United States v. Fabric Garment Co.

• Decision Date: 13 September 1966
• Docket Number: Docket 30404.,No. 462,462
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. FABRIC GARMENT CO., Inc., Mayflower Manufacturing Corp., Joseph Abrams and Murray Berman, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

366 F.2d 530 (1966)

UNITED STATES of America, Plaintiff-Appellee, v. FABRIC GARMENT CO., Inc., Mayflower Manufacturing Corp., Joseph Abrams and Murray Berman, Defendants-Appellants.

No. 462, Docket 30404.

United States Court of Appeals Second Circuit.

Argued June 24, 1966.

Decided September 13, 1966.

Louis A. Tepper, New York City (Gainsburg, Gottlieb, Levitan & Cole, New York City, with him on the brief), for appellants.

Louis S. Paige, Attorney, Department of Justice, Washington, D. C. (John W. Douglas, Asst. Atty. Gen. of United States; Alan S. Rosenthal, Attorney, Department

of Justice, Joseph P. Hoey, U. S. Atty., for Eastern District of New York, Brooklyn, N. Y., and Carl Golden, Asst. U. S. Atty., on the brief), for appellee.

Before MOORE, FRIENDLY and FEINBERG, Circuit Judges.

MOORE, Circuit Judge:

Fabric Garment Co., Inc. (Fabric), Mayflower Manufacturing Corp. (Mayflower), Joseph Abrams and Murray Berman appeal from a judgment for money damages entered against them in a conversion action tried without a jury in the District Court for the Eastern District of New York.

The plaintiff-appellee, the United States, through the New York Quartermaster Procurement Agency, during the course of 1951 had entered into four contracts with Fabric for the manufacture of Eisenhower military jackets. Under the terms of the contracts, the Government furnished Fabric with bolts of 18 oz. O. D. (Olive Drab) wool serge, out of which the jackets were to be made. Title to the material remained in the Government. Fabric was obliged to return to the Government all scrap and surplus material not returned in the form of acceptable jackets.

Fabric received a total of 578,147 linear yards of 56" wide cloth and 141,336 linear yards of 56" wide cloth, or, in all, the equivalent of 709,159 yards of 56" wide cloth. Fabric returned 454,814 finished jackets, numerous sample jackets, and 89,238 lbs. of clippings. The clippings returned were the equivalent of 79,322.66 yards of 56" cloth.

The gist of the Government's complaint is that Fabric did not return as jackets or as scrap all of the material furnished to it, but withheld and converted considerable amounts of the material to its own use. The complaint stated two claims: first, that Fabric, its president Hyman, and its secretary Abrams, had converted some 46,451 yards of the cloth; and second, that the same defendants, together with Mayflower and its president Murray Berman, had converted and sold approximately 19,000 yards of the same cloth, selling it to Alert Trading Corp. and David Q. Hartman.¹

The trial court found after a trial which lasted over five weeks that appellants had failed to account for 39,822 yards of 56" cloth,² of which the court estimated 23,408 yards to be in the form of yard goods worth $6.12 a yard, and 16,414 yards to be in the form of scrap, clippings, and goods damaged in weaving or manufacture, worth a total of $1,846.50. The court accordingly awarded judgment against Fabric and Abrams³ on the first claim in the amount of $145,103.46, with interest from July 21, 1952. The court found that Fabric through Abrams had supplied Mayflower with 19,551 7/8 yards of Government serge which Mayflower in turn sold although its president Berman knew that the serge had been converted by Fabric. The court accordingly awarded judgment against Fabric, Abrams, Mayflower and Berman on the second claim, in the amount of $119,657.47 plus interest from August 20, 1951.

1. The Use of the Prior Criminal Convictions.

In 1954, Abrams, Hyman, Fabric, Mayflower, Berman, Alert Trading Corp. and Hartman were indicted for unlawfully selling approximately 19,000 yards of Government-owned wool serge, in violation of 18 U.S.C. § 641, and for conspiring to defraud the Government and to make false statements to the Government in violation of 18 U.S.C. § 1001. In a separate indictment, joined with the first for purposes of trial, Abrams, Hyman and Fabric were charged in eight counts with making false statements as to the disposition of Government-owned wool serge, in violation of 18 U.S.C. § 1001. Both indictments concerned the same wool serge furnished to Fabric by the New York Quartermaster Procurement Agency which is the subject of the present action for conversion. The jury acquitted Alert Trading Corp. and Hartman; the other defendants were convicted on all counts charged. On appeal, we reversed for lack of evidence all of the convictions of Hyman and the convictions of Fabric and Abrams on two of the eight false statement counts. All other convictions were affirmed. United States v. Fabric Garment Co., 262 F.2d 631 (2d Cir. 1958), cert. denied, 359 U.S. 989, 79 S.Ct. 1117, 3 L.Ed.2d 978 (1959).

