Kirschner v. JP Morgan Chase Bank, N.A.

U.S. Court of Appeals8/24/2023

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21-2726-cv
Kirschner v. JP Morgan Chase Bank, N.A.

In the
United States Court of Appeals
for the Second Circuit

AUGUST TERM 2022

No. 21-2726

MARC S. KIRSCHNER, solely in his capacity as Trustee of The
Millennium Lender Claim Trust
Plaintiff-Appellant,

v.

JP MORGAN CHASE BANK, N.A., JP MORGAN SECURITIES LLC,
CITIBANK, N.A., BANK OF MONTREAL, BMO CAPITAL MARKETS CORP.,
SUNTRUST ROBINSON HUMPHREY, INC., SUNTRUST BANK, CITIGROUP
GLOBAL MARKETS, INC.,
Defendants-Appellees. *

On Appeal from the United States District Court
for the Southern District of New York

ARGUED: MARCH 9, 2023
DECIDED: AUGUST 24, 2023

* The Clerk of Court is directed to amend the caption as set forth above.
Before: CABRANES, BIANCO, and PÉREZ, Circuit Judges.

Plaintiff-Appellant Marc S. Kirschner brought a series of claims
in New York state court arising out of a syndicated loan transaction
facilitated by the defendants-appellees, a group of financial
institutions. Plaintiff’s appeal presents two issues. The first issue
presented is whether the United States District Court for the Southern
District of New York (Paul G. Gardephe, Judge) had subject matter
jurisdiction over this action pursuant to the Edge Act, 12 U.S.C. § 632.
The second issue presented is whether the District Court erroneously
dismissed plaintiff’s state-law securities claims on the ground that he
failed to plausibly suggest that notes issued as part of the syndicated
loan transaction are securities under Reves v. Ernst & Young, 494 U.S.
56 (1990).

We hold that the District Court had jurisdiction under the Edge
Act because defendant-appellee JP Morgan Chase Bank, N.A. engaged
in international or foreign banking as part of the transaction giving rise
to this suit. We also hold that the District Court did not erroneously
dismiss plaintiff’s state-law securities claims because plaintiff failed to
plausibly suggest that the notes are securities under Reves.

We accordingly AFFIRM the District Court’s September 24,
2018 order determining that it had jurisdiction pursuant to the Edge

2
Act and AFFIRM its May 22, 2020 order dismissing plaintiff’s state-
law securities claims.

CHRISTOPHER P. JOHNSON (Kyle A.
Lonergan, Joshua J. Newcomer, and Grant
L. Johnson, on the brief), McKool Smith P.C.,
New York, NY, for Plaintiff-Appellant.

JEFFREY B. WALL (Christopher M. Viapiano,
Zoe A. Jacoby, Ann-Elizabeth Ostrager, and
Mark A. Popovsky, on the brief), Sullivan &
Cromwell LLP, Washington, D.C. & New
York, NY, for Defendants-Appellees JP Morgan
Chase Bank, N.A. and J.P. Morgan Securities
LLC.

Benjamin S. Kaminetzky, Lara Samet
Buchwald, and Tina Hwa Joe, on the brief,
Davis Polk & Wardwell LLP, New York,
NY, for Defendants-Appellees Citibank N.A.
and Citigroup Global Markets Inc.

J. Emmett Murphy and John C. Toro, on the
brief, King & Spalding LLP, New York, NY,
for Defendants-Appellees SunTrust Robinson
Humphrey, Inc. and SunTrust Bank.

3
Steve M. Dollar and Sean M. Topping, on the
brief, Norton Rose Fulbright US LLP, New
York, NY, for Defendants-Appellees BMO
Capital Markets Corp. and Bank of Montreal.

JOSÉ A. CABRANES, Circuit Judge:

Plaintiff-Appellant Marc S. Kirschner brought a series of claims
in New York state court arising out of a syndicated loan transaction
(the “Transaction”) 1 facilitated by the defendants-appellees, a group
of financial institutions. Plaintiff’s appeal presents two issues. The
first issue presented is whether the United States District Court for the
Southern District of New York (Paul G. Gardephe, Judge) had
jurisdiction over this action pursuant to the Edge Act, 12 U.S.C. § 632.
The second issue presented is whether the District Court erroneously
dismissed plaintiff’s state-law securities claims on the ground that he
failed to plausibly suggest that notes issued as part of the Transaction

1 “A syndicated loan is a loan extended by a group of financial institutions
(a loan syndicate) to a single borrower.” Syndicated Loan Portfolios of Financial
Institutions, Bd. of Governors of the Fed. Rsrv. Sys.,
https://www.federalreserve.gov/releases/efa/efa-project-syndicated-loan-
portfolios-of-financial-institutions.htm (last visited July 30, 2023); see also Fed.
Deposit Ins. Corp., Risk Management Manual of Examination Policies, Loans § 3.2-
73 (May 2023) (“FDIC Manual”) (“A syndicated loan involves two or more banks
contracting with a borrower, typically a large or middle market corporation, to
provide funds at specified terms under the same credit facility.”).

4
(the “Notes”) are securities under Reves v. Ernst & Young, 494 U.S. 56
(1990).

We hold that the District Court had jurisdiction under the Edge
Act because defendant-appellee JP Morgan Chase Bank, N.A. engaged
in international or foreign banking as part of the Transaction. We also
hold that the District Court did not erroneously dismiss plaintiff’s
state-law securities claims because plaintiff failed to plausibly suggest
that the Notes are securities under Reves.

We accordingly AFFIRM the District Court’s September 24,
2018 order determining that it had jurisdiction pursuant to the Edge
Act and AFFIRM its May 22, 2020 order dismissing plaintiff’s state-
law securities claims. 2

I. BACKGROUND

We describe the facts as set forth in the complaint and the
documents incorporated therein. 3 We recount only those necessary to
explain our decision.

2 We address the remaining issues raised on appeal by a summary order
entered this same day.
3 See Nicosia v. Amazon.com, Inc., 834 F.3d 220, 230 (2d Cir. 2016) (“A
complaint is deemed to include any written instrument attached to it as an exhibit
or any statement or documents incorporated in it by reference.” (internal quotation
marks and citation omitted)).

5
A. Millennium

Millennium Health LLC, Inc. f/k/a Millennium Laboratories
(“Millennium”) was a California-based urine drug testing company.
In March 2012, defendants-appellees JP Morgan Chase Bank, N.A. (“JP
Morgan Chase”), JP Morgan Securities, LLC (“JP Morgan Securities,”
and together with JP Morgan Chase, “JP Morgan”), SunTrust
Robinson Humphrey, Inc., SunTrust Bank, and Bank of Montreal,4
executed a credit agreement (the “2012 Credit Agreement”) providing
Millennium a $310 million term loan and a $20 million revolving loan.
Two days before the 2012 Credit Agreement closed, the United States
Department of Justice (“DOJ”) issued a subpoena to Millennium in
connection with an investigation into whether Millennium had
violated federal health care laws. At the time, Millennium was also
embroiled in litigation with a competitor, Ameritox Ltd. Ameritox
alleged that Millennium had violated federal anti-kickback statutes
and that such violations “constituted ‘unfair competition.’” 5

As the DOJ investigation and Ameritox litigation continued, JP
Morgan began to consider ways to refinance the 2012 Credit
Agreement. Plaintiff alleges that “by the end of February 2014,” the
“only” way to refinance was “a huge institutional financing that

4We refer to these entities jointly, along with defendants-appellees BMO
Capital Markets Corp., Citibank, N.A., and Citigroup Global Markets Inc., as
“defendants.”
5 Joint App’x (“J.A.”) 29.

