The Law Offices Of

DAVID H. RELKIN
575 Eighth Avenue
Suite 1706
New York, New York 10018
212-244-8722
Attorney Appearing for Donna A. Sturman:
David H. Relkin, Esq. ([email protected])

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.

MEMORANDUM OF LAW
IN OPPOSITION TO MOTION BY TRUSTEE FOR
SANCTIONS AND IN SUPPORT OF CROSS-MOTION TO
COMPEL TRUSTEE TO ACCOUNT
David H. Relkin, Esq.

TABLE OF CONTENTS
Page(s)
Table of Authoritiesi

POINT I
THE TRUSTEES MOTION IS PATENTLY FRIVOLOUS AND MUST BE DENIED
Summary of Argument....1
Facts.4
Background......9

POINT II
THERE CAN BE NO VIOLATION OF THE AUTOMATIC STAY TO OBTAIN AN
ACCOUNTING FROM THE EXECUTORS OF THE MURIEL ESTATE AND FROM
THE TRUSTEE SINCE THEY HAVE NEVER ACCOUNTED FOR 21 YEARS AND
NONE OF THE PROPERTY SOLD WAS PROPERTY OF THE ESTATE
A. Neither the Bankruptcy Court Nor The Trustee Ever Made Any Initial Required
Determination That The Non-Debtor Property Was Part of The Bankruptcy
Estates....18
B. Even Had The Court Made A Determination of Property Of The Estate, Since The
Property Of The Entities Sold By The Trustee Were All Owned By Partnerships And
Corporations They Were Not Part Of The Debtors Estates, And There Can Be No
Violation Of The Automatic Stay......23
C. The Assets Of A Partnership Are Not Property Of the Estate And Thus Not Subject To
The Automatic Stay...24

D. The Assets of The Corporations Were Not Property Of The Estate..... 29

E. The Trustees Motion Lacks Any Legal Foundation Or Support For SanctionsRather
The Trustee Violated Surrogate And State Court Orders..32

POINT III
THE TRUSTEES SALE OF NON-DEBTOR PROPERTY CREATED A TRUST IN
FAVOR OF DONNA STURMAN
A. The Evidence Of Collusion By The Trustee Is Further Evidence Of His
Wrongdoing In Failing To Properly Administer The Estates....47
B. The Establishment Of A Constructive Trust Excludes Such Assets From The
Estate..53

POINT IV
THE PARTNERSHIP DISPUTE OVER THE YORKVILLE PROPERTY DECIDED
BY THE BANKRUPTCY COURT WAS NON-CORE AND IS VOID.55

POINT I
THE TRUSTEES MOTION IS
PATENTLY FRIVOLOUS AND MUST BE DENIED

Summary of Argument

This motion by the Trustee (using counsel that he specifically hired to defend Ms.
Sturmans appeal, while continuing to be represented by his former law firm, Harrington, Ocko
and Monk), is the culmination of the unspeakable animus of the Trustee against Ms. Sturman,
whom he left penniless in a $60 Million Dollar Bankruptcy case1 despite his possession of
indisputable records that Ms. Sturman owned 25% of the partnerships and corporations (the
Entities), which Entities each owned real estate, none of which Entities were in Bankruptcy,
and, therefore, as demonstrated herein at none of which real estate was part of the Debtors
Estates.
According to well-settled law, none of the Entities could be sold by the Bankruptcy Court
since they were not property of the Estate. Nevertheless, in contravention of this well-settled
law, and in violation of explicit Orders in the Supreme Court of New York County and the
Surrogates Court, the Trustee disposed, converted, abandoned and sold the non-debtpr
properties owned by the Entities in the Bankruptcy Cases for the sole benefit of himself, his
attorneys and law firms and, especially, Chase Manhattan Bank (MHT).
Since none of the properties that were sold in the Bankruptcy proceedings by Goldberg
were property of the Estate, there can be no violation of the automatic stay; to the contrary, the
Trustee should issue an accounting of those proceedingssomething he never did in this 21 year
old bankruptcy.
1

Filed by Manufacturers Hanover Trust (MHT) as a no-asset case on August 4, 1989.

The story of this case, heard by anyone, elicits outrage and disbelief. The story, told
simply and unvarnished, is res ipsa loquitor.
Even a brief history of this case demonstrates that the instant motion by the Trustee is
frivolous2 for any and all of the following reasons:
a) Ms. Sturman is requesting merely an accounting of any assets in the Muriel Estate, to
have the Executors account, and to have the Trustee in this 21 year old cases account
for the very first time. There is no request for any relief to obtain an interest in the
Estates, or any violation of the automatic stay.
b) This motion is barred by the Probate exception to the extent that it seeks relief in the
Probate Court.3
c) On December 16, 2004, in what can only be analogized to the Saturday Night
Massacre, a hearing (not shown on any docket and for which no transcript exists)
allegedly took place in which (i) the Trustee illegally released himself, the Estates and
all the creditors and professionals from any claims by Ms. Sturman, including her

So as to provide notice to this Court of the Trustees inconsistent positions, Donna Sturman and her
counsel advise this Court of a fact conspicuously absent from the Trustees papers for Contempt. While
we stand behind our motion to the Surrogates Court in all respects, and, in fact, urge that this Court grant
Sturmans cross-motion for the Trustee to account, which he has never done in 21 years, the Trustee in
the accompanying Appendix of Exhibits in his motion to dismiss Donna Sturmans appeal claims that
such appeal should be dismissed since she has no standing based on a collusive agreement in which the
Trustee released himself, the Estates and all the creditors in an involuntary bankruptcy proceeding filed
against Donna Sturman, which is void for lack of due process since the Court had no jurisdiction over Ms.
Sturman. See Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314-5 (1950). Moreover,
pursuant to Daily v. City of Phila., 98 F.Supp.2d 634, 636 (E.D. Pa. 2000) (Lack of subject matter
jurisdiction may be raised at any time by the court sua sponte.)
Accordingly, as he has many times before, the Trustee is taking two directly contradictory
positions: Donna Sturman has no standing to take an appeal from the Bankruptcy Court Orders, and, in
this motion Donna Sturman and her counsel are violating the automatic stay. This should not be
condoned and the Trustee should be estopped in this proceeding from altering his position in the motion
to dismiss Donna Sturmans appeal, without prejudice to Sturman prosecuting this motion.
3
The Trustee filed notices of appearance in the Surrogates Court on April 27, 1994 and September 28,
1995, and is therefore subject to the jurisdiction of the Surrogates Court. (See Exhibit O to the
Surrogate Court Motion submitted herewith.)

