THE LAW OFFICES OF DAVID H.

RELKIN
575 Eighth Avenue
Suite 1706
New York, New York 10018
212-244-8722
Attorney Appearing for Partner/Shareholder/Beneficiary Donna A. Sturman:
David H. Relkin, Esq. (David@RelkinLaw.com)

UNITED STATES BANKRUPTCY COURT FOR

THE SOUTHERN DISTRICT OF NEW YORK
Case No.
In re:

89 B 11932
(PCB)

WAYNE A. STURMAN,

Debtor.

Case No.

In re:
BRUCE D. STURMAN,
Debtor.

89 B 11933
(PCB)

Case No.

In re:
HOWARD P. STURMAN,

89 B 11934
(PCB)
Debtor.

REPLY APPLICATION IN FURTHER SUPPORT OF

APPLICATION OF DONNA STURMAN BY HER COUNSEL
OBJECTING TO THE TRUSTEES MOTION TO CLOSE THESE CASES,
FOR AN ACCOUNTING, A TURNOVER
AND THE REOPENING OF TWO WRONGFULLY DISMISSED ACTIONS

Preliminary Statement

There can be no question that these 20 year old no-asset Bankruptcy Estates will be
cited and studied for years as among the most notorious and egregious examples of a
Bankruptcy Court being used for criminal purposes, including:

Allowing three no asset Chapter 7 bankruptcy Petitions to be filed in bad faith

under 11 U.S.C.303 by Manufacturers Hanover Trust (MHT) after it knowingly participated

in making fraudulent transfers (in the guise of loans) to insolvent debtors which stripped all the
equity of two corporations of which Donna Sturman was a known 25% owner1 even after being
subpoenaed in Donnas state court action.2

Allowed the Trustee to satisfy the debts of MHTs out of fraudulently acquired

non-debtor properties.

Allowed the unsecured lenders to satisfy all of their unsecured debts out of non-

debtor assets.

There can be no question that, since Donnas fraudulent involuntary Petition was dismissed pursuant
to 11 U.S.C.349, all her interests revested in her. Senate Report No. 95-989 states: Subsection (b)
specifies that the dismissal reinstates proceedings or custodianships that were superseded by the
bankruptcy case, reinstates avoided transfers, reinstates voided liens, vacates any order, judgment, or
transfer ordered as a result of the avoidance of a transfer, and revests the property of the estate in the
entity in which the property was vested at the commencement of the case. The court is permitted to order
a different result for cause. [Which it did not do in this Case.] The basic purpose of the subsection is to
undo the bankruptcy case, as far as practicable, and to restore all property rights to the position in which
they were found at the commencement of the case. See Dismissal of Donnas Case at Exhibit A dated
June 10, 2004.
2
There can be no question that MHT was well-aware of Donnas interest in the properties as early as
October 1986, a year before MHT started making fraudulent transfers of assets of the Sturman in the
guise of secured loans, and certainly in mid 1987 when MHT started to receive subpoenae from Millbank
Tweed who was prosecuting Donnas state court action. (In the Bankruptcy, Donna filed a Complaint,
dated December 11, 1998, Donna A. Sturman, et al. against CMB et al. [89-8076A] at Exhibit B.) The
incomprehensible dismissal and docket sheet of this Adversary for failure to prosecute,
notwithstanding that it was fully briefed, is found at Exhibit C.
David H. Relkin, Esq.

Mr. Goldberg, whose sole reference in the 1989 Martindale-Hubbell directory

was MHT3, was encouraged to retain the law firm of Otterbourg Steindler Houston & Rosen,
whose partner Morton Gitter claimed in its Bankr. R. 2014 (a) affidavit:
Neither I nor any member or associate of my firm represents professionally,
or is associated with the Trustee, the Debtor, its creditors or any other party in
interest although my firm has acted and continues to act as counsel, in
unrelated matters for Manufacturers Hanover Trust Company, Chemical
Bank, Boston Safe and Deposit Company and Bank of New York, who may
be creditors of the Debtor.4

In other words, Mr. Gitters firm, Otterbourg, had no conflicts except that it had

every possible conflicta blatant and clearly disqualifying breach of Bank. R. 2014(a) and 11
U.S.C. 101 (14) (e)! How could Mr. Gitter actually claim that he didnt know that each and
every creditor in the Cases were his then-present client?how could a man of his stature and
connections claim that such a non-conflict-conflict did not render him and his firm utterly
incapable of being disinterested and thus completely disqualified to act as counsel for the
Trustee in these Cases?5

The retention of Otterbourg is exactly the type of retention that Bankr. R. 2014(a)

was designed to prohibitone that facilitated constant contact and instructions by the Vice

See Marc Stuart Goldbergs listing in the 1989 Martindale Hubbell directory at Exhibit D.
See Exhibit E. Is it not strange that Mr. Gitter named each and every Institutional Creditor in these
cases but said that they may be creditors in this case? He knew that they were creditorsnot that they
may be creditors. This is a plain and simple misrepresentation under Bank. R. 2014 (a)
warranting a denial of all attorneys fees Goldberg. See In re Georgetown of Kettering, Ltd.,750 F.2d
536 (6th Cir. 1984).
5
In fact, the choice of Goldberg as the Trustee in these Cases, a solo practitioner at the time, was only
allowed by MHT to serve as the Trustee, the largest creditor in the Cases, if he agreed to retain
Otterbourg, as a quid pro quo. (See Donna Sturmans Reply to the joint objections of the Trustee and
CMBas if they were not joined at the hipdrafted by Helen Chaitman, Esq. and Charles A. Stewart III
at Exhibit F, pp. 4-5.)
4

-2-

President and Assistant General Counsel of MHT, Richard Gerard, Esq. to the main litigator in
these Cases, Glen Rice, Esq. at Otterbourg,6 as to virtually every major decision in the Cases.7,8

Allowing the Trustee to take over on unsigned and ex parte orders manage every

property of the once-vast Sturman Family Enterprisesnone of which were in Bankruptcy

without Notice or a Hearing, no less even a legal analysis or determination as to what assets were
part of the Estates.9

Unlawfully allowing the Trustee and the alleged Creditors to steamroll over the

well-settled rule of 11 U.S.C. 541 that an individual debtors interest in partnerships and
corporations, such as those in these Cases, does not become part of the Debtors estatesthus
preventing the underlying assets of the entities from becoming part of the Estateswhich is
exactly what Goldberg totally disregarded in these cases.

The Court should note Goldbergs affirmation dated July 30, 1996 at 2-3 in which he admits that he
met with MHT and Otterbourg shortly after he was appointed privately together without stating what
the conversations were about and vouched for Mr. Gitters disinterednessalso a violation of Bankr.
R. 2014 (a). (See Exhibit G hereto.) (Upon a full review of these cases, one cannot but come to the
conclusion that Goldberg was in violation of 18 U.S.C. 152 (6) [by] knowingly and fraudulently gives,
offers, receives, or attempts to obtain any money or property, remuneration, compensation, reward,
advantage, or promise thereof for acting or forbearing to act [for MHT] in these cases.)
7
See a sample of the substantial correspondence between Richard Gerard, Esq., Vice President and
Assistant General Counsel of Chemical to Glen Rice, Esq. at Otterbourg, at Exhibit H.
8
See Mr. Goldbergs Bankr. R. 2014 (a) affirmation regarding the retention of Harrington, Ocko &
Monk (HOM), to which he moved sometime in 1997, claiming that HOM also had no conflicts with
Chase. But see HOMs Representative Client List from their website, behind Goldbergs affirmation,
which shows that Chase was indeed a major client of HOM. Thus, Mr. Goldbergs Bankr. R. 2014 (a)
affirmation, at Exhibit I is fraudulent, is violative of 18 U.S.C. 152 and 157.
9
See Exhibit J, Ms. Sturmans July 1990 Notice to the Bankruptcy Court that the loans to H.
Development were not bona fide loans and were subject to her claims in the State Court Action to
recover on behalf of all the partnerships and corporations.

-3-

Thus, Goldberg finished what MHT had startedthe fraudulent conduct of the

Banks aiding and abetting the breach of fiduciary duties owed to Donna by converting nondebtor property into debtor property.

The taking of property which was sold to satisfy MHTs and other creditors

without 11 U.S.C.363 hearings, without notice, findings of fact or conclusions of lawall of

which sales were all objected to by Donna, therefore requiring Notice and Hearing (363(c)(2))
which never happened (with the exception of Yorkville)and were therefore void since
Goldberg failed to segregate and account [to Donna] for any cash collateral in the trustees
possession, custody or control as he was required to do under 11 U.S.C. 363 (c) (4).

Thus, every single sale of non-debtor property, and all of it was non-debtor

property, by Goldbergeach of which was objected to by Donnawas a direct violation of 363

and was clearly an unconstitutional, unlawful taking of property from Donna implicitly approved
by this Courtsince it never held him to account under his fiduciary duties.

One must ask why were the Debtors indicted and tried for submitting fraudulent

financial statements to the Bank, while the Bank officers testified with immunity.10

Allowing the underlying once-valuable assets of the corporations and partnerships

which made up the Sturman Family Enterprises to be abandoned to MHT or foreclosed upon or
simply act as cash cows, and then sold for the asking by creditors (such as Yorkville where the
Trustee took in $1.0 Million Dollars a year for seven yearsand never accounted for one penny).

10

What did MHT have to hide and why did so many of MHTs employees leave its employee after the
Trial? See MHT Credit Facility Review dated April 14, 1998 showing that, according to MHT, Donna
owned many of the properties and that the Brothers had a net worth of over $30,000,000.00 at Exhibit
K.

-4-

How was Goldberg to operate the Yorkville property from 1991 to 1998 and only

in 1994 did he become aware of the American Savings Bank $3.0 Million Dollar mortgage
why was the mortgage in default? What happened to the money from Yorkville for those three
years? Nowhere does Mr. Goldberg account for that money.

And yet, despite the obvious fraudulent conveyances, deepening insolvency aiding

and abetting breaches of fiduciary duty, Goldberg did nothingnot take even one deposition of
the Banks who had allegedly loaned the Debtors close to $40 Million Dollars to the Debtors
$1.2 Million Dollars each to cover margin calls in 1987. This was clearly gross and reckless
negligence amounting to knowing fraud11 by the Banks and an egregious violation of aiding and
abetting the willful misapplication of funds of a federally insured bank in violation of 18 U.S.C.
2 and 656. See US v. Giragosian, 349 F.2d 166 (1st Cir. 1965); US v. Williams, 478 F.2d
369, 373 (4th Cir. 1973).

Improper lending is a federal crime and does not require that the bank officer

profited from the transaction, only that the officer acted in reckless disregard of the banks
interest. See 18 U.S.C. 645 and 656: theft, embezzlement or misapplication of funds by
Trustee and Bank officers, respectively.

There can be no question that lending $40 Million to Debtors without any

personal assets, was reckless disregard. See Logson v. U.S., 252 F.2d 12 (6th Cir. 1958). In fact,
such lending, with knowledge of Donnas suit, was a violation of both above sections: An

11

See McClellan v. Cantrell, 217 F.3d 890, 893 (7th Cir. 2000): Fraud is a generic term, which embraces
all the multifarious means which human ingenuity can devise and which are resorted to by one individual
to gain an advantage over another by false suggestions or by the suppression of truth. No definite and
invariable rule can be laid down as to a general proposition defining fraud, and it includes all surprise,
trick, cunning, dissembling, and any unfair way by which another is cheated.

-5-

action can be taken knowingly [under 18 U.S.C.152, 645 and 656] if the defendant merely
turned a blind eye to the obvious facts. See U.S. v. Yasser, 114 F.3d 558 (he wilfully closed his
eyes to facts which [constituted fraud and] made the existence of such an officer obvious). The
Bank was on inquiry notice of Donnas suit and worked as fast as it could to flip unsecured loans
into secured loans. (See discussion of its fraudulent conduct regarding H. Development, infra, at
pages 14-15.)

It is no wonder that Mr. Goldberg passed into obscurity long-ago and has not been

on the Chapter 7 Trustee Panel or heard from for over ten years once the creditors had him do
their bidding, converting the non-debtor assets into cash, and dissipating the cash flow from the
Estates, and has now chosen to bring this motion out of the blue (dated April 29, 2009) to
disburse a pittance of the monies that he has been holding for years (with nothing going to Donna
who owned 25% of the $40 Million Dollars that the Debtors were allegedly worth until he and
the Court received copies of my correspondence to the US Trustees Office and the US Attorney
in a scramble to avoid the scrutiny he deserves but hopes to vanish like the Sturman Family
Enterprises did.12

Allowing the only true victim of these CasesMs. Sturmanto languish,

spending every last dollar she had, until she became impoverished and homeless with three
children, to defend herself against the vexatious litigation against Donna by the Banks, the
Trustee to protect his creditors from being exposed in their knowingly aiding and abetting
breaches of fiduciary duty, inducing deepening insolvency, and fraudulent conveyances, their
grossly reckless conduct in making millions of dollars of improper loans, conversion and

-6-

fraudulent conveyances and continued to loan money to three brothers (having knowledge that
Donna was an owner of the entities to whom they loaned money after they were subpoenaed by
Donnas counsel in March 1988, in her State Court Action.13

The Banks naked attempts to manipulate these bankruptcy proceedings and their

illegal use of the threat of criminal proceedings and non-dischargability against the Debtors to
bend them to MHTs will.

Then, when MHT and the Trustee couldnt get rid of Donna, the Banks forced

Donna into a fraudulent involuntary Bankruptcy by calling in a favor from one of their pet law
firms to join in with two other purported creditors in the same law firm holding $400 claims
(and who never even put in proofs of claim)14 to force Ms. Sturman into a bad-faith
bankruptcy to grab her numerous claims against the Trustee and the Creditors and, just to
sweeten the deal, cancelling the law firms debt to the Bank.15

It was only in the context of Donnas Bankruptcy that they could get rid of

Donnas claims in a collusive and fraudulent Settlement Agreement entered into by and between
Alan Nisselson and Marc Goldberg purporting to settle all of Donna claimsand then

12

See my letters of September 4, 2009 and September 10, 2009 at Exhibit L.

See infra at Exhibit X, at page 11.
14
See Involuntary Petition at Exhibit M hereto in which Lori Samet Schwartz, Esq. and Mitchell G.
Mandell, Esq., members of Pollack & Green, each claimed to have $400 claims, to amount to 3 creditors
but never put in Proofs of Claim. This type of Splitting claims is a violation of 18 U.S.C. 152 and
157.
15
See Chases coincidental termination of its security interest in Pollack & Greenes assets at Exhibit
N. This Petition was a violation by Pollack & Greene, Lori Samet Schwartz and Mitchell G. Mandell
of 18 U.S.C. 152 and 157 by filing a fraudulent involuntary bankruptcy under 303.
13

-7-

exculpated each other in this connection. (See Settlement Agreement at 12, at Exhibit
O.)16

The outrageous attempted exculpation of Nisselson (Donnas Trustee) and

Goldberg of each other is not only a breach of a Trustees fiduciary duty but is void as against
Public Policy. The attempted exoneration of [a] fiduciary for any loss unless occasioned by
willful neglect or misconduct is a nugatory provision amounting to nothing more than a
waste of good white paper. Matter of Curley, 151 Misc. 664, 675, 272 N.Y.S. 489, 501, mod.
on other grounds, 245 App. Div. 255, 280 N.Y.S. 80 (2d Dept 1935), affd 269 NY 548 (1935).
See also, Resorts Intl, Inc. v. Lowenschuss, 67 F.3d 1394, 1401-02, 1402 n.6 (9th Cir. 1995);
Landsing Diversified Props.-II v. First National Bank and Trust Co. of Tulsa, 922 F2d 592, 60002 (10th Cir. 1990), which hold such non-debtor releases are void against public policy as a
matter of law.

Moreover, Surrogate Roth has admonished any attempt [by a Trustee] to draft a

trust instrument that would render him unaccountable under any circumstances may also violate
the Code of Professional Responsibilitys proscription against knowingly advancing a claim that
is unwarranted under existing law. 22 NYCRR 1200.33 (a) (2)17 (citing Matter of Lubin, 143
Misc.2d 121, 539 N.Y.S.2d 695 (Sur. Ct. Bronx Co. 1989).

16

See undated collusive Settlement Agreement between Nisselson and Goldberg and Order by this Court
approving such Settlement dated December 16, 2002 at Exhibit O.
17
Now Rule 3.1(b) (1), which states that A lawyers conduct is frivolous for purposes of this Rule if:
the lawyer knowingly advances a claim or defense that is unwarranted under existing law

-8-

Allowing Pollack & Greenes bad-faith bankruptcy proceeding to continue

without any findings of fact, conclusions of lawindeed, has no record of any hearingsdespite
adjudicating Ms. Sturman bankrupt without any notice to her or counsel of record,18 and by
appointing Goldbergs cohort in crime, Alan Nisselson, to take over her numerous actions,
objections and claims in the Brothers Bankruptcy19--to dismiss them, bar her from going into
Surrogates Court to protect the once-substantial assets of her mothers Estate from dissipation,
and forcing a settlement upon her of all her rightful claims, ownership and beneficiary interests,
for 5 cents on the dollar and, as a reward for their collusive conduct, obtaining a blessing from
this Court of almost a million dollars in attorneys fees and allowing them to release all her
claims and each other for their brilliant work.

We now all know the daily dirty secrets which arise virtually every day and

assault us from every direction again and again from the Television and newspapers exposing the
frauds, the ponzi schemes, the kickbacks, the embezzlementsit is now the only subject of the
nightly newsbut even awash with the detritus of the unending judges, promoters, celebrities,
investors, and the long-line of attorneys now exposed as criminals being hauled off in handcuffs
(who would have guessedhe seemed so honest)I was still astonished at the unbelievable
confluence of power and greed, and without even the slightest irk of shame in destroying the
innocent lives of Donna and her children by keeping her broketo control hereither by
voluntarily or involuntarily forcing her into Bankruptcy.

18

See infra at footnote 55, at page 42Notice is the essential to due process and failure to provide it to
a debtor is a violation of due process embodied in the 5th and 14th Amendments to the Constitution.
19
Since Donna Sturmans claims were brought on behalf of the Sturman Family Enterprises, which were
not in bankruptcy, Nisselson and Goldberg had no standing to release such claims and they were not
under the jurisdiction of the Court since they were non-core proceedings. This was also a violation of
judicial estoppel Bates v. Long Island R.R., 997 F.2d 1028, 1037 (2d Cir.) cert. den. 510 U.S. 992 (1993)

-9-

ARGUMENT
POINT I
GOLDBERGS ATTEMPT TO
CLOSE THE ESTATES IS
CONTRARY TO PUBLIC POLICY
AND MUST BE DENIED

This Memorandum of law is submitted in further support of Donna Sturmans Objection

and Request for a Hearing to deny the submission of the Final Report submitted by Marc S.
Goldberg, and in further support of Donna Sturmans motion for an accounting and turnover of
all money in his possession and disgorgement in objection to the belated attempt by Goldberg,
the Trustee in these Cases, to distribute the pittance of monies he now continues to holdfor
at least three years he seems to have done absolutely nothing in these casesto various
remaining creditors who have no valid right or claims therein.
From the filing of the involuntary petitions in bankruptcy by MHT beginning these
Estates, it was recognized that the claims of Donna Sturman, having been the one innocent
party in these proceedings, were the only valid, genuine claims which involved non-core
issuesand therefore could not be done away with in this Courtand should be paid.20
Indeed, she was forced into poverty and ultimately into an involuntary bankruptcy orchestrated
by the Banks, Nisselson and Goldberg.
The Trustees application is nothing more than an attempt to bury the huge abuses of his
powers and responsibilities as a Trustee with a fiduciary obligation to Donna in which he failed
to make even a simple analysis of what were the assets of these Estates. Instead, he colluded

- 10 -

with the major creditors of the Estatesespecially MHT, which completely controlled the
Brothers Casesto transfer to them every one of the non-debtor assets and, thereby, breached
his fiduciary duties as a Trustee to return property to its true owner.
Goldberg was owned by the Banks and so they owned the property. To this day there
have never been a finding of facts or determinations of law, no less any analysis of what
constituted the assets of the Estate; but there can be no question that the non-debtor
partnerships and corporations were never part of the Estates.21 MHT, Chemical and Boston
Safe Deposit, and Bank of New York made the Rules for the Trustee in this casenot the
Bankruptcy Code.
The Trustee was put in place with Otterbourg by his side as a quid pro quo for allowing
him to stay on as Trustee. The facts are not in dispute: MHT and Chemical, now JP Morgan
Chase (Chase) put in their Trustee, put in their attorneys (Otterbourg), who represented
everyone but the Debtors, and then they gave their attorneys their marching orders and banged
on the table until they got their more than their pound of flesh.
Chase threw money at the Brothers until they found out about their sister Donna
Sturman who clearly owned a one-quarter interest in all of the Sturman entitiesexcept those
to which the Brothers had unlawfully and fraudulently transferred assets from the Sturman
entities. Many showed great wealth and assets, like candy, for the taking, after which the Banks
ran.22 All the claims by the Banks were avoidable or were subject to equitable subordination

20

See Transcript of March 16, 1999 Hearing, at pages 25-27, at ExhibitP, in which it is made clear that
the money that went through the estate was Donnas money.
21
See Points IV and VI.
22
See pages 73, 104, 105, 106 of Criminal Trial at Exhibit Q.

