## Facts

- Buford White Lumber Company Profit Sharing & Savings Plan & Trust (Buford) invested in Octagon Properties, Ltd. (Octagon) as a limited partner.
- Buford alleged it purchased its interest in reliance on a prospectus and related offering materials prepared by Octagon’s attorneys (including the moving law-firm defendant).
- The amended complaint alleged the offering materials contained false and misleading information, largely concerning Octagon’s financial condition.
- Buford alleged the law firm knew or should have known the information was false, failed to conduct a reasonable inquiry, and did not verify issuer-supplied financial information.
- Buford alleged it would not have invested had truthful information been provided and that it suffered losses as a result.
- Buford alleged the law firm was paid substantial fees for preparing the offering materials and characterized the compensation as excessive relative to the inquiry performed.
- The law-firm defendant moved to dismiss under Federal Rules of Civil Procedure 12(b)(6) and 9(b), challenging, among other theories, liability under Securities Act § 12 and the sufficiency of the fraud-based pleadings.

## Issues

1. Whether attorneys who drafted a prospectus and offering materials, without passing title or directly soliciting purchases, can be liable as “sellers” under Securities Act § 12(1) or § 12(2) after *Pinter v. Dahl*.
2. Whether § 12 permits secondary liability (aiding-and-abetting) against non-sellers who allegedly assisted the sale by preparing offering materials.
3. Whether the amended complaint’s fraud-based allegations against the law firm were pleaded with enough specificity to satisfy Rule 9(b) and state a claim under other anti-fraud and state-law theories.
4. Whether the § 12 claims were time-barred under the Securities Act’s limitations provisions based on the pleadings.

## Decision

- The motion to dismiss was granted in part and denied in part.
- The court dismissed the Securities Act § 12(1) and § 12(2) claims against the law-firm defendant because the firm was not a statutory “seller” under *Pinter* based on the allegations.
- The court rejected § 12 aiding-and-abetting theories against the law-firm defendant.
- The court declined to dismiss certain non-§ 12 fraud-based and related claims at the pleading stage, concluding the amended complaint alleged the firm’s role, the documents at issue, the nature of the alleged misstatements, and reliance with sufficient detail for Rule 9(b) purposes.
- To the extent the law firm sought dismissal on statute-of-limitations grounds, the court did not treat timeliness as conclusively established on the face of the pleadings for the claims that remained.

## Legal Principles

- Under *Pinter v. Dahl*, § 12 liability generally reaches only (1) those who pass title (or other interest) to the buyer, or (2) those who successfully solicit the purchase, motivated at least in part by a desire to serve their own financial interests or those of the securities owner.
- Preparing a prospectus or offering materials as legal counsel—without allegations of direct solicitation or title transfer—does not, by itself, make a law firm a § 12 “seller.”
- Section 12 does not provide a general aiding-and-abetting cause of action against professionals who assist an offering but are not statutory sellers.
- Fraud-based claims subject to Rule 9(b) may proceed when the complaint identifies the challenged offering documents, the time frame, the general subject matter of the alleged falsity (such as misstated financial condition), the defendant’s role in creating the materials, and allegations that investors relied and suffered loss.
- Limitations defenses under the Securities Act may require facts about discovery and reasonable diligence; dismissal at the pleading stage is not appropriate unless untimeliness is clear from the complaint itself.

## Conclusion

The court held that Octagon’s law-firm counsel could not be sued as a Securities Act § 12 “seller” merely for drafting offering materials and receiving professional fees, and it rejected § 12 aiding-and-abetting liability; however, it allowed other fraud-based and related state-law theories to proceed because the amended complaint sufficiently identified the offering materials, alleged misleading financial information, and claimed knowledge or reckless disregard, reliance, and resulting losses.


Buford White Lumber Co. Profit Sharing & Savings Plan & Trust v. Octagon Properties, Ltd., 740 F. Supp. 1553 (1989)