Lionti v. Lloyd's Insurance

709 F.2d 237, 13 Fed. R. Serv. 937

• Court: Court of Appeals for the Third Circuit
• Decided: June 10, 1983
• Docket: No. 81-1659
• Status: Published

Opinions

OPINION OF THE COURT

GARTH, Circuit Judge.

This appeal presents for our review two claimed evidentiary errors which occurred during a thirteen-day trial. The plaintiffs Filippo and Carmela Lionti (“Lionti”) contend that these two alleged errors should result in the grant of a new trial. We cannot agree.

On September 20, 1978, The Italian Villa, a restaurant and bar owned by Lionti, burned to the ground. Lionti brought this action against his insurer¹ after the insurer disallowed his claim for policy proceeds. The insurer refused Lionti’s claim on the ground that Lionti set or procured the setting of the fire. The jury returned a verdict in favor of the insurance company. Lionti appeals from an order of the district court denying his motion for a new trial.² Because we find no error affecting a substantial right of the parties, we affirm.

I.

The Italian Villa was a single story stone structure with a full basement containing a restaurant and bar. At roughly 5:00 a.m. on September 20, 1978, a violent explosion erupted in the building, shattering windows in a house nearby and catapulting debris over 100 feet away.

On November 16, Lionti submitted proofs of loss to his insurance company. These proofs of loss asserted losses of $266,606 for the building itself, $114,256 for its contents, $83,850 for interruptions of business income, and affirmed that the origin of the fire was “unknown to assured.” Lionti initiated this action on June 6, 1979, claiming that the insurer had not reimbursed Lionti for the losses sustained, although the insurer had paid Lionti’s mortgagee, the First Mortgage Company of Pennsylvania, $180,-000 under the policy’s loss-payable clause. On September 21 the insurer counterclaimed against Lionti for $180,000, the loss paid to First Mortgage, as subrogees of First Mortgage’s rights. The case proceeded to trial on February 13, 1980.

A.

Evidence adduced at trial was overwhelming that the September 20 fire had been set intentionally. Firemen entering the structure found gasoline vapors in the basement so strong that they were unable to remain in the building. Burn patterns on the floor of the restaurant indicated that the fire had been spread by a flammable liquid. Inside the restaurant’s kitchen door lay an extension cord plugged into a wall outlet and terminating in an electric charcoal lighter; lying beneath the charcoal lighter were two plastic containers smelling of gasoline. Firefighters removed from the building these two containers and three others; laboratory tests proved at least four of these five containers to contain gasoline. Carpeting and debris throughout the restaurant were also impregnated with gasoline. In the opinion of several experts, the magnitude of the explosion, the residue of gasoline and location of gasoline containers, and the presence of an electric starter coil left little doubt that the fire was of incendiary origin.

Evidence that Lionti was responsible for the fire was also compelling, although largely circumstantial. The evidence of Lionti’s complicity fell into three categories.

First, testimony indicated that the Italian Villa was financially troubled during the months before the fire. Sales during the month of August, 1978, were $16,324, substantially less than the August 1977 sales of $25,586. Sales during the nine months preceding the fire were only $133,000, again considerably less than the prior nine months’ sales of $217,000. Based on Lion-ti’s corporate 1978 tax return, an expert estimated Lionti’s yearly expenses at $84,-000; Lionti had available cash, however, of only $58,000, resulting in a cash flow shortage of $26,000. Nine checks issued by Gina Lionti, daughter of Filippo and Carmela, in August and September of 1978 were returned for insufficient funds. By August of 1978, the Italian Villa had fallen behind in payments to at least seven creditors, including three banks or savings and loan associations. Real estate, sales, and payroll taxes for the 1977 tax year were all delinquent.

Second, nine days before the fire, the First Mortgage Company of Pennsylvania notified Lionti that First Mortgage intended to call in a loan of $392,000 and foreclose on its security interests, including the restaurant and Lionti’s liquor license. Five days before the fire, Lionti entered into an oral agreement with First Mortgage stipulating that the restaurant would be put up for sale by September 25, and would be sold within ninety days thereafter. On Tuesday, September 19, Lionti was to sign documents memorializing this agreement. No agreement was ever signed. On Wednesday, September 20, the Italian Villa burned to the ground.