- 11 -

for which the Brothers went to prison, knowing full-well that the Banks would do anything to
crush them.23
MHT/Chase was well aware that Donna Sturman was a one-quarter owner of the
numerous properties that she had also inherited from her parents since her interests were shown
in her lawsuit, on the Bank statements and in the Muriel Estate.24 Chase then put its plan into
motion after their eyes were opened that the brothers had what Donna had: no personal assets to
satisfy their enormous loans which the Banks almost forced upon them.
POINT II
THE COURT MUST DENY THE TRUSTEES ATTEMPT
TO CLOSE THE CASES DUE TO SERIOUS
MATERIAL ISSUES OF TRUSTEE ABUSE

The history of these cases is rampant with bankruptcy fraud, creditor fraud, Bank. R.
2014(a) fraud, Trustee fraud, fraudulent conveyance and this Court has been used by the
Trustee and his creditors (the Banks) to destroy the Sturman Enterprises, in violation of Ms.
Sturmans rights as a partner, shareholder and beneficiary.
As fully demonstrated herein, there was absolutely no basis at law to sell the
partnerships or corporations of the Sturman Enterprises even if the debtors were shareholders or
partnersthe corporate and shareholder assets simply cannot be reached by a creditor such as
MHT.
After being forced to defend her interests in these proceedings instituted by a bad faith

23
24

See superseding Indictment at Exhibit R.

See Financial Statement of the Debtors dated October 30, 1986, at Exhibit S.

- 12 -

filing by MHT, all of which has been briefed and documented in her actions against Chase and
the Trustee (which this Court dismissed without basis) and in her Reply to the Objections to her
proofs of claim, 25 Ms. Sturmans claims are, and have always been asserted on behalf of the
entities (the partnerships and corporations) which are non-core matters on which this Court has
never had the authority to enter final Orders. This is because they concern non-debtor assets
and interests which were trampled on in this Court by means of collusion, fraud and avarice.
Ms. Sturmans Proof of Claim established her prima facie entitlement to a full
distribution of her assets from a Bankruptcy proceeding that sought her complete destruction as
an owner of the Sturman Assets.26
The depths to which MHT and the Trustee sunk in these Cases is a new low: as a result
of arson, ten days after the location of the books and records were broken into, which the
Trustee failed to take control of or insure, as required by 11 U.S.C. 704(1), the Trustee became
unable, and remains unable to controvert any of her claims.
Since she was an owner of the assets, she was entitled to be paid 100 cents on the
dollarnot because that would have been nicebut because that is the law.27
Instead of acting in a fiduciary relationship with Ms. Sturman, which was his fiduciary
responsibility, the Trustee, put into his role by MHT, with the proviso that he would take his

25

The Court has dismissed both of these cases, as futher discussed herein. They must be reopened to
allow any justice to be achieved in these cases.
26
See Yorkville Partnership agreement at Exhibit T, specifically allowing the partners to hold the
property in their personal names as tenants in partnership. Notwithstanding this, and the well-settled rule
that partnership property is not part of a debtors estate, this Court allowed the sale of the Yorkville
Associates property.

- 13 -

marching orders from Otterbourg, counsel to every creditor in these cases, began to write the
Banks law: whats mine is mine and whats yours is mine.
There is a Bankruptcy Code establishing rights, obligations and duties of a Trustee,
none of which Goldberg fulfilled.
Initially, the Trustee was required to ascertain the assets of the Estate. To this day,
twenty years after MHT precipitously and wrongfully filed the Involuntary Petitions in these
Cases, which Goldberg never investigated, which they did with the sole wrongful purpose to
stop Donnas State Court litigation (and, after MHT was served with subpoenas by Donnas
counsel, Millbank, Tweed), the Trustee has yet to articulate what the assets of these Estates
really wereexcept that they were whatever the Bank said they were.28
The H. Development (HD) transaction is a perfect example of the brutal depths to
which Chase went. As made clear in the Criminal Trial (for example, on page 364-374 of the
Transcript of the testimony of Paige Davis),29 Chase had over $7 Million outstanding to the
Brothers which were unsecured loans.30 So, what did the Bank do? Lend the money to the
brothers?no. Lend the money to the Corporation. Then, the Corporation loaned the $7
Million previously unsecured money back to the Bank (abracadabra, the money is now a

27

See evidence of Arson 11 days after the Trustee was aware of a break-in attempt at the location of the
organizations books and records which the Trustee somehow thought it was not his responsibility to take
under his control in violation of 704(1) at Exhibit U.
28
See the Complaint of Donna A. Sturman et al. against Marc Goldberg [99-8076A] at Exhibit V.
29
See the testimony of Paige Davis, pages 364-374 of the Criminal Trial Transcript, at Exhibit W in
which she admitted that MHT made an additional loan to the Debtors of $2.0 Million after notice of
Donnas lawsuit and receipt of a subpoena duces tecum.
30
According to Glen Rice of Otterbourg, counsel for the Trustee, at the inception of the Cases, Mr.
Goldberg was in possession of $7,866,145.10, comprised of Cooper Stock, money market accounts in the
name of the Debtors, and collections of rent from Yorkville. (See October 10, 1991 Transcript at pages

- 14 -

secured loan), then MHT had HD loan $6 Million to the Brothers. This is the very definition
of deepening insolvency, aiding and abetting breaches of fiduciary duty, fraudulent conveyances
as well as being sufficient to equitably subordinate MHTs claimsMHT exercised total
control over the Debtors and the spigot from which they obtained their fraudulently derived
monies. See, e.g., Schact v. Brown, 711 F.2d 1343, 1350 (7th Cir. 1983) (citing In re Investors
Funding Corp. of N.Y. Sec. Lit., 523 F.Supp. 533, 536 (S.D.N.Y. 1980); S&K Sales Co. v. Nike,
Inc., 816 F2d. 843, 851 (2d Cir. 1987); In re Sharp, 302 B.R. 760, 770 (E.D.N.Y. 2003).
Before this fraudulent transaction HD would have had at least $15 Million in equity.
After the transaction HD was a shell. Donna, who owned 25% of HD, as the Bank knew,31
had all of her equity stolen or fraudulently conveyed to MHT and to her brothers, who used the
money to buy stock in Cooper.
The HD transaction was also a fraudulent conveyance. Before the transaction, the
corporation had value. Afterwards, the corporation, having received no value, lost close to $14
Million in equity. (See, e.g., Debtor and Creditor Law 273-a32 [since Donna had an action
pending against HD, and 276.) Knowing that Donna had already sued the Brothers in the
names of the entities, including HD, the Banks quickly pushed this loan through (before Donna

3-5, Exhibit X.) It is this amount that Mr. Spielberg, counsel for the Trustee stated in open Court
belonged to Ms. Sturman, at pages 23-24. See also Exhibit KK hereto, infra, at page 25.
31
This was known from the Public Tax Records where it filed its Mortgage on the property, the Banks
own records (see financial statement of the MHT, dated April 14, 1988 and the earlier Financial
statements provided by the Brothers to the bank, including the October 30, 1986 financial statement) and,
most importantly, from the Donna State Lawsuit. (See Exhibit Y annexed hereto.)
32
The weight of authority holds that a claim for constructive fraudulent conveyance under 273-a is not
required to be pleaded with particularity under Fed. R. Civ. P. 9(b). SIPC v. Stratton Oakmont, Inc., 234
B.R. 293, 319 (Bankr. S.D.N.Y. 1999) (The pleading of constructive fraud, as opposed to actual fraud,
must only comply with Fed. R. Civ. P. 8(a) because scienter is not an element). This is because
although tagged with the title fraudulent, fraud has nothing to do with the constructive fraudulent

- 15 -

was able to obtain discovery in the State Court action) to provide the Debtors with sufficient
capital to meet margin calls, effectively making HD the equitable owner of the Cooper
Company Stockwhich even the Trustee and his counsel acknowledged belonged to Donna.
After the loans, the Bank improperly filed the Involuntaries,33 where they could move
for relief from the stay on the HD mortgagewhich is exactly what Chase did.34 The Trustee
and this Court knew that the Banks knowingly made loans to the Debtors whom they knew
were not the only owners of the Properties because of so many reasons, including Donnas
challenge in this and the State and Surrogates Court to the validity of such Petitions as being
filed solely to stop her state court litigation against the Debtors and MHT yet the Trustee and
this Court looked in the other direction and allowed MHT to control and manipulate the
Bankruptcy Court proceedings.35
Yet, what the Banks and the Trustee did was exceedingly more devious. After moving
for relief from the stay to sell HD on February 28, 1992which would have allowed MHT to
obtain a deficiency judgment against the Debtors for the difference between the appraised value
of $9,300,000.00 and the amount of the loan $17,714,142.94, which MHT would have been

transfer claim. The transaction is based on the transferors financial condition and the sufficiency of the
consideration provided by the transferee. White Metal Rolling, 222 B.R. at 428-429.
33
See In re Collins, 250 B.R. 645 (Bankr. N.D. Ill. 2000) (holding a court imposed sanctions against
Chapter 7 debtor and attorney because bankruptcy case was filed in bad faith since debtor had net worth
of $2.3 Million Dollars, annual income of over $200,000, and the case was cited to
escape liability to a single disfavored creditor).
34
See motion by Chase for Relief from the stay to foreclose on H. Development at Exhibit Z, and
Donna, despite noticing the Court of the lack of bona fides of the loans, she was not on the service list.
35
See Donnas removed action with answer of the brothers at Exhibit AA. Thus, these claims were
not part of the Bankruptcy, and at most were non-core proceedings, on which this Court could not
rulenor could they be settled by the Trustees in the collusive settlement agreement between
Goldberg and NisselsonIt is basic that a settlement agreement or contract [with no notice to
Donna], like any other, may be attacked on the grounds that it was procured by fraud. First Nat.
Bank of Cincinnati v. Pepper, 454 F.2d 626, 632 (2d Cir. 1972).

- 16 -

entitled toinstead, MHT had Goldberg abandon HD by motion dated March 23, 1992.
Thus, MHT did not have to use up any amount of its $17 Million Dollars in debt to foreclose
on the property, allowing them to double-dip36 holding onto their $17 Million Dollar debt
and use it to acquire other assets of the non-debtor estate.37, 38,39 Indeed, the Banks and the
Trustee had a great deal to fear from Donna.
The knowing and active cover-up and concealment of MHTs and the Debtors
fraudulent conduct is the very definition of aiding and abetting breaches of fiduciary duty by
transforming a purported unsecured loan into equity in the Properties subject to a bona fide
dispute.
MHT which engaged in this type of flipping unsecured loans into secured loans or
equity, constituted clear aiding and abetting a breach of fiduciary duty. See, e.g., Richard C.
Mason, Civil Liability for Aiding and Abetting, 61 Bus. Law. 1135, 1166 (May 2006) and
Bondi v. Bank of America Corp., 383 F.Supp.2d 587, 590 (S.D.N.Y. 2005). Instead, the
Trustee failed to avoid, no less even investigate any of these transfers and gave the property

36

It is incredible to the writer of this Brief that a court could approve such an agreement which trounced
Donnas rights.
37
See Notice of Abandonment by Goldbergs counsel Otterbourg, dated March 23, 1992, which allowed
MHT to keep its $17.4 Million Dollar debt without using any part of it to acquire HD at Exhibit BB.
In light of Donnas objection to the loans against HD (at Exhibit J), previously filed in July 1990, this
abandonment of HD couldnt have been more criminal!
38
No doubt, MHT placed heavy pressure on the Debtors, in addition to the threat of criminal
prosecution, to allow MHT to acquire HD for nothingallowing MHT to keep its $17.4 Million Dollar
loan to acquire other assets. (See Exhibit BB, the abandonment motion.)
39
It was for their silent agreement that the brothers got their discharge, even though all the banks all
brought non-dischargability complaints, which they used as further leverage during the Bankruptcy. After
MHT got what they wanted they dropped their objections to the Debtors discharge (See discharge of the
Debtors, dated February 10, 1994 for Bruce, January 10, 1995 for Howard and Wayne. at Exhibit CC.)

- 17 -

to the Bankhe even joined in the Banks motion for relief from the stay.40
MHTs knowing participation in the Debtors breaches of fiduciary duties owed to
Donna by denuding the value of the properties, leaving the Properties with all debt and no
value, was to advance money to the Debtors to wage a proxy fight to gain control of Cooper
Company. See Nisselson v. Drew Indus. (In re White Metal Rolling), 222 B.R. 417, 428-29
(S.D.N.Y. 1998) (the title fraudulent, fraud has nothing to do with the constructive
fraudulent transfer claim [under 273-a]. The transaction is based on the transferor's financial
condition and the sufficiency of the consideration provided by the transfereewhich, in the
case of HD was no value); See also Whitney v. Citibank, 782 F.2d 1106 (2d Cir. 1986) in which
the Second Circuit found aiding and abetting breaches of fiduciary duties in circumstances
remarkably like the case at bar. The leftover equity of HD was then transferred in contravention
of Donnas rights in order to allow the Debtors to buy more stock in Cooper and wage a proxy
war.
It should be kept in mind that, just after the Petition, the Trustee was holding, according
to the Trustees counsel, the sum of $7,866,145.10, comprised of Cooper Stock, money market
accounts in the name of the Debtors, and collections of rent from Yorkvillewhich Goldbergs
later counsel agreed on the record belonged entirely to Donna. (See Exhibit X.)
In their proxy fight, as MHT knew, the Brothers had submitted SEC 13-D statements in
which they had to state whether they were involved in any litigationwhich they denied.

40

This insidious act would have substantially increased the ability of Donna to prove a fraudulent

- 18 -

The Banks clearly knew that this misrepresentation could force the brother into a
criminal prosecution and would hold onto this card until later. But the Banks, too, could be
liable for such failure to disclose since they also knew that the loans were for a proxy fight, that
SEC documents would have to be filed and that the Brothers were defendants in an action for
money damages. From this distance, these Cases take on more and more the look of a
conspiracy to commit money laundering and Bankruptcy Fraud. 18 U.S.C. 1962(d); Money
Laundering, 18 U.S.C. 1956; and Bankruptcy Fraud, 18 USC 152.

Now it is clear why the Trustee didnt take the deposition of a single loan officer or
creditorafter Donna notified the Court that the loans by the Banks were subject to a bona fide
disputethe Brothers and the Bank could be criminally liable. Moreover, the Trustee failed to
segregate and separate Donnas interest in the sold properties from other property and account
to her under 363 (c) (4). A trustee may not commingle trust property with his or her own
property or commingle the trusts property with the property of other trusts. See Austin W.
Scott & William F. Fratcher, The Law of Trusts 179 (Little, Brown 4th ed. 1987). In the
Bankruptcy context, the Trustee improperly used Donnas cash collateral based on her $20
Million Dollar claim.
Thus the money transferred out of HD was no longer property of the Estates and was only
available only to Donna. As the Court held in In re Thurman, 901 F.2d 839, 841 (10th Cir.
1990): The words: Property of the debtor, are not the same as property in which the debtor
has a derivative interest. [Such as the derivative proceeds of the HD loan in the possession of
the Brokers.] To the contrary, the language of the statute is sufficiently circumscriptive to

conveyance under D&C 273-a or 276. Similarly, it would have also lowered the bar for the Trustee to

- 19 -

eliminate such an interpretation. MBank contends the Bankruptcy Code defines property to
include equitable interests of the debtor, 11 U.S.C. 541(a)(1). Hence, the creditor maintains the
transfer of an asset of a corporation is the transfer of property in which a stockholder has an
equitable interest to which 727(a)(2)(A) would extend. The purpose of 541(a)(1) is to define
property of the estate. If MBank's theory is correct, the estate of a debtor who holds a share in a
corporation would not only include the value that share would bring, but also a liquidatable
interest in any asset owned by that corporation. That is not the scope of 541(a)(1).

The greedy Debtors fraudulent conveyances of all of the equity possessed by HD

property to these predatory lenders continued unabated (and ignored by the Trustee), who
remains liable to Donna even now. See, e.g., 18 U.S.C. 645: Theft, embezzlement, or
misapplication by a Trustee. In addition, the bank officers and their employees ran afoul of 18
U.S.C. 656: theft, embezzlement or misapplication by a bank officer or employee.41
Moreover, these fraudulent transfers of the equity of HD constituted the unjust
enrichment of MHT. Unjust enrichment does not require the performance of any wrongful act
by the one enriched. See Lengel v Lengel, 86 Misc. 2d 460, 465-466 (Nassau Cnty. 1976);
Richards v Richards, 58 Wis.2d 290, 293-294 , 206 N.W.2d 134 (Sup. Ct. Wisc. 1973); see,
generally, 5 Scott, Trusts [3d ed], 462.2).
What is required, generally, is that a party hold property under such circumstances that
in equity and good conscience he ought not to retain it. See Miller v Schloss, 218 N.Y. 400,
407 (1916); see also Sharp v Kosmalski, 40 N.Y.2d 119, 121 (1976); Sinclair v Purdy, 235

prove the fraudulent conveyance-which he never chose to do in violation of his fiduciary duties.

- 20 -

N.Y. 245, 253-254 (1923).

Even after she commenced an action against the Debtors in State Court for denuding
the Properties and sought discoverydespite the repeated motions for protective orders by
MHT to produce documentation of its aiding and abetting such breaches of fiduciary duty,
and advised this Court that the loans and mortgages on the Sturman Properties were subject to
a bona fide dispute, the Debtors continued to mortgage properties, including an unrecorded
mortgage to SFS in the sum of $11.5 Million Dollars on Yorkville Associates property and a
pledge of the stock of Wayne-Adam Corp.
Donna repeatedly objected to such sales in these Cases (despite the contrary position
taken by the Court in its one opinion)and that somehow Yorkville (known as 86th Street)
could be, at the same time, according to this Court, a partnership and a tenants-in-common
relationship. Certainly, on Appeal, the District Court will recognize the error of this Court and
there will be what Donna has always said there would bea reversal of this Courts decision
approving the sale of non-debtor partnership property and disgorgement on a huge scale.42
The Trustees obligations were of a fiduciary relationship to Donna as an owner of the
properties to return the property to herand to close the cases expeditiously. See 11 U.S.C.
704 (a). This is perhaps a Trustees most important dutyafter a determination of the
property of the Estate. A 20 year bankruptcy, which extended 15 years after the Debtors

41

It is no wonder why the representatives of the Banks testified with immunity at the Brothers
criminal trial.
42
In addition, this Court and the Trustee violated injunctions against the transfer of any of the properties
in the Surrogates Court and the Supreme Court, without any finding that the Bankruptcy Code or an
Order of the Court overrode these Orders, which it could not do in any case. See Marshall v. Marshall,
547 U.S. 293, 311-12, 126 S. Ct. 1735, 1748 (2006) (the probate exception reserves to state probate

- 21 -

(incredibly) obtained a discharge is not expeditious. This Courts failure to hold any hearings
as to the validity of such conveyances of Property to the Banks in which Ms. Sturman was a
25% owner despite her repeated filing of objections to such fraudulent conveyances which
violated the Trustees duty to investigate the validity of her claims. 11 U.S.C. 704 (1), (2), (4),
(5) and (6).
Why didnt the Trustee seek non-dischargability claims against the felonious Debtors
who walked away with the harsh penalty of paying $10,000 and having to file their tax
returns?43
The United States Trustee Program has enacted standards that set minimum qualifications
for appointment. 28 CFR 58.3 and 58.4. Trustees are fiduciaries with wide-ranging
responsibilities to effectuate the goals of the particular chapter under which a bankruptcy case is
filed.44
Because they are fiduciaries, trustees are held to very high standards of honesty and
loyalty. See generally Woods v. City National Bank & Trust Co., 312 U.S. 262, 278 (1941);
Mosser v. Darrow, 341U.S. 267 (1951); See also Meinhard v. Salmon, 249 N.Y. 458, 464, 164
N.E.545, 546 (1928) (Cardozo, C.J.). Trustees are held to high standards not only because of
their fiduciary duties to debtors and creditors but because they take charge of debtors property
and they hold large amounts of other peoples money. The conduct by the Trustee in league
with the Banks was not only given the imprimatur of this Court but administered in a way so as

courts the probate or annulment of a will and the administration of a decedent's estate; it also precludes
federal courts from endeavoring to dispose of property that is in the custody of a state probate court.)
43
See Debtors discharge at Exhibit CC.

