U.S. v. Varoudakis

• Decision Date: 01 August 2000
• Docket Number: No. 99-1695,99-1695
• Parties: (1st Cir. 2000) UNITED STATES OF AMERICA, Appellee, v. GEORGE VAROUDAKIS, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 113

233 F.3d 113 (1st Cir. 2000)

UNITED STATES OF AMERICA, Appellee, v. GEORGE VAROUDAKIS, Defendant, Appellant.

No. 99-1695.

United States Court of Appeals, For the First Circuit.

Heard Aug. 1, 2000.

Decided December 5, 2000.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS.

Hon. Richard G. Stearns, U.S. District Judge.

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Diana K. Lloyd, Assistant U.S. Attorney, with whom Donald K. Stern, U.S. Attorney was on brief for appellee.

Kimberly Homan, with whom Sheketoff & Homan was on brief for defendant, appellant.

Before Selya, Circuit Judge, Lipez, Circuit Judge, and Casellas,^* District Judge.

LIPEZ, Circuit Judge.

This case requires us to decide a familiar but difficult issue about the admissibility of prior bad act evidence under Federal Rules of Evidence 404(b) and 403. The government alleged that defendant George Varoudakis, charged with arson and conspiracy to commit arson in violation of 18 U.S.C. 844(i) and 18 U.S.C. 371, hired an acquaintance to burn down his failing restaurant, Destinations, in order to collect insurance proceeds. Following his conviction, Varoudakis argues on appeal that the district court abused its discretion by admitting evidence of a prior bad act, namely, testimony by Varoudakis's long-time girlfriend and co-conspirator in the Destinations arson, Cheryl Britt, that she saw Varoudakis set fire to his leased car sixteen months before the Destinations fire. We agree with Varoudakis that the evidence should have been excluded under Rule 403, and that the error was not harmless. Accordingly, we vacate the judgment.

I.

We recite the following undisputed facts or describe the testimony of certain witnesses.

In 1991, George Varoudakis opened a restaurant and night club called Destinations at One Congress Street in Boston. The establishment's general manager was Cheryl Britt, Varoudakis's girlfriend since the mid-1980s. Initially, Destinations succeeded financially, but business declined about a year after it opened. Varoudakis paid his suppliers cash on delivery and owed his workers back wages. His landlord claimed $600,000 in back rent and damages, and began eviction proceedings in December 1994.

In late 1994, after several years of carrying insurance that was inadequate under the terms of his lease, Varoudakis increased the contents insurance coverage for Destinations to $500,000 and bought business interruption insurance for $100,000. Cheryl Britt testified that Varoudakis told her he increased the insurance so he could burn the restaurant and collect the insurance proceeds.

In January 1995, Varoudakis filed for bankruptcy for One Congress Street, a corporation he controlled that owned Destinations.¹ In February, he filed for Destinations a separate company. Varoudakis initiated these filings under Chapter 11, allowing reorganization by the debtor-in-possession. In March, he filed for personal bankruptcy. Also in March, the One Congress Street petition was voluntarily converted to Chapter 7, which requires the debtor to transfer control to a bankruptcy trustee. On April 6, 1995, two days after the fire at Destinations, the Destinations petition was voluntarily converted to Chapter 7.

Britt testified that several weeks before the April 1995 fire, Varoudakis told her to stop paying Destinations's bills. As a result, Britt did not pay the February 1995 insurance bill. On March 27, 1995, the insurance policy was cancelled. At trial, Varoudakis relied on the cancellation to contest the government's theory that he burned Destinations to collect insurance. Britt, however, testified that Varoudakis did not know the insurance was cancelled.

Also sometime in March, Varoudakis began moving sound and lighting equipment from Destinations to a property he owned in Everett. Several employees worked long hours loading the equipment into trucks on the days and nights leading up to the fire. According to Britt and others, the removal included a drop-safe, tables, kitchen equipment, liquor, and paperwork. More than $100,000 worth of equipment was removed.

Britt and her sister, Diane Casey, testified that at the end of March 1995, Varoudakis hired Casey's boyfriend, Nick Adams, to torch Destinations. Britt said that Varoudakis told her to pay Adams $2,000 when the job was completed.

On the night of April 3, Varoudakis went to the Foxwoods Casino with two friends. Britt and Casey testified that he instructed Casey to switch shifts with Destinations's scheduled night manager, Mansour Alrisheq, on the night of April 3 because Alrisheq did not know of the planned arson. Casey also said Varoudakis told her to give Adams the keys to Destinations.