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adversary proceeding against him in a collusive settlement with Alan Nisselson in an

utterly fraudulent and void bankruptcy proceeding, then (ii) paid Joseph Warren, one
of the executors of the Muriel Estate, $100,000 in order to have the Muriel Estate
release him and the Debtors Estates, out of over $1 Million Dollars which he claimed
were assets belonging to the Muriel Estate (without obtaining permission from the
Probate Court), and then (iii) made huge distributions to himself and the other
professionals.4
d) The Trustee completely failed to controvert Ms. Sturmans Proof of Claim, which was
supported by so much evidence (confirmed by the tax returns examined by the
Trustee in objecting to her claims) that the Proof of Claim could not be filed by the
Clerk. Moreover, the Court itself claimed that her proof of claim was not only valid
but that the Trustee had failed to controvert it and simply objected because he didnt
like it. (Transcript of November 10, 1998, at pages 7-8, 21, and 34.)5
Notwithstanding the foregoing, the Trustee held no hearing pursuant to FRBP 3007 or
9014, which he was required to do, which would have exposed the undeniable
evidence of widespread fraud on Ms. Sturman.
e) The Trustee violated State Court and Probate Court Orders obtained by Donna
Sturman prior to the Bankruptcy filing preventing the dissipation or sale of any of the
properties which he sold in the Bankruptcy proceeding. (See Exhibits D and E to
the Surrogate Court Motion submitted herewith.)
4

Even though the Trustee took the position in the Bankruptcy to sell the property owned by Yorkville
Associates, a New York State partnership owning property right next to Chases offices, that all the
interests of Muriel Sturman had (without any Surrogate Court order) passed directly to the Debtors and
Ms. Sturman, presumably to avoid obtaining consent from the Probate Court, he quickly (and
purportedly) released himself and the Estates from any claim in a collusive settlement agreement with
Warren, who walked away from a Probate proceeding he had permitted to be looted.
5
See Exhibit EE and HH to the accompanying Objection to the Trustees Final Accounting.

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f) The Trustee administered this case (in which he asserted that 109 creditors had
appeared) solely on behalf of its one petitioning creditor MHT in violation of 11
U.S.C. 303, retained their counsel to administer the case in violation of FRBP 2014
(a); which was similarly violated by counsel for the Trustee, Alan Nisselson in the
fraudulent and void involuntary Bankruptcy of Donna Sturman, who retained as
counsel the petitioning creditors attorneys.6
g) What is patently obvious from even a cursory review of the documents in these Cases
is that the instant motion is but the continuation of the inexplicable abuse directed at
Donna Sturman by the Trustee.
h) Accordingly, Ms. Sturman respectfully requests that this Court, for the reasons stated
herein, should deny the motion of the Trustee, and grant Donna Sturmans crossmotion to compel the Trustee to account for all funds which came into his hands in
the Brothers Bankruptcy Cases. 11 U.S.C. 704 (a) (2) (The Trustee shall be
accountable for all property received.)7
Facts
Henry Sturman died in 1973. Under his Last Will and Testament, Muriel Sturman was
bequeathed the fractional share of the residuary estate which equaled the maximum estate tax
marital deduction allowable in determining federal estate tax. The residue of the property, both
real and personal, was bequeathed to Donna Sturman and her brothers, Wayne, Howard and
Bruce Sturman (collectively the Brothers) in equal shares, per stirpes.

Donna Sturman was never served with the involuntary petition, which involved splitting of claims by
Pollack and Greene, who commenced the proceeding using two members of its own firm in order to
comply with the requirement of 303, which two creditors claimed judgments of $400 each, although
they never submitted any proof of claim in that proceeding. See Exhibit M to the Objection to the
Trustees Final Accounting.
7
All references to sections of the Bankruptcy Code will be preceded by a section sign ()

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Upon information and belief, the Last Will and Testament of Henry Sturman was
submitted for probate in Surrogates Court, Westchester County, in 1973, which proceeding has
never been closed. Mr. Sturman was an astute real estate investor who purchased valuable
properties in the name of various corporations, which were all looted by Howard, Bruce and
Wayne Sturman, Donna Sturmans brothers before and in the Probate Proceedings and in the
Bankruptcy Court by Mr. Goldberg.
Upon the death of Muriel Sturman, Howard Sturman (later convicted of the felony of
submitting fraudulent financial statements to MHT) was appointed as an executor, together with
Joseph Warren who later released the Estates of the Brothers, their creditors and the Trustee,
Mr. Goldberg, for a payment from the Bankruptcy Estates assets of $100,000, without any
adjudication or approval in the Probate Court and in violation of its Order prohibiting any
distributions from the Estate of Muriel Sturman. Since this settlement involved a release of any
claims by the Probate Estate against the Brothers casesand Mr. Goldbergit was a violation
of his fiduciary obligations since it affected the interests of others to whom Mr. Goldberg had a
fiduciary obligation, including Ms. Sturman.8
Muriel Sturman died in 1980. Under her Last Will and Testament, all of Muriel
Sturmans property was bequeathed to testamentary trustees to divide into four equal, separate
trusts for the benefit of Donna Sturman and each of the Brothers. While the Trusts were never
funded, the properties remained subject to an Order in the Surrogates Court not to transfer any
assets.

