November 12, 2014

New York Law Journal / Written by: Harvey M. Stone, Richard H. Dolan

This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York. Judge Arthur D. Spatt found that, in light of their prior criminal convictions, defendants in a civil case were collaterally estopped from pursuing their third-party claims. Judge Spatt also upheld a parolee's §1983 complaint alleging retaliation by his New York parole officer. And Judge John Gleeson invalidated an enhanced sentence imposed under New York's discretionary persistent felony offender statute.

Criminal Conviction and Collateral Estoppel

In Crum & Forster Insurance Co. v. Goodmark Industries, Inc., No 05 CV 3633 (EDNY, May 22, 2007), Judge Spatt dismissed a third-party action by defendant insureds against Horizon, a public insurance adjustor and its owner and an employee. Defendants' prior criminal conviction for insurance fraud barred their third-party action by collateral estoppel.

Plaintiff Crum & Forster, an insurance company, sued Goodmark Industries Inc., a former New York clothing manufacturer, and one Schlesinger, its owner and officer, for insurance fraud regarding payments made on insurance claims for a fire in August 1999. Goodmark filed a third-party complaint against Horizon, alleging that Horizon had defrauded plaintiff in connection with adjusting Goodmark's insurance claims. Goodmark asserted that Horizon had 'assumed responsibility for inspecting the premises, assessing damages to the premises and providing an estimate of loss' and was responsible for preparing, presenting and negotiating the claim with plaintiff Crum & Forster.

In 2004 a jury had convicted defendants Goodmark and Schlesinger of mail and wire fraud and money laundering arising from fraudulent schemes, including a scheme to defraud insurance companies by submitting false claims for losses from fires occurring from 1987 to 1999. As part of one scheme, defendants had provided Horizon with 'fictitious invoices relating to services and repairs in connection with the August 1999 fire.' Slip op. 6. Following their conviction, the court ordered defendants to pay restitution to plaintiff Crum & Forster in the amount of $934,319.

Judge Spatt held that collateral estoppel barred Goodmark's third-party claims, because criminal defendants may not relitigate any issue decided against them in a criminal proceeding if they had a full and fair opportunity to litigate the issue. Here, the controlling issues in the criminal case and the third-party claims were identical — mail fraud, wire fraud and conspiracy underlying false and fraudulent insurance claims submitted to plaintiff Crum & Forster in connection with the August 1999 fire.

The fraud issue was material to the criminal action. There was no question that defendants had litigated the case during a four-week trial, and facts dispositive of the third-party action here were necessarily found by the jury in reaching the criminal verdict. Defendants had a full and fair opportunity to defend themselves in the criminal proceeding, and the 'issue previously litigated was necessary to support a valid and final judgment on the merits' in the criminal case. Slip op. 11.

Judge Spatt rejected Goodmark's argument that the criminal jury did not decide whether third-party defendants bore some responsibility for the fraudulent insurance claims. According to the criminal jury's verdict, defendants Goodmark and Schlesinger were responsible for submission of the insurance claims. By trying now to relitigate their own liability, Judge Spatt noted, defendants were wasting judicial resources.

The court also rejected defendants' argument that collateral estoppel should not apply because the criminal case was on appeal.

§1983: First Amendment Claims

In McCloud v. Kane, 06 CV 3862 (EDNY, June 4, 2007), Judge Spatt denied a state parole officer's motion to dismiss plaintiff's §1983 claim for retaliation based on defendant's imposition of a curfew following plaintiff's complaints about her.

Plaintiff was released from a New York State Correctional Facility on parole in November 2001. In October 2005, plaintiff was reassigned to defendant as his parole officer. Plaintiff's prior parole officer had found no reason to activate a curfew as a special condition of parole. When defendant took over as plaintiff's parole officer, she too advised him that she saw no legal reason to impose any kind of curfew.

In November 2005 and May 2006, plaintiff wrote letters to the New York State Division of Parole complaining that defendant was acting outside the scope of her authority. In July 2006, defendant imposed a curfew on plaintiff, and plaintiff sent additional letters of complaint. In August, plaintiff imposed a more restrictive curfew.

In this pro se action, plaintiff claimed that defendant deprived him of liberty by imposing a special parole curfew in retaliation for his complaints against her. He sought an order: (1) voiding or rescinding his curfew; and (2) directing defendant to stop retaliating against him and pay his costs.

Reading the pro se complaint liberally, the court interpreted it as alleging retaliation for his complaints against defendant — i.e., a First Amendment claim for the right to petition the government for redress of grievances.