- 22 -

to deprive Donna of her Property interests in non-debtor property, leaving Donna and her three
children to live in abject poverty.
There is no question that these Cases were used in furtherance of Bankruptcy Fraud
namely: the abuse of the Bankruptcy Code by MHT to file involuntary Chapter 7 petitions for
the improper purpose of obstruction of justice and to gain an advantage over plaintiff by
stopping her action in New York Supreme Court to void the fraudulent transfers by the Debtors
of the Properties.
MHTs goal was complete: they siphoned off the equity of the non-debtor Properties for
their own benefit so that the Debtors could acquire Cooper stock, the knowing aiding and
abetting of such breaches of fiduciary duty to plaintiff by Chemical Bank45 and MHT.
These cases, which celebrated on August 4, 2009 their twentieth year under the
jurisdiction of this Court, and the intentional and malevolent victimization of Donna Sturman,
which, started by her brothers, has been continued to be perpetrated against her by the Trustee,
who stepped into the Brothers shoes, with the Banks certain knowledge of Donnas existence as
a owner, are a travesty by this Court.46

With the proceeds of the fraudulent transfers and with the aid and assistance of Chemical
Bank, MHT and the Trustee, the Banks and the Debtors looted virtually all the assets and real

44

Apparently, Goldberg couldnt stay his own thirst for embezzlement and, unknown to Donna and
perhaps unknown to this Court Marc Stuart Goldberg took in over $50,000 in rental commissions in
1995 alone on leases on the 86th Street Property. (See Exhibit DD.)
45
Upon information and belief, Chemical Bank was merged in 1996 into Chase Bank. In 2001, Chase
Bank was merged into JP Morgan Chase.

- 23 -

property which Donna and her brothers inherited from their parents to line their pockets, wage a
proxy war to acquire Cooper Company, and fraudulently transferred the remaining assets of the
entities to the Banks and the companies controlled exclusively by the Debtors.

What makes this action so egregious, however, is that this conduct was done with the
willing and active participation of the Trustee of the Estates, Marc Stuart Goldberg, in violation
of virtually every obligation of a Trustee in Bankruptcy, by making fraudulent representations
and omissions to this Court, and the Courts failure to supervise the Trustee, whom this Court at
one point said, had run amuck in this case. This Court has effectively given its approval to
Goldberg releasing himself from his egregious and possibly criminal conduct.

POINT III
DONNA STURMAN HAS CONCLUSIVELY
ESTABLISHED HER PROOF OF CLAIM FURTHER
ESTABLISHING THE DEROGATION OF THE TRUSTEES DUTIES
11 U.S.C. 502. Allowance of claims or interests
(a) A claim or interest, proof of which is filed under section 501 of
this title [11 USCS 501], is deemed allowed, unless a party in
interest, including a creditor of a general partner in a partnership
that is a debtor in a case under chapter 7 of this title [11 USCS
701 et seq.], objects.47
(b) Except as provided in subsections (e)(2), (f), (g), (h) and (i) of
this section, if such objection to a claim is made, the court, after
46

See Exhibit K hereto. These internal loan documents of MHT, dated October 30, 1986, showed that
MHT knew Donna was an owner and partner of the partnerships and corporations, at Exhibit Y, wellprior to almost all the loans made to the Debtors.
47
A properly executed and timely filed Proof of Claim will constitute prima facie evidence of the
validity and amount of the claim, and, accordingly, the burden is on the objecting party to establish that
the claim should be disallowed or reduced. H.R. No. 95-595, 95th Cong., 1st Sess. 352 (1977), reprinted in
App. C Collier on Bankruptcy, Pt. 4(d)(i) (Mathew Bender 15th Ed. Rev. 11 U.S.C.510(c) (1).

- 24 -

notice and a hearing, shall determine the amount of such claim in

lawful currency of the United States as of the date of the filing of
the petition, and shall allow such claim in such amount.

A.

The Court, the Trustee and His Counsel Have Allowed Donnas Claims and are
Precluded from taking a contrary Position under Judicial Estoppel

This Court, commenting on the indisputable validity of Ms. Sturmans claims in these
Estates, stated on November 10, 1998:

[T]he objection to Donnas claims is ridiculous. Donna filed a claim

which was supported by so many documents that the Clerks Office
refuse (sic) to take them and required the mail bank (sicshould be
Millbank, Tweed, my counsel) to retain them in order to review
them.48
The Trustee has offered nothing prima facie that overcomes the prima
facie validity of the claim under the Bankruptcy Rules that the claim is
valid until such time (sic) you offered (sic) such evidence to overcome
the prima facie validity. Because (sic) 5502(a) (sicshould be
502(a)) of the claim is deemed allowed unless objected to. Once the
objection is filed then B.R. 3001 (f) says (sic) proof of claim is prima
facie evidence, the case law is clear.
[S]imply saying we dont like it is not overcoming the claim and I did
review the claim. And as I say, the file is quite evident that there were
significant, substantial supporting documentation for that claim
Without that claim being resolved there is no possibility that one can
move forward with a distribution today with the creditors.49

48

These documents were retained by Donnas counsel, Millbank, Tweed which served Otterbourg,
Steindler, Houston & Rosen, P.C., attorneys for Marc Stuart Goldberg, Esq., the Trustee in this case with
the Proof of Claim, including all exhibits.
49
See also this Courts comment that the job of the Trustee is to determine who the creditors are
something he never did. See Transcript at Exhibit LL, page 15 thereof, lines 12-17, at page 25,
footnote 43.

- 25 -

See Transcript dated November 10, 1998, at pp. 7, line 3-25, and page 8, lines 1-13, at Exhibit
EE and Donnas Proof of Claim for $20Million at Exhibit FF. Since it is the burden of the
Trustee once Donna stated her Proof of Claim, to rebut it, and he has never done so, Donnas
Proof of Claim must be allowed. 11 U.S.C. 502 (b). Moreover, since there were no
Determinations of Fact and Law regarding Donnas Proof of Claim, it must be allowed.50

This Court continued to recognize the validity of Ms. Sturmans claims, as stated in the
December 7, 2001 Hearing:
I think that the Trustee has taken a thorough look at Donna
Sturmans likelihood of being able to construct the Constructive
Trust claims, which were somewhat extensive.
I think that the Trustee has shown she would, in fact, end up with a
$20 Million claim
See Transcript dated December 7, 2001, at p.17, lines 17-24, at Exhibit GG.
Notwithstanding the foregoing, the Court later sanctioned the stripping of all of the assets
and property of Ms. Sturman in her approval in the collusive Bankruptcy and settlement
agreement which is void, and, in any event such Bankruptcy proceeding was dismissed pursuant
to 11 U.S.C. 349, and is thus no longer in effect. (See footnote 1, supra.)

Even Mr. Spielberg, counsel for Marc Stuart Goldberg, the Trustee, stated in open Court,
on the record at that same Hearing:

Its clear to us that Donna seems to have a claim and a significant one.
50

Moreover, Donna was stayed from conducting any discovery in these Cases pending the resolution
of the motion against Chase.

- 26 -

We felt that Donna should be, should receive a distribution because

frankly she waited long enough with respect to her $20 million claim,
Judge. We have reserved for that.51
See Transcript of Trustees motion to object to the claims of Donna Sturman, dated
November 10, 1998, at pp. 21, line 9-10, and page 34, lines 6-22, at Exhibit HH.
It would be ridiculous, were it not so pathetically tragic, that, after the Trustee had milked
these Estates not for 2, not for 10, but for 20 years, keeping Ms. Sturman and her children in
poverty, and forced into bankruptcy without any notice,52 that the Trustees own justification
for settling Donnas $20 million claim was ironically his acknowledgment that it was
completely valid:

[H]is concern that Donna Sturman would be able or could be

successful in her efforts to impose a constructive trust on all of the
assets in the Estates, therefore leaving nothing for attorneys
fees, Trustees commissions or other Creditors.
51

It is almost eleven years ago that Mr. Spielberg made these statements and neither he nor Mr. Goldberg
has ever retracted these statements or distributed plaintiffs $20 million claim. It is clear that Mr.
Spielberg may have committed perjury in making the statement that the Trustee reserved $20Million
claim since the proceeds of the sale of the entities Ms. Sturman owned and which were sold by Goldberg
were never segregated, as required by Rule 9027(i), or paid. (The purported, fraudulent and collusive
settlement agreement later executed by Mr. Goldberg and Mr. Nisselson, the Trustee illegally
appointed to administer her fraudulent bankruptcy, in which both trustees (Goldberg and Nisselson
exonerated each other from any liabilitywhich is a clear breach of fiduciary dutyis discussed further
in this accompanying Memorandum of Law. Suffice it to say, for the moment, (1) there was no Hearing,
(2) no findings of fact or conclsusions of law, and (3) no notice to Ms. Sturman that she had been put into
a no asset Chapter 7 bankruptcy illegally without any findings of fact or conclusions of law that she was
indeed insolvent. (Given the knowledge of Goldberg and Nisselson that Ms. Sturman was owed
approximately $20 Million, her bankruptcy was a clear obstruction of justice, a continuation of the
bankruptcy fraud committed by the Trustee Goldberg and was nothing more than an attempt to conceal
similar breaches of fiduciary duty sanctioned by this Court and may, indeed, have been a violation of the
Borah Act, 18 U.S.C. 155.) Moreover, as the Trustee of Ms. Sturmans Estate, it was his responsibility
to determine whether the Petition was filed in bad faith, which he never did. See 11 U.S.C. 704 (b).
52
As part of the continuing cover up of the Bankruptcy Fraud permeating these Cases, when Ms.
Sturman brought actions against the Trustee and MHT, that their fraudulent conduct was about to be
exposed, she was put into an involuntary bankruptcy despite the fact that she was not insolvent, despite
the fact that the Petitioning Creditor split its claims into three attorneys in its own office, and despite the
fact that no notice was ever given to Ms. Sturman about the bankruptcy, the entire proceeding is a nullity
for these reasons and as demonstrated in 11 U.S.C.349.

- 27 -

See Transcript of Trustees motion to approve the settlement of Donnas claims, dated December
7, 2001, at p. 5, lines 10-14, at Exhibit II. (Emphasis added.)
Similarly, the Trustee himself fully acknowledged the validity of Ms. Sturmans claim.
As he testified on July 3, 2001:

Mr. Guarino: If Donna Sturmans constructive trust theory were

proved to be valid, what would that mean in terms of the impact
upon the Estate?
Mr. Goldberg: It would be enormous.
Mr. Guarino: In what way?
Mr. Goldberg: As I understand it, Ms. Sturman asserts through her
constructive trust theory that she would be entitled to somewhere
in the neighborhood of 8 to 12 to $13 million53, predicated upon
the theory as equity, as it were of the brothers properties and that
if, in fact, Ms. Sturman were correct or her theory was proven,
it would be approximately $5 million in cash that existed at the
time of the filing of the bankruptcy cases would be a fund upon
which Mr. Sturman would be able to attach in connection with
her allowed constructive trust claim, fees which had been paid
to professionals and disbursements which had been made to
creditors may be subject to disgorgement requests or
litigation.54
It would be absolutely enormous. Not to mention the
obvious cost that would assumed by the estates, Ms. Sturman and
others in connection with that litigation, the time that would be
involved.
Mr. Guarino: In fact, there might be disgorgement that would be
required; would there not?
Mr. Goldberg: I just testified to that.
53

In fact, Ms. Sturmans claim has never been disputed by the Trustee, accordingly, since the Proof of
Claim is prima facie evidence of the Claim, it must be allowed. See 11 U.S.C. 502.
54
See Exhibit X, supra, as to the source and ownership of this fundit belongs to Donna Sturman.

- 28 -

See Transcript of Trustees motion to approve the settlement Ms. Sturmans claims, dated July 3,
2001, at pp. 35, lines 4-25, through page 43, at Exhibit JJ hereto.
There is no better characterization of these mishandled cases by a corrupt Trustee than the
famous quote of William E. Gladstone, the British Prime Minister for 14 years, Justice delayed
is Justice denied. These cases are in fact so old that the Trustee is no longer on the U.S.
Trustees Panel55and yet, this Trustee who embezzled funds to the tune played by the banks
has been allowed by this Court to continue even now to collect and control purported assets of
the Estate without any oversight!56

This Court has failed to sanction the Trustee, and, in fact, his rewarded his misconduct:
by failing to remove the trustee or order him to be surcharged, even though, among other things,
(a) essential books and records of the debtors were kept in an uninsured building and destroyed
by arson57to the benefit of Manufacturers Hanover Trust Company (MHT) along with

55

One must ask oneself how Mr. Goldberg justifies his continued failure to resign as Trustee of the
Estates since he is no longer on the Panel, and why, fourteen years after the discharge of the Debtors,
he has yet to close the Cases pursuant to his responsibility under 11 U.S.C. 704. I think the answer is
simplehe knows that the closing of the cases would allow for an immediate appeal of his conduct in
these cases, and his likely sanctioning by the Court.
56
I would be remiss in my sense of duty to the system of Justice if I did not file a complaint
contemporaneously with this motion the Executive Office for United States Trustees, Criminal
Enforcement Unit (Criminal Enforcement Unit) in support of my request for a criminal investigation of
the facts and circumstances in connection with the involuntary Chapter 7 bankruptcy case filed against
Donna, as well as of those facts and circumstances in connection with the filing of the involuntary
Chapter 7 bankruptcy cases against the Sturman Brothers. I am respectfully requesting an investigation
by the United States Trustee and by the Criminal Investigation Unit because, based upon the defalcations
and corrupt practices in handling these Estates.
57
While this Court opined that the Trustees failure to insure the property that held all the books and
records of the Sturman Family Properties was improper, and in violation of 11 U.S.C. 704, A Trustee
shall .be accountable for all property received, he was never surcharged for this tremendous loss. As
the Court stated at the Hearing on July 15, 1996:
I do not understand why the property was not insured. I do not
know what loss the estate suffered by virtue of their (sic) not
being insurance on the property. I would have thought that

- 29 -

Chemical Bank (Chemical), (which have since been merged into JP Morgan Chase) and other
creditors whose claims could have more easily been refuted through evidence which is now lost,
(b) the debtors were criminally convicted of providing falsified financial statements to their
lenders, after officers of MHT were granted immunity to testify in the brothers criminal trial, yet
the Trustee, MHT and others saw fit to permit the debtors to be discharged, (c) debtor Bruce
Sturman transferred $3.5 million of assets to an inter vivos trust for the benefit of his wife in
1989, yet in settling his action to void the transfer the trustee, with the blessing of MHT, the
Trustee permitted the debtor's wife to retain a Park Avenue apartment worth at least $1.5
million58 while Ms. Sturman was left to struggle raising three children with no money in a studio

that was mandatorily Mr. Goldbergs duty to insure that

property. I would have thought he could be surcharged for
failing to insure the property, and I am very troubled to see
from these papers that apparently at the time of the fire there
was no property insurance. (Tr. at 16, Exhibit KK hereto.)
Yet the Trustee was never surcharged in this case. Accordingly, since the Trustee has no books and
records to dispute Donnas rightful claim to the proceeds of her parents real estate business and has
taken a position that Donna is entitled to disgorgement in the amount of $7,866,145.10, the amount on
hand at the beginning of the cases, he should be judicially estopped from objecting thereto.
58

Indeed, in light of the conviction of the brothers for bank fraud, the Court inquired of the Trustee how
Bruce Sturman could possibly have received a discharge, and yet was allowed to retain the proceeds of a
fraudulently transferred co-op worth over $1.5 Million, as this Court stated:
What happened with the complaints objecting to the granting of the
discharge of Bruce Sturman?
Goldberg: It was settled Your Honor.
The Court: What happened to the allegations in there about the co-op?
Goldberg: I dont specifically recall. I know that the co-op remained a
propertyremained the property of the Bruce Sturman family.
The Court: You dont know whether you received any money in the
Estate?
Tr. at 37, lines 14-24, July 3, 2001, at Exhibit LL. Mr. Goldberg also let the statute of limitations
expire on a post-petition $700,000 transfer by Howard, as referenced in the Counterclaim by Chemical.
(See Exhibit MM.)

- 30 -

apartment in the upper 90's on the East Side of Manhattan59; (d) the trustee failed to challenge
MHTs invalid liens and stock pledges to it and failed to conduct any investigation at all
concerning the validity of its liens, (e) the trustee failed to reduce MHTs proof of claim by the
fair market value of property upon which it foreclosed its mortgage, and (f) the trustee allowed
the statute of limitations to run on an action to recover a $700,000 post-petition transfer from
debtor Howard Sturman to MHT, and then settled the matter with the estates, not surprisingly,
receiving nothing of value. In short, the Trustee has been allowed to run amok in these cases
through negligence, greed and to protect MHT and other alleged creditors.60
After significant analysis of Ms. Sturmans claims by the Trustee, he conceded that her
claims were indisputably valid; as stated by Leonard I. Spielberg, the Trustees counsel at a
Hearing in 2001:
[T]he Trustee has determined finally to reject the myopic view of
Donna Sturmans claims that have prevailed for a decade. He has
confronted the reality of the fact that Donna Sturman has a
significant claim and that claim is serious enough and large enough
and frightening enough to make a very substantial payment to her
justifiedthere are substantial and meaningful and undeniable
justifications for Donnas claim.
She has presented and there is evidence and there are
indications that in the period before the filing of these cases her
property interests were evaporated by her brothers. It appears
likely that the claim she makes that the $6 million or 5 or $6
million of cash that the Trustee came into possession of at the
beginning of the cases were proceeds of the liquidation of
Donnas assets.61

59

In fact, Ms. Sturman has been subjected to at least 7 evictions and homelessness while the parties to
these proceedings have been unjustly enriched with the proceeds assets of her property.
60
The only thing necessary for the triumph of evil is for good men to do nothing. Edmund Burke.
61
As stated on the record by Glen Rice, Esq., a partner at Otterbourg, the amount of assets holding by the
Trustee at the inception of the case was approximately $7,800,000.00. (See Exhibit X.)

- 31 -

If that is so, we believe that you would permit Donna to

make a claim and prove a claim and prevail in a claim of
constructive trust.
If that happened (sic) Donna would wipe out the estates.
There would be disgorgement and there would be mayhem in the
final stages of these cases.
It has been shown that the Muriel Estate was evaporated,
defrauded, emaciated and defalcated by her brothers. It is clear that
Donna has a prima facie case to take the entire Muriel Estate.
With respect to the administration of the estate and the
potential for claims that Donna could make as a result of it, I
remind Your Honor that the Donna and Muriel Estates in which
Donna probably has a 100 percent interest owned between 25
and 50 percent of a $16 million asset62 which over ten years they
received zero return upon.
The Trustee is doing his job, in following Your Honors
order to run that property in derogation of the property rights of the
Donna and Muriel estate. There can be no dispute to that.
[T]he argument that because Your Honor issued an order
that gave the Trustee the right to run the property, he exculpated
the estates from the claim of property rights is just absurd. It is
unconstitutional. It is an unlawful taking of her property
without compensation. You cant do that. Nobody can do
that. She has a claim. We used her property without paying
her for ten years.
That claim, if this settlement is not approved, that claim
will be made here. That claim will be heard by Your Honor, and it
worries me because it is real and it is clear.
What I ask you to focus on, Judge, is this: In addition to the
factors that are incumbent upon you to address, remember this: In
terms of Donnas constructive trust claim and the other
unliquidated claims she makes, there is no real question that she
has an entitlement and she deserves to be paid for them.
The constructive trust claims could wipe out the estate.

62

Mr. Spielberg is referring to Yorkville Associates, the partnership which owned five lots of real estate
on East 86th Street in Manhattan.

