Fed. Sec. L. Rep. P 98,718 Regional Properties, Inc., Cross-Appellants v. Financial and Real Estate Consulting Company, Cross-Appellees

Two real estate developers and their affiliated corporations entered into a number of agreements with a securities broker whereby the broker agreed to structure limited partnerships and market the limited partnership interests. The developers discovered that the broker had never registered as a broker-dealer with the SEC and had thus violated the Securities Exchange Act in selling the partnership interests, although the time when they learned of this is disputed. The major question presented is whether, under these circumstances, the developers were entitled to rescind their agreements with the broker under the contract-voiding provision contained in the Act. We hold that the developers were entitled to bring such an action and established a prima facie case for relief, but that the district court erred in failing to rule upon *555 the broker’s asserted defenses. We, therefore, remand the ease so that the district court may consider and rule upon these defenses.

I. INTRODUCTION.

Paul E. Thornes and Jerry D. Shipley, who were real estate entrepreneurs, planned to acquire, develop, and operate certain residential and shopping center projects. In order to finance these projects, they wished to sell limited partnership interests in each. Thornes and Shipley, or one of their wholly owned corporations, Regional Properties, Inc., and Kingsley Creek, Inc., or some combination thereof, would be the general partners.

In 1974, Thornes and Shipley were introduced by an intermediary to David Goldner, who represented to them that he was a knowledgeable financial consultant, expert in the tax and legal aspects of limited partnerships and in federal and state securities law. Goldner, who conducted his operations through Financial and Real Estate Consulting Company, a New York partnership formed with his sister in 1971, further purported to be experienced in real estate syn-dications in particular and to have clients interested in making investments in limited partnerships.

In fact, Goldner was a former New York lawyer who had been disbarred. He had little experience in real estate matters or in the handling of limited partnerships. He was ignorant of federal securities law requirements for either private placements or public offerings of limited partnership interests. Finally, neither he nor his company, Financial, was registered as a broker or dealer in securities. None of these facts was disclosed by Goldner to either Thornes or Shipley.

Throughout 1974 and the first half of 1975, Thornes and Shipley planned and eventually developed four projects in association with Goldner: Kingsley Creek, Thousand Pines and Brooklake, all garden-type apartment complexes, and Montgomery Mall, a shopping center. 1 An examination of the evolution of the Kingsley Creek project illustrates the course of dealings and the agreements entered into between Thornes and Shipley and their corporations, and Goldner and his company.

Thus, on April 4,1974, prior to the actual formation of the Kingsley Creek Limited Partnership, Thornes, Shipley, and Regional Properties, Inc., and Financial, represented by Goldner, signed an agreement relating to the development of what were called the Kingsley Creek Apartments. Although bearing the indicia of a technical hand in drafting, the agreement is unusual in structure. Basically, however, Financial agreed to structure the partnership and market the limited partnership interests therein in return for a fee to be paid by whoever was eventually named as the partnership’s general partner.

They agreed that the partnership, when formed, would net $420,000 from the sale of its limited partnership interests. As in the agreements relating to the other projects, however, the gross offering price of the limited partnership interests was left unspecified. The amount raised in excess of $420,000 was to be the initial component of Financial’s fee, to be paid, in the parties’ words, “off the top.”

The agreement also stipulated that the partnership was to be structured in such a way that the limited partners would be guaranteed a certain cash flow. Financial was obligated to place a portion of its “off the top” fee in escrow to guarantee these payments. If, however, Financial’s es-crowed funds were in fact used to make these guaranteed payments, the general partner would repay 50% of the funds so distributed within five days, or relinquish almost a third of its interest in the project to Financial.

The cash flow and distribution of profits in excess of the guaranteed payments to the limited partners were to be evenly divided between the limited partners and the gener *556 al partner. As the second component of its fee, Financial was to receive an assignment of 30% of any such cash flow or profits thus accruing to the general partner.