Third, several arrangements concerning Lionti’s insurance raise strong inferences of Lionti’s involvement in the September 20 fire. On September 12 — one day after First Mortgage notified Lionti of its intention to foreclose — Gaetano Lionti, son of Filippo and Carmela, approached an insurance agent and sought to purchase an additional $500,000 of fire insurance for the restaurant. After the fire, the agent reported this solicitation to the Pennsylvania fire marshal on his own accord. Asked why he approached the fire marshal, the agent explained, “Well, it’s rather unusual when somebody requests a large amount of fire insurance in addition to what they may already have and then a couple of days later there is a fire.” In addition, on September 14, Gina Lionti appeared in the office of Lionti’s insurance agent and — for the first time in a two-year history of delinquent payments — prepaid three months’ insurance premiums in advance of the date payment was due.

In the opinion of the insurer’s expert, these facts, coupled with the absence of any indication of forcible entry, evidence that only Lionti had keys to the building and the alarm system, the early morning hour of the fire, and the absence of indicators that the fire had been set for revenge, fell “into a classic pattern of an insurance fraud fire.”

For his part, Lionti maintained that the fire harmed rather than assisted him financially, suggesting an absence of motive,³ and implied that the insurer colluded with First Mortgage to recover from Lionti, moneys that the insurer owed First Mortgage as a loss mortgage payee named in the policies.⁴ In addition, Lionti suggested that a disgruntled employee, Brice McLane, may have ignited the fire in revenge for his discharge from employment. The issues presented by this appeal arise principally as a consequence of McLane’s testimony.

B.

McLane had been hired by Lionti in July or August of 1978 to promote business. After several disputes with McLane over a bartender, McLane was paid $300 for his services and was discharged. The district court permitted Gina Lionti to testify to several declarations of McLane suggesting a motive of revenge. According to Gina, McLane stated, “No, she [the bartender] don’t go. She’s got to stay here.... Things are going my way, otherwise I will blow up the whole place with dynamite.”

In order to rebut the inference that McLane, and not Lionti, started the fire the insurer called McLane to testify. Asked whether McLane recalled an argument or discussion with Gina Lionti during the summer of 1978, McLane asserted the fifth amendment privilege against self-incrimination. Nevertheless, taking what counsel for the insurer, David Strawbridge, characterized during oral argument as “a calculated risk,” Strawbridge pressed on with additional questions. McLane denied threatening to harm Lionti or to burn, dynamite, or destroy the restaurant. However, in answer to the following question — “Did you have anything to do with setting the fire, Mr. McLane?” — McLane responded, “I refuse to answer that question on the grounds it may tend to incriminate me.”⁵

Strawbridge immediately approached the bench and informed the court that only an hour or so earlier, McLane had told Straw-bridge and the insurer’s investigator, William Miller, that McLane “did not have anything to do with the setting of the fire.” Strawbridge consequently sought a ruling that McLane be compelled to answer. Accordingly, the district court excused the jury and conducted a hearing on the admissibility of McLane’s testimony.

McLane proceeded to confirm that he told Strawbridge and the investigator, Miller, that McLane was not involved in the fire. The court thereupon ruled that the insurer would be permitted to plead surprise and impeach the inference drawn from McLane’s assertion of the fifth amendment privilege. In particular, the court ruled that McLane could be asked whether, within the previous hour, McLane told Straw-bridge and Miller that he, McLane, had nothing to do with the fire. If McLane answered this question in the affirmative, the court ruled, McLane could then be asked whether this prior statement was true. Finally, the court ruled that McLane had not waived the fifth amendment privilege by virtue of any statements made to Strawbridge and Miller.

Still out of the presence of the jury, Strawbridge asked the questions authorized by the court. McLane confirmed that he told Strawbridge and Miller several hours earlier that he, McLane “had nothing to do with the fire.” Strawbridge thereafter proposed to question McLane along these lines in the presence of the jury. The court agreed, but directed counsel “not to ask [McLane] questions where he has said he will invoke his privilege.”

