to negate a finding of a taking.

Accordingly, the order of the Appellate Division should be reversed, with costs, and the matter remitted to Special Term for a new hearing on petitioners’ taking claim.

Chief Judge Wachtler and Judges Meyer, Kaye, Alexander, Titone and Hancock, Jr., concur.

Order reversed, etc.


source: Caselaw Access Project

author: Hancock, Jr., J.

license: Public Domain

text:
    All Seasons Resorts, Inc., Appellant, v Robert Abrams, as Attorney-General of the State of New York, Respondent.
    Argued May 28, 1986;
    decided July 3, 1986

      POINTS OF COUNSEL

      Thomas S. West and Robert J. Alessi for appellant.
    I. Campground memberships are not securities under a literal analysis because they are not enumerated in, or characteristic of, any instrument listed in the Martin Act. (Weaver v Marine Bank, 637 F2d 157, 455 US 551; United Hous. Found. v Forman, 421 US 837; Matter of Manhattan Pizza Hut v New York State Human Rights Appeal Bd., 51 NY2d 506; Matter of Gardner v Lefkowitz, 97 Misc 2d 806; Meagher v Metropolitan Life Ins. Co., 119 Misc 2d 615; Matter of Schepps, 102 Misc 2d 360; Reiter v Greenberg, 21 NY2d 388; Matter of State Tax Commn. v Shor, 43 NY2d 151; Kaufman & Broad Homes v Albertson, 73 Misc 2d 84; Ledgebrook Corp. v Lefkowitz, 77 Misc 2d 867.) II. The economic realities of campground memberships mandate the conclusion that they are not securities under any established common-law test because memberships are acquired for personal use and enjoyment only, not for investment or profit, campground memberships grant members the right to use an existing system of campground resorts. (Matter of Waldstein, 160 Misc 763; Matter of Gardner v Lefkowitz, 97 Misc 2d 806; State of New York v Kozak, 91 Misc 2d 394; Jamil v Southridge Coop., 93 Misc 2d 383; 102 Misc 2d 404; Securities & Exch. Commn. v Joiner Corp., 320 US 344; Securities & Exch. Commn. v Howey Co., 328 US 293; United Hous. Found. v Forman, 421 US 837; Meagher v Metropolitan Life Ins. Co., 119 Misc 2d 615; Securities & Exch. Commn. v Turner Enters., 474 F2d 476; Tcherepnin v Knight, 389 US 332.) III. The Legislature, not the judiciary, is the proper institution to evaluate the policy considerations implicated by campground memberships. (United Hous. Found. v Forman, 421 US 837; Walkovszky v Carlton, 18 NY2d 414; Ball v State of New York, 41 NY2d 617; Parochial Bus Sys. v Board of Educ., 60 NY2d 539; Codling v Paglia, 32 NY2d 330.)

      Robert Abrams, Attorney-General (Gerald J. Hurwitz and Robert Hermann of counsel), respondent pro se.

    I. Plaintiff-appellant’s campground memberships are "participation” or "cooperative” interests in real estate regulated by the General Business Law. (People v Federated Radio Corp., 244 NY 33; Matter of Payson v Caputa, 9 AD2d 226; People v Hyman, 70 Misc 2d 171; Ledgebrook Corp. v Lefkowitz, 77 Misc 2d 867; Matter of Attorney-General of State of N. Y. [Cenvill Communities], 82 Misc 2d 418; Kaufman & Broad Homes v Albertson, 73 Misc 2d 84; Woods v Petchell, 175 F2d 202; Woods v Krizan, 176 F2d 667; Penthouse Props. v 1158 Fifth Ave., 256 App Div 685; Matter of City of New York [Neponsit Prop. Owners’ Assn], 269 NY 64; Neponsit Prop. Owners’ Assn. v Emigrant Indus. Sav. Bank, 278 NY 248.) II. Plaintiff-appellant’s campground memberships are real estate securities subject to the General Business Law. (Securities & Exch. Commn. v Joiner Corp., 320 US 344; Securities & Exch. Commn. v Howey Co., 328 US 293; Matter of Waldstein, 160 Misc 763; People v Federated Radio Corp., 244 NY 33; People v Royal Sec. Corp., 5 Misc 2d 907; People v Haynes, 2 Misc 2d 983.)
   OPINION OF THE COURT

Hancock, Jr., J.