After the signing of this agreement, the partnership was officially formed with Kingsley Creek, Inc., another of Thornes and Shipley’s corporations, as the general partner. Goldner then advertised and tried to sell the limited partnership interests, but with little success until he engaged the assistance of a third party, Holt & Hartman, Inc., a registered broker-dealer. With this help, Goldner eventually sold the Kingsley interests for $735,000, thereby entitling Financial to $315,000 as the “off the top” component of its fee (i.e., $735,000 — $420,-000). Financial paid Holt & Hartman $65,-000 for its services and $8,100 in legal fees. By the time of trial, Financial had been paid $120,000 of its $315,000 fee, and the balance, $195,000, had been placed in escrow pursuant to the terms of the agreement as described above.

The structuring of the other two projects, Thousand Pines and Brooklake, was similar to that of Kingsley Creek. By the time of trial, Financial had been paid $175,000 of the $195,000 initial fee for the Thousand Pines project, and had incurred expenses in connection with that project of approximately $25,000. For the Brooklake project, Financial had been paid only $282,000 of the $846,000 initial fee, and had incurred expenses of approximately $200,000.

Shortly after their purported 2 initial discovery that neither Goldner nor his company, Financial, (hereinafter collectively referred to as “Financial”) had ever registered with the Securities and Exchange Commission (“SEC”) as a broker-dealer, as required by section 15(a)(1) of the Securities Exchange Act of 1934 (“Act”), 3 Thornes and Shipley and their affiliated corporations, Regional Properties, Inc., and Kingsley Creek, Inc., (hereinafter collectively referred to as “Regional”), 4 brought suit against Financial under section 29(b) of the Act. 5 Alleging its agreements with Financial to be “void” under that section, Regional sought to rescind those agreements, recover the sums it had already paid to Financial (less Financial’s expenses and payments to third parties), and obtain the right to the funds Financial had placed in escrow. Regional subsequently amended its complaint to allege, inter alia, violations of section 10(b) of the Act 6 and breach of fiduciary duty. Financial answered these complaints by raising the affirmative defenses that the parties were in pari delicto and should be left as the court found them, estoppel, waiver, laches and ratification, and then, *557 with some inconsistency, counterclaimed for the amounts still due it under the agreements.

After a two-day trial to the court, the district judge found that Financial had been “engaged in the business of selling securities for the accounts of the limited partnerships,” and had violated section 15(a)(1) of the Act 7 by doing so without being registered as a broker-dealer. The court held that Regional was entitled under section 29(b) to rescission of its agreements with Financial because their “performance . .. involve[d] the violation of . .. [a] provision of [the Act].” Section 29(b), 15 U.S.C. § 78ec(b); see note 5 supra. Concluding that fully restoring the parties to their status quo ante would be impossible, however, because Financial had already completed performance and the limited partnerships were already in operation, the district court ordered only that Financial have no further enforceable rights under the agreements or to its escrowed funds, but allowed Financial, “in compensation for its services,” to retain the amounts it had already been paid. The court also held that there had been no section 10(b) violation by Financial, 8 but did not rule on Regional’s breach of fiduciary duty claim. The district court also failed to mention the defenses raised by Financial except to state, “Regional did not know that Financial was not legally authorized to act as a broker/dealer” until after all the agreements had been executed and largely, if not completely, performed by Financial.

Financial appeals, contending that the district court erred in holding that Regional had “standing” to assert its section 29(b) claims, in otherwise holding that Regional had prevailed on those claims, and in failing to rule upon its asserted defenses. Financial also objects to the district court’s award of rescission as being “inequitable.” Regional cross-appeals, contending that the district court erred by allowing Financial to retain any payments under the contracts in excess of the amount of Financial’s expenses and payments to third parties.

