Petitioner Pinter, an oil and gas producer and registered
securities dealer, sold unregistered securities consisting of
fractional undivided interests in oil and gas leases to respondent
Dahl, a real estate broker and investor who was experienced in oil
and gas ventures. Dahl touted the venture to the other respondents
-- his friends, family, and business associates -- and assisted
them in completing subscription agreement forms prepared by Pinter,
but received no commission from Pinter when each of them invested
in unregistered interests on the basis of Dahl's involvement. When
the venture failed, respondents sued Pinter in Federal District
Court, seeking rescission under § 12(1) of the Securities Act of
1933 (Act) for the unlawful sale of unregistered securities. After
a bench trial, the court granted judgment for respondents,
apparently rejecting Pinter's common law
in pari delicto
defense to Dahl's suit. The Court of Appeals affirmed, ruling that
such defense was not available because § 12(1) creates a "strict
liability offense," rather than liability based on intentional
conduct, and distinguishing
Bateman Eichler, Hill Richards,
Inc. v. Berner, 472 U. S. 299,
which held that the defense applies in actions under § 10(b) of the
Securities Exchange Act of 1934, on the ground that § 10(b)
contains an element of scienter. The court also held that Dahl was
not a "seller" within the meaning of § 12(1), and therefore could
not be held liable in contribution for the other respondents'
claims against Pinter, since, although Dahl's conduct was a
"substantial factor" in causing the other respondents' purchases,
there was no evidence that he had sought or received financial
benefit for himself or anyone other than the other respondents.
Held:
1. The
in pari delicto defense is available in a §
12(1) private rescission action. Pp.
486 U. S.
632-641.
(a)
Bateman Eichler is not limited to § 10(b) claims,
to cases involving willful or negligent misconduct, or to implied,
as opposed to express, private causes of action. Rather, the
decision provides the appropriate test for allowance of the
in
pari delicto defense in a private action under any of the
federal securities laws, including a § 12(1) rescission suit. Pp.
486 U. S.
633-635.
Page 486 U. S. 623
(b) The first prong of the
Bateman Eichler test is
satisfied in the § 12(1) context if the plaintiff is at least
equally responsible for the issuer's illegal failure to register
the securities or to conduct the sale in a manner that satisfies
the Act's registration exemption provisions. A purchaser's
knowledge that the securities are unregistered cannot, by itself,
constitute equal culpability, even where he is a sophisticated
buyer who may not necessarily need the Act's protection. Rather,
the relative responsibility assessment turns upon the facts of each
case. The second prong of the
Bateman Eichler test is
satisfied in the § 12(1) context where the plaintiff's role is
primarily as a promoter, rather than as an investor. The
determination depends on a host of readily accessible factors,
including, but not limited to, the extent of the plaintiff's
financial involvement compared to that of the third parties he
solicited, the incidental nature of his promotional activities, the
benefits he received for those activities, and the extent of his
involvement in the offering's planning stages. Pp.
486 U. S.
635-639.
(c) The District Court's findings are inadequate to determine
whether Dahl may be subjected to Pinter's
in pari delicto
defense under the
Bateman Eichler test, as it applies to §
12(1) actions. Pp.
486 U. S.
639-641.
2. A nonowner of securities must solicit the purchase, motivated
at least in part by a desire to serve his own financial interests
or those of the securities owner, in order to qualify as a "seller"
within the meaning of § 12(1), which provides that "[a]ny person
who . . . offers or sells a security" in violation of the Act's
registration requirement "shall be liable to the person purchasing
such security from him." Pp.
486 U. S.
641-655.
(a) Section 12(1)'s language and history, as well as the
statutory purpose of protecting investors, demonstrate that
"seller" is not limited to an owner who passes title, or other
interest in a security, to the buyer for value, but extends to a
broker or other person who successfully solicits a purchase of
securities, so long as he is motivated at least in part by a desire
to serve his own financial interests or those of the securities
owner. It strains the meaning of § 2(3) of the Act, which defines
"offer" for § 12(1)'s purposes as including every "solicitation of
an offer to buy . . . for value," to say that a person who
gratuitously urges another, even strongly or enthusiastically, to
make a securities purchase solely for the buyer's benefit is
"soliciting" or is requesting value in exchange for his suggestion
or seeking the value the titleholder will obtain in exchange for
the ultimate sale. Only if the soliciting person is motivated by
such a financial interest can it be fairly said that the buyer
"purchased" the security from him, such that he can be aligned with
the owner in a rescission action. Pp.
486 U. S.
642-647.
(b) The language, history, and statutory context of § 12(1)
demonstrate that the "substantial factor" test, whereby a
nontransferor seller
Page 486 U. S. 624
is defined as one whose participation in the buy-sell
transaction is a substantial factor in causing the transaction to
take place, is not an appropriate standard for assessing § 12(1)
liability as a statutory seller. Without affording guidelines for
determining when the defendant's conduct is sufficiently integral
to the sale, the test would expand primary § 12(1) liability beyond
persons who pass title and those who "offer" or "solicit" offers
for financial gain to persons who merely participate in unlawful
sales transactions but are only remotely related to the relevant
aspects of the transactions, including accountants and lawyers
simply performing their professional services. Such persons do not
even arguably fit within the definitions set out in § 2(3).
Congress did not intend such a gross departure from the statutory
language. Pp.
486 U. S.
648-654.
(c) The record is insufficient to determine whether Dahl may be
liable as a statutory "seller" under § 12(1). The District Court's
finding that Dahl solicited the other respondents' purchases is not
clearly erroneous. However, the Court of Appeals' apparent
conclusion that Dahl was motivated entirely by a gratuitous desire
to share an attractive investment opportunity with his friends and
associates was premature, since the District Court made no findings
that focused on whether he urged the other respondents' purchases
in order to further some financial interest of his own or of
Pinter. Pp.
486 U. S.
654-655.
787 F.2d 985, vacated and remanded.
BLACKMUN, J., delivered the opinion of the Court, in which
REHNQUIST, C.J., and BRENNAN, WHITE, MARSHALL, O'CONNOR, and
SCALIA, JJ., joined. STEVENS, J., filed a dissenting opinion,
post, p.
486 U. S. 655.
KENNEDY, J., took no part in the consideration or decision of the
case.
JUSTICE BLACKMUN delivered the opinion of the Court.
The questions presented by this case are (a) whether the common
law
in pari delicto defense is available in a private
Page 486 U. S. 625
action brought under § 12(1) of the Securities Act of 1933
(Securities Act), 48 Stat. 74,
as amended, 15 U.S.C. § 77a
et seq., for the rescission of the sale of unregistered
securities, and (b) whether one must intend to confer a benefit on
himself or on a third party in order to qualify as a "seller"
within the meaning of § 12(1).
I
The controversy arises out of the sale prior to 1982 of
unregistered securities (fractional undivided interests in oil and
gas leases) by petitioner Billy J. "B. J." Pinter to respondents
Maurice Dahl and Dahl's friends, family, and business associates.
[
Footnote 1] Pinter is an oil
and gas producer in Texas and Oklahoma, and a registered securities
dealer in Texas. Dahl is a California real estate broker and
investor, who, at the time of his dealings with Pinter, was a
veteran of two unsuccessful oil and gas ventures. In pursuit of
further investment opportunities, Dahl employed an oil field expert
to locate and acquire oil and gas leases. This expert introduced
Dahl to Pinter. Dahl advanced $20,000 to Pinter to acquire leases,
with the understanding that they would be held in the name of
Pinter's Black Gold Oil Company and that Dahl would have a right of
first refusal to drill certain wells on the leasehold properties.
Pinter located leases in Oklahoma, and Dahl toured the properties,
often without Pinter, in order to talk to others and "get a feel
for the properties." App. to Pet.
Page 486 U. S. 626
for Cert. 32. Upon examining the geology, drilling logs, and
production history assembled by Pinter, Dahl concluded, in the
words of the District Court, that "there was no way to lose."
Ibid.
After investing approximately $310,000 in the properties, Dahl
told the other respondents about the venture. Except for Dahl and
respondent Grantham, none of the respondents spoke to or met Pinter
or toured the properties. Because of Dahl's involvement in the
venture, each of the other respondents decided to invest about
$7,500. [
Footnote 2]
Dahl assisted his fellow investors in completing the
subscription agreement form prepared by Pinter. 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).
[
Footnote 3] In fact, the oil
and gas interests involved in this suit were never registered with
the Commission. Respondents' investment checks were made payable to
Black Gold Oil Company. Dahl received no commission from Pinter in
connection with the other respondents' purchases.
Page 486 U. S. 627
When the venture failed and their interests proved to be
worthless, respondents brought suit against Pinter 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. § 771(1),
for the unlawful sale of unregistered securities. [
Footnote 4]
Page 486 U. S. 628
In a counterclaim, Pinter alleged that Dahl, by means of
fraudulent misrepresentations and concealment of facts, induced
Pinter to sell and deliver the securities. Pinter averred that Dahl
falsely assured Pinter that he would provide other qualified,
sophisticated, and knowledgeable investors with all the information
necessary for evaluation of the investment. Dahl allegedly agreed
to raise the funds for the venture from those investors, with the
understanding that Pinter would simply be the "operator" of the
wells. App. 69-73. [
Footnote 5]
Pinter also asserted, on the basis of the same factual allegations,
that Dahl's suit was barred by the equitable defenses of estoppel
and
in pari delicto. Id. at 66-67. [
Footnote 6]
The District Court, after a bench trial, granted judgment for
respondent investors.
Id. at 92. The court concluded that
Pinter had not proved that the oil and gas interests were entitled
to the private offering exemption from registration. App. to Pet.
for Cert. a-37. Accordingly, the court ruled
Page 486 U. S. 629
that, because the securities were unregistered, respondents were
entitled to rescission pursuant to § 12(1).
Ibid.
[
Footnote 7] The court also
concluded that the evidence was insufficient to sustain Pinter's
counterclaim against Dahl. The District Court made no mention of
the equitable defenses asserted by Pinter, but it apparently
rejected them.
A divided panel of the Court of Appeals for the Fifth Circuit
affirmed. 787 F.2d 985 (1986). The court first held that Dahl's
involvement in the sales to the other respondents did not give
Pinter an
in pari delicto defense to Dahl's recovery.
Id. at 988. [
Footnote
8] The court concluded that the defense is 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. Noting that Dahl was "as
culpable' as
Pinter in the sense that his conduct was an equal producing cause
of the illegal transaction," the court nevertheless held that,
"[a]bsent a showing that Dahl's conduct was `offensive to the
dictates of natural justice,'" the in pari delicto defense
was not available. 787 F.2d at 988, quoting Keystone Driller
Co. v. General Excavator Co., 290 U.
