## Facts

- Millennium Health LLC, a drug-testing company, obtained a $1.775 billion syndicated term loan arranged and administered by major financial institutions, including a national bank.
- The credit agreement permitted a secondary market for loan interests but restricted assignments to “Eligible Assignees,” generally sophisticated institutional entities, and excluded sales to the general public.
- Arrangers distributed a confidential information memorandum; lenders represented they were sophisticated, would conduct independent diligence, and were not relying on the arrangers’ recommendations.
- Millennium faced federal investigation and civil litigation concerning its business practices; it later entered a substantial settlement and filed for Chapter 11 bankruptcy.
- A post-bankruptcy trustee sued arranging and syndicating institutions under state law, including securities-law theories asserting the loan “notes” should be treated as securities.
- Defendants removed the action to federal court under the Edge Act; the district court retained jurisdiction and dismissed the state-law securities claims, concluding the notes were not securities under the Reves test.

## Issues

1. Whether federal subject-matter jurisdiction existed under the Edge Act, 12 U.S.C. § 632, based on a suit arising out of a transaction involving international or foreign banking with a federally chartered bank as a party.
2. Whether the syndicated term-loan notes were “securities” under the Reves “family resemblance” test, permitting state-law securities claims.

## Decision

- The Second Circuit affirmed the district court’s exercise of Edge Act jurisdiction because the suit arose from a transaction in which the national bank engaged in international or foreign banking activity.
- The Second Circuit affirmed dismissal of the state-law securities claims, holding the syndicated term-loan notes were not securities under Reves.
- Applying Reves, the court found:
  - The parties’ motivations reflected commercial lending (refinancing and corporate purposes; returns as interest and fees), not an investment in securities.
  - Distribution was limited to sophisticated institutions under assignment restrictions and minimum transfer requirements, not offered to the general public.
  - Market participants would reasonably view the instruments as loans, reinforced by transaction documents labeling parties as “lenders” and requiring independent diligence.
  - Banking regulation and contractual risk controls (covenants, collateral, remedies) reduced risk in a manner inconsistent with applying securities-law regulation.

## Legal Principles

- Edge Act jurisdiction under 12 U.S.C. § 632 applies when (1) a federally chartered bank is a party and (2) the suit arises out of a transaction involving international or foreign banking.
- Under Reves, a note is presumptively a security, but the presumption is rebutted if the instrument bears a “family resemblance” to non-security notes, assessed by four factors: motivations, plan of distribution, reasonable expectations of the investing public, and risk-reducing factors/alternative regulation.
- Syndicated term loans limited to institutional lenders by contractual transfer restrictions, documented and understood as loans, and subject to banking oversight and lender protections can fall outside the definition of “security.”

## Conclusion

The Second Circuit held that removal was proper under the Edge Act and that the Millennium syndicated term-loan notes, as structured and distributed to sophisticated institutions, were not securities under the Reves framework, requiring dismissal of the state-law securities claims.


Kirschner v. JP Morgan Chase Bank, N.A., 79 F.4th 290 (2d Cir. 2023)