II. Regional’s Section 29(b) Claims.

Section 29(b) provides, “[e]very contract made in violation of any provision of [the Act] .. ., and every contract . . . the performance of which involves the violation of . . . any provision of [the Act] . .., shall be void ... as regards the rights of any person who, in violation of any such provision ... shall have made or engaged in the performance of any such contract . ... ” Section 29(b), 15 U.S.C. § 78cc(b) (quoted in full at note 5, supra). Although it has been a part of the Act since its passage in 1934, it has been invoked infrequently. See Gruenb-aum & Steinberg, Section 29(b) of the Securities Exchange Act of 1934: A Viable Remedy Awakened, 48 Geo.Wash.L.Rev. 1, 1-3 & n.5 (1979) [hereinafter cited as Viable Remedy]. It does not in terms give a party to a contract made in violation of the section a private cause of action to rescind the contract. If it authorizes such an action by implication, the following questions must also be addressed: (1) What are the elements of the cause of action? (2) What defenses, if any, are available against the claim? and (3) What relief is available to a successful claimant?

A. Does Section 29(b) Provide for a Private Cause of Action?

Without expressly considering whether section 29(b) implies a private cause of action, courts have uniformly either held or assumed that such suits can be brought. In the only Fifth Circuit case interpreting section 29(b), Eastside Church of Christ v. National Plan, Inc., 391 F.2d 357 (5th Cir.), cert. denied, 393 U.S. 913, 89 S.Ct. 234, 240, 21 L.Ed.2d 198 (1968), the issuer of certain bonds sued a purchaser of the bonds under section 29(b) to have the contract of sale rescinded on the ground that the purchaser had violated the Act by not being a registered broker-dealer when it made the purchase. We prefaced our discussion of the points raised on appeal by *558 stating that section 29(b) “contemplates civil suit for relief by way of rescission and damages . ... ” Id., 391 F.2d at 362. 9 Therefore, at least since 1968, it has been the rule of this circuit that a private cause of action can be founded upon section 29(b).

Language in two subsequent Supreme Court decisions tends to affirm this view. In Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970), the Court stated, in dicta, that the interests of the “innocent party” to a contract are protected by section 29(b)’s “giving him the right to rescind.” Id., 396 U.S. at 387-88, 90 S.Ct. at 623, 24 L.Ed.2d at 603 (dictum). More recently, in Transamerica Mortgage Advisors, Inc. (TAMA) v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979), the Court was called upon to determine whether section 215(b) of the Investment Advisers Act, 10 which is nearly identical to section 29(b) of the (Securities Exchange) Act, 11 provides a private cause of action. In answering that question in the affirmative, the Court stated:

By declaring certain contracts void, § 215 by its terms necessarily contemplates that the issue of voidness under its criteria may be litigated somewhere. At the very least Congress must have assumed that § 215 could be raised defensively in private litigation to preclude the enforcement of an investment advisers contract.

But the legal consequences of voidness are typically not so limited. A person with the power to void a contract ordinarily may resort to a court to have the contract rescinded and to obtain restitution of consideration paid .... Moreover, the federal courts in general have viewed such language as implying an equitable cause of action for rescission or similar relief.

For these reasons we conclude that when Congress declared in § 215 that certain contracts are void, it intended that the customary legal incidents of voidness would follow, including the availability of a suit for rescission . .., and for restitution.

Id., 444 U.S. at 17, 100 S.Ct. at 246-47, 62 L.Ed.2d at 153-54 (citations and footnote omitted). Therefore, based upon our (implicit) holding in Eastside Church, and the supporting language in Mills and holding in TAMA, it must be considered as settled that section 29(b), by implication, does provide a private, “equitable cause of action for rescission or similar relief.” TAMA, supra, 444 U.S. at 17, 100 S.Ct. at 246, 62 L.Ed.2d at 153.

