United States v. David Weimert
819 F.3d 351, 2016 U.S. App. LEXIS 6461, 2016 WL 1395180 (2016)
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Rule of Law:
Deception about a party's negotiating positions, such as their priorities, reserve prices, or insistence on a particular term, is not a material misrepresentation for the purposes of the federal wire fraud statute, particularly when all final, substantive terms of the transaction are fully disclosed to all parties.
Facts:
- Amid the 2008-09 financial crisis, AnchorBank, facing financial pressure, instructed its vice president, David Weimert, to sell its subsidiary's (IDI) 50% interest in a commercial real estate development called Chandler Creek.
- Weimert's superior, Mark Timmerman, set a target price of no less than the book value of about $6 million.
- Weimert initiated negotiations with two potential buyers: The Burke Group, which owned the other 50% of the property, and Nachum Kalka.
- Weimert convinced both potential buyers to include a term in their offer letters that would allow him to personally purchase a minority interest in the property.
- Weimert told his employer, IDI, that the successful buyer, The Burke Group, insisted on his personal financial involvement as a condition for closing the deal.
- Simultaneously, Weimert led The Burke Group to believe that IDI wanted him to have a personal stake in the transaction.
- Relying on Weimert's representation that his involvement was essential, the IDI board approved the sale to The Burke Group, waived Weimert's conflict of interest, and authorized an unusual bonus of over $300,000 to enable his purchase.
- The final transaction closed for approximately $7.8 million, exceeding the bank's target price and relieving it of a $15 million mortgage liability, with all terms, including Weimert's participation and fee, fully disclosed.
Procedural Posture:
- A federal grand jury indicted David Weimert on six counts of wire fraud under 18 U.S.C. § 1343.
- The case was tried before a jury in the U.S. District Court.
- The jury convicted Weimert on five of the six counts.
- Weimert filed a Rule 29 motion for a judgment of acquittal, which the district court denied.
- The district court sentenced Weimert to 18 months in prison, restitution, a fine, and forfeiture of his interest in the property.
- Weimert appealed his conviction to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does a corporate officer commit federal wire fraud by misleading his employer and a third-party buyer about each other's negotiating positions to insert himself into a commercial real estate deal and obtain a fee, when all final terms of the deal are fully disclosed to all parties?
Opinions:
Majority - Hamilton, Circuit Judge.
No. A corporate officer does not commit federal wire fraud under these circumstances because misrepresentations about parties' negotiating positions are not considered material for purposes of the wire fraud statute. The court reasoned that wire fraud requires a scheme to defraud based on a material falsehood. Deception regarding negotiating positions—such as a party's reserve price or how important a term is to them—is a common, if sharp, business practice and is distinct from misrepresenting material facts about the asset being sold. While Weimert owed a fiduciary duty to his employer, his personal financial interest was fully disclosed, and the board, with the advice of outside counsel, waived the conflict. The court analogized the situation to an officer negotiating their own compensation, where they are not required to disclose their bottom line. To criminalize such common negotiating tactics would stretch the wire fraud statute beyond congressional intent, especially where all final terms were transparent.
Dissenting - Flaum, Circuit Judge,
Yes. A corporate officer commits wire fraud under these circumstances because the misrepresentations were material and breached a position of trust. The dissent argued this was not an arm's-length transaction; Weimert was a fiduciary for IDI, which had every reason to expect his loyalty. The deception was material because the IDI board members testified they would not have approved the deal or Weimert's fee had they known the buyer did not require his involvement. Weimert's lies directly induced the board's decision and caused IDI to receive a lower net price for its asset. The majority's focus on disclosed final terms ignores that the board's approval was procured by fraud.
Analysis:
This decision significantly narrows the scope of the federal wire fraud statute by distinguishing between actionable misrepresentations of material fact (e.g., the nature or value of an asset) and non-criminal deception about negotiating positions. By carving out a safe harbor for tactics like bluffing or misstating a party's priorities, the court limits the statute's reach into what it considers customary, if unethical, business negotiations. The ruling provides a defense for individuals, even corporate fiduciaries with disclosed conflicts, who engage in sharp dealing regarding negotiating stances, thereby raising the bar for prosecutors and reining in the statute's application to conduct not involving hidden terms or factual lies about the subject of a transaction.
