Court Opinion

ID: 9660592
Source: CourtListenerOpinion
Date Created: 2023-08-23 22:16:34.242449+00
Date Added: 2024-06-11T18:14:20.117827
License: Public Domain

Tom Glaze, Justice, concurring. I agree with the results reached in this case, but I am concerned with the majority’s reliance on the fact that only banks were involved in the loan participations. By such reliance, the majority seems to ignore the fact that there was a public offering in this case. The offering memorandum was directed to financial institutions and qualified individual investors. As the facts of this case show, a charitable trust, the Hayden trust, was a participant and a party to the lawsuit until its claim was settled with Worthen. While I agree that the sophistication and knowledge of the parties should be considered by the court, I submit there are other, more important, factors that should determine the outcome of this case. For instance, in my opinion, the transaction fails to meet the definition of a security under the test set out in S.E.C. v. Howey Co., 328 U.S. 293 (1946). One of the prongs of the Howey test is that there should be a reasonable expectation of profits from the investments in a venture. I find persuasive the argument that interest obtained from a loan shows not an investment premised upon a reasonable expectation of profits, but a commercial loan transaction. See American Fletcher Mortg. Co. v. U.S. Steel Credit Corp., 635 F.2d 1247 (7th Cir. 1980). One might question whether my reference to the so-called Howey test is appropriate, since it has been suggested this court has not adopted that test, preferring instead the view adopted by Minnesota in Minnesota v. Investors Security Corp., 297 Minn. 1, 209 N.W.2d 405 (1973). See Schultz v. Rector-Phillips-Morse, Inc., 261 Ark. 769, 552 S.W.2d4 (1977); see also Note, A Definition of “Investment Contracts" and Equitable Defenses to Suit for Rescission for Nonregistration Under the Arkansas Securities Act, 1 UALR L.J. 366, 375 (1978) and Note, Securities Law — Partnerships — Adoption of an Expansive Test for Defining a Security, 11 UALR L.J. 369, 373 (1988-89). In spite of such a suggestion, I point out that, in reaching its decision, the majority court places substantial reliance on the cases of Union National Bank v. Farmers Bank, 786 F.2d 881 (8th Cir. 1986), and American Fletcher Mortg. Co. v. U.S. Steel Credit Corp., 635 F.2d 1247(7th Cir. 1980), and that the courts in both of these cases applied the Howey test when reaching their respective decisions. In this same vein, I note that the Arkansas Court of Appeals, in its decision in Smith v. State, 266 Ark. 861, 587 S.W.2d 50 (Ark. App. 1979), relied on a test substantially similar to the Howey test. See also Union Nat. Bank of Little Rock v. Farmers Bank, 786 F.2d at 885.1  While not diminishing the importance of the fact that bankers were the participants in the transactions here, I believe the decisive factor, when considering the security issue, is that the transactions revealed participation in what amounted to a standard commercial loan, not an investment. In sum, I am convinced the state securities law was not intended to cover such bank loans.   1 Arkansas cases on the subject of defining the term security are not models of clarity, and in my mind at least, the court must better define which test and what factors it will consider when confronted with this issue.