B. The Elements of a Section 29(b) Cause of Action.

In Eastside Church, supra, we rejected the defendants’ argument that a section *559 29(b) plaintiff must prove a causal connection between its harm and the defendants’ violation of the Act. 12 The “Act,” we said, “requires only that the [complainant] be in the class of persons the Act was designed to protect .... [I]t is sufficient to show merely that the prohibited transactions occurred and that the [complainant was] in the protected class.” Eastside Church, supra, 391 F.2d at 362 (emphasis added). Although we did not define the phrase, “class of persons the Act was designed to protect,” the plaintiff in Eastside Church was obviously a member of it as the issuer of the bonds that were sold under the contract.

We indicated that there was one other requirement, contractual privity. The issuer in Eastside Church had not dealt directly with the purchaser-defendant, but had instead delivered the bonds to its agent for their sale. When it was pointed out that the agent might have purchased for his own account some of the bonds he thus received before he in turn sold them to the purchaser-defendant, we held that the defendant was “liable only on those purchases which were made from [the agent] acting [as such] .. . and not from [the agent] individually.” Eastside Church, supra, 391 F.2d at 363.

To summarize, then, a person can avoid a contract under section 29(b) if he can show that (1) the contract involved a “prohibited transaction,” (2) he is in contractual privity with the defendant, and (3) he is “in the class of persons the Act was designed to protect.”

Before determining whether Regional satisfied these elements, we consider first Financial’s arguments that dicta concerning section 29(b) in Mills v. Electric Auto-Lite Co., supra, must be deemed to have modified our holding in Eastside Church. The Court there said that the language of section 29(b)

establishes that the guilty party is precluded from enforcing the contract against an unwilling innocent party, but it does not compel the conclusion that the contract is a nullity, creating no enforceable rights even in a party innocent of the violation. The lower federal courts have read § 29(b) ... as rendering the contract merely voidable at the option of the innocent party .... This interpretation is eminently sensible.

Mills, supra, 396 U.S. at 387-88, 90 S.Ct. at 623, 24 L.Ed.2d at 604 (dicta) (emphasis added) (citations and footnote omitted). On the other hand, we had previously said in Eastside Church, supra, that contracts running afoul of section 29(b) are “void ab initio.” Id., 391 F.2d at 363. We agree with Financial that, to the extent our statement in Eastside Church could be construed as allowing a violator of the Act to rescind a contract, it is inconsistent with Mills. 13 This modification of Eastside Church does not, however, help Financial, because it was the party, if any, who violated the Act.

Financial also argues that the Court’s statement that section 29(b) renders the contract voidable “at the option of the innocent party,”Mills, supra, 396 U.S. at 387, 90 S.Ct. at 623, 24 L.Ed.2d at 604 (dicta) (emphasis added), somehow erects a “standing” prescription requiring a section 29(b) plaintiff to show that he is an “innocent party” as a prerequisite to suit. While we do not think it is either correct or fruitful to couch *560 this issue in terms of “standing,” 14 we do think the statement demonstrates the Court’s intention that a section 29(b) defendant at least be allowed to invoke the traditional equitable defenses, which we discuss in Part II. C., infra. Before defenses to an action are relevant, however, the plaintiff must first have proved its case. We, therefore, examine whether Regional did so.

Contractual privity, the first element of the cause of action, is established beyond dispute. In fact, Regional and Financial were the only parties to the contracts. Regional also satisfied the second element, proof that “prohibited transactions occurred.” Section 29(b) does not render void only those contracts that “by their terms” violate the Act. But see Drasner v. Thomson McKinnon Securities, Inc., 433 F.Supp. 485, 501-02 (S.D.N.Y.1977) (so holding). 15 If the Act were so limited, it would lead immediately to the inquiry, ‘What would such a contract look like?’ A statute that voided only contracts by which persons have agreed in express terms to violate the Act would be so narrow as to be a waste of the congressional time spent in its enactment.

If section 29(b) voids only those contracts “which by their terms” necessarily involve a violation of the Act in their making or performance, the section would have a somewhat broader scope. Nevertheless, this interpretation involves reading the word, “necessarily,” into the statute when it simply is not there. It also generates difficult problems of proof. Financial not only was not registered with the SEC, but also probably would not have been granted registration had it applied because Goldner was a disbarred lawyer and had recently signed a consent decree with New York authorities whereby he agreed not to market limited partnership interests in that state without first complying with all its applicable blue sky regulations. It would nonetheless be difficult to determine that the contract with Financial necessarily involved a statutory violation.

