Paul Bennett v. Hunter Durham
683 F.3d 734
6th Cir.2012Background
- Kentucky blue-sky law imposes liability for offers/sales of securities and for agents who materially aid the sale.
- Plaintiffs Bennett and Clayton invested in Heartland Resources or Mammoth Resource Partners and allegedly lost money from unregistered securities.
- Durham, the attorney who drafted offering documents and answered investor questions, represented Heartland and Mammoth.
- District court dismissed Bennett’s claims under Rule 12(b)(6) and granted Clayton summary judgment under Rule 56.
- Issue presented: whether Durham’s traditional legal services can render him liable under Ky. Rev. Stat. § 292.480(1) or (4).
- Court notes Kentucky’s Act mirrors the Uniform Securities Act and aligns with federal law interpretation (Pinter and Smith).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does a lawyer providing traditional legal services 'offer or sell' a security under § 292.480(1)? | Durham offered or sold securities by drafting documents and assisting investors. | Durham merely provided legal services; client offers/sells, not Durham. | No liability; attorney not a seller under statute. |
| Is Durham an 'agent' who materially aided the sale under § 292.480(4)? | Durham acted as an agent by guiding the offering and advising on sale structure. | Attorney’s role was ordinary legal services, not assisting to effect the sale. | No liability; attorney did not 'effect' or actively aid the sale. |
| Should the Kentucky Supreme Court be asked to resolve the questions? | Certification is appropriate given Kentucky law on agency and sale. | Federal court is suitable; certification not necessary. | Court declines to certify; ruling rests on clear principled decision. |
Key Cases Cited
- Pinter v. Dahl, 486 U.S. 622 (1988) (limits liability to those who pass title or solicit offers)
- Smith v. American National Bank & Trust Co., 982 F.2d 936 (6th Cir. 1992) (non-owners must solicit to be liable as sellers)
- Ashland, Inc. v. Oppenheimer & Co., 648 F.3d 461 (6th Cir. 2011) (Kentucky law mirror of federal interpretation of securities act)
- Baker, Watts & Co. v. Miles & Stockbridge, 620 A.2d 356 (Md. Ct. Spec. App. 1993) (attorney not liable unless actively assists offering/sale)
- Ackerman v. Schwartz, 733 F. Supp. 1231 (N.D. Ind. 1989) (limits attorney liability under agency-like definitions)
- In re Prof’l Fin. Mgmt., Ltd., 692 F. Supp. 1057 (D. Minn. 1988) (professional roles not inherently liable as agents)