S. 240, 290 U. S. 245
(1933).
The Court of Appeals next considered whether Dahl was himself a
"seller" of the oil and gas interests within the meaning of §
12(1), for if he was, the court assumed, he could be held liable in
contribution for the other plaintiffs' claims
Page 486 U. S. 630
against Pinter. [
Footnote 9]
787 F.2d at 990, and n. 8. 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."
Id. at 990. While acknowledging that Dahl's conduct was
a "substantial factor" in causing the other plaintiffs to purchase
securities from Pinter, the court declined to hold that Dahl 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." 787 F.2d at 991. 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
Page 486 U. S. 631
of social discourse."
Ibid. Accordingly, since the court found no evidence
that Dahl sought or received any financial benefit in return for
his advice, it declined to impose liability on Dahl for "mere
gregariousness."
Ibid.
The dissenting judge took issue with the majority's analysis on
both points. First, assuming that this Court's decision in
Bateman Eichler applied to all securities cases, the
dissent concluded that Dahl's suit should be barred by the
in
pari delicto doctrine because Dahl was a "catalyst" for the
entire transaction and knew that the securities were unregistered.
787 F.2d at 991. In addition, the dissent maintained that Dahl's
conduct transformed him into a "seller" of unregistered securities
to the other plaintiffs under the Fifth Circuit's established
"substantial factor" test.
Id. at 991-992. It added that,
even under the majority's expectation-of-financial-benefit
refinement, Dahl's promotional activities rendered him a "seller"
because "[m]ore investors means that the investment program
receives the requisite amount of financing, at a smaller risk to
each investor."
Id. at 992, n. 3. [
Footnote 10]
The Court of Appeals, by an 8-6 vote, denied rehearing en banc.
794 F.2d 1016 (1986). The judges who dissented from that denial
asserted that the panel majority's addition of the
financial-benefit requirement to the definition of a "seller," "has
absolutely no foundation in either settled securities law or its
underlying policies."
Id. at 1017. They also criticized
the panel majority for misinterpreting
Bateman Eichler to
limit application of the
in pari delicto doctrine to fraud
actions under § 10(b). 794 F.2d at 1017.
Page 486 U. S. 632
Because of the importance of the issues involved to the
administration of the federal securities law, we granted
certiorari. 481 U.S. 1012 (1987).
II
The equitable defense of
in pari delicto, which
literally means "in equal fault," is rooted in the common law
notion that a plaintiff's recovery may be barred by his own
wrongful conduct.
See Bateman Eichler, 472 U.S. at
472 U. S. 306,
and nn. 12 and 13. Traditionally, the defense was limited to
situations where the plaintiff bore "at least substantially equal
responsibility for his injury,"
id. at
472 U. S. 307,
and where the parties' culpability arose out of the same illegal
act. 1 J. Story, Equity Jurisprudence 399-400 (14th ed.1918).
Contemporary courts have expanded the defense's application to
situations more closely analogous to those encompassed by the
"unclean hands" doctrine, where the plaintiff has participated "in
some of the same sort of wrongdoing" as the defendant.
See
Perma Life Mufflers, Inc. v. International Parts Corp.,
392 U. S. 134,
392 U. S. 138
(1968). In
Perma Life, however, the Court concluded that
this broadened construction is not appropriate in litigation
arising under federal regulatory statutes.
Ibid.
Nevertheless, in separate opinions, five Justices recognized that a
narrow, more traditional formulation should be available in private
actions under the antitrust laws.
See id. at
392 U. S. 145
(WHITE, J., concurring);
id. at
392 U. S.
147-148 (Fortas, J., concurring in result);
id.
at
392 U. S.
148-149, 151 (MARSHALL, J., concurring in result);
id. at
392 U. S.
154-155 (Harlan, J., joined by Stewart, J., concurring
in part and dissenting in part).
In
Bateman Eichler, the Court addressed the scope of
the
in pari delicto defense in the context of an action
brought by securities investors under the antifraud provisions of §
10(b) and Rule 10b-5, alleging that the broker-dealer and corporate
insider defendants had induced the plaintiffs to purchase large
quantities of stock by divulging false and materially incomplete
information on the pretext that it was accurate
Page 486 U. S. 633
inside information. The defendants argued that the scope should
be broader where the private cause of action is implied, as in a §
10(b) action, rather than expressly provided by Congress, as in an
antitrust action. The Court rejected this distinction, concluding
that "the views expressed in
Perma Life apply with full
force to implied causes of action under the federal securities
laws." 472 U.S. at
472 U. S. 310.
Accordingly, it held that the
in pari delicto defense is
available
"only where (1) as a direct result of his own actions, the
plaintiff bears at least substantially equal responsibility for the
violations he seeks to redress, and (2) preclusion of suit would
not significantly interfere with the effective enforcement of the
securities laws and protection of the investing public."
Id. at
472 U. S.
310-311. The first prong of this test captures the
essential elements of the classic
in pari delicto
doctrine.
See id. at
472 U. S. 307.
The second prong, which embodies the doctrine's traditional
requirement that public policy implications be carefully considered
before the defense is allowed,
see ibid., ensures that the
broad judge-made law does not undermine the congressional policy
favoring private suits as an important mode of enforcing federal
securities statutes.
Cf. Perma Life, 392 U.S. at
392 U. S.
139-140. Applying this test to the § 10(b) claim before
it, the Court concluded that, in such tipster-tippee situations,
the two factors precluded recognition of the
in pari
delicto defense.
Bateman Eichler, 472 U.S. at
472 U. S.
317.
We do not share the Court of Appeals' narrow vision of the
applicability of
Bateman Eichler. Nothing in this Court's
opinion in that case suggests that the
in pari delicto
defense is limited to § 10(b) claims. Nor does the opinion suggest
that the doctrine applies only when the plaintiff's fault is
intentional or willful.
We feel that the Court of Appeals' notion that the
in pari
delicto defense should not be allowed in actions involving
Page 486 U. S. 634
strict liability offenses is without support in history or
logic. [
Footnote 11] The
doctrine traditionally has been applied in any action based on
conduct that "transgresses statutory prohibitions." 2 Restatement
of Contracts § 598, Comment a (1932). Courts have recognized the
defense in cases involving strict liability offenses.
See,
e.g., UFITEC, S.A. v. Carter, 20 Cal. 3d
238, 250, 571 P.2d 990, 996-997 (1977) (violation of Federal
Reserve margin requirements);
Miller v. California Roofing
Co., 55 Cal. App. 2d
136, 130 P.2d 740 (1942) (sale of stock without permit from
State Corporation Commission). One of the premises on which the
in pari delicto doctrine is grounded is that "denying
judicial relief to an admitted wrongdoer is an effective means of
deterring illegality."
Bateman Eichler, 472 U.S. at
472 U. S. 306.
The need to deter illegal conduct is not eliminated simply because
a statute creates a strict liability offense, rather than punishing
willful or negligent misconduct. Regardless of the degree of
scienter, there may be circumstances in which the statutory goal of
deterring illegal conduct is served more effectively by preclusion
of suit than by recovery. In those circumstances, the
in pari
delicto defense should be afforded.
Cf. A. C. Frost &
Co. v. Coeur D'Alene Mines Corp., 312 U. S.
38,
312 U. S. 43-44,
and n. 2 (1941).
In
Bateman Eichler, the Court granted certiorari to
resolve a conflict of authority "over the proper scope of the
in pari delicto defense in securities litigation." 472
U.S. at
472 U. S. 305.
The Court formulated the standards under which the defense should
be recognized in language applicable generally to federal
securities litigation. The formulation was articulated in the
specific context of deciding when
"a private action for damages [in implied causes of action under
the federal
Page 486 U. S. 635
securities laws] may be barred on the grounds of the plaintiff's
own culpability."
Id. at
472 U. S. 310.
Nevertheless, the Court's rejection of the distinction between
implied and express private causes of action, especially when
considered in light of the broad question on which the Court
granted certiorari, makes clear that the Court assumed that the
in pari delicto defense should be equally available when
Congress expressly provides for private remedies. Thus, we conclude
that
Bateman Eichler provides the appropriate test for
allowance of the
in pari delicto defense in a private
action under any of the federal securities laws.
Our task, then, is to determine whether, pursuant to this test,
recognition of the defense is proper in a suit for rescission
brought under § 12(1) of the Securities Act. All parties in this
case, as well as the Commission, maintain that the defense should
be available. [
Footnote 12]
We agree, but find it necessary to circumscribe the scope of its
application.
B
Under the first prong of the
Bateman Eichler test, as
we have noted above, a defendant cannot escape liability unless, as
a direct result of the plaintiff's own actions, the plaintiff bears
at least substantially equal responsibility for the underlying
Page 486 U. S. 636
illegality. The plaintiff must be an active, voluntary
participant in the unlawful activity that is the subject of the
suit.
See Woolf v. S.D. Cohn & Co., 515 F.2d 591, 604
(CA5 1975),
vacated and remanded on other grounds, 426
U.S. 944 (1976);
see also Bateman Eichler, 472 U.S. at
472 U. S. 312.
"Plaintiffs who are truly
in pari delicto are those who
have themselves violated the law in cooperation with the
defendant."
Perma Life, 392 U.S. at
392 U. S. 153
(Harlan, J., concurring in part and dissenting in part). Unless the
degrees of fault are essentially indistinguishable or the
plaintiff's responsibility is clearly greater, the
in pari
delicto defense should not be allowed, and the plaintiff
should be compensated.
See id. at
392 U. S. 146
(WHITE, J., concurring);
id. at
392 U. S. 147
(Fortas, J., concurring in result);
id. at
392 U. S. 149
(MARSHALL, J., concurring in result);
Bateman Eichler, 472
U.S. at
472 U. S.
312-314. Refusal of relief to those less blameworthy
would frustrate the purpose of the securities laws; it would not
serve to discourage the actions of those most responsible for
organizing forbidden schemes; and it would sacrifice protection of
the general investing public in pursuit of individual punishment.
See CanAm Petroleum Co. v. Beck, 331 F.2d 371, 373 (CA10
1964).
In the context of a private action under § 12(1), the first
prong of the
Bateman Eichler test is satisfied if the
plaintiff is at least equally responsible for the actions that
render the sale of the unregistered securities illegal -- the
issuer's failure to register the securities before offering them
for sale, or his failure to conduct the sale in such a manner as to
meet the registration exemption provisions. As the parties and the
Commission agree, a purchaser's knowledge that the securities are
unregistered cannot, by itself, constitute equal culpability, even
where the investor is a sophisticated buyer who may not necessarily
need the protection of the Securities Act. Barring the investor's
recovery under the
in pari delicto doctrine,
"at least on the basis solely of the buyer's knowledge of the
violation, is so foreign to the purpose of the section that there
is hardly a trace of it in the decisions under
Page 486 U. S. 637
. . . § 12(1)."
