Court Opinion

ID: 9462615
Source: CourtListenerOpinion
Date Created: 2023-08-04 22:45:26.429527+00
Date Added: 2024-06-11T17:37:40.624574
License: Public Domain

EUGENE A. WRIGHT, Circuit Judge
(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 L.Ed.2d 367 (1971), note 2 infra.
There is no indication that Congress sought to include commercial financing within the protection of the securities acts. Professor Loss comments that “[I]t might be argued that Congress would have been more explicit if it had intended to provide a federal civil remedy in the context of the ordinary promissory note.” 1 Loss, Securities Regulation 546 (1961). See also Lino v. City Investing Co., 487 F.2d 689, 695 (3d Cir. 1973); Bellah v. First National Bank, 495 F.2d 1109, 1114 (5th Cir. 1974).
While the securities acts are designed to protect “investors,” commercial loans given by banks are not generally “investments” *1261and banks engaged in transactions such as this are not “investors” within the meaning of these acts. It should be noted that Congress has explicitly distinguished the investing from the lending activities of national banks, 12 U.S.C. §§ 24 and 301, and state banks which are members of the Federal Reserve, 12 U.S.C. § 335. See also 12 C.F.R. § 7.1180 (1974).
The investment transactions of such banks are strictly limited to a defined set of “investment securities” whose parameters would not include a note given in a commercial lending transaction, 12 U.S.C. § 24. The Comptroller of the Currency defines “investment security” as “a marketable obligation in the form of a bond, note, or debenture which is commonly regarded as an investment security.” 12 C.F.R. § 1.3(b) (1974). (Emphasis added.)2
The note in question here certainly cannot be held to be a “marketable obligation . commonly regarded as an investment security.” The dichotomy in the banking regulations between lending and investing functions belies any suggestion that such notes are “investment securities.”
The regulations governing Arizona savings banks pose an even stricter dichotomy between banks’ lending and investing functions:
A savings bank may invest its capital and deposits and the income derived therefrom:
In other listed bonds, notes, and debentures which have a standard rating above the first four grades if the investment is approved in writing by at least two-thirds of the directors of the bank and the superintendent of banks.
A.R.S. § 6-322 (1974 Supp.) (Emphasis added.)
Such restrictions reinforce the distinction between the commercial lending and investment functions of banks. See Sanders, supra, 463 F.2d at 1080; C. N. S., supra, 508 F.2d at 1362; Bellah, supra, 495 F.2d at 1113. Cf. Zabriskie, supra, 507 F.2d at 551 (individual investor distinguished from bank which is in business of making loans).
The distinction made by Congress between commercial lending transactions and those involving investment securities is a reasonable one. While banks are subjected to risks of misinformation, their ability to verify representations and take supervisory and corrective actions places them in a sig*1262nificantly different posture than the investors sought to be protected through the securities acts.
In an investment situation, the issuer has superior access to and control of information material to the investment decision. Rather than relying solely on semi-anonymous and secondhand market information, as do most investors, the commercial bank deals “face-to-face” with the promissor. The bank has a superior bargaining position and can compel wide-ranging disclosures and verification of issues material to its decision on the loan application. The bank here obtained a covenant to permit it to inspect Artko’s property and records “at such times as [Great Western] may reasonably request.” Far from purchasing an instrument whose terms were fixed prior to the time of its offering, the bank negotiated the terms of the note in question. When it discovered a change in Artko’s financial status, it was able to negotiate new terms and restrictions on Artko’s dealings.

. Young v. Seaboard Corp., 360 F.Supp. 490 (D.Utah 1973), held that notes given for bank loans were securities. The reasoning of the court is far from clear and properly criticized by the Fifth Circuit in Bellah v. First National Bank, 495 F.2d 1109, 1115 (5th Cir. 1974), for failing to recognize the distinction between commercial and investment transactions.

. Compare A.R.S. § 44-3002 (1974 Supp.).
In a complex action challenging the statutory . authority of the Comptroller of the Currency to allow banks to engage in the investment banking business, the district court of the District of Columbia was confronted with the Comptroller’s argument that “securities,” as used in 12 U.S.C. § 24, has a different meaning than “securities” as used in the Securities Act of 1933, 15 U.S.C. § 77b(l). Rejecting this contention, the court stated:
“It would be inconsistent to conclude that Congress did not intend to obtain the equivalent meaning for the term ‘securities’ as used in the Securities Act of 1933 when it used the same term in the Glass-Steagall Act [12 U.S.C. § 24] which was enacted by the same Congress.”
Investment Company Institute v. Camp, 274 F.Supp. 624, 642-43 (D.D.C.1967) (footnote omitted).
The decision of the district court was reversed by the Court of Appeals, National Ass’n of Securities Dealers v. Securities & Exchange Comm’n, 136 U.S.App.D.C. 241, 420 F.2d 83 (1969), but was subsequently affirmed by the Supreme Court. Investment Company Institute v. Camp, 401 U.S. 617, 91 S.Ct. 1091, 28 L.Ed.2d 367 (1971). While not expressly addressing the issue resolved by the district court, the Supreme Court did comment:
“[T]here is nothing in the phrasing of either § 16 [12 U.S.C. § 24] or § 21 [12 U.S.C. § 378(a)] that suggests a narrow reading of the word ‘securities.’ To the contrary, the breadth of the term is implicit in the fact that the antecedent statutory language encompasses not only equity securities but also securities representing debt.”
401 U.S. at 635, 91 S.Ct. at 1101, 28 L.Ed.2d at 380. (This broad definition parallels those in 15 U.S.C. § 77b(l) and § 78c(a)(10).)
Having made this determination, the Investment Company Institute Court then stated that Congress had intended to “divorce” commercial banking from “ ‘buying and selling securities acquired purely for investment or speculative purposes.’ ” 401 U.S. at 635, 91 S.Ct. at 1101, 28 L.Ed.2d at 381, quoting Hearings Pursuant to S.Res. 71 before a Subcommittee of the Senate Committee on Banking and Currency, 71st Cong., 3d Sess., 1057 (1931).