Lahn v. Vaisbort

Where a dispute over a transaction involves whether the transaction was a security or a commercial loan between private parties, the four-factor test outlined in Reves v. Ernst & Young, 494 US 56, 63-64 (1990), must weigh in favor of a security in order for the transaction to be governed by Oregon Securities Law under ORS chapter 59. The four-factor test involves analyzing: (1) the motivation for entering the transaction, (2) the plan of distribution, (3) the reasonable expectations of the investing public, and (4) whether there are any risk-reducing factors that would make application of the securities laws unnecessary.

Plaintiff Scharff appealed from a judgment in favor of Defendant Vaisbort on his motion for summary judgment. Plaintiff claims included breach of contract, professional negligence, and securities fraud, which arose when Plaintiff provided a renewed loan to a real estate entity and then subsequently learned the loan was unsecured. The Court rejected without discussion Plaintiff’s breach of contract claim. As to the professional negligence claim, the Court held the transaction documents and emails between Plaintiff and Defendant showed there was no objective basis upon which a reasonable factfinder could conclude Plaintiff and Defendant were in a lawyer-client relationship for this transaction, even though Defendant had represented Plaintiff in other similar transactions; therefore, because a lawyer is normally not liable to persons outside the lawyer-client relationship, the trial court did not err in granting summary judgment to Defendant on this claim. As to Plaintiff’s securities law claim, the Court first held a reasonable factfinder could find Plaintiff’s claim was not time-barred. Plaintiff claimed Defendant participated or materially aided in the sale of a security “by fraud or deceit” in violation of the Oregon Securities Law contained in ORS chapter 59; Defendant claimed the transaction was a commercial loan rather than a security and so ORS chapter 59 was inapplicable. The Court found the transaction was a note (not a commercial loan), and then analyzed the transaction using the four-factor test contained in Reves v. Ernst & Young, 494 US 56, 63-64 (1990): (1) the motivation for entering the transaction, (2) the plan of distribution, (3) the reasonable expectations of the investing public, and (4) whether there are any risk-reducing factors that would make application of the securities laws unnecessary. Factors (1), (3) and (4) were held to favor finding the note was a security; factor (2) did not favor a finding that the note was a security because the broker targeted only 13 individuals to invest rather than broadly soliciting investors. The Court held the trial court erred in granting Defendant judgment as a matter of law on the ground the note was not a security. Reversed and remanded on securities fraud claim; otherwise affirmed.