Plaintiff First National Bank of Las Vegas, New Mexico, appeals from the district court summary judgment in favor of defendants in this securities fraud case. The district court granted summary judgment for defendants, finding that the notes involved in the transaction at issue were not securities and that the transaction was not a purchase and sale of a security. We vacate and remand.

"In considering the propriety of summary judgment, plaintiff's factual version must be taken as true." Shores v. Sklar, 647 F.2d 462, 464 (5th Cir. 1981) (en banc). As the Shores Court further noted, "Reciting the facts most favorably to the plaintiff, as we do below, does not imply that he can prove his allegations." Id. With that in mind, the facts indicate that the following transactions occurred.

Russell, Kennedy & Hodgden, Inc., was incorporated in 1973 and began doing business as a broker-dealer in United States government and municipal securities.1 The firm apparently was unprofitable from the start. According to the plaintiff, to generate funds to cover losses suffered by the brokerage firm and by its president, and to provide the firm with working capital, the brokerage firm initiated a plan involving a series of repurchase transactions. A repurchase transaction is a sale of securities coupled with a concurrent agreement by the seller to repurchase securities of the same description on a date subsequent to the initial transaction.2 Russell, Kennedy & Hodgden offered to sell United States Treasury Notes to its customers, and to repurchase the securities at par plus a greater rate of interest than that payable on the Treasury Notes. The customers of the repurchase transactions were small banks and other financial institutions that had previously purchased and sold securities through Russell, Kennedy & Hodgden.

The plan was to operate basically as follows. The customers were instructed to wire their money to Bossier Bank & Trust Company, a Louisiana bank.3 They were told to expect a safekeeping receipt in the mail.4 Following their acceptance of the sale and repurchase offers, the customers would receive two confirmations, one confirming the sale of the securities and one confirming the repurchase of the securities.

Between January 20, 1976 and May 26, 1977, Russell, Kennedy & Hodgden entered into at least twenty-seven agreements to sell and repurchase United States Treasury Notes. The brokerage firm, however, did not own and never acquired the securities in question, and did not deliver them to the purchasing institutions. Obligations to repurchase were extended by rolling over5 the transactions or were settled with funds obtained from the next purchaser. By paying a repurchase transaction with an insufficiently funded check, the brokerage firm gained additional time to find a purchaser to wire funds to Bossier Bank in an amount sufficient to pay the check.

In May 1977, First National Bank of Las Vegas, which had previously purchased securities through Russell, Kennedy & Hodgden, was solicited by representatives of the brokerage firm to enter into a repurchase transaction. In connection with this transaction, the brokerage firm agreed, either for itself or as an agent for Bossier Bank, to sell Treasury Notes to First National Bank in the aggregate principal amount of $600,000. The brokerage firm also agreed to repurchase the Notes, with settlement of the repurchase deferred for thirty days, for the sale price plus interest at 61/2 percent, or a sum of $603,141.67. Ivan Hilton, president of First National Bank, understood that he would receive a safekeeping receipt evidencing First National Bank's ownership, custody, and control of the Treasury Notes.

The record indicates that the transaction was treated by First National Bank in all relevant respects as a purchase and sale of securities. There was no commercial banking relationship between First National Bank and Russell, Kennedy & Hodgden; rather, First National Bank was a customer of the brokerage firm. Hilton testified in his deposition that he considered the transaction as an investment and not as a loan. First National Bank did not investigate the credit of the brokerage firm, request documentation with respect to the firm's financial condition, or take any other action customary in the banking business before making a loan. No promissory note evidencing a loan existed and the parties did not enter into a pledge agreement. Rather, on May 26, 1977, First National Bank transferred $600,000 by wire to Bossier Bank for the account of Russell, Kennedy & Hodgden in payment of the purchase price of the securities.6 In turn, the brokerage firm sent to First National Bank two confirmation slips, one confirming the sale of the Treasury Notes to First National Bank and the other confirming the repurchase of the Notes by the brokerage firm with settlement thirty days thereafter. The confirmations did not expressly restrict First National Bank's right to sell or otherwise dispose of the Notes and to fulfill its obligation to the brokerage firm by delivering securities of a like kind at the specified date.