We must decide whether plaintiff, All Seasons Resorts, Inc. (ASR), in marketing memberships in a system of outdoor resort campgrounds, is offering securities to the public so as to require compliance with the registration provisions of section 352-e of New York’s "Blue Sky” Law, the Martin Act (General Business Law art 23-A). ASR is a Washington corporation authorized to do business in the State of New York. It neither operates campgrounds nor solicits memberships in New York, but it desires to do both. In the declaratory judgment action before us, ASR seeks to enjoin the Attorney-General from applying the statute to it and requests a determination that the memberships it offers to the public are not securities under General Business Law § 352-e.

I

ASR owns and operates campgrounds for the use and enjoyment of its members in seven States outside of New York. Each campground contains parking sites for recreational vehicles improved with facilities for providing electrical, water and sewer services. In addition, at a typical campground ASR provides a general store, a recreational hall, a swimming area and facilities and equipment for various athletic and recreational activities. The rights and obligations of the members are spelled out in the membership agreement, the certificate of membership and a question and answer sheet.

Membership, as defined in the membership agreement, constitutes "only a license for nonexclusive use of such recreational facilities as may be provided from time to time by ASR”. The certificate of membership provides that a member "is entitled to use all present and future resorts available through ASR for the benefit of its membership as a whole, wheresoever such resorts are located * * * ASR may purchase, lease, operate, or otherwise make such resorts available. The location and nature of all such resorts and the properties, existing or intended, are subject to change by ASR but ASR agrees to use its best efforts to maintain or improve the existing quality of such properties and resorts * * * All such resorts will be developed in such manner as ASR may deem suitable for the enhancement of enjoyment and recreational value, provided, however (1) ASR shall be under no obligation to increase the number of resorts; and (2) ASR may dispose of resorts at any time and in any manner deemed appropriate by ASR, provided however, in such event ASR will provide alternate resort facilities.”

By specific terms of the agreement, members acquire no "legal or beneficial interest in ASR or its assets” and no "right or interest in property, contract rights or business of ASR”. Members are not entitled to "any share of income, gain or distribution by or of ASR”. Nor do members acquire "any voting rights in ASR or pertaining to its business” or any right to participate in ASR’s management.

In the agreement a member represents that he is acquiring the membership solely for his personal enjoyment and that of his immediate family and "not for resale or profit and that [the] membership has not been represented or sold * * * as an investment opportunity.” To prevent the acquisition or sale of memberships for investment purposes, the agreement imposes restrictions upon the alienation of memberships. For the first two years a membership may not be transferred at all, except to family members by operation of law. It may not, in any event, be transferred more than twice and may be sold only once. The price paid on a transfer may not exceed the original purchase price plus the reasonable cost of the transfer.

The question and answer sheet provided to prospective members includes the following:

"does my membership represent a good investment?
"Only as an investment in your future outdoor recreational needs. ASR is selling use, not investment.”

Members must pay an initial fee which ranges from $4,495 to $6,095 depending upon which, if any, of certain optional features they purchase. Annual dues are $152. Increases in the dues are limited to the yearly increase in a specified consumer price index.

The Attorney-General moved to dismiss pursuant to CPLR 3211 (a) (7) and ASR cross-moved under CPLR 3211 (c) for summary judgment. Special Term concluded that ASR memberships are not participation interests or investments in real estate or cooperative interests in real estate as those terms are used in section 352-e (1) (a) and that the memberships do not come within the statute’s general definition of "securities”. The court declared that the registration requirements of section 352-e did not apply and granted injunctive relief. The Appellate Division reversed, noting that the Martin Act is a remedial statute which should be liberally interpreted. It held that, although a membership did not include the right to share in any profits and entailed no ownership interest in any of the assets of ASR, it should, nevertheless, in view of the large size of the initial fee, be construed as a participation interest in real estate within the sense of that term in section 352-e (1) (a). Plaintiff appeals as a matter of right (CPLR 5601 former [a] [ii]). For reasons hereinafter stated, we now reverse and reinstate the judgment of Special Term.