3 L. Loss, Securities Regulation 1694 (2d ed.1961). [
Footnote 13] Although a court's
assessment of the relative responsibility of the plaintiff will
necessarily vary depending on the facts of the particular case,
courts frequently have focused on the extent to which the plaintiff
and the defendant cooperated in developing and carrying out the
scheme to distribute unregistered securities.
See, e.g., Katz
v. Amos Treat & Co., 411 F.2d 1046, 1054 (CA2 1969);
Lawler v. Gilliam, 569 F.2d 1283, 1292-1293 (CA4 19783);
Malamphy v. Real-Tex Enterprises, Inc., 527 F.2d 978 (CA4
1975). In addition, if the plaintiff were found to have induced the
issuer not to register, he well might be precluded from obtaining §
12(1) rescission.
Under the second prong of the
Bateman Eichler test, a
plaintiff's recovery may be barred only if preclusion of suit
Page 486 U. S. 638
does not offend the underlying statutory policies. The primary
purpose of the Securities Act is to protect investors by requiring
publication of material information thought necessary to allow them
to make informed investment decisions concerning public offerings
of securities in interstate commerce.
SEC v. Ralston Purina
Co., 346 U. S. 119,
346 U. S. 124
(1953);
A. C. Frost & Co. v. Coeur D'Alene Mines
Corp., 312 U.S. at
312 U. S. 43,
and n. 2.
See H.R.Rep. No. 85, 73d Cong., 1st Sess., 1-5
(1933). [
Footnote 14] The
registration requirements are the heart of the Act, and § 12(1)
imposes strict liability for violating those requirements.
Liability under § 12(1) is a particularly important enforcement
tool, because in many instances a private suit is the only
effective means of detecting and deterring a seller's wrongful
failure to register securities before offering them for sale.
Lawler v. Gilliam, 569 F.2d at 1293, citing
Woolf v.
S.D. Cohn & Co., 515 F.2d at 605.
See also Bateman
Eichler, 472 U.S. at
472 U. S.
310.
In our view, where the § 12(1) plaintiff is primarily an
investor, precluding suit would interfere significantly with
effective enforcement of the securities laws and frustrate the
primary objective of the Securities Act. The Commission, too, takes
this position. Because the Act is specifically designed to protect
investors, even where a plaintiff actively participates in the
distribution of unregistered securities, his
Page 486 U. S. 639
suit should not be barred where his promotional efforts are
incidental to his role as an investor.
See Can-Am Petroleum Co.
v. Beck, 331 F.2d at 373-374 (plaintiff's "relationship as a
pure investor became adulterated when she actively assisted in
selling others but she at no time had the degree of culpability
attributed to defendants and should not be considered as
in
pari delicto").
Cf. Athas v. Day, 186 F.
Supp. 385, 389 (Colo.1960) (barring recovery to plaintiff who
participated extensively as promoter of unlawful securities
distribution). Thus, the
in pari delicto defense may
defeat recovery in a § 12(1) action only where the plaintiff's role
in the offering or sale of nonexempted, unregistered securities is
more as a promoter than as an investor.
Whether the plaintiff in a particular case is primarily an
investor or primarily a promoter depends upon a host of factors,
all readily accessible to trial courts. These factors include the
extent of the plaintiff's financial involvement compared to that of
third parties solicited by the plaintiff,
compare Can-Am
Petroleum Co. v. Beck, supra, with Athas v. Day, supra; the
incidental nature of the plaintiff's promotional activities,
see Malamphy v. Real-Tex Enterprises, Inc., 527 F.2d at
980; the benefits received by the plaintiff from his promotional
activities; and the extent of the plaintiff's involvement in the
planning stages of the offering (such as whether the plaintiff has
arranged an underwriting or prepared the offering materials). We do
not mean to suggest that these factors provide conclusive evidence
of culpable promotional activity, or that they constitute an
exhaustive list of factors to be considered. The courts are free,
in the exercise of their sound discretion, to consider whatever
facts are relevant to the inquiry.
C
Given the record in this case, we cannot ascertain whether
Pinter may successfully assert an
in pari delicto
defense
Page 486 U. S. 640
against Dahl's § 12(1) claim. [
Footnote 15] The District Court's findings in this case
are not adequate to determine whether Dahl bears at least
substantially equal responsibility for the failure to register the
oil and gas interests or to distribute the securities in a manner
that conformed with the statutory exemption, and whether he was
primarily a promoter of the offering. [
Footnote 16] The findings indicate, on the one hand,
that Dahl may have participated in initiating the entire
investment, and that he loaned money to Pinter and solicited his
associates' participation in the venture, but, on the other hand,
that Dahl invested substantially more money than the other
investor-respondents, expected and received no commission
Page 486 U. S. 641
for his endeavors, and drafted none of the offering documents.
Furthermore, the District Court made no findings as to who was
responsible for the failure to register or for the manner in which
the offering was conducted. Those findings will be made on the
remand of this case for further proceedings.
III
What we have said as to the availability to Pinter of the
in
pari delicto defense against Dahl's § 12(1) action does not
obviate the need to consider the second question presented by
petitioner. [
Footnote 17] We
turn now to that issue.
In determining whether Dahl may be deemed a "seller" for
purposes of § 12(1), such that he may be held liable for the sale
of unregistered securities to the other investor-respondents, we
look first at the language of § 12(1).
See Ernst & Ernst v.
Hochfelder, 425 U. S. 185,
425 U. S. 197
(1976). That statute provides, in pertinent part: "Any person who .
. . offers or sells a security" in violation of the registration
requirement of the Securities Act "shall be liable to the person
purchasing such security from him." 15 U.S.C. § 771. This provision
defines the class of defendants who may be subject to liability
[
Footnote 18] as those who
offer or sell unregistered
Page 486 U. S. 642
securities. [
Footnote 19]
But the Securities Act nowhere delineates who may be regarded as a
statutory seller, and the sparse legislative history sheds no light
on the issue. The courts, on their part, have not defined the term
uniformly.
At the very least, however, the language of § 12(1) contemplates
a buyer-seller relationship not unlike traditional contractual
privity. Thus, it is settled that § 12(1) imposes liability on the
owner who passed title, or other interest in the security, to the
buyer for value.
See Loss, at 1016. Dahl, of course, was
not a seller in this conventional sense, and therefore may be held
liable only if § 12(1) liability extends to persons other than the
person who passes title. [
Footnote 20]
A
In common parlance, a person may offer or sell property without
necessarily being the person who transfers title to,
Page 486 U. S. 643
or other interest in, that property. We need not rely entirely
on ordinary understanding of the statutory language, however, for
the Securities Act defines the operative terms of § 12(1). Section
2(3) defines "sale" or "sell" to include "every contract of sale or
disposition of a security or interest in a security, for value,"
and the terms "offer to sell," "offer for sale," or "offer" to
include "every attempt or offer to dispose of, or solicitation of
an offer to buy, a security or interest in a security, for value."
15 U.S.C. § 77b(3). Under these definitions, the range of persons
potentially liable under § 12(1) is not limited to persons who pass
title. The inclusion of the phrase "solicitation of an offer to
buy" within the definition of "offer" brings an individual who
engages in solicitation, an activity not inherently confined to the
actual owner, within the scope of § 12.
See Loss, at 1016;
Douglas & Bates, The Federal Securities Act of 1933, 43 Yale
L.J. 171, 206-207 (1933). Indeed, the Court has made clear, in the
context of interpreting § 17(a) of the Securities Act, 15 U.S.C. §
77q(a), that transactions other than traditional sales of
securities are within the scope of § 2(3), and passage of title is
not important.
See United States v. Naftalin, 441 U.
S. 768,
441 U. S. 773
(1979). We there explained:
"The statutory terms ['offer' and 'sell'], which Congress
expressly intended to define broadly, . . . are expansive enough to
encompass the entire selling process, including the seller/agent
transaction."
Ibid. See also Rubin v. United States,
449 U. S. 424,
449 U. S. 430
(1981) ("It is not essential under the terms of the Act that full
title pass to a transferee for the transaction to be an
offer'
or a `sale'").
Determining that the activity in question falls within the
definition of "offer" or "sell" in § 2(3), however, is only half of
the analysis. The second clause of § 12(1), which provides that
only a defendant "from" whom the plaintiff "purchased" securities
may be liable, narrows the field of potential sellers. [
Footnote 21]
Page 486 U. S. 644
Several courts and commentators have stated that the purchase
requirement necessarily restricts § 12 primary liability to the
owner of the security .
E.g., Beck v. Cantor, Fitzgerald &
Co., 621 F.
Supp. 1547, 1560-1561 (ND Ill.1985); Abrams, The Scope of
Liability Under Section 12 of the Securities Act of 1933:
"Participation" and the Pertinent Legislative Materials, 15
Ford.Urban L.J. 877 (1987);
see also Collins v. Signetics
Corp., 605 F.2d 110, 113 (CA3 1979) (absent some "special
relationship" --
e.g., control -- § 12 requires privity
between statutory seller and buyer). In effect, these authorities
interpret the term "purchase" as complementary to only the term
"sell" defined in § 2(3). Thus, an offeror, as defined by § 2(3),
may incur § 12 liability only if the offeror also "sells" the
security to the plaintiff, in the sense of transferring title for
value. Abrams, 15 Ford. Urban L.J. at 922-923.
We do not read § 12(1) so restrictively. The purchase
requirement clearly confines § 12 liability to those situations in
which a sale has taken place. Thus, a prospective buyer has no
recourse against a person who touts unregistered securities to him
if he does not purchase the securities. Loss, at 884. The
requirement, however, does not exclude solicitation from the
category of activities that may render a person liable when a sale
has taken place. A natural reading of the statutory language would
include in the statutory seller status at least some persons who
urged the buyer to purchase. For example, a securities vendor's
agent who solicited the purchase would commonly be said, and would
be thought by the buyer, to be among those "from" whom the buyer
"purchased," even though the agent himself did not pass title.
See Cady v. Murphy, 113 F.2d 988, 990 (CA1) (finding
broker
Page 486 U. S. 645
acting as agent of the owner liable as a statutory seller),
cert. denied, 311 U.S. 705 (1940).
The Securities Act does not define the term "purchase." The
soundest interpretation of the term, however, is as a correlative
to both "sell" and "offer," at least to the extent that the latter
entails active solicitation of an offer to buy. This interpretation
is supported by the history of the phrase "offers or sells," as it
is used in § 12(1). As enacted in 1933, § 12(1) imposed liability
on "[a]ny person who . . . sells a security." 48 Stat. 84. The
statutory definition of "sell" included "offer," and the activities
now encompassed by that term, including solicitation.