As demonstrated hereinafter this was not the only collusive release entered into by Mr. Goldberg in
these cases in which he exculpated himself from liability to others, including to Ms. Sturman, which,
based on well-settled law are void as violations of his fiduciary duties.

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The Last Will and Testament of Muriel Sturman was submitted for probate in Surrogates
Court, New York County, in 1980. The estate of Muriel Sturman has not been closed. Following
the deaths of their parents, Donna Sturman and her Brothers became general partners and
shareholders in numerous Sturman Family business entities, including:
(i)

6-8 Pelham Parkway Corp. (6-8 Pelham), a New York corporation. The

Brothers were officers and directors of 6-8 Pelham. Donna Sturman was a 25 percent
shareholder of 6-8 Pelham. The Brothers owned the remaining shares of 6-8 Pelham.
(ii)

Cauldwell Management Corp. (Cauldwell), a New York corporation.

The Brothers were officers and directors of Cauldwell. Donna Sturman either owned
outright or had a beneficial interest in 25 percent of the shares of stock of Cauldwell. The
remaining shareholders were either the Brothers or the Estate of Muriel Sturman.
(iii)

Anthony J. Griffin Corp. (Griffen), a New York corporation. The

Brothers were officers and directors of Griffen. Donna Sturman either owned outright or
had a beneficial interest in 25 percent of the shares of stock of Griffen. The remaining
shareholders were either the Brothers or the Estate of Muriel Sturman.
(iv)

HP Howard & Co. (HP Howard), a New York corporation. The

Brothers were officers and directors of HP Howard. Donna Sturman was a 25 percent
shareholder of HP Howard. The Brothers owned the remaining shares of HP Howard.
(v)

H. Development Corp. (H Development Corp.), a New York

corporation. The Brothers were officers and directors of H. Development Corp. Donna
Sturman was a 25 percent shareholder of H. Development Corp. The Brothers owned the
remaining shares of H. Development Corp. Just after Ms. Sturman commenced her case
in the State Court against her brothers, and MHT received a subpoena putting them on

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notice that Ms. Sturman owned 25% of H. Development, MHT turned around and lent
additional monies to the brothers on a property Ms. Sturman also owned, Wayne-Adam
Corp.
(vi)

Wayne-Adam Corp. (Wayne-Adam), a New York corporation. The

Brothers were officers and directors of Wayne-Adam Corp. Donna Sturman was a 25
percent shareholder of Wayne-Adam Corp. The Brothers owned the remaining shares of
Wayne-Adam Corp.
(vii)

Cornwall Estate, Inc. (Cornwall), a New York corporation. The

Brothers were officers and directors of Corp. Donna Sturman was a 25 percent
shareholder of Cornwall Estate, Inc. The Brothers owned the remaining shares of
Cornwall Estate, Inc.
(viii) Yorkville Associates (Yorkville), a New York general partnership.
Donna Sturman was a general partner and had a 25%t interest in Yorkville. The Brothers
and the Estate of Muriel Sturman were general partners and owned the remaining
interests in Yorkville.
(ix)

Pelham Associates ("Pelham"), a New York general partnership. Donna

Sturman was a general partner and had a 25 percent interest in Pelham. The Brothers
were general partners and owned the remaining interests in Pelham.
(x)

Pelham Racquetball & Health Club, d/b/a Metrofit Athletic Club of

Pelham (Pelham Racquetball), a New York general partnership. Donna Sturman was a
general partner and had a 25 percent interest in Pelham Racquetball. The Brothers were
general partners and owned the remaining interests in Pelham Racquetball.

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(xi)

A.B. Yale Corp. (AB Yale), a New York corporation. The Brothers

were officers and directors of AB Yale. Donna Sturman was a 25 percent shareholder of
AB Yale. The Brothers owned the remaining shares of AB Yale.
(xii)

Astoria Terminal Inc. (Astoria), a New York corporation. The Brothers

were officers and directors of Astoria. Donna Sturman was a 25 percent shareholder of
Astoria. The Brothers owned the remaining shares of Astoria.
(xiii) Sea Bridge and Pier 23 Terminal Corp. ("Sea Bridge"), a New York
corporation. The Brothers were officers and directors of Sea Bridge. Donna Sturman was
a 25 percent shareholder of Sea Bridge. The Brothers owned the remaining shares of Sea
Bridge. (Collectively, the corporations and partnerships identified above are hereinafter
referred to as the Entities.)

The assets of the Entities, at least twenty-five percent of which belonged to Donna
Sturman,9 in utter derogation of her legitimate rights by greedy and dissembling opportunists
allowed to run amuck in these cases, were all evaporated by the Trustee, leaving Justice delayed
and undone, and leaving Donna Sturman homeless and penniless.

Since Ms. Sturman alleged a constructive trust over the assets that the Brothers had transferred from the
Entities prior to her state court action, as the Trustee stated in a Hearing on July 3, 2001, she was entitled
to all the assets in the Estates under such a theory of recovery. (See accompanying Transcript to Approve
the Sturman Settlement at pp. 7-41, and 104-118.) As demonstrated hereinafter at Point III, the trust
continued when the property of the Entities came into the hands of the Trustee as a fiduciary.