Destinations burned on April 4, 1995. Investigators determined that arson caused the fire. Varoudakis did not dispute this finding at trial.

In the early morning of April 4, apparently believing he had insurance, Varoudakis called his insurance agent from Foxwoods to report the fire. Britt testified that when Varoudakis learned that the fire damage to Destinations was not extensive, he was furious with Adams for having botched the job.

When interviewed about the fire in September 1995, Varoudakis, who was not then a suspect, told investigators that the fire might have been connected with the robbery of the Destinations drop-safe, which held between $5,000 and $7,000, and that a rival Greek club might be responsible. He also mentioned Casey and Adams as suspects.

Cheryl Britt initially denied to investigators that Varoudakis had hired Adams to set the fire. After she learned that Varoudakis had accused Casey and Adams, and after investigators told her she could be indicted, she implicated Varoudakis. In the course of these discussions with investigators in October 1995, Britt was promised immunity. However, she lied about her involvement in the fire and her relationship with Varoudakis to investigators and in two grand jury appearances. The government did not revoke her immunity. At Varoudakis's trial, Britt was one of the government's main witnesses.

On February 10, 1999, after a thirteen-day trial, a jury convicted Varoudakis of both arson and conspiracy to commit arson. At the end of the second half-day of deliberations, the jury wrote the court a note saying: "At this current time, we are at an impasse. Could you tell us how to proceed." The court told the jury to stop for the day and continue on the following day. After another day and a half of deliberations, the jury found Varoudakis guilty.

II.

At trial, the court allowed Cheryl Britt to testify that in December 1993 she saw Varoudakis set fire to a Cadillac he had leased. Britt said that Varoudakis parked the car on a piece of property he owned in Everett and that he left in another car to buy gasoline, with her as a passenger. When he returned, he threw newspapers into the back of the Cadillac, poured gasoline over them, and ignited the newspapers. Britt said Varoudakis told her that he torched the car because the lease had expired and he owed excess mileage charges, and that he expected insurance to cover the loss. On cross-examination of Britt, Varoudakis offered the car lease agreement to impeach Britt's testimony that the lease had expired. The agreement showed that the lease had 23 months remaining.² Following Britt's testimony, Officer Richard Gamby of the Everett Police Department testified that he investigated the burning of a Cadillac in December 1993 that matched Britt's description.

Varoudakis argues that the car fire evidence should not have been admitted under Rule 404(b) because its sole purpose was to demonstrate criminal propensity, or that the evidence should not have been admitted under Rule 403 because its probative value was substantially outweighed by its unfairly prejudicial effect. The government responds that the car fire evidence was properly admitted, or, if not, that its admission was harmless error.

We review the district court's determination that the prior bad act evidence was admissible under 404(b) and 403 for an abuse of discretion. See United States v. Balsam, 203 F.3d 72, 84 (1st Cir. 2000).

A. Standard for Admission under Federal Rule of Evidence 404(b)

Rule 404(b) provides that evidence of a defendant's prior bad acts may not be admitted to prove his criminal character or propensity to commit crimes of the sort for which he is on trial.³ To admit evidence of prior bad acts, a trial court must find that the evidence passes two tests. First, the evidence must have "special relevance" to an issue in the case such as intent or knowledge, and must not include "bad character or propensity as a necessary link in the inferential chain." United States v. Frankhauser, 80 F.3d 641, 648 (1st Cir. 1996). Second, under Rule 403, evidence that is specially relevant may still be excluded if its probative value is substantially outweighed by the danger of unfair prejudice.

As the text of Rule 404(b) indicates, prior bad act evidence may be specially relevant if, for example, it goes to the defendant's intent, knowledge, plan, absence of mistake, or identity. Additionally, prior bad acts may be admitted in conspiracy cases under 404(b) if they "explain the background, formation, and development of the illegal relationship." United States v. Escobar-De Jesus, 187 F.3d 148, 169 (1st Cir. 1999). See also United States v. Prevatte, 16 F.3d 767, 775-76 (7th Cir. 1994); United States v. Jones, 982 F.2d 380, 382-83 (9th Cir. 1993); United States v. Passarella, 788 F.2d 377 383-84 (6th Cir. 1986); United States v. Magnano, 543 F.2d 431, 435 (2d Cir. 1976). We have focused on two factors to determine the probative value of prior bad act evidence: "the remoteness in time of the other act and the degree of resemblance to the crime charged." Frankhauser, 80 F.3d at 648, quoting United States v. Fields, 871 F.2d 188, 197 (1st Cir. 1989).

B. Applying Rule 404(b)

1. The...