II

In construing section 352-e (1) (a), we are mindful that the statute, as part of New York’s Blue Sky Law, should be liberally construed to give effect to its remedial purpose of protecting the public from fraudulent exploitation in the offer and sale of securities (see, People v Federated Radio Corp., 244 NY 33, 38; Mihaly & Kaufmann, Practice Commentary, McKinney’s Cons Laws of NY, Book 19, General Business Law art 23-A, pp 9-13; see also, Securities & Exch. Commn. v Joiner Corp., 320 US 344, 353). In our application of the statute, we find it appropriate to consider as persuasive authority the decisions of the United States Supreme Court and other Federal courts construing the Federal Blue Sky Laws (Securities Act of 1933, § 1 et seq., 15 USC § 77-a et seq.; Securities Exchange Act of 1934, § 1 et seq., 15 USC § 78-a et seq.; see, Dunwoody Country Club v Fortson, 243 Ga 236, 253 SE2d 700, 703). Although the language of the State and Federal statutes is not identical, the remedial purpose is the same (see, Matter of Gardner v Lefkowitz, 97 Misc 2d 806, 812), and section 352-e (1) (a), we note, makes specific reference to the Federal Securities Act of 1933. (See also, NY State Div of Housing, Memorandum of Apr. 19, 1960 recommending adoption of § 352-e and describing the bill as covering intrastate “real estate syndicates and cooperative ventures of the type to which the [SEC] rules and regulations apply”.)

Because the sole issue is whether ASR memberships are “securities” within section 352-e, our analysis must start with an examination of the definition of “securities” in the statute itself (see, McKinney’s Cons Laws of NY, Book 1, Statutes § 94). The pertinent statutory language is as follows: “securities constituted of participation interests or investments in real estate, mortgages or leases, including stocks, bonds, debentures, evidences of interest or indebtedness, limited partnership interests or other security or securities as defined in section three hundred fifty-two of this article, when such securities consist primarily of participation interests or investments in one or more real estate ventures, including cooperative interests in realty” (General Business Law § 352-e [1] [a]).

The definition includes a list of specific categories of interests or instruments which constitute securities and, in addition, a general category of “securities as defined in section [352].” Accordingly, we must determine both whether the ASR membership falls within one of the specific categories and, if not, whether, on examination of its characteristics in the light of decisional law, it meets the broader general definition of "securities” in section 352.

This two-fold analysis dictated by the statutory language comports with the analysis employed by the Supreme Court for determining the existence of a security (see, Landreth Timber Co. v Landreth, 471 US 681,685-689; United Hous. Found. v Forman, 421 US 837,848-851; Tcherepnin v Knight, 389 US 332, 336; Securities & Exch. Commn. v Howey Co., 328 US 293, 298). Whether the label of a particular interest and the description given to it by the parties brings it literally within one of the enumerated categories in section 352-e is not determinative (see, Landreth Timber Co. v Landreth, supra, at pp 686-687; United Hous. Found. v Forman, 421 US 837, 850-851, supra). We must go beyond the "literal test” and — applying a flexible and adaptable approach (see, Securities & Exch. Commn. v Howey Co., supra, at p 299) — "look to the function of [the ASR membership], to search for substance over form with emphasis on economic reality ” (Matter of Avon Prods. v State Tax Commn., 90 AD2d 393, 395), to see if it displays the characteristics of "securities” in the general sense of the term as used in sections 352 and 352-e (see, Landreth Timber Co. v Landreth, supra, at pp 685-689; United Hous. Found. v Forman, supra, at pp 848-851; Tcherepnin v Knight, supra, at p 336; Securities & Exch. Commn. v Howey Co., supra, at p 298; Daily v Morgan, 701 F2d 496, 499).

Ill

In examining the specific categories in section 352-e (1) (a), it is apparent that only two can be applied to ASR memberships: (1) the category of "participation interests or investments in one or more real estate ventures” and (2) the included subcategory, "cooperative interests in realty”. ASR memberships fall within neither. An ASR membership is not an investment as the term is commonly understood. Whether we refer to the dictionary definition or to the meaning ascribed to the term in the cases, it is clear that the sine qua non of an investment is the expectation of financial profit or return (see, e.g., United Hous. Found. v Forman, 421 US 837, 851-852, supra; Weaver v Marine Bank, 637 F2d 157, 162, revd on other grounds 455 US 551; Matter of Gardner v Lefkowitz, 97 Misc 2d 806, 812-814, supra; Mihaly & Kaufmann, Practice Commentary, McKinney’s Cons Laws of NY, Book 19, General Business Law art 23-A, p 13). An ASR member receives no profit, shares in no gain, and acquires no interest in ASR’s assets. Clearly, the ASR membership cannot be classified as a security for having the essential characteristics of an investment (see, Matter of Waldstein, 160 Misc 763, 767).