- 32 -

See Transcript of July 3, 2001, at pages 106-110, at Exhibit NN. (Emphasis added.)63
This Court repeatedly made clear to the Trustee in this case the proper scope of his duties,
which he never followed, and which this Court has never enforced:
The result is that the trustee always has the duty under the Code to
turn over property to the true owner. This is not about trying to
make bucks for the law firm. It is not about trying to make bucks
for the trustee. It is not about trying to pay off the big creditors. It
is about trying to create an estate to be disbursed to whoever it
rightfully belongs to.
See transcript of July 15, 1996, at page 15, Exhibit OO.
Thus the Trustees failures do not end there. The Trustees negligent failure to avoid
fraudulent transfers to the Banks; the Trustees failure to bar discharge of the indicted and
convicted Debtors; the failure to provide any adequate protection to Ms. Sturman for her 25%
ownership interest under 363 in the Properties sold, which the Trustee sold despite Donnas
repeated objections to such sales; the failure of the Trustee to hold any Hearings, making findings
of fact and conclusions of law to allow such sales of fraudulently encumbered Properties; the
failure of the Trustee to take the deposition of a single Creditor of the Estatenot one bank was
ever asked a single question; the Trustees failure to sequester funds representing Donnas
legitimate interest in non-debtor Property despite the overwhelming proof of her ownership
known by MHT and the Trustee; the Trustees allowed retention of his own law firms and other
non-disinterested attorneys and quid pro quo fee agreements; the Trustees failure to be
responsible for his breach of virtually every requirement of his obligations under 11 U.S.C.
704, including his failure to return the Property to the true owner, Ms. Sturman.

63

These comments in open court fall under the doctrine of judicial estoppel which prevents a party from
asserting a factual position in a legal proceeding that is contrary to a position previously taken by him in
a prior legal proceeding judicial estoppel protects the sanctity of the oath and the integrity of the

- 33 -

In addition, this Court incomprehensibly approved a fraudulent bankruptcy of Ms.

Sturmanwithout any notice to her64in order to settle her claims to the Properties in a
conspiracy involving the Trustee of these Estates and the Trustee of her purported bankruptcy
proceeding, Alan Nisselson.
POINT IV
SINCE THE COURT HAS FOUND DONNA STURMANS
INTEREST IN THE CASES TO BE HELD
AS A VALID CONSTRUCTIVE TRUST
SUCH ASSETS ARE NOT PART OF THE ESTATE

A. Property of the Estate.

The commencement of a case creates a bankruptcy estate. 11 U.S.C. 541(a). The

Trustee hasin 20 years never held a hearing or made any determination as to what the
property of the Estate was, except what MHT wanted to be part of the Estate.
The estate is defined to comprise all legal or equitable interests of the debtor in property
as of the commencement of the case, which definition is supplemented by a listing of several
more specifically described categories of property interests. Id. 541(a) (1)-(7). Nonetheless,

judicial process." Bates v. Long Island R.R. Co., 997 F.2d 1028, 1037 (2d Cir.), cert. denied, 510 U.S.
992, 126 L. Ed. 2d 452, 114 S. Ct. 550 (1993).
64
Bankruptcy Rule 9007 states that [w]hen notice is to be given under these rules, the court shall
designate, if not otherwise specified herein, the time within which, the entities to whom, and the form
and manner in which the notice shall be given. When feasible, the court may order any notices under
these rules to be combined. Clearly, this Court has the authority to regulate notices. In Mullane v.
Central Hanover Bank & Trust Co., et al., 339 U.S. 306, 314-15 (1950) the Supreme Court stated
that the fundamental requisite of due process of law is the opportunity to be heard [and that]
***[a]n elementary and fundamental requirement of due process in any proceeding which is to be
accorded finality is notice reasonably calculated, under all circumstances, to apprise interested
parties of the pendency of the action and afford them an opportunity to present their objections.
Id.

- 34 -

although federal bankruptcy law determines the outer boundary of what may constitute property
of the estate, state law determines the nature of a debtor's interest in a given item. In re
Crysen/Montenay Energy Co. (Crysen/Montenay Energy Co. v. Esselen Assocs., Inc.), 902 F.2d
1098, 1101 (2d Cir. 1990) (quoting In re Howard's Appliance Corp. (Sanyo Elec., Inc. v.
Howard's Appliance Corp.), 874 F.2d 88, 93 (2d Cir. 1989)).
The question of whether a debtor's interest in property is property of the estate is a
federal question to be decided by federal law, yet courts must look to the applicable state law to
determine the extent (if any) of the Debtor's legal or equitable interest in the property. In re
Yonikus, 996 F.2d 866 (7th Cir. 1993); see Butner v. United States, 440 U.S. 48, 55, 59 L. Ed. 2d
136, 99 S. Ct. 914 (1979) (Property interests are created and defined by state law.); UNR
Indus., Inc. v. Continental Cas. Co., 942 F.2d 1101, 1103 (7th Cir. 1991) (State law controls the
determination of assets in a bankrupt estate, unless federal interests require a different result.)
B. The Trustee is a Fiduciary.
Trustees are fiduciaries with wide-ranging responsibilities to effectuate the goals of the
particular chapter under which a bankruptcy case is filed. Because they are fiduciaries, trustees
are held to very high standards of honesty and loyalty. See generally Woods v. City National
Bank & Trust Co., 312 U.S. 262, 278 (1941); Mosser v. Darrow, 341 U.S. 267 (1951).
See also Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546 (1928) (Cardozo, C.J.).
Property interests have an independent legal source, antecedent to the distributive rules
of bankruptcy administration that determine in the first instance the interests of claimant parties
in particular in particular property. It logically follows that before a particular property may be
turned over [to a Trustee or the Estate], a bankruptcy court should apply local law to

- 35 -

determine whether the debtor has a valid ownership interest in that property when the issue is
properly posed by an adverse claimant. In Re: Koreag, Controle et Revision S.A. v. Refco F/X
Associates, Inc., 961 F.2d 341, 349 (2nd Cir. 1992).

It is well-settled in this Circuit that a trustee in bankruptcy is an officer of the court that
appoints him. In re Beck Industries, Inc., 725 F.2d 880, 888 (2nd Cir. 1984). Moreover, there is
no question that a trustee in bankruptcy may be held personally liable for breach of his fiduciary
duties. In re Gorski, 766 F.2d at 727 (citing Mosser v. Darrow, 341 U.S. 267, 95 L. Ed. 927, 71
S. Ct. 680 (1951)). In Gorski, the Second Circuit noted that that in the usual case, a surcharge is
imposed [by the bankruptcy court] on the fiduciary in the amount of the actual or estimated
financial harm suffered by either the creditors or the estate and is payable accordingly. 766 F.2d
at 727. Lebovits v. Scheffel, (In Re: Lehal Realty Associates), 101 F.3d 272, 276 (2d Cir. 1996).
It was conceded on the record by Mr. Goldberg as early as July 3, 2001, that the Funds in
the Estate at its inception were Ms. Sturmans property as a result of their being subject to a
constructive trust.65 The balance of the funds properly belonging to Ms. Sturman are those which
were fraudulent transfers of assets and property she owned by the Debtors which were transferred
to Chemical Bank (Chemical), Manufacturers Hanover Trust (MHT) and by the Debtors to
entities controlled by them. Since these funds were obtained by them through fraud, in breach of
the fiduciary duty owed by the Debtors to Ms. Sturman, and the Banks aided and abetted such
fraudulent transfers (with the knowledge that they were encumbering assets belonging to Donna)
the assets and proceeds of such fraud should therefore be impressed with a constructive trust in
her favor. Nevertheless, Mr. Goldberg violated the injunction of Surrogate Renee Roth and the

- 36 -

injunctions issued by Justice Martin Evans and Justice William J. Davisboth of which came up
to this Court in the removed state action. (See Exhibit FF Donnas Proof of Claim which had
these Orders attached.)
Specifically, Donna Sturman can prove without raising any material issue of fact that
fraud was committed (1) by the Debtors encumbering assets of which she was an owner, with
liens in order to secure prior personal loans and advances made to the Debtors by MHT with its
knowing participation in their breach of fiduciary duty; and (2) by the Debtors fraudulently
transferring virtually all the assets and property of which she was an owner to themselves. Such
conduct contravenes equity and good conscience, and results in substantial unjust enrichment of
the Debtors insolvency Estates.
It is beyond cavil that Ms. Sturman can demonstrate that a constructive trust was
established by her over substantially all of the assets of these cases and is necessary to satisfy
the demands of justice. Latham v. Father Divine, 299 N.Y. 22, 27, 85 N.E.2d 168, 170 (1949).

It was the failure of the Trustee to examine the casenot from the point of view of the
Banks who he kow-towed to, but to the genuine fiduciary duties he had, which led to the
complete and utter victimization of Donna Sturman and her children and the unconstitutional
taking of her property; the complete failure of the Trustee to examine Ms. Sturmans proof of
Claim pursuant to 11 USC 704, and the financial affairs of the debtors which would have
unequivocally exposed the fraudulent conveyance of all the assets owned by Ms. Sturman to the
creditor banks and to the brothers and their joint and conspiratorial breaches of fiduciary duty

65

This amount was calculated by the Trustee as having an approximate value of $7,800,000. (See Exhibit
X.)

- 37 -

owed to Ms. Sturman entitling her to a constructive trust over all such fraudulently transferred
property and assets.
C.

The Establishment of a Constructive Trust Excludes Such Assets from the Estate.

It is well-settled that property or assets subject to a constructive trust are not part of the
bankruptcy estate. Cunningham v. Brown, 265 U.S.1, 11 (1924); In re M&L Bus. Mach. Co.,
Inc., 59 F.3d 1078, 1081 (10th Cir. 1995). It is a well-settled principle that debtors do not own an
equitable interest in property that they hold in trust for another, and thus, those trust funds are not
property of the estate. City of Farrell v. Sharon Steel Corp., 41 F.3d 92, 95 (3d Cir. 1994)
(citing Begier v. I.R.S., 496 U.S. 53, 59, 110 L. Ed. 2d 46, 110 S. Ct. 2258 (1990) [**14] and
Universal Bonding Ins. Co. v. Gittens & Sprinkle Enters., Inc., 960 F.2d 366, 371 (3d Cir.
1992)).
According to the 8th Circuit, the general rule is that [p]roperty obtained by fraud of the
bankrupt, or by other tort, is not properly a part of the assets of the assets of a bankruptcys
estate where under state law fraud gives rise to constructive trust) In re Flight Transp. Corp.
Sec. Litigation, 730 F.2d 1128, 1137, cert. den. 469 U.S. 1207 (1985); In re Petition of Treco,
205 B.R. 358, 362 (S.D.N.Y. 1997) (more efficient for bankruptcy court to determine whether to
impose constructive trust over debtors assets); In re Allen-Bradley Co., Inc. v. Commodore Bus.
Machines, Inc., 180 B.R. 72 (Bankr. S.D.N.Y. 1995) (A constructive trust may be imposed on
property obtained by a defendant by fraud, [p]roperty held by the debtor subject to a
constructive trust vests the estate with bare legal title to that property subject to the superior
equitable interests of the true owner That bare interest is not property of the estate available
to satisfy the claims of creditors.)).

- 38 -

Accordingly, several courts of appeals have held that when a debtor receives money as a
trustee pursuant to a statutory, express, or implied trust, the debtor acquires only bare legal title
to the trust proceeds and maintains no equitable interest in those proceeds. As such, those trust
proceeds can only be distributed to the true ownertrust beneficiariessuch as Donnaand not
to the creditors of the bankruptcy estate.
A Bankruptcy Court looks to state law to determine whether a constructive trust exists.
See Butner v. United States, 440 U.S. 48, 55 (1979); 11 U.S.C. S 541(d); In re Southmark Corp.,
49 F.3d 1111, 1118 (5th Cir. 1995). Property that is held in trust by a debtor for another is not
property of the estate. Mitsui Mfrs. Bank v. Unicom Computer Corp. (In re Unicom Computer
Corp.), 13 F.3d 321, 324 (9th Cir. 1994). This rule of law applies with equal force to constructive
trusts that arise by operation of state law. Id.
As the Second Circuit stated, quoting In re Howard's Appliance Corp.:

The Supreme Court has declared that, while the outer boundaries of the
bankruptcy estate may be uncertain, Congress plainly excluded property
of others held by the debtor in trust at the time of the filing of the
petition, [United States v.] Whitting Pools, [Inc., 462 U.S. 198, 205 n.10,
103 S. Ct. 2309, 2314, 76 L. Ed. 2d 515 n.10 (1983)]; see S.Rep. No. 989,
95th Cong., 2d Sess. 82 and H.R.Rep. No. 595, 95th Cong., 2d Sess. 368,
reprinted in 1978 U.S. Code Cong. & Ad. News 5787, 5868, 6323-24; see
also In re Kennedy & Cohen, Inc., 612 F.2d 963, 965 (5th Cir.) (under
previous bankruptcy statute, property held by debtor in constructive trust
belongs to the beneficiary and never becomes a part of the bankruptcy
estate), cert. denied, 449 U.S. 833, 101 S. Ct. 103, 66 L. Ed. 2d 38
(1980). A constructive trust, therefore, confers on the true owner of the
property an equitable interest in the property superior to the trustees, [In
re] Quality Holstein Leasing, 752 F.2d [1009, 1012 (5th Cir. 1985)]; cf. In
re General Coffee Corp., 828 F.2d 699, 706 (11th Cir. 1987) (constructive
trust beneficiary has priority to trust assets over a judicial lienholder or
execution creditor), cert. denied, [485] U.S. [1007], 108 S. Ct. 1470, 99 L.
Ed. 2d 699 (1988). In Re: Koreag, Controle et Revision S.A. v. Refco F/X

- 39 -

Associates, Inc., 961 F.2d 341, 352 (2nd Cir. 1992) (quoting Howards
Appliance Corp., 874 F.2d at 93 (Footnote omitted). (Emphasis supplied.)
Under New York law, a party claiming entitlement to a constructive trust
must ordinarily establish four elements: (1) a confidential or fiduciary
relationship; (2) a promise, express or implied; (3) a transfer made in
reliance on that promise; and (4) unjust enrichment. See Bankers Sec. Life
Ins. Soc'y v. Shakerdge, 49 N.Y.2d 939, 940, 406 N.E.2d 440, 440, 428
N.Y.S.2d 623, 624 (1980); Simonds v. Simonds, 45 N.Y.2d 233, 241-42,
380 N.E.2d 189, 194, 408 N.Y.S.2d 359, 363 (1978); Sharp v. Kosmalski,
40 N.Y.2d 119, 121, 351 N.E.2d 721, 723, 386 N.Y.S.2d 72, 75 (1976).
Although these factors provide important guideposts, the constructive
trust doctrine is equitable in nature and should not be rigidly limited.
Simonds, 45 N.Y.2d at 241, 380 N.E.2d at 194, 408 N.Y.S.2d at 363; see
also Bankers Sec. Life Ins. Soc'y, 49 N.Y.2d at 940, 406 N.E.2d at 440,
428 N.Y.S.2d at 624 (application of doctrine to particular circumstances
susceptible of some flexibility).

A constructive trust must be imposed here because there is a confidential and fiduciary
relation between the partiesboth with the Debtors and the Banks who were aware of Donnas
ownership interest.66 Although a fiduciary relationship is one of the factors cited by New York
courts, the absence of any one factor will not itself defeat the imposition of a constructive trust
when otherwise required by equity. See Simonds, 45 N.Y.2d at 241, 408 N.Y.S.2d at 363;
Latham, 299 N.Y. at 27, 85 N.E.2d at 170.
New York courts have consistently stressed the need to apply the doctrine with sufficient
flexibility to prevent unjust enrichment in a wide range of circumstances. See Palazzo v.
Palazzo, 121 A.D.2d 261, 264, 503 N.Y.S.2d 381, 383-84 (1st Dept 1986) (the power of equity
to employ a constructive trust to reach a just result is not strictly limited by the conditions set

66

There is no question that Donna meets the necessary criteria to assert an aiding and abetting claim
against MHT: (1) the plaintiff was in a fiduciary relationship with a third party, (2) there was a breach of
the fiduciarys duty by the third party, (3) there was a knowing participation in the breach by a defendant
who is not a fiduciary, and (4) there are damages proximately caused by the breach. S&K Sales Co. v.
Nike, Inc., 816 F.2d 843, 851 (2d Cir. 1987).

- 40 -

forth in Sharp v. Kosmalski); Tordai v. Tordai, 109 A.D.2d 996, 997, 486 N.Y.S.2d 802, 804
(3rd Dept 1985) (Sharp v. Kosmalski factors are not rigid, but flexible considerations for the
court to apply in determining whether a constructive trust should be imposed); Coco v. Coco,
107 A.D.2d 21, 24, 485 N.Y.S.2d 286, 289 (2nd Dept 1985) (these factors are merely useful
guides and are not talismanic) (quoting Reiner v. Reiner, 100 A.D.2d 872, 874, 474 N.Y.S.2d
538, 541 (2nd Dept 1984)).
Hence, New York courts have at times dispensed with one or more of these requirements.
In Palazzo, 121 A.D.2d at 264, 503 N.Y.S.2d at 383-84, for example, the court stated that the
arguable lack of a transfer would not prevent the imposition of a constructive trust when the
other conditions were met and equitable considerations warranted this resolution. See also
Tordai, 109 A.D.2d at 997, 486 N.Y.S.2d at 804 (promise implied from existence of confidential
relationship).
More relevant to the issue at hand, the New York Court of Appeals has expressly
stated that a person wrongfully acquiring property can be treated as a constructive trustee
notwithstanding the lack of a fiduciary relationship. See Simonds, 45 N.Y.2d at 242, 380 N.E.2d
at 194, 408 N.Y.S.2d at 363 (citing Latham, 299 N.Y. at 27, 85 N.E.2d at 170); see also
Cavallaro v. Lewis, 198 Misc. 412, 413, 98 N.Y.S.2d 730, 731 (Sup. Ct. 1950). The key factor is
unjust enrichment, not willfully wrongful conduct.
As Chief Judge Breitel of the New York Court of Appeals stated in Simonds:
It is agreed that the purpose of the constructive trust is prevention of unjust
enrichment ( Sharp v. Kosmalski, 40 N.Y.2d 119, 123, 386 N.Y.S.2d 72,
76, 351 N.E.2d 721, 724, supra; Restatement, Restitution, 160; 5 Scott,
Trusts [3d ed.], 462.2).

- 41 -

Unjust enrichment, however, does not require the performance of any

wrongful act by the one enriched ( Lengel v. Lengel, 86 Misc.2d 460, 46566, 382 N.Y.S.2d 678, 681-682, supra; Richards v. Richards, 58 Wis.2d
290, 293-294, 206 N.W.2d 134, supra; see, generally, [**38] 5 Scott,
Trusts [3d ed.], 462.2). Innocent parties may frequently be unjustly
enriched. What is required, generally, is that a party hold property "under
such circumstances that in equity and good conscience he ought not to
retain it" ( Miller v. Schloss, 218 N.Y. 400, 407, 113 N.E. 337, 339; see
Sharp v. Kosmalski, 40 N.Y.2d 119, 123, 386 N.Y.S.2d 72, 76, 351, 351
N.E.2d 721 [N.E.]2d 721, 724, supra; Sinclair v. Purdy, 235 N.Y. 245,
253-254, 139 N.E. 255, 258-259).

Simonds,supra, 45 N.Y.2d at 242, 380 N.E.2d at 194, 408 N.Y.S.2d at 364.

Federal courts applying this doctrine have not been insensitive to the need for flexibility,
and thus on occasion have not required a fiduciary relationship in order to impose a constructive
trust. In the Second Circuit, a federal district court will conclusively defer to a federal court of
appeals interpretation of the law of a state that is within its circuit. Booking v. General Star
Management Co., 254 F.3d 414, 421 (2d Cir. 2001), see also Official Comm. of Unsecured
Creditors of Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d 147, 157 n. 4 (2d Cir. 2003).
See, also, E.W. Lines v. Bank of Am. Nat'l Trust Sav. Ass'n, 743 F. Supp. 176, 179-80 (S.D.N.Y.
1990) (constructive trust imposed, applying New York law, despite absence of fiduciary
relationship); SEC v. Levine, 689 F. Supp. 317, 321-23 (S.D.N.Y. 1988) (same), modified on
other grounds, 881 F.2d 1165 (2d Cir. 1989); see also Republic of Philippines v. Marcos, 806
F.2d 344, 355 (2d Cir. 1986) (constructive trust is simply a remedy to prevent unjust enrichment
and may or may not involve a fiduciary relationship) (citing Restatement of Restitution 160
comment a (1937)), cert. denied, 480 U.S. 942, 107 S. Ct. 1597, 94 L. Ed. 2d 784, 481 U.S.
1048, 107 S. Ct. 2178, 95 L. Ed. 2d 835 (1987).

