Fed. Sec. L. Rep. P 95,494 Great Western Bank & Trust v. Sol Kotz

This is another attempt to convert Section 10(b) of the Securities Exchange Act into a source of general federal jurisdiction. Cf. Van Arsdale v. Claxton, 391 F.Supp. 538 (S.D.Cal.1975). Great Western Bank & Trust (GWB) failed to receive payment on an unsecured note given by Artko Corporation (Artko). GWB now seeks to recover some of its losses as against Kotz, arguing that he was a controlling person in Artko and hence is liable for alleged material misrepresentations made in the course of the transaction. GWB argues that the note given by Artko is a security within the meaning of the 1933 and 1934 securities acts and seeks relief under § 17(a) of the Securities Act, 15 U.S.C. § 77q(a) (1970), § 10(b) of the Exchange Act, 15 U.S.C. § 78j(b) (1970) and SEC Rule 10b-5, 17 C.F.R. § 240 .10b-5 (1974).

The district court, in granting defendant’s motion to dismiss, held that the note of a corporation given to bank in exchange for a 10-month, renewable “line of credit” was not a “security” within the meaning of the federal securities laws. We affirm.

I.

SUMMARY JUDGMENT

The district court ruled: “The context of the present transaction requires this court to hold that the…

(concurring):

I concur in the per curiam opinion. But, for another reason not discussed in it, I believe that GWB is not a “security” holder.

With one exception, 1 the courts have ruled that notes given by borrowers to banks in commercial loan transactions are not securities. City National Bank v. Vanderboom, 290 F.Supp. 592, 608 (W.D.Ark. 1968), aff’d 422 F.2d 221 (8th Cir.), cert. denied 399 U.S. 905 , 90 .S. Ct. 2196, 26 L.Ed.2d 560 (1970); C. N. S. Enterprises, supra; Bellah v. First National Bank, 495 F.2d 1109 (5th Cir. 1974); McClure, supra; United States v. Koenig, 388 F.Supp. 670 (S.D.N.Y.1974); Avenue State Bank v. Tourtelot, 379 F.Supp. 250 (N.D.Ill.E.D. 1974).

As the trial court noted in McClure, the reality of commercial bank lending is “totally unrelated to the abuses involving ‘trading for speculation or investment,’ which abuses Congress in 1934 sought to eliminate.” [citing Joiner, supra, 320 U.S. at 351, 64 S.Ct. at 120, 88 L.Ed. at 93]. 352 F.Supp. 454, 458 (N.D.Tex.1973), aff’d 497 F.2d 490 (5th Cir. 1974), cert. denied 420 U.S. 930 , 95 S.Ct. 1132 , 43 L.Ed.2d 402 (1975). Compare Investment Company Institute v. Camp, 401 U.S. 617 , 91 S.Ct. 1091 , 28…

532 F.2d 1252 Fed. Sec. L. Rep. P 95,494 GREAT WESTERN BANK & TRUST, Plaintiff-Appellant, v. Sol KOTZ, Defendant-Appellee. No. 74-1255. United States Court of Appeals, Ninth Circuit. March 22, 1976. Paul Bonn (argued), of Brown, Vlassis & Bain, Phoenix, Ariz., for plaintiff-appellant. Jock Patton (argued), of Streich, Lang, Weeks, Cardon & French, Phoenix, Ariz., for defendant-appellee. Charles Hoover (argued), of Jennings, Strouss & Salmon, Phoenix, Ariz., for amicus curiae. OPINION Before BARNES, ELY and WRIGHT, Circuit Judges. PER CURIAM: 1 This is another attempt to convert Section 10(b) of the Securities Exchange Act into a source of general federal jurisdiction. Cf. Van Arsdale v. Claxton, 391 F.Supp. 538 (S.D.Cal.1975). Great Western Bank & Trust (GWB) failed to receive payment on an unsecured note given by Artko Corporation (Artko). GWB now seeks to recover some of its losses as against Kotz, arguing that he was a controlling person in Artko and hence is liable for alleged material misrepresentations made in the course of the transaction. GWB argues that the note given by Artko is a security within the meaning of the 1933 and 1934 securities acts and…