6
would” eliminate the roughly $300 million that Millennium still owed
under the 2012 Credit Agreement. 6

B. The March 16, 2014 Commitment Letter

The “huge institutional financing” principally consisted of a
$1.775 billion term loan to Millennium (the “Term Loan”). By letter
dated March 16, 2014, JP Morgan, Citi, 7 BMO Capital Markets, Bank of
Montreal, SunTrust Robinson Humphrey, and SunTrust Bank (the
“Initial Lenders”) agreed to provide Millennium the Term Loan 8 and
a $50 million revolving loan. 9 Millennium, in turn, planned to use the
Term Loan to (1) pay the outstanding amount due under the 2012
Credit Agreement ($304 million), (2) pay a shareholder distribution
($1.27 billion), (3) “redeem outstanding warrants, debentures and

6 Id. at 32.
7 The letter defines “Citi” to “mean Citigroup Global Markets Inc., Citibank,
N.A., Citicorp USA, Inc., Citicorp North America, Inc. and/or any of their affiliates
as Citi shall determine to be appropriate to provide the services contemplated
herein.” Id. at 360.
8 The Term Loan was initially for $1.765 billion and was later increased to
$1.775 billion.
9 The relevant loan documents refer to both the Term Loan and the
revolving loan as “Senior Secured Facilities.” Plaintiff’s claims arise out of events
surrounding the Term Loan. See J.A. 17 (“This Complaint relates to a $1.775 billion
transaction . . . .”). The claims do not rest on allegations involving the revolving
loan. For clarity, we refer only to the Term Loan, even when the relevant loan
document refers to the “Senior Secured Facilities.”

7
stock options” ($196 million) and (4) pay fees and expenses related to
the Transaction ($45 million). 10

The Initial Lenders and Millennium further agreed that the
Initial Lenders could “syndicate the [Term Loan] to a group of lenders
identified by the ‘Lead Arrangers,’” JP Morgan Securities and
Citigroup Global Markets.11 The Lead Arrangers agreed to
“commence the syndication of the [Term Loan] . . . promptly,” while
Millennium “agree[d] actively to assist the Lead Arrangers in
completing a syndication satisfactory to [it] and the Lead Arrangers.” 12

C. The Confidential Information Memorandum

To facilitate the syndication effort, JP Morgan and Citi prepared
a “Confidential Information Memorandum” about Millennium.

10 Id. at 582.
11 Id. at 361, 376. The commitment letter further established that JP Morgan
Chase would act as the “Administrative Agent,” and “in such capacity” be entitled
“to exercise such powers and perform such duties as are expressly delegated to” it
pursuant to loan documents. Id. at 361, 376, 537–38.
12Id. at 361. In the finance community, a “[l]oan syndication” refers to “[t]he
process of involving multiple lenders in providing various portions of a loan.” Off.
of the Comptroller of Currency, Leveraged Lending: Comptroller’s Handbook 63 (2008)
(“Comptroller’s Handbook”); see also supra, note 1 (providing definitions for
“syndicated loan”).

8
The Confidential Information Memorandum most consistently
refers to its intended audience as potential “lenders,” 13 although its
cover page uses the term “Public Side Investors.” 14 The other relevant
documents also most consistently employ the term “lender” and not
“investor.” 15 Accordingly, we too refer to those who purchased Notes
as “lenders.” 16

The Confidential Information Memorandum contains
numerous disclaimers. For example, it warns potential lenders that
the material did “not purport to be all-inclusive” and was “prepared
to assist potential lenders in making their own evaluation of
[Millennium] and the [Term Loan].” 17 It also advises that each
potential lender “should perform its own independent investigation
and analysis of the [Term Loan] or the transactions contemplated

13 See, e.g., id. at 565 (“The information and documents following this Notice
. . . have been prepared from information supplied by or on behalf of Millennium
. . . and is being furnished by [JP Morgan Securities] . . . to you as a potential lender
. . . .”).

Id. at 561; see also id. at 572 (providing a “Public investors dial-in” number).
14

Similarly, a PowerPoint presentation created by Millennium with help from the
Lead Arrangers “recast some of the information” in the Confidential Information
Memorandum and was called an “Investor Presentation.” Id. at 40.
15 See, e.g., id. at 446 (preamble to 2014 credit agreement listing parties
thereto, including the “Lenders”).

This nomenclature is not dispositive of whether the Notes are “securities”
16

under Reves v. Ernst & Young, 494 U.S. 56 (1990).
17 J.A. 566.

9
thereby and the creditworthiness of [Millennium].” 18 And by
receiving the Confidential Information Memorandum, each potential
lender “represent[ed] that it [was] sophisticated and experienced in
extending credit to entities similar to [Millennium].” 19

If a potential lender wanted to become an actual lender, then it
had “to make a final legally binding offer to purchase” the Notes no
later than 5 p.m. Eastern Standard Time on April 14, 2014. 20

D. The Lenders

On April 15, 2014, JP Morgan Securities notified potential
lenders with outstanding legally binding offers of the amount of their
allocation. At that point, those potential lenders became actual lenders
because they were “irrevocabl[y]” bound to purchase their allocation
of the Term Loan.21 Those lenders—referred to here as “Parent
Lenders”—could then sub-allocate their allocation to investors in their
respective funds—referred to here as “Child Lenders.” For example,
Brigade Capital Management, LP (“Brigade”), a Parent Lender, was

18 Id.
19Id. Potential lenders made this representation “[b]y accepting the
Confidential Materials [in the Confidential Information Memorandum] for
review.” Id. at 565.
20 Id. at 50.
21 Id. at 428 (an “Institutional Allocation Confirmation” sent by a lender to
JP Morgan Chase “confirm[ing] [JP Morgan Chase’s] offer to sell, and [the lender’s]
agreement to purchase” the lender’s allocated amount of the Term Loan, “which
offer and agreement is irrevocable”).

10
allocated $45 million of the Term Loan and then sub-allocated that $45
million allocation among twenty-three Child Lenders.22

In total, sixty-one Parent Lenders received an allocation of the
Term Loan. Of those sixty-one Parent Lenders, fifty-nine were
domestic entities and two were foreign entities. Approximately half
of the roughly four hundred Child Lenders were foreign entities.

E. The Transaction

The Transaction “proceeded in three inter-related and
contemporaneous steps” and closed on April 16, 2014. 23

First, by letter agreement dated April 16, 2014, JP Morgan
Securities or its “Lending Affiliate,” JP Morgan Chase, agreed to “fund
100%” of the Term Loan. 24

Second, by letter agreement dated April 16, 2014, Millennium
consented to JP Morgan Chase assigning its rights and obligations
with respect to the Term Loan to the lenders.