Id.
at 74. The words "offer or" were added to § 12(1) by the 1954
amendments to the Securities Act, when the original definition of
"sell" in § 2(3) was split into separate definitions of "sell" and
"offer" in order to accommodate changes in § 5. 68 Stat. 683, 686.
Since "sells" and "purchases" have obvious correlative meanings,
Congress' express definition of "sells" in the original Securities
Act to include solicitation suggests that the class of those from
whom the buyer "purchases" extended to persons who solicit him. The
1954 amendment to § 12(1) was intended to preserve existing law,
including the liability provisions of the Act. H.R.Rep. No. 1542,
83d Cong., 2d Sess., 26 (1954); S.Rep. No. 1036, 83d Cong., 2d
Sess., 18 (1954); Loss, at 884. Hence, there is no reason to think
Congress intended to narrow the meaning of "purchased from" when it
amended the statute to include "solicitation" in the statutory
definition of "offer" alone. [
Footnote 22]
Page 486 U. S. 646
The applicability of § 12 liability to brokers and others who
solicit securities purchases has been recognized frequently since
the passage of the Securities Act. It long has been "quite clear"
that, when a broker acting as agent of one of the principals to the
transaction successfully solicits a purchase, he is a person from
whom the buyer purchases within the meaning of § 12, and is
therefore liable as a statutory seller.
See Loss, at 1016.
Indeed, courts had found liability on this basis prior to the 1954
amendment of the statute.
See, e.g., Wall v.
Wagner, 125 F.
Supp. 854, 858 (Neb.1954),
aff'd sub nom. Whittaker v.
Wall, 226 F.2d 868, 873 (CA8 1955) (principal and its agents);
Schillner v. H. Vaughan Clarke & Co., 134 F.2d 875,
879 (CA2 1943) (seller's broker);
Cady v. Murphy, supra,
(seller's broker);
Boehm v. Granger, 42 N.Y.S.2d 246, 248
(Sup.1943),
aff'd, 268 App.Div. 855, 50 N.Y.S.2d 845
(1944) (buyer's broker). Had Congress intended liability to be
restricted to those who pass title, it could have effectuated its
intent by not adding the phrase "offers or" when it split the
definition of "sell" in § 2(3).
An interpretation of statutory seller that includes brokers and
others who solicit offers to purchase securities furthers the
purposes of the Securities Act -- to promote full and fair
disclosure of information to the public in the sales of securities.
In order to effectuate Congress' intent that § 12(1) civil
liability be
in terrorem, see Douglas & Bates, 43 Yale
L.J. at 173; Shulman, 43 Yale L.J. at 227, the risk of its
invocation should be felt by solicitors of purchases. The
solicitation of a buyer is perhaps the most critical stage of the
selling transaction. It is the first stage of a traditional
securities sale to involve the buyer, and it is directed at
producing the sale. In addition, brokers and other solicitors are
well positioned to control the flow of information to a potential
purchaser, and, in fact, such persons are the participants in the
selling transaction who most often disseminate material information
to investors. Thus, solicitation is the stage at which an investor
is most likely to be injured, that is, by
Page 486 U. S. 647
being persuaded to purchase securities without full and fair
information. Given Congress' overriding goal of preventing this
injury, we may infer that Congress intended solicitation to fall
under the mantle of § 12(1).
Although we conclude that Congress intended § 12(1) liability to
extend to those who solicit securities purchases, we share the
Court of Appeals' conclusion that Congress did not intend to impose
rescission based on strict liability on a person who urges the
purchase, but whose motivation is solely to benefit the buyer. When
a person who urges another to make a securities purchase acts
merely to assist the buyer, not only is it uncommon to say that the
buyer "purchased" from him, but it is also strained to describe the
giving of gratuitous advice, even strongly or enthusiastically, as
"soliciting." Section 2(3) defines an offer as a "solicitation of
an offer to buy . . . for value." The person who gratuitously urges
another to make a particular investment decision is not, in any
meaningful sense, requesting value in exchange for his suggestion
or seeking the value the titleholder will obtain in exchange for
the ultimate sale. The language and purpose of § 12(1) suggest that
liability extends only to the person who successfully solicits the
purchase, motivated at least in part by a desire to serve his own
financial interests or those of the securities owner. If he had
such a motivation, it is fair to say that the buyer "purchased" the
security from him and to align him with the owner in a rescission
action. [
Footnote 23]
Page 486 U. S. 648
B
Petitioner is not satisfied with extending § 12(1) primary
liability to one who solicits securities sales for financial gain.
Pinter assumes, without explication, that liability is not limited
to the person who actually parts title with the securities, and
urges us to validate, as the standard by which additional
defendant-sellers are identified, that version of the "substantial
factor" test utilized by the Fifth Circuit before the refinement
espoused in this case. [
Footnote
24] Under that approach,
Page 486 U. S. 649
grounded in tort doctrine, a nontransferor § 12(1) seller is
defined as one "whose participation in the buy-sell transaction is
a substantial factor in causing the transaction to take place."
Pharo v. Smith, 621 F.2d 656, 667 (CA5 1980). [
Footnote 25]
Page 486 U. S. 650
The Court of Appeals acknowledged that Dahl would be liable as a
statutory seller under this test. 787 F.2d at 990.
We do not agree that Congress contemplated imposing § 12(1)
liability under the broad terms petitioner advocates. There is no
support in the statutory language or legislative history for
expansion of § 12(1) primary liability beyond persons who pass
title and persons who "offer," including those who "solicit"
offers. Indeed, § 12's failure to impose express liability for mere
participation in unlawful sales transactions suggests that Congress
did not intend that the section impose liability on participants
collateral to the offer or sale. When Congress wished to create
such liability, it had little trouble doing so.
Cf. Touche Ross
& Co. v. Redington, 442 U. S. 560,
442 U. S. 572
(1979). [
Footnote 26]
Page 486 U. S. 651
The deficiency of the substantial factor test is that it
divorces the analysis of seller status from any reference to the
applicable statutory language and from any examination of § 12 in
the context of the total statutory scheme. Those courts that have
adopted the approach have not attempted to ground their analysis in
the statutory language.
See n 25,
supra. Instead, they substitute the
concept of substantial participation in the sales transaction, or
proximate causation of the plaintiff's purchase, for the words
"offers or sells" in § 12. The "purchase from" requirement of § 12
focuses on the defendant's relationship with the
plaintiff-purchaser. The substantial factor test, on the other
hand, focuses on the defendant's degree of involvement in the
securities transaction and its surrounding circumstances. Thus,
although the substantial factor test undoubtedly embraces persons
who pass title and who solicit the purchase of unregistered
securities as statutory sellers, the test also would extend § 12(1)
liability to participants only remotely related to the relevant
aspects of the sales transaction. Indeed, it might expose
securities professionals, such as accountants and lawyers, whose
involvement is only the performance of their professional services,
to § 12(1) strict liability for rescission. The buyer does not, in
any meaningful sense, "purchas[e] the security from" such a person.
[
Footnote 27]
Page 486 U. S. 652
Further, no congressional intent to incorporate tort law
doctrines of reliance and causation into § 12(1) emerges from the
language or the legislative history of the statute. Indeed, the
strict liability nature of the statutory cause of action suggests
the opposite.
See Douglas & Bates, 43 Yale L.J. at
177. By injecting these concepts into § 12(1) litigation, the
substantial factor test introduces an element of uncertainty into
an area that demands certainty and predictability. As the Fifth
Circuit has conceded, the test affords no guidelines for
distinguishing between the defendant whose conduct rises to a level
of significance sufficient to trigger seller status, and the
defendant whose conduct is not sufficiently integral to the sale.
See Pharo v. Smith, 621 F.2d at 667. [
Footnote 28] None of the courts employing the
approach has articulated what measure of participation qualifies a
person for seller status, and logically sound limitations would be
difficult to develop. As a result, decisions are made on an
ad
hoc basis, offering little predictive value to participants in
securities transactions.
See Croy v. Campbell, 624 F.2d
709, 714 (CA5 1980);
Pharo v. Smith, 621 F.2d at 667. We
find it particularly unlikely that Congress would have ordained
sub silentio the imposition of strict liability on such an
unpredictably defined class of defendants.
Not surprisingly, Pinter makes no attempt to justify the
substantial factor test as a matter of statutory construction.
Instead, the sole justification Pinter advances is that
extending
Page 486 U. S. 653
§ 12 liability pursuant to the test protects investors and
serves the "remedial purposes" of the Securities Act.
See also,
e.g., Lennerth v. Mendenhall, 234 F.
Supp. 59, 65 (ND Ohio 1964). The Court has acknowledged that
"it is proper for a court to consider . . . policy considerations
in construing terms in [the federal securities] Acts."
Landreth
Timber Co. v. Landreth, 471 U. S. 681,
471 U. S. 695,
n. 7 (1985). And the Court has recognized that Congress had "broad
remedial goals" in enacting the securities laws and providing civil
remedies.
Ernst & Ernst v. Hochfelder, 425 U.S. at
425 U. S. 200;
Tcherepnin v. Knight, 389 U. S. 332,
389 U. S. 336
(1967). Accordingly, the Court itself has construed securities law
provisions "
not technically and restrictively, but flexibly to
effectuate [their] remedial purposes.'" Affiliated Ute Citizens
v. United States, 406 U. S. 128,
406 U. S. 151
(1972), quoting SEC v. Capital Gains Research Bureau,
375 U. S. 180,
375 U. S. 195
(1963). But the Court never has conducted its analysis entirely
apart from the statutory language.
"The ultimate question is one of congressional intent, not one
of whether this Court thinks it can improve upon the statutory
scheme that Congress enacted into law."
Touche Ross & Co. v. Redington, 442 U.S. at
442 U. S. 578.
The ascertainment of congressional intent with respect to the scope
of liability created by a particular section of the Securities Act
must rest primarily on the language of that section.
See Santa
Fe Industries, Inc. v. Green, 430 U.
S. 462,
430 U. S. 472
(1977). The broad remedial goals of the Securities Act are
insufficient justification for interpreting a specific provision
"
more broadly than its language and the statutory scheme
reasonably permit.'" Touche Ross, 442 U.S. at 442 U. S. 578,
quoting SEC v. Sloan, 436 U. S. 103,
436 U. S. 116
(1978). We must assume that Congress meant what it said.
The substantial factor test reaches participants in sales
transactions who do not even arguably fit within the definitions
set out in § 2(3); it "would add a gloss to the operative language
of [§ 12(1)] quite different from its commonly accepted
Page 486 U. S. 654
meaning."
