United States District Court, S.D. New York
In re: JOSHUA SIMON MARGULIES, Debtor.
DENNIS HOUGH and USAA CASUALTY INSURANCE COMPANY, Appellees. JOSHUA SIMON MARGULIES, Appellant, DENNIS HOUGH, Cross-Appellant,
JOSHUA SIMON MARGULIES and USAA CASUALTY INSURANCE COMPANY, Cross-Appellees
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
For Joshua Simon Margulies, Appellant: Joshua Margulies, Solo Practitioner, Lynbrook, NY.
For Dennis Hough, Cross Appellant: Matthew N. Kane, T. Christopher Donnelly, PRO HAC VICE, Donnelly, Conroy & Gelhaar, LLP, Boston, MA; Stanley K. Shapiro, The Law Offices of Stanley K. Shapiro, New York, NY.
For USAA Casualty Insurance Company, Appellee: Fredrick J. Levy, Howard J. Smith, III, Peter Martin Sartorius, Olshan Frome Wolosky, LLP, New York, NY.
OPINION AND ORDER
KATHERINE POLK FAILLA, United States District Judge.
On August 3, 2000, Joshua Margulies and Dennis Hough engaged in what has fairly been described as a slow-moving game of chicken on a Manhattan street. Margulies drove forward in his car at a slow rate of speed toward Hough, a pedestrian, expecting him to get out of the way. Instead, Hough stood his ground. When traffic prevented Margulies from veering around Hough, Margulies hit Hough with his car. In 2003, Hough obtained a $4.8 million default judgment after filing a lawsuit accusing Margulies of negligence. Despite more than a decade of legal proceedings between and among Hough, Margulies, and Margulies's insurer at the time, USAA Casualty Company (" USAA" ), Hough has yet to collect on that judgment.
The instant action arises from an adversary proceeding filed by Hough in Margulies's Chapter 7 bankruptcy proceedings; the proceeding was initiated to prevent Margulies from discharging his debt to Hough, and alternatively to force USAA to indemnify Margulies for the judgment. After trial, the United States Bankruptcy Court for the Southern District of New York (Bernstein, J.) determined that Margulies's debt was not dischargeable pursuant to 11 U.S.C. § 523(a)(6), because it arose from his willful and malicious conduct; Margulies appeals from this determination. Hough cross-appeals from the Bankruptcy Court's determination that USAA was not liable for the judgment pursuant to New York Insurance Law § 3420, since Margulies intentionally hit Hough. For the reasons set forth below, the judgment of the Bankruptcy Court is vacated, and the matter is remanded for further proceedings consistent with this Opinion.
The complex and lengthy history of the instant litigation is set forth in the Bankruptcy Court's previous decisions in Hough v. Margulies (In re Margulies), 476 B.R. 393 (Bankr. S.D.N.Y. 2012) (" Margulies I " ), Hough v. Margulies (In re Margulies),
Adv. No. 10-04050, 2012 WL 3782535 (Bankr. S.D.N.Y. Aug. 31, 2012) (" Margulies II " ), and Hough v. Margulies (In re Margulies),
Adv. No. 10-04050, 2013 WL 2149610 (Bankr. S.D.N.Y. May 16, 2013) (" Margulies III " ), and the filings contained in the dockets for In re Margulies, No. 10-14012 (SMB) (Bankr. S.D.N.Y.), and Hough v. Margulies, Adv. No. 10-04050 (SMB) (Bankr. S.D.N.Y.). For convenience, the factual and procedural information relevant to the instant appeal is set forth below.
A. The August 2000 Incident
The Bankruptcy Court made the following factual findings after a trial at which Hough, Margulies, and Kristopher Zdyb, who was a passenger in Margulies's car, each testified. Margulies III, 2013 WL 2149610, at *1. At approximately 10:30 a.m. on August 3, 2000, Margulies was driving north on Sixth Avenue in Manhattan with Zdyb, in order to attend an important business meeting with former
Governor Mario Cuomo. Id. They were already late. Hough, meanwhile, was working as a flagman directing traffic on Sixth Avenue. Id. Sixth Avenue, or Avenue of the Americas, is a one-way, northbound roadway; at the time of the accident, five of the six lanes were open to traffic. Id. Hough was tasked with stopping traffic on Sixth Avenue when necessary to allow vehicles to exit and enter a construction site midway between 22nd and 23rd Streets. Id.
As Margulies reached Hough's position on Sixth Avenue, Hough came into the roadway and stopped traffic; Margulies's car was the first in line of the cars Hough stopped, and was positioned in a middle lane. Margulies III, 2013 WL 2149610, at *1-2. One or two construction vehicles exited the worksite, after which Hough continued holding traffic, although neither Margulies nor Zdyb
could see any more vehicles exiting the site. [WL] at *2. Hough continued holding traffic while other cars were " scooting around" Margulies on his left. Id. Margulies and Zdyb grew frustrated as the traffic light ahead at 23rd Street passed through two full cycles without any vehicles exiting the construction site. Id.
