Appeal from a judgment of the District Court for the Eastern District of New York (Mark A. Costantino, Judge) dismissing Gelb's complaint and awarding defendant damages on a counterclaim. Appellant challenges collateral estoppel effect of a federal conviction in a subsequent diversity action. Affirmed in part, reversed in part, and remanded for proceedings consistent with opinion.
BEFORE: FEINBERG, Chief Judge, NEWMAN and WINTER, Circuit Judges.
JON O. NEWMAN, Circuit Judge:
Plaintiff Joseph Gelb appeals from a judgment of the District Court for the Eastern District of New York (Mark A. Costantino, Judge) dismissing Gelb's complaint against defendant-appellee Royal Globe Insurance Company ("Royal") and awarding Royal $81,499.98, plus Company ("Royal") and awarding Royal $81,499.98, plus interest, on a counterclaim.*fn1 Gelb contends that the District Court improperly accorded preclusive effect of his prior criminal conviction for mail fraud. For reasons that follow, we hold that Gelb's criminal conviction precluded his own claim but did not justify entering judgment for Royal on its counterclaim. We therefore affirm the dismissal of Gelb's complaint, reverse the entry of judgment on Royal's counterclaim, and remand for a trial on the counterclaim.
Gelb owned businesses located at 10-12 Franklin Place in Woodmere, New York. On April 26, 1980, the Franklin Place premises were destroyed by fire. Investigation revealed that the fire was ignited with the aid of gasoline.
Gelb was subsequently indicted and charged with one count of using an "explosive" to destroy commercial premises in violation of 18 U.S.C. § 844(i), one count of using an "explosive" to commit a felony in violation of 18 U.S.C. § 844(h), and eight counts of mail fraud in violation of 18 U.S.C. §§ 1341, 1342. Three of the mail fraud counts were based on Gelb's alleged misrepresentation to Royal that he had not caused the Franklin Place fire. The remaining five mail fraud counts were based on allegedly inflated damage claims that Gelb on ten counts of the indictment. Gelb moved, pursuant to Fed. R. Crim. P. 33, for a new trial as a result of newly discovered evidence that he claimed established his lack of participation in causing the fire. The District Court denied the motion.
Gelb appealed his criminal conviction to this Court. See United States v. Gelb, 700 F.2d 875 (2d Cir.), cert. denied, 464 U.S. 853, 78 L. Ed. 2d 152, 104 S. Ct. 167 (1983). We reversed the convictions on the two explosives counts on the ground that gasoline was not an "explosive" within the meaning of 18 U.S.C. § 844(h) and (i). With respect to the convictions on the eight mail fraud counts, we made a disposition that has engendered much of the controversy in connection with the pending appeal. Initially, we noted that "we need not decide" whether Gelb was correct in urging that the evidence was insufficient "to prove that he in fact set the Franklin Place fire." Id. at 879. We expressed the view that the mail fraud convictions "were sustained by evidence wholly independent from those facts proving the arson." Id. We then ruled that evidence was sufficient to support the jury's finding that Gelb had submitted false proof of loss forms to Royal, grossly inflating the losses claimed. This finding was critical to conviction on five of the mail fraud counts. Finally, we said we were affirming the conviction on all eight mail fraud counts. Three of those counts, however, rested exclusively on the allegation that Gelb had falsely denied to Royal that he had caused the fire, and we had specifically declined to review the sufficiency of the evidence to prove that allegation. In effect, though we technically affirmed the convictions on the three arson-mail fraud counts, we did not review the issue on which they were appealed.*fn2 Since the sentences on all counts were concurrent, the anomalous disposition had no effect on Gelb's sentence, but see United States v. Vargas, 615 F.2d 952 (2d Cir. 1980) (limiting the concurrent sentence doctrine as a basis to avoid appellate review). Nevertheless, the anomaly vitally affects the collateral estoppel issues that we now encounter.
Gelb subsequently commenced this diversity action against Royal to recover on his insurance policy for damage caused his businesses by the Franklin Place fire. Royal, which had paid $81,499.98 to an innocent owner of a Franklin Place property, alleged that Gelb had caused the Franklin Place fire and counterclaimed for $81,499.48 as subrogee. Royal sought summary judgment dismissing Gelb's claim and granting judgment on its counterclaim. Royal argued that Gelb's claim and granting judgment on its counterclaim. Royal argued that Gelb's criminal conviction collaterally estopped him from denying that he had made fraudulent representations to Royal, which barred Gelb's claim, and that he had caused the Franklin Place fire, which entitled Royal to prevail on its counterclaim. The District Court granted Royal's summary judgment motion in all respects, and this appeal followed.
1. Choice of Law. Initially, we must decide whether federal or state law determines the collateral estoppel effect of Gelb's criminal conviction in this diversity action. Our analysis begins with United States v. Frank, 494 F.2d 145 (2d Cir.), cert. denied, 419 U.S. 828, 95 S. Ct. 48, 42 L. Ed. 2d 52 (1974). In Frank, four defendants were convicted under a variety of federal criminal statutes for committing fraudulent acts. The victim, Marie Dominguez, testified for the prosecution. Dominguez had previously commenced a diversity action in federal court against three of the criminal defendants to recover for the same acts that were the subject of the criminal indictment. In the criminal case the defendants requested a jury instruction concerning Dominguez's credibility in light of her pending civil suit. Specifically, they requested a charge that a criminal conviction would operate as collateral estoppel in the civil suit and that Dominguez therefore had a financial interest in the outcome of the criminal case. The trial judge informed the jury of the existence of Dominguez's civil suit but refused to give the requested charge.
On the appeal of the criminal case to this Court, the defendants argued that New York law would govern the preclusive effect of a federal criminal conviction in a civil diversity case and that New York law would accord collateral estoppel effect to the conviction. The Government argues that federal law would apply and would not give collateral estoppel effect to the conviction. The Government relied on Kern v. Hettinger, 303 F.2d 333 (2d Cir. 1962), on the choice of law issue. In Kern, we held that, in accordance with Fed. R. Civ. P. 41(b), a dismissal for lack of prosecution in a federal diversity action would bar a subsequent diversity action on the same claim, even though the state whose law applied to the second diversity action would not consider such a dismissal preclusive.
Writing for this Court in Frank, Judge Friendly rejected the Government's contention that federal law would determine the collateral estoppel effect of a federal criminal conviction in a subsequent diversity case. Judge Friendly read Kern to require the application of federal preclusion law in a diversity action only where necessary to vindicate the Federal Rules of Civil Procedure. In other circumstances, such as those presented in Frank, he suggested that a federal diversity court should apply New York preclusion law "to reach the same result as would a New York court sitting 'a block away'." United States v. Frank, supra, 494 F.2d at 160 (quoting Guaranty Trust Co. v. York, 326 U.S. 99, 109, 89 L. Ed. 2079, 65 S. Ct. 1464 (1945)). This suggestion implicity assumed in a New York court would apply New York preclusion law in determining the collateral estoppel effect of a federal conviction. Ultimately, Judge Friendly relegated his discussion to dictum by noting that the choice of law question had no bearing on the outcome. Since both New York and federal law accord collateral estoppel effect to a criminal conviction in a subsequent civil suit, the trial judge had erred, regardless of choice of law, in refusing to charge that Dominguez had an interest in the outcome of the criminal case. This error was deemed harmless, however, and the convictions in Frank were affirmed.
In the pending appeal, the choice of law issue requires fuller exploration. Even though New York and federal law both accept the general principle that a criminal conviction has collateral estoppel effect in a civil action, we cannot be certain that the two bodies of law would be congruent in their application of the collateral estoppel doctrine to the ...