Before the jury, McLane again denied threatening Lionti. Strawbridge then asked whether McLane recalled “me asking you if you were in any way connected with the fire, involved with the fire.” McLane responded, “I refuse to answer on the grounds it would tend to incriminate me.” Strawbridge did not ask the court to compel an answer to this question.

Thus thwarted in his desire to impeach McLane by eliciting from McLane a prior statement inconsistent with McLane’s reasserted privilege against self-incrimination, Strawbridge called the investigator, Miller, to the stand. Counsel for Lionti objected to Miller’s testimony in total.⁶ During a hearing on the admissibility of Miller’s testimony, Miller related that McLane told Miller that McLane had been approached by Gae-tano Lionti with questions concerning how one would set a fire. According to Miller, McLane reported that he had sketched on a napkin the plan for a fire that “could cause the total destruction of the building.” Miller also proposed to recite the contents of McLane’s remarks made in the corridor to the effect that McLane had nothing to do with the fire, and proposed to testify that McLane sought to obtain money in exchange for favorable testimony first from the insurer, and then from Lionti.

At the conclusion of Miller’s voir dire, the court permitted Miller to testify only for the purpose of “impeaching] statements made by Mr. McLane that would be inconsistent with statements he made to Mr. Miller.” Before the jury, Miller testified to McLane’s remarks in the corridor to the effect that McLane was not involved in the commission of the fire. Strawbridge offered Miller’s account of McLane’s remarks not for the truth of the matter asserted, but for the fact that McLane made them and that they were inconsistent with McLane’s subsequent assertion of the fifth amendment privilege.

Miller also testified to two other out-of-court declarations of McLane. Asked what McLane told Miller “with respect to his interest in compensation [from the insurers] as concerned his testimony,” Miller replied:

He indicated to me that he had information concerning the cause and origin of the fire and he had information concerning questions that had been brought to him by members of the Lionti family concerning the fire, concerning how someone would set a fire.

The court sustained Lionti’s objection to this answer, granted Lionti’s motion to strike, and instructed the jury “to disregard it.”

Asked about McLane’s offer to Lionti to give favorable testimony in exchange for money. Miller began to relate that McLane stated he had information that would “wrap the case up for the insurance company.” Before Miller could utter the words “wrap the case up for the insurance company,” the court admonished Miller to stop speaking. Nevertheless, the court later permitted Miller to testify, over Lionti’s objection, to McLane’s assertion that McLane’s information would “wrap the case up for the insurance company and the Lion-tis were not dumb and they would be willing to make a deal.” The court did not, however, permit Miller to relate the substance of the information that, in McLane’s words, would “wrap the case up for the insurance company.”

At the conclusion of Miller’s testimony, the court instructed the jury that Miller’s testimony could be used only to impeach McLane’s credibility, an instruction reiterated during the court’s charge to the jury.⁷ The district court also charged that McLane’s assertion of the privilege against self-incrimination “is to have no evidentiary value at all.” See note 9 infra.

The jury returned a verdict in favor of the insurance company. The court denied Lionti’s subsequent motion for a new trial or for a judgment notwithstanding the verdict, noting that “[ajlthough the defendants’ case relied exclusively on circumstantial evidence, it was of more than sufficient volume and weight to justify the finding that the Liontis had set the fire or caused it to be set.”

II.

Lionti’s brief on appeal raises only two issues. Both concern Miller’s testimony. Neither concerns McLane’s assertion of his fifth amendment privilege.⁸ First, Lionti seeks a new trial based on Miller’s account of McLane’s statement that questions “had been brought to [McLane] by members of the Lionti family concerning ... how someone would set a fire.” The district court granted Lionti’s belated objection and motion to strike. Nevertheless, Lionti argues that the court’s instruction to disregard this statement did not purge the trial of prejudice.

Second, Lionti maintains that Miller’s recitation that McLane had evidence that would “wrap the case up for the insurance company,” and for which Lionti “would be willing to make a deal,” requires a new trial. The clear inference, Lionti asserts, “is that the Liontis would pay McLane to keep quiet because the Liontis had started the fire” (Appellants’ Brief, at 13-14). Lionti argues that by so testifying, Miller violated the district court’s admonition not to disclose the contents of the information McLane possessed that would “wrap the case up for the insurance company.” In addition, Lionti claims that McLane’s outburst in this respect requires a new trial.

