PINTER V. DAHL
486 U.S. 622 (1988)
NATURE OF THE CASE: This was an appeal from a holding that rejected a claim of in pari
delicto in an action for rescission under 12(1) of the Securities Act of 1933 for the
unlawful sale of unregistered securities.
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.
'[A]bsent 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.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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