Similarly, because the members obtain no rights to share in any profits or gains, ASR memberships cannot constitute "participation interests in real estate”. It is significant that "participation interests” are treated in the statute not as a separate category but as being equivalent to and virtually synonymous with "investments”. Wherever the words "participation interests” appear in the statute they are paired with the word "investments” in the phrase "participation interests or investments”. Moreover, the statute specifically characterizes the interests as being participation interests "in real estate ventures’ (§ 352-e [1] [a]; emphasis added). The use of the word "ventures” provides further support for the conclusion that what is meant by "participation interest” is an investment for financial gain.

Consistent with what appears to be the meaning attributed to the term in the statute, various courts have used the terms "participation” and "participation interests” as descriptive of forms of ownership in which the expectation of sharing of profits is an essential element (see, Reiter v Greenberg, 21 NY2d 388; Weaver v Marine Bank, 637 F2d 157, 161-162, revd on other grounds 455 US 551, supra; A.N.S. Props. v Gough Indus., 102 Ariz 180, 427 P2d 131, 133; Sperry & Hutchinson v Hudson, 190 Ore 458, 226 P2d 501, 505). Indeed, "participation” appears in the decisions most often when applied to shares in limited real estate partnerships or real estate syndicates. In Reiter v Greenberg (supra), for example, we referred to shares in a syndicate formed to acquire real estate for investment purposes as "participating interests” (id., at p 390). (See also, Steingart v 21 Assoc., 31 Misc 2d 212, 214; Freeze v Smith, 254 Mich 386, 236 NW 810; Conroy v Schultz, 80 NJ Super 443, 194 A2d 20 [all applying the term "participation interests” or "units” to real estate syndicates].)

It is in this sense (i.e., as descriptive of participating interests in limited partnerships or syndicates) that, we believe, the term is used in section 352-e (1) (a). Such construction is consistent with the usual meaning of the term, with its use in the statute in conjunction with the terms "investments” and "real estate ventures”, with the title of the statute "The Real Estate Syndicate Act”, and with the statutory purpose in protecting the public from fraudulent exploitation in the marketing and sale of securities and speculative investment schemes (see, People v Lexington 61st Assoc., 38 NY2d 588, 595; People v Federated Radio Corp., 244 NY 33, 38, supra; Matter of Gardner v Lefkowitz, 97 Misc 2d 806, 809, supra; Mihaly & Kaufmann, Practice Commentary, McKinney’s Cons Laws of NY, Book 19, General Business Law art 23-A, pp 7-13). We hold, then, contrary to the conclusion of the Appellate Division, that ASR memberships do not amount to "participation interests or investments” in real estate ventures (§352-e [1] M).

Nor do the ASR memberships fall within the term "cooperative interests in realty” estate. From its use elsewhere in our statutory law, the phrase "cooperative interests in realty” estate has acquired a meaning which includes cooperatives, as the term is usually understood, condominiums and interests in real estate owned through homeowner associations (see, Condominium Act, Real Property Law art 9-b, § 339-ee; General Business Law § 352-e [2-b]). ASR memberships do not fit any of these forms of interests in real property.

A person having a cooperative interest in real estate (e.g., a tenant-shareholder in a cooperative apartment) typically owns stock in a cooperative corporation and has a "proprietary” leasehold granted by the corporation (see, Matter of State Tax Commn. v Shor, 43 NY2d 151, 154; Matter of Payson v Caputa, 9 AD2d 226, 232; People ex rel. McGoldrick v Sterling, 283 App Div 88, 90-91; 19 NY Jur 2d, Condominiums and Co-operative Apartments, § 47). The characteristics of condominium ownership are individual ownership of a unit, an undivided interest in designated common elements, and an agreement among unit owners regulating the administration and maintenance of the property (see, Kaufman & Broad Homes v Albertson, 73 Misc 2d 84; 19 NY Jur 2d, op. cit., § 9). A homeowners association is another form of ownership of property by the individual. Ordinarily, the association holds title to the property and the homeowners derive their ownership through shares of interest in the association (see, General Business Law § 352-e [2-b]; 13 NYCRR 22.1 [a] [3]; see, e.g., People v Development Servs., 92 Misc 2d 759).