III.

We need dwell only briefly on Miller’s account of McLane’s offers to “sell” favorable testimony. As Lionti properly observes, the first of Miller’s contested statements — relating McLane’s out-of-court declaration that Lionti approached McLane with questions “concerning how someone would set a fire” — was hearsay. Because the district court granted Lionti’s motion to strike and instructed the jury to disregard this statement, we must ask whether Miller’s statement was so prejudicial as to require a new trial.

“The general rule is that if evidence which may have been taken in the course of a trial, be withdrawn from the consideration of the jury by the direction of the presiding judge, that such direction cures any error which may have been committed by its introduction.” Throckmorton v. Holt, 180 U.S. 552, 567, 21 S.Ct. 474, 480, 45 L.Ed. 663 (1901). In addition, we are instructed by Fed.R.Civ.P. 61, and by 28 U.S.C. § 2111 (1976), that no error or defect shall be ground for granting a new trial “unless refusal to take such action appears to the court inconsistent with substantial justice.” See Mercer v. Theriot, 377 U.S. 152, 154, 84 S.Ct. 1157, 1159, 12 L.Ed.2d 206 (1964) (per curiam); Warrick v. Brode, 428 F.2d 699 (3d Cir.1970) (per curiam).

The district court found that evidence of Lionti’s complicity in the fire was, although largely circumstantial, “overwhelming,” App. at 162, and we cannot disagree. Evidence that Lionti sought to purchase an additional $500,000 of fire insurance nine days before the fire and one day after First Mortgage communicated its intention to foreclose, and that Gina Lionti, for the first time in two years (and six days before the fire), tendered an insurance premium before it was due, was more than ample to link Lionti to the fire. We are satisfied that this single unresponsive outburst by Miller, in the context of a thirteen-day trial, followed immediately by the court’s curative instruction, did not affect the jury’s verdict.

Miller’s second statement — recounting McLane’s suggestion that McLane had information that would “wrap the case up for the insurance company” — is charged by Lionti to violate the district court’s earlier ruling not to disclose the substance of McLane’s remarks, and to be so prejudicial that reversal of the jury verdict is required. First, our reading of the record discloses that the district court’s admonition was not breached. Miller did not reveal the substance of McLane’s information that would “wrap the case up for the insurance company.”

Second, in order to appreciate the context in which this statement was made, it must be remembered that the insurance company had called McLane as a witness to testify that he, McLane, had stated to Miller that McLane “did not have anything to do with the setting of the fire.” McLane, however, had remained silent, and the district court did not compel him to testify. In its final instruction to the jury, the court instructed that McLane’s “exercise of his constitutional privilege [had] no evidentiary value at all.”⁹

Thus, to the extent that the district court removed from the jury’s consideration McLane’s claim of privilege, Miller’s testimony as to what McLane had told him— that McLane “did not have anything to do with the setting of the fire” — was hearsay.

In light, however, of the overwhelming evidence adduced during trial, we are satisfied that Miller’s statement, while erroneously admitted, was harmless. See Fed.R. Evid. 103(a).¹⁰ While the court admitted Miller’s testimony erroneously in this one respect, it was not error to admit Miller’s testimony which related to McLane’s eagerness to “sell” information first to the insurance company, and then to Lionti. McLane’s willingness to sell his information was available for legitimate consideration by the jury in assessing his credibility.

Thus, we find no error in the admission of this segment of Miller’s testimony. Furthermore, we are satisfied that even were it otherwise, Miller’s later testimony, even in combination with his earlier one-sentence outburst, would constitute harmless error under the standard previously addressed, and would therefore be insufficient to warrant a new trial.

IV.

The March 6, 1981 order of the district court will be affirmed.

1 . The defendants Charles Berkley-Portman, representing a number of individual insurers known colloquially as Lloyd’s of London, and the Dominion Insurance Co., issued policies of insurance covering the property which the parties stipulate were “in full force and effect subject to all [their] terms and conditions” at the time of the loss. The defendants are identified hereinafter as the “insurer” or “insurance company.”

