January 22, 2016.
from the United States District Court for the Western
District of Wisconsin. No. 3:14-cr-00022-jdp-1 -- James D.
United States of America, Plaintiff - Appellee: Antonio M.
Trillo, Attorney, Office of The United States Attorney,
David Weimert, Defendant - Appellant: Stephen J. Meyer,
Attorney, Meyer Law Office, Madison, WI.
BAUER, FLAUM, and HAMILTON, Circuit Judges. FLAUM, Circuit
midst of the 2008-09 financial crisis, a Wisconsin bank
called AnchorBank was struggling to stay above water. Under
pressure to find cash to pay its own lenders, the bank's
president told vice president David Weimert to try to sell
the bank's share in a commercial real estate development
in Texas. Weimert, who is the defendant and appellant in this
criminal wire fraud case, successfully arranged a sale that
exceeded the bank's target price by about one third. The
deal also relieved the bank of a liability of twice the sale
the version of the facts we must accept for this appeal,
however, Weimert saw an opportunity to insert himself into
the deal personally. He persuaded two potential buyers that
he would be a useful partner for them. Both buyers included
in their offer letters a term having Weimert buy a minority
interest in the property. The bank agreed. It also agreed to
pay Weimert an unusual bonus to enable him to buy the
minority interest. We must also assume that the successful
buyer, at least, would have been willing to go forward
without Weimert as a partner, and that Weimert deliberately
misled his board and bank officials to believe that the
successful buyer would not close the deal if he were not
included as a minority partner. The government prosecuted
Weimert for wire fraud on the theory that his actions added
up to a scheme to obtain money or property by fraud, and the
jury convicted him on five of six counts of wire fraud under
18 U.S.C. § 1343.
reverse and order judgment of acquittal. Federal wire fraud
is an expansive tool, but as best we can tell, no previous
case at the appellate level has treated as criminal a
person's lack of candor about the negotiating positions
of parties to a business deal. In commercial negotiations, it
is not unusual for parties to conceal from others their true
goals, values, priorities, or reserve prices in a proposed
transaction. When we look closely at the evidence, the only
ways in which Weimert misled anyone concerned such
negotiating positions. He led the successful buyer to believe
the seller wanted him to have a piece of the deal. He led the
seller to believe the buyer insisted he have a piece of the
deal. All the actual terms of the deal, however, were fully
disclosed and subject to negotiation. There is no evidence
that Weimert misled anyone about any material facts or about
promises of future actions. While one can understand the
bank's later decision to fire Weimert when the deception
about negotiating positions came to light, his actions did
not add up to federal wire fraud. Weimert is entitled to
judgment of acquittal. We order his prompt release from
federal prison, on the stated terms of supervised release in
his sentence, pending issuance of our mandate.
The Standard of Review
review de novo the denial of a motion for judgment
of acquittal. United States v. Durham, 766 F.3d 672,
678 (7th Cir. 2014), citing United States v.
Claybrooks, 729 F.3d 699, 704 (7th Cir. 2013). We
construe the evidence in the light most favorable to the
government, asking whether a rational trier of fact could
have found the elements of the crime beyond a reasonable
doubt. Durham, 766 F.3d at 678, quoting United
States v. Love, 706 F.3d 832, 837 (7th Cir. 2013).
our deference to jury determinations on evidentiary matters,
we rarely reverse a conviction for mail or wire fraud due to
insufficient evidence. See United States v. Mullins,
800 F.3d 866, 870 (7th Cir. 2015) (" Sufficiency
challenges are very difficult to win ... ." ). We have
sometimes said that such appeals face " a nearly
insurmountable hurdle." E.g., United States v.
Domnenko, 763 F.3d 768, 772 (7th Cir. 2014), quoting
United States v. Torres-Chavez, 744 F.3d 988, 993
(7th Cir. 2014). The hurdle is not actually insurmountable,
though. See, e.g., Durham, 766 F.3d at 678-79
(reversing on two counts); United States v. Dooley,
578 F.3d 582, 588-89 (7th Cir. 2009) (reversing on one
count); see also United States v. Lake, 472 F.3d
1247, 1260 (10th Cir. 2007); United States v.
Izydore, 167 F.3d 213, 220 (5th Cir. 1999); United
States v. Goodman, 984 F.2d 235, 239-40 (8th Cir. 1993).