As to defendant's immunity defense, Judge Spatt stated:  the Eleventh Amendment is no bar to the plaintiff's claims against Kane in her official capacity, because the plaintiff is only seeking prospective injunctive relief. Slip op. 8.

The court found as well that plaintiff's allegations supported a First Amendment retaliation claim. Plaintiff's pursuit of a grievance against the government by complaining about the conduct of his parole officer is a liberty protected by the First Amendment. In addition, plaintiff 'sufficiently alleged a causal connection between his constitutionally protected complaints and the imposition of a curfew on him.' Slip op. 11.

Finally, Judge Spatt determined that defendant was not entitled to qualified immunity now, because the question of her motivation was a factual one, and the court would not decide it as a matter of law until later.

N.Y. Penal Law §70.10

In Portalatin v. Graham, Superintendent, Auburn Correctional Facility, O6 CV 5002 (EDNY, March 22, 2007), Judge Gleeson, relying on recent U.S. Supreme Court decisions, granted habeas relief on the ground that petitioner's sentence pursuant to New York's discretionary persistent felony offender statute, N.Y. Penal Law §70.10, violated his Sixth Amendment right to a jury trial.

A Kings County jury found petitioner guilty of robbery in the first degree and kidnapping in the second degree, both class B felonies. Petitioner was sentenced under §70.10(2), which allows the court to impose a class A-1 felony sentence -- rather than a sentence based solely on the offense of conviction -- when the court (1) has found defendant to be a 'persistent felony offender,' and (2) 'is of the opinion that the history and character of the defendant and the nature and circumstances of his criminal conduct indicate that extended incarceration and lifetime supervision will best serve the public interest.'

The procedures for imposing sentence under the discretionary persistent felony offender statute are set forth at N.Y. Crim. Proc. Law §400.20. In brief, the prosecution must prove beyond a reasonable doubt that the defendant has previously been convicted of two or more felonies. If the court finds that defendant is a persistent felon, it must make findings as to his 'history and character' and the 'nature and circumstances' of his criminal conduct. The prosecutor must prove the facts relating to the second inquiry by a preponderance of the evidence.

Petitioner did not challenge the existence or constitutionality of his two prior felony convictions. The sentencing court then made a series of findings about the crime of conviction (e.g., a 'truly terrifying experience' for the victim) and petitioner's personal and criminal history (such as his failure to take advantage of drug treatment opportunities). These findings led the court to impose enhanced concurrent prison terms of 18 years to life on each count.

Petitioner unsuccessfully challenged his conviction and sentence on direct appeal before filing his federal habeas petition.

In Judge Gleeson's view, the persistent felony offender statute violates the 'Sixth Amendment principle that any fact (other than the fact of a prior conviction) that increases the penalty for a crime must either be admitted by the defendant or proved to a jury beyond a reasonable doubt.' Slip op. 9. This principle, the court explained (slip op. 8-32), is now clearly set forth in several Supreme Court decisions. E.g., Apprendi v. New Jersey, 530 US 446 (2000); Ring v. Arizona, 536 US 584 (2002); Blakely v. Washington, 542 US 296 (2004); Cunningham v. California, 127 SCt 856 (2007). If the jury's verdict alone does not authorize an enhanced sentence, but rather the judge must find additional aggravating factors, the sentence is constitutionally defective.

Citing state and federal decisions, the prosecution argued that the fact findings made here properly fell within the traditional role of sentencing judges. That argument, Judge Gleeson held, simply cannot be squared with the Supreme Court's most recent decisions such as Ring and Blakely. Nor did the decision by the New York Court of Appeals in People v. Rivera, 5 NY3d 61 (2005), which revisited §70.10, change Judge Gleeson's conclusion. 'Like several other state high courts,' Judge Gleeson noted, 'the Court of Appeals [in Rivera] tried gamely to retrofit a sentencing statute enacted decades ago into the rapidly developing Sixth Amendment doctrine.' Slip op. 23.

Despite these efforts to resuscitate sentencing statutes like §70.10, the fatal defect persists: 'Where... the upper limits are only expanded upon findings made by the judge, the jury no longer stands between the defendant and the power of the government.' Slip op. 37.

The Sixth Amendment violation here, moreover, met the high standard for habeas review of state court convictions. 28 USC §2254(d). Slip op. 34-37.

Harvey M. Stone and Richard H. Dolan are partners at Schlam Stone & Dolan. Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.

[This article is reprinted with permission from the July 13, 2007, issue of the New York Law Journal. Copyright © 2007 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.]