## Facts

- Arthur R. Myers II, Mary J. Myers, and Arthur R. Myers III were wealthy from a seafood business but claimed limited investing sophistication.
- Finkle & Company, an accounting firm, provided tax and accounting services to the Myers beginning in 1977.
- In 1981, Finkle advised the Myers to invest in real estate limited partnerships as tax shelters and recommended specific partnerships in which Finkle had a financial interest.
- Finkle allegedly assured the Myers the investments would produce “economic profit” in addition to tax benefits.
- Between 1981 and 1985, the Myers invested more than $4.8 million in 15 partnerships recommended by Finkle.
- Each partnership had a private placement memorandum (PPM) describing risks, but the Myers asserted the PPMs were often delivered after execution of investment documents or too late to affect decisionmaking.
- The Myers alleged material misrepresentations and omissions, including failure to disclose Finkle’s conflicts of interest.
- The district court granted summary judgment to Finkle on the federal securities claims, dismissed the federal RICO claims, and declined jurisdiction over related state-law claims.

## Issues

1. Whether genuine disputes of material fact existed on the Myers’ § 10(b) and Rule 10b-5 claims, particularly as to justifiable reliance on an accountant’s alleged misrepresentations and omissions.
2. Whether written risk disclosures in PPMs defeated reliance as a matter of law where the memoranda were allegedly received after the investments were effectively completed.
3. Whether the Myers stated or supported federal RICO claims sufficient to survive dismissal.

## Decision

- The Fourth Circuit reversed summary judgment on the § 10(b)/Rule 10b-5 claims and remanded for further proceedings.
- The court held that, viewing the record in the Myers’ favor, a reasonable factfinder could find justifiable reliance on Finkle’s advice and alleged nondisclosures, despite the existence of PPMs.
- The court affirmed dismissal of the RICO claims.
- The remand reopened the possibility that the district court could consider the state-law claims in connection with the reinstated federal securities claims.

## Legal Principles

- On summary judgment, courts must view evidence and draw reasonable inferences in favor of the nonmovant; disputes over reliance commonly present fact questions.
- A § 10(b)/Rule 10b-5 plaintiff must prove, among other elements, a material misrepresentation or omission, scienter, a connection to a securities transaction, reliance, economic loss, and loss causation.
- Justifiable reliance is context-dependent; reliance on a professional adviser’s recommendations may be found reasonable when the adviser has superior expertise and the relationship involves trust.
- Written risk disclosures do not necessarily defeat reliance as a matter of law where the disclosures are received late or where a jury could find the investor relied primarily on contrary oral assurances.
- An adviser’s undisclosed financial interest in recommended investments can constitute a material omission supporting securities-fraud liability.
- Civil RICO requires satisfaction of statutory elements such as a qualifying pattern of racketeering activity and an enterprise; failure to meet those requirements warrants dismissal.

## Conclusion

The Fourth Circuit held that disputes about the Myers’ sophistication, the timing and effect of the PPM disclosures, and Finkle’s alleged oral assurances and undisclosed conflicts created triable issues on justifiable reliance under § 10(b) and Rule 10b-5, making summary judgment improper, while the RICO claims were properly dismissed.


Myers v. Finkle, 950 F.2d 165 (4th Cir. 1991)