## Facts

- George Varoudakis owned and operated a Boston restaurant/nightclub, Destinations, through entities he controlled; Cheryl Britt, his longtime girlfriend, served as general manager.
- After initial financial success, the business declined and by late 1994–early 1995 faced severe financial distress, including unpaid wages and substantial claimed rent arrears with eviction proceedings.
- Varoudakis increased contents insurance to $500,000 and obtained $100,000 in business interruption insurance; Britt testified he said he did so to burn the restaurant and collect proceeds.
- Varoudakis filed bankruptcy petitions for the operating entities and for himself.
- The government alleged Varoudakis conspired with others, including Britt and another employee, to burn Destinations to obtain insurance money.
- At trial, over objection, the court admitted evidence that sixteen months earlier Britt saw Varoudakis set fire to his leased Cadillac; a police officer testified about the investigation of a car fire matching that account.
- The jury deliberated for roughly two and a half days, reported an impasse, and ultimately convicted Varoudakis of arson affecting interstate commerce and conspiracy to commit arson.

## Issues

1. Whether evidence of the alleged prior Cadillac arson was admissible under Federal Rule of Evidence 404(b) for non-propensity purposes such as motive or intent.
2. Whether the evidence, even if relevant under Rule 404(b), should have been excluded under Federal Rule of Evidence 403 because the danger of unfair prejudice substantially outweighed its probative value.
3. If admission was erroneous, whether the error was harmless.

## Decision

- The First Circuit vacated the convictions and remanded for further proceedings.
- The court accepted that the Cadillac-fire evidence was, in principle, offered for permissible Rule 404(b) purposes (motive/intent), but held the district court abused its discretion by admitting it under Rule 403.
- The court concluded the error was not harmless given the closeness of the case and the risk the prior-arson evidence affected the verdict.

## Legal Principles

- Rule 404(b) permits other-acts evidence only for non-character purposes (e.g., motive, intent, plan) and not to prove propensity.
- Even when offered for a proper Rule 404(b) purpose, other-acts evidence must be excluded under Rule 403 if unfair prejudice substantially outweighs probative value; courts must apply careful balancing because such evidence carries a heightened risk of improper character reasoning.
- Factors reducing probative value include temporal distance, factual dissimilarity to the charged conduct, and availability of alternative evidence on the same point.
- Other-acts arson evidence poses a strong danger that jurors will infer “once an arsonist, always an arsonist,” especially where the depiction is vivid and central issues turn on credibility.
- Limiting instructions may not cure admission where the prior-act evidence is highly prejudicial and the case is close.
- In harmless-error review, extended deliberations, an announced impasse, and reliance on cooperating-witness credibility can support a finding that erroneous admission may have affected the verdict.

## Conclusion

The First Circuit held that admitting testimony about an alleged prior Cadillac arson created unfair prejudice that substantially outweighed any probative value on motive or intent, and because the government’s case was close, the error was not harmless; the arson and conspiracy convictions were vacated and the case remanded.


United States v. Varoudakis, 233 F.3d 113 (1st Cir. 2000)