2 . Although the order of the district court from which Lionti appeals denies Lionti’s motion both for a new trial and for judgment notwithstanding the verdict, the record does not disclose a motion for directed verdict at the close of the evidence. The denial of Lionti’s motion for judgment notwithstanding the verdict is therefore not before us. Fed.R.Civ.P. 50(b); see Lowenstein v. Pepsi-Cola Bottling Co., 536 F.2d 9, 10-12 (3d Cir.), cert. denied, 429 U.S. 966, 97 S.Ct. 396, 50 L.Ed.2d 334 (1976).

3 . Lionti’s loan agreement with First Mortgage included a prepayment penalty clause. According to Edward Sides, president of First Mortgage, the settlement between First Mortgage and the insurer constituted a “prepayment” exposing Lionti to a prepayment penalty. In addition, Lionti’s proofs of loss for those claims respecting the contents of the building and business interruption exceeded the policy limits of $50,000.

4 . On April 12, 1979, the insurer and First Mortgage executed a “release and agreement of assignment,” according to which the insurer agreed to pay First Mortgage $180,000 under the policy’s loss-payable clause. This payment formed the basis for the insurer’s counterclaim against Lionti. First Mortgage, in turn, released the insurer from all claims due under the policy. The agreement recited that First Mortgage “intends to exercise its rights of foreclosure”; the agreement also included a formula permitting the insurer to share in moneys obtained by First Mortgage as the result of a foreclosure. Because First Mortgage held security interests in properties other than the restaurant, and because Lionti owed First Mortgage considerably more than $180,000, First Mortgage anticipated foreclosing on additional property. The insurer, in turn, anticipated sharing in this income, and thereby recouping some, if not all, of the $180,000 paid over to First Mortgage. Lionti hoped the jury would draw an inference that as a result of a sweetheart deal between the insurer and First Mortgage, the insurer had nothing to lose, and much to gain, by disclaiming liability.

5 .McLane testified that he had retained counsel in Delaware who “was not available to come with me today on such short notice,” and who had advised McLane to “take the Fifth Amendment on any questions concerning my involvement in the fire.” McLane informed the court that he had been arrested for charges growing out of the fire and was under investigation by the Treasury Department for possible involvement in the fire.

6 . Counsel objected as follows:

MR. SEIGLE: Your Honor, do I object on the record at this point? Because, you know, I object to the whole line of testimony of this witness with respect to his testimony as against the witness yesterday, Brice McLane.

7 . The district court charged as follows:

[Y]ou are not to use anything that William Miller said about his prior conversation with Brice McLane to establish what Brice McLane actually said, or to establish any fact for one side or the other. The only purpose for Mr. Miller’s testimony was that of discrediting Brice McLane as a witness, if in fact you think that it did discredit him.

8 . Although in text we have set forth, in some detail, the evidentiary development giving rise to the two claims of error now asserted by Lionti, we have done so only to place Miller’s testimony, challenged by Lionti, in its proper context. Thus, it must be remembered that despite the evidentiary setting which resulted in Miller’s testimony, Lionti in this appeal has never asserted any error based on McLane’s claim of a fifth amendment privilege. Indeed, while Lionti advanced an argument on this point to the district court in a post-trial motion, it has evidently been abandoned on appeal. Our disposition of.this appeal makes it unnecessary to address this issue. See note 10 infra.

⁹

There is one more thing you should bear in mind with regard to this particular witness Brice McLane. He exercised his privilege against self-incrimination. That was his right and you are not to infer anything adverse to either the plaintiffs or anything adverse to the defendants by reason of what Brice McLane did. There may very well be a myriad of reasons why he would choose to exercise his privilege against self-incrimination, and it would be improper for you to make any assumption or to try to guess or to surmise or puzzle out why he chose to exercise that privilege. Accordingly, you are directed that Brice McLane’s exercise of his constitutional privilege is to have no eviden-tiary value at all.

10 . Thus, contrary to the dissent’s argument, we do not address the issue whether McLane’s exercise of a fifth amendment privilege has evidential value.