Even more to the point, the Supreme Court has reversed mail
and wire fraud convictions that would have dramatically
expanded the scope of the statutes. Skilling v. United
States, 561 U.S. 358, 413-15, 130 S.Ct. 2896, 177
L.Ed.2d 619 (2010) (affirming the reversal of honest-services
wire fraud conviction); Cleveland v. United States,
531 U.S. 12, 26-27, 121 S.Ct. 365, 148 L.Ed.2d 221 (2000)
(reversing wire fraud conviction for failure to demonstrate
loss of property); McNally v. United States, 483
U.S. 350, 360-61, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987)
(reversing wire fraud conviction on honest services theory of
fraud prior to statutory revision). We take a similar step
The Limits of Mail and Wire Fraud
The Breadth of Mail and Wire Fraud
giving a detailed account of the evidence, we explain the
legal standards we apply. The wire fraud statute prohibits
schemes to defraud or to obtain money or property by means of
" false or fraudulent pretenses, representations, or
promises" if interstate wire or electronic
communications are used to execute the scheme. 18 U.S.C.
§ 1343. To convict a person under § 1343, the
government must prove that he " (1) was involved in a
scheme to defraud; (2) had an intent to defraud; and (3) used
the wires in furtherance of that scheme." United
States v. Faruki, 803 F.3d 847, 852 (7th Cir. 2015),
quoting Durham, 766 F.3d at 678.
prove a scheme to defraud, the government must show that
Weimert made a material false statement, misrepresentation,
or promise, or concealed a material fact. United States
v. Powell, 576 F.3d 482, 490 (7th Cir. 2009); see also
Neder v. United States, 527 U.S. 1, 25, 119 S.Ct.
1827, 144 L.Ed.2d 35 (1999) (holding " materiality of
falsehood" is an element of federal mail and wire fraud
statutes). Intent to defraud requires proof that the
defendant acted willfully " with the specific intent to
deceive or cheat, usually for the purpose of getting
financial gain for one's self or causing financial loss
to another." Faruki, 803 F.3d at 853, quoting
United States v. Howard, 619 F.3d 723, 727 (7th Cir.
its cousin mail fraud, the wire fraud statute has been
interpreted to reach a broad range of activity. Courts have
taken an expansive approach to what counts as a material
misrepresentation or concealment in a scheme to defraud. As
we will see, it is possible to put together broad language
from courts' opinions on several different points so as
to stretch the reach of the mail and wire fraud statutes far
beyond where they should go.
for example, materiality has been defined in broad and
general terms as having a tendency to influence or to be
capable of influencing the decision-maker. Neder,
527 U.S. at 16; United States v. Seidling, 737 F.3d
1155, 1160 (7th Cir. 2013).
the concept of a misrepresentation is also broad, reaching
not only false statements of fact but also misleading
half-truths and knowingly false promises. Powell,
576 F.3d at 490-91; United States v. Sloan, 492 F.3d
884, 890 (7th Cir. 2007), citing United States v.
Stephens, 421 F.3d 503, 507 (7th Cir. 2005); see
generally Durland v. United States, 161 U.S. 306,
312, 16 S.Ct. 508, 40 L.Ed. 709 (1896) (mail fraud not
limited to common law fraud but includes "
representations as to past or present, or suggestions and
promises as to the future" ). It can also include the
omission or concealment of material information, even absent
an affirmative duty to disclose, if the omission was intended
to induce a false belief and action to the advantage of the
schemer and the disadvantage of the victim. United States
v. Morris, 80 F.3d 1151, 1160-61 (7th Cir. 1996),
quoting Emery v. American General Finance, Inc., 71
F.3d 1343, 1346 (7th Cir. 1995); see also United States
v. Keplinger, 776 F.2d 678, 697-98 (7th Cir. 1985).
wire fraud does not require the false statement to be made
directly to the victim of the scheme. Deception of someone
else can suffice if it carries out the scheme.
Seidling, 737 F.3d at 1160.
it is no defense that the intended victim of wire fraud was
too trusting and gullible or, on the other hand, was too
smart or sophisticated to be taken in by the deception.
United States v. Coffman, 94 F.3d 330, 333 (7th Cir.
1996); see also United States v. Colton, 231 F.3d
890, 903 (4th Cir. 2000) (" If a scheme to defraud has
been or is intended to be devised, it makes no difference
whether the persons the schemers intended to defraud are
gullible or skeptical, dull or bright." ) (citation
and other expansive glosses on the mail and wire fraud
statutes have led to their liberal use by federal
prosecutors. As one future federal judge put it during his
tenure as a prosecutor, these statutes are " our
Stradivarius, our Colt 45, our Louisville Slugger, our
Cuisinart--and our true love." Jed S. Rakoff, The
Federal Mail Fraud Statute (Part I), 18 Duq. L. Rev.
