159 F. Supp. 3d 752
W.D. Tex.2016Background
- Defendants Barlin, Lahr, and Gunn moved for judgment as a matter of law after trial; court granted in part and denied in part.
- Court considered whether three notes (Manor, Temple, Long Beach) were securities under the Texas Securities Act (TSA) using the Reves family-resemblance framework.
- Notes were analyzed under four Reves factors: motivation, plan of distribution, public expectation of investment, and risk-reducing factors.
- Notes were found to be securities based on motivations, investment character, and lack of broad distribution; collateralization rendered risk-reducing factors neutral.
- Defendants argued issuer exemption and Barlin’s status as seller; court rejected issuer exemption for non-issuers and non-seller status for Barlin; court addressed fiduciary duties and collateral estoppel as to remaining claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the notes securities under the TSA? | Notes are securities under TSA per four-factor test. | Notes lack a broad distribution; no investor protections needed. | Yes, notes are securities under TSA. |
| Does the issuer exemption apply to non-issuers or third-party sellers? | Exemption should apply broadly to exempt non-public sales. | Exemption only for issuer-seller; not for third-party dealers or non-issuers. | Issuer exemption does not apply to these defendants. |
| Is Barlin liable as a seller or liable for secondary liability? | Barlin acted as seller/aid in sale of notes; liable. | Barlin not a seller for Temple/Long Beach notes; limited secondary liability. | Barlin not a seller for Temple/Long Beach; bar on certain secondary liability remains for Manor loan. |
| Did Lahr and Gunn owe fiduciary duties to Plaintiffs? | Informal or formal fiduciary duties could arise. | No fiduciary duty; relationships were arms-length or lacked formal fiduciary basis. | No fiduciary duty found for Lahr and Gunn; Gunn not agent for plaintiffs. |
| Do collateral estoppel or res judicata preclude certain claims? | Prior Texas court ruling on duty of care estops negligence claims. | Res judicata bars reliance on those negligence theories. | Plaintiffs collaterally estopped from negligence; no gross negligence instruction. |
Key Cases Cited
- Reves v. Ernst & Young, 494 U.S. 56 (U.S. 1990) (family-resemblance test for notes as securities)
- Trust Co. of La. v. N.N.P. Inc., 104 F.3d 1478 (5th Cir. 1997) (applies family-resemblance to TSA securities)
- Grotjohn Precise Connexiones Intern., S.A. v. JEM Financial, Inc., 12 S.W.3d 859 (Tex. App. 2000) (applies family-resemblance to TSA securities in Texas)
- Exchange Nat. Bank of Chi. v. Touche Ross & Co., 544 F.2d 1126 (2d Cir. 1976) (quotes the four-factor approach to notes as securities)
- Stoiber v. S.E.C., 161 F.3d 745 (D.C. Cir. 1998) (small number of investors can still involve common trading)
- McNabb v. S.E.C., 298 F.3d 1126 (9th Cir. 2002) (weighs investor protection against broadness of public segment)
- In re Enron Corp. Sec., Derivative & ERISA Litig., No. 1:01-CV-577 (S.D. Tex. 2010) (broader Texas fiduciary and seller determinations)
- Meyer v. Cathey, 167 S.W.3d 327 (Tex. 2005) (informal fiduciary duties require pre-existing trust relationship)
- Baz an v. Munoz, 444 S.W.3d 110 (Tex. App. 2014) (formal fiduciary duties arise as matter of law)