22 See id. at 423 (email from JP Morgan Securities notifying Brigade of its
allocation and providing information on “[l]oan documentation,” the allocation,
and funding of sub-allocations).
23 Id. at 50.
24 Id. at 400.

11
Third, “each individual [lender] . . . became irrevocably
committed to [JP Morgan Chase] . . . to purchase” its allocated amount
of the Term Loan. 25

F. The Credit Agreement

In connection with the closing on April 16, 2014, each lender
executed an “Assignment and Assumption Agreement” with JP
Morgan Chase. 26 The lenders thereby assumed “all of [JP Morgan
Chase’s] rights and obligations in its capacity as a Lender” 27 under a
“Credit Agreement” dated April 16, 2014. The Credit Agreement
established the conditions of the Term Loan. By entering the Credit
Agreement, each lender represented that it had

independently and without reliance upon any Agent or
any other Lender, and based on such documents and
information as it has deemed appropriate, made its own
appraisal of and investigation into the business,
operations, property, financial and other condition and

25 Id. at 50–51.
26See id. at 432–33 (Assignment and Assumption Agreement between JP
Morgan Chase and Brigade Credit Fund II, LTD (“Brigade Credit”), a lender
organized under the laws of the Cayman Islands).
27Id. at 432; see id. at 446 (defining “Lender[]” as “the several banks and other
financial institutions or entities from time to time parties to this [Credit]
Agreement”).

12
creditworthiness of [Millennium] 28 and made its own
decision to make its Loans 29 hereunder and enter into this
[Credit] Agreement. 30

The Credit Agreement established that Millennium would pay
back the Term Loan over seven years. Millennium was generally
obligated to make quarterly payments consisting of a portion of the
$1.775 billion principal plus interest. Additionally, to protect lenders
were Millennium to default on its payment obligations, the Credit
Agreement “create[d] in favor of the Administrative Agent [JP Morgan
Chase], for the benefit of the Lenders, a legal, valid and enforceable
security interest” in Millennium’s collateral. 31

28 The Credit Agreement required that each lender make its own appraisal
of, and investigation into, not only Millennium, but also Millennium’s “Restricted
Subsidiaries” as well as Millennium Lab Holdings II, LLC and its “Restricted
Subsidiaries.” See id. at 539 (Credit Agreement provision referencing “Loan
Parties”); id. at 468 (defining “Loan Parties” as “each Group Member that is a party
to a Loan Document”); id. at 464 (defining “Group Members” as “the collective
reference to Holdings, the Borrower and their respective Restricted Subsidiaries”);
id. at 446 (defining Millennium Lab Holdings II, LLC, as “Holdings” and
Millennium as the “Borrower”); id. at 474 (defining “Restricted Subsidiary”).
29The Credit Agreement defines “Loan” as “any loan made by any Lender
pursuant to th[e] [Credit] Agreement.” Id. at 468. Here, each lender made a Loan
to Millennium consisting of their allocated amount of the Term Loan.
30 Id. at 539.
31 Id. at 508; see id. at 382 (noting that Millennium’s obligations under the
Credit Agreement were “secured by a perfected first priority security interest in all
of its tangible and intangible assets,” subject to certain limitations). Additionally,
if Millennium failed to timely pay back the lenders, Millennium had to pay a higher

13
The Credit Agreement also facilitated the creation of a
secondary market for the Notes, subject to certain assignment
restrictions. The restrictions include:

• A prohibition on assignment to “a natural person” 32;
• A requirement that Millennium and JP Morgan Chase, acting
in its capacity as Administrative Agent, provide written
consent to any assignment (subject to certain exceptions) 33;
and
• A requirement that any assignment be for more than
$1,000,000, unless, among other things, the assignment was
to a “Lender, an affiliate of a Lender, or an Approved Fund
or an assignment of the entire remaining amount of the
assigning Lender’s” allocation. 34

interest rate on the Term Loan, with such interest “payable from time to time on
demand.” Id. at 488.
32 Id. at 546.
33 See id. at 546–47.
34 Id. at 547. The Credit Agreement defines “Approved Fund” as “any
Person (other than a natural person or a Disqualified Lender) that is engaged in
making, purchasing, holding or investing in bank loans and similar extensions of
credit in the ordinary course of its business and that is administered or managed
by (a) a Lender, (b) an affiliate of a Lender or (c) an entity or an affiliate of an entity
that administers or manages a Lender.” Id. It defines “Person” as “an individual,
partnership, corporation, limited liability company, business trust, joint stock
company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.” Id. at 472. The “Disqualified
Lender[s]” are specific entities listed on a schedule attached to the Credit
Agreement. Id. at 456.

14
The Notes began trading on a secondary market “as early as
April 15th.” 35

G. Millennium Files for Bankruptcy

As the Transaction proceeded, the DOJ investigation and
Ameritox litigation also continued. After the Transaction’s April 16,
2014 closing, both took a material turn.

On June 16, 2014, a jury in the United States District Court for
the Middle District of Florida determined that Millennium had
violated federal anti-kickback statutes and awarded Ameritox $2.755
million in compensatory damages and $12 million in punitive
damages. 36 The United States Court of Appeals for the Eleventh
Circuit later vacated the verdict. 37

In December 2014, the DOJ informed Millennium that it would
intervene in qui tam litigation involving Millennium’s billing practices.
It did so on March 19, 2015. On May 22, 2015, Millennium announced
that it had reached a preliminary $256 million global settlement with
the government related to the qui tam litigation. On October 16, 2015,

Id. at 51. The complaint alleges that “JP Morgan assigned a ‘High Yield
35

Research’ Analyst” to monitor the secondary trading market and “to help
disseminate non-confidential information about [Millennium]” to potential
secondary-market purchasers of the Notes. Id. at 55.

The United States District Court for the Middle District of Florida later
36

lowered the punitive damages to $8.5 million. See J.A. 56.
37 See Ameritox, Ltd. v. Millennium Lab’ys, Inc., 803 F.3d 518, 541 (11th Cir.
2015).

15
Millennium completed the $256 million settlement. Soon thereafter,
on November 10, 2015, Millennium filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware.

H. This Litigation

As part of the Chapter 11 bankruptcy proceedings, plaintiff was
appointed trustee of the Millennium Lender Claim Trust (the “Trust”).
The ultimate beneficiaries of the Trust are lenders who purchased
Notes and have claims in the bankruptcy proceedings.

On August 1, 2017, plaintiff filed suit in the Supreme Court of
the State of New York, New York County. He brought claims for
violations of state securities laws, negligent misrepresentation, breach
of fiduciary duty, breach of contract, and breach of the implied
contractual duty of good faith and fair dealing.

On August 21, 2017, defendants filed a notice of removal to the
United States District Court for the Southern District of New York
pursuant to the Edge Act, 12 U.S.C. § 632. Plaintiff filed a motion to
remand the cause to New York state court. On September 24, 2018, the
District Court denied plaintiff’s motion to remand after concluding
that it had jurisdiction under the Edge Act.