In the present action for conversion, the Government moved for summary judgment on the grounds that many of the critical issues had been conclusively determined against the defendants in the criminal action. After careful analysis, the trial court denied the motion in part and granted it in part. It held that the 18 U.S.C. § 641 conviction did not conclusively determine that 19,000 yards of serge were converted by Fabric, Abrams, Mayflower and Berman, since the exact amount converted was not a necessary element of the criminal conviction and was not "`distinctly put on issue and directly determined' in the criminal prosecution." Emich Motors Corp. v. General Motors Corp., 340 U.S. 558, 569, 71 S.Ct. 408, 414, 95 L.Ed. 534 (1951). However, the court held that the § 641 conviction determined that Fabric, Mayflower, Abrams and Berman unlawfully, willfully, and knowingly sold, conveyed and disposed of wool serge made under contract for the Government. The court also held that the § 1001 convictions determined that Fabric and Abrams unlawfully, willfully and knowingly made materially false and fraudulent statements as to the amounts of inventory on hand under certain contracts and as to whether they had returned as jackets or as scrap all the material furnished to them by the Government.

Appellants contend that the trial court erred in holding that the previous criminal convictions determined these issues for the purposes of this case. They maintain that the trial court should have applied the law of New York with respect to the effect of previous judgments, under which law previous criminal convictions are no more than prima facie evidence of the material facts involved. Schindler v. Royal Ins. Co., 258 N.Y. 310, 314, 179 N.E. 711, 80 A.L.R. 1142 (1932). We do not need to decide whether the Schindler rule, the weakness of which was recognized by the Schindler court itself, is still the law in New York, see Hinchey v. Sellers, 7 N.Y.2d 287, 197 N.Y.S. 2d 129, 165 N.E.2d 156 (1959), since it is clear to us that the trial court properly applied federal rather than state law. We have previously held that in an action to enforce a federal claim, here the Government's rights in its own property, the effect to be given a prior federal judgment is a matter of federal law. See Zdanok v. Glidden Co., 327 F.2d 944, 956 (2d Cir.), cert. denied, 377 U.S. 934, 84 S. Ct. 1338, 12 L.Ed.2d 298 (1964).

Under federal law, a prior criminal conviction will work an estoppel in favor of the Government in a subsequent civil proceeding with respect to "questions `distinctly put in issue and directly determined' in the criminal prosecution. * * * In the case of a criminal conviction based on a jury verdict of guilty, issues which were essential to the verdict must be regarded as having been determined by the judgment." Emich Motors Corp. v. General Motors Corp., 340 U.S. 558, 569, 71 S.Ct. 408, 414, 95 L.Ed. 534 (1951); see Local 167, Int'l Bhd. of Teamsters etc. v. United States, 291 U.S. 293, 298, 54 S.Ct. 396, 78 L.Ed. 804 (1934). The trial court, after the careful examination of the record as required by Emich, correctly determined the collateral estoppel consequences of the previous convictions.

We find no merit in appellants' contention that no weight should be attributed to the previous convictions because of allegedly improper suppression by the Government of exculpatory evidence during the course of the criminal trial.

2. The Paper Test, the Burden of Proof, and the Trial Court's Evaluation of the Evidence.

The principal issues at trial were the amount of material withheld by the defendants, and the nature of the material withheld — whether yard goods, or the much less valuable scrap.

The amount of material furnished by the Government was known. The amount returned by the defendants in the form of scrap was readily ascertainable, and the amount contained in sample jackets was not large enough to be significant. The most difficult problem was to ascertain the amount used or rendered unreturnable in the manufacture of the 454,814 finished jackets. Some reference to Fabric's manufacturing process is necessary to an understanding of the nature of the proof at trial.

The Quartermaster Corps furnished Fabric with master patterns of the different parts to be produced in the manufacture of the jackets. There were 25 parts to each jacket. From copies of the master patterns, Fabric caused working patterns to be cut out of heavy paper cardboard. The cloth to be cut was laid out in 80 layers or lays, and working patterns were placed on the top lay with a view towards maximum use of cloth. The shape of the patterns was transposed to the top lay by drawing a piece of chalk around the working patterns. The cutter then cut out the parts, using an electric knife to cut through all eighty thicknesses at once, and attempting to follow the middle of the chalk line.

The Government set out to demonstrate the number of yards used in the manufacture of the jackets by the following "paper test." Ozalid reproductions were made from the master patterns which had been furnished to Fabric. Paper patterns for each part for each size were then cut in triplicate, using the Ozalid reproductions as a guide. The paper...