771, 771 (1980). Mail and wire fraud statutes " have
long provided prosecutors with a means by which to salvage a
modest, but dubious, victory from investigations that
essentially proved unfruitful." John C. Coffee, Jr. &
Charles K. Whitehead, The Federalization of Fraud: Mail
and Wire Fraud Statutes, in White Collar Crime: Business
and Regulatory Offenses § 9.05, at 9-73 (1990).
mail and wire fraud statutes have " been invoked to
impose criminal penalties upon a staggeringly broad swath of
behavior," creating uncertainty in business negotiations
and challenges to due process and federalism. Sorich v.
United States, 555 U.S. 1204, 129 S.Ct. 1308, 1308-11,
173 L.Ed.2d 645 (2009) (Scalia, J., dissenting from denial of
certiorari on scope of " honest services" theory of
fraud). We must take care not to stretch the long arms of the
fraud statutes too far. See Pasquantino v. United
States, 544 U.S. 349, 377, 125 S.Ct. 1766, 161 L.Ed.2d
619 (2005) (Ginsburg, J., dissenting) (Supreme Court has
" also recognized that incautious reading of the statute
could dramatically expand the reach of federal criminal law,
and we have refused to apply the proscription
Fraud and Commercial Negotiations
case presents a test of how far the mail and wire fraud
statutes reach when parties negotiate a substantial
commercial transaction that involves, as almost all will, the
use of the mails or interstate wire communications. Some
deceptions in commercial negotiations certainly can support a
mail or wire fraud prosecution. A party may not misrepresent
material facts about an asset during a negotiation to sell
it. For example, a seller or his agent may not falsely tell
potential buyers or investors that a piece of property has no
history of environmental problems if soil and groundwater
contamination on the property was discovered the year before.
The buyer would be led to purchase a property worth far less
than she was led to believe, given the looming remediation
costs. Similarly, a company may not inform a potential
investor that it expects patent protection for its key
intellectual property if its patent application was recently
rejected as barred by prior art. The investor would be led to
believe that he was investing in a valuable asset that was
actually worthless. The misrepresentations materially alter
one party's understanding of the subject of the deal.
prior cases, we have also said that a company may not hide
behind disclaimers while deliberately understating expected
losses in disclosures to investors. The information would be
material to the price buyers of securities are willing to
pay. United States v. Morris, 80 F.3d 1151, 1167-68
(7th Cir. 1996). Nor may a company choose to advertise the
success of one investor in isolation while omitting the
crippling losses of ninety percent of its investors.
United States v. Biesiadecki, 933 F.2d 539, 541-43
(7th Cir. 1991). Nor may a party falsify loan documents to
defraud mortgage lenders, United States v. Sheneman,
682 F.3d 623, 629 (7th Cir. 2012), forge a buyer's
signature on a check, United States v. Powell, 576
F.3d 482, 491 (7th Cir. 2009), or use false advertising to
guarantee investors impossible returns, United States v.
Sloan, 492 F.3d 884, 890-91 (7th Cir. 2007). In short,
the federal mail and wire fraud statutes reach a seller's
or buyer's deliberate misrepresentation of facts or false
promises that are likely to affect the decisions of a party
on the other side of the deal.
practices deviate far from behavioral norms for business
transactions in a market economy governed by the rule of law.
There are more difficult cases, however. " Not all
conduct that strikes a court as sharp dealing or unethical
conduct is a 'scheme or artifice to defraud.'"
United States v. Colton, 231 F.3d 890, 901 (4th Cir.
2000) (alteration omitted), quoting Reynolds v. East Dyer
Development Co., 882 F.2d 1249, 1252 (7th Cir. 1989)
(affirming summary judgment and sanctions for defendants in
civil RICO case alleging failure to disclose information that
home lots were not suitable for building). The mail and wire
fraud statutes " do not cover all behavior which strays
from the ideal." United States v. Colton, 231
F.3d at 901 (citation and internal quotation marks omitted).
We have also explained that a corporate officer's breach
of fiduciary duty, when combined with a mailing or wire
communication, is not sufficient to show mail or wire fraud.
United States v. Kwiat, 817 F.2d 440, 444 (7th Cir.
1987) (reversing convictions). And " we do not imply
that all or even most instances of non-disclosure of
information that someone might find relevant come within the
purview" of the mail and wire fraud statutes. United
States v. Keplinger, 776 F.2d 678, 697-98 (7th Cir.