Ernst & Ernst v. Hochfelder, 425 U.S. at
425 U. S. 199.
We conclude that Congress did not intend such a gross departure
from the statutory language. Accordingly, we need not entertain
Pinter's policy arguments. [
Footnote 29] Being merely a "substantial factor" in
causing the sale of unregistered securities is not sufficient in
itself to render a defendant liable under § 12(1).
C
We are unable to determine whether Dahl may be held liable as a
statutory seller under § 12(1). The District Court explicitly found
that
"Dahl solicited each of the other plaintiffs (save perhaps
Grantham) in connection with the offer, purchase, and receipt of
their oil and gas interests."
App. to Pet. for Cert. a-34. We cannot conclude that this
finding was clearly erroneous. It is not clear, however, that Dahl
had the kind of interest in the sales that make him liable as a
statutory seller. We do know that he received no commission from
Pinter in connection with the other sales, but this is not
conclusive. Typically, a person who solicits the purchase will have
sought or received a personal financial benefit from the sale, such
as where he "anticipat[es] a share of the profits,"
Lawler v.
Gilliam, 569 F.2d at 1288, or receives a brokerage commission,
Cady v. Murphy, 113 F.2d at 990. But
Page 486 U. S. 655
a person who solicits the buyer's purchase in order to serve the
financial interests of the owner may properly be liable under §
12(1) without showing that he expects to participate in the
benefits the owner enjoys.
The Court of Appeals apparently concluded that Dahl was
motivated entirely by a gratuitous desire to share an attractive
investment opportunity with his friends and associates.
See 787 F.2d at 991. This conclusion, in our view, was
premature. The District Court made no findings that focused on
whether Dahl urged the other purchases in order to further some
financial interest of his own or of Pinter. Accordingly, further
findings are necessary to assess Dahl's liability. [
Footnote 30]
IV
The judgment of the Court of Appeals is vacated, and the case is
remanded for further proceedings consistent with this opinion.
It is so ordered.
JUSTICE KENNEDY took no part in the consideration or decision of
this case.
[
Footnote 1]
Petitioners are Pinter, individually and d.b.a. Black Gold Oil
Company, Pinter Energy Company, and Pinter Oil Company. Throughout
this opinion, we often refer to petitioners collectively as
"Pinter."
Respondents are Maurice Dahl, Gary Clark, W. Grantham, Robert J.
Daniele, Charles Dahl, Dowayne C. Bockman, Ray Dilbeck, Richard
Koon, Art Overgaard, Jack Yeager, Accra Tronics Seals Corp., and
Aaron Heller. These persons are Dahl's brother, his accountant, his
partner in a construction business, the bank officer handling his
construction loans, his construction business insurance agent, a
business owned by a long-time friend, and other business associates
and friends of Maurice Dahl.
See App. 101-104.
[
Footnote 2]
The venture included still others who were either interested in
additional ventures organized by Pinter or were new investors who
met Pinter through sources other than Dahl. Those investors are not
parties to this litigation.
[
Footnote 3]
Specifically, each document recited:
"WHEREAS the parties constitute a predetermined and limited
group of sophisticated and knowledgeable, well informed investors
who desire to arrange for participation in an oil and/or gas
drilling venture as an investment and do declare that it is not for
the purpose of reselling their interest therein. (These
participating interests are being sold without the benefit of
registration under the Securities Act of 1933, as amended, and on
reliance of rule 146 thereunder)."
App. 95.
See also n
4,
infra.
Rule 146 was rescinded, effective June 30, 1982, by SEC Release
No. 336389, 47 Fed.Reg. 11251 (1982), and superseded by provisions
of Regulation D, 17 CFR, p. 425 (1987).
[
Footnote 4]
Section 12 provides:
"Any person who -- (1) offers or sells a security in violation
of section [5] . . . shall be liable to the person purchasing such
security from him, who may sue either at law or in equity in any
court of competent jurisdiction, to recover the consideration paid
for such security with interest thereon, less the amount of any
income received thereon, upon the tender of such security, or for
damages if he no longer owns the security."
Section 5, 15 U.S.C. § 77e, referred to in § 12, states, in
pertinent part, that if a security is unregistered, it is unlawful
for a person to sell or deliver the security in interstate
commerce.
A number of exemptions, however, enable an issuer to avoid the
registration requirement of the Securities Act. One of these, §
4(2), 15 U.S.C. § 77d(2), commonly referred to as the
"private-offering" exemption, relieves from registration
"transactions by an issuer not involving any public offering."
See SEC v. Ralston Purina Co., 346 U.
S. 119 (1953) (establishing criteria for determining
whether an offering fits the private offering exemption).
In 1974, the Commission sought to provide "objective standards"
under § 4(2) by adopting Rule 146. Rule 146 -- Transactions by an
Issuer Deemed Not to Involve Any Public Offering, Securities Act
Rel. No. 335487 (effective June 10, 1974), 39 Fed.Reg. 15261
(1974), CCH Fed.Sec.L.Rep. � 2710, p. 2902. It has been said that
the Rule, which is now superseded by provisions of Regulation D,
see n. 3,
supra, provided that a transaction by
an issuer would not be deemed to involve a public offering within
the meaning of § 4(2) if it was part of an offering that met the
following conditions:
"[T]he offering must 1) not be made by any means or form of
general solicitation or advertising; 2) be made only to those
persons whom the issuer has reasonable grounds to believe are of
knowledge and experience which would enable them to evaluate the
merits of the issue or who are financially able to bear the risk;
3) be made only to those persons who have access to the same kind
of information as would be contained in a registration statement.
Under this rule, the issuer must have reasonable grounds to
believe, and must believe, that there are no more than thirty-five
purchasers from the issuer."
Mary S. Krech Trust v. Lakes Apartments, 642 F.2d 98,
101 (CA5 1981).
See 3 H. Bloomenthal, Securities and
Federal Corporate Law § 4.05[2] (1981 ed.). Pinter sought to take
advantage of this "safe harbor" in issuing the oil and gas
interests involved in this case.
In addition to their § 12(1) claim, respondents alleged that
Pinter made material misrepresentations regarding the oil and gas
properties and his oil experience, thereby entitling them to
damages under § 10(b) of the Securities Exchange Act of 1934, 48
Stat. 891, 15 U.S.C. § 78j(b), and SEC Rule 10b-5 thereunder, 17
CFR § 240.10b-5 (1987), and to rescission under § 12(2) of the
Securities Act, 15 U.S.C. § 771(2). Respondents also asserted
pendent claims under Texas and California law. None of these
additional claims is before us.
[
Footnote 5]
Pinter apparently meant to contend that Dahl was responsible for
the loss of the private offering exemption from registration under
§ 4(2) and Rule 146,
see n 4,
supra, although Pinter did not make this
assertion explicit in his pleadings.
Cf. Second Amended
Proposed Findings of Fact and Conclusions of Law of Defendants
Billy J. "B. J." Pinter,
et al., App. 85-86 (claiming that
petitioners had met the requirements of the private offering
exemption).
[
Footnote 6]
Pinter contended that all the respondents should be estopped
from recovery because of Dahl's fraudulent conduct. He asserted his
in pari delicto defense solely against Dahl.
[
Footnote 7]
Having reached this conclusion, the District Court found it
unnecessary to consider respondents' § 12(2) claim. App. to Pet.
for Cert. 37-38. The court rejected respondents' claim under §
10(b) and Rule 10b-5. App. to Pet. for Cert. a-37.
[
Footnote 8]
The court also rejected Pinter's estoppel defense. 787 F.2d at
988-989. That holding is not challenged in this Court. We express
no view as to whether this equitable defense is available in a §
12(1) action.
[
Footnote 9]
Because none of the other plaintiffs sought recovery from Dahl,
Dahl's liability on their claims is at issue only if contribution
is available to Pinter.
The Court of Appeals addressed Pinter's contention that Dahl was
liable as a § 12(1) seller and thus should be accountable to Pinter
in contribution for the amounts awarded to the other plaintiffs.
787 F.2d at 987. It is not entirely clear how this claim was raised
below. Pinter's pleadings do not state an explicit cause of action
for contribution against Dahl, although Pinter did move, although
unsuccessfully, to realign Dahl as a third-party defendant, based
on Pinter's assertion that Dahl was a "seller" of the unregistered
securities to the remaining plaintiffs and had made the allegedly
actionable misrepresentations to them in connection with the sales.
See 1 Record 164-165, 189. Presumably, the Court of
Appeals construed Pinter's affirmative defense for contributory
fault and his incorporation of this defense into his counterclaims,
as effectively seeking contribution.
Unlike § 11 of the Securities Act,
see 15 U.S.C. §
77k(f), § 12 does not expressly provide for contribution. The Court
of Appeals did not reach the question whether Pinter is entitled to
contribution under § 12(1), because it found that Dahl was not a
seller for purposes of § 12(1), and therefore would not be the
proper subject of a contribution claim. The parties have not raised
or addressed the contribution issue before this Court, and we
express no view as to whether a right of contribution exists under
§ 12(1) of the Securities Act.
[
Footnote 10]
The dissent addressed the "seller" issue in the context of
Pinter's asserted
in pari delicto defense. In its view,
Dahl's role as a seller of the unregistered securities "put him in
the same boat as Pinter," making him vulnerable to that defense.
787 F.2d at 991. The dissent also indicated that it "would go
further" and hold that "Pinter is entitled to contribution from
Dahl since Dahl is at least equally culpable for the sale to the
other plaintiffs."
Id. at 995, n. 5.
[
Footnote 11]
The Court of Appeals found that this conclusion was compelled by
its decision in
Henderson v. Hayden, Stone Inc., 461 F.2d
1069 (1972).
See 787 F.2d at 987-988. That case, we note,
does not discuss the
in pari delicto defense.
Accord, 794 F.2d at 1017 (opinion dissenting from denial
of rehearing of the present case en banc).
[
Footnote 12]
Among the Courts of Appeals that have addressed the issue, the
Fifth Circuit is alone in concluding that the defense is
unavailable. The defense, however, rarely has succeeded on the
facts of any particular case.
See, e.g., Lawler v.
Gilliam, 569 F.2d 1283, 1294 (CA4 1978);
Woolf v. S.D.
Cohn & Co., 515 F.2d 591, 604 (CA5 1975),
vacated and
remanded on other grounds, 426 U.S. 944 (1976);
Malamphy
v. Real-Tex Enterprises, Inc., 527 F.2d 978 (CA4 1975);
Katz v. Amos Treat & Co., 411 F.2d 1046, 1054 (CA2
1969);
Can-Am Petroleum Co. v. Beck, 331 F.2d 371, 373-374
(CA10 1964). Commentators also have suggested that the defense
should be available under proper circumstances in actions under §
12(1).