On June 28, 2019, defendants moved to dismiss plaintiff’s
complaint. On May 22, 2020, the District Court granted defendants’
motion to dismiss. It dismissed the state-law securities claims because
it concluded that plaintiff failed to plead facts plausibly suggesting

16
that the Notes are “securities” under Reves v. Ernst & Young, 494 U.S.
56 (1990).

On July 31, 2020, plaintiff moved for leave to file a proposed
amended complaint. On December 1, 2020, Magistrate Judge Sarah L.
Cave issued a “Report and Recommendation” that recommended
denying plaintiff’s motion to amend the complaint as futile.

On September 30, 2021, the District Court adopted the Report
and Recommendation and denied plaintiff’s motion to amend the
complaint as futile. Plaintiff timely appealed on October 28, 2021.

II. DISCUSSION

We consider at the threshold whether the District Court had
subject matter jurisdiction over this action pursuant to the Edge Act,
12 U.S.C. § 632. We hold that it did. We then turn to whether plaintiff
plausibly suggested that the Notes are “securities” under Reves v. Ernst
& Young, 494 U.S. 56 (1990). We hold that he did not.

A. Edge Act Jurisdiction

Plaintiff challenges the District Court’s determination that it had
jurisdiction over this matter pursuant to the Edge Act, 12 U.S.C. § 632.
We “review questions of subject matter jurisdiction de novo.” 38

Congress enacted the Edge Act in 1919 “to provide for the
establishment of international banking and financial corporations

38 Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111, 124 (2d Cir. 2010).

17
operating under Federal supervision with powers sufficiently broad to
enable them to compete effectively with similar foreign-owned
institutions in the United States and abroad.” 39 Consistent with that
purpose, the Edge Act “authorized the creation of banking
corporations chartered by the Federal Reserve Bank, so-called ‘Edge
Act banks’ or ‘Edge Act corporations,’ which could engage in offshore
banking operations freed from regulatory barriers imposed by state
banking commissioners.” 40

Congress amended the statute in 1933 to “provid[e] for federal
court jurisdiction of certain suits to which . . . Edge Act banks [or
corporations] were parties.” 41 For a federal court to have jurisdiction

39 12 U.S.C. § 611a.
40Am. Int’l Grp., Inc. v. Bank of Am. Corp., 712 F.3d 775, 779 (2d Cir. 2013); see
12 U.S.C. § 611 (authorizing the formation of “[c]orporations to be organized for the
purpose of engaging in international or foreign banking or other international or
foreign financial operations, or in banking or other financial operations in a
dependency or insular possession of the United states, either directly or through
the agency, ownership or control of local institutions in foreign countries, or in such
dependencies or insular possessions as provided by this subchapter and to act
when required by the Secretary of the Treasury as fiscal agents of the United
States”).
41Am. Int’l Grp., 712 F.3d at 779. Section 632 was added as part of the
Banking Act of 1933, also known as the Glass-Steagall Act. See Banking Act of 1933,
Pub. L. 73-66, § 15, 48 Stat. 162, 184. As relevant, § 632 provides that

all suits of a civil nature at common law or in equity to which any
corporation organized under the laws of the United States shall be a
party, arising out of transactions involving international or foreign
banking, or banking in a dependency or insular possession of the
United States, or out of other international or foreign financial

18
under the Edge Act, (1) the suit must be “of a civil nature at common
law or in equity,” (2) at least one party to the suit must be an Edge Act
bank or corporation, and (3) the suit must “aris[e] out of transactions
involving” (a) “international or foreign banking,” (b) “banking in a
dependency or insular possession of the United States,” or (c) “out of
other international or foreign financial operations.” 42 We have
clarified that to satisfy the third element, the party Edge Act bank or
corporation must itself engage in the relevant “international or foreign
banking,” “banking in a dependency or insular possession of the
United States,” or “international or foreign financial operations.” 43

The parties agree that the first two elements are satisfied: They
agree that the suit is civil in nature and that a party to this suit—JP
Morgan Chase—is an Edge Act bank. 44 The parties disagree on
whether the third element is satisfied. Specifically, they dispute

operations, either directly or through the agency, ownership, or
control of branches or local institutions in dependencies or insular
possessions of the United States or in foreign countries, shall be
deemed to arise under the laws of the United States, and the district
courts of the United States shall have original jurisdiction of all such
suits.
42 12 U.S.C. § 632.
43 Am. Int’l Grp., 712 F.3d at 784 (“[Section] 632 provides that in order for its
grant of federal jurisdiction and removability to apply, the suit must have a
federally chartered corporation [i.e., an Edge Act bank or corporation] as a party,
and the suit must arise out of an offshore banking or financial transaction of that
federally chartered corporation.”).
44 Citibank is also an Edge Act bank, but defendants “rely on [JP Morgan
Chase’s] transactions to establish Edge Act jurisdiction.” Defs. Br. at 23 n.3.

19
whether JP Morgan Chase itself engaged in the relevant international
or foreign banking.

We conclude that the third element is satisfied because JP
Morgan Chase itself engaged in international or foreign banking as
part of the Transaction. To effectuate the Transaction, JP Morgan
Chase assigned its interest in the Term Loan to lenders. 45 That
assignment constituted banking. 46 And JP Morgan Chase’s assignment
of its interest in the Term Loan “involv[ed] international or foreign
banking” 47 because JP Morgan Chase directly assigned a portion of its
interest in the Term Loan to foreign lenders. 48

See, e.g., J.A. 432–35 (Assignment and Assumption Agreement between JP
45

Morgan Chase and Brigade Credit).
46 See 12 U.S.C. § 24 (authorizing banks “[t]o exercise . . . all such incidental
powers as shall be necessary to carry on the business of banking; by discounting
and negotiating promissory notes, drafts, bills of exchange, and other evidences of
debt . . . and by obtaining, issuing, and circulating notes”); see also Off. of the
Comptroller of the Currency, Loan Participations, 1998 WL 161494, at *1 (Apr. 1998)
(“The purchase and sale of loans and participations in loans are established banking
practices.”).
47 12 U.S.C. § 632 (emphasis added).
48 See, e.g., J.A. 432 (Assignment and Assumption Agreement between JP
Morgan Chase and Brigade Credit, a foreign entity); id. at 343 (Decl. of Lyndon M.
Tretter stating that two of the Parent Lenders are foreign entities); id. at 344 (listing
foreign Child Lenders that received a sub-allocation of the Term Loan from
Brigade); see also Wilson v. Dantas, 746 F.3d 530, 535 (2d Cir. 2014) (holding that an
Edge Act bank engaged in “international or foreign financial operations” where it
“contributed $750 million in return for stock in the [Brazilian] portfolio
companies”); Corporacion Venezolana de Fomento v. Vintero Sales Corp., 629 F.2d 786,
792–93 (2d Cir. 1980) (holding that an Edge Act bank engaged in “international or

20
Plaintiff does not contest that JP Morgan Chase assigned
portions of the Term Loan to foreign lenders. Rather, he argues that
the mere “fortuitous involvement” of the foreign lenders “in an
otherwise domestic transaction is alone insufficient to trigger the
[international or foreign banking] element.” 49 The “involvement” of
the foreign lenders, he explains, was “fortuitous” because JP Morgan
Chase “was [not] involved in soliciting” the foreign lenders “into the
[T]ransaction.” 50 Plaintiff thus concludes that Edge Act jurisdiction is
wanting.