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Background
Donna Sturman commenced an action in the Supreme Court of the State of New York on
June 26, 1987, amended July 10, 1987,10 against her Brothers and derivatively on behalf of the
Entities, which the Brothers controlled, mortgaged and treated like their own piggy banks.11
The MHT filings immediately followed Donnas service of a subpoena on MHT in the state
court litigation in which Donna Sturman, suing individually and on behalf of the Entities, some
of which MHT and Boston Safe and Deposit had taken as collateral, knowing that the properties
were inherited and that Ms. Sturman had an interest in them.
Ironically represented by MHT counsel (who later claimed they could not represent her
due to the conflict), Milbank Tweed Hadley & McCloy (Milbank), was well on her way to
establishing that the Brothers had stolen vast amounts of the underlying assets of the Entities and
wrongfully pledged them and mortgaged them to MHT, who had knowledge of her interests in
the properties and had aided and abetted her brothers in breaching their fiduciary duties.
MHT improperly instituted these Cases on August 4, 1989, when MHT, without any
other creditors, filed involuntary chapter 7 petitions against Howard, Bruce and Wayne Sturman.
The filing of the involuntary petitions had two purposes: (1) to stop Donna's discovery of the
debtors books and records in her state court litigation, and (2) to allow MHT to gain an

10

See Exhibit Q to the Surrogate Court Motion, submitted herewith, on which this motion by Mr.
Goldberg is based.
11
See objection by the FDIC to the extension of the Trustee to manage the businesses of the Debtor,
annexed hereto as Exhibit A at page 5.

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advantage over Donna Sturman by using the Bankruptcy Court to acquire the Entities.12

In July 1990, Ms. Sturman submitted notice to the Bankruptcy Court that the loans made
to the Brothers were subject to a bona fide dispute. Nevertheless, the Trustee took no
depositions of the institutional creditors based on Ms. Sturmans claims.13

The trustees duties involved an examination of the claims of MHT under 303 to
determine whether the Petitions were interposed for improper purposes or whether they were
subject to a bona fide dispute. Nevertheless, no such investigation was ever done. There were
also no 341 meetings and no depositions of MHT. 14

Rather, through repeated Orders and Stipulations, MHT extended the date for entry of
orders for relief until it suited MHTs own interests. The Orders for Relief were not entered until
April 8, 1991. On April 17, 1991, Marc Stuart Goldberg was appointed trustee. Goldberg
admitted in an affidavit that he had numerous discussions with MHT and, because he claimed
that the bankruptcies would be highly complicated, he retained Otterbourg Steindler Houston &
Rosen (Otterbourg) as his counsel.

On April 25, 1991 Morton L. Gitter, Esq. of Otterbourg submitted an affidavit in support

12

A review of the Claims register available via PACER, however, shows no fewer than forty actual
creditors and parties in interest in connection with the Wayne Case (89-11932).
13
As discussed hereinafter, this failure tainted the entire bankruptcy since the requirements of 303(b),
which confer subject matter jurisdiction on the bankruptcy court, and hence can be raised at any time for
dismissal, were violated by MHT, and by Goldberg in failing to investigate the filing under 704. See In
re BDC 56 LLC, 330 F.3d 111 (2d Cir. 2003).
14
Exhibit J to the Objection to the Trustees Final Accounting, dated October 29, 2009, submitted
herewith.

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of his firm's retention in which he disclosed that Otterbourg had acted, and would continue to
act, as counsel for MHT, Chemical, Boston Safe and Deposit Company, and Bank of New York
all major creditors of the debtors.15 Despite this utterly disqualifying disclosure (which
Goldberg himself later admitted in 1993),16 which was a clear violation of FRBP 2014(a),
Otterbourg was nevertheless retained.17
The trustee also failed to make any inventory of the assets of the Estates, which are
required to be submitted within 30 days after qualifying as a trustee. FRBP 2015. While he
repeatedly sought extensions from the Court to file such an inventory, he never did so. The
obvious reason he failed to do this is that there were no assets of the Estate: everything either
belonged to the Entities or were fraudulently transferred from the Entities, as Ms. Sturman
alleged in her State Court action.
Donna Sturman asserted legitimate and bona fide claims in these Cases in three
capacities: (a) as an unsecured creditor who filed a $20 million proof of claim in each of the
above estates and who holds additional claims18; (b) as at least a 25% owner of the Entities,
various non-debtor partnerships and corporation which owned real estate which the trustee
managed without her consent, including his control over Yorkville Associates from 1991 to 1998
15

See Gitter 2014 (a) affirmation dated April 25, 1991 at Exhibit E to the Objection to the Trustees
Final Accounting, dated October 29, 2009, submitted herewith.
16
It is perhaps no coincidence that, when Mr. Goldberg joined Dreyer and Traub in 1993, he disclosed
this conflict in order to retain his new firm. See Objection to the Trustees Final Accounting, dated
October 29, 2009, at Exhibit PP, submitted herewith
17
Mr. Goldberg states therein, in pertinent part: [Otterbourg] has informed the Trustee that it suffers
a conflict with respect to anticipated preference litigation and objections to claims concerning
institutional lenders which have and continue to be clients of [Otterbourg]
18
Given that over $41 Million Dollars passed through these Estates, with $8 Million Dollars in
professional fees paid, provable fraudulent conveyances of at least $18 Million Dollars to MHT, a $1.5
Million Dollar fraudulent transfer to Bruce Sturman, one of the Debtors, for the benefit of his wife, in
an involuntary no-asset case, leaves one speechless. Also, see Donna Sturmans Proof of Claim at R
to the Surrogate Court application by Donna Sturman, submitted herewith, and at FF to the Objection to
the Trustees Final Accounting, dated October 29, 2009, submitted herewith.