See, e.g., Ruder, Multiple Defendants in Securities
Law Fraud Cases: Aiding and Abetting, Conspiracy, In Pari Delicto,
Indemnification, and Contribution, 120 U.Pa.L.Rev. 597, 662-663
(1971-1972); Note, In Pari Delicto Under the Federal Securities
Laws: Bateman Eichler, Hill Richards, Inc. v. Berner, 72 Cornell
L.Rev. 345, 359-362 (1987).
[
Footnote 13]
The panel dissent below expressed concern that failure to
provide the
in pari delicto defense in these circumstances
would allow sophisticated investors who purchase unregistered
securities to place themselves in a no-lose situation. If the
venture proves profitable, the buyer comes out ahead. If the
investment goes bad, the buyer can sue to recover his investment in
a § 12(1) action.
See 787 F.2d at 995. The statute,
however, permits such maneuvers.
See Shulman, Civil
Liability and the Securities Act, 43 Yale L.J. 227, 246-247 (1933)
(Shulman);
accord, L. Loss, Fundamentals of Securities
Regulation 1003, n. 74 (2d. ed.1988) (Loss). Section 12(1)'s
deterrent effect is achieved, to a great extent, by a provision
allowing suits for a full year following sale.
See 15
U.S.C. § 77m. Thus, the purchaser of unregistered securities may
keep his securities and reap his profit if the securities perform
well during the year, but rescind the sale if they do not.
See,
e.g., Straley v. Universal Uranium & Milling Corp., 289
F.2d 370 (CA9 1961). Although this provision may appear to offend a
sense of fair play, allowing the investor to sue, regardless of his
knowledge of the violation when he purchased the securities,
furthers the interest of the Securities Act: the seller then has
strong incentive to comply with the registration disclosure
provisions. These provisions are concerned with affording the
unsophisticated investor information necessary to make a
knowledgeable investment decision. Permitting the sophisticated
investor to recover also serves to protect the unknowing and
innocent investor.
[
Footnote 14]
Courts have discerned beneath the registration provisions the
same broad policies as those furthered by the securities laws
generally: protection of investors as a group, not as individuals,
and the need for a healthy economy constantly purged by full
disclosure.
See, e.g., SEC v. North American Research &
Development Corp., 280 F.
Supp. 106, 121 (SDNY 1968) (purpose of § 5 is to protect public
investors through disclosure),
aff'd in part and vacated in
part on other grounds, 424 F.2d 63 (CA2 1970).
See
generally 1 Loss, Securities Regulation 178-179 (2d ed.1961)
(aim of registration provision is "
to protect honest enterprise
. . . ; to restore the confidence of the prospective investor . . .
; to bring into productive channels of industry and development
capital which has grown timid . . . ; and to aid in providing
employment and restoring buying and consumer power'"), quoting
S.Rep. No. 47, 73d Cong., 1st Sess., 1 (1933).
[
Footnote 15]
The parties vigorously dispute whether Pinter has a valid
defense under the
in pari delicto doctrine. Pinter argues
that Dahl was a "preeminent factor in the violations he seeks to
redress." Brief for Petitioners 29. He maintains that the venture
would not have been undertaken or, at least, completed, had it not
been for Dahl's involvement. According to Pinter, Dahl's
responsibility for causing the unlawful sales was at least
substantially equal to his own. Nevertheless, Pinter concedes that
nothing in the record indicates whether Dahl was a participant in
the decision not to register the securities, although Pinter would
infer that Dahl was aware of the duty to register.
See id.
at 27.
Dahl contends that his actions were not of equal fault to those
of Pinter. He suggests that Pinter, as the issuer of the
securities, was entirely responsible for the failure to register
and to fulfill the requirements of Rule 146, although he points to
no evidence in the record to support either position. Dahl further
argues, in a conclusory fashion, that he was not a promoter of any
of the securities in which his co-respondents invested. Finally, he
asserts that he should be permitted to recover because
"Pinter made the first step in the dissemination of unregistered
securities, and he will be more responsive to the deterrent
pressure of potential sanctions."
Brief for Respondents 98.
[
Footnote 16]
In dictum, the Court of Appeals ventured that, even if it were
to apply the
Bateman Eichler standard, Pinter would not be
permitted to advance an
in pari delicto defense against
Dahl's recovery. 787 F.2d at 989, n. 6. Because the court did not
have our delineation today of the proper inquiry regarding § 12(1)
actions, and because we conclude that the District Court's findings
were insufficient to conduct this analysis, the Court of Appeals'
views on this point are not conclusive of the issue.
[
Footnote 17]
Even if the Court of Appeals were ultimately to conclude that
Dahl's actions bar his recovery against Pinter pursuant to the
in pari delicto doctrine, that conclusion would not
resolve the issue whether, based on Dahl's actions as a "seller"
under § 12(1), Dahl might be held liable for contribution as to the
remaining investor-respondents' claims against Pinter. We therefore
are constrained to address, as did the Court of Appeals, whether
Dahl is a "seller" for purposes of § 12(1).
[
Footnote 18]
Section 12 was adapted from common law (or equitable)
rescission, Loss, at 888, which provided for restoration of the
status quo by requiring the buyer to return what he
received from the seller. The statute, however, differs
significantly from the source material. In particular, it permits
the buyer who has disposed of the security to sue for damages --
"the consideration paid for such security with interest thereon,
less the amount of any income received thereon." 15 U.S.C. § 771.
This damages calculation results in what is the substantial
equivalent of rescission.
See Randall v. Loftsgaarden,
478 U. S. 647,
478 U. S.
655-656 (1986); Loss, at 886; Shulman, 43 Yale L.J., at
244.
[
Footnote 19]
In addition, § 15 of the Securities Act, 15 U.S.C. § 770, makes
a "controlling person" liable for the § 12 liability of a
controlled person. That provision is not at issue in this case.
[
Footnote 20]
The "offers or sells" and the "purchasing such security from
him" language that governs § 12(1) also governs § 12(2), which
provides a securities purchaser with a similar rescissionary cause
of action for misrepresentation.
See 15 U.S.C. § 771. Most
courts and commentators have not defined the defendant class
differently for purposes of the two provisions.
See, e.g.,
Pharo v. Smith, 621 F.2d 656, 665-668, and nn. 6-8 (CA5 1980);
Schneider, Section 12 of the Securities Act of 1933: The Privity
Requirement in the Contemporary Securities Law Perspective, 51
Tenn.L.Rev. 235, 261, and nn. 144 and 145 (1983-1984).
See also
Schillner v. H. Vaughan Clarke & Co., 134 F.2d 875, 878
(CA2 1943) ("Clearly the word [sell] has the same meaning in
subdivision (2) as in subdivision (1) of section 12").
The question whether anyone beyond the transferor of title, or
immediate vendor, may be deemed a seller for purposes of § 12 has
been litigated in actions under both § 12(1) and § 12(2). Decisions
under § 12(2) addressing the "seller" question are thus relevant to
the issue presented to us in this case, and, to that extent, we
discuss them here. Nevertheless, this case does not present, nor do
we take a position on, the scope of a statutory seller for purposes
of § 12(2).
[
Footnote 21]
One important consequence of this provision is that § 12(1)
imposes liability on only the buyer's immediate seller; remote
purchasers are precluded from bringing actions against remote
sellers. Thus, a buyer cannot recover against his seller's seller.
Loss, at 1023-1024; Douglas & Bates, 43 Yale L.J., at 177.
[
Footnote 22]
It is noteworthy that, in 1940, Congress considered a proposal
that would have excluded the solicitation clause from the
definition of "sell" in § 2(3).
See S. 3985, 76th Cong.,
3d Sess., 1-2 (1940),
as introduced, 86 Cong.Rec. 6026
(1940). This amendment clearly would have reduced the meaning of
the term "sell" to transferring title for value, and would have
eliminated the potential for liability of brokers or other persons
soliciting a sale of securities. The proposal was not adopted.
[
Footnote 23]
Those commentators who argue that § 12 confines seller status to
the transferor maintain that the section's provision of
rescissionary relief supports their conclusion.
E.g.,
Abrams, 15 Ford.Urban L.J. at 924. There is authority at common
law, however, for granting a plaintiff rescission against a
defendant who was not a party to the contract in question, in
particular, against the agent of the vendor.
See, e.g., Keskal
v. Modrakouwski, 249 N.Y. 406, 408, 164 N.E. 333 (1928);
Peterson v. McManus, 187 Iowa 522, 545-549, 172 N.W. 460,
468-470 (1919). Indeed, there is nothing incongruous about forcing
a broker or other solicitor to assume ownership of the securities.
When rescission is predicated on fraud, rather than based on
contract theory, privity is not essential. Loss, at 1017, quoting
Gordon v. Burr, 506 F.2d 1080, 1085 (CA2 1974) ("[A]s
between the innocent purchaser and the wrongdoer who, though not a
privy to the fraudulent contract, nonetheless induced the victim to
make the purchase, equity requires the wrongdoer to restore the
victim to the
status quo"). In any event, there is no
reason to think that Congress wanted to bind itself to the common
law notion of the circumstances in which rescission is an
appropriate remedy. The Court, in the context of § 12(2), has noted
that Congress enabled investors to demand rescission upon tender of
the securities to the defendant, in part because of the additional
measure of deterrence provided by rescission as compared to a
purely compensatory measure of damages.
Randall v.
Loftsgaarden, 478 U.S. at
478 U. S. 659.
Thus, we may infer that Congress, in order to effectuate its goals,
chose to impose this relief on any defendant it classified as a
statutory seller, regardless of the fact that such imposition was
somewhat inconsistent with the use of rescission at common law.
Congress chose rescission for its effects; there is no indication
that Congress employed the remedy for its delineation of potential
defendants.
[
Footnote 24]
The Fifth Circuit's test is only one of several approaches that
have emerged in expanding § 12 liability beyond the security
titleholder.
See generally O'Hara, Erosion of the Privity
Requirement in Section 12(2) of the Securities Act of 1933: The
Expanded Meaning of Seller, 31 UCLA L.Rev. 921 (1983-1984); Rapp,
Expanded Liability Under Section 12 of the Securities Act: When Is
a Seller Not a Seller?, 27 Case W.Res.L.Rev. 445 (1977); Note,
Seller Liability Under Section 12(2) of the Securities Act of 1933:
A Proximate Cause-Substantial Factor Approach Limited by a Duty of
Inquiry, 36 Vand.L.Rev. 361 (1983); Comment, Attorneys and
Participant Liability Under § 12(2) of the Securities Act of 1933,
1982 Ariz.S.L.J. 529. All but one of these theories reflect the
courts' views of who constitutes a § 12 seller. The remaining
approach -- the aiding and abetting theory -- is actually a method
by which courts create secondary liability in persons other than
the statutory seller.
