United States District Court, S.D. New York
In re JOSHUA SIMON MARGULIES, Debtor.
DENNIS HOUGH and USAA CASUALTY INSURANCE COMPANY, Appellees. JOSHUA SIMON MARGUILIES, Appellant, DENNIS HOUGH, Cross-Appellant,
JOSHUA SIMON MARGULIES and USAA CASUALTY INSURANCE COMPANY, Cross-Appellees. Bankr. No. 10-14012 (SMB)
OPINION AND ORDER
KATHERINE POLK FAILLA United States District Judge
second time, Appellant/Cross-Appellee Joshua Simon Margulies
(“Margulies”) comes before this Court to appeal
from a judgment of the United States Bankruptcy Court for the
Southern District of New York (Bernstein, J.), and,
more particularly, its finding that his debt to
Appellee/Cross-Appellant Dennis Hough (“Hough”)
was not dischargeable pursuant to 11 U.S.C. § 523(a)(6)
because it arose from Margulies's willful and malicious
conduct. Hough cross-appeals from the Bankruptcy Court's
determination that USAA Casualty Insurance Company
(“USAA”) was not liable for the judgment pursuant
to New York Insurance Law § 3420, because
Margulies's injurious conduct did not qualify as an
“accident” under New York law. For the reasons
set forth below, the judgment of the Bankruptcy Court is
affirmed and both appeals are denied.
The Court assumes familiarity with the complex and lengthy
history of this litigation, which has been set forth in (i)
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”); Hough v. Margulies (In re
Margulies), Adv. No. 10-04050, 2013 WL 2149610 (Bankr.
S.D.N.Y. May 16, 2013) (“Margulies
III”); and Hough v. Margulies (In re
Margulies) (“Margulies V”), 541
B.R. 156 (Bankr. S.D.N.Y. 2015); (ii) this Court's
previous decision, In re Margulies
(“Margulies IV”), 517 B.R. 441 (S.D.N.Y.
2014); and (iii) the filings contained in the dockets for
In re Margulies, No. 10-14012 (SMB) (Bankr.
S.D.N.Y.); Hough v. Margulies, Adv. No. 10-04050
(SMB) (Bankr. S.D.N.Y.); and In re Margulies, No. 13
Civ. 6009 (KPF) (S.D.N.Y.). Therefore, the Court will focus
here on the procedural developments that followed this
Court's September 9, 2014 Opinion and Order (the
“2014 Opinion”) and the facts found by the
Bankruptcy Court on remand.
The 2014 Opinion
Bankruptcy Court entered its first final judgment in the
adversary proceeding on May 29, 2013. (No. 10-04050, Dkt.
#118). On June 11, 2013, Margulies filed a notice of appeal
from the May 29, 2013 judgment, and Hough's cross-appeal
followed on June 13, 2013. (No. 10-04050, Dkt. #121). The
parties' respective notices of appeal were docketed by
this Court on August 27, 2013. (No. 13 Civ. 6009, Dkt. #1,
considering at length the Bankruptcy Court's factual
findings and legal analysis, this Court determined that
further factual findings and the application of a different
legal framework were required. See generally Margulies
IV. The Court remanded to this end. Id. at 462.
Specifically, the Court directed the Bankruptcy Court to
determine on remand:
• With regard to Margulies's dischargeability claim,
“(i) whether Margulies was substantially certain that
Hough's injuries would occur, and if he was not, (ii)
whether that finding impacts the Bankruptcy Court's
determination that Margulies's actions were malicious; as
well as (iii) whether Margulies's actions were undertaken
for the purpose of economic benefit.” Id.
• With regard to Hough's § 3420 claim,
“(i) whether Margulies's intent and knowledge
establish that Hough's injuries were the sort that would
flow ‘directly and immediately' from
Margulies's actions; and (ii) whether the [underlying
incident (the ‘Incident')] was accidental, that is,
‘unusual, unforeseen, or unexpected' from
Margulies's perspective.” Id.
The Proceedings on Remand and the November 16, 2015
The Bankruptcy Court Proceedings
December 22, 2014, USAA advised United States Bankruptcy
Judge Stuart M. Bernstein that the Court had vacated the May
29, 2013 judgment and remanded the case for further
proceedings consistent with the Court's decision. (No.
10-04050, Dkt. #145). USAA offered its belief that
“[b]ased on the substantial evidence adduced at the
[Bankruptcy Court's one-day bench trial on December 19,
2012], ... the record [was] sufficient to allow the
[Bankruptcy] Court to issue additional post-trial findings of
fact which answer the questions posed” in this
Court's Opinion. (Id.). Margulies concurred, writing
separately to express his agreement that the parties need not
submit new proposed findings of fact given the sufficiency of
the already-existing record. (No. 10-04050, Dkt. #147).
Bernstein directed the parties to appear at a conference on
February 3, 2015. (See No. 10-04050, Dkt. #148). At
the conference, Hough took a different position from
Margulies and USAA, agreeing that additional testimony was
not required but arguing that he should be permitted to
supplement the record to support his res judicata
argument. (No. 10-04050, Dkt. #148). Judge Bernstein decided
that the parties should submit proposed findings of fact and
conclusions of law, and set a schedule for same.
filed his proposed findings of fact and conclusions of law on
March 23, 2015 (No. 10-04050, Dkt. #150-51), to which he
appended three exhibits to supplement the record (No.
10-04050, Dkt. #149). USAA objected to the length of
Hough's filings, and argued that the Bankruptcy Court
should strike the supplemental exhibits that, it contended,
Hough had filed impermissibly. (No. 10-04050, Dkt. #152). The
Bankruptcy Court convened a second conference on April 7,
2015. (No. 10-04050, Dkt. #154).
conference, Hough made two arguments. First, Hough argued
that he needed to submit these additional exhibits so that
the Bankruptcy Court could reconsider Hough's res
judicata claim. (No. 10-04050, Dkt. #154). Though the
Bankruptcy Court believed this Court had precluded its
reconsideration of that question on remand, it did not strike
Hough's exhibits and reserved decision on the propriety
of his renewed res judicata claim. (Id.).
