Pinter v. Dahl
100 L. Ed. 2d 658, 486 U.S. 622, 1988 U.S. LEXIS 2725 (1988)
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Rule of Law:
A person is a 'seller' under § 12(1) of the Securities Act of 1933 if they pass title to the security or solicit its purchase for financial gain for themselves or the security's owner. The common-law defense of in pari delicto is available in a § 12(1) action, but only if the plaintiff is at least equally responsible for the illegality and acted more as a promoter than an investor.
Facts:
- Billy J. 'B. J.' Pinter was an oil and gas producer and registered securities dealer.
- Maurice Dahl, a real estate broker, was introduced to Pinter to pursue investment opportunities in oil and gas leases.
- After investigating the properties and investing approximately $310,000 himself, Dahl became enthusiastic about the venture.
- Dahl told his friends, family, and business associates about the venture, leading them to invest based on his involvement and positive assessment.
- Dahl assisted these other investors in completing subscription agreement forms prepared by Pinter.
- Dahl received no commission or other financial benefit from Pinter in connection with the other respondents’ purchases.
- The venture failed, and the fractional undivided interests in the oil and gas leases proved to be worthless.
Procedural Posture:
- Dahl and other investors sued Pinter in the U.S. District Court for the Northern District of Texas for rescission under § 12(1) of the Securities Act.
- Pinter asserted the equitable defense of in pari delicto against Dahl and filed a counterclaim.
- Following a bench trial, the District Court entered judgment for the investors, rejecting Pinter's defenses and counterclaim.
- Pinter, as appellant, appealed to the U.S. Court of Appeals for the Fifth Circuit.
- A divided panel of the Fifth Circuit affirmed, holding that the in pari delicto defense was unavailable and that Dahl was not a 'seller' because he was not motivated by financial gain.
- The Fifth Circuit denied rehearing en banc over a dissent.
- The U.S. Supreme Court granted Pinter's petition for a writ of certiorari.
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Issue:
Is a person who solicits the purchase of a security a 'seller' under § 12(1) of the Securities Act of 1933 only if they are motivated by a desire to serve their own financial interests or those of the securities owner?
Opinions:
Majority - Justice Blackmun
Yes. A person qualifies as a 'seller' under § 12(1) of the Securities Act of 1933 if they successfully solicit the purchase of a security and are motivated at least in part by a desire to serve their own financial interests or those of the securities owner. The Court rejects the broader 'substantial factor' test used by the Fifth Circuit, finding it is not grounded in the statutory language of 'offers or sells' or 'purchasing such security from him.' This test improperly extends strict liability to collateral participants, like lawyers and accountants, whose involvement is merely the performance of professional services. The statutory definition of 'offer' as a 'solicitation of an offer to buy...for value' implies a financial motive, thus excluding persons who give purely gratuitous advice. The court also held that the equitable defense of in pari delicto is available in a § 12(1) action, but only when a plaintiff's role is more akin to that of a promoter than an investor, and they bear at least substantially equal responsibility for the failure to register the securities. Because the lower courts did not apply these standards, the case is vacated and remanded for further findings.
Dissenting - Justice Stevens
No. The judgment of the Court of Appeals should be affirmed without remand. While the dissent substantially agrees with the majority's formulation of the in pari delicto defense, it argues that Pinter failed to meet his burden of proof on that issue at trial, so there is no reason for a remand. The discussion of the 'seller' definition is an improper advisory opinion because Pinter never brought a formal claim for contribution against Dahl. Even if such a claim were properly before the court, the definition of a 'seller' for a direct § 12(1) claim does not necessarily govern a claim for contribution. Furthermore, since Pinter received all the proceeds from the sale and Dahl received none, the statutory remedy of rescission is complete when Pinter returns the purchase price, and it would frustrate the statutory scheme to allow him to seek contribution from someone who did not profit from the transaction.
Analysis:
This decision significantly narrowed the scope of primary liability for a statutory 'seller' under § 12 of the Securities Act by rejecting the widely used 'substantial factor' test. By establishing the 'solicitation for financial gain' standard, the Court provided a clearer and more predictable rule that protects collateral participants like lawyers and accountants, as well as individuals giving gratuitous advice, from strict liability. The ruling also clarified that the in pari delicto defense is available in strict liability securities actions like § 12(1), but set a high, two-prong standard for its application, ensuring it does not undermine the Act's primary purpose of investor protection. This case remains a foundational opinion for determining who can be sued as a primary violator in a private action for securities law violations.
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