Interpreting section 29(b) to render voidable those contracts that are either illegal when made or as in fact performed not only avoids these problems but also, in our view, most nearly comports with the language used in section 29(b). See note 5 supra; Viable Remedy, supra, 48 Geo.Wash.L.Rev. at 20-24. Moreover, this interpretation is the one implicitly adopted by Eastside Church. There, we allowed a contract for the purchase of bonds, after it had already been performed, to be rescinded by the seller. There was nothing to suggest that the contract “by [its own] terms” violated the Act. We permitted it to be rescinded simply because the purchaser, in performing the contract, had in fact violated the Act by doing so without being registered as a broker-dealer. Cf. Mills, supra, 396 U.S. at 388 *561 n.ll, 90 S.Ct. at 623 n.ll, 24 L.Ed.2d at 604 n.ll (dicta) (proxies submitted in favor of merger could be rescinded, even though terms of merger were not themselves unlawful, if proxies had been solicited in a manner violative of the Act). We acknowledged that, from the standpoint of the broker, this was a “harsh” 16 result, but stated that this “seems to be what Congress intended.” Eastside Church, supra, 391 F.2d at 362.

The situation here is in all essentials identical to that in Eastside Church. Regional sought to avoid certain contracts, perfectly lawful on their face, the performance of which by Financial resulted in a violation of the Act. That these contracts, under different circumstances, could have been performed without violating the Act is immaterial. Considering the language of section 29(b), our holding in Eastside Church, and the dicta in Mills, we conclude that Regional proved the existence of “prohibited transactions,” i.e., ones proscribed by section 29(b).

The final element of a section 29(b) cause of action under Eastside Church is proof that the complainant was a “member of the class of persons the Act was designed to protect.” The statute does not in terms limit the class of persons who may invoke its contractual voidness provisions to investors. While the law was enacted to protect the public interest and the investor, 17 its protection extends beyond those who buy securities.

That statutes must be read in the light of their purpose is an admonition not only ancient but wise. That “The letter killeth and the spirit giveth life” 18 is not limited to hermeneutics but extends as well to the interpretation of congressional text. Yet we start with the objective reading for the Congress has many members and the President signs with yet another hand. If what is written is clear and its application leads to no absurd result, we should not seek to obfuscate the obvious.

Section 29(b) renders certain contracts void. It does not limit that invalidity to contracts between issuers and sellers or to those between issuers and investors. The contracts involved here were between the general partners and a partnership that held itself out to be a qualified broker. Neither any investor nor the issuer was privy to it. Yet, as we have just held, they were precisely the kind of contracts “performance of which involvefd] the violation of” a provision of the Act, specifically, section 15(a)(1). If a party to these contracts could not attack them, it would be yet more difficult to find reason to permit assault by the nonparty issuers and investors whom, according to Financial, the Act was designed to protect.

Moreover, we think that application of the letter of the statute in this case does further the Act’s purposes. In Eastside Church, supra, we emphasized that section 15(a)(l)’s registration requirement

is of the utmost importance in effecting the purposes of the Act. It is through the broker registration requirement that some discipline may be exercised over those who may engage in the securities business and by which necessary standards may be established with respect to training, experience, and records.

*562 Id., 391 F.2d at 362. As we have pointed out, Financial’s fees were raised by the sale of the limited partnership interests, paid over to the general partner in the project, and then, in turn, paid by the general partner to Financial. Without splitting hairs over whether Regional, when it signed the subject contracts, could have been considered the “issuer” of the limited partnership interests, or an “investor” in the projects, we conclude that Regional was a “member of the class of persons the Act was designed to protect,” and, therefore, satisfied the last of the elements of a section 29(b) action under Eastside Church as well as all the others.

