Last summer, bankers and the lawyers who advise them breathed a collective sigh of relief when the Second Circuit Court of Appeals upheld a U.S. District Court's opinion that notes in a bank syndicated loan were not securities. Kirschner v. JP Morgan Chase Bank, N.A., 79 F.4th 290 (2d Cir. 2023), cert. denied sub nom. Kirschner v. JPMorgan Chase Bank, N.A., 144 S. Ct. 818 (2024). Because the Court of Appeals applied the “family resemblance” test established by the Supreme Court in Revesv. Ernst & Young, 494 U.S. 56, 110 S.Ct. 945, 108 L.Ed.2d 47 (1990), many lawyers may assume that the case was brought under the federal securities laws.

In fact, the plaintiff brought his claims under the state-securities laws of Massachusetts, Colorado, Illinois, and California. Both the District Court and the Court of Appeal, however, agreed that the Reves test was the applicable test. Therefore, it is interesting to note that no California court has expressly adopted Reves in a published opinion.

Nonetheless, the California Corporate Securities Law of 1968, like its federal counterparts, does include "any note" in the laundry list of instruments that are securities. Cal. Corp. Code § 25019. The leading treatise on the CSL, Marsh's California Securities Laws, also observes that California courts have not always found that instruments denominated as "notes" are securities. Harold Marsh, Jr. & Robert H. Volk, Practice Under the California Securities Laws, Revised Ed. § 5.19[3] (Keith Paul Bishop, ed. Matthew Bender & Co. 2023). While the Kirschner opinion is not binding on California courts, it seems unlikely that a California court will disavow the application of Revesif and when the question is presented.