- 42 -

C. MHTs Claims Should Equitably Subordinated.

MHTs claims should have been equitably subordinated to Donnas claims pursuant to
11 U.S.C. 510 (c) of the Bankruptcy Code. This section enables the Bankruptcy Court to,
under principles of equitable subordination, subordinate for the purposes of distribution all or
part of an allowed claim to all or part of another allowed claim. In essence, 510 confirms the
long-standing legal rule that bankruptcy courts are courts of equity with the power to undo or
offset any inequity to the debtors creditors. See Stoumbos v. Kilimnik, 988 F.2d 949 (9th Cir.
1993).
Donna meets the elements of this claim: the claim is a contribution of equity and not a
loan; the debtor was a mere instrumentality of the creditor or otherwise subject to excessive
control by the debtor (see discussion of the HD transaction); and evidence of fraud exists. See
American Cigar Co. v. MNC Com. Corp., 85 B.R. 965 (Bankr. E.D. Pa. 1988), where the Bank,
in this case MHT immediately filed the Debtors into bankruptcy as soon as they were aware that
Donnas state law suit was going to uncover their overarching lending techniques.
D. Corporate Assets Are Not Part of the Estate.

It is also well-settled law that officers and directors of a corporation stand in a fiduciary
relation to the stockholders and owe to the latter the duty of wise, honest and faithful
performance of their duties in respect to the property of the corporation. If they fail in that duty,
the courts hold them accountable to stockholders who are aggrieved. (Godley v. Crandall &
Godley Co., 212 N.Y. 121; Pollitz v. Wabash R. R. Co., 207 N.Y. 113; Bosworth v. Allen, 168
N.Y. 157; Sage v. Culver,147 N.Y. 241.)

- 43 -

The Brothers, by raping and encumbering the Properties, acted in derogation of Donnas
rights as an owner of the Entities, whether partnerships or corporations. As to corporations, it
has long been well-settled that Officers and directors of a corporation occupy a fiduciary
relationship to the stockholders (Ludlam v. Riverhead Bond & Mortgage Corporation, 244
App.Div. 113, 118,278 N.Y.S. 493), and as such must raise all proper objections to the
allowance of any claim including their own. Bloodgood v. Bruden, 8 N.Y. 362; Matter of
Brown's Estate, 77 Misc. 507, 137 N.Y.S. 978.
Directors of corporations act in a fiduciary capacity. In every action where the interest of
the corporation is involved, particularly where the same is in conflict with the individual interest
of the directors, they act as trustees and are strictly accountable to the creditors or stockholders
of the corporation for their action." (Billings v. Shaw, 209 N.Y. 265,103 N.E. 142 [1913]).
Directors in their dealings with third persons are, in law, considered somewhat as
agents for the corporation, but in their relation to the property of the corporation their
relationship is, in equity, that of a fiduciary. As such they are bound to the standards of honesty
and morality, and to care for the corporate interests in all good faith. (Business Corporation Law,
717). Hazard v. Wight, 201 NY 399, 94 N.E. 855 (1911) (It is the established law of this
state that the capital of a corporation is regarded as a substitute for the personal liability which
subsists in private ownerships and as a fund set apart and pledged for the payment of its debts.
While a corporation is continuing its business, seeking credit and incurring liabilities, or while,
after it has ceased to do business, it has outstanding liabilities, its directors or stockholders
cannot lawfully and with immunity from personal liability to the corporation reduce the capital,
which is the product of its capital stock as certified in its incorporating certificate, by

- 44 -

appropriating or squandering it or giving it away. (Bowers v. Male, 186 N.Y. 28 (1906); Ward
v. City Trust Co., 192 N.Y. 61 (1908); Bartlett v. Drew, 57 N.Y. 587; Darcy v. Brooklyn & NY
Ferry Co., 196 N.Y. 99; In re Haas Co., 131 Fed. Rep. 232.)
Donna is entitled to recover the amount of the proceeds of the fraudulent conveyances
made by the Debtors to third parties who aided and abetted the Brothers in their extinguishment
of the equity in the Properties owned by Donna. The fraudulent transfer provisions of the
Bankruptcy Code are intended to allow a trustee (or other party in interest) to recover property
that would otherwise have been available to the estate and its creditors. See Bear, Stearns Sec.
Corp. v. Gredd, 275 B.R. 190, 195 (S.D.N.Y. 2002) (the purpose of 548(a)(1)(A) is to
prevent a debtor from placing assets beyond the reach of creditors by removing them from the
estate with the intent to hinder, delay, or defraud his creditors.); Buchwald v. Di Lido Beach
Resort, Ltd. (In re McCann, Inc.), 318 B.R. 276, 282 (Bankr. S.D.N.Y. 2004) (A trustee can
only avoid and recover property that would have been part of the estate had it not been
transferred before the commencement of bankruptcy proceedings.) (quoting Begier v. Internal
Revenue Serv., 496 U.S. 53, 58, 110 S. Ct. 2258, 110 L. Ed. 2d 46 (1990)). There can be no
question that MHT did exactly that and then installed their Trustee and their attorneys to do their
bidding, at the behest of Richard Gerard, Esq., Vice President of Chemical. (See Exhibit H
hereto.)
The liabilities of the bankrupt corporation largely exceed the value of its assets. The
defendant as a director thereof participated throughout practically the whole period of its
existence in bestowing upon him a substantial part of its capital. He as its agent was bound to
guard and care for its property and manage its affairs with the utmost good faith. Through his

- 45 -

failure to perform his duty, the corporation was deprived of the funds paid him, and had a cause
of action against him for the damages it thereby sustained. (Kavanaugh v. Commonwealth Trust
Co., 181 N.Y. 121; Dykman v. Keeney, 154 N.Y. 483.) (The right of the plaintiff, the trustee of
the estate of the bankrupt corporation, to bring the action is not questioned.); Winter v.
Anderson, 242 App. Div. 430, 431, 275 N.Y.S. 373) (Vogel v. Vogel, 25 A.D.2d 212, 268
N.Y.S.2d 237 (1966), aff'd, 19 N.Y.2d 589, 224 N.E.2d 738, 1967 N.Y. LEX1S 1831,278
N.Y.S.2d 236 (1967). (Directors in their dealings with third persons are, in law, considered
somewhat as agents for the corporation, but in their relation to the property of the corporation
their relationship is, in equity, that of a fiduciary. As such they are bound to standards of
honesty and morality, and to care for the corporate interests in all good faith.)
E. Partnership Property is Not Part of the Estates.
It is also well-settled that the assets held by a Partnership are not part of the Estate in
Bankruptcy. Under 11 U.S.C. 541, the estate consists of . . . all legal or equitable interest of
the debtor in property as of the commencement of the case. Since a partnership is an entity
separate from its partners, a partner cannot claim title in partnership property. The partner may
only claim the rights in specific partnership property as bestowed upon the partner under
partnership law. When a partner files for bankruptcy, the partner's estate obtains whatever
partnership interest was held by the filing partner. Campbell v. Bolen (In re Caudy Custom
Builders, Inc.), 31 B.R. 6, 9 (Bankr.S.C.1983); Appleton v. Gagnon, 26 B.R. 926 (Bankr. M.D.
1983); Domican Fathers of Winona v. Dreske, 25 B.R. 268 (Bankr. E.D. Wis. 1982). In re
Manning, 831 F.2d 205 (10th Cir. 1987).

- 46 -

In Pentall v. Hopkins Illinois Elevator Co., 777 F.2d 1281 (7th Cir 1985) the Court stated:

While as a factual matter the bankruptcy of the sole general

partner may mean that the limited partnership is effectively
bankrupt, partnerships are nonetheless considered separate
"persons" for purposes of the Bankruptcy Code. See In re Dreske,
25 Bankr. 268 (Bankr. Wisc. 1982). The only "partnership
property" before the court during an individual partner's
bankruptcy [**10] is the partner's personal property interest in the
partnership. Ill. Ann. Stat. ch. 106 1/2 26 (Smith-Hurd 1952) (a
partner's interest in the partnership is personal property). With
respect to any specific asset the partner has no individual interest;
each partner has a joint interest in the whole. Ill. Ann. Stat. ch.
106 1/2 24 (Smith-Hurd 1952). See also Edwards v. Holcomb,
214 N.E. 2d 512, 67 Ill.App.2d 479 (1966). In the absence of
some provision in the partnership agreement, a document that was
not made part of the record of this case, there can be no basis for
including any particular partnership asset in the individual
estate67

Thus, it is well-settled that partnerships in bankruptcy do not allow the Trustee to attach
the Partnership property because, as of the commencement of the Cases, the Debtors only hold a
legal interestnot an equitable one. In re: Palm Gardens Nursing Home, 46 B.R. 685 (Bankr.
E.D.N.Y 1985). Rodeck v. Olszewski, 124 B.R. 743 (Bankr. S.D. Ohio 1991) (a trustee or a
debtor in possession lacks authority under 11 U.S.C.S. 363(f) to sell partnership property free
and clear of the interests of the partnership entity and of the nonbankrupt partners.)
See also Northeastern Real Estate Securities Corporation v.Goldstein, 267 App.Div.
832,45 N.Y.S;2d 848 (1944), appeal dis., 292 N.Y. 720,56 N.E.2d 125 (1944), which struck the
restraining provisions of a third party subpoena served on a partnership as part of a creditor's

67

There is no question that the Yorkville partnership agreement allowed the partners to hold the property
in their own names despite the fact that they were Partnership assets under the Yorkville Parnership
Agreement. (See partnership agreement at Exhibit T.)

- 47 -

supplemental proceedings to identify assets belonging to the judgment debtor-partner; and

In re Lefkowitz, 250 App.Div. 733, 293 N.Y.S. 478 (1937), vacating an assignment for the
benefit of creditors and an order directing the sale of the assigned assets, on the ground
that these proceedings were not countenanced by section 27 of the New York Partnership
Law, even though all of the partners apparently were judgment debtors.
It is well-settled that Where real estate is bought with partnership funds for partnership
purposes and is applied to partnership uses, or entered and carried in the accounts of the firm as a
partnership asset, it is deemed firm property and, in such case, it makes no difference, in a court
of equity, whether the title is vested in all the partners, in one of them, or in a stranger. If the
property is purchased with partnership funds, the party holding legal title will be regarded as
holding it subject to a resulting trust in favor of the firm furnishing the money. (footnotes and
citations omitted) Einsweiler v Einsweiler, 390 Ill. 286, 291 (Ill. 1945).
The bankruptcy estate's interest in partnership property arises only after all partnership
debts are paid. ...(P)artners' rights in partnership property are secondary to the rights of
partnership creditors...Until the creditors of the partnership are satisfied, each partner has no right
to any distribution from the partnership. In re Funneman, 155 B.R. 197, 199 (Bankr. S.D.
Ill.1993), citing In re Olszewski, 124 B.R. 743, 746 (Bankr. S.D. Ohio 1991).
As stated in Collier on Bankruptcy at Section 363.08(3): Courts uniformly reject
trustees' efforts to use section 363(h) to sell property owned by a partnership in which the debtor
is a partner. Individual partners may hold an interest in partnership property as tenants in
partnership. However, tenancy in partnership is not one of the listed forms of ownership to which
the section applies. In addition, because a partner has no right to possess, and its creditors cannot

- 48 -

reach, partnership property, the partnership's assets are not included in the debtor partner's
estate. This led one court to hold that it lacked subject matter jurisdiction over the property and
that the trustee may not invoke section 363(h) to sell it. (citing In re Funneman.) (Emphasis
added.)
A condo, which is real property, is not an asset of the bankruptcy estate. (... (I)t is well
settled that assets owned by a partnership are not included in the bankruptcy estate of an
individual partner...Clearly, then, the Court has no jurisdiction over specific partnership property
when a partner-rather than the partnership itself-is in bankruptcy. In re Funneman, 155 B.R. at
200; see also In re Katz, 341 B.R. 123, 128 (Bankr. D. Mass. 2006) (It is axiomatic that the
mere bankruptcy of a partner does not bring the partnership's assets within the jurisdiction of the
bankruptcy estate. A debtor's interest in a partnership is an asset of the debtor's estate under 11
U.S.C. 541; the assets of the partnership are not.) (Emphasis added.) See also In re Holywell
Corp., 118 B.R. 876 (Bankr. S.D. Fla. 1990) (No jurisdiction over property of fifty nondebtor
subsidiaries of corporate debtors.).
This Court should rule, as did the Funneman court: ...the Court holds today that it lacks
subject matter jurisdiction over the partnership property. In re Funneman, 155 B.R. at 199. As
the Courts have held, all that the Trustee in this case has to sell is essentially a charging order
as to the bankruptcy estate's interest in the Partnership. Home State Bank of Lexington v.
Vandolah, 188 Ill. App. 123, 128 (3d Dist. 1914); In re Pentel, 777 F.2d at 1285; In re
Grossman, 163 B.R. 320 (Bankr. N.D. Ill. 1994); In Re Cutler, 165 B.R. 275, 282 (Bankr. D.
Ariz. 1994); In re Victory Pipe Craftsmen, 12 B.R. 822,824 (Bankr.N.D. Ill. 1981); In re
Funneman, 155 B.R. at 199-200; (See also In re Signal Hill-Liberia Avenue Limited Partnership,
189 B.R. 648 (Bankr. E.D. Va. 1995)).

- 49 -

F. Proceeds of Fraudulent Conveyances are not Part of the Estate.

Donna is entitled to recover the amount of the proceeds of the fraudulent conveyances
made by the Debtors to third parties who aided and abetted the Brothers in their extinguishment
of the equity in the Properties owned by Donna. The fraudulent transfer provisions of the
Bankruptcy Code are intended to allow a trustee (or other party in interest) to recover property
that would otherwise have been available to the estate and its creditors. See Bear, Stearns Sec.
Corp. v. Gredd, 275 B.R. 190, 195 (S.D.N.Y. 2002)(the purpose of 548(a)(1)(A) is to prevent
a debtor from placing assets beyond the reach of creditors by removing them from the estate
with the intent to hinder, delay, or defraud his creditors.); Buchwald v. Di Lido Beach Resort,
Ltd. (In re McCann, Inc.), 318 B.R. 276, 282 (Bankr. S.D.N.Y. 2004) (A trustee can only avoid
and recover property that would have been part of the estate had it not been transferred before
the commencement of bankruptcy proceedings.) (quoting Begier v. Internal Revenue Serv., 496
U.S. 53, 58, 110 S. Ct. 2258, 110 L. Ed. 2d 46 (1990)).
Moreover, the intent element of an intentional fraudulent conveyance claim may be
alleged generally so long as the plaintiff alleges facts that give rise to a strong inference of
fraudulent intent, In re Musicland Holding Corp., 398 B.R. 761, 773 (Bankr. S.D.N.Y. 2008)
(quoting Shields v. Citytrust Bankcorp. Inc., 25 F.3d 1124, 1128 (2d Cir. 1994)). A strong
inference of fraudulent intent may be established either (1) by alleging facts demonstrating that
the Defendants had both the motive and the opportunity to commit fraud or (2) by alleging facts
that constitute strong circumstantial evidence of conscious misbehavior or recklessness, In re
Musicland Holding Corp., 398 B.R. at 774 (internal citations omitted); see also Powers v. British
Vita, P.L.C., 57 F.3d 176, 184 (2d Cir. 1995) (stating in connection with a RICO claim that

- 50 -

fraudulent intent may be established by either alleging motive and opportunity or by identifying
circumstances indicating conscious behavior by the defendant). There can be no question that
such circumstances existed in the HD transactions in which MHT consciously turned unsecured
loans into secured (but avoidable) loans.
POINT V

DONNA HAS AN UNQUALIFIED RIGHT TO AN ACCOUNTING

Once an Estate arises by virtue of the filing of a Petition, the Trustee occupies a fiduciary
status vis-a-vis creditors of the insolvency estate.68 See, e.g., Commodity Futures Trading
Comm'n v. Weintraub, 471 U.S. 343, 355, 85 L. Ed. 2d 372, 105 S. Ct. 1986 (1985) (bankruptcy
trustee has fiduciary duty to both creditors and shareholders); Stein v. United Artists Corp., 691
F.2d 885, 892-93 (9th Cir. 1982) (debtor in possession holds title to property as fiduciary for
creditors); In re Nat'l Molding Co., 230 F.2d 69, 71 (3d Cir. 1956) (bankruptcy trustee, as the
title of his office imports, . . . is trustee for all who have interests, and according to those
interests) (quoting In re Ducker, 134 F. 43, 47 (6th Cir. 1905) (emphasis in Nat'l Molding));
68

As further discussed, supra, regarding the fraudulent bankruptcy filed against Donna with no notice to
her, since the Donna Case was dismissed under 11 U.S.C. 349 prior to discharge, all her claims,
reverted back to her, as well as vacating any orders, judgments or transfers and her property interests
reverted to Donna. Thus, the obviously collusive settlement between Alan Nisselson, trustee for Donna
and Goldberg, trustee for the Debtors, which strongly suggests bankruptcy fraud and conspiracy, was
dismissed by such dismissal. Moreover, to keep this settlement in the dark, this Court failed to discharge
the requirement of a notice and a hearing prior to such dismissal. Dismissal under 349 is the
establishment of the rule that the dismissal of a case is without prejudice. See In Porges, 44 F.3d 159 (2d
Cir. 2005); In re Querner, 7 F3d 1199, 1201-02 (5th Cir 1993). Thus, all property rights of Donna
were restored to her. H.R. Rep. No. 595, 95th Cong., 1st Sess. 338 (1977), Christie v. First State Bank
of Stratford, 268 B.R. 912 (Bankr. N.D. Tex. 2001); In re Kucera, 123 B.R. 852 (Bankr. D. Neb. 1990).
349 also revests avoided transfers, reinstates voided liens, and revests the property of the estate in
the entity in which the property was vested at the commencement of the Case. Thus, Donna
Sturman clearly has standing in objecting to this Final Report.

- 51 -

Ragsdale v. New England Land & Dev. Co., 250 Ga. 233, 297 S.E.2d 31, 297 S.E.2d 31, 297
S.E.2d 31, 32-33 (1982) (trustee in bankruptcy acts for benefit and protection of creditors). See
also, Goldman v. Rio, 62 A.D.3d 834, 879 N.Y.S.2d 199 (2d Dept 2009).

Goldberg Has Never Rendered

An Accounting in 20 Years

It is not disputable that, in the 20 years the Trustee has controlled this Bankruptcy he has
never accountedin violation of his fiduciary obligations. A trustee is under a duty to the
beneficiaries of the trust to keep clear and accurate accounts. His accounts should show what he
has received and what he has expended. IIA AUSTEN WAKEMAN SCOTT & WILLIAM
FRANKLIN FRATCHER, THE LAW OF TRUSTS 172, at 452 (4th ed. 1987). (SCOTT ON
TRUSTS)(Footnote omitted); accord Frontier Excavating, Inc. v. Sovereign Construction Co.,
294 N.Y.S.2d 994, 998 (N.Y. App. Div. 1968); In re Steinbergs Estate, 274 N.Y.S. 914, 916917 (N.Y. Surr. Ct. 1934); see 106 N.Y. JUR. 2D, TRUSTS 360, at 413 (1993) (An essential
element of a trust is accountability of the trustee for his or her administration. Once a valid trust
is created, accountability must inevitably follow.) (Footnotes omitted).
The failure to keep proper accounts may result in the denial of compensation or in the
trustees removal. IIA SCOTT ON TRUSTS 172, at 454. The trustee must render an
accounting when called on to do so at reasonable times by the beneficiaries. IIA SCOTT ON
TRUSTS 172, at 454; accord Mason Tenders District Council Welfare Fund v. Logic Constr.
Corp., 7 F. Supp. 2d 351, 358 n.44 (S.D.N.Y. 1998) (citing RESTATEMENT (SECOND) OF
TRUSTS 173 for proposition that a trustee has a duty to render an accounting and to provide
complete and accurate information and documents relating to the trust upon request of the

- 52 -

beneficiaries); In re Lloyds American Trust Fund Litigation, 954 F. Supp. 656, 678 (S.D.N.Y.
1997) (beneficiaries of the trust have a general right to demand an accounting).
The trustee is also under a separate duty to the beneficiaries to give them on their request
at reasonable times complete and accurate information as to the administration of the trust. IIA
SCOTT ON TRUSTS 173, at 462 (footnote omitted); accord Frontier Excavating, 294
N.Y.S.2d at 998. The beneficiaries are entitled to know what the trust property is and how the
trustee has dealt with it. IIA SCOTT ON TRUSTS 173, at 462-464.
The Representatives status as a trustee is not open to serious question, and hence, she is
subject to the trustees general duty to render an account. Cf. In re Palm Coast, Matanza Shores
Ltd. Pship, 101 F.3d 253, 257 (2d Cir. 1996) (Court may look to common law of trusts for
guidance in interpreting bankruptcy trustees powers and obligations under the Bankruptcy
Code).
There is no question that Donna Sturman is a creditor and a beneficiary of the Estate.
Pursuant to 11 U.S.C. 101 (10): The term creditor means--(A) entity that has a claim against
the debtor that arose at the time of or before the order for relief concerning the debtor. Pursuant
to 11 U.S.C. 101 (5) the term claim means:
(A)

right to payment, whether or not such right is reduced to

judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured; or

(B)

right to an equitable remedy for breach of performance if

such breach gives rise to a right to payment, whether or not
such right to an equitable remedy is reduced to judgment,
fixed, contingent, matured, unmatured, disputed, undisputed,
secured, or unsecured.

