Malek v. Federal Insurance

MINER, Circuit Judge:

Plaintiffs-appellants-cross-appellees Eliezer Moshe Malek and Malke Malek (“the Ma-leks”) appeal from a judgment entered after a jury trial in the United States District Court for the Southern District of New York (Gagliardi, J.) dismissing their complaint. The Maleks, a married couple, commenced this action to recover the proceeds of their fire insurance policy after defendant-appel-lee-cross-appellant Federal Insurance Company (“Federal”) rejected their claim. The district court dismissed the Maleks’ complaint after the jury returned a verdict, the jury having found that the Maleks concealed or misrepresented material facts during Federal’s investigation of the fire that destroyed their property and that the Maleks intentionally caused the fire.

The Maleks contend that the district court erred in, inter alia, excluding the relevant testimony of a social worker who was prepared to testify on the basis of her personal knowledge and business records; sequestering the Maleks’ expert during the testimony of the defendants’ expert, where the presence of the Maleks’ expert was essential to the Maleks’ cross examination of the defendants’ expert; and permitting defense counsel to cross examine a witness about his religious affiliation and the religious affiliation of his clients. For the reasons set forth below, we agree with the Maleks that the district court erred in making these rulings and that these errors substantially affected the outcome of the trial.

BACKGROUND

A. The Fire

The Maleks owned a house in Highland Mills, New York and rented it to Mr. and Mrs. Leo Agrillo. The house was insured by defendant-appellee-cross-appellant Sea Insurance Company, Limited (“Sea”), a subsidiary of Federal. In 1988, the Maleks commenced a landlord-tenant proceeding against the Agrillos and in June 1989 obtained a warrant of eviction against them. On July 5, 1989, the Agrillos’ eviction date, Deputy Sheriff Anthony Patricola inspected the house and confirmed that it was vacant.

On July 10, 1989, the house was destroyed by fire. The Maleks submitted a claim for the fire loss to Sea for $264,766. In March 1991, after a lengthy investigation, Federal rejected the Maleks’ fire loss claim.¹ The Maleks brought an action against both Sea and Federal for breach of the fire insurance policy issued by Sea.

B. The Trial

During trial, defendants contended they were not obligated to pay the Maleks’ fire loss claim because the fire was incendiary in origin; the Maleks were responsible for the arson; and the Maleks had misrepresented and concealed material facts and circumstances during the investigation of the fire. The Maleks argued that they did not lie or misrepresent facts to the insurance companies during the course of the investigation and that the fire was not a result of arson. Rather, the Maleks alleged that the fire may have been caused by an electrical malfunction or accidentally may have been set by the Agrillos. The Maleks sought to demonstrate that the Agrillos may have been responsible for the fire because the Agrillos engaged in cult activities involving the use of candles and fire; a young woman had suffered second degree burns on the premises some time before the July 10 fire; and the Agrillos had access to and were present in the house after July 5, 1989 — the date Deputy Sheriff Patri-cola confirmed that the house was vacant — • and before July 10, 1989 — the date of the fire.

1. The Testimony of the Social Worker

To support their contention that the Agril-los may have set the fire, the Maleks attempted to introduce the testimony and case notes of Carol Barber, a social worker for the Orange County Department of Social Services who handled the case file concerning the Agrillo children. Barber was prepared to testify that the Agrillos had continued access to the premises; the Agrillos engaged in cult activities; and that a young woman had sustained second-degree burns at the premises. She also would have supported her testimony that the Agrillos had access, to the house after the eviction date by submitting photographs, taken in the house by Mrs. Agrillo on July 6 or 7, 1989, which depicted a container of milk that had not yet reached its expiration date. The district court excluded Barber’s testimony in toto.

2. Sequestering the Maleks’ Expert Witness

To show the absence of arson, the Maleks presented the testimony of Thomas Curley, a taxi driver on duty in the vicinity at the time of the fire. Curley claimed that the color of smoke from the fire was white. The color of the smoke was relevant because black smoke indicates the presence of accelerants, which are often used by arsonists, while white smoke indicates the absence of accelerants.

To refute this testimony and to establish arson as the cause of the fire, the defendants called a fire expert, David Redsicker. The Maleks sought permission from the court to have their fire expert, Fire Chief George Friedell, present in the courtroom during Redsicker’s testimony in order to aid their counsel in cross examining Redsicker. The district court denied the Maleks' request and ordered all witnesses to leave the courtroom.