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under repeated (and often ex parte) orders over her objection, while the Trustee was taking in a
Million Dollars a year from the operation of Yorkville, as well as various other non-debtor assets
owned by the Entities of which Donna was an equitable owner, and which the Trustee later sold
in violation of 541 (a); and (c) as a beneficiary of the Probate Estate of Muriel Sturman. Her
claims were well-founded and patently demonstrable.19
The lock-step objections by the trustee and Chase to Donna Sturmans proof of Claim
demonstrated how the trustee was working hand-in-hand with institutional creditors in an effort
to squelch the rights and claims of Donna, without providing her any discovery and without even
investigating Donna's claims. Indeed, the superficial and misleading analyses of Donnas claims
performed by the trustee and Chase were identical and obviously orchestrated.
The trustee breached his fiduciary duty to properly investigate either MHTs or Donna
Sturmans claims. Indeed, it is telling that the trustee nowhere represented in his objections that
he conducted a thorough and diligent investigation of MHTs or Donna Sturmans claims against
the debtors for having fraudulently siphoned millions of dollars belonging to her into their own
pockets or into entities in which only they had an interest. Instead, the trustee blithely asserted
that the Brothers denied Donna's allegations and stated that he was entitled to rely upon their
denials!
What makes this all the more incredible is the fact that in opposing the discharge of
Bruce Sturman, the trustee asserted in pleadings filed with the Court (Adv. Pro. No. 92/8470A)
that Bruce Sturman committed perjury during his 2004 examination and annexed and

19

Ms. Sturmans Proof of Claim was so voluminous the Clerk refused to accept it and Ms. Sturmans
former counsel have refused to provide it to her; nevertheless, Mr. Goldberg has a full copy of this Proof
of Claim.

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incorporated Donna Sturmans Amended Complaint in the State Court action as evidence of
Bruce Sturmans wrongdoing to prevent his discharge! (See Exhibit B, annexed hereto.) By
annexing Ms. Sturmans complaint of evidence of Bruces defalcations, it is hard to understand
how the Trustee could reasonably deny her claims, and the Court should have found that he was
judicially estopped from denying her claims. Hence, the trustees objections to Donna Sturmans
Proof of Claim relied not only upon the word of a felon convicted of bank fraud, but also upon
the word of someone who the trustee himself believed a perjurer and who should be denied
discharge in part because of the defalcations he relied on in Donna Sturmans State Court action!
At another time, the Trustee raised objections to Ms. Sturmans claims by analyzing the
Entities tax returns, each of which showed that Ms. Sturman was a 25% owner. Nevertheless,
his objection to her Proof of Claim, based on such analysis was that her equity was very low, was
belied by the prima facie evidence of Donna Sturmans 25% interest in the Entities shown on the
tax returns. It is hard not to believe that the trustees failures were in collusion with MHT, since
the bank was subject to substantial claims involving fraudulent conveyance.
As to the claims of MHT, the Trustee not only never held any 341 meetings in these
cases, but never took any depositions of the Bank or analyzed their proof of claim for possible
fraud. In light of the clearly fraudulent transfers of assets by the Brothers to MHT of at least $18
Million Dollars of property of the Entities prior to the Bankruptcy, this was outrageous. (See
Chase Adversary Complaint submitted with this Memorandum.)
For what appear to have been substantial monetary rewards, the trustee joined forces with
convicted felons (the debtors) and Chase (the successor to MHT and Chemical Bank
(Chemical). The trustees (and the Judges harsh animosity towards Donna Sturman) was

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contrasted by his benevolence towards the institutional creditors and even her Brothers.20
Once the retention of Otterbourg was in place, the trustee and his counsel took numerous
actions solely to benefit MHT and Chemical at the expense of Donna. For example, before
Donna was given access to the debtors books and records (which she had vigorously sought in
discovery in her State Court action prior to the filing of the involuntary petitions by MHT), the
trustee failed to secure the books and records of the debtors, even after a break-in at the location
in which they were housed, and were then destroyed by arson a few days later. As a result, the
Trustee took the position that it was Donnas obligation to prove her claims, when the filing of
a Proof of Claim is prima facie evidence of a claim which must be rebutted by the Trustee.
FRBP 3001 (f). (See Exhibit U to the Objections to the Trustee Final Accounting.)
For example, in settling his action to void the fraudulent transfer by Bruce Sturman of
$3.5 million to an inter vivos trust for his wife, the trustee, with the blessing of MHT, permitted
Bruces wife to retain a Park Avenue apartment worth at least $1.5 million while Donna was left
to struggle raising three children with no money in a one bedroom apartment.

Having permitted the wife of convicted felon Bruce Sturman to retain a $1.5 million Park
Avenue apartment, the trustee and Chase disingenuously asserted that the victim of the debtors
fraud: Donna Sturman, was only entitled to a maximum claim of $1.5 Million even though he
testified under oath that her constructive fraud claims would wipe out the entire Estate.21 To add
insult to injury, the trusteein what can only be characterized as a massive breach of fiduciary
duty to Donnadenied Donna everything he could, to reward himself, his cohorts and the Banks

20
21

The Trustee allowed all the Debtors to be discharged.

See Point III at page 37 hereto.

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who controlled him.22

Since the background of this case is adequately summarized and demonstrated in the
Court documents, there is no reason to burden this Court with the long list of defalcations,
misconduct and bankruptcy fraud that permeated these Cases, especially since they are
demonstrated in the very documents themselves.
Accordingly, Ms. Sturman respectfully submits the following documents with exhibits
together with this Memorandum of Law, which, while they cannot fully demonstrate 21 years of
bankruptcy misconduct and malfeasance by the Trustee and the related misconduct by Alan
Nisselson, the Bankruptcy Trustee of the void involuntary bankruptcy proceedings filed against
her, nevertheless are significant in summarizing the proceedings for the purposes of this motion:
(a) The Motion to the Surrogates Court for an Accounting, dated November 30, 2009 (the
Surrogate Court Motion);
(b) The Application of Donna Sturman in opposition to the Trustees final accounting, dated
October 29, 2009 (the Objection to the Trustees Final Accounting);
(c) The Transcript of Hearing on the Trustees final Report and Fee applications, dated
October 29, 2009 (the Transcript approving Goldbergs Fee Applications);
(d) The Transcript of Hearing on the Motion to Approve the Settlement with Donna
Sturman, dated July 3, 2001 (the Transcript of the Motion to Approve the Sturman
Settlement);

22

How could it be possible that Donna Sturman, who owned at least 25% of Yorkville Associates, one of
almost 20 entities worth almost $80 Million Dollars, wrongly sold on a jurisdictionally defective order for
$15 Million Dollars, received $1.5 Million Dollars, more than half of which went to pay her attorneys to
fight for her rights and then abandoned her due to conflicts they knew of early on, as a full settlement of
all her claims?