Hough moved for extensions of time and page length with
regard to his proposed findings of fact and conclusions of
law. (No. 10-04050, Dkt. #154). Hough claimed that he could
not make his case within the confines previously set.
(Id.). Judge Bernstein retorted that Hough's
difficulty derived from his decision to plead his claim in
the alternative: “That's because that's the way
you cast your pleading and when you address one, you shoot
yourself in the foot on the other. ... And maybe you ought to
make a choice.” (Id.). Hough responded that he
was unable to do so - to dismiss his claim against Margulies
and proceed against USAA alone - because of USAA's
contention that the underlying incident was intentional, not
accidental. (Id.). Hough reasoned that if the Court
found for USAA on that claim, “then that would also
require under these facts a finding that there was malice,
” such that Margulies's debt would be “not
Bankruptcy Court scheduled a second round of briefing with
revised page limits. (No. 10-04050, Dkt. #158). Hough filed
his proposed findings of facts and conclusions of law on
April 28, 2015 (No. 10-04050, Dkt. #156-57); USAA filed its
proposed findings of fact and memorandum of law on May 29,
2015 (No. 10-04050, Dkt. #160); and Margulies filed his brief
on remand on May 30, 2015 (No. 10-04050, Dkt. #161-62).
The November 16, 2015 Decision
Bernstein issued his Post-Remand Memorandum Decision
Regarding the Dischargeability of Debt Under 11 U.S.C. §
523(a)(6) and Indemnification Under New York Insurance Law
§ 3420 on November 16, 2015. Margulies V, 541
B.R. 156. In sum, the Bankruptcy Court found that (i)
“Margulies acted willfully and maliciously, and
accordingly, [that] his debt to Hough is not
dischargeable” and (ii) “the incident that gave
rise to Hough's injury was not an accident within the
meaning of New York's insurance law, and hence, is not
covered by the USAA policies issued to Margulies.”
Id. at 159.
the circumstances of the Incident, the Bankruptcy Court found
On August 3, 2000, Margulies was driving north on
Manhattan's Sixth Avenue, a one-way northbound road with
six lanes, five of which were open to traffic. Kristopher
Zdyb was a passenger in the car. They were headed to an
important business meeting with former New York Governor
Mario Cuomo, and they were running late. At the time, Hough
was working as a flagman tasked with stopping traffic on
Sixth Avenue to allow vehicles to enter and exit a
construction site midway between 22nd and 23rd Streets.
Margulies was stopped by Hough in the middle lane of Sixth
Avenue, his car the first one in line. While stopped, one or
two trucks exited the construction site, but Hough continued
to hold traffic even after it appeared that no more trucks
were entering or exiting the site. Margulies and Zdyb became
increasingly impatient as they watched the traffic light at
23rd Street pass through two full cycles without seeing any
trucks enter or leave the site.
Margulies made eye contact with Hough and communicated his
intention to move forward when the light turned green by
tapping or pointing to his watch and revving his engine. He
testified that he intended to convey that he planned to move
forward regardless of whether Hough wanted him to stay put.
When the light turned green, Margulies took his foot off the
brakes and his car rolled slowly at a speed of one to two
miles per hour, or roughly 1.5 to 3 feet per second. When the
car started rolling forward Hough was not in Margulies's
lane, but Hough backed into his lane when the car was about a
car-length away from Hough.
Margulies tried to veer to the left and drive around Hough
but traffic in that lane prevented him from doing so.
Margulies continued to move forward expecting Hough to get
out of his way but Hough held his ground, in Margulies's
view, “simply to annoy” him. Margulies continued
to roll forward toward Hough, and did not apply his brakes
until after he hit Hough. Seeing Hough fall, get up
and thinking he was unharmed, Margulies continued up Sixth
Avenue to his meeting.
Margulies subsequently pled guilty to misdemeanor assault in
the third degree under N.Y. Penal Law § 120.00(2)
(McKinney 2015). A person is guilty of misdemeanor assault in
the third degree when he “recklessly causes physical
injury to another person.” N.Y. Penal Law §
120.00(2). Under N.Y. Penal Law § 15.05(3), “[a]
person acts recklessly with respect to a result or to a
circumstance described by a statute defining an offense when
he is aware of and consciously disregards a substantial and
unjustifiable risk that such result will occur or that such
circumstance exists. The risk must be of such nature and
degree that disregard thereof constitutes a gross deviation
from the standard of conduct that a reasonable person would
observe in the situation.”
Prior to the commencement of this bankruptcy case, Hough sued
Margulies for negligence. USAA failed to defend the action
and Hough obtained a $4.8 million default judgment (the
“Judgment”) against Margulies. Hough subsequently
brought a direct action against USAA to collect the Judgment
pursuant to N.Y. Ins. Law § 3420 (McKinney 2015).
After Margulies filed his chapter 7 bankruptcy petition,
Hough initiated this adversary proceeding contending that [i]
the Judgment was not dischargeable under 11 U.S.C. §
523(a)(6) because Margulies had acted willfully and
maliciously (the “Dischargeability Claim”), or
alternatively, [ii] USAA was liable for the Judgment up to
the limits of the insurance policies pursuant to N.Y. Ins.
Law § 3420 because the incident was an
“accident” (the “§ 3420 Claim”).
Margulies V, 541 B.R. at 159-61. The Bankruptcy
Court then proceeded for a second time to analyze these facts
under the law, in keeping with this Court's ...