Redsicker testified that the fire was caused by arson. Although a laboratory analysis of debris found no accelerants present, Redsicker asserted that either water from fire fighting could have washed accelerants away or accelerants could have burned off due to the intensity of the fire. After returning to the courtroom, Friedell testified that accelerants could not be washed away and that, despite the intensity of the fire, small, solid particles would remain. The Maleks also disputed whether Redsicker conducted a proper inspection of the scene after the fire. The Maleks contended that Redsicker failed to “overhaul,” or to sift through, all of the debris and failed to look for evidence such as candles or other evidence of cult activities.

Redsicker introduced several photographs taken at the scene of the fire. The photographs showed that copper wiring, but not hollow copper tubing, had melted. Redsicker testified that the fire was “very intense,” a conclusion reached during his trial testimony but not explicitly stated in his reports provided to the Maleks prior to trial. This portion of his testimony was relevant because the melting of the copper wire indicated arson. However, Redsicker’s theory did not explain why the hollow copper tubing failed to melt despite the intensity of the fire. Friedell’s absence from the courtroom precluded him from informing the Maleks’ counsel of this inconsistency. Counsel for the Maleks failed to cross examine Redsicker about why the copper tubing had not melted.

S. Impeaching a Witness by Using His Religious Beliefs

To rebut the defendants’ contention that they had a financial motive to set fire to the premises, the Maleks called an accountant, William Schneck, to testify as to their financial stability. During the cross examination of Schneck, the following colloquy took place:

Q. Was your principal a member of the Hassidic [sic] community in the business transaction you had with Mr. Malek?

[The Maleks’ Attorney]: Objection, your Honor.

THE COURT: Overruled.

A. Yes.

Q. Do you act as a CPA for other members of the Hassidic [sic] community?

[The Maleks’ Attorney]: Objection.

THE COURT: Overruled.

A. Not just Hassidic [sic] people.

Q. I didn’t ask you that.

A. In that respect, yes. There’s a number of people that I do that for.

Q. You’ve been a professor at Tuoro [sic] University for eight years, is that correct?

A. Yes.

Q. And that’s part of the Yeshiva University system, isn’t [it]?

[The Maleks’ Attorney]: Objection.

THE COURT: I’ll permit it.

A. It’s not a member, no.

Q. Isn’t it affiliated with organized Jewish institutions?

[The Maleks’ Attorney]: Objection.

THE COURT: Sustained.

The district court gave no limiting instruction to the jury to indicate that it was improper for the defendants to impeach Schneck’s credibility with evidence of his religious affiliations or beliefs.

After deliberating for approximately an hour-and-a-half, the jury delivered a verdict in favor of the defendants, and the district court dismissed the Maleks’ complaint.

DISCUSSION

A. Testimony of the Social Worker

The district court excluded Barber’s testimony, and it excluded her case notes on the ground they were not business records and thus were inadmissible hearsay. The business records exception to the hearsay rule allows for the admission of the following evidence for the purpose of proving the truth of its contents:

A memorandum, report, record, or data compilation ... of acts, events, conditions, opinions, or diagnoses, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity.

Fed.R.Evid. 803(6). We review a district court’s exclusion of hearsay for abuse of discretion. United States v. Torres, 901 F.2d 205, 234 (2d Cir.), cert. denied, 498 U.S. 906, 111 S.Ct. 273, 112 L.Ed.2d 229 (1990).

Barber’s case notes were records kept by the Orange County Department of Social Services in the regular course of business. These case notes were taken in the normal course of business, as Barber was the social worker responsible for the case file concerning the Agrillo children. The notes were made close to the time of the events they recorded and were, in part, based on Barber’s personal knowledge and observations. Thus, we find that Barber’s records should have been admitted under the business records exception to the hearsay rule. See United States v. Ray, 930 F.2d 1368, 1370 (9th Cir.1990) (testimony of a welfare fraud investigator about the contents of a welfare file was admissible under Rule 803(6)), cert. denied, 498 U.S. 1124, 111 S.Ct. 1084, 112 L.Ed.2d 1189 (1991); see also United States v. King, 613 F.2d 670 (7th Cir.1980) (social security investigative reports held admissible under Rule 803(6)).

