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Conviction may be used as collateral estoppel

Author / Coordinator: Barbara L. Jones
Minnesota Lawyer
July 2002

Where a day care provider was convicted of assault and malicious punishment of a child, the parents of the child were collaterally estopped from denying in a subsequent civil case that the day care provider intentionally injured the child, the Court of Appeals has ruled.

The parents of the injured child sued the day care provider, who tendered defense of the action to her homeowner’s insurer. The insurer sought a declaratory judgment that the day care provider’s conviction should be used as collateral estoppel to establish the facts necessary to effectuate the policy’s intentional-acts exception. The parents countered that a conviction cannot be used as collateral estoppel in a subsequent civil case unless the defendant is attempting to profit from his or her crime.

An Anoka County District Court judge denied summary judgment for the insurer, but certified the question to the Court of Appeals.

The appellate court answered the question in the affirmative, finding that the conviction established the intentional-acts exclusion in the day care provider’s insurance policy.

“[A] criminal judgment of conviction may be used as collateral estoppel in a subsequent civil action even when the action is not one in which the criminal defendant seeks to profit from the crime,” wrote Judge Sam Hanson.

The 29-page case, Illinois Farmers Ins. Co. v. Reed, et al., is Minnesota Lawyer No. CA-752-02.

Minnetonka attorney Timothy Tobin, who represented the insurer, said that the company argued that prior case law did not stand for the proposition that only where a criminal defendant seeks to profit from a crime does the doctrine of collateral estoppel apply in subsequent civil cases. Even if prior case law did say that, that rationale should be abandoned, the insurance company argued.

“I was pleasantly surprised and very impressed with Judge Hanson’s scholarly approach,” said Tobin. “He went beyond what we put in the briefs.”

Tobin acknowledged the hardship the decision will have on the brain-damaged boy and his family.

“We have a lot of sympathy for the child and his family. This is every parent’s nightmare,” he said. “But insurance is sold to protect people against fortuitous loss, not to make everything right when someone does something intentionally. There are public safety nets. It’s not easy to deny benefits to people who are damaged, but otherwise there would be no insurance because it would be unaffordable.”

The parents have not yet decided whether to petition the Supreme Court for review, said their attorney, Mark H. Gruesner of Minneapolis.

Shaken child

A child, J.P., sustained a severe brain injury at the home of Janet Reed, his day care provider. Reed admitted that she shook the child but at her criminal trial maintained that he was injured in a fall. She also argued that she did not intend to injure him, only to revive him after he fell.

The District Court judge, sitting without a jury, found the day care provider guilty of both charges, specifically determining that the child’s injuries were the result of being shaken and that Reed caused the injuries by an intentional act.

Richard and Kimberly Peschong, J.P.’s parents, brought a civil action to recover for the child’s injuries. The day care provider tendered the defense to her homeowner insurer, Illinois Farmers Insurance Company (“Illinois Farmers”). The insurance company then filed a declaratory judgment action naming the day care provider, the parents, and the child’s medical providers as defendants.

Illinois Farmers argued the conviction should be used as collateral estoppel to conclusively establish the facts necessary to effectuate the policy’s intentional acts exclusion, which excluded coverage for injury that is either caused intentionally by or at the direction of an insured, or results from any occurrence caused by an intentional act of any insured where the results are reasonably foreseeable.

The policy defined occurrence as an accident that results in bodily injury, but did not define accident.

The parents relied on the 1968 Supreme Court case of Travelers Ins. Co. v. Thompson to argue that a criminal conviction cannot be used as collateral estoppel in a subsequent civil case unless the criminal defendant is attempting to profit from the crime, and that the issue of intent must be litigated in a coverage trial.

The District Court judge denied Illinois Farmer’s motion for summary judgment. The judge noted that while Thompson was not specifically limited to situations where a defendant attempted to profit from a crime, there were no Minnesota cases applying collateral estoppel in other situations. To the contrary, the District Court judge assumed that the use of a criminal conviction as collateral estoppel had been narrowed by the 1972 Supreme Court decision in Glen Falls Group Ins. Corp. v. Hoium, which held that a judgment of conviction based on a plea of guilty had no collateral estoppel effect in a civil action.

The District Court judge certified the following question as important and doubtful: “When interpreting an intentional-acts exclusion of a common liability policy, does Minnesota law permit criminal convictions to be used for collateral estoppel purposes other than those … where the criminal defendant seeks to profit from the crime in a subsequent civil proceeding?”

The judge also determined that if collateral estoppel applied generally, it would apply in the instant case.

Important and doubtful

The case came before the appellate court on an appeal from the denial of a motion for summary judgment, which ordinarily is not appealable until the conclusion of the case. Thus, under Minn. R. Civ. App. P. 103.03 (h), the Court of Appeals had to determine that the certified question was important and doubtful.

The District Court judge found the question important because there was a high probability of reversal of the denial of summary judgment. Moreover, the question was doubtful because in granting the summary judgment, the trial court would, in effect, be creating a new cause of action, which was outside the purview of the lower court.

The parties did not challenge the District Court judge’s decision to certify the question and the Court of Appeals agreed that the question was important and doubtful.

