Are There Silver Hills In Other States?


In Silver Hills May Tarnish Crowdfunding, I wrote about Justice Roger J. Traynor’s alternative definition of “security” under the predecessor to the Corporate Securities Law of 1968. Silver Hills Country Club v. Sobieski, 55 Cal. 2d 811 (1961) Justice Traynor’s definition may cause problems for crowdfunders who are relying on the fact that their arrangements don’t meet the definition of an “investment contract” established by the U.S. Supreme Court in Securities & Exchange Commission v. W.J. Howey Co., 328 U.S. 293 (1946).

Justice Traynor was an extremely influential jurist and his opinions have been extremely influential. That has certainly been the case with the “risk capital” test that Justice Traynor enunciated in his Silver Hills opinion. Other states have adopted the risk capital definition by

  • statute (e.g., Rev. Code Wash. 21.20.005(17)(a) (“‘Security’ means any . . . investment of money or other consideration in the risk capital of a venture with the expectation of some valuable benefit to the investor where the investor does not receive the right to exercise practical and actual control over the managerial decisions of the venture . . .”));
  • rule (e.g., N.C. Admin. Code 18 NCAC 06A .1104 (“Any investment by which an offeree furnishes initial value to an offeror, and a portion of this initial value is subjected to the risks of the enterprise, and the furnishing of this initial value is induced by the offeror’s promises or representations which give rise to a reasonable understanding that a valuable benefit of some kind over and above the initial value will accrue to the offeree as a result of the operation of the enterprise, and the offeree does not receive the right to exercise practical and actual control over the managerial decisions of the enterprise.”)); and
  • case law (e.g., State by Commissioner of Sec. v. Hawaii Mkt. Ctr., 485 P.2d 105 (Haw. 1971).

Although Justice Traynor has many fans, U.S. Circuit Court Judge Alex Kozinski isn’t one of them (at least with respect to Justice Traynor’s approach to contract interpretation):

I had grown tired of law clerks who thought California Chief Justice Traynor was the cat’s pajamas because he didn’t believe that any contract could be interpreted without the use of extrinsic evidence. Whenever I would get a case where I thought the contract language was clear, they would quote me back some idiot line from Traynor about how this merely reflected the effete linguistic prejudices of judges.

Who Gives A Hoot About Legal Scholarship?, 37 Hous. L. Rev. 295, 298 (2000). If you haven’t read this, it’s short and very entertaining.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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