We also conclude that the district court should have admitted Barber’s testimony about the use of fire in cult activities that took place on the premises during the Agril-los tenancy because her testimony would have been relevant. Evidence is relevant if it has “any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.” Fed.R.Evid. 401. As a general rule, “[a]ll relevant evidence is admissible.” Fed.R.Evid. 402.

Here, Barber was not permitted to testify regarding any personal knowledge she may have had bearing on the second-degree burns allegedly sustained by a woman who claimed to have been burned at the Agrillos’ house. Such testimony would have been relevant because it had a tendency to make the existence of the Maleks’ theory that the Agrillos were responsible for the fire more probable than it would have been had Barber not testified. Thus, because Barber’s testimony was. not prejudicial, cumulative, or misleading, see Fed.R.Evid. 403, the district court erred in excluding this relevant testimony.

We also find that the district court erred in preventing Barber from testifying about the photographs that Mrs. Agrillo took and sent to the Department of Social Services. Barber’s testimony about Mrs. Agrillo’s photographs and the photographs themselves would have contradicted the defendants’ argument that the Agrillos could not have started the fire because the fire occurred five days after Sheriff Patricola confirmed the house was vacant. Barber’s proffered testimony, combined with the photographs, also provided support for the Maleks’ theory that the Agrillos may’ have started the fire accidentally during one of their cult activities. The proffered testimony and photographs directly implicated the issues of opportunity and causation as it related to the defendants’ arson defense.

B. The Sequestering of the Maleks’ Expert Witness

Fed.R.Evid. 615 provides that a district court may sequester witnesses to prevent them from hearing the testimony of other witnesses. Rule 615(3) provides an exception for “a person whose presence is shown by a party to be essential to the presentation of the party’s cause.” The advisory committee notes specify that the exception contemplates “an expert needed to advise counsel in the management of the litigation.” Fed.R.Evid. 615(3) advisory committee notes; see Trans World Metals, Inc. v. South Wire Co., 769 F.2d 902, 911 (2d Cir.1985) (expert allowed to remain in the courtroom for the testimony of the adversary’s expert); see also Morvant v. Construction Aggregates Corp., 570 F.2d 626, 630 (6th Cir.) (“where a fair showing has been made that the expert witness is in fact required for the management of the case, and this is made clear to the trial court, we believe that the trial court is bound to accept any reasonable, substantiated representation to this effect by counsel”), cert. dismissed, 439 U.S. 801, 99 S.Ct. 44, 58 L.Ed.2d 94 (1978). We review the district court’s evidentiary ruling for abuse of discretion. Healey v. Chelsea Resources, Ltd., 947 F.2d 611, 620 (2d Cir.1991) (district court evidentiary rulings reviewed for abuse of discretion); see also Morvant, 570 F.2d at 630 (district court’s decision about whether to sequester witness reviewed for abuse of discretion).

The district court did not permit Friedell to remain in the courtroom during Redsicker’s testimony even though the Maleks’ counsel asserted that Friedell’s presence was necessary to assist him in preparing to cross examine Redsicker. The district court concluded that counsel could have prepared his cross examination in advance by using Red-sieker’s reports submitted before the trial but granted a ten-minute recess between the testimony of the two experts to permit the Maleks’ expert to confer with counsel.

In Trans World Metals, we approved a ruling permitting an expert to remain in the courtroom to hear the testimony of an adversary’s expert. In that case, an expert witness was permitted to remain in the courtroom during the direct testimony of the adversary’s expert and was later called to rebut the testimony of the adversary’s expert. We said:

[The expert] may well have been entitled to remain pursuant to the exception in Rule 615(3) for a person whose presence is essential to the presentation of a case.... He was not a fact witness whose recollection might have been colored by accounts of prior witnesses.

Id. at 911 (citation omitted). Here, Friedell also was not “a fact witness whose recollection might have been colored” by the testimony of other witnesses; rather, he was an expert whose assistance was important to the presentation of plaintiffs’ case and who should have been permitted to remain in the courtroom.

Under the circumstances revealed in this case, we find that the district court erred in sequestering Friedell. Our review of the record reveals that Redsicker’s testimony differed from his reports: Redsicker testified that the fire was an “intense fire” but did not make that specific finding anywhere in his report. Since this was an important finding bearing on the question of arson and was not made in Redsicker’s reports, Friedell’s presence in the courtroom was important to the presentation of the Maleks’ case, and a ten-minute recess was not an adequate substitute for his presence.