Russell, Kennedy & Hodgden's repurchase arrangement with First National Bank was its last. Pinemont Bank, a previous purchaser of securities from Russell, Kennedy & Hodgden in a repurchase transaction, threatened to hold Bossier Bank accountable for recommending as a safe investment the $600,000 repurchase transaction that Pinemont entered into with the brokerage firm. In response to Pinemont's threats, Bossier Bank closed the brokerage firm's clearing account on May 23, 1977. On May 26, 1977, when First National Bank wired its $600,000 to Bossier Bank to purchase the securities, Bossier Bank immediately wired the money to Pinemont. Russell, Kennedy & Hodgden never delivered the Treasury Notes to First National Bank or paid First National Bank the repurchase price for the Treasury Notes. On September 19, 1977, Russell, Kennedy & Hodgden was adjudicated a bankrupt as a result of involuntary bankruptcy proceedings instituted in July 1977.

First National Bank commenced this securities fraud action on October 5, 1977, alleging violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5.7 Named as defendants were various individuals alleged to have been officers, employees, and controlling persons of Russell, Kennedy & Hodgden,8 Bossier Bank, three individuals associated with Bossier Bank,9 and the Pinemont Bank of Houston, Texas. First National Bank sought to recover for the losses it sustained as a result of the repurchase transaction it entered into with Russell, Kennedy & Hodgden.10

On December 6, 1978, First National Bank filed a motion for partial summary judgment as to the purchase and sale of securities and use of mails and instrumentalities of interstate commerce. On September 24, 1979, Bossier Bank filed a motion for summary judgment, claiming that the repurchase transaction in question did not involve either a purchase or sale of securities within the meaning of the 1934 Act. On November 19, 1979, the district court denied plaintiff's motion for partial summary judgment and granted defendants' motion for summary judgment. In addition, the court dismissed plaintiff's accompanying state claims. On the same date, the district court entered a final judgment dismissing the case against all defendants. In its memorandum opinion, the district court concluded that (1) "the notes were not securities within the meaning of the Federal Securities Act" and (2) "the transaction does not rise to the dignity of a purchase and sale of a security for Section 10(b) purposes." Record, vol. 8, at 1784, 1787.

Section 10(b) of the Securities Exchange Act of 193411 and Rule 10b-512 thereunder prohibit fraud in connection with the "purchase or sale" of "any security." The term "security" is broadly defined in section 3(a)(10) of the 1934 Act to encompass a wide variety of instruments including notes, bonds, and debentures.13 The district court stated that "(n)otes which are reflective of individual commercial transactions are generally outside the purview of the Act." Record, vol. 8, at 1783. The district court noted that the following factors have led the Fifth Circuit to conclude that a note was not a security: " 'The note was payable in fixed amounts at fixed times, repayment not being conditioned upon profit or productivity of the company. No class of investors was involved, only the lending bank. The bank anticipated no gain beyond repayment of the note with interest.' " Id. at 1784 (quoting National Bank of Commerce v. All American Assurance Co., 583 F.2d 1295, 1301 (5th Cir. 1978)). The district court found that the money paid by First National Bank "was repayable at an agreed time in fixed amounts equal to principal plus interest at the agreed rate." Record, vol. 8, at 1784. From this, the district court concluded that "the notes were not securities within the meaning of the Federal Securities Act." Id.

