Second Circuit Certifies a Question to the New York Court of Appeals Regarding the Definition of “Security

On September 8, 2006, the New York office authored an Alert entitled, “Second Circuit Certifies a Question to the New York Court of Appeals Regarding the Definition of “Security” under the New York U.C.C. ” The alert discusses how the Second Circuit in Highland Capital Mgmt. LP v. Schneider recently certified to the New York Court of Appeals the question of whether certain promissory notes constituting securities under federal and New York state securities laws constituted “securities” for purposes of the New York Uniform Commercial Code (“U.C.C.”). The U.S. District Court for the Southern District of New York concluded the promissory notes did not constitute securities for U.C.C. purposes, and that therefore the suit—which was based on an alleged oral agreement—could not proceed in the face of New York’s statute of frauds because the exception for contracts for the sale of securities was unavailable (U.C.C. Sections 1-206, 8-113). The Second Circuit indicated it would have concluded otherwise but, given the lack of New York case law guidance, certified the question to the New York Court of Appeals for resolution. Please see copies of the District Court and Second Circuit decisions.