C. Impeachment of a Witness Using His Religious Beliefs

Fed.R.Evid. 610 provides that “[evidence of the beliefs or opinions of a .witness on matters of religion is not admissible for the purpose of showing that by reason of them nature [his] credibility is impaired or enhanced.” Over the Maleks’ repeated objections, the district court permitted Schneck to respond to defense counsel’s questions about whether his transactions with Malek involved other Hasidim, whether he had other Hasidic clients and whether his teaching position was part of the Yeshiva University system.

Because it is apparent from these questions that defense counsel attempted to show that Schneck’s character for truthfulness was affected by his religious beliefs and that such questioning may have prejudiced the Maleks, the district court erred in permitting the defendants to pursue this line of questioning. See Contemporary Mission, Inc. v. Bonded Mailings, Inc., 671 F.2d 81, 84 (2d Cir.1982) (affirming district court’s refusal to permit questioning of witness’ beliefs in the Roman Catholic Church in a breach of contract action because religion was a “collateral, potentially confusing and prejudicial, issue which would perforce have raised a ‘religious problem’ ”). We are particularly troubled about this line of questioning, especially where the impeached witness’ religious affiliation is the same as that of the plaintiffs.

D. Harmless Error

Although each of the erroneous evi-dentiary rulings discussed above, standing alone, may be insufficient to justify reversal, we cannot say that the cumulative effect is harmless. We only will reverse where the improper admission or exclusion of evidence affects “a substantial right” of one of the parties. Fed.R.Evid. 103(a); see 28 U.S.C. § 2111 (1988); Fed.R.Civ.P. 61. Making this determination involves an “assessment of the likelihood that the en-or affected the outcome of the case.” Jordan v. Medley, 711 F.2d 211, 218 (D.C.Cir.1983) (Scalia, J.) (citing United States ex rel. D’Agostino Excavators, Inc. v. Heyward Robinson Co., 430 F.2d 1077, 1083 (2d Cir.1970), cert. denied, 400 U.S. 1021, 91 S.Ct. 582, 27 L.Ed.2d 632 (1971)). In the words of the Supreme Court: “[I]f one cannot say, with fair assurance ... that the judgment was not substantially swayed by the error, it is impossible to conclude that substantial rights were not affected.” Kotteakos v. United States, 328 U.S. 750, 765, 66 S.Ct. 1239, 1248, 90 L.Ed. 1557 (1946). “Application of this test is highly sensitive to the unique context of the particular case, including the one-sided or closely balanced nature of the evidence bearing upon the issue which the error arguably affected ... and the centrality of that issue to the ultimate decision.” Jordan, 711 F.2d at 219 (citations omitted); see also Schrand v. Federal Pac. Elec. Co., 851 F.2d 152, 157 (6th Cir.1988); Lataille v. Ponte, 754 F.2d 33, 37 (1st Cir.1985).

In New York, an insurance company defending an action brought by its insured to recover the proceeds of an insurance policy must prove the affirmative defenses of arson and fraudulent misrepresentation by clear and convincing evidence. See Long Island Ski Ctr., Inc. v. Hartford Fire Ins. Co., 121 A.D.2d 368, 502 N.Y.S.2d 800, 801 (2d Dep’t 1986) (clear and convincing burden of proof for misrepresentation affirmative defense); Hutt v. Lumbermens Mut. Casualty Co., 95 A.D.2d 255, 466 N.Y.S.2d 28, 30 (2d Dep’t 1983) (clear and convincing burden of proof for arson affirmative defense). Although any one of the above evidentiary errors standing alone may have been harmless and would not mandate reversal, the cumulative effect of these errors substantially prejudiced the Maleks’ case.

Much of the evidence produced at trial by the defendants to show the presence of arson and misrepresentation was circumstantial. The evidence excluded by the district court was related to the central issues of this case (motive and opportunity), was not cumulative in nature and did not relate to collateral matters. Given the quality of evidence introduced by the defendants and the heightened burden of proof they faced in proving their affirmative defenses, we cannot say with fair assurance that the jury’s verdict was not substantially swayed by the exclusion of the Maleks’ evidence. Accordingly, the judgment must be reversed.

CONCLUSION

The judgment of the district court is reversed and the matter is remanded to the district court for further proceedings consistent with this opinion.

1 . Sea inadvertently failed to reject the claim.