It is not entirely clear exactly what notes the district court was referring to in this statement. The Treasury Notes that Russell, Kennedy & Hodgden was purporting to sell were not short-term, thirty-day obligations reflective of a private loan between Russell, Kennedy & Hodgden and First National Bank. As described by the brokerage firm, they were scheduled to mature on February 15, 1978 not thirty days after the purchase. Finally, the Notes described by the brokerage firm were offered originally to a large class of investors. Purchasers and sellers of Treasury Bonds issued by the United States Government are entitled to the protection of section 10(b).14 Superintendent of Insurance of New York v. Bankers Life & Casualty Co., 404 U.S. 6, 10 n.6, 92 S. Ct. 165, 168 n.6, 30 L. Ed. 2d 128 (1971). The plaintiff claims that Treasury Notes, which are identical in all relevant respects to Treasury Bonds,15 should also fall within the definition of a security. Indeed, the defendants expressly concede that the Treasury Notes actually were securities. The defendants state that:

The district court did not base its decision upon a conclusion that, and Defendants-Appellees do not contend that, United States Treasury Notes fall outside the definition of a "security" in the 1934 Act. If the transaction in this case had been an outright sale of Treasury Notes from Russell to (First National) Bank, there is no doubt that Section 10(b) would apply; but the transaction was more complex, involving a simultaneous agreement to "resell" the Treasury Notes in 30 days at the principal amount plus interest.

Brief of Appellees at 14. It would appear then that no party on appeal contends that the Treasury Notes were not securities within the meaning of the 1934 Act.16

If the district court's finding that the "notes were not securities" was based upon an assumption that First National Bank received from Russell, Kennedy & Hodgden a thirty-day note representing the firm's repurchase obligation, then both the assumption and the fact finding were incorrect. There was no promissory note involved in this repurchase transaction. The only written instruments received by First National Bank were the two confirmations verifying the agreement to purchase and sell the securities. Whatever notes the district court was referring to in its memorandum opinion, its conclusion that the notes were not securities is incorrect.

The only remaining inquiry and the inquiry addressed by the parties on appeal is whether the district court properly granted summary judgment for defendants on the ground that there was no purchase or sale of a security in this transaction. Summary judgment is only proper when it appears "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The district court is not entitled to choose one plausible inference over another by summarily trying fact issues. Cole v. Chevron Chemical Co., 427 F.2d 390, 393 (5th Cir. 1970), cert. denied, 414 U.S. 858, 978, 94 S. Ct. 67, 300, 38 L. Ed. 2d 109, 222 (1973); 6 Moore's Federal Practice P 56.15(1.-0) (1976). See American Telephone & Telegraph Co. v. Delta Communications Corp., 590 F.2d 100, 102 (5th Cir.) (on petition for rehearing), cert. denied, 444 U.S. 926, 100 S. Ct. 265, 62 L. Ed. 2d 182 (1979). In determining whether a summary judgment is appropriate, the record is reviewed in the light favorable to the party opposing the motion, and the burden is on the moving party to show that there is no genuine issue of material fact before the court. Pharo v. Smith, 621 F.2d 656, 657, 664 (5th Cir.), rehearing granted in part on other grounds, 625 F.2d 1226 (5th Cir. 1980); Keiser v. Coliseum Properties, Inc., 614 F.2d 406, 410-11 (5th Cir. 1980).

Section 3(a)(14) of the 1934 Act defines "sale" to "include any contract to sell or otherwise dispose of" securities. 15 U.S.C.A. § 78c(a)(14). Section 3(a)(13) defines "purchase" to "include any contract to buy, purchase, or otherwise acquire" securities. Id. § 78c(a)(13). This Court has noted that the terms "purchase" and "sale" are to be broadly construed to effectuate the purpose of the Act. Herpich v. Wallace, 430 F.2d 792, 806-07 (5th Cir. 1970). Whether a repurchase transaction is a purchase or sale is a question of first impression in this Circuit.17

In this case, the record indicates that Russell, Kennedy & Hodgden, a brokerage firm that engaged in the business of selling United States Government securities, deliberately structured the repurchase transaction as a sale and repurchase of Treasury Notes. The firm solicited First National Bank to invest in the securities. The parties executed no side agreements that would suggest that a sale was not contemplated or that First National Bank would not assume ownership of the securities.18 Title, and all incidents of ownership, were apparently intended to pass to First National Bank. This Court has generally found section 10(b) to be applicable when there is a surrender of ownership or control of the security.