Examining caselaw

The court then turned to the Thompson decision, which occurred when the defendant, who was convicted of the murder of his wife, attempted to collect over $1 million in insurance on her life. The Supreme Court recognized an exception to the general rule that a criminal conviction is not admissible in a subsequent civil action where a defendant attempts to profit from the crime. However, Thompson does not specifically state that the exception would be limited to circumstances where the criminal defendant seeks to profit from the crime, nor did it specifically state that the exception could be applicable in other circumstances.

Accordingly, the Court of Appeals reviewed the Thompson rationale in light of the evolution of the law of collateral estoppel in the last 30 years.

The court began by determining that the Glen Falls decision, involving a guilty plea, was inapplicable.

“[T]he collateral estoppel effect of a judgment of conviction based on a guilty plea is a completely separate question from the collateral estoppel effect of a judgment of conviction after trial,” wrote Hanson. “This is because a fundamental requirement of collateral estoppel is that the issue sought to be precluded in the subsequent proceeding must have been ‘actually litigated’ in the former proceeding, and a conviction based on a guilty plea can never satisfy that requirement.”

At the time Thompson was decided, continued Hanson, the rule that a criminal judgment of conviction could not be given collateral estoppel effect in a subsequent civil action was based on a theory of mutuality. That theory was that an acquittal could not be used by a defendant in a subsequent civil action, because of the different burdens of proof in civil and criminal actions, and therefore mutuality prevented a criminal defendant from being estopped by a judgment of conviction.

The caselaw since Thompson has expanded its application, Hanson observed. “In fact, what was viewed by Thompson as the ‘general rule,’ precluding the use of a conviction as collateral estoppel, appears to have now become the minority rule, and the exception that was applied in Thompson has now become the general rule.”

The change resulted from a more critical analysis of the objections to collateral estoppel that were noted in Thompson, said Hanson. First, the rule of mutuality has been largely abandoned by most courts that have considered the issue.

Second, the greater protections in a criminal case mean that the judgment of conviction necessarily meets all of the procedural requirements of a judgment in a civil case, Hanson observed.

The Court of Appeals also rejected the argument that a criminal judgment is hearsay or only a jury’s opinion. “Were this a valid objection, it would eliminate the doctrine of collateral estoppel completely because every judgment is based on the opinion of another court or jury on the facts before them,” Hanson observed.

Finally, the doctrine of stare decisis does not prevent the application of collateral estoppel. Other Minnesota decisions have rejected the necessity of mutuality and observed the expansion of the collateral estoppel effect of civil judgments, said Hanson.

The judge observed that the Restatement, Judgments (Second), sec. 85, repudiates the mutuality requirement and states that “well-reasoned decisions [have] extended the rule of preclusion to operate in favor of third persons where the first action is criminal and the second is civil.”

Thus, the court answered the certified question in the affirmative. “We conclude that the collateral estoppel effect of a criminal conviction under Minnesota law is not limited to situations in which a criminal defendant seeks to profit from the crime,” wrote Hanson. “Instead, the collateral-estoppel effect of a criminal judgment should be determined in the same manner and under the same criteria as any other judgment.”

No remand

The Court of Appeals declined to remand the matter to the District Court judge for a determination of whether collateral estoppel should be applied in this case.

“The general policies that might otherwise persuade us to limit our review to the certified question (to avoid piecemeal litigation, to conserve judicial resources, and to expedite trial proceedings) would not be served by remanding the matter to the district court because the district court has already decided the remaining issues and the [parents] would inevitably return the case to this court on appeal from the entry of summary judgment in favor of Illinois Farmer,” explained Hanson.

The judge then noted that the four elements generally required for collateral estoppel to apply are:

• the issue was identical to one in a prior adjudication,

• there was a final judgment on the merits,

• the estopped party was a party or in privity with a party to the prior adjudication, and

• the estopped party had a full and fair opportunity to be heard in the prior litigation.

Hanson observed that while there is no dispute that the criminal judgment is final for collateral estoppel purposes, the other elements were contested.

The court then turned to the question of whether the issues were identical. The parents of the injured child argued that the criminal court only determined that the day care provider intentionally shook the child, not that she intentionally injured the child.

The parents relied on the 2001 Minnesota Supreme Court decision in Am. Family Ins. Co. v. Walser for the proposition that the intentional acts exclusion required proof of a specific intent to injure, not just an intent to engage in conduct that caused the injury.

However, the Court of Appeals determined that a finding of intent to injure was necessary to the adjudication of the day care provider’s guilt for assault and that the District Court judge in the criminal proceeding did find that the defendant intended to injure the child when she shook him.

Next, the court determined that it was not necessary for the parents to be a party to the criminal proceeding or in privity with a party.

“[D]espite their status as proper parties to this action, the [parents] are not parties to the Illinois Farmers’ insurance policy and their interests in that policy derive exclusively from the interests of [the day care provider]. Thus the fact that [the day care provider] was a party in the criminal proceeding satisfies this element of collateral estoppel even though the [parents] were not,” Hanson observed.

Finally, the estopped party — the day care provider — had a full and fair opportunity to be heard, the Court of Appeals concluded.

“[T]he stakes in [the day care provider’s] criminal trial were extremely high, and she had every opportunity and incentive to fully present and argue her case,” wrote Hanson. “[She] was represented by counsel, and her counsel actively challenged the state’s evidence and offered evidence on her behalf.”

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