## Facts

- Petroleum Management Corporation (PMC) organized a California limited partnership to drill and operate four oil wells in Wyoming, offering two classes of interests: “participants” and “special participants.”
- PMC and another entity were initial special participants; several additional participant interests were held by others.
- PMC later sought additional investors and, according to the trial court, contacted only a small number of persons besides the plaintiff; most declined.
- William H. Doran, Jr., an educated and experienced investor with an engineering background, was contacted by a broker he already knew about becoming a special participant.
- PMC provided Doran technical well materials and represented that two of four wells had been completed.
- Doran agreed to invest $125,000, including a cash payment and assumption of a note owed to a supplier, with production payments intended to service the note.
- After overproduction, a state regulator ordered a production shutdown for about a year; later production declined and the note went into default, resulting in a state-court judgment against Doran and others.
- Doran sued in federal court seeking rescission and damages under the Securities Act of 1933 and the Securities Exchange Act of 1934, plus breach of contract, alleging an unregistered sale of a security.
- The district court denied relief on the securities claims, holding the transaction was exempt as a private offering under § 4(2), relying largely on Doran’s sophistication; it also rejected the contract claim.

## Issues

1. Whether the sale of a limited partnership interest qualified for the Securities Act § 4(2) exemption as a transaction “not involving any public offering.”
2. Whether the exemption determination may rest primarily on the purchaser’s sophistication without findings that each offeree received, or had effective access to, information comparable to a registration statement.
3. Whether the § 4(2) analysis must be measured by the characteristics and informational access of all offerees, not only the ultimate purchaser.

## Decision

- The Fifth Circuit reversed the judgment on the securities-law claims to the extent it rested on the § 4(2) private offering exemption and remanded for further proceedings and findings.
- The court held the district court erred because it made no findings that each offeree was furnished registration-type information or had effective access to such information.
- The court stated that the availability of § 4(2) must be evaluated by the characteristics of all offerees, not merely those who purchased.
- The court affirmed the district court’s rejection of Doran’s breach of contract claim.

## Legal Principles

- The issuer bears the burden of proving entitlement to the § 4(2) exemption, which is construed narrowly.
- The controlling inquiry is whether offerees need the protection of Securities Act registration; this turns primarily on access to information comparable to what a registration statement would disclose.
- Sophistication is relevant only insofar as it bears on an offeree’s ability to obtain registration-type information; sophistication without such information or access is insufficient.
- To claim § 4(2), the issuer must show for each offeree either (a) the issuer furnished registration-type information, or (b) the offeree had effective access to such information.
- Whether an offering is private is a fact-intensive inquiry informed by: (1) number of offerees, (2) their relationship to each other and to the issuer, (3) number of units and size of the offering, and (4) manner of the offering, with the number and characteristics of offerees being especially important.

## Conclusion

The Fifth Circuit required more than proof that the purchaser was sophisticated to sustain a § 4(2) private offering exemption, holding that the issuer must establish—through findings covering all offerees—that each offeree received or had effective access to registration-equivalent information; lacking such findings, the exemption ruling could not stand and the securities claims were remanded.


Doran v. Petroleum Mgmt. Corp., 545 F.2d 893 (5th Cir. 1977)