Court Opinion

ID: 4179410
Source: CourtListenerOpinion
Date Created: 2017-06-21 15:03:18.810815+00
Date Added: 2024-06-11T07:47:10.565752
License: Public Domain

16-3861-cr
United States v. Weaver

                            UNITED STATES COURT OF APPEALS
                                 FOR THE SECOND CIRCUIT

                                       August Term, 2016

                          (Argued: May 31, 2017 Decided: June 21, 2017)

                                      Docket No. 16-3861-cr

                                   UNITED STATES OF AMERICA,

                                                         Appellee,

                                            — v. —

                              EDWARD MORRIS WEAVER, a/k/a NED,

                                                         Defendant-Appellant.*

Before:

                          NEWMAN, CABRANES, and LYNCH, Circuit Judges.

      Edward Weaver appeals from a judgment of conviction entered in the
United States District Court for the Eastern District of New York (Joan M.
Azrack, Judge). Weaver was convicted of conspiring to commit mail and wire

*
    The Clerk of Court is directed to amend the official caption as set forth above.
fraud and various substantive charges based on his work at Vendstar, a company
that sold valueless vending-machine business opportunities to its victims.
Vendstar’s salespeople routinely lied to customers in order to convince them to
purchase the machines by promising unrealistic profits and making other false
claims. On appeal, Weaver argues, inter alia, that he is not guilty of fraud or
conspiracy because Vendstar customers signed purchase agreements in which
they disclaimed reliance on extra-contract representations. He contends that
those disclaimers rendered the salespeople’s oral misrepresentations immaterial
as a matter of law. We disagree. Thus, for the reasons stated below and in an
accompanying summary order, we AFFIRM the judgment of conviction and the
sentence in all respects.

                   GEORGE W. HICKS, JR. (C. Harker Rhodes IV and Michael D.
                        Lieberman, on the brief), Kirkland & Ellis LLP,
                        Washington, DC, for defendant-appellant.

                   DOUGLAS LETTER (Scott R. McIntosh and William E.
                       Havemann, Appellate Staff, on the brief), for Chad A.
                       Readler, Acting Assistant Attorney General, Civil
                       Division, United States Department of Justice,
                       Washington, DC; Robert L. Capers, United States
                       Attorney for the Eastern District of New York,
                       Brooklyn, NY, for appellee.

PER CURIAM:

      Edward Weaver appeals from a judgment of conviction entered in the

United States District Court for the Eastern District of New York (Joan M.

Azrack, Judge). Weaver was convicted of conspiring to commit mail and wire

fraud, substantive counts of both, and making false statements to a government

                                        2
agent, based on his work at Vendstar, a company that sold valueless vending-

machine business opportunities to its victims. Vendstar’s salespeople routinely

lied to customers in order to convince them to purchase the machines by

promising unrealistic profits and making other false claims. On appeal, Weaver

argues, inter alia, that he is not guilty of fraud or conspiracy because Vendstar

customers signed purchase agreements in which they disclaimed reliance on

extra-contract representations. He contends that those disclaimers rendered the

salespeople’s oral misrepresentations immaterial as a matter of law.

      We disagree. Thus, for the reasons stated below and in an accompanying

summary order, we AFFIRM the judgment of conviction and the sentence in all

respects.

                                 BACKGROUND

      From 2004 to 2010, Edward Weaver was the CEO of Vendstar (also known

as Multivend LLC), a corporation that sold candy-vending machines to

approximately 7,000 customers who spent a total of about $62 million on the

investments. Vendstar purported to offer customers the ability to “build a

successful home-based vending business” that would earn them profits of as

much as $800 a day. Supplemental Appendix (“S.A.”) 227, 244. The company sold

                                          3
small vending machines that included three clear canisters and dispensed loose

handfuls of candy for twenty-five cents.

      Although Vendstar’s promotional materials and salespeople represented

that the investment opportunities would be lucrative, for the most part the

vending machines would earn Vendstar’s customers almost no money. Customer

complaints became so frequent that Weaver assigned a Vendstar employee to

respond to those complaints full time. In the end, many customers lost virtually

all of their investments in Vendstar.1 The size of the investments varied, and the

most common transaction involved the victim paying $10,000 for a package that

included 30 candy-vending machines and an initial supply of candy, although

some customers spent significantly more than that.

       In general, the Vendstar scheme operated as follows. Potential customers

would respond to Internet or newspaper advertisements, approved by Weaver,

for the vending machine investments. After potential customers inquired about

the opportunity, Vendstar would mail them a brochure, order form, and certain

disclosure documents. The brochure, which Weaver also approved, included

1
 At trial, three customers testified for the defense that they profited from their
vending-machine investments. Twenty-three other customers testified (for the
government) that Vendstar defrauded them of large amounts of money.

