Schatz v. Rosenberg

943 F.2d 485 (1991)

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Schatz v. Rosenberg

United States Court of Appeals for the Fourth Circuit
943 F.2d 485 (1991)

Facts

Rosenberg (defendant) formed a holding company (defendant) to purchase an 80 percent interest in two companies owned by Ivan and Joanne Schatz (the Schatzes) (plaintiffs). The Schatzes received promissory notes from the holding company as payment for their interests. The Schatzes relied on a financial statement and an update letter at closing that misrepresented the financial health of Rosenberg and his companies. The law firm Weinberg & Green (the lawyers) (defendant) represented Rosenberg and his companies. The Schatzes were never paid on the promissory notes or the loan made when their companies were merged with a Rosenberg company. Rosenberg drained the cash reserves and operating capital of the Schatzes’s companies, making them worthless. The Schatzes filed a complaint alleging primary and aiding-and-abetting violations of § 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission (SEC) Rule 10b-5. The magistrate judge recommended that the counts against the lawyers be dismissed for failure to state a claim. The district court accepted the recommendation and dismissed the counts. The Schatzes appealed.

Rule of Law

Issue

Holding and Reasoning (Chapman, J.)

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