- 53 -

By virtue of having an ownership interest in all of the Properties, Donna clearly satisfies the
definition of a creditor of the Estates. Even if those claims are still disputed because the
Representative appealed from that ruling, the definition of claim includes a disputed right to
payment, see 11 U.S.C. 101(5)(A), and creditor includes anyone who holds a pre-petition
claim. 11 U.S.C 101(10) (A).
A.

A Creditor is always entitled to An Accounting69

A trustee is under a duty to the beneficiaries of the trust to keep clear and accurate
accounts. His accounts should show what he has received and what he has expended. IIA
AUSTEN WAKEMAN SCOTT & WILLIAM FRANKLIN FRATCHER, THE LAW OF
TRUSTS 172, at 452 (4th ed. 1987) (SCOTT ON TRUSTS)(footnote omitted); accord
Frontier Excavating, Inc. v. Sovereign Construction Co., 30 A.D.2d 487, 491, 294 N.Y.S.2d 994,
998 (4th Dept. 1968); In re Steinbergs Estate, 274 N.Y.S. 914, 916-917 (N.Y. Surr. Ct. 1934); see
106 N.Y. JUR. 2D, TRUSTS 360, at 413 (1993) (An essential element of a trust is
accountability of the trustee for his or her administration. Once a valid trust is created,
accountability must inevitably follow.) (Footnotes omitted). The failure to keep proper accounts
may result in the denial of compensation or in the trustees removal. IIA SCOTT ON TRUSTS
172, at 454.
The trustee must render an accounting when called on to do so at reasonable times by the
beneficiaries. IIA SCOTT ON TRUSTS 172, at 454; accord Mason Tenders District Council
Welfare Fund v. Logic Constr. Corp., 7 F.Supp. 2d 351, 358 n.44 (S.D.N.Y. 1998) (citing
RESTATEMENT (SECOND) OF TRUSTS 173 for proposition that a trustee has a duty to

- 54 -

render an accounting and to provide complete and accurate information and documents relating to the
trust upon request of the beneficiaries); In re Lloyds American Trust Fund Litigation, 954
F.Supp.2d 656, 678 (S.D.N.Y. 1997) (beneficiaries of the trust have a general right to demand an
accounting). The trustee is also under a separate duty to the beneficiaries to give them on their
request at reasonable times complete and accurate information as to the administration of the
trust. IIA SCOTT ON TRUSTS 173, at 462 (footnote omitted); accord Frontier Excavating,
294 N.Y.S.2d at 998.
The beneficiaries are entitled to know what the trust property is and how the trustee has
dealt with it. IIA SCOTT ON TRUSTS 173, at 462-64. An allegation of wrongdoing is
not an indispensable element of a demand for an accounting where the complaint indicates a
fiduciary relationship between the parties or some other special circumstances warranting equitable
relief. Morgulas v J. Yudell Realty, Inc., 554 N.Y.S.2d 597, 600 (N.Y. App. Div. 1990); accord
Norwest Fin., Inc. v. Fernandez, 86 F. Supp. 2d 212, 234 (S.D.N.Y.), affd, 225 F.3d 646 (2d Cir.
2000) (unpublished op.).
A trustee has a duty of loyalty to the beneficiaries (2 Scott, Trusts, supra, 170), a duty
to keep and render accounts for the beneficiaries, (ibid. 172) and keep trust funds separate from
his own (ibid. 179, 179.1); a duty to furnish beneficiaries information and to permit them to
examine the trust accounts (ibid. 173); and a duty to take proof of the trust assets (ibid. 175)
and to enforce claims in behalf of the trust (ibid. 177). Proof of diversion of trust assets is not
a condition precedent to an action for an accounting. Frontier Excavating, Inc. v. Sovereign
Construction Company, Ltd., 30 A.D.2d 487, 491; 294 N.Y.S.2d 994, 999 (4th Dept. 1968),

69

Donna, of course, has standing to challenge the rulings in this Court as to her ownership rights and as a

- 55 -

citing Aquilino v. United States, 10 N.Y.2d 271, 280 (1961); Onondaga Dry Wall Corp. v. Sylvan
Glen Co., 26 A.D. 2d 130, 133, 271 N.Y.S.2d 523, 525 (4th Dept. 1966); and Ciavarella v.
People, 16 A.D. 2d 291, 293, 227 N.Y.S.2d 530, 531 (3rd Dept. 1962).70
The trustee bears the burden of establishing the legitimacy of the transactions relating to the
trust property. See In re Application of Garson, 774 N.Y.S.2d 644, 646 (N.Y. Sup. Ct. 2003)
(citing Gordon v. Bialystoker Center & Bikur Cholim, Inc., 385 N.E.2d 285 (N.Y. 1978)).
Accordingly, the trustee is subject to a trustees general duty to render an account. In re Palm
Coast, Matanza Shores Ltd. Pship, 101 F.3d 253, 257 (2d Cir. 1996) (Court may look to common
law of trusts for guidance in interpreting bankruptcy trustees powers and obligations under the
Bankruptcy Code).
The Trustee is a New York attorney, and the attorneys that have worked for the Trustee
over the past 20 years are subject to New Yorks Rules of Professional Conduct. Rule 1.15
(formerly 9-102) of the N.Y. Codes, Rules and Regulations, 1200.15, title 22 (2009), states that:
(a)

A lawyer in possession of any funds or other property belonging to

another person, where such possession is incident to his or her practice
of law, is a fiduciary, and must not misappropriate such funds or
property or commingle such funds or property with his or her own.

Rule 1.15 (c) (formerly 9-102 (c) (1), (2) and (3)) states that:

beneficiary of the Estate of Muriel Sturmanas to which this Court has no jurisdiction.
70
It is the primary duty of any estate fiduciary to render a full and accurate account of his transactions in
the performance of his trust. (Surr. Ct. Act, 257, 264; Frethey v. Durant, 24 App.Div. 58, 61.) This
duty is absolute, and is not varied by the amount of knowledge which a beneficiary may or may not
possess respecting the actions and transactions of his trustee in the performance of the trust duties. In re
Estate of Steinberg, 153 Misc.339, 340, 274 N.Y.S. 914, 917 (Surr.Ct.NYCnty 1934.)

- 56 -

A lawyer shall:
(1) Promptly notify a client or third person of the receipt of funds,
securities, or other properties in which the client or third person has an
interest;
(2) Identify and label securities and properties of a client or third
person promptly upon receipt and place them in a safe deposit box or other
place of safekeeping as soon as practicable;
(3) maintain complete records of all funds, securities, and other
properties of a client or third person coming into the possession of the
lawyer and render appropriate accounts to the client or third person
regarding them; and
(4) promptly pay or deliver to the client or third person as
requested by the client or third person the funds, securities, or other
properties in the possession of the lawyer that the client or third person is
entitled to receive.

The Trustee collected and received funds and property of the Estate which Donna has an
equitable interest as a beneficiary of the Estates; accordingly she is entitled to an accounting under
the New York Rules of Professional Conduct as well as a turnover of her assets.
The Trustee has completely and unquestionably failed in his duties under 11 U.S.C. 704
(a) (2) to be accountable for all property received; and has failed to (a) (7) furnish such
information concerning the estate and the estates administration as is requested by a party in
interest. In fact, one will look in vain in the Docket Sheets of these cases for any accounting by
the Trustee.
The Trustee has collected enormous sums of money and property in these Estates and
nothing has been segregated and held for the benefit of Donna, despite the assertion by Spielberg.
Even if her claims are still disputed, the definition of claim includes a disputed right to
payment, see 11 U.S.C. 101(5) (A), and creditor includes anyone who holds a pre-petition

- 57 -

claim. 11 U.S.C 101(10) (A). The Trustee is obligated to reserve funds to pay Donnas
claims, both from the fraudulent conveyances of the Properties and the sale by the Trustee himself
of Properties in which Donna had a one-quarter interest and to segregate such proceeds.
Accordingly, Donna has the unequivocal right to insist that the Trustee comply with his duties.
She is a beneficiary, owner and claimant in these estates administered by Mr. Goldberg, and has a
substantial interest in assuring that the Trustee deals with trust property in accordance with the law.
B.

The Form of the Accounting.

Having concluded that the trustee is obligated to render an accounting, one must turn to
the form it must take. As explained in Cobell v. Norton, 240 F.3d 1081 (D.C. Cir. 2001): It is
black-letter trust law that [a]n accounting necessarily requires a full disclosure and description
of each item of property constituting the corpus of the trust at its inception. Engelsmann v.
Holekamp, 402 S.W.2d 382, 391 (Mo. 1966); see also BLACKS LAW DICTIONARY
(7th ed. 1999)(Defining accounting as the report of all items of property, income, and expenses
prepared by the trustee for the beneficiary). Under traditional equitable trust principles, [t]he
trustees report must contain sufficient information for the beneficiary readily to ascertain
whether the trust has been faithfully carried out. White Mountain Apache Tribe, 26 Cl. Ct. at
449.
The HANDBOOK FOR CHAPTER 7 TRUSTEES, which is published by the
Executive Office of United States Trustees and is available on the Department of Justices web
site, dictates the form of the trustees final report, and calls for similar information. See
HANDBOOK FOR CHAPTER 7 TRUSTEES, dated July 1, 2002, at S.1, available at
http://www.usdoj.gov/ust/library/chapter07/ch7 lib.htm. The final report must, inter alia, describe

- 58 -

the disposition of each estate asset and all cash receipts and disbursements. The trustee may use
existing forms to report these events, and these events are, therefore, also presented in the form
of schedules. See Id. At a minimum, therefore, an accounting should be contained in a
single document consisting of schedules that clearly identify all property and income that came
into the trustees hands, all payments and distributions made therefrom, and what remains on
hand.
The Cases cannot be closed since no accounting has ever been done, and to allow an
accounting (as it is) that the Trustee files in his final report to substitute one, prejudices the right
of Donna Sturman, who will be left with no remedy against the Trustee or these Estates.
including her rights under the Muriel Sturman Estate.
POINT VI
MHT AND GOLDBERG AIDED AND ABETTED
THE BREACH
OF FIDUCIARY DUTIES BY THE DEBTORS
AND FRAUDULENTLY CONVEYED DONNAS ASSETS

As touched on earlier, the well-settled law of this State provides that the elements of a
claim for inducing or participating in a breach of fiduciary duty are that there is (1) a breach by a
fiduciary of obligations to another, (2) that the defendant knowingly71 induced or participated in
the breach, and (3) that the plaintiff suffered damages as a result of the breach. As the Second
Circuit stated in Newburger, Loeb & Co., Inc. v. Gross, 563 F.2d 1057, 1074 (2d Cir. 1977), cert.
denied, 434 U.S. 1035, 54 L. Ed. 2d 782, 98 S. Ct. 769 (1978):

71

The Second Circuit has made it clear that it will apply the more general standard to scienter for the
simple reason that a plaintiff realistically cannot be expected to plead a defendant's actual state of

- 59 -

One who knowingly participates with a fiduciary in a breach of trust is

liable to the beneficiary for any damage caused thereby. See Wechsler v.
Bowman, 285 N.Y. 284, 291, 34 N.E.2d 322, modified, 286 N.Y. 582, 35
N.E.2d 930 (1941); 5 Scott on Trusts 506 (3rd Ed. 1967).

See also Wight v. BankAmerica Corp., 219 F.3d 79, 91 (2d Cir. 2000) a claim for aiding and
abetting fraud requires plaintiff to plead facts showing the existence of a fraud, defendant's
knowledge of the fraud, and that the defendant provided substantial assistance to advance the
frauds commission.
The claim was early recognized by New York state courts. See, e.g., Anderson v. Daley,
38 A.D. 505, 511, 56 N.Y.S. 511, 515, appeal dism., 159 N.Y. 146, 53 N.E. 753 (1899). It is
analogous to a cause of action for intentional interference with contractual relations, S. & S.
Hotel Ventures Limited Partnership v. 777 S.H. Corp., 108 A.D.2d 351, 489 N.Y.S.2d 478
(1985); Israel v. Wood Dolson Co., 1 N.Y.2d 116, 120, 151 N.Y.S.2d 1, 5 (1956), or one for
aiding and abetting a securities fraud, Edwards & Hanly v. Wells Fargo Securities Clearance
Corp., 602 F.2d 478, 484-85 (2d Cir. 1979), cert. denied, 444 U.S. 1045, 100 S. Ct. 734, 62 L.
Ed. 2d 731 (1980); Schein v. Chasen, 519 F.2d 453, 460 (2d Cir. 1975); see 5 Scott on Trusts,
506 at 3568 (3d ed. 1967) (Where a person in a fiduciary relation to another violates his duty as
a fiduciary, a third person who participates in the violation of duty is liable to the beneficiary.).
In Lerner v. Fleet Bank, N.A., 459 F.3d 273, 293 (2d Cir. 2006) the defendant had
knowledge of the fraud. The Second Circuit held that an inference may be established either (a)
by alleging facts to show that defendants had both motive and opportunity to commit fraud, or
(b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or

mind. Wight v. BankAmerica Corp., 219 F.3d 79, 91-92 (2d Cir. 2000) (citing

- 60 -

recklessness. Id. at 290-91. Lerner does not require the plaintiff to plead actual knowledge on
the part of a defendant; if a party pleads facts leading to a substantial inference that will be
enough. Id.; see also M-101, LLC v. iN Demand L.L.C., No. 06 Civ. 12938, 2007 U.S. Dist.
LEXIS 88913, 2007 WL 4258191, at *2 (S.D.N.Y. Dec 03, 2007); Oh v. Imagemark, Inc., No. 06
Civ. 10187, 2007 U.S. Dist. LEXIS 75448, 2007 WL 2962381, at *3 (S.D.N.Y. Oct 10, 2007). In
this case Donna Sturman has met the burden laid out in Lerner. She pled facts (their own
internal documents and the exhibits at the criminal proceedings of the Debtors) which constitute
more than enough circumstantial evidence that the Banks were aware of the fraudulent uses of
their loans.
Moreover, under New Yorks debtor and creditor statute, where a debtor has engaged in
a fraudulent conveyance, a creditor may (a) [h]ave the conveyance set aside or obligation
annulled to the extent necessary to satisfy his claim, or (b) [d]isregard the conveyance and
attach or levy execution upon the property conveyed. N.Y. Debt. & Cred. Law 278.
Additionally, where the assets fraudulently transferred no longer exist or are no longer in
possession of the transferee, a money judgment may be entered in an amount up to the value of
the fraudulently transferred assets. Neshewat v. Salem, 365 F. Supp. 2d 508, 521-22 (S.D.N.Y.
2005). Thus, a creditor suing to recover a fraudulent transfer is entitled to recover the entire
amount or value of the transfer
The addition of fraudulent transfer claims is not time-barred if the claims relate back to
claims made in earlier pleadings. Under Rule 15(c)(2), an amended pleading relates back to an
earlier pleading if the amended pleading sets forth claims arising out of the same conduct,

v. Fluor Corp., 808 F.2d 957, 962 (2d Cir. 1987)).

- 61 -

transaction or occurrence set forth or attempted to be set forth in the original pleading. In re
360networks (USA) Inc., 367 B.R. 428, 433 (Bkrtcy. S.D.N.Y. 2007); Fama v. Comm'r of Corr.
Servs., 235 F.3d 804, 816 (2d Cir. 2000). [T]he purpose of Rule 15 is to provide maximum
opportunity for each claim to be decided on its merits rather than on procedural technicalities;
however, a court must not undermine the purpose of repose for which statutes of limitations
were designed. Enron Corp. v. J.P. Morgan Sec. Inc., 357 B.R. 257, 263 (Bankr. S.D.N.Y.
2006) (citations and quotations omitted). This is certainly the case here since Donna alleged
corporate waste, dissipation and fraudulent transfers which involved the Banks and the Trustees
responsibilities.
The fraudulent transfer provisions of the Bankruptcy Code are intended to allow a trustee
to recover property that would otherwise have been available to the estate and its creditors. See
Bear, Stearns Sec. Corp. v. Gredd, 275 B.R. 190, 195 (S.D.N.Y. 2002) (As we noted above, the
purpose of 548(a)(1)(A) is to prevent the debtor from placing assets beyond the reach of
creditors by removing them from the estate with the intent to hinder, delay, or defraud his
creditors.); Buchwald v. Di Lido Beach Resort, Ltd. (In re McCann, Inc.), 318 B.R. 276, 282
(Bankr. S.D.N.Y. 2004) (A trustee can only avoid and recover property that would have been
part of the estate had it not been transferred before the commencement of bankruptcy
proceedings.) (quoting Begier v. Internal Revenue Serv., 496 U.S. 53, 58, 110 S. Ct. 2258, 110
L. Ed. 2d 46 (1990)).
Since all of the property sold by the Trustee was non-debtor property, since he aided and
abetted in a breach of fiduciary duty and he breached his obligation to keep Donnas funds in
trust, and breached such trust by paying them out to third parties to whom they did not belong.

- 62 -

Simply put, he should be surcharged and disgorge all his fees and such disgorgement must be had
against any recipient of the non-debtor estate property.

POINT VII
THE TRUSTEE FAILED TO PERFORM
ANY OF THE STATUTORY DUTIES REQUIRED OF HIM
AND WRONGFULLY FAILED TO PROPERLY ADMINISTER THESE ESTATES

A. The Responsibilities of the Chapter 7 trustee.

After a Chapter 7 petition is filed, the United States Trustee appoints an interim trustee to
administer the bankruptcy estate. See 11 U.S.C. 323, 701, 704. The trustee plays a central role
in a Chapter 7 bankruptcy:

The trustee is a fiduciary charged with protecting the interests of all

estate beneficiaries ... To properly represent the estate, the trustee
must secure for the estate all assets properly obtainable under
applicable provisions of the Bankruptcy Code, object to the
debtor's discharge where appropriate, defend the estate against
improper claims or other adverse interests, and liquidate the estate
as expeditiously as possible for distribution to creditors.

U.S. Dep't of Justice, Executive Office for U.S. Trustees, Handbook for Chapter 7 Trustees 6-2
(2002) (the Handbook); see 11 U.S.C. 704 (delineating trustees statutory duties).72
(Emphasis supplied.)

