## Facts

- Real estate developers Paul E. Thomes and Jerry D. Shipley planned several projects to be financed by selling limited partnership interests, with their entities serving as general partners.
- They hired David Goldner and his partnership, Financial and Real Estate Consulting Company, to structure and market the limited partnership offerings.
- Goldner represented himself as an expert in limited partnerships and securities law and claimed he had investors; he did not disclose he had been disbarred, lacked relevant experience, and was operating without broker-dealer registration.
- Financial and Goldner acted as brokers in selling the limited partnership interests but were not registered with the SEC as broker-dealers as required by the Securities Exchange Act of 1934.
- After discovering the lack of registration, the developers sought rescission of their agreements and return of money paid under § 29(b) of the Exchange Act.
- The district court granted rescission and limited Financial’s ability to enforce future rights under the agreements, allowed Financial to retain fees already paid for services performed, and did not rule on Financial’s asserted equitable defenses.
- Financial appealed; the developers cross-appealed aspects of the remedy.

## Issues

1. Whether § 29(b) of the Securities Exchange Act of 1934 provides an implied private right of action for rescission of contracts made or performed in violation of the Act.
2. Whether the developers, as contracting parties with an unregistered broker-dealer, had standing to seek rescission under § 29(b).
3. Whether the district court committed error by granting rescission without considering and ruling on the broker’s asserted equitable defenses.
4. Whether, and to what extent, restitution should permit the unregistered broker to retain compensation already paid for services rendered while barring enforcement of further contractual rights.

## Decision

- The Fifth Circuit held the developers could bring an action for rescission under § 29(b) and had established a prima facie case because the agreements involved brokerage activity performed in violation of broker-dealer registration requirements.
- The court ruled the district court erred by failing to address Financial’s equitable defenses and remanded for the district court to consider and decide those defenses.
- The court approved allowing Financial to retain payments already received for services actually performed, while treating further enforcement rights under the illegal relationship as unavailable.

## Legal Principles

- Section 29(b) supports a private action for rescission by a party in contractual privity with a counterparty whose statutory violation renders performance of the contract unlawful and affects the contract’s validity.
- Parties who contract with an unregistered broker-dealer may fall within the class protected by broker-dealer registration requirements and may invoke § 29(b) to rescind agreements involving prohibited brokerage transactions.
- Statutory rescission under § 29(b) does not eliminate equitable defenses; courts must consider defenses such as waiver, estoppel, laches, or relative fault when determining whether rescission should be granted or conditioned.
- Remedies may be shaped to avoid unjust enrichment by permitting retention of compensation already paid for services rendered, while denying enforcement of remaining contractual rights arising from unlawful broker-dealer activity.

## Conclusion

The Fifth Circuit recognized a § 29(b) rescission remedy against an unregistered broker-dealer and found the developers made a prima facie showing for rescission, but it remanded because the district court failed to rule on asserted equitable defenses, while also approving a remedial approach that allowed retention of fees already paid for completed services and barred further contract enforcement.


Regional Props., Inc. v. Fin. & Real Est. Consulting Co., 678 F.2d 552 (5th Cir. 1982)