                                           4
claims that the salespeople were “Vendstar vendors themselves” and promised

that the investments had “little risk.” S.A. 226, 233. Vendstar salespeople would

then follow up with customers over the phone. During those phone

conversations, salespeople routinely lied to customers, promising them utterly

unrealistic earnings and claiming that the investments were sound. Salespeople

also falsely stated that they owned their own Vendstar machines, a

misrepresentation that encouraged customers to trust them and buy the

machines.2 At trial, victims of the scam testified that those lies influenced their

decision to purchase the machines.

      After customers agreed to purchase the machines, they were required to

sign a contract setting forth the terms of those purchases. The contracts included

disclaimers in capital letters, providing in relevant part that:

             Purchaser understands that seller has no affiliation or
             financial relationship with professional locating
             companies and that seller has no involvement
             whatsoever in securing retail locations. . . .

2
 Vendstar also coordinated with so-called “locating companies” that claimed
that they would install the vending machines in advantageous places to
maximize profits. Customers would pay those locating companies a separate fee
to place their machines. In many instances, the locating services themselves also
turned out to be fraudulent, and Vendstar salespeople consistently overstated the
companies’ expertise and ability to place the machines in profit-earning locations.

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            Purchaser and seller agree that this purchase order
            contains the entire understanding of the agreement
            between the parties and there is no reliance upon any
            verbal representation whatsoever. Seller has not
            guaranteed any minimum or maximum earnings. . . .

            It is further acknowledged that no statements,
            promises[,] or agreements influenced this purchase or
            are expected other than anything contained in this
            purchase order. . . .

Joint Appendix (“J.A.”) 585-86.3 When customers expressed concern about these

disclaimers, salespeople misleadingly dismissed the provisions as unimportant

“legalese” or “mumbo-jumbo.” S.A. 8, 178.

      In 2013, a grand jury returned a superseding indictment charging Weaver

with mail and wire fraud, conspiracy to commit mail and wire fraud, and making

false statements to government officials.4 The government alleged that Weaver,

along with many of his employees, sought to defraud Vendstar’s customers by

promising profits that they knew would not materialize. Weaver was convicted

3
 Although the disclaimers appeared in all capital letters, we normalize their
typeface here.
4
 Those counts included: (1) one count of mail fraud, 18 U.S.C. § 1341; (2) eight
counts of wire fraud, 18 U.S.C. § 1343; (3) one count of conspiracy, 18 U.S.C.
§ 371; and (4) one count of making a false statement in response to FBI
questioning, 18 U.S.C. § 1001. The indictment also charged other defendants
involved in Vendstar with related crimes.

                                         6
on all counts after a six-week jury trial. The district court denied his motion for a

judgment of acquittal on all counts and, in the alternative, a new trial. The district

court later sentenced Weaver principally to 60 months’ imprisonment. Weaver

timely appealed.

      We need not recount further facts here, since we have described only those

facts necessary to resolve the narrow question addressed in this opinion: whether

the disclaimers in Vendstar’s purchase agreements rendered earlier

misrepresentations immaterial as a matter of law for purposes of the mail and

wire fraud statutes. The remaining issues on appeal are disposed of in an

accompanying summary order.

                                   DISCUSSION

      Weaver contends that the district court erred in denying him a judgment of

acquittal on the fraud and conspiracy counts because the disclaimers in the

vending-machine purchase agreements rendered any earlier misrepresentations

immaterial as a matter of law.5 We review de novo the denial of a judgment of

acquittal under Federal Rule of Criminal Procedure 29. United States v. Persico,

5
 Weaver does not otherwise contest the materiality of the misrepresentations
that his employees made to Vendstar customers.

                                          7
645 F.3d 85, 104 (2d Cir. 2011).

      “The essential elements of [mail and wire fraud] are (1) a scheme to

defraud, (2) money or property as the object of the scheme, and (3) use of the

mails or wires to further the scheme.” United States v. Binday, 804 F.3d 558, 569

(2d Cir. 2015) (internal quotation marks omitted). “Because the mail fraud and

the wire fraud statutes use the same relevant language, we analyze them the

same way.” United States v. Greenberg, 835 F.3d 295, 305 (2d Cir. 2016) (internal

quotation marks omitted). “[T]he gravamen of the offense is the scheme to

defraud.” Id. (internal quotation marks omitted). In order to prove the existence

of a scheme to defraud, the government must also prove “that the

misrepresentations were material,” U.S. ex rel. O’Donnell v. Countrywide Home

Loans, Inc., 822 F.3d 650, 657 (2d Cir. 2016), and that the defendant acted with

fraudulent intent, Greenberg, 835 F.3d at 305-06.