1985) (affirming mail fraud convictions for scheme to submit
false laboratory results on safety of medications).
Fraud and Negotiating Positions
shown below, the central issue in this case is whether the
mail and wire fraud statutes can be stretched to criminalize
deception about a party's negotiating positions, such as
a party's bottom-line reserve price or how important a
particular non-price term is. We conclude that they cannot.
strands of case law, it is true, one can piece together a
mail or wire fraud case based on such deception about
negotiating positions. To track the specific rules we
discussed above: First, information about a party's
negotiating position is surely material in the sense that it
is capable of influencing another party's decisions.
Second, actionable deception can include false statements of
fact, misleading half-truths, deceptive omissions, and false
promises of future action. All of these descriptions may fit
deceptions about negotiating positions, at least if a
negotiator's present state of mind is treated as a fact.
Third, the false statement may be made to someone other than
the owner or holder of the money or property targeted by the
scheme. And fourth, it is no defense that the intended victim
either trusted the defendant too much or was too savvy to be
Congress could not have meant to criminalize deceptive
misstatements or omissions about a buyer's or
seller's negotiating positions. See United States v.
Coffman, 94 F.3d 330, 334 (7th Cir. 1996) (" it
would not do to criminalize business conduct that is
customary rather than exceptional and is relatively
harmless" ). Buyers and sellers negotiate prices and
other terms. To state the obvious, they will often try to
mislead the other party about the prices and terms they are
willing to accept. Such deceptions are not criminal.
a simple example based on price, suppose a seller is willing
to accept $28,000 for a new car listed for sale at $32,000. A
buyer is actually willing to pay $32,000, but he first offers
$28,000. When that offer is rejected and the seller demands
$32,000, the buyer responds: " I won't pay more than
$29,000." The seller replies: " I'll take
$31,000 but not a penny less." After another round of
offers and demands, each one falsely labeled " my final
offer," the parties ultimately agree on a price of
$30,000. Each side has gained from deliberately false
misrepresentations about its negotiating position. Each has
affected the other side's decisions. If the transaction
involves interstate wires, has each committed wire fraud,
each defrauding the other of $2,000? Of course not. But
government's answer at oral argument was the absence of
" intent to defraud." That answer begs the
question. How do we recognize " intent to defraud"
if a party has gained a better deal by misleading the other
party about its negotiating position? If a party's
negotiation position is material for purposes of the mail and
wire fraud statutes, each has obtained a financial gain by
deliberately misleading the other.
better answer is that negotiating parties, and certainly the
sophisticated businessmen in this case, do not expect
complete candor about negotiating positions, as distinct from
facts and promises of future behavior. Deception about
negotiating positions--about reserve prices and other terms
and their relative importance--should not be considered
material for purposes of mail and wire fraud statutes.
after receiving the government's post-argument
supplemental authority, we know of no other case in which a
court has found that deceptive statements about negotiating
positions amounted to a scheme to defraud under the mail or
wire fraud statutes. This absence is consistent with more
general understandings in the law.
Restatement (Second) of Torts treatment of fraud, for
example, statements about a party's opinions,
preferences, priorities, and bottom lines are generally not
considered statements of fact material to the transaction.
See Restatement (Second) of Torts § 538A cmts. b, g
(distinguishing between representations of facts--where the
maker has definite knowledge--and opinions--including a
" maker's judgment as to quality, value,
authenticity or similar matters as to which opinions may be
expected to differ" ). Rules of professional conduct for
attorneys require honesty in dealing with others, but they
draw a similar line on negotiation positions. See Model R.
Prof. Conduct 4.1(a) cmt. 2 (" Under generally accepted
conventions in negotiations, certain types of statements
ordinarily are not taken as statements of material fact.
Estimates of price or value placed on the subject of a
transaction and a party's intentions as to an acceptable
settlement of a claim are ordinarily in this category ...
." ); see also G. Richard Shell, When Is It Legal to
Lie in Negotiations?, 32 Sloan Management Rev. 93, 96
(1991) (" There are thus no legal problems with lying
about how much you might be willing to pay or which of
several issues in a negotiation you value more highly.
Demands and reservation prices are not, as a matter of law,
material to a deal." ).
how these general considerations govern this case, we lay out
in Part III the sequence of negotiations in this sale. Then,
in Part IV, we work through the more detailed legal analysis
of the government's case against Weimert, including the
issues posed by Weimert's status as a corporate officer
of one party to the deal, acting under a disclosed conflict
of interest. We recount the facts in the light reasonably
most favorable to the government. The question to keep in
mind is whether the ...