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(e) The First Amended Adversary Complaint of Donna Sturman et al. v. Chase
Manhattan Bank, dated December 24, 1998, Adversary Proceeding No. 98/9435A
(the Chase Adversary Complaint);23

(f) The Dismissal of the Chase Adversary Complaint, dated May 20, 2005, after the
matter was fully briefed (the Chase Dismissal); 24
(g) The Adversary Complaint of Donna Sturman, et al. v. Marc Stuart Goldberg, dated
February 8, 1999, Adversary Proceeding No. 99/8076A (the Goldberg Adversary
Complaint); 25

(h) The Dismissal of the Goldberg Adversary Complaint, dated May 20, 2005 (the
Goldberg Dismissal);
(i) The Opposition of Donna Sturman to the Sale of the Yorkville Associates sale, dated
March 20, 1998 (the Objection to the Yorkville Sale);
(j) Reply of Donna Sturman to the Objections of the Trustee and Chase Manhattan Bank,
dated March 11, 1999 (the Objections to Donna Sturmans Proof of Claim); 26
(k) The Motion to Withdraw the Reference of the Claims of Donna Sturman, dated May 30,
2002, which was prepared by Helen Davis Chaitman and not filed due to the involuntary
bankruptcy filed against Ms. Sturman (the Withdrawal Motion);
(l) The Trustees Memorandum of Law in support of the initial Settlement Agreement with
Donna Sturman, dated June 6, 2001 (the Trustees Memorandum of Law in support of
Settlement with Ms. Sturman);

23

This document is to be found at Exhibit B to the Objection to the Trustees Final Accounting.
This documents is to be found at Exhibit C to the Objection to the Trustees Final Accounting
25
This document is to be found at Exhibit V to the Objection to the Trustees Final Accounting and the
Surrogate Court motion at Exhibit U.
26
This document may be found at Exhibit F to the Objections to the Trustees Final Accounting and at
Exhibit C to the Surrogate Court Motion.
24

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(m) The Settlement Agreement between Marc Stuart Goldberg, on behalf of the Estates, and
Joseph Warren, dated March 13, 2002 (the Warren Settlement Agreement); 27

(n) The Application of Alan Nisselson for Final Allowance of Commissions dated June 11,
2004 (the Nisselson Application); 28
(o) The Settlement Agreement between Alan Nisselson, as the Trustee of the Bankruptcy
Estate of Donna Sturman, and Marc Stuart Goldberg, Trustee of the Brothers, dated
December 2, 2002 (the Donna Settlement Agreement)29; and
(p) The Memorandum of Law of Marc Stuart Goldberg in support of his Motion to
Dismiss the Appeal of Donna Sturman, dated January 15, 2010 (the Appeal
Dismissal Motion).
On behalf of Donna Sturman, David H. Relkin, counsel for Donna Sturman, respectfully
submits these documents with some measure of humility and apologies (as to their voluminous
nature), and yet with a heavy degree of outrage at the conduct of the Trustee, his numerous
attorneys and agents, Chase, MHT, Chemical, and the utter failure of this Court overseeing these
Cases to protect the victim of so much dissembling, fraud, rapaciousness and greed.

As previously stated, the documents speak for themselves. No gloss is necessary. Based
on this and the moving Brief, Sturman urges this Court to grant her cross-motion to compel the
Trustee Marc Stuart Goldberg to account for what he claims to have been a $41 Million Dollar 30
no-asset bankruptcy proceeding that lasted for over 20 years.

27

This document may be found at Exhibit BB to the Surrogate Court motion.

This document at Exhibit C hereto.
29
See Exhibit O to the Objection to the Trustees Final Accounting.
30
See accompanying Transcript approving Goldbergs Fee Applications at page 36.
28

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POINT II
THERE CAN BE NO VIOLATION OF THE AUTOMATIC
STAY TO OBTAIN AN ACCOUNTING FROM THE EXECUTORS OF THE
MURIEL ESTATE AND FROM THE TRUSTEE
SINCE THEY HAVE NEVER ACCOUNTED FOR 21 YEARS
AND NONE OF THE PROPERTY SOLD WAS PROPERTY OF THE ESTATE

A. Neither The Bankruptcy Court

Nor The Trustee Ever Made Any
Initial Required Determination
That The Non-Debtor Property
Was Part of the Bankruptcy Estates

A bankruptcy court may not allow the sale of property as property of the estate without
first determining whether the property is property of the estate. In re Koreag, 961 F.2d 341,
344 (2d Cir. 1992) (Emphasis added.) Since none of the assets in the Brothers estates were
property of the estate, the Trustees motion is per se frivolous since he is required by 362 to
demonstrate, not merely allege, as he has done, that the instant application to the Surrogates
Court to have the Executors and Mr. Goldberg account for property which came from such
Probate Estate in violation of the Order of the Surrogate (Roth, Sur.), dated September 25,
1990,31 is an act to obtain property of the Estate.32
Determining immediately what is property of the estate is a primary responsibility of
the Trustee since it defines the scope and property of the estate. Pursuant to 541(a) (1) of the
Code, the debtors estate is comprised of all legal and equitable interests of the debtor in
31

See Exhibit D to accompanying Surrogate Court Motion.