We are unpersuaded by his argument. True, JP Morgan Chase
did not solicit the foreign lenders into the Transaction. But that
solicitation is not the relevant “international or foreign banking.” 51
Rather, the relevant “international or foreign banking” 52 was JP
Morgan Chase’s direct assignment of portions of the Term Loan to
foreign entities. JP Morgan Chase’s deliberate choice to directly assign
its interests in the Term Loan was also not “fortuitous,” meaning

foreign” banking when it provided a letter of credit for the benefit of a New York
corporation on a Venezuelan corporation’s account).
49 Pl. Br. at 21.
50 Id. at 21, 23.
51 12 U.S.C. § 632.
52 Id.

21
“accidental” or “[o]ccurring by chance.” 53 Plaintiff does not allege, for
example, that JP Morgan Chase accidentally assigned its interest in the
Term Loan to foreign entities.

In sum, an Edge Act bank’s direct assignment of a loan to a
foreign entity qualifies as “international or foreign banking.” 54
Accordingly, because each of the elements required to establish Edge
Act jurisdiction is satisfied, the District Court correctly concluded that
it had jurisdiction over this matter.

B. Whether The Notes Are “Securities”

We now turn to the second issue presented: whether the District
Court erroneously dismissed plaintiff’s state-law securities claims
because he did not plausibly allege that the Notes are “securities”
under Reves v. Ernst & Young, 494 U.S. 56 (1990).

We review a district court’s decision to dismiss a claim under
Federal Rule of Civil Procedure 12(b)(6) de novo. 55 “In assessing the
complaint, we accept all factual allegations as true, and draw all
reasonable inferences in the plaintiff’s favor.” 56 But “conclusory

53Fortuitous, Black’s Law Dictionary (11th ed. 2019); see Bryan A. Garner,
Garner’s Modern English Usage 409 (4th ed. 2016) (“[T]he word [fortuitous] is
commonly misused for fortunate, in itself a very unfortunate thing.”).
54 12 U.S.C. § 632.
55 Kinsey v. N.Y. Times Co., 991 F.3d 171, 175 (2d Cir. 2021).
56 Francis v. Kings Park Manor, Inc., 992 F.3d 67, 72 (2d Cir. 2021) (en banc)
(internal quotation marks and citation omitted).

22
allegations are not entitled to the assumption of truth, and a complaint
will not survive a motion to dismiss unless it contains sufficient factual
matter, accepted as true, to state a claim that is plausible on its face.” 57

The parties agree that to determine whether the Notes are
“securities,” we should apply the test enunciated by the Supreme
Court in Reves. 58 There, the Supreme Court explained that although
the Act defines “security” to include “any note,” 59 the “phrase ‘any

57 Id. at 72 (internal quotation marks, citation, and brackets omitted).
Plaintiff asserts that because determining whether a note is a “security” is “fact-
intensive,” it is “not appropriately resolved on a motion to dismiss.” Pl. Br. at 30
(quoting SEC v. Rorech, 673 F. Supp. 2d 217, 225 (S.D.N.Y. 2009)). That a claim is
fact-intensive does not preclude dismissal under Rule 12(b)(6) if the plaintiff fails
to allege facts plausibly supporting a claim upon which relief can be granted. Cf.
Universal Health Servs., Inc. v. United States, 579 U.S. 176, 195 n.6 (2016) (“We reject
[plaintiff’s] assertion that materiality is too fact intensive for courts to dismiss False
Claims Act cases on a motion to dismiss or at summary judgment.”).
58The Reves test is used to determine whether notes are “securities” under
both the Securities and Exchange Act of 1934 (the “1934 Act”) and the Securities Act
of 1933 (the “1933 Act”). See 494 U.S. at 60 (determining whether a note is a
“security” under the 1934 Act); Banco Espanol de Credito v. Sec. Pac. Nat’l Bank, 973
F.2d 51, 55–56 (2d Cir. 1992) (applying the Reves test to claims brought under the
1933 Act). Plaintiff did not bring claims under either of those statutes. Instead, he
brought claims under the state-securities laws of California, Massachusetts,
Colorado, and Illinois. We, like the District Court, “accept[] [p]laintiff’s assertion
that Reves applies to [his] claims under California, Colorado, Illinois, and
Massachusetts law.” Special App’x 40. We accordingly proceed to examine the
Notes under Reves.
59 15 U.S.C. § 78c(a)(10). The 1934 Act defines “security” in full as:

any note, stock, treasury stock, security future, security-based swap,
bond, debenture, certificate of interest or participation in any profit-
sharing agreement or in any oil, gas, or other mineral royalty or

23
note’ should not be interpreted to mean literally ‘any note.’” 60 It
reasoned that Congress’s goal in enacting the Securities Act of 1933
and the 1934 Act (together, the “Securities Acts”) was to regulate the
investment market and not to provide a “broad federal remedy for all
fraud.” 61 Accordingly, only “notes issued in an investment context”
are “securities.” 62 By contrast, notes “issued in a commercial or
consumer context” are not. 63

lease, any collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust
certificate, certificate of deposit for a security, any put, call, straddle,
option, or privilege on any security, certificate of deposit, or group
or index of securities (including any interest therein or based on the
value thereof), or any put, call, straddle, option, or privilege entered
into on a national securities exchange relating to foreign currency,
or in general, any instrument commonly known as a “security”; or
any certificate of interest or participation in, temporary or interim
certificate for, receipt for, or warrant or right to subscribe to or
purchase, any of the foregoing; but shall not include currency or any
note, draft, bill of exchange, or banker's acceptance which has a
maturity at the time of issuance of not exceeding nine months,
exclusive of days of grace, or any renewal thereof the maturity of
which is likewise limited.

Id. The 1934 Act’s “definition of security . . . is virtually identical” to the 1933 Act’s
definition of “security.” Tcherepnin v. Knight, 389 U.S. 332, 342 (1967).
60 Reves, 494 U.S. at 63.
61 Id. at 61 (internal quotation marks and citation omitted).
62 Id. at 63.
63 Id.

24
Under Reves, courts must apply a “family resemblance” test to
determine whether a “note” is a “security.” The test “begin[s] with a
presumption that every note is a security.” 64 It then directs courts to
examine four factors, each of which helps to uncover whether the note
was issued in an investment context (and is thus a security) or in a
consumer or commercial context (and is thus not a security). 65 The
four factors are:

1) “[T]he motivations that would prompt a reasonable seller
and buyer to enter into” the transaction 66;
2) “[T]he plan of distribution of the instrument” 67;
3) “[T]he reasonable expectations of the investing public” 68;
and
4) “[W]hether some factor such as the existence of another
regulatory scheme significantly reduces the risk of the
instrument, thereby rendering application of the Securities
Acts unnecessary.” 69

64 Id. at 65.
65 See id. at 68–69 (“We have consistently identified the fundamental essence
of a ‘security’ to be its character as an ‘investment.’”).
66 Id. at 66.
67 Id. (internal quotation marks and citation omitted).
68 Id.
69 Id. at 67.

