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United States v. Vrdolyak

March 10, 2008

UNITED STATES OF AMERICA, PLAINTIFF,
v.
EDWARD R. VRDOLYAK, DEFENDANT.



The opinion of the court was delivered by: Milton I. Shadur Senior United States District Judge

MEMORANDUM OPINION AND ORDER

Chicago attorney Edward R. Vrdolyak ("Vrdolyak") is charged by the superseding indictment in this case ("Indictment") with aiding and abetting one act of mail fraud and six acts of wire fraud in violation of 18 U.S.C. §§2, 1341, 1343 and 1346.*fn1

Vrdolyak has moved under Fed. R. Crim. P. 12(b) for a dismissal of those seven counts*fn2 on several grounds:

1. It is not alleged in the Indictment that the Finch University of Health Sciences/Chicago Medical School ("Medical School")*fn3 suffered any pecuniary harm as a result of a scheme that he devised with Stuart Levine ("Levine"), a member of the Medical School's Board of Trustees.

2. In addition, the Indictment fails to allege that Vrdolyak knew Levine owed a fiduciary duty to the Medical School. As a result, Vrdolyak contends, nothing in the Indictment supports the contention that he knowingly aided and abetted a breach of that duty as required by Section 2.

3. If the facts set forth in the Indictment suffice to make out an alleged violation of Section 1346, that statute is unconstitutionally vague as applied in this case.

This Court has considered all of Vrdolyak's arguments and the government's responses. For the reasons set out here, Vrdolyak's motion to dismiss Counts One through Seven of the Indictment is denied in its entirety.

Allegations in and Supplemental to the Indictment According to the Indictment, in 2002 the Medical School acquired the Dr. William M. Scholl School of Podiatric Medicine, which owned an improved parcel of real estate at 1001 N. Dearborn Street in Chicago ("Scholl Property")(¶1.a).*fn4 Later that same year the Medical School decided to sell the Scholl Property (¶1.f). Responsibility for overseeing the sale fell to Levine, an attorney and businessman who served on the Medical School's Board of Trustees and chaired its real estate committee (¶¶1.c, 1.f.i). As a trustee Levine knew that the Medical School had a policy prohibiting its entry into any transaction that would result in any kind of financial gain or advantage for one of its trustees unless the trustee both disclosed his or her interest to the Board and abstained from voting on the transaction (¶1.f.ii). Levine annually signed a Conflict of Interest Disclosure Statement acknowledging that he understood the policy and agreed to abide by it (id.).

In or about 2002 Levine spoke with Vrdolyak about the proposed sale of the Scholl Property (¶4). They agreed that Vrdolyak would identify a buyer for the property and that Levine would use his position as a trustee to ensure that Vrdolyak's buyer secured the property from the Medical School (id.). In exchange for his efforts Levine would receive a kickback*fn5 from the buyer (id.).

Vrdolyak later told Levine that Smithfield Properties Development LLC ("Smithfield"), a company that purchased and developed real estate throughout the metropolitan Chicago area, was interested in purchasing the Scholl Property (¶¶1.d, 5). At Vrdolyak's direction Levine met with Smithfield and began to negotiate with it exclusively (¶5). Levine also directed other agents and employees of the Medical School not to pursue other prospective purchasers and to reject any other inquiries they received about the Scholl Property (¶6).

In March 2003 Levine used his position on the Medical School Board to induce the other trustees to vote to negotiate an agreement with Smithfield for its purchase of the Scholl Property for approximately $9.5 million (¶8). In wielding his influence, Levine both spoke in favor of and voted for the negotiation with Smithfield (id.). But in May 2003 the Medical School learned that other purchasers were willing to pay more--up to $15 million--for the Scholl Property (¶9).