Membership in ASR does not convey a cooperative interest or a condominium interest because the members hold no stock in ASR and no ownership or leasehold interest in or right to exclusive possession of any of its property. Moreover, the characteristics of ownership through a homeowners association are simply not present. The common element in all of these forms of cooperative ownership — that the individual holds some ownership interest in the property — is absent. Indeed, by the very terms of the agreement, an ASR membership can constitute "only a license for nonexclusive use of * * * recreational facilities”.

We conclude, then, that ASR memberships are neither "participation interests or investments” in real estate ventures nor "cooperative interests in realty” within the meaning of section 352-e (1) (a).

IV

The next question is whether the ASR memberships are securities in the general or common-law sense as the term is used in the broad category "securities” in sections 352 and 352-e (1) (a). Although our court has not defined the term "securities”, there is ample authority in the decisions of lower courts in our State and the courts of other jurisdictions (see generally, What Constitutes an "Investment Contract” Within the Meaning of State Blue Sky Laws, Ann., 47 ALR3d 1375, 1382; Coffey, Economic Realities of a "Security”: Is There a More Meaningful Formula?, 18 W Res L Rev 367, 377 [1967]; Mihaly & Kaufmann, Practice Commentary, McKinney’s Cons Laws of NY, Book 19, General Business Law art 23-A, p 15; and see, Meagher v Metropolitan Life Ins. Co., 119 Misc 2d 615, 618; Matter of Gardner v Lefkowitz, 97 Misc 2d 806, 812-813, supra; Matter of Waldstein, 160 Misc 763, 767, supra). The most often cited test for determining whether a given interest is a security, and one that has been adopted in New York (see, Matter of Gardner v Lefkowitz, supra, at p 813; Mihaly & Kaufmann, op. cit., p 15), is that enunciated by the Supreme Court in the seminal case of Securities & Exch. Commn. v Howey Co. (328 US 293, 297-298, supra; see, Payable Accounting Corp. v McKinley, 667 P2d 15, 19 [Utah 1983]). The so-called "Howey test”, as restated by the Supreme Court in Landreth Timber Co. v Landreth (471 US 681, 689-691, supra), is whether "looking at the economic realities, the transaction 'involve[d] an investment of money in a common enterprise with profits to come solely from the efforts of others (328 U.S., at p 301)’ ”. (See, various rephrasings and interpretations of the "Howey test” in United Hous. Found. v Forman, 421 US 837, 847-853, 858, supra; Tcherepnin v Knight, 389 US 332, 336-340; Daily v Morgan, 701 F2d 496, 498-499, supra; Khadem v Equity Sec. Corp., 494 F2d 1224,1227-1229; Securities & Exch. Commn. v Turner Enters., 474 F2d 476,481-482; Payable Accounting Corp. v McKinley, 667 P2d 15, 17-19 [Utah 1983], supra; Dunwoody Country Club v Fortson, 243 Ga 236, 253 SE2d 700, 703, supra; Conroy v Schultz, 80 NJ Super 443,194 A2d 20, 24-25, supra; see also, paraphrase of "Howey test” by commentators Mihaly and Kaufmann as posing three questions: "(1) Is there an investment of money? (2) Is the investment in a common enterprise? (3) Are profits expected to result solely from the efforts of others?” [Practice Commentary, McKinney’s Cons Laws of NY, Book 19, General Business Law art 23-A, p 14].)

If we apply the "Howey test” and the definition of profit formulated by the Supreme Court in United Hous. Found. v Forman (421 US, at p 852 ["either capital appreciation resulting from the development of the initial investment” or "a participation in earnings resulting from the use of investors’ funds”]), we must conclude that the ASR membership is not a "security”. For an interest to be a security under Howey, there must be an expectation of financial gain or profit. There is simply none here.