C. The Defenses to a Section 29(b) Cause of Action.

Having thus decided that Regional did make out a prima facie case under section 29(b), we next must determine whether there exist defenses to such an action and, if so, whether Financial succeeded in proving any. Although the question of the availability of defenses to a section 29(b) action was not discussed in Eastside Church, we have no hesitation in holding that there are such defenses and that they, in fact, encompass all the traditional equitable defenses.

The starting points for our discussion are the propositions, too elementary to require citation, that, historically, a suit to void a contract sounded in equity, and that, in suits in equity, equitable defenses, such as laches, estoppel, etc., may be raised. While actions to void a securities broker’s contract obviously stem from statute rather than a traditional equitable right, they are equitable in nature. The Ninth Circuit has stated in the leading case on this subject:

Since courts generally interpret statutes in the context of the common law and Congress has not specifically denied the availability of these defenses, we see no reason why the ordinary [equitable] defenses of estoppel and waiver should not be applicable.

Royal Air Properties, Inc. v. Smith, 312 F.2d 210, 214 (9th Cir. 1962). Though that court mentioned only the defenses of estop-pel and waiver, because those were the only ones raised by the defendant, we see no reason why the same reasoning would not allow any of the equitable defenses to be pleaded and proved by a section 29(b) defendant.

While neither of the Supreme Court’s discussions of section 29(b) or section 29(b)-type actions, in Mills and TAMA, can be said to contain unambiguous expressions of full support for this proposition, they both favor such a view. Thus, in TAMA, holding that a private cause of action can be brought under section 215(b) of the Investment Advisers Act, see Part II.A. supra, the Court noted with approval the “general” reading of section 29(b)-type provisions by the lower federal courts as “implying an equitable cause of action for rescission or similar relief.” TAMA, supra, 444 U.S. at 17, 100 S.Ct. at 246, 62 L.Ed.2d at 153 (emphasis added). And in Mills, the Court specifically acknowledged the availability of at least one of the equitable defenses, that of in pari delicto, in a section 29(b) action, for it stated that a contract violating section 29(b) is “voidable at the option of the innocent party.” Mills, supra, 396 U.S. at 387, 90 S.Ct. at 623, 24 L.Ed.2d at 604 (dicta) (emphasis added).

Therefore, because it would be anomolous to hold that, while one equitable defense is available, the others are not, we join with virtually all other courts that have decided this issue and hold that all equitable defenses are available in a section 29(b) cause of action. See, e.g., Occidental Life Insurance Co. v. Pat Ryan & Assoc., 496 F.2d 1255, 1267-68 n.9 (4th Cir.), cert. denied, 419 U.S. 1023, 95 S.Ct. 499, 42 L.Ed.2d 297 (1974); Naftalin & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 469 F.2d 1166, 1182 (8th Cir. 1972) (though confusing the concepts of a defense and a standing requirement). But see Grove v. First National Bank of Herminie, 489 F.2d 512, 516 (3d Cir. 1973).

Unfortunately, our holding does not dispose of this important part of the case. Although Financial raised a number of de *563 fenses below, essentially revolving around two basic lines of argument, the district court failed to rule upon, or even mention, any of them. Because a determination of the validity of these defenses depends upon additional fact findings and interpretations of Texas law, 19 both of which can initially be made more easily by the district court than by us, we remand this case to the district court to rule expressly upon Financial’s defensive contentions.

Financial founded its first set of defenses on the following set of allegations. 20 Shortly after Goldner and Thornes and Shipley agreed to do the first deal, Kingsley Creek, Goldner suggested that they retain a lawyer, Loren Weinstein, to do the legal work involved in setting up the limited partnership and other related matters. Weinstein was retained, and, according to Goldner, occupied at least the position of joint representative for both Regional and Financial. Goldner alleges that Regional paid at least a part of Weinstein’s fees, and that Wein-stein had at least twenty-five conferences with either Thornes or Shipley or both.