See, e.g., Mayer v. Oil Field Systems
Corp., 803 F.2d 749, 756 (CA2 1986);
In re Caesars Palace
Securities Litigation, 360 F.
Supp. 366 (SDNY 1973);
see also Collins v. Signetics
Corp., 605 F.2d 110, 113-114 (CA3 1979) (leaving open whether
aiding and abetting liability is available). Because this case
deals exclusively with primary liability under § 12(1), we need not
consider whether civil liability for aiding and abetting is
appropriate under that section.
Compare Comment, 1982
Ariz.S.L.J. at 550-577 (endorsing aiding and abetting liability
under § 12(2)); Ruder, 120 U.Pa.L.Rev. at 620-644 (same),
with Abrams, 15 Ford.Urban L.J. at 942-947 (disapproving
secondary liability under § 12); O'Hara, 31 UCLA L.Rev. at 979-1002
(arguing that any form of participant liability, whether primary or
secondary, is inappropriate under § 12(2)).
[
Footnote 25]
The substantial factor test reflects a conviction that § 12
liability
"must lie somewhere between the narrow view, which holds only
the parties to the sale, and the too-liberal view which would hold
all who remotely participated in the events leading up to the
transaction."
Lennerth v. Mendenhall, 234 F.
Supp. 59, 65 (ND Ohio 1964). That court elected to "borrow a
phrase from the law of negligence" and to premise liability on
proximate cause. It imposed § 12(1) liability on the issuer that
transferred title and the issuer's president, vice president, and
another employee. The Fifth Circuit adopted the proximate cause
rationale in
Hill York Corp. v. American International
Franchises, Inc., 448 F.2d 680, 693 (1971) (holding that
promoters of a nationwide franchising scheme were § 12 sellers),
and two years later refined the doctrine to impose liability on
defendants whose actions were a "
substantial factor'" in
causing a plaintiff's purchases. See Lewis v. Walston &
Co., 487 F.2d 617, 622 (CA5 1973) (affirming § 12(1) judgment
against a brokerage firm and its representative who touted
unregistered securities and arranged for their purchase by the
plaintiff).
A number of courts have followed that view.
See Lawler v.
Gilliam, 569 F.2d at 1287-1288 (§ 12(1));
Adalman v.
Baker, Watts & Co., 807 F.2d 359, 363 (CA4 1986) (§
12(2));
Davis v. Avco Financial Services, Inc., 739 F.2d
1057, 1067 (CA6 1984) (§ 12(2)),
cert. denied, 470 U.S.
1005 (1985);
Stokes v. Lokken, 644 F.2d 779, 785 (CA8
1981) (§ 12 generally);
Foster v. Jesup & Lamont Securities
Co., 759 F.2d 838, 843-844 (CA11 1985) (§ 12 generally).
The Ninth Circuit has shaped its own version of the test.
See Anderson v. Aurotek, 774 F.2d 927, 930 (1985)
(imposing § 12 liability on "
participants' whose acts are `both
necessary to and a substantial factor in the sales transaction'").
See also SEC v. Rogers, 790 F.2d 1450, 1456 (CA9 1986)
(explaining that the "necessary" and "substantial factor" prongs
require separate showings: "The first prong . . . requires a
defendant's participation to be a `but for' cause of the unlawful
sale, and the second requires the participation to be more than
`de minimis'").
[
Footnote 26]
Congress knew of the collateral participation concept and
employed it in the Securities Act and throughout its unified
program of securities regulation. Liabilities and obligations
expressly grounded in participation are found elsewhere in the Act,
see, e.g., 15 U.S.C. § 77b(11) (defining "underwriter,"
who is liable under § 5, as including direct and indirect
participants), and in the later Roosevelt administration securities
Acts. For example, § 9 of the 1934 Act, passed by the same Congress
that enacted the Securities Act, creates a private right of action
that expressly imposes liability on participants. 15 U.S.C. §
7si(e).
See Abrams, 15 Ford.Urban L.J. at 925-937.
Section 11 of the Securities Act, 15 U.S.C. § 77k, lends strong
support to the conclusion that Congress did not intend to extend §
12 primary liability to collateral participants in the unlawful
securities sales transaction. That section provides an express
cause of action for damages to a person acquiring securities
pursuant to a registration statement that misstates or omits a
material fact. Section 11(a) explicitly enumerates the various
categories of persons involved in the registration process who are
subject to suit under that section, including many who are
participants in the activities leading up to the sale. There are no
similar provisions in § 12, and therefore we may conclude that
Congress did not intend such persons to be defendants in § 12
actions.
[
Footnote 27]
For similar reasons, we reject the Commission's suggestion that
persons who "participate in soliciting the purchase" may be liable
as statutory sellers. Brief for SEC as
Amicus Curiae 22.
The Commission relies on
Katz v. Amos Treat & Co., 411
F.2d 1046 (CA2 1969), where the court held that an attorney who had
been "a party to the solicitation" of the plaintiff purchaser was
liable under § 12(1) because he had placed the brokerage firm for
which he worked in a position "to tackle [the purchaser] for the
money" owed on an investment he had made.
Id. at 1053.
Although in
Katz the attorney spoke directly to the
plaintiff prior to the delivery of money in plaintiff's investment,
the "party to a solicitation" concept could easily embrace those
who merely assist in another's solicitation efforts.
See
Schneider, 51 Tenn.L.Rev. at 273 (suggesting that the
Katz
approach allows courts to interpret solicitation activities "rather
broadly"). It is difficult to see more than a slight difference
between this approach and the participation theory, which we have
concluded does not comport with Congress' intent.
[
Footnote 28]
Even in the tort law context, the substantial factor test is
recognized as inadequate for determining whether the defendant's
conduct was so significant and important a cause that the law
should extend responsibility for the conduct to the consequences
that occurred.
See W. Prosser, Law of Torts § 42, pp. 244,
248 (4th ed.1971).
[
Footnote 29]
We observe, however, that although every rule that extends
liability serves on some level to protect investors, the
substantial factor test does not necessarily further the remedial
purposes of § 12(1). Imposing a strict liability rescission remedy
on those who are only tangentially involved with the sale might
result in less and poorer information to investors, rather than
more and better information. Because strict liability is involved,
once a person became involved in the transaction, even
peripherally, it would be impossible to avoid the risk of
liability. There is little danger that this risk will deter true
sellers from giving information, for they have no other way to go
about their business. They also have the most control over
conducting the sale in a manner that avoids liability. For those
more attenuated to the sales transaction, however, who have far
less, if any, control over the transaction, the harshness of §
12(1) might deter them from assisting. Particularly since the test
produces unpredictable results, it risks over-deterring activities
related to lawful securities sales.
[
Footnote 30]
Of course, on remand, the Court of Appeals may find it necessary
to address some of the difficult and unsettled questions raised by
the dissent concerning the availability of contribution in § 12(1)
cases in general and in this case in particular.
JUSTICE STEVENS, dissenting.
Although I substantially agree with the Court's discussion of
the
in pari delicto defense in Parts II-A and II-B of its
opinion, I disagree with its application of that discussion to the
facts of this case. [
Footnote 2/1]
Moreover, I am unable to join Part
Page 486 U. S. 656
III because I am persuaded that the discussion of the § 12(1)
term "seller" in the context of a contribution suit is both
advisory, because no such suit was brought in this case, and
misleading, because it assumes that the class of persons who sell
securities to purchasers (
i.e., § 12(1) "sellers") is
coextensive with the class of potential defendants in claims for
contribution, not brought directly under § 12(1), asserted by §
12(1) sellers. § 12(1), Securities Act of 1933, 15 U.S.C. §
771(1).
I
In this case, Pinter had the burden of proving that Dahl shared
at least equal responsibility for the action that resulted in the §
12(1) violation,
i.e., the failure to register the
securities. But, as the Court notes, Pinter has conceded that
"nothing in the record indicates whether Dahl was a participant in
the decision not to register the securities. "
Ante at
486 U. S. 640,
n. 15;
see Brief for Petitioner 27. Further, the Court of
Appeals concluded, and it is undisputed here, that there is no
evidence that Dahl knew that the failure to register the securities
was unlawful. [
Footnote 2/2]
Page 486 U. S. 657
Because "the District Court made no findings as to who was
responsible for the failure to register or for the manner in which
the offering was conducted,"
ante at
486 U. S. 641,
the majority concludes that we must remand for further findings. It
seems to me, though, that the District Court's failure to make
findings on the critical issue of responsibility for failure to
register is properly attributed to Pinter's failure to direct the
court's attention to the issue. Pinter pleaded his
in pari
delicto defense as follows:
"The Plaintiff, M. Dahl, engaged in fraudulent
misrepresentations to Pinter and the other Plaintiffs, all as set
forth in the Defendant's Counterclaim. He is therefore barred from
recovery for the causes of action set forth in [Plaintiffs' First
Amended Complaint], by reason of his conduct
in pari
delicto in connection with the offer, sale and delivery of the
securities of that which he complains."
App. 67. In light of the fact that the District Court expressly
found that the "evidence did not establish that defendants are
entitled to any relief on their counterclaims,"App. to Pet. for
Cert. a-38, it would seem to follow that the District Court also
found that there was no factual basis for the
in pari
delicto affirmative defense as pleaded.
Pinter did, though, in his proposed findings of fact and
conclusions of law, set forth a somewhat different theory for the
in pari delicto defense. He proposed as a conclusion of
law that,
"[a]s a result of his participation in the solicitation of the
investment by other Plaintiffs in the subject lease transactions,
Dahl is
in pari delicto, and cannot recover in this action
as a matter of law."
2 Record 274. Thus, if one construes this proposal liberally as
amending the pleading, it is fair to conclude that the District
Court was at least directed to examine the nature of Dahl's
participation in the solicitation of others to invest in the Pinter
leases. But nowhere in his proposed findings of fact or conclusions
of law did Pinter suggest that Dahl played any role in the failure
to register the
Page 486 U. S. 658
securities. To be sure, in arguing that the private offering
exemption should apply, Pinter asked the court to find that
Dahl
"received or collected most of the investment proceeds from [the
other investors] and hand-delivered the funds to Pinter. He had
disclosure of or access to all of the information requisite to a
registration statement."
Id. at 395. But all of this was proposed to convince
the court that the private offering exemption applied, and, more
importantly, none of it suggests that Dahl aided Pinter in any way
in the latter's decision not to (or failure to) register the
securities. Thus, by permitting Pinter to argue now, on remand, for
the first time, that Dahl played a role in the failure to register,
the majority gives Pinter a second chance to litigate an issue that
he was in no way prevented from litigating the first time before
the District Court. Since there is nothing in the record to suggest
that the District Court committed any error of law in rejecting the
in pari delicto defense, the fact that the Court of
Appeals may have entertained a different legal view of the defense
than we do is not a sufficient reason for giving Pinter another
opportunity to prove facts that he failed to establish at trial.
