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

Pursuant to a credit agreement, Millennium Health LLC, Inc. (Millennium) received loans from various banks and lending institutions (the lenders) (defendants). As a result of a federal investigation and litigation with a competitor, Millennium entered into a loan-syndication agreement with the lenders who had purchased notes from Millennium for the purpose of refinancing the initial loans. The lenders executed a confidential memorandum confirming that the lenders were sophisticated and experienced in extending credit. Motivated to make a profit, the lenders entered into a new credit agreement pursuant to which the notes were secured by collateral. The new credit agreement also created a secondary market for the notes, meaning that the notes could be resold to other lenders. Assignment of the notes was restricted, meaning that the notes could not be distributed to the general public. Millennium filed for bankruptcy after the federal investigation and litigation with a competitor concluded that Millennium broke the law by engaging in unfair competition. Mark S. Kirschner (the trustee) (plaintiff) was appointed as Millennium’s bankruptcy trustee. The trustee filed suit against the lenders, claiming that the notes associated with the loan syndication violated securities laws. The lenders motioned to dismiss. The district court granted the motion, finding that the notes were not securities and thus were not regulated by securities laws. The trustee appealed.