One of the interim trustees first duties under the Handbook is to convene the meeting of
the debtors creditors required by Section 341 of the Bankruptcy Code. 11 U.S.C. 341(a).
(There is no record of any 341 meetings in the Docket Sheets of any of these Cases.) The trustee

- 63 -

is required to hold the Section 341 meeting no fewer than 20 and no more than 40 days after the
[filing of the petition]. Bankr. R. 2003(a). Why did Goldberg fail to follow this obligation?
According to the Handbook, the filing of an involuntary petition by a creditor must be
carefully scrutinized by the Court because such an action is extreme in nature and carries with it
serious consequences to the alleged debtor, examples of which include loss of credit standing,
interference with general business affairs, and public embarrassment. See In re McDonald
Trucking Co., Inc., 76 B.R. 513 (Bank. W.D. Pa. 1987) (it is not necessary for this Court to find
that the involuntary petition was filed frivolously or without merit in order to justify the award of
costs and/or attorneys fees upon dismissal of the case; nor is a finding of bad faith on the part of
the petitioning creditor a condition precedent to the award of same. In re Advance Press & Litho,
Inc., 46 B.R. 700 (D.C. Colo. 1984); In re Allen Rogers & Company, 34 B.R. 631 (Bankr. S.D.
N.Y. 1983); In re Camelot, Inc., 25 B.R. 861 (Bankr. E.D. Tenn. 1982).)
There was absolutely no investigation of MHTs involuntary petition. That is because it
was done not for a legitimate reason such as the debtors being unable to pay their debts as they
became due, but rather because Donna had commenced her actions and MHT wanted to obtain as
much collateral (fraudulently or not) before Donnas case caught up with it.
The test for determining whether an involuntary petition has been filed in good faith is in
many ways analogous to the obligations imposed under Bankruptcy Rule 9011 and Federal Rule
11, wherein the party is required to investigate both the facts and the law prior to the signing and
submission of a pleading in the Court. Therefore, in order to find that an involuntary petition

72

The Handbook for Chapter 7 Trustees is available at

http://www.usdoj.gov/ust/eo/private_trustee/library/chapter07/docs/7handbook1008/Ch7_Handbook.pdf.

- 64 -

was filed in bad faith, the Court must look to the level of prefiling inquiry conducted by the
creditor, and the purpose of creditor's filing. In re Alta Title Company, 55 B.R. 133 (Bankr. D.
Utah 1985). This bad faith is measured by an objective standard. Matter of Elsub Corporation,
66 B.R. 189 (Bankr. D. N.J. 1986); In re Wavelength, Inc., 61 B.R. 614 (B.A.P. 9th Cir. 1986);
In re Godroy Wholesale Company, Inc., 37 B.R. 496 (Bankr. D. Mass. 1984); In re Grecian
Heights Owners' Association, 27 B.R. 172 (Bankr. D. Ore. 1982).
A good faith filing requirement is rooted in the basic bankruptcy principle that
bankruptcy courts must not be used to further fraudulent purposes. In re Coastal Cable T.V.,
Inc., 709 F.2d 762, 764-65 (1st Cir. 1983); see also, In re Integrated Telecom Express, Inc., 384
F.3d. 108, 119 (3d Cir. 2004) (the...good faith requirement ensures that the Bankruptcy Code...
is not undermined by petitioners whose aims are antithetical to the basic purposes of
bankruptcy.)73 This Bankruptcy Court has ignored the bad faith filing of FOUR separate
involuntary Bankrutpcys under its jurisdiction.
In Coastal Cable, the First Circuit said: A bankruptcy court, in the exercise of its
equitable jurisdiction... has the power to sift the circumstances of any claim to see that injustice
or unfairness is not done in the administration of the bankruptcy estate. In re Coastal Cable at
764 (citing Pepper v. Litton, 308 U.S. 295, 304-05 (1939)). The First Circuit elaborated further
on this fundamental canon of the Bankruptcy Code, stating that:
A bankruptcy court sitting in equity is duty bound to take all
reasonable steps to prevent a debtor from abusing or manipulating
the bankruptcy process to undermine the essential purposes of the
Bankruptcy Code, including the principle that all the debtors

73

This was not the case in the fraudulent bankruptcy filing of Donna Sturman, as discussed above.

- 65 -

assets are to be gathered and deployed in a bona fide effort to

satisfy valid claims.

See Marrama v. Citizens Bank of Mass. and DeGiacomo (In re Marrama), 430 F.3d 474,
477 (1st Cir. 2005), cert. granted, 547 U.S. 1191, 126 S. Ct. 2859 (2006). (Emphasis added.)
The Supreme Court could have been talking about Goldberg in Mosser v. Darrow, 341
U.S. 267, 272, 71 S. Ct. 680 (1951), when it said:
Equity tolerates in bankruptcy trustees no interest adverse to the trust.
This is not because such interests are always corrupt but because they are
always corrupting. By its exclusion of the trustee from any personal
interest, it seeks to avoid such delicate inquiries as we have here into the
conduct of its own appointees by exacting from them forbearance of all
opportunities to advance self-interest that might bring the disinterestedness
of their administration into question.
These strict prohibitions would serve little purpose if the trustee were free
to authorize others to do what he is forbidden. While there is no charge of
it here, it is obvious that this would open up opportunities for devious
dealings in the name of others that the trustee could not conduct in his
own. The motives of man are too complex for equity to separate in the
case of its trustees the motive of acquiring efficient help from motives of
favoring help, for any reason at all or from anticipation of counterfavors
later to come. We think that which the trustee had no right to do what he
had no right to authorize, and that the transactions were as forbidden
for the benefit of others as they would have been on behalf of the trustee
himself.

This is not the case of a trustee betrayed by those he had grounds to

believe were trustworthy, for these employees did exactly what it was
agreed by the trustee that they should do. The question whether he was
negligent in not making detailed inquiries into their operations is
unimportant, because he had given a blanket authority for the operations.
The liability here is not created by a failure to detect defalcations, in which
case negligence might be required to surcharge the trustee, but is a case of
a willful and deliberate setting up of an interest in employees adverse to
that of the trust.

- 66 -

The Trustee in these Cases brought only one fraudulent conveyance action in these three
cases: that against Bruce Sturman and his wife Diane for the transfer of $3,300,000 to a trust for
Diane, including a Co-op worth, according to the Trustee, $1,500,000; instead of recovering the
transfer, he settled the action, allowing Diane to keep the Co-op.
As Justice Cardozo stated in Meinhard v. Salmon, infra, 249 N.Y. at 464:
A trustee is held to something stricter than the morals of the market
place. Not honesty alone, but the punctilio of an honor the most
sensitive, is then the standard of behavior. As to this there has developed
a tradition that is unbending and inveterate. Uncompromising rigidity has
been the attitude of courts of equity when petitioned to undermine the rule
of undivided loyalty by the disintegrating erosion of particular
exceptions ( Wendt v. Fischer, 243 N. Y. 439, 444). Only thus has the
level of conduct for fiduciaries been kept at a level higher than that
trodden by the crowd. It will not consciously be lowered by any judgment
of this court.
As the Court of Appeals has stated in Simonds v. Simonds, 45 N.Y.2d 233, 239; 408
N.Y.S.2d 359, 362 (1978):
Born out of the extreme rigidity of the early common law, equity in its
origins drew heavily on Roman law, where equitable notions had long
been accepted (see 1 Pomeroy, Equity Jurisprudence [5th ed], 2-29).
Its great underlying principles, which are the constant sources, the neverfailing roots, of its particular rules, are unquestionably principles of right,
justice, and morality, so far as the same can become the elements of a
positive human jurisprudence (id., 67, at p 90). Law without principle
is not law; law without justice is of limited value. Since adherence to
principles of "law" does not invariably produce justice, equity is necessary
(Aristotle, Nichomachean Ethics, Book V, ch. 9, pp 1019-1020 [McKeon,
ed Oxford: Clarendon Press, 1941]). Equity arose to soften the impact of
legal formalisms; to evolve formalisms narrowing the broad scope of
equity is to defeat its essential purpose.
Whatever the legal rights between insurer and insured, the
separation agreement vested in the first wife an equitable interest in
the insurance policies then in force. An agreement for sufficient

- 67 -

consideration, including a separation agreement, to maintain a

claimant as a beneficiary of a life insurance policy vests in the
claimant an equitable interest in the policies designated ( Stronge v
Knights of Pythias, 189 NY 346, esp. at pp. 351-352 [Hiscock, J.];
Salinas v Salinas, 187 Misc 509, 515 [Shientag, J.], affd. 271 App.
Div. 917; see Ferro v Bologna, 31 N.Y.2d 30, 35). This interest is
superior to that of a named beneficiary who has given no
consideration, notwithstanding policy pro-visions permitting the
insured to change the designated beneficiary freely.

In addition to these improprieties of the Trustee in paying third parties with monies
derived from the defalcations of her brothers of her inheritance, Mr. Goldberg paid himself
commissions and counsel fees with her assets, and from 1991 to 1998 collected rent in the
approximate sum of $1,000,000 yearly from Yorkville Associates74 and Pelham Associates, and
allowed the Brothers to siphoned off millions from the Sturman Family Properties, while failing
to recover fraudulent conveyances from the Debtors or from the companies that they themselves
controlled, and failing to avoid the liens by MHT and Chemical (since the proceeds were
fraudulently conveyed at the expense of the partnerships and corporations)75; instead, the Trustee
clearly controlled non-debtor assets and collected rents and liquidated them for the benefit of
attorneys, trustees commissions, and collusive fee agreements with the various law firms from
which he jumped from one to the other, shopping around his $1,000,000 of collections from
Yorkville Associates alone of $1,000,000 per year plus the other non-debtor properties.76

74

According to the Trustees Memorandum of Law dated June 6, 2001, at page 6, annexed as Exhibit
MM: During his administration of the 86th Street Property, the Trustee collected approximately
$1,000,000 annually from the operations of the 86th Street Property and, without any basis therefor,
disbursed approximately the same amount annually.
75
See Answer and Counterclaim of Chemical Bank at Exhibit LL.
76
See NYLJ, dated August 25, 1995, p. 1, col. 1, NYLJ, dated November 15, 1993, p. 1, col. 1, annexed
hereto at exhibit JJ. See also complaint (99-8076A) at 40, annexed hereto at Exhibit V.

- 68 -

As this Court stated at the Hearing on September 26, 1996:

That partnership [Yorkville Associates] is not property of the
Estate. The individual debtors have a property interest in the
residual right in that partnership, but the partnership itself is not
property of the Estate. (Tr. 73)
[T]he trustee here is in a position of managing a partnership for
which he is not in fact the trustee. (Tr. 74)

See Transcript dated September 25, 1996, at Exhibit KK.

Since there was never any determination of the property of the Estate, the management by
the Trustee on non-debtor was patently improper and led to Goldbergs embezzlement,
conversion and defalcations of the non-debtor property. It is all gone now; there is no question
that since the partnerships and corporations and the property of the Estate of Muriel Sturm,
which were never part of the Estate led to a total dissolution of the non-debtor estate assets and
constituted an attempt to conspire to obtain an interest in property to the exclusion of the true
owners: Donna Sturman and the Estate of Muriel Sturman. It may very well be that the failure of
this Court to oversee these Cases with appropriate care that enabled the Trustee, on ex parte
orders, without any findings of fact or conclusions of law, to manage the non-debtor properties,
to enabled such abuse.
B. The Specific Duties of the Chapter 7 Trustee in this Case Which Were Never Performed.
Under the Bankruptcy Code, chapter 7 trustees are charged with statutory and general
duties intended to preserve the integrity of the bankruptcy system and to promote the effective
and efficient administration of bankruptcy cases. However, Goldberg was clearly working for

- 69 -

the Banks and not for the Debtors or the owner-creditors such as Donna Sturman. As stated in
section 704, these non-delegable obligations are that:
(a)
The trustee shall-(1) collect and reduce to money the property of the estate for which such trustee serves, and
close such estate as expeditiously as is compatible with the best interests of parties in interest;
(2) be accountable for all property received;
(3) ensure that the debtor shall perform his intention as specified in section 521(2)(B) of this
title [11 USCS 521(2)(B)];
(4) investigate the financial affairs of the debtor;
(5) if a purpose would be served, examine proofs of claims and object to the allowance of any
claim that is improper;
(6) if advisable, oppose the discharge of the debtor;
(7) unless the court orders otherwise, furnish such information concerning the estate and the
estates administration as is requested by a party in interest;
(8) if the business of the debtor is authorized to be operated, file with the court, with the United
States trustee, and with any governmental unit charged with responsibility for collection or
determination of any tax arising out of such operation, periodic reports and summaries of the
operation of such business, including a statement of receipts and disbursements, and such other
information as the United States trustee or the court requires;
(9) make a final report and file a final account of the administration of the estate with the court
and with the United States trustee; Among other things, the chapter 7 trustee is charged with
investigating the financial affairs of the debtor, collecting and reducing to money the property of
the estate and closing the estate as expeditiously as is compatible with the best interests of parties
in interest. 11 U.S.C. 704(a).77

77

As stated in the Senate Report No. 95-989:

The essential duties of the trustee are enumerated in this section. Others, or elaborations on these, may be
prescribed by the Rules of Bankruptcy Procedure to the extent not inconsistent with those prescribed by
this section. The duties are derived from section 47a of the Bankruptcy Act [section 75(a) of former title
11]. The trustee's principal duty is to collect and reduce to money the property of the estate for which he
serves, and to close up the estate as expeditiously as is compatible with the best interests of parties in
interest. He must be accountable for all property received, and must investigate the financial affairs of
the debtor. If a purpose would be served (such as if there are assets that will be distributed), the trustee
is required to examine proofs of claims and object to the allowance of any claim that is improper. If
advisable, the trustee must oppose the discharge of the debtor, which is for the benefit of general
unsecured creditors whom the trustee represents. The trustee is responsible to furnish such information
concerning the estate and its administration as is requested by a party in interest. If the business of the
debtor is authorized to be operated, then the trustee is required to file with governmental units charged
with the responsibility for collection or determination of any tax arising out of the operation of the
business periodic reports and summaries of the operation, including a statement of receipts and
disbursements, and such other information as the court requires. He is required to give constructive
notice of the commencement of the case in the manner specified under section 342(b). (Emphasis added.)

- 70 -

There is no question the Trustee utterly failed in each of his duties:

1.

He failed to close the cases expeditiously20 years is not expeditious by any

means.

2.

He has failed to account for 20 years.

3.

He failed to investigate the affairs of the Debtor.

4.

He failed to examine the Banks proofs of Claimnot one 2004 examination of

any Bank.

5.

He failed to oppose the discharge of three Debtor Felons.

6.

He failed to bring any fraudulent conveyance actions, which were clearly called
for.

7.

He failed to move for equitable subordination of the Banks loans due to their
aiding and abetting the Debtors breach of fiduciary.

8.

He failed to determine the true assets of the Estates.

9.

He managed and collected monies from non-debtor property.

10.

But ultimately, what he did that was most egregious was to engage in a collusive
bankruptcy of Donna in which he and Alan Nisselson breached their most paramount
duties as Trustees. Nisselson failed to take any investigative steps to ascertain
whether the split claims of Pollack & Greene was valid. He failed to determine that
the filing was made in bad faith. Then, contrary to his fiduciary obligations, he

- 71 -

entered into a collusive Settlement Agreement settling Donnas claims and he and
Goldberg purportedly not only waived any and all claims Donna had to the properties
of her brothers Estate, any claims against the Banks or any other creditorsof which
she was the sole beneficiaryincluding entering into an agreement pursuant to
which each fiduciary: Alan Nisselson and Marc Stuart Goldberg released each
other! In the context of Donnas attempts to protect her properties, the total invalidity
and invidiousness of this agreement is outrageous. Indeed, it even involves a
continuation of the aiding and abetting of breaches of fiduciary duties.
Based on the commencement of Donnas action in the Supreme Court of the State of New
York, which was removed to the Bankruptcy Court on June 28, 1991, the Trustee of these Estates
Marc Goldberg was on notice that MHTs loans were disputed, and consequently, not bona fide
claims. He failed to investigate. Goldberg was on notice that the Debtors had liquidated, wasted
and fraudulently transferred assets from the Properties in which Donna Sturman was a 25%
owner, in breach of their fiduciary relationship with Donna, and with the knowing assistance of
the Estates largest creditor, MHT, and its attorneys Otterbourg, who took their marching orders
from Richard Gerard, Vice President and General Counsel of Chemical. He failed to investigate.
In Martindale Hubbell, he claimed that MHT was his preeminent reference. Later, he moved his
practice and representation of these Estates to HOM, one of whose main clients was also MHT.
Goldberg changed ownership records as to Yorkville and collected over $1.0 Million Dollars a
year managing the Yorkville property.
Pollack & Greene then filed a fraudulent bankruptcy petition against Donna where the
creditors split their claims in violation of 18 U.S.C. 152. Pollack & Green were represented

- 72 -

by Kane, Kessler, who then jumped ship and became counsel for Alan Nisselson and claimed in
their Bank. R. 2014(a) that they were disinterested. This type of conduct, taken together, stinks
to the heavens. It is as if Nisselson simply followed out the instructions of Goldberg which he
had been given a long time ago by MHT and its officers: destroy her. Indeed, Donna Sturman
was a very serious threat to MHT, the Trustee, its counsel, and the rest of the banks and creditors.
As it is said, Fear is the parent of Cruelty. There was a turkey to be carved up and there was
only so much room at the tablefor greed knows no bounds.
In assisting his largest client and his personal reference, MHT, the Trustee blindly looked
away from the fraudulent transfers from the Properties to the Bank which looted assets not part of
the Estate, objected to the claims of Donna Sturmans 25% ownership interest, and instead
transferred the proceeds to MHT allowing MHT to loot the Estates by allowing their bogus and
voidable claims to the remaining assets in the Estate.
The investigatory stance of chapter 7 trustees, coupled with their recovery, avoidance and
strong arm powers enumerated above, are critical compliance and enforcement mechanisms
under the Bankruptcy Code.78 Yet Mr. Goldberg did not even inquire into the claims of the
debtors or the Banksit was his failure to perform his duties under 11 U.S.C. 704, to root out
evilso that he brought more evil into the light. The reason for this is either incompetence,
which is possible, or the very close relationship he had with MHT on which he hoped to trade
and make a ton of money. (See correspondence between Richard Gerard of Chemical and

78

Achieving substantial justice is not a principle superior to the requirement that speedy and inexpensive
determinations be made. Achieving substantial justice is a goal equal to doing so with dispatch and in a
cost effective way. [I]t should be noted that Rule 1 places the objectives of speedy and inexpensive
on a plane of equality with just. Wright, C.A., and Miller, A.R., 4 Federal Practice and Procedure,
1029, pages 157-58 (West 2002 and Supp. 2009).

- 73 -

directly to Mr. Goldberg or to his counsel at the time, Glen Rice, of Otterbourg who did exactly
what Chemical told them what to do.)79
D.

The Direct Conflict of Interest of the Chapter 7 Trustee in this Case.

The US Attorneys Manual states that, with regard to 18 USC 152:

The false statement must be made with respect to a material
matter. United States v. O'Donnell, 539 F.2d 1233, 1237 (9th Cir.),
cert. denied, 429 U.S. 960 (1976). The law has been that the
materiality of a false statement in a bankruptcy fraud prosecution is
a question of law to be decided by the Court, not the jury. United
States v. Key, 859 F.2d 1257, 1261 (7th Cir. 1988); United States v.
Metheany, 390 F.2d 559 (9th Cir.), cert. denied, 393 U.S. 824
(1968).

Id. US Attorney's Manual - Criminal Resource Chapter # 845 False Oath or Account 18
U.S.C. 152(2) http://www.usdoj/gov/usao/eousa/foia_reading_room/usam/title9/crm00845.htm

As to the prevalence of Bankruptcy Fraud itself, the 2000 issue of American Bankruptcy
Institute's FJC Survey on Attorney Ethics states:

In grievance and legal malpractice proceedings, alleged conflicts of

interest are among the most common, and often the most
troublesome, claims. This is particularly true in bankruptcy
representations. In fact, a recent survey of 80 percent of all
bankruptcy judges concluded that conflicts of interest issues are
prevalent in bankruptcy practice.

Marie Leary, FJC Survey on Attorney Ethics Finds Most Judges Satisfied With Rules, 19FEB Am. Bankr. Inst. J. 17 (2000).

79

See Exhibit G hereto at page 3.

- 74 -

This obligation judges legal representation against a requirement of absolute and perfect
candor, openness and honesty, and the absence of any concealment or deception. Perez v. Kirk
& Carrigan, 822 S.W.2d 261, 265 (Tex. App. - Corpus Christi 1991, writ denied).
The Trustee hired himself later in the cases as his own attorney, and in part, earns hourlybased compensation for the time spent on matters he alone decides to pursue. The more he
litigates the more he earns, and the less that remains for the beneficiaries. For this reason, a
trustee cannot ordinarily hire his own professional firm because his personal interests may
conflict with those of his cestui qui trust. See Palm Coast, Matanza Shores Ltd. Pship, 101 F.3d
at 258.
Rule 2014(a) provides, in part, that accompanying an application for the approval of
employment of a professional on behalf of a bankruptcy estate pursuant to 11 U.S.C. 327,
1103 or 1114 must be an affidavit by the professional that, inter alia, sets forth all of the
persons connections with the debtor, creditors, and any other party in interest, their respective
attorneys and accountants.
This disclosure requirement has been described as very serious business. In re Sabre
Intern. Inc., 289 B.R. 420, 426 (Bankr. N.D. Okla. 2003). Courts have applicd a strict literal
interpretation of the disclosure requirements, even if the results are sometimes harsh. In re
Park-Helena Corp., 63 F3d 877, 882 (9th Cir. 1995); see also, In re Crivello, 134 F.3d 831, 836
(7th Cir. 1998) ([C]ounsel who fail to disclose timely and completely their connections proceed
at their own risk because failure to disclose is sufficient grounds to revoke an employment order
and deny compensation.)