[
Footnote 2/3]
The question concerning Pinter's possible right to contribution
from Dahl relates only to the proceeds of the sales to the
Page 486 U. S. 659
plaintiffs other than Dahl who elected to sue Pinter and not
Dahl. Initially, it is unclear how this matter is properly before
us. The Court acknowledges that "Pinter's pleadings do not state an
explicit cause of action for contribution against Dahl,"
see
ante at
486 U. S. 630,
n. 9, and suggests that
"the Court of Appeals construed Pinter's affirmative defense for
contributory fault and his incorporation of this defense into his
counterclaims, as effectively seeking contribution."
Ibid. If this were so, then the matter is easily
resolvable, for as I have pointed out
supra, at
486 U. S. 657,
the District Court expressly found that the "evidence did not
establish that defendants are entitled to any relief on their
counterclaims," and there is nothing in the record indicating (nor
any assertion here) that the District Court applied an erroneous
legal standard in rejecting the counterclaims. In any event, Pinter
in fact brought no claim for contribution, and the fact that the
Court of Appeals saw fit to discuss whether Dahl could be held
liable in such a hypothetical lawsuit does not, in my opinion,
justify the issuance of an advisory opinion by this Court.
[
Footnote 2/4]
Even if there is a right to contribution in cases like this,
[
Footnote 2/5] and even if Pinter
had alleged a claim for contribution against
Page 486 U. S. 660
Dahl, I see no reason for assuming that the merits of such a
claim would be governed by the definition of the term "seller" as
used in § 12(1). For even if Dahl might be regarded as a seller in
an action brought by the other purchasers of unregistered
securities, Pinter would have a right to contribution against Dahl
only if Dahl had received some of the proceeds of sale for which
Pinter had been held accountable. Moreover, the contours of the
right to contribution may be such that, if Dahl had shared in those
proceeds knowing that they had been obtained in violation of law,
he might have to return his share even if he was not technically a
"seller" of any securities. For it is by no means clear that the
class of persons who may be held liable for contribution to those
held primarily liable in §12(1) rescission actions should be
limited to those who
"successfully solici[t] the purchase, motivated at least in part
by a desire to serve his own financial interests or those of the
securities owner."
Ante at
486 U. S. 647.
Thus, the Court's discussion of the "seller" issue is neither
sufficient nor necessary for the resolution of Pinter's putative
contribution claim.
It would be necessary, however, in resolving a contribution
claim such as this, to determine whether the defendant had to
account for any proceeds that were actually held by the third-party
(contribution) defendant. For § 12(1) is an action for rescission.
The statute expressly provides that the purchaser of an
unregistered security may
"recover the consideration paid for such security with interest
thereon, less the amount of any income received thereon, upon the
tender of
Page 486 U. S. 661
such security. . . ."
15 U.S.C. § 771(1). The judgment entered by the District Court
tracked the language of the statute. After reciting that the
plaintiffs had made a tender of the securities purchased from
Pinter, it ordered that each of them
"have judgment against B. J. Pinter, individually and d/b/a/
Black Gold Oil Company, in the amount of their purchase price for
the securities purchased, plus prejudgment interest thereon at the
rate of 6% annum from the date of payment of their purchase price
in May, 1981, less the amount of any income a Plaintiff received on
the security. . . ."
App. 92.
The District Court found that all of the unregistered securities
were "offered, sold and delivered" by the defendant Pinter
"individually and d/b/a/ Black Gold Oil Company," App. to Pet. for
Cert. a-32, and it is undisputed that all of the proceeds of sale
were received by Pinter. Specifically, the District Court
found:
"Dahl did not receive from defendants any commission, by way of
discount or otherwise, in connection with the purchase by any
plaintiff of the fractional undivided oil and gas interests
involved in this suit."
Id. at a-34.
Given the undisputed facts, the statutory remedy of rescission
[
Footnote 2/6] was complete when
the securities were returned in exchange for the purchase price
plus interest. Even if there may be a basis for a right to
contribution in cases in which one seller has shared the proceeds
of sale with another and has been held liable for those proceeds,
it seems obvious to me that the scheme of the statute would be
frustrated by allowing a seller to recover from a third party who
did not receive any part of the purchase price. [
Footnote 2/7] The Court of Appeals
Page 486 U. S. 662
expressly recognized this independent basis for affirmance when
it stated:
"In light of the clear purpose of section 12(1) to disgorge the
purchase price from the seller of unregistered securities, we view
as unsound any result which would permit Pinter to retain part of
the consideration paid by plaintiffs."
787 F.2d 985, 990, n. 8 (CA5 1986). In my opinion, this is a
sufficient reason for affirming the judgment of the Court of
Appeals.
[
Footnote 2/1]
The Court holds that,
"[i]n the context of a private action under § 12(1), the first
prong of the [
in pari delicto] test is satisfied if the
plaintiff is at least equally responsible for the actions that
render the sale of the unregistered securities illegal -- the
issuer's failure to register the securities before offering them
for sale, or his failure to conduct the sale in such a manner as to
meet the registration exemption provisions."
Ante at
486 U. S. 636.
I agree that a plaintiff who is at least equally responsible for
"the issuer's failure to register the securities before offering
them for sale" can be held
in pari delicto. I am
perplexed, though, by the Court's conclusion that a plaintiff who
is at least equally responsible for "the issuer's failure to
conduct the sale in such a manner as to meet the registration
exemption provision" can be held
in pari delicto. Such a
failure is of course never a sufficient condition for § 12(1)
strict liability; regardless of how many exemptions for which an
offering fails to qualify, § 12(1) is not violated unless the
securities in question are offered or sold without registration.
Thus, it is hard for me to understand how a plaintiff who bears
substantially equal responsibility for the loss of an exemption but
who does not bear similar responsibility for the proximate cause of
the illegality -- the failure to register -- can be considered
in pari delicto. Part I,
infra, reflects my view
of how the
in pari delicto issue in this case should be
resolved under what I deem to be the proper view of the
defense.
[
Footnote 2/2]
"There is no evidence, however, that Dahl knew that Pinter's
failure to register was in violation of federal and state
securities laws." 787 F.2d 985, 987 (CA5 1986). Pinter's
"infer[ence] that Dahl was aware of the duty to register,"
ante at 640, n. 15;
see Brief for Petitioner 27,
is thus directly contradicted by the Court of Appeals'
conclusion.
[
Footnote 2/3]
Indeed, the Court of Appeals may find that Texas law requires a
reentry of its judgment. The District Court found that Pinter had
violated not only § 12(1) of the Securities Act of 1933 but also
Tex.Rev.Civ.Stat.Ann., Art. 581-33(A), (D) (Vernon Supp.1988), and
that the same remedy was authorized by both statutes.
See
App. to Pet. for Cert. a-37 - a-38. The Court of Appeals affirmed
the finding of liability under Texas law, and also squarely held
that Dahl was not a "seller" within the meaning of the Texas
statute.
See 787 F.2d at 991. It is true that the Court of
Appeals did not reach the question whether an
in pari
delicto defense might be available under Texas law.
Id. at 990. If it should conclude, however, that Texas
would not recognize that defense on the facts of this case, its
judgment should stand regardless of the outcome of any further
proceedings concerning the federal issues.
[
Footnote 2/4]
Thus, the Court of Appeals on remand may have no choice but to
affirm the District Court's judgment once again, this time on the
ground that no contribution claim is properly before it.
[
Footnote 2/5]
The Court "express[es] no view as to whether a right of
contribution exists under § 12(1) of the Securities Act."
Ante at
486 U. S. 630,
n. 9. The Court of Appeals pointed out that "no code section
specifically allows for a right of contribution against a
seller' in Dahl's position." 787 F.2d at 990, n. 8. Such a
right might be found, the court stated, in § 16 of the Act, 15
U.S.C. § 77p, which provides that "[t]he rights and remedies
provided by this subchapter shall be in addition to any and all
other rights and remedies that may exist at law or in equity."
Whether the availability of such additional rights and remedies
depends upon the satisfaction of conditions set forth elsewhere in
the Act -- such as § 12(1) -- is surely an open question.
I note also that this Court has been reluctant to imply a right
to contribution in statutes silent on the issue.
Compare Texas
Industries, Inc. v. Radcliff Materials, Inc., 451 U.
S. 630 (1981) (no right to contribution under the
federal antitrust laws);
Northwest Airlines, Inc. v. Transport
Workers, 451 U. S. 77 (1981)
(no right to contribution by employer against union for violations
of either the Equal Pay Act of 1963 or Title VII of the Civil
Rights Act of 1964); and
Halcyon Lines v. Haenn Ship Ceiling
& Refitting Corp., 342 U. S. 282,
342 U. S. 285
(1952) (Court refuses to fashion right to maritime contribution in
noncollision cases, concluding that "the solution of this problem
should await congressional action");
with United States v.
Yellow Cab Co., 340 U. S. 543
(1951) (Congress waived sovereign immunity in the Federal Tort
Claims Act for contribution claims against the United States).
[
Footnote 2/6]
It should be noted that the statutory remedy for damages is not
applicable in this case, because that remedy is only available if
the purchaser "no longer owns the security." 15 U.S.C. §
771(1).
[
Footnote 2/7]
Another way of putting this is that a defendant in a rescission
suit cannot claim contribution when he received the entire proceeds
of sale and merely returned those proceeds to the plaintiff in
exchange for the plaintiff's tender of the purchased item (here,
the securities).
See Olson v. Thompson, 273 Minn. 152,
154-155,
140 N.W.2d
321, 322 (1966) ("While the action is one sounding in tort, the
relief sought is for rescission, requiring restitution of the
purchase price and a reassignment of the leases. In his third-party
action, Thompson makes no demand for damages, and the theory on
which he claims contribution is not clear, since the parties, by
the nature of the action, are merely restored to the
status quo
ante"). Thus, it is a basic principle of equity jurisprudence
that a claim for contribution only lies for a defendant who "has
actually paid or satisfied more than his proportionate share of the
debt or obligation." 4 S. Symons, Pomeroy's Equity Jurisprudence
1071-1072 (5th ed.1941);
see also Restatement (Second) of
Torts § 886A(2) (1979) ("The right of contribution exists only in
favor of a tortfeasor who has discharged the entire claim for the
harm by paying more than his equitable share of the common
liability, and is limited to the amount paid by him in excess of
his share. No tortfeasor can be required to make contribution
beyond his own equitable share of the liability").