25
In balancing the four factors, courts compare the note at issue to
an existing “judicially crafted” list of instruments that are not
securities. 70 If “the note bears a strong resemblance” to one of the
instruments on that list, then we conclude that the note is not a
security. 71 That a note does not bear a strong resemblance to an item
on the list is not dispositive. The test allows courts to expand the list
of non-security instruments to include the type of note at issue if,
based on the four factors, a court concludes that the note is not a
security. 72

1. The Motivations of the Parties

The first Reves factor requires us to “examine the transaction to
assess the motivations that would prompt a reasonable seller and

70Id. at 64; see id. at 67. At the time Reves was decided, that list included “the
note delivered in consumer financing, the note secured by a mortgage on a home,
the short-term note secured by a lien on a small business or some of its assets, the
note evidencing a ‘character’ loan to a bank customer, short-term notes secured by
an assignment of accounts receivable, . . . a note which simply formalizes an open-
account debt incurred in the ordinary course of business (particularly if, as in the
case of the customer of a broker, it is collateralized)[,] . . . [and] notes evidencing
loans by commercial banks for current operations.” Id. at 65 (internal quotation
marks and citation omitted); see also Banco Espanol, 973 F.2d at 56 (identifying “loans
issued by banks for commercial purposes” as one of “the enumerated categor[ies]”
of instruments that are not securities).
71 Id. at 67.
72See id. (“If an instrument is not sufficiently similar to an item on the list,
the decision whether another category should be added is to be made by examining
the same factors.”).

26
buyer to enter into it.” 73 We must determine “whether the motivations
[of the seller and buyer] are investment (suggesting a security) or
commercial or consumer (suggesting a non-security).” 74 A buyer’s
motivation is investment if it expects to profit from its investment,
including through earning either variable or fixed-rate interest. 75 A
seller’s motivation is investment if its “purpose is to raise money for
the general use of a business enterprise or to finance substantial
investments.” 76 A seller’s motivation is commercial if, for example,
“the note is exchanged to facilitate the purchase and sale of a minor

73 Id. at 66.
74 Pollack v. Laidlaw Holdings, Inc., 27 F.3d 808, 812 (2d Cir. 1994).
75See Reves, 494 U.S. at 68 n.4 (“We emphasize that by ‘profit’ in the context
of notes, we mean ‘a valuable return on an investment,’ which undoubtedly
includes interest.”); Pollack, 27 F.3d at 813 (observing that it was “not . . . a close
question” that the buyers of bonds had an investment motivation where they
would earn “a fixed rate of return in the form of interest” on the bonds).

Defendants assert that “[a]lthough the fixed rate of return on the loan does
not by itself preclude the existence of a security, it is highly relevant that the
lenders’ return was not tied to Millennium’s market performance.” Defs. Br. at 40
(citation omitted). To the contrary, that a lender’s return is not tied to market
performance is not highly relevant to whether a “note” is a “security” under Reves.
The Supreme Court in Reves explicitly rejected a definition of “profit” that would
“suggest that notes paying a rate of interest not keyed to the earning of the
enterprise are not ‘notes’ within the meaning of the Securities Acts.” Reves, 494 U.S.
at 68 n.4. Instead, the Supreme Court “emphasize[d]” that, in “the context of
notes,” profit means “a valuable return on an investment.” Id. A fixed rate of return
is undoubtedly “a valuable return on an investment.” Id.
76Reves, 494 U.S. at 66; id. at 67–68 (concluding that a seller’s motivation was
investment where it “sold the notes in an effort to raise capital for its general
business operations”).

27
asset or consumer good, to correct for the seller’s cash-flow difficulties,
or to advance some other commercial or consumer purpose.” 77

On the one hand, the pleaded facts plausibly suggest that the
lenders’ motivation was investment because the lenders expected to
profit from their purchase of the Notes. Under the Credit Agreement,
the lenders were entitled to receive quarterly interest payments over
the course of seven years. They therefore expected to receive a
“valuable return” 78 on their purchase of the Notes.

On the other hand, the pleaded facts do not plausibly suggest
that Millennium’s motivation was investment. Millennium was not
using the Term Loan to raise funds for its urine testing business or to
finance other investments. Instead, it planned to use the Term Loan to
pay the outstanding amount due under the 2012 Credit Agreement,
make a shareholder distribution, “redeem outstanding warrants,
debentures and stock options,” and pay fees and expenses related to
the Transaction. 79 These uses suggest that Millennium’s motivation
was commercial.

Accordingly, the pleaded facts indicate that the parties’
motivations were mixed. 80 At this early stage of litigation, our

77 Id. at 66.
78 Id. at 68 n.4.
79 J.A. 582.

Plaintiff does not argue that Millennium’s motivation was investment. He
80

argues only that Millennium’s motivation was not commercial because there was

28
application of the first Reves factor tilts in favor of concluding that the
complaint plausibly alleges that the Notes are securities.

2. The Plan of Distribution

The second Reves factor requires us to “examine the plan of
distribution of the instrument to determine whether it is an instrument
in which there is common trading for speculation or investment.” 81
This factor weighs in favor of determining that a note is a security if it
is “offered and sold to a broad segment of the public.” 82 This factor
weighs against determining that a note is a security if there are
limitations in place that “work[] to prevent the [notes] from being sold
to the general public.” 83

The pleaded facts do not plausibly suggest that the Notes were
“offered and sold to a broad segment of the public.” 84 The Lead
Arrangers offered the Notes only to sophisticated institutional entities,
providing them with a Confidential Information Memorandum. JP
Morgan then proceeded to allocate the Notes to only the sophisticated

“no commercial purpose in assuming [the] additional $1.4 billion of debt.” Pl. Br.
at 34. The upshot of plaintiff’s argument is that Millennium’s motivations were
neither investment nor commercial. The Reves test, however, requires us to
categorize Millennium’s motivation as either investment or commercial.
81 Reves, 494 U.S. at 66 (internal quotation marks and citations omitted).
82 Id. at 68.
83 Banco Espanol, 973 F.2d at 55.
84 Reves, 494 U.S. at 68.

29
institutional entities that submitted “legally binding offer[s].” 85 This
allocation process was not a “broad-based, unrestricted sale[] to the
general investing public.” 86

Plaintiff points to the presence of a secondary market as
evidence that the Notes were “offered and sold to a broad segment of
the public.” 87 But the restrictions on any assignment of the Notes
rendered them unavailable to the general public. The Notes could not
be assigned to a “natural person.” 88 Nor could they be assigned
without prior written consent from both Millennium and JP Morgan
Chase, acting in its capacity as Administrative Agent, unless an
assignment was being made to a “Lender, an affiliate of a Lender or an
approved fund.” 89 Nor could any assignment total more than
$1,000,000, unless it was to a “Lender, an affiliate of a Lender, or an
Approved Fund or an assignment of the entire remaining amount of
the assigning Lenders[’]” allocation. 90

85 J.A. 50.
86 Pollack, 27 F.3d at 814.
87 Reves, 494 U.S. at 68.
88 J.A. 546.
89 Id. at 546–47.
90Id. at 547. Plaintiff challenges the stringency of these restrictions by noting
that Millennium “shall be deemed to have consented” to a requested assignment if
it does not object “within five Business Days after having received telecopy or
electronic written notice thereof.” Id. at 546; see Reply Br. at 20–21. The fact remains,
however, that Millennium’s consent was required in one form or another.