According to prospective evidence not adverted to in the Indictment but that the United States has conveyed to this Court more recently (see U.S. Third Supp. Mem. 5):*fn6

During approximately the last week of May 2003, a representative of [a second] prospective purchaser who had proposed an offer of $15 million sent a letter directly to each member of the [Medical School] Board of Trustees and therein stated that his client was interested in buying the Scholl Property for approximately $15 million.

Even further, according the same source of post-Indictment information, "At about the same time, a representative of a third prospective purchaser made a comparable offer to [the Medical School]" (id., emphasis added). Levine learned about that last offer directly from the third prospective purchaser and "understood that this purchaser expressed a willingness to buy the Scholl Property for approximately $15.5 million" (id. at 6).

As alleged in the Indictment, Levine shared the information about the competing offers with both Vrdolyak and Smithfield, after which Vrdolyak told Levine that Smithfield was willing to match the $15 million figure (¶¶9-10). Levine and Vrdolyak then agreed that Levine would use his position as a trustee to ensure that the Medical School accepted Smithfield's $15 million offer (¶10). In turn Smithfield would compensate Vrdolyak, who would then pass along a portion of that compensation to Levine (id.).

Smithfield advised the Medical School of its $15 million offer on or about June 5, 2003 (¶11). On the same day the Board--with Levine both voting and influencing the votes of other trustees--agreed to accept that offer and to enter into an agreement under which the Medical School would sell Smithfield the Scholl Property (¶12). That deal was completed about November 1, 2004, when the Medical School and Smithfield closed the purchase agreement transaction and Smithfield acquired the Scholl Property (¶14).

Around the same time Vrdolyak was involved in his own negotiations with Smithfield through which Vrdolyak and Smithfield agreed that Smithfield would pay Vrdolyak, as a finder's fee, an amount equal to 10% of the Scholl Property purchase price, or $1.5 million (¶13). That fee would be paid at some future date after development of the Scholl Property had been completed and after repayment of certain expenses and financing (id.). Vrdolyak gave a copy of that agreement to Levine (id.). Continuing through June 2006 Vrdolyak and Levine had a series of discussions as to when Vrdolyak would collect the $1.5 million from Smithfield and how the two would arrange for Levine to receive his share of that sum secretly (¶15). Vrdolyak knew that Levine had never disclosed to the Medical School that he would receive a payment from Smithfield for his role in the Scholl Property transaction (¶¶3, 12, 16). Finally, the Indictment alleges that Levine and Vrdolyak, in the course of executing their scheme, transmitted correspondence and communication "in interstate commerce by signals, over wire or radio, through the U.S. mails, or by private or commercial interstate carriers" (¶18).

As n.4 reflects, all of those matters alleged in Count One are also incorporated into Counts Two through Seven. Hence it is from those allegations that the one mail fraud count and six wire fraud counts are fashioned.

Sufficiency of the Indictment

Under United States v. Ramsey, 406 F.3d 426, 429-30 (7th Cir. 2005) an indictment is sufficient if it:

(1) states the elements of the offense charged; (2) fairly informs the defendant of the nature of the charge so that he may prepare a defense; and (3) enables him to plead an acquittal or conviction as a bar against future prosecutions for the same offense.

Accord, United States v. Hausmann, 345 F.3d 952, 955 (7th Cir. 2003); Fed. R. Crim. P. 7(c).

As taught in United States v. Smith, 230 F.3d 300, 305 (7th Cir. 2000)(citations and internal quotation marks omitted):

In setting forth the offense, it is generally acceptable for the indictment to "track" the words of the statute itself, so long as those words expressly set forth all the elements necessary to constitute the offense intended to be punished. However, an indictment that tracks the statutory language can nonetheless be considered deficient if it does not provide enough factual particulars to sufficiently apprise the defendant of what he must be prepared to meet. In order for an indictment to satisfy this second hurdle, we require, at a minimum, that it provide some means of pinning down the specific conduct at issue.

Lastly, in considering a motion to dismiss a court "must view all facts in the light most favorable to the government" (United States v. ...


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