Sometime thereafter, Margulies made eye contact with Hough and tapped or pointed at his watch, signifying his intention to move forward when the light turned green at 23rd Street. Margulies III, 2013 WL 2149610, at *2. Hough broke eye contact. Id. Margulies revved his engine to communicate his intention to proceed; Margulies testified that he intended to convey that he would move forward regardless of any desire on Hough's part for Margulies to stay parked. Id. When the traffic light turned green, Margulies took his foot off the brake, and the car " rolled forward" at a speed of one to two miles per hour. (Tr. 256). Margulies III, 2013 WL 2149610, at *2. When Margulies began to roll forward, Hough was not in his lane, and Margulies testified that his intention was to pass around Hough without making contact. (Tr. 237). Instead, Hough backed into Margulies's lane, about a car-length away from Margulies. Margulies III, 2013 WL 2149610, at *2. Margulies tried to veer to the left and drive around Hough, but traffic in that lane prevented him from doing so. Id. Margulies proceeded forward, expecting Hough to get out of the way of his car; Hough held his ground, in Margulies's view, " simply to annoy" him. Id. Margulies never applied his brake, and hit Hough as a result. Id. Margulies testified that the entire incident (the " Incident" ) lasted approximately five seconds. (Tr. 258).
As to Margulies's state of mind at the time, he testified as follows:
Q [By counsel for USAA]: What was -- what was your judgment processes in terms of driving when you decided not to apply the brakes but continue to roll forward? ...
A: I thought Mr. Hough would move out of the way.
Q: So [it] ... wasn't an act to hurt Mr. Hough?
A: Of course not, no.
THE COURT: What did you think would happen if he didn't move out of the way?
A: Frankly if he hadn't moved out of the way I would think that what happened is what happened, and I know we're not allowed to discuss the civil judgment, but from having looked at everything he wasn't hurt very much.
THE COURT: Well that's -- that's after the fact.
A: No. I understand, Your Honor, at the speed that I was -- what I'm saying is that at the speed that I was going to my mind -- I'm not saying -- and please, I'm not defending that I continued to move the car, but I was very certain that he would move out of the way, and if I had stopped and somebody had said gee, what would happen if he moved out of -- didn't move out of the way all of the way I would think that it would be exactly what did happen ... which was the slight contact and then he stumbled and fell.
The Bankruptcy Court noted the significant divergence in Hough's and Margulies's stories about what happened after the point of impact, and ultimately credited Margulies's over Hough's. Hough testified that Margulies hit him in his right leg, and that he thereafter grabbed the top of the hood near the windshield wipers, holding on for " dear life," while Margulies jerked the car to the left and to the right for nearly one half-block in an attempt to dislodge him. Margulies then slammed on his brakes and Hough flew off the car, ultimately landing on his shoulders. The Bankruptcy Court found this testimony incredible and uncorroborated by Hough's medical records. Margulies III, 2013 WL 2149610, at *2-3.
Zdyb testified that Margulies's car only " touched" Hough, and that Hough never fell to the ground; however, Zdyb also testified that he averted his eyes at the moment of impact, in order to avoid viewing such a " Seinfeldian" episode. (Tr. 164). Margulies III, 2013 WL 2149610, at *2-3. The Bankruptcy Court credited Margulies's testimony the most. Margulies testified that after his car tapped or touched Hough, Hough fell to the ground but got back up almost immediately. Id. Margulies drove away without stopping because he believed Hough to be unharmed. Id.
Nearly three years later, on March 10, 2003, Margulies pleaded guilty to misdemeanor assault in the third degree under New York Penal Law § 120.00(2). (No. 10-04050, Dkt. #1, ¶ 17).
B. Proceedings in New York State Court
1. Hough v. Margulies
Hough initiated a civil action against Margulies on August 4, 2003, in New York State Supreme Court, alleging that Margulies was negligent or grossly negligent in hitting Hough with his car. Hough v. Margulies, Index No. 114030/03 (N.Y. County Sup.Ct.). (No. 10-04050, Dkt. #1, ¶ 18). The factual allegations in the state court complaint largely echo Hough's testimony at trial before the Bankruptcy Court. Neither Margulies nor USAA appeared
in that action; nor did USAA initiate a declaratory judgment proceeding seeking a determination that it had no duty to indemnify Margulies. ( Id. at ¶ ¶ 19-20). Moreover, USAA did not timely serve Hough with a notice of disclaimer, in compliance with New York Insurance Law § 3420(d)(2). Margulies I, 476 B.R. at 396.
As a result, Hough obtained a default judgment against Margulies in 2003. (No. 10-04050, Dkt. #1, at ¶ 22). Following a damages inquest, Hough was awarded a $3.5 million judgment, including interest and costs, for a total of $4,868,263.56 (the " Judgment" ). ( Id. at ...