It authorized the creation of federally chartered Edge Act banks (or Edge Act corporations) that could engage in international banking transactions. In their quest for removal, the defendants in theBenefit Street Partnersaction sought to rely on 12 U.S.C. § 632, included in the 1933 amendment. Section 632 provides that[a]ll suits of a civil nature ... to which any corporation organized under the laws of the United States shall be a party, arising ... out of other international or foreign financial operations, ... shall be deemed to arise under the laws of the United States, and the district courts of the United States shall have original jurisdiction of all such suits; and any defendant in any such suit may, at any time before the trial thereof, remove such suits from a State court into the district court of the United States.

In the ruling decided by the United States Second Circuit Court of Appeals on Aug. 24 in Kirschner v. JP Morgan, the court upheld the District Court’s decision stating that the origination and distribution of $1.8B in syndicated bank loans cannot be categorized as securities transactions regardless of their resale to institutional buyers on the secondary market.The court distinguished two separate issues at hand. The first was determining the subject matter jurisdiction of the United States District Court for the Southern District of New York according to the Edge Act, 12 U.S.C. § 632. The second issue was determining if theplaintiff’s state-law securities claims were wrongly dismissed by the District Court “on the ground that he failed to plausibly suggest that notes issued as part of the syndicated loan transaction are securities under Reves v. Ernst & Young, 494 U.S. 56 (1990).”The court determined the District Court did have jurisdiction under the Edge Act, and that the state-law securities claims were not wrongly dismissed under Reves v. Ernst & Young.This case will likely have implications beyond notes, both for the private equity industry and the crypto sector such as in the lending area.

s, finding that “in doing so it also aims to protect consumers.” Id. at 37.ImplicationsHad the 2nd Circuit held that syndicated term loans are securities, it would have disrupted decades of market conventions in the syndicated loan market. Moreover, as we discussed in our prior client alert on the subject, a contrary decision from the 2nd Circuit could have exposed commercial lenders, secondary market participants and borrowers to increased risk of liability for insider trading and tender offer requirements, and would have significantly restricted existing CLOs from owning syndicated term loans. In short, there would have been significant chaos in the loan markets. The 2nd Circuit’s decision should assuage these immediate concerns and provides further guidance to lenders and borrowers seeking to minimize the risk of having loans classified as securities in the future.1 Plaintiff also appealed the district court’s ruling that it had subject matter jurisdiction pursuant to the Edge Act, 12 U.S.C. § 632. The 2nd Circuit held that the district court properly concluded that it had jurisdiction.2 In so finding, the court found that the Notes contained restrictions on assignments similar to those placed on the loan participations at issue in Banco Espanol de Credito v. Security Pacific National Bank, 973 F.2d 51 (2d Cir. 1992). There, the 2nd Circuit found the limitations placed on the reselling of the loan participations without express written permission of the issuer weighed against the conclusion that the loan participations were securities. Id. at 55.

In addition, Plaintiff asserted common law causes of action for negligent misrepresentation against all Defendants, as well as claims for breach of fiduciary duty, breach of contract, and breach of the implied covenant of good faith and fair dealing against JP Morgan Chase Bank, N.A. (“Chase”) in its capacity as “Administrative Agent” for the Millennium syndicated loan transaction. On August 21, 2017, Defendants removed the case to the Southern District of New York, asserting the Edge Act, 12 U.S.C §632, as the basis for federal jurisdiction.Defendants then moved to dismiss Plaintiff’s complaint.