The probate exception while narrow, reserves to state probate courts the probate or annulment of a
will and the administration of a decedent's estate; it also precludes federal courts from disposing of
property that is in the custody of a state probate court, which was the case herein. Federal Court are
Courts of limited jurisdiction, possessing only such power as authorized by the Constitution and statute.
Marshall v. Marshall, 547 U.S. 293, 126 S.Ct. 1735 (2006); Wisecarver v. Moore, 489 F.3d 747 (6th Cir.
2007). The property the Muriel Estate held were A.B Yale, A.J. Griffen, Cauldwell, Yorkville
Associates, Seabridge, Astoria Terminal. See accompanying Surrogates Court Motion, at Exhibit I.
32

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property as of the commencement of the case. The purpose of 541 (a) (1) is to define
property of the estate. The words: Property of the debtor, are not the same as property in
which the debtor has a derivative interest. To the contrary, the language of the statute is
sufficiently circumscriptive to eliminate such an interpretation. If MBanks theory is correct,
the estate of the 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). See In re Thurman, 901 F.2d 839, 841 (10th Cir. 1990).
Rather, pursuant to 541 (d) of the Code, if the debtor at the commencement of the cases
merely holds a legal interest in property, it becomes property of the estate only to the extent of
the debtors legal title to such property, but not to the extent of any equitable interest in such
property that the debtor does not hold. See Sanyo Electric, Inc. v. Howards Appliance Corp.,
874 F.2d 88, 93 (2d Cir. 1989); In re Commodore Business Machines, Inc., 180 B.R. 72, 82
(S.D.N.Y. 1995).
As the Court stated in In re Rodeo Canon Dev. Corp., 362 F.3d 603, (9th Cir 2004):
Section 363 authorizes the trustee to sell only property of the estate. In re Manning, 831 F.2d
205, 207 (10th Cir.1987) (A bankruptcy court may not allow the sale of property as property of
the estate without first determining whether the debtor in fact owned the property.) See In re
Clark, 266 B.R. 163, 172 (9th Cir. BAP 2001) (holding that [t]he threshold question, is [that
the property] of the estate, must ... be decided before it can be sold free and clear under
363(f)); In re Coburn, 250 B.R. 401, 403 (Bankr.M.D.Fla.1999) (finding it necessary to
determine whether an asset is property of the estate in order to decide whether the trustee is
entitled to sell the asset pursuant to 363(f)). Thus, the bankruptcy court had no sound basis for
holding that the Property was property of the estate.)
- 19 -

Thus, a Bankruptcy Courts first and foremost job is to determine what is or is not
property of the estate. This was never done in these cases despite the fact that the Trustee in
managed and sold all the non-debtor properties owned by partnerships and corporations
which was prohibited by the Code.33
In vacating the District Courts affirmance of the Bankruptcy Courts turnover order of
funds held in a New York Bank, the Second Court stated in Koreag, supra, 961 F.2d at 343, that:
[T]he district court and bankruptcy court should have made a
determination whether certain disputed funds in the bank account
were property of the [insolvent] estate.
[Where an adverse creditor] argued that before property could be
turned over . the court must determine that the property was
part of the debtor's estate; in other words, the debtor's property.
The bankruptcy court declined to make a threshold finding as to
who owned the property, stating that [the adverse creditors]
argument plac[ed] the proverbial cart before the horse. Id. at
711. Koreag, at 343. (Emphasis added.)

While Koreag concerned a turnover of assets pursuant to 304 of the Code, the Court
held that the same rule applies in domestic bankruptcies. The Second Circuit first reaffirmed the
well-settled rule that property of the estate is determined by reference to state law34:
[T]he commencement of a case creates a bankruptcy estate. 11
U.S.C. 541(a) (1988). The estate is defined to comprise all legal
or equitable interests of the debtor in property as of the
33

Donna Sturmans father Henry Sturman, who died July 18, 1973, was a successful real estate investor
and his practice was to create a corporation to hold each piece of real estate he acquired. As of this date,
37 years later, his Estate is still open in Westchester County.
34
This proposition is also found in: Barnhill v. Johnson, 503 U.S. 393, 98, 112 S.Ct. 1386, 1389 (1992);
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); In re Atchison, 925 F.2d
209, 210-11 (7th Cir. 1991).

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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, 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)). (Emphasis added.)35
The power of the court extends to property of [the] estate.
304(b) (2). Once a plausible challenge is presented as to
whether particular property falls within the statutory
definition, the bankruptcy court whose authority is invoked
must determine the legitimacy of that invocation. The nature of
this determination demands that it be made prior to the
turnover of the property. It is unsatisfactory to say that the
property should first be turned over, because it is the
ascertainment that property is of [the] estate under local law
that defines the extent of the court's power to issue the turnover
order. Id. at 349. (Emphasis added.)

At no time during the Bankruptcy in these cases did Judge Beatty or the Trustee ever
make such a finding. While the Judge refused to sign an Order dated August 23, 1991, allowing
him to manage non-debtor properties, presented to her by the Trustee Mr. Goldberg, because it
would prejudice the interests of the partnerships and corporations to operate corporations and
partnerships in which the Debtors (and Ms. Sturman) held an interest stating: not signed as
order as drafted prejudice ownership/partnership issues,36 she nevertheless signed repeated

