Judge Bill Whitehill
The Business Court has granted partial summary judgment to a defendant who argued that a promissory note was not a security as defined by the Texas Securities Act.
Jean Christine Thompson and Thompson Petroleum Corporation v. Anchor Capital GP LLC and Michael Mann (2026 Tex. Bus. 41; July 1, 2026) arose from a dispute over a promissory note. Thompson, owner and president of a family business that manages the Thompsons’ assets, and Mann, founder and CEO of Anchor Capital, began a business relationship in 2022. Using Christy 2017, a holding company for the Thompson family’s investments,Thompson began investing millions of dollars in Anchor-managed funds. In September 2024, Mann asked Thompson to loan Anchor money so that he could buy out one of Anchor’s partners. She agreed contingent on Mann providing a personal financial statement and loan guarantee. Mann signed a Secured Promissory Note, Security Agreement, and a Personal Guaranty. Shortly thereafter, Mann requested additional money to buy out another partner.
On May 25, 2025, Thompson exercised her rights to inspect the collateral and asked for access to Anchor’s books and records. After some back and forth, the books and records never appeared. Thompson’s counsel subsequently sent several letters to Mann that went unanswered. On July 22, Thompson sent Anchor a default notice and accelerated the loan. Plaintiffs filed suit in the Business Court. Defendant filed a partial motion for summary judgment.
In an opinion by Judge Whitehill, the court granted the motion. The issue was whether the promissory note was a “security” under the Texas Securities Act. Defendant argued that (1) Plaintiffs’ Texas Security Act claim failed because the note was not a security, and (2) Plaintiffs’ breach of guaranty claim failed because the guaranty didn’t require Mann to audit his personal financial statement. The court previously decided on June 18 that the guaranty didn’t require Mann to provide an audited financial statement, so that part of the motion was resolved for Defendant.
Turning to the Texas Security Act question, the court observed that the statute broadly defines “securities” generally in line with the Federal Securities Act of 1933. Defendant argued that the promissory note falls into the category of “commercial loan transaction,” whereas Plaintiffs contended that the note is presumed a security under the U.S. Supreme Court’s “family resemblance” test, as enunciated in Reves v. Ernst & Young, 494 U.S. 56, 63-64 (1990). Federal courts have developed three tests. The first, the “investment versus commercial approach,” considers the totality of the circumstances to determine the degree to which the plaintiff depends on the expertise and efforts of others rather than the instruments’ nature.
The second, the “family resemblance test,” presumes that any note with a term of more than nine months is a security, except for (1) notes delivered in consumer financing, (2) notes secured by home mortgages, (3) short-term notes secured by liens on a small business or some of its assets, (4) notes evidencing a “character” loan to bank customers, and (5) notes formalizing open-account debts incurred in the ordinary course of business. The test permits a party to rebut the presumption if they can show either a “strong family resemblance” of an item on the list of exceptions or convince the court to add another item to the list. The third, the Hovey test, presumes that a note is not a security unless “it evidences ‘(1) an investment, (2) in a common enterprise, (3) with a reasonable expectation of profits, (4) to be derived from the entrepreneurial or managerial efforts of others.”
In Reves SCOTUS analyzed these tests and adopted the “family resemblance” test. Texas courts followed suit in Campbell v. C.D. Payne & Geldermann Sec., Inc.m, 894 S.W.2d 411, 418 (Tex. App.—7th Dist. 1995, writ denied). Consequently, the court applied the “family resemblance” test, observing that courts use four factors: (1) the parties’ motivations for entering the transaction; (2) the “plan of distribution”; (3) the investing public’s reasonable expectations; and (4) whether there are risk-reducing measures in place to mitigate the need for statutory protections.
First, since the note had a four-year maturity, the court determined that it wasn’t a “short term” note nor excepted from the test (generally, short-term notes have a maturity of nine months or shorter). Turning to the “plan of distribution,” the court noted that Plaintiffs’ response to the MSJ conceded that this factor supported Defendant, so the court didn’t need to consider it. Next, the court determined that the parties’ motivations, finding that since Plaintiffs agreed to the note at below-market rates and under a borrower-friendly payment schedule, profit was not their primary motive, suggesting that the note wasn’t a TSA security. On the other side, Defendant admitted to the use of the note to raise capital to avoid diluting Anchor’s existing equity investor and to help expand the business, suggesting that the note was a security. Consequently, the court concluded that since Mann’s motives were “clearly for investment purposes, this factor favors the Note being a security).”
Next, the court looked at how the investing public would reasonably view the note, considering the note’s express language, its advertisement, and the sophistication of the parties. Since the note was entitled a “Secured Promissory Note” and nowhere included the term “investment” or “investor,” the public would not view it as a security. The note was never advertised as a security, either. And the parties were undoubtedly sophisticated business people represented by sophisticated lawyers. The court could thus “reasonably conclude the parties had a solid understanding that the Note was a loan and not a business enterprise investment.” In sum, that factor weighed against Plaintiffs’ argument that the note was a security.
Finally, the note was both collateralized and personally guaranteed by Mann. It included representations, warranties, and convenants and gave Thompson rights to inspect collateral and obtain Mann’s financial information. The presence of these risk-reducing measures, the court stated, “strongly suggests the Note is not a TSA security. Accordingly, this factor also weighs heavily against the Note being a security.”
Based on its analysis, the court ruled that the note was not a security and granted Defendants’ partial MSJ.
