Hough v. Joshua Simon Margulies & United Statesa Cas. Ins. Co. (In re Margulies)

• Decision Date: 16 November 2015
• Docket Number: Adv. Pro. No. 10–04050 SMB,Case No. 10–14012 SMB
• Citation: 541 B.R. 156
• Parties: In re: Joshua Simon Margulies, Debtor. Dennis Hough, Plaintiff, v. Joshua Simon Margulies and USAA Casualty Insurance Company, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

541 B.R. 156

In re: Joshua Simon Margulies, Debtor.Dennis Hough, Plaintiff,

v.Joshua Simon Margulies and USAA Casualty Insurance Company, Defendants.

Case No. 10–14012 SMB

Adv. Pro. No. 10–04050 SMB

United States Bankruptcy Court, S.D. New York.

Signed November 16, 2015

THE LAW OFFICES OF STANLEY K. SHAPIRO, 225 Broadway, Suite 1803, New York, New York 10007, Stanley K. Shapiro, Esq., Of Counsel, DONNELLY, CONROY & GELHAAR, LLP, 260 Franklin Street, Suite 1600, Boston, Massachusetts 02110, Matthew N. Kane, Esq., Brendan T. St. Amant, Esq., Of Counsel, Attorneys for Plaintiff Dennis Hough

OLSHAN FROME WOLOSKY LLP, Park Avenue Tower, 65 East 55th Street, New York, New York 10022, Frederick J. Levy, Esq., Howard J. Smith, Esq., Peter M. Sartorius, Esq., Of Counsel, ROBERT M. SPADARO, ESQ., 80 Grymes Hill Road, Staten Island, New York 10301, Robert M. Spadaro, Esq., Of Counsel, Attorneys for Defendant USAA Casualty Insurance Company

JOSHUA S. MARGULIES, ESQ., 88 Walnut Street, Lynbrook, New York 11563, Plaintiff Pro se

POST–REMAND MEMORANDUM DECISION REGARDING DISCHARGEABILITY OF DEBT UNDER 11 U.S.C. § 523(a)(6) AND INDEMNIFICATION UNDER NEW YORK INSURANCE LAW § 3420

STUART M. BERNSTEIN, United States Bankruptcy Judge:

This matter comes before the Court on remand from the District Court, seeMargulies v. Hough(In re Margulies), 517 B.R. 441 (S.D.N.Y.2014)( “District Court Decision”), which vacated this Court's post-trial findings of fact and conclusions of law in Hough v. Margulies(In re Margulies), Adv. P. No. 10–04050(SMB), 2013 WL 2149610 (Bankr.S.D.N.Y. May 16, 2013)(“Bankruptcy Court Decision”). The District Court instructed me to make further factual findings in connection with plaintiff Dennis Hough's claims to determine the dischargeability of his judgment against the debtor, Joshua S. Margulies, pursuant to 11 U.S.C. § 523(a)(6)and for indemnification from Margulies' insurer, USAA Casualty Insurance Company (“USAA”). For the reasons that follow, the Court finds that Margulies acted willfully and maliciously, and accordingly, his debt to Hough is not dischargeable. The Court further finds that 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.

BACKGROUND

Prior decisions of this Court and the District Court have recounted in detail the extensive litigation history among the parties, District Court Decision,517 B.R. at 447–50; Hough v. Margulies(In re Margulies), 476 B.R. 393, 396–98 (Bankr.S.D.N.Y.2012), reconsideration denied,Adv. P. No. 10–04050(SMB), 2012 WL 3782535 (Bankr.S.D.N.Y. Aug. 31, 2012), and the facts giving rise to Hough's claim against Margulies. District Court Decision,517 B.R. at 445–447; Bankruptcy Court Decision,2013 WL 2149610, at *1–3. I assume familiarity with those decisions, and highlight the facts pertinent to the issues on remand.

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' view, “simply to annoy” him. Margulies continued to roll forward toward Hough, and did not apply his brakes until afterhe 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 (1) 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, (2) USAA was liable for the Judgment up to the limits of the insurance policies pursuant to N.Y. Ins. Law§ 3420because the incident was an “accident” (the “§ 3420Claim”). Following trial, the Court found that the Judgment was not dischargeable because Margulies had acted willfully and maliciously. Bankruptcy Court Decision,2013 WL 2149610, at *3–5. In addition, his acts were intentional within the meaning of New York insurance law. Thus, the incident was not a covered “accident,” and coverage was expressly excluded under the USAA insurance policies. Id. at *5–6.

The District Court vacated the Bankruptcy Court's decision and remanded the case for further factual findings. In connection with the Dischargeability Claim, District Judge Failla instructed the Court to determine “(i) whether Margulies was substantially certain that Hough's injuries would occur, and if 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.” District Court Decision,517 B.R. at 462. With respect to the § 3420Claim, the District Court directed the Court to decide “(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 Incident was accidental, that is ‘unusual, unforeseen, or unexpected’ from Margulies's perspective.” Id.

Upon remand, Margulies, Hough, and USAA submitted briefs, including proposed factual findings, going to the questions raised by the District Court Decision. See Brief of Dennis Hough to Address Issues on Remand,dated April 28, 2015 (“Hough Brief”) (ECF Doc. # 156¹); Plaintiff's Proposed Further Findings of Fact to Address Issues on Remand,dated April 28, 2015 (ECF Doc. # 157); Supplemental Memorandum of Law and Supplemental Proposed Findings of Fact on Remand of USAA,dated May 29, 2015 (“USAA Brief”) (ECF Doc. # 160); Brief on Remand of Joshua Simon Margulies(“Margulies Brief”) (ECF Doc. # 162). Margulies, who is a lawyer, (Tr.²at 201:11–19), argued, among other things, that Hough had abandoned the Dischargeability Claim. (Margulies Briefat 1–6.) While it is clear that Hough would prefer a judgment against USAA on his § 3420Claim at the expense of his Dischargeability Claim, Hough continues to press the Dischargeability Claim as a fall back. (See Hough Briefat 19–20.) He has not, therefore, abandoned the Dischargeability Claim.

DISCUSSION

A. Dischargeability Claim

Section 523(a)(6)provides that a “discharge under section 727 ... does not discharge an individual debtor from any debt for willful and malicious injury by the debtor to another entity.” 11 U.S.C. § 523(a)(6). “The terms ‘willful’ and ‘malicious' are separate elements, and both elements must be satisfied.” District Court Decision,517 B.R. at 451(quoting Rupert v. Krautheimer(In re Krautheimer), 241 B.R. 330, 341 (Bankr.S.D.N.Y.1999)). The creditor bears the burden of proving both elements by a preponderance of the evidence. Grogan v. Garner,498 U.S. 279, 290–91, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).

1. Willfulness

To prove that a debtor acted willfully under 11 U.S.C. § 523(a)(6), the plaintiff must demonstrate that the debtor deliberately intended to injure the plaintiff and not merely that the debtor committed an intentional act that unintentionally inflicted injuries on the plaintiff. SeeKawaauhau v. Geiger,523 U.S. 57, 61, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998); District Court Decision,517 B.R. at 452. A person intends to injure another when he “desires to...