Bossier Bank contends that there was no purchase or sale in the instant case because the repurchase transactions were, in substance, loans. Defendants argue that the circumstances of the so-called sale must be examined to determine whether, in economic reality, the transaction was a sale. As a basis for this analysis, defendants rely upon the investment-commercial dichotomy that has been applied in this Circuit. This Court has applied the investment-commercial dichotomy in the context of examining whether a note falls within the definition of a security within the meaning of the securities acts. Thus, although the 1934 Act defines "security" as including "any" note, "judicial decisions have restricted the application of the Act to those notes that are investment in nature and have excluded notes which are only reflective of individual commercial transactions." McClure v. First National Bank of Lubbock, 497 F.2d 490, 492 (5th Cir. 1974), cert. denied, 420 U.S. 930, 95 S. Ct. 1132, 43 L. Ed. 2d 402 (1975); Bellah v. First National Bank of Hereford, 495 F.2d 1109, 1113-14 (5th Cir. 1974). The McClure Court concluded that:

On one hand, the Act covers all investment notes, no matter how short their maturity, because they are not encompassed by the "any note" language of the exemption. On the other hand, the Act does not cover any commercial notes, no matter how long their maturity, because they fall outside the "any note" definition of a security. Thus, the investment or commercial nature of a note entirely controls the applicability of the Act, depriving of all utility the exemption based on maturity-length.

497 F.2d at 494-95 (emphasis in original). Defendants argue that the investment-commercial dichotomy is equally applicable to an examination of whether a transaction constitutes a sale.

To support its contention that the transaction was, in reality, a collateralized loan rather than a sale, Bossier Bank points to several factors that have generally been considered by this Court in applying the investment-commercial dichotomy. Thus, Bossier Bank notes that: (1) First National Bank was obligated to resell the securities to Russell, Kennedy & Hodgden at a fixed principal amount plus interest. According to Bossier Bank, this indicates that First National Bank was not investing in the Treasury Notes since any gain or loss in the market value of the Notes would accrue to the brokerage firm and not to the bank.19 (2) The resale obligation fell due on a fixed date after a relatively short term,20 a factor that tends to characterize commercial lending rather than investment transactions. (3) The transaction was entered into with a lending institution21 and was not offered to a large class of investors. See All American Assurance, 583 F.2d at 1301; McClure, 497 F.2d at 493-94. (4) The bank was not investing in the brokerage firm's operations. (5) The principal amount of the transaction was the par value of the Notes, which was less than their market value. According to Bossier Bank, if Russell, Kennedy & Hodgden had intended to sell the Treasury Notes, it could have obtained a higher price on the market.22 (6) First National Bank was to earn interest on the Treasury Notes at a negotiated market rate that was different from the coupon rate of the Treasury Notes.

Defendants contend that these factors indicate that the transaction between First National Bank and Russell, Kennedy & Hodgden was commercial in nature and was therefore not a sale within the meaning of the 1934 Act. It is true that this Court has recognized that the "securities acts have as their fundamental purpose the protection of investors." McClure, 497 F.2d at 495 (emphasis added). See Shores v. Sklar, 647 F.2d at 470. In determining whether a transaction is a sale, however, this Court has examined such factors as whether the transaction affects the securities industry, McClure, 497 F.2d at 495, and "whether the purposes of section 10(b) of the Exchange Act and Rule 10b-5 thereunder would be advanced by their application" to the transaction. Herpich, 430 F.2d at 812. Thus, it would appear that the factors pointed out by Bossier Bank are not dispositive of the issue before this Court.

Regardless of the extent to which the factors identified by Bossier Bank relate to the question whether this repurchase transaction constituted a sale, the summary judgment rendered by the district court was improper. A fact finder could have found that the repurchase transaction in this case was a purchase or sale. Since genuine issues of material fact as to the proper characterization of this transaction did exist,23 summary judgment was improper.24

The order granting summary judgment for defendants and dismissing plaintiff's pendent state law claims is vacated. The case is remanded for further proceedings.

VACATED AND REMANDED.