      A statement is material if the “misinformation or omission would naturally

tend to lead or is capable of leading a reasonable [person] to change [his]

conduct.” United States v. Rybicki, 354 F.3d 124, 145 (2d Cir. 2003) (en banc)

(discussing honest services fraud). In other words, a “lie can support a fraud

conviction only if it is material, that is, if it would affect a reasonable person’s

                                           8
evaluation of a proposal.” United States v. Corsey, 723 F.3d 366, 373 (2d Cir. 2013).

A “false statement is material if it has a natural tendency to influence, or is

capable of influencing, the decision of the [decisionmaker] to which it was

addressed.” Id. (internal quotation marks omitted). Recently, the Supreme Court

explained that, “[u]nder any understanding of the concept, materiality looks to

the effect on the likely or actual behavior of the recipient of the alleged

misrepresentation.” Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989,

2002 (2016) (internal quotation marks and alteration omitted) (discussing

materiality under the False Claims Act and the common law).

      We have noted the connection between the materiality element and the

additional requirement that the government prove fraudulent intent. United

States v. Thomas, 377 F.3d 232, 242 (2d Cir. 2004). The “role of the ordinary

prudence and comprehension standard [in the materiality element] is to assure

that the defendant’s conduct was calculated to deceive, not to grant permission to

take advantage of the stupid or careless.”Id.; see United States v. Svete, 556 F.3d

1157, 1165 (11th Cir. 2009) (observing that “the focus of the mail fraud statute,

like any criminal statute, is on the violator,” meaning that “the purpose of the

element of materiality is to ensure that a defendant actually intended to create a

                                           9
scheme to defraud”). That is, the unreasonableness of a fraud victim in relying

(or not) on a misrepresentation does not bear on a defendant’s criminal intent in

designing the fraudulent scheme, whereas the materiality of the false statement

does.

        Although the materiality of the misrepresentations is an element of mail

and wire fraud, the Supreme Court has held that the “common-law requirements

of ‘justifiable reliance’ and ‘damages[]’ . . . plainly have no place in the federal

fraud statutes.” Neder v. United States, 527 U.S. 1, 24-25 (1999). This is so because,

“[b]y prohibiting the ‘scheme to defraud,’ rather than the completed fraud, the

elements of reliance and damage[s] would clearly be inconsistent with the

statutes Congress enacted.” Id. at 25. With respect to damages, we have explained

that the government “need not prove that the victims of the fraud were actually

injured, but only that defendants contemplated some actual harm or injury to their

victims.” Greenberg, 835 F.3d at 306 (internal quotation marks omitted, emphasis

in original).

        For those reasons, the Seventh Circuit has held that contractual disclaimers

like the ones at issue here do not render prior false statements immaterial for

purposes of criminal fraud statutes. In United States v. Ghilarducci, 480 F.3d 542,

                                           10
546 (7th Cir. 2007), the court rejected the argument that “any oral

misrepresentations [the defendants] might have made were immaterial because

investors signed contracts stating that no oral promises had been made.” Relying

on Neder, the court concluded that “the reliance concept . . . ha[s] no application

in the criminal fraud context.” Ghilarducci, 480 F.3d at 546. Although a

“disclaimer of reliance on certain representations . . . defeats a private damages

action” for fraud, such disclaimers “do[] not mean [that] the oral representations

were immaterial or without tendency to influence.” Id. at 547. See United States v.

Lucas, 516 F.3d 316, 339 (5th Cir. 2008) (“We are not persuaded that the disclaimer

provision of these individual sales contracts insulates Defendants from the

federal charges [of mail fraud].”). Weaver cites no appellate authority holding to

the contrary.

      We agree with our sister circuits, and hold that contractual disclaimers of

reliance on prior misrepresentations do not render those misrepresentations

immaterial under the criminal mail and wire fraud statutes. As explained above,

the Vendstar purchase agreements included several prominent disclaimers of

reliance on prior oral representations. See J.A. 585-86. While such disclaimers may

in some circumstances defeat a civil claim for damages based on fraud, Grumman

                                         11
Allied Indus., Inc. v. Rohr Indus., Inc., 748 F.2d 729, 734 (2d Cir. 1984), they do not

bear on the defendant’s criminal liability.6 Weaver has not otherwise contested

the materiality of the oral misrepresentations, and we independently conclude

that they had the natural tendency to influence the decisionmakers to whom they

were addressed—potential Vendstar customers.