30
The assignment restrictions here are akin 91 to those in Banco
Espanol de Credito v. Security Pacific National Bank that we held weighed
against concluding that the relevant loan participations were
securities. 92 In Banco Espanol, “[t]he plan of distribution specifically
prohibited resales of the loan participations without the express
written permission of [the issuer][,] . . . . [which] worked to prevent the
loan participations from being sold to the general public, thus limiting
eligible buyers to those with the capacity to acquire information about
the debtor.” 93 The collective impact of the assignment restrictions here
likewise works to prevent the Notes from being sold to the general
public. 94

91 Moreover, the plan of distribution for the Notes is unlike those found to
render notes broadly available. See, e.g., Reves, 494 U.S. at 68 (deciding that the
second factor weighed in favor of the conclusion that the notes were securities
because the issuer, an agricultural cooperative, “offered the notes over an extended
period to its 23,000 members, as well as to nonmembers”); Pollack, 27 F.3d at 814
(concluding that “the broad-based, unrestricted sales to the general investing
public alleged in the complaint support[ed] a finding that these instruments are
within the scope of the federal securities laws”).
92 “A loan participation is a sharing or selling of ownership interests in a
loan between two or more financial institutions.” FDIC Manual, supra note 1, § 3.2-
41. In a typical loan participation, a single institution “originates the loan,” and
then “sells ownership interests to one or more participating banks.” Id. A
syndicated loan is different in that multiple institutions “participate jointly in the
[loan] origination process.” Id. § 3.2-73.
93 973 F.2d at 55.
94 Plaintiff objects that despite the similar restrictions on assignments, Banco
Espanol is distinguishable because the loan participations there were “distributed
to only 11 investors,” whereas here the Notes “were distributed to more than 400

31
Accordingly, this factor weighs against concluding that the
complaint plausibly alleges that the Notes are securities.

3. The Public’s Reasonable Perceptions

The third Reves factor requires us to “examine the reasonable
expectations of the investing public.” 95 We “consider [notes] to be
‘securities’ on the basis of such public expectations, even where an
economic analysis of the circumstances of the particular transaction
might suggest that the [notes] are not ‘securities’ as used in that
transaction.” 96 If buyers were “given ample notice that the
instruments were . . . loans and not investments in a business
enterprise,” it suggests that the instruments are not securities. 97

investors.” Reply Br. at 12. Although the number of purchasers may be probative
of whether the note is broadly available to the general public, in the circumstances
presented here, the Notes’ distribution to more than 400 lenders did not render
them available “to a broad segment of the public.” Reves, 494 U.S. at 68.
95 Reves, 494 U.S. at 66.
96 Id. Relying on this language, plaintiff asserts that the third Reves factor
works “as a one-way ratchet” and that a “failure to satisfy it does not weigh against
a finding that a[n] instrument is a security.” Pl. Br. at 41 (first quoting Stoiber v.
SEC, 161 F.3d 745, 751 (D.C. Cir. 1998), then quoting Fox v. Dream Tr., 743 F. Supp.
2d 389, 400 (D.N.J. 2010)). We think plaintiff is incorrect. All that language from
Reves means is that an instrument is a security if the public reasonably expects that
the instrument is a security, even if the other three factors weigh against concluding
that the instrument is a security. If the public does not reasonably expect that an
instrument is a security, then the third Reves factor will be considered alongside the
other Reves factors.
97 Banco Espanol, 973 F.2d at 55.

32
The pleaded facts do not plausibly suggest that the lenders
reasonably perceived the Notes as securities. Instead, we are
persuaded that the sophisticated entities that purchased the Notes
“were given ample notice that the [Notes] were . . . loans and not
investments in a business enterprise.” 98 Before purchasing the Notes,
the lenders certified that they were “sophisticated and experienced in
extending credit to entities similar to [Millennium].” 99 They also
certified that they had “independently and without reliance upon any
Agent or any Lender, and based on such documents and information
as [they] ha[ve] deemed appropriate, made [their] own appraisal of
and investigation into the business, operations, property, financial and
other condition and creditworthiness of [Millennium] and made
[their] own decision to make [their] Loans hereunder.” 100 This
certification is substantively identical to the certification made by the
purchasers in Banco Espanol, which was central to our determination
that the buyers there could not have reasonably perceived the loan
participations as securities. 101

98 Id.
99 J.A. 566.
100 Id. at 539.
101 In Banco Espanol, “sophisticated purchasers” entered a “Master
Participation Agreement” under which they “acknowledge[d] that [they] ha[d]
independently and without reliance upon [the bank] and based upon such
documents and information as the [sophisticated purchaser had] deemed
appropriate, made [their] own credit analysis.” 973 F.2d at 53, 55.

33
Plaintiff argues that the fact that the loan documents at times
refer to the buyers as “investors” plausibly suggests that the buyers
reasonably expected that the Notes were securities. 102 We disagree.
First, there are only isolated references to “investors” in the loan
documents. These isolated references could not have plausibly created
the reasonable expectation that the buyers were investing in
securities. 103 Second, the loan documents more consistently refer to
the buyers as “lenders.” This label aligns with the reasonable
expectations of the experienced entities that the Notes were not
securities.

In sum, this factor weighs against concluding that the complaint
plausibly alleges that the Notes are securities. 104

102See J.A. 561 (referring to “Public Side Investors”); id. at 572 (providing a
“Public investors dial-in” number).
103 Likewise, under these circumstances, JP Morgan’s assignment of a “High
Yield Research Analyst” to track the secondary market could not plausibly have
made the experienced lenders reasonably believe that they were investing in
securities. See id. at 55.
104 The District Court suggested that the third Reves factor weighed against
finding that the Notes are securities because plaintiff “cited no case in which a court
has held that a syndicated term loan is a ‘security.’” Special App’x 47. That
reasoning is circular. It would mean that no court could ever find that the
reasonable expectations of the investing public are that a syndicated term loan is a
security. As Reves instructs, in assessing whether a given note is a security, “we are
not bound by legal formalisms, but instead take account of the economics of the
transaction under investigation.” 494 U.S. at 61 (emphasis added). It is possible that
a court faced with a different transaction could find that the reasonable investing
public perceived an instrument labelled a “syndicated term loan” to be a “security.”
Cf. id. (“Congress’ purpose in enacting the securities laws was to regulate

34
4. Whether some other risk-reducing factor renders application of
securities laws unnecessary

The fourth Reves factor requires us to “examine whether some
factor such as the existence of another regulatory scheme significantly
reduces the risk of the instrument, thereby rendering application of the
Securities Acts unnecessary.” 105 Among the factors that reduce the
risks associated with an instrument are whether the instrument is
secured by collateral or is insured 106 and whether “specific policy
guidelines” 107 issued by federal regulators address the type of
instrument at issue.

investments, in whatever form they are made and by whatever name they are
called.”).
105 Reves, 494 U.S. at 67.
106 See Reves, 494 U.S. at 69 (finding “no risk-reducing factor to suggest that
[the notes at issue] are not in fact securities,” in part because they were
“uncollateralized and uninsured”); Pollack, 27 F.3d at 814 (observing in connection
with the analysis of the fourth Reves factor that the “amended complaint specifically
alleges that the mortgage participations were ‘not secured’ and were
‘uncollateralized’”). “Collateral” is “[p]roperty that is pledged as security against
a debt.” Collateral, Black’s Law Dictionary (11th ed. 2019); see FDIC Manual, supra
note 1, § 3.2-66 (describing the requirements for establishing a perfected security
interest in collateral).
107 Banco Espanol, 973 F.2d at 55.