Nor does the membership have the attributes of an investment (see, Matter of Waldstein, 160 Misc 763, 767, supra, defining security as "any form of instrument used for the purpose of financing and promoting enterprises, and which is designed for investment” [emphasis added]). The membership may be transferred only twice and sold once and then, not at a profit. As specified in the ASR question and answer form, ASR "is selling use, not investment.” There is certainly nothing about the ASR membership which would whet the "foolish cupidity” of the "inexperienced, confiding and credulous investor” (see, People v Smith Co., 230 App Div 268, 269).

The Attorney-General, however, asks us to avoid a restrictive application of the tests in Howey and Waldstein. He requests that we adopt instead a broader definition of "security”, one in which risk of loss of the subscriber’s initial value and an expectation of future benefits in excess of that value— instead of the expectation of financial gain or profit — are the essential elements. While the "Howey test” has been applied in New York (see, Matter of Gardner v Lefkowitz, 97 Misc 2d 806, 812-813, supra) and remains the accepted rule in most jurisdictions (see, Ann., 47 ALR3d 1375, 1380, 1382), some States have adopted this so-called "risk capital” test or a version of it (see, e.g., State v Hawaii Mkt. Center, 52 Hawaii 642, 485 P2d 105; State ex rel. Healy v Consumer Business Sys., 5 Ore App 19, 482 P2d 549; Silver Hills Country Club v Sobieski, 55 Cal 2d 811, 361 P2d 906; compare, Jet Set Travel Club v Corporation Commr., 21 Ore App 362, 535 P2d 109; contra, Sauve v K.C., Inc., 91 Wn 2d 698, 591 P2d 1207; see, Ann., 47 ALR3d 1375, 1382; see generally, Coffey, op. cit, 18 W Res L Rev 367). The circumstances in these cases vary, but there is a common pattern: the "risk capital” is furnished not in exchange for immediate benefits but to establish a prospective enterprise; some or all of a subscriber’s initial value is at risk if the enterprise fails; and the subscriber’s payment is made in the expectation that he will enjoy the benefits of the enterprise if and when it is successfully completed (see, e.g., Silver Hills Country Club v Sobieski, 55 Cal 2d 811, 361 P2d 906, supra, the leading California decision articulating the "risk capital” test, which involved the sale of founder memberships to finance the construction of a proposed country club where the promoters had invested only $400 for the down payment to purchase the land; see also, State v Hawaii Mkt. Center, 52 Hawaii 642, 485 P2d 105, supra, applying a "risk capital” analysis where the promoters of a thinly capitalized corporation engaged in the marketing of "Founder-Member Purchasing Contract Agreements” to construct and develop a proposed market center).

Special Term concluded that the ASR membership is not a security under the "Howey test” or the "investment” definition in Matter of Waldstein (160 Misc 763, supra) and, as noted, we agree. Special Term also — while remarking that it was not deciding that the "risk capital” test would be applicable — found that the ASR memberships could not be securities under that rule either, because the members "are buying the right to use the existing campgrounds, and are not merely funding a business venture for a developing business.” (127 Misc 2d 145, 148; emphasis added.) Because we agree with Special Term that the memberships could not constitute securities even under a "risk capital” analysis, we need not decide whether, under other circumstances, the Silver Hills Country Club rule or some variant of it could prove to be a helpful addition to the "Howey test” and Matter of Waldstein (supra) for determining the existence of a security under New York law.

Suffice to say that a "risk capital” analysis, if used, would not affect the result. The memberships being sold are in an established business which operates several campground resorts in seven different States. A member and his family receive the immediate right to use all existing facilities without charge. Although the initial membership fee is substantial, a prospective member is not induced to join by representations that ASR will provide more or better campgrounds in the future. Indeed, the membership agreement specifies that ASR "shall be under no obligation to increase the number of resorts”. To be sure, the value of a membership — purchased in the expectation that the member and his family will for many years enjoy the use of ASR campgrounds — is not free from risk of loss or diminution. ASR is a young business and, as pointed out by Special Term, a member runs the risk that ASR "will go out of business due to poor management, embezzlement, etc., a risk which every business of necessity incurs”. But that is not the same as the risk incurred by one who puts up capital for a new enterprise in return not for what he then receives but for what he hopes to receive when the enterprise materializes. (See, Jet Set Travel Club v Corporation Commr., 21 Ore App 362, 535 P2d 109, in which the court found this distinction determinative in holding that the "risk capital” test was not met.)