      Weaver’s arguments to the contrary are not persuasive, and largely

“confuse materiality . . . for reliance.” Ghilarducci, 480 F.3d at 543. First, Weaver

contends that, because the fraud’s victims signed a contract expressly

acknowledging that no earlier representation “influenced” their decision to

purchase the machines, J.A. 586, the earlier misrepresentations could not be

material because no reasonable person would alter his decision based on those

statements. That argument would effectively require reliance as part of the

materiality inquiry, and is therefore contrary to Supreme Court precedent

instructing that reliance is not an element of criminal fraud, while materiality is.

6
 We note that, according to trial evidence, Vendstar employees repeatedly
misrepresented the importance of those disclaimers. For example, members of
Weaver’s sales team described the disclaimers as legal “mumbo-jumbo,” S.A. 178,
and dismissed customers’ concerns about the provisions, explaining that
Vendstar staff “would be there to support [the customers] to insure [their]
success,” J.A. 105.

                                           12
Neder, 527 U.S. at 24-25. As the Seventh Circuit has observed, “[o]nce the

Supreme Court excludes reliance as a separate element of the mail-fraud offense,

it will not do for appellate judges to roll reliance into materiality; that would add

through the back door an element barred from the front.” United States v. Rosby,

454 F.3d 670, 674 (7th Cir. 2006). Thus, whatever analytic relationship exists

between materiality and reliance, courts have consistently maintained the

distinction between “materiality (in the sense of tendency to influence) and

reliance (in the sense of actual influence).” Id.; see United States v. Lindsey, 850 F.3d

1009, 1015 (9th Cir. 2017) (observing that a “misrepresentation may be material

without inducing any actual reliance” (internal quotation marks omitted)).

      By relying on civil fraud cases, where reasonable reliance is required,

Weaver attempts to frame the issue of materiality as one of contract law, not

criminal liability. See, e.g., Aetna Cas. & Sur. Co. v. Aniero Concrete Co., 404 F.3d

566, 576 (2d Cir. 2005); Manufacturers Hanover Trust Co. v. Yanakas, 7 F.3d 310, 315

(2d Cir. 1993); Grumman, 748 F.2d at 734. In describing the elements of civil fraud,

we have held that, when the “contract states that a contracting party disclaims

the existence of or reliance upon specified representations, that party will not be

allowed to claim that he was defrauded into entering the contract in reliance on

                                           13
those representations.” Manufacturers Hanover Trust Co., 7 F.3d at 315. That rule

embodies the key contractual “principle that where the parties to an agreement

have expressly allocated risks, the judiciary shall not intrude into their

contractual relationship.” Grumman, 748 F.2d at 735. If Vendstar’s victims were

plaintiffs in a civil damages action, that risk-allocation principle would have

some force. It has none, however, where the government criminally prosecutes

defendants for participating in a “scheme or artifice to defraud,” 18 U.S.C.

§§ 1341, 1343. Fraudsters may not escape criminal liability for lies told to induce

gullible victims to make worthless investments by inducing them to sign a

contract containing disclaimers of reliance.

      Finally, the premise of Weaver’s argument is flawed. He apparently

assumes that Vendstar employees could not have been charged with mail or wire

fraud until customers signed the agreement and paid Vendstar for the machines.

That is, he assumes that the fraud would need to be successful in order for Weaver

to be criminally liable for it. But under the plain language of §§ 1341 and 1343, the

crimes were complete when, with fraudulent intent, Vendstar employees used

the wires or mail in furtherance of a scheme to extract money from their victims

via material misrepresentations. No customers had to be tricked into purchasing

                                         14
the doomed vending-machine business opportunities in order for Weaver and

his team to be charged criminally because “the government is not required to

prove that an intended victim was actually defrauded” to establish guilt of mail

or wire fraud. United States v. Starr, 816 F.2d 94, 98 (2d Cir. 1987); Greenberg, 835

F.3d at 306. Indeed, “the only significance in a fraud case of proof of actual harm

befalling the victim as a result of the scheme is that it may serve as circumstantial

evidence from which a jury could infer the defendant’s intent to cause harm.”

United States v. Rybicki, 287 F.3d 257, 262 (2d Cir. 2002) on reh’g en banc, 354 F.3d

124 (2d Cir. 2003). Thus, although the contractual disclaimers were relevant to the

jury’s determination of Weaver’s guilt, they did not render extra-contract

misrepresentations immaterial as a matter of law.

                                   CONCLUSION

      For the foregoing reasons, and for the reasons stated in the accompanying

summary order, we AFFIRM the judgment of conviction and sentence in all

respects.

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