The relevance of this is that, as of mid-August 1974, at least three months prior to the offering of the Kingsley Creek interests, and before the signing of both the Thousand Pines and Brooklake agreements, Weinstein discovered that neither Goldner nor Financial was registered as a broker-dealer with the SEC. Financial argues that, because Weinstein was Regional’s attorney, Weinstein’s knowledge must be imputed to Regional, and that, therefore, for the purpose of ruling upon Financial’s defenses, particularly laches, Regional must be found to have had knowledge of Financial’s status, not shortly before suit was filed in 1976, but nearly two years earlier.

On remand, the district court shall determine: (1) whether Weinstein was representing Regional (though not necessarily only Regional) in his work on the Kingsley Creek project; (2) if so, whether Wein-stein’s knowledge should, under Texas law, be imputed to Regional; and (3) if so, whether Financial therefore succeeded, under Texas law, in establishing any of its claimed defenses to Regional’s section 29(b) claims.

Financial’s second basic set of defenses was founded upon certain Texas state court pleadings filed by Regional both before and after it filed this action in federal court. According to Financial, Regional had been sued in state court by a broker-dealer for commissions earned in connection with the placement of certain of the limited partnership interests. Regional, in turn, filed a third-party complaint against Financial, one week before it filed its federal action, alleging that, under the agreements here sought to be rescinded, Financial was responsible for the payment of any such fees. Regional reaffirmed this position in the state court action more than one year later, although it eventually non-suited Financial.

Financial argues that these actions by Regional constituted either a waiver of its right to rescind the agreements or a ratification of them. Because we are remanding this case to the district court to rule upon Financial’s defenses based upon attorney Weinstein’s knowledge, we also direct the court to rule upon this second set of defenses as well.

D. The Relief Available in a Section 29(b) Cause of Action.

After concluding that Regional had prevailed on its section 29(b) claims, the district court ordered that Financial have no *564 further enforceable rights under the agreements, but allowed it to retain the sums already directly paid by Regional, and directed that the portion of Financial’s fees held in escrow be released to Regional so that the limited partners could receive their guaranteed payments without loss to Regional. In essence, then, the court ordered partial rescission of the agreements and partial restitution of the consideration paid (i.e., the return of Financial’s escrowed funds to Regional).

Both parties assail this award. Regional contends that it should have been awarded full restitution, i.e., the return of all its payments to Financial less Financial’s out-of-pocket expenses and payments to third parties. Financial, on the other hand, contends that the district court erred when it awarded any equitable relief once it had determined that a complete award of rescission and restitution would be, not only inequitable, but impossible. We find no merit in either party’s position and, therefore, affirm the district court’s award, assuming that, after remand, Financial’s defenses are rejected.

An unregistered broker could not enforce an executory contract engaging him to sell securities using interstate facilities. See S. Jaffe, Broker-Dealers and Securities Markets § 2.05 (1977). The fact that the unregistered broker has performed his part of the contract should not alter that result. Though the contract be merely voidable, the party who has dealt with the law-breaker can elect that remedy under section 29(b), as we have held. Were this not the result there would be no civil remedy for the failure to register. Because fees are usually contingent, as they were here, the broker who has not performed is entitled to no fee. If the broker who has performed can recover his commission despite non-registration, then the prohibition is a toothless tiger.

The illegality of the transaction precludes the recovery of damages for breach and any other judgment aimed at enforcement of the tainted contract. See 2 G. Palmer, The Law of Restitution § 8-1, at 171 (1978) [hereinafter cited as Palmer]. Thus, persons who perform services without obtaining a required occupational license have been denied recovery either on their contract or in quasi-contract. This precept has been applied to bar compensation to unlicensed lawyers, physicians, real estate brokers, architects and engineers, building contractors, and plumbers. See 2 Palmer, supra, § 8-3, at 180-181 an