We conclude, then, that ASR memberships as described in this record do not fall within any of the statutory categories or within the general definition of securities so as to require registration under General Business Law § 352-e. The order should, therefore, be reversed, with costs, and the judgment of Special Term reinstated.

Chief Judge Wachtler and Judges Meyer, Simons, Kaye, Alexander and Titone concur.

Order reversed, etc.

      . "Securities” for purposes of compliance with the Martin Act is defined in General Business Law § 352-e (1) (a). (See, p 87, infra, for pertinent language of the statute.)

      . The definition of securities in section 352 — incorporated by reference in the definition of that term in section 352-e — also includes a broad, catchall category of securities. The section 352 definition of securities is, in pertinent part, as follows: "any stocks, bonds, notes, evidences of interest or indebtedness or other securities, including” (emphasis added).

      . Section 352-e (1) (a) refers to cooperative interests in realty thus: "participation interests or investments in one or more real estate ventures, including cooperative interests in realty”. (Emphasis added.)

      . "Investment” is defined in Black’s Law Dictionary (5th ed) as follows: "An expenditure to acquire property or other assets in order to produce revenue; the asset so acquired. The placing of capital or laying out of money in a way intended to secure income or profit from its employment. Securities & Exchange Commission v Wickham, D.C. Minn., 12 F. Supp. 245, 247. To purchase securities of a more or less permanent nature, or to place money or property in business ventures or real estate, or otherwise lay it out, so that it may produce a revenue or income.”

      . Black’s Law Dictionary (5th ed) defines "venture” as follows: "An undertaking attended with risk, especially one aiming at making money; business speculation.”

      . In Jet Set Travel Club v Corporation Commr. (21 Ore App 362, 367, 535 P2d 109, 112), the Court of Appeals of Oregon declined to apply the "risk capital” test which it had adopted in State ex rel. Healy v Consumer Business Sys. (5 Ore App 19, 482 P2d 549), noting that the "requirements of the 'risk capital’ test are not fulfilled because the benefits of the membership have materialized and have been realized by other members prior to any capital raised by the sale of Oregon memberships.” In Sauve v K.C., Inc. (91 Wn 2d 698, 591 P2d 1207) the Supreme Court of Washington expressly rejected the "risk capital” test and reaffirmed its adherence to Securities & Exch. Commn. v Howey Co. (328 US 293, 299) (see also, Dunwoody Country Club v Fortson, 243 Ga 236, 253 SE2d 700).

      . The Appellate Division held that the membership met the literal definition of participation interests under section 352-e (1) (a) relying on People v Development Servs. (92 Misc 2d 759, 761-762). Accordingly, it did not reach the question whether the membership met the general definition of "securities” and did not refer either to the "Howey test” or Matter of Waldstein (160 Misc 763). While it did not mention the "risk capital” test, the Appellate Division did emphasize the size of the initial required payment and that the value of the membership could be lost because of the possibility of ASR’s financial failure. People v Development Servs. (supra), involved the offering and sale of individual lots of real property where the purchasers were required to become members of a homeowners association which would give them a share in the common support and recreational facilities contemplated for a planned community. We find the case inapplicable.

      . For example, in State v Hawaii Mkt. Center (52 Hawaii 642, 649, 485 P2d 105, 109) the Hawaii Supreme Court stated that the "risk capital” test is met whenever: "(1) An offeree furnishes initial value to an offeror, and (2) a portion of this initial value is subjected to the risks of the enterprise, and (3) the furnishing of the initial value is induced by the offeror’s promises or representations which give rise to a reasonable understanding that a valuable benefit of some kind, over and above the initial value, will accrue to the offeree as a result of the operation of the enterprise, and (4) the offeree does not receive the right to exercise practical and actual control over the managerial decisions of the enterprise.” (See, Coffey, Economic Realities of a "Security”: Is There a More Meaningful Formula?, 18 W Res L Rev 367, 377 [1967].)