Pinter v. Dahl

486 U.S. 622 (1988)

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Nature of the Case

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Facts

Pinter (D) is an oil and gas producer in Texas and Oklahoma, and a registered securities dealer in Texas. Dahl (P) is a California real estate broker and investor, who, at the time of his dealings with D, was a veteran of two unsuccessful oil and gas ventures. In pursuit of further investment opportunities, P employed an oil field expert to locate and acquire oil and gas leases. This expert introduced P to D. P advanced $20,000 to D to acquire leases, with the understanding that they would be held in the name of Pinter's Black Gold Oil Company and that P would have a right of first refusal to drill certain wells on the leasehold properties. D located leases in Oklahoma and P toured the properties, in order to talk to others and 'get a feel for the properties.' After investing approximately $310,000 in the properties, P told the other respondents about the venture. Because of P's involvement in the venture, each of the other respondents decided to invest about $7,500. P assisted his fellow investors in completing the subscription-agreement form prepared by D. Each letter-contract signed by the purchaser stated that the participating interests were being sold without the benefit of registration under the Securities Act, in reliance on Securities and Exchange Commission (SEC or Commission) Rule 146, 17 CFR 230.146 (1982). P received no commission from D in connection with the other respondents' purchases. The venture failed, and respondents brought suit against D in the United States District Court for the Northern District of Texas, seeking rescission under 12(1) of the Securities Act, 15 U.S.C. 77l(1), for the unlawful sale of unregistered securities. In a counterclaim, D alleged that P, by means of fraudulent misrepresentations and concealment of facts, induced D to sell and deliver the securities. D also asserted, on the basis of the same factual allegations, that P's suit was barred by the equitable defenses of estoppel and in pari delicto. The respondents got their judgment against D, and the court also concluded that the evidence was insufficient to sustain D's counterclaim against P. The District Court made no mention of the equitable defenses asserted by D. The Court of Appeals for the Fifth Circuit affirmed. It held that an in pari delicto defense to P's recovery. was not available in an action under 12(1) because that section creates 'a strict liability offense' rather than liability based on intentional misconduct. It thereby distinguished our recent decision in Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299 (1985), where we held that the in pari delicto defense is applicable in an action under 10(b) of the Securities Exchange Act of 1934, 48 Stat. 891, 15 U.S.C. 78j(b), which contains an element of scienter. 'Absent a showing that P's conduct was `offensive to the dictates of natural justice,'' the in pari delicto defense was not available. Citing Fifth Circuit precedent, the court described a statutory seller as '(1) one who parts with title to securities in exchange for consideration or (2) one whose participation in the buy-sell transaction is a substantial factor in causing the transaction to take place.' While acknowledging that P's conduct was a 'substantial factor' in causing the other plaintiffs to purchase securities from D, the court declined to hold that P was a 'seller' for purposes of 12(1). Instead, the court went on to refine its test to include a threshold requirement that one who acts as a 'promoter' be 'motivated by a desire to confer a direct or indirect benefit on someone other than the person he has advised to purchase.' The court reasoned that 'a rule imposing liability (without fault or knowledge) on friends and family members who give one another gratuitous advice on investment matters unreasonably interferes with well-established patterns of social discourse.' Since the trial court found no evidence that P sought or received any financial benefit in return for his advice, it declined to impose liability on P for 'mere gregariousness.' The Supreme Court granted certiorari.