35
The pleaded facts do not plausibly suggest that application of
securities laws 108 are necessary here for two reasons. 109 First, the Notes
were “secured by a perfected first priority security interest in all of
[Millennium’s] tangible and intangible assets,” i.e., Millennium’s
collateral. 110 That perfected first priority security interest reduces the
risk associated with the Notes. Second, the Office of the Comptroller
of the Currency, the Board of Governors of the Federal Reserve
System, and the Federal Deposit Insurance Corporation (jointly, the
“Bank Regulators”) issued “specific policy guidelines” 111 addressing
syndicated term loans. 112

Plaintiff contends that the Bank Regulators’ guidance does not
constitute “another regulatory scheme [that] significantly reduces the
risk of the” 113 Notes “because the Bank Regulators’ guidance merely
addresses risk management controls to ensure sound banking

108 Plaintiff does not argue that our analysis of the fourth Reves factor is
affected by the fact that he brought claims under state securities laws as opposed
to the Securities Acts.
109 Reves, 494 U.S. at 67.
110 J.A. 382–83.
111 Banco Espanol, 973 F.2d at 55 (concluding that the fourth Reves factor
weighed against concluding that the loan participations were securities where “the
Office of the Comptroller of the Currency has issued specific policy guidelines
addressing the sale of loan participations”).

See, e.g., Interagency Guidance on Leveraged Lending, 78 Fed. Reg. 17766,
112

2013 WL 1154182 (Mar. 22, 2013); Comptroller’s Handbook, supra note 12.
113 Reves, 494 U.S. at 67.

36
practices and minimize risks to banks” and “does not address risks to
investors.” 114 Although it is true that the guidance aims to minimize
risks to banks, in doing so it also aims to protect consumers. For
example, the Bank Regulators have explained that the purpose of
“supervisory guidance [is to] provide[] examples of practices that the
[Bank Regulators] generally consider[] consistent with safety-and-
soundness standards or other applicable laws and regulations,
including those designed to protect consumers.” 115 Moreover, we already
considered and rejected the argument raised by plaintiff here in Banco
Espanol. 116 We were unpersuaded then, and plaintiff offers no
compelling reason to revisit that decision now. 117

Pl. Br. at 45. Plaintiff does not argue that the issued guidance is ineffective
114

in minimizing risks to banks.

12 C.F.R. § 262, App. A (2021) (emphasis added); see also id. § 4, Subpt. F,
115

App. A (same); id. § 302, App. A (same).
116 See Brief of the SEC as Amicus Curiae at 40–41, Banco Espanol de Credito v.
Sec. Pac. Nat’l Bank, 973 F.2d 51 (2d Cir. 1992), 1992 WL 12936369. In Banco Espanol,
the Securities and Exchange Commission (“SEC”) argued, as amicus curiae, that
the “guidelines [issued by the Office of the Comptroller of the Currency] for
national banks purchasing loan participations” were insufficient to render
application of the Securities Acts unnecessary because they “addressed . . . steps
national banks should take before they purchase loan participations” and had “no
applicability” as to the “plaintiff purchasers” because “none are national banks.”
Id. at 37, 40–41.
117 Nor does the SEC. Following argument in this case, we entered an order
“solicit[ing] any views that the [SEC] may wish to share on th[e] issue” of whether
the Notes are securities under Reves. Order, Kirschner v. JP Morgan Chase Bank, N.A.,
No. 21-2726 (2d Cir. Mar. 16, 2023), ECF No. 170. After receiving several extensions
of time to file its response to our invitation to provide its views on this question,

37
Accordingly, this factor weighs against concluding that the
complaint plausibly alleges that the Notes are securities.

***

To summarize our application of the Reves factors to the pleaded
facts:

• The first factor—the motivations of the parties—weighs in
favor of concluding that the complaint plausibly suggests that
the Notes are securities because, although Millennium’s
motivation appears to be “commercial,” the lenders’
motivations were “investment.”
• The second factor—the plan of distribution—weighs against
concluding that the complaint plausibly suggests that the
Notes are securities because they were unavailable to the
general public by virtue of restrictions on assignments of the
Notes.
• The third factor—the reasonable expectations of the public—
weighs against concluding that the complaint plausibly
suggests that the Notes are securities because the lenders
were sophisticated and experienced institutional entities
with ample notice that the Notes were not securities.

the SEC notified the Court that “[d]espite diligent efforts to respond to the Court’s
order and provide the [SEC’s] views, the staff is unfortunately not in a position to
file a brief on behalf of the [SEC] in this matter.” Letter on behalf of Amicus Curiae
SEC, Kirschner, No. 21-2726 (2d Cir. July 18, 2023), ECF No. 207.

38
• The fourth factor—the existence of other risk-reducing
factors—weighs against concluding that the complaint
plausibly suggests that the Notes are securities because they
were secured by collateral and federal regulators have issued
specific policy guidance addressing syndicated loans.

Upon our review of the pleaded facts, we conclude that the
Notes, like the loan participations in Banco Espanol, “bear[] a strong
resemblance” 118 to one of the enumerated categories of notes that are
not securities: “[L]oans issued by banks for commercial purposes.” 119
We accordingly hold that plaintiff has failed to plead facts plausibly
suggesting that the Notes are securities under Reves v. Ernst & Young,
494 U.S. 56 (1990). The District Court therefore properly dismissed
plaintiff’s state-law securities claims.

III. CONCLUSION

In sum, we hold as follows:

1) The District Court had jurisdiction over this action
pursuant to the Edge Act because defendant-appellee

118 Reves, 494 U.S. at 67.
119 973 F.2d at 55–56 (“[U]nder the Reves family resemblance analysis . . . we
hold that the loan participations in the instant case are analogous to the enumerated
category of loans issued by banks for commercial purposes and therefore do not
satisfy the statutory definition of ‘notes’ which are ‘securities.’”).

39
JP Morgan Chase Bank, N.A. engaged in international
or foreign banking as part of the Transaction; and
2) The District Court properly dismissed plaintiff’s state-
law securities claims because he failed to plead facts
plausibly suggesting that the Notes are securities
under the “family resemblance” test established by the
Supreme Court in Reves v. Ernst & Young, 494 U.S. 56
(1990).

We accordingly AFFIRM the District Court’s September 24,
2018 order determining that it had jurisdiction over this matter
pursuant to the Edge Act and AFFIRM its May 22, 2020 order
dismissing plaintiff’s state-law securities claims.

40

Kirschner v. JP Morgan Chase Bank, N.A.

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