- 75 -

As previously demonstrated, Otterbourg had a direct conflict with all of the unsecured
creditors, including Donna Sturman. This disclosure requirement Marc Stuart Goldberg did not
dohis quid pro quowas that he could administer the Cases if Otterbourg, MHTs counsel
would represent him as his counsel. The obvious reason was the very close relationship between
the Banks, Otterbourg and the Brothers Cases.
As the Supreme Court has stated, in often quoted language:
The incidence of a particular conflict of interest can seldom be
measured with any degree of certainty. The bankruptcy court need
not speculate as to whether the result of the conflict was to delay
action where speed was essential, to close the record of past
transactions where publicity and investigation were needed, to
compromise claims by inattention where vigilant assertion was
necessary, or otherwise to dilute the undivided loyalty owed to
those whom the claimant purported to represent. Where an actual
conflict of interest exists, no more need be shown in this type of
case to support a denial of compensation.
Woods v. City Natl Bank & Trust Co., 312 U.S. 262, 268 (1940).
The Trustee must remain always impartial and disinterested, which the Code
specifically requires. See 11 U.S.C. 101(14); Wissman v.Pittsburgh Nat'l Bank, 942 F.2d 867,
872 (4th Cir. 1991) (The trustee . . . has a duty to administer the estate impartially for the good
of each and all of the creditors. No interest, except that of the estate, should be his
consideration.) (Quotation and citation omitted); In re Gibbons-Grable Co., 135 B.R. 514, 516
(Bankr. N.D. Ohio 1991) (A trustee has a duty to the estate's creditors to provide impartial
administration for their benefit."); Collier P 1108.09[4] (discussing a trustee or debtor in
possession's duty of impartiality); id. P 1108.09[4][d][ii] (Although to conclude that a trustee
. . . is duty bound to serve all interests all of the time, or even some interests all of the time,
strains logic as well as the provisions of the Code[,] . . . a trustee . . .[is] required to exercise due

- 76 -

care . . ., refrain from self-dealing . . . and, when conflicts among constituencies do arise,
negotiate honestly and in good faith in support of the particular position that [he] determines to
be appropriate . . . .). See In re Big Rivers, 355 F.3d 415, 431 (6th Cir. 2004).

The disclosures in the Rule 2014 Affidavit must be explicit enough for the court and
other parties to gauge whether the person to be employed is not disinterested or holds an adverse
interest. In re Midway Industrial Contractors, Inc., 272 B.R. 651, 662 (Bankr. N.D. Ill. 2001).
Compare the 2014 affidavit of Morton L. Gitter, Esq., counsel at Otterbourg,80 which fails in
every respect.
Of course the seminal case is Woods, discussed above, 312 U.S. at 268. See also Wolf v.
Weinstein, 372 U.S. 633, 641 (1963) (a fiduciary may not receive compensation for services
tainted by disloyalty or conflict of interest.) Mossser v. Darrow, 341 U.S. 267, 271 (1951)
(Equity tolerates no interest adverse to the trust. This is not because such interests are always
corrupt, but because they are always corrupting,) See also In re Rusty Jones, Inc., 134 B.R. 346
(Bankr. N.D. Ill. 1991)
Inadequate disclosure alone is sufficient to warrant denial of all fees sought. See, e.g., In
re Georgetown of Kettering, Ltd., 750 F.2d 536 (6th Cir. 1984) (emphasis added); In re EWC Inc.,
138 B.R. 276, 280 (Bankr. W.D. Okla. 1992) (violation of the disclosure rules alone is enough
to disqualify a professional and deny compensation, regardless of whether the undisclosed
connections or fee arrangements, which were materially adverse to the interests of the Estate or

80

See exhibit E hereto, at page 3 hereto.

- 77 -

were de minimus. In re Saturley, 131 B.R. 509, 516-17 (Bankr. D. Maine 1991) (Anything less
than the full measure of disclosure leaves counsel at risk that all compensation will be denied...)
This type of conflict, which spanned years of embezzlement and unconscionable, and
Goldberg should not only receive no fees on this application, but a disgorgement from the time
he was represented by Otterbourg.
POINT VIII
THE DEBTORS TRANSFER OF INTERESTS
FROM CORPORATIONS AND PARTNERSHIPS
OWNED BY DONNA WERE FRAUDULENT TRANSFERS
AND WERE NOT AVOIDED BY THE TRUSTEE
AND THEREFORE MAY BE AVOIDED BY DONNA STURMAN
AND COLLECTED AGAINST NISSELSON AND GOLDBERG AND THEIR FIRMS

A.

New York Debtor and Creditor Law 273-a.

Ms. Sturman commenced an action against the Debtors in New York State Supreme
Court, New York County on July 9, 1987, alleging unauthorized and fraudulent transfers of
assets and properties of which she was an owner. (See Exhibit EE.) The transfers alleged in
the complaint against the Debtors and against the Trustee, were fraudulent as to her by reason of
273-a of the Debtor and Creditor Law. As that section provides:
Every conveyance made without fair consideration when the person
making it is a defendant in an action for money damages or a judgment in
such an action has been docketed against him, is fraudulent as to the
plaintiff in that action without regard to the actual intent of the defendant
if, after final judgment for the plaintiff, the defendant fails to satisfy the
judgment.

Three elements must exist in order to support a claim under 273-a: (1) the conveyance
was made without fair consideration; (2) the conveyor is a defendant in an action for money

- 78 -

damages or a judgment in such action has been docketed against him; and (3) the defendant has
failed to satisfy the judgment. In re Fair, 142 B.R. 628, 631 (Bankr. E.D.N.Y. 1992); Republic
Insurance Co. v. Levy, 329 N.Y.S.2d 918, 919 (Sup. Ct. Rockland 1972); Schoenberg v.
Schoenberg, 113 Misc. 2d 356, 449 N.Y.S.2d 137, 139, mod. on other grounds, 456 N.Y.S.2d 14
(Sup. Ct. Nassau 1982).
It is without dispute that the Debtors and the Trustee have failed to satisfy Donna
Sturmans claim against them.
The Debtors made conveyances for their own benefit from the properties and assets of
which she was an owner as follows:

On October 22, 1987, the Debtors encumbered the real property owned by H.

Development Corp. with a mortgage in favor of MHT in the sum of $13,492,000; and

In April, 1988, the Debtors encumbered the real estate owned by Wayne-Adam

Corp. with a mortgage in favor of MHT in the sum of $2,000,000.00.81

The phrase fair consideration, as used in 273-a, is defined by 272 of the Debtor and
Creditor law, which provides:
Fair consideration is given for property, or obligation,
a. When in exchange for such property, or obligation, as a fair equivalent
therefor, and in good faith, property is conveyed or an antecedent debt is
satisfied, or
b. When such property or obligation is received in good faith to secure a
present advance or antecedent debt in amount not disproportionately small
as compared with the value of the property, or obligation obtained.
81

See Chemical Bank Answer and Counterclaim at Exhibit MM.

- 79 -

 272 contains two elements: fair equivalent value, and good faith. Reading 273-a and
272 together, creditors asserting 273-a claims have two separate approaches to avoid
transfers.
Under the first, they may void any transfer made without fair consideration regardless of
the intent of the parties. Under the second approach, even if there was fair consideration, the
party in question must prove that the consideration was taken in good faith. HBE Leasing Corp.
v. Frank, 837 F. Supp. 57, 60 (S.D.N.Y. 1993); See also Southern Industries, Inc. v. Jeremias, 66
A.D.2d 178, 411 N.Y.S.2d 945, 948 (2nd Dept 1978); In re Checkmate Stereo and Electronics,
Ltd., 9 B.R. 585, 617 (Bankr. E.D.N.Y. 1981), aff'd, 21 B.R. 402 (E.D.N.Y. 1982).
Since either approach is legally sufficient to sustain a 273-a claim, the remaining
question is whether the Bank can demonstrate genuine issues for trial with respect to both
approaches. In point of fact, the Trustee and the Debtors are unable to demonstrate either
ground.
As to the element of fair equivalent value, the Trustee and the Debtors cannot show that
the mortgages against property owned by Donna were made for fair consideration since they were
given to secure repayment of an antecedent debt owed to MHT. (As previously described, when
MHT loaned HD the sum of $13,492,000, it took back the sum of $7,300,000 to secure
antecedent unsecured loans.) Accordingly, the mortgage cannot be considered having been given

- 80 -

For fair consideration under 272.82 Indeed, there was a negative effect upon HD as a result of
the loanHD, the alleged borrower became insolvent. This was the true purpose of the Bank:
to protect its own unsecured loans by making it appear that it was loaning $13,492,000 to HD,
when, in fact, it was taking back the first $7,300,000 for itself and gaining the increased
mortgage against real propertythus, the Bank doubled its money.
In Atlanta Shipping Corporation, Inc. v. Chemical Bank, 818 F.2d 240, 248-49 (2d Cir.
1987), the Second Circuit considered the meaning of fair consideration under 272, and held:
In general, repayment of an antecedent debt constitutes fair consideration unless the transferee
is an officer, director, or major shareholder of the transferor. (Emphasis supplied).
However, even if the mortgages secured advances made contemporaneously with the
filing of the mortgages, section 273-a only requires that the person making the conveyance be a
defendant in an action for money damages, which the Debtors wereand the Bank knew. See
Petersen v. Valenzano, 849 F. Supp. 228, 231 (S.D.N.Y. 1994) (stating that New York courts
have applied 273-a to conveyances which occurred before, during and after a judgment). It
should be noted that 273-a explicitly states that the intent of the transferor is irrelevant. See
Gasser, 353 F. Supp. 2d at 354 (A claim under DCL 273 does not require proof of an intent
to deceive or any of the traditional elements of fraud.) (citations omitted); see also Intuition
Consol. Group, Inc. v. Dick Davis Publ'g Co., 2004 U.S. Dist. LEXIS 4821, No. 03 Civ. 5063,
2004 WL 594651, at *3 (S.D.N.Y. Mar. 25, 2004). Nevertheless, the clear bad faith of the Bank

82

While a creditor seeking to set aside a conveyance as fraudulent bears the burden of proof to establish
that the conveyance was made without fair consideration. Petersen v. Valenzano, 849 F. Supp. 228, 231
(S.D.N.Y. 1994), in cases where a conveyance has been made from one family member to another and
the facts relating to the type of consideration are within their exclusive control, the defendant has the
burden of proving the adequacy of the consideration. Intuition Consol. Group, 2004 U.S. Dist. LEXIS
4821, 2004 WL 594651, at *3 (citing United States v. McCombs, 30 F.3d 310, 324 (2d Cir. 1994)).

- 81 -

is totally apparentit did not intend to actually advance the full amountrather what Chase
sought was an interest in the property which HD owned and repayment of an old debt, which had
the actual effect of creating an even greater debt of HD than it ever received.
That holding controls the case at bar. H. Development Corp. and Wayne-Adam Corp.
were closely-held family-owned corporations. The Debtors were all officers, directors, and
shareholders of the corporations. Furthermore, they benefitted by the dissipation and transfer of
funds to the Bank so that the Debtors could request further funds. The net effect to Donnas
property interest, however, was clearly a fraudulent transfer in which the Bank benefitted
handsomely. It cannot now be heard to argue that securing their prior unsecured loans with
mortgages on property owned by Ms. Sturman, in derogation of her 273-a creditor's rights,
constitutes fair equivalent value under 272.
But even if that were not the case, Donna would still be able to avoidand the Trustee
sought to hide the fact that Donna would be entitled to avoidthe mortgage proceeds on the
second approach, namely, that the consideration, albeit fair, was not taken in good faith.83 The
Debtors and the Bank both knew that it was only the property which evaporated in the
transaction. The Debtors got money, kept their lender happy and the Bank created a huge
windfall by evaporating $7,300,000 from the value of the real estate owned equitably by Donna.
It was the Trustees responsibility to avoid this transfer which evaporated close to Seven and a
half Million Dollars from HDowned one-quarter by Donna.

83

As demonstrated, infra, the transfers were made in derogation of the fiduciary duty the Debtors and the
Bank owed to Donna as officers, directors and shareholders of H. Development and Wayne-Adam
MHT was both a lender and a secure party.

- 82 -

Under New York law, a person seeking to set aside a conveyance upon the basis of lack
of good faith must prove that one or more of the following factors is lacking: (1) an honest belief
in the propriety of the activities in question; (2) no intent to take unconscionable advantage of
others; and (3) no intent to, or knowledge of the fact that the activities in question will hinder,
delay or defraud others. Southern Industries, Inc. v. Jeremias, 411 N.Y.S.2d at 949.
In Southern Industries, the Appellate Division held that the transfer in question must be
deemed void for lack of good faith because it was consummated with the intent to obtain an
unconscionable advantage for one who is an officer, director or stockholder of the corporation
over the rights of other general creditors. Id. The Court reached the same conclusion in Studley
v. Lefrak, 66 A.D.2d 208, 412 N.Y.S.2d 901, 906 (2nd Dept 1979): the manipulation of
corporate assets by the respondents in the face of the petitioners rights by preferring the interests
of those in control of the corporation (or, in this case, the Bank as well) reflects bad faith and
deprives the respondents of the status of transferees for fair consideration. Thus, both the
Trustee, as the fiduciary of Donna, as the defrauded owner of HD and Wayne-Adam and as a
creditor of the Brothers or HD or Wayne-Adam, Donna, who was the real victim, lost substantial
wealth in a transaction that was made to look like a loan.
The Debtors and MHT were aware from July 9, 1987, when Donna Sturman commenced
her action against the Debtors, a fact known to the Bank both as a third party from whom she
attempted to obtain information, and which sought protective order after protective orderthat
the Debtors were liquidating the value of the corporations and the partnerships of the Sturman
Enterprises to invest in Cooper Company stock, and encumbering assets and property owned by
her was plundered by the Debtors and MHT.

- 83 -

The Debtors and the Banks encumbrance of H. Development Corp. and Wayne-Adam
Corporation were mere pieces of an overall plan to denude the corporations and partnerships who
are parties to this action in order to acquire Cooper Company Stock. Thus, as the Second Circuit
instructed in Orr v. Kinderhill Corp., 991 F.2d 31, 35 (2d Cir. 1993), an allegedly fraudulent
conveyance must be evaluated in context; where a transfer is only a step in a general plan, the
plan must be viewed as a whole with all its composite implications. (Citations and interior
quotations omitted).
The issue of whether the partnerships and corporations of which Donna was an equitable
owner were made insolvent by the transfers to the Debtors and the Bank is irrelevant. While their
Estates had but a fraction of the value of the original value of the corporations and partnerships
and those entities values were severely compromised by the Debtors, a claimant under 273-a
need not demonstrate the insolvency of the corporations. It is sufficient for Donna to support her
claim against the Bank or the Debtors that her claim for $20,000,000 was never satisfied by the
Bankruptcy Court; and if, as here, it has not, the question of insolvency is irrelevant to the
considerations at hand. Republic Insurance Company v. Levy, 329 N.Y.S.2d at 921. See also
Schoenberg v. Schoenberg, 449 N.Y.S.2d at 139 (in an action under 273-a, the questions of
actual intent and insolvency are irrelevant.).84

84

The Advisory Committee on Practice and Procedure, in recommending that this new section be added
to the Debtor and Creditor Law, stated the basis for its recommendations as follows (Third Preliminary
Report [N. Y. Legis. Doc., 1959, No. 17], p. 288): In addition to provisional remedies which may be
available, the advisory committee recommends that creditors have a further remedy to discourage a
defendant from fraudulently disposing of assets in contemplation of an adverse judgment while an action
is still pending. * * * Even if the gift was made without intent to defraud and if the judgment
debtor was not rendered insolvent thereby and is not insolvent after judgment but simply chooses not to
satisfy it, there is nevertheless no reason for requiring the judgment creditor to pursue him rather than a
gratuitous recipient of the debtors assets. From this, it is evident that the question of insolvency is
irrelevant to the considerations at hand.

- 84 -

B.

Recovery is Proper Against the Trustee.

Generally, the creditors remedy in a fraudulent conveyance action is limited to

reaching the property which would have been available to satisfy the judgment had there been no
conveyance. TLC Merch. Bankers, Inc. v. Brauser, 2003 U.S. Dist. LEXIS 3564, No. 01 Civ.
3044, 2003 WL 1090280, at *3 (S.D.N.Y. Mar. 11, 2003) (quoting Mfrs. & Traders Trust Co. v.
Lauer's Furniture Acquisition, Inc., 226 A.D.2d 1056, 1057, 641 N.Y.S.2d 947, 948 (4th Dept
1996) (quotations omitted)).
Section 278 of New Yorks Debtor and Creditor Law allows creditors, such as Donna,
who have established that a conveyance is fraudulent and have a mature claim against the
Debtors and MHT, to seek an order from the Court to set aside the conveyance to the extent
necessary to satisfy her claim or to disregard the conveyance and attach or levy execution upon
the property conveyed. New York Debtor and Creditor Law 278. The purpose of the remedy
fashioned by DCL 278 is to grant the creditor the right to be paid out of assets to which he is
actually entitled and to set aside the indicia of ownership which apparently contradict that right.
Gasser, 353 F. Supp. 2d at 356 (quoting Hearn 45 St. Corp. v. Jano, 283 N.Y. 139, 143, 27
N.E.2d 814 (1940) (citations omitted)).
However, where the assets fraudulently transferred no longer exist or are no longer in
possession of the transferee, a money judgment may be entered in an amount up to the value of
the fraudulently transferred assets. See TLC Merchant Bankers, 2003 U.S. Dist. LEXIS 3564,
2003 WL 1090280, at *3; RTC Mortgage Trust 1995-S/N1 v. Sopher, 171 F. Supp. 2d 192, 201

- 85 -

(S.D.N.Y. 2001) (citations omitted). Under New York law, a creditor may recover money
damages against parties who participate in the fraudulent transfer and are either transferees of the
assets or beneficiaries of the conveyance. RTC Mortgage Trust, 171 F. Supp. 2d at 201-02
(citing Stochastic Decisions, Inc. v. DiDomenico, 995 F.2d 1158, 1172 (2d Cir. 1993) (applying
New York law); Federal Deposit Ins. Corp. v. Porco, 75 N.Y.2d 840, 842, 552 N.Y.S.2d 910,
552 N. Ed. 2d 158 (1990); Contractors Cas. & Sur. Co. v. I.E.A. Elec. Corp., 181 Misc. 2d 469,
472, 693 N.Y.S.2d 915, 693 N.Y.S.2d 916 (N.Y. Sup. Ct. 1999)).
In this case, the Trustee held virtually the same sum as was evaporated in a moment by
the Banks and the Debtors: the very sum of $7,800,000 was in the custody of the Trustee
Goldberg at the commencement of the Cases.
CONCLUSION

As the Supreme Court of the United States stated more than 70

years ago: [B]ankruptcy courts are essentially courts of equity
and their proceedings inherently proceedings in equity. Local
Loan Co. v. Hunt, 292 U.S. 234, 240 (1934).
Those equitable powers are invoked to the end that fraud will
not prevail, that substance will not give way to form, that
technical considerations will not prevent justice from being
done. Pepper v. Litton, 308 U.S. 295, 304-305(1939).
This Court should follow the injunctions of the Supreme Court and do justice in this Case
in returning the non-debtor property to Donna Sturman, which was never segregated or protected.

- 86 -

For the foregoing reasons, this Court should not condone Goldbergs attempt to close these
Cases without an accounting, a turnover of the assets rightly belonging to Donna Sturman and
this Court should open and attend to deciding the fully-briefed motion to dismiss by MHT, now
JP Morgan Chase and reopen the case against Marc Stuart Goldberg and compel him to answer
promptly to allow these languishing Cases to reach finality.

Respectfully Submitted,

S/David H. Relkin
DAVID H. RELKIN
Counsel for Donna A. Sturman

- 87 -