35

See also Barnhill v. Johnson, 503 U.S. 393, 398, 112 S.Ct 1386, 1389 (1992); Butner v. U.S., 440 U.S.
48, 54, 99 S.Ct. 914 (1979) (Congress has generally left the determination of property rights in the assets
of a bankrupt to state law); In re Cougar, 230 B.R. 803 (BAP 9th Cir. 1997) (citing In re Farmers Mkts.,
Inc., 792 F.2d 1400, 1402 (9th Cir. 1986)); In re Okon, 310 B.R. 603 (Bankr. N.D. Ill. 2004).
36
See Unsigned Order dated August 23, 1991 annexed hereto as Exhibit D. Even in the Bankruptcy
Courts one decision (regarding partnership assets held in individual names while it was clear that the
property was equitably held in Yorkville Associates), the Court held that Donna Sturmans interests
would be protected since she had the right to obtain from the net sale proceeds compensation for [her]
interests in the property under subsection [of 363] (j). In re Sturman, 222 B.R. 694, 708 (1998). The
Court however, never once determined, in its decision, the threshold issue of whether the

- 21 -

orders presented by the Trustee beginning April 30, 1991, and renewing such orders extending
the Trustees authorization for seven years to operate numerous non-debtor properties, through
July 9, 1998.37
Pursuant to FRBP 2015(a) (1), a trustee must file a complete inventory of the debtors
property within 30 days after qualifying as a trustee. Despite being appointed in the three
bankruptcy cases in 1991 and 1992, over eighteen years ago, the Trustee never filed an
inventory in these cases.
Since the Trustee never made such a determination, and made numerous motions to
extend the time to file an inventory (which he never did), he was able to wrongly bring into the
Estates assets of non-debtor entities, and thus wrongly and illegally obtain commissions on such
supposed recoveries of assets of the estate.
At one point, the Court chastised the Trustee for managing the non-debtor property of
Yorkville Associates without him having made a determination of whether the property was
estate property.. As the Court even stated in a July 15, 1996 Hearing:
The fact of the matter is it is also the trustees duty to determine
who the owners are. Remember, the trustee here is in a very
unusual position. He was given authority to manage properties
that he is not the direct owner of. 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 making bucks for the trustee. It is not about
Yorkville Partnership was indeed, property of the Estate.Pursuant to the cases cited herein, there
can be no question that the property was partnership property and thus, not part of the Estates. This fact
rendered her Decision void since in non-core matters, the Bankruptcy Court, must, after notice and a
hearing, must make findings of fact and conclusions of law and submit them to the District Court for its
Decision. See 28 U.S.C. 157(c)(2).
37
According to the Handbook for Chapter 7 Trustees (effective October 1, 2008): The trustee should
seek to operate the business for the shortest practical period. The trustee should either close the case,
liquidate the business, or convert the case to chapter 11 within a reasonable time, normally not to exceed
one year from entry of the order authorizing operation of the business. Chapter 8, Section J at 8-15.

- 22 -

trying to pay off the big creditors. It is about trying to create an

estate to be disbursed to whoever it rightfully belongs to. I am
saying to you, with respect to this particular turnover, I think that
you ought to figure out how to provide an accurate accounting.38

B. Even Had The Court Made A

Determination of Property Of
The Estate, Since The Property Of
The Entities Sold By The Trustee
Were All Owned By Partnerships
And Corporations They Were Not
Part of the Debtors Estates, And There
Can Be No Violation Of the Automatic Stay

The requirement to determine at the outset of the case what the property of the estate is
highly significant to the instant motion since all the property which the Trustee appropriated and
sold was the underlying property owned by the Entitieswhich was not part of the estates;
accordingly, the automatic stay asserted by the Trustee simply does not apply to Ms. Sturmans
motion in the Surrogates Court.
Section 362(a) of the Code only stays an action or proceeding against the debtor and
any act . . . to exercise control over property of the estate. However, all the assets
appropriated by the Trustee and sold in these bankruptcies were owned by the Entities and thus
cannot be subject to the automatic stay embodied in 362(a). Thus, the application to the
Surrogates Court to compel the Executors to account for the property of the Muriel Estate, and
the cross-motion to compel the Trustee to account cannot violate the automatic stay.

38

Tr. at 15-16. Thus, 7 (seven) years after the Petition, the Trustee had still not made any accounting. See
Transcript at Exhibit FF to accompanying Surrogate Court Motion. (Emphasis added.)

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Furthermore, an accounting is clearly not an act to exercise control over property of the
estateespecially when it is not property of the estate. See Dominican Fathers of Winona v.
Dreske (In re Dreske), 25 B.R. 268, 270 (Bankr. E.D. Wisc. 1982); In re Pentell, 777 F.2d 1281,
1285 (7th Cir. 1985) (The only partnership property before the court during an individual
partner's bankruptcy is the partner's personal property interest in the partnership.)

C. The Assets Of A Partnership

Are Not Property Of The
Estate And Thus Not Subject
To TheAutomatic Stay

The case of In re Dreske, 25 B.R. 268, 270-71 (Bankr. E.D.Wis. 1982), is directly on
point. In Dreske an individual partner filed a petition under Chapter 11 of the Code. The
partnership held real property and, subsequent to the bankruptcy, the property was foreclosed
upon. The bankruptcy court was called upon to determine the effect of the automatic stay on the
real estate foreclosure action. In reaching its decision that the automatic stay did not apply, the
court declared:
What both parties have overlooked is the primary rule in
bankruptcy cases, in considering a problem involving partners or
partnerships, that a partnership is a distinct legal entity separate
and apart from the partners who formed it. 1A Collier on
Bankruptcy (14th ed.) Para. 5.03; Turner v. Central Nat'l Bank,
468 F.2d 590 (7th Cir.1972); Liberty Nat'l Bank v. Bear, 276 U.S.
215, 48 S. Ct. 252, 72 L. Ed. 536 (1928); In re Aboussie Brothers
Construction Co., 3 CBC 2d 684, 8 B.R. 302, 7 BCD 309
(D.C.1981).
When Dreske filed under chapter 11, a bankruptcy estate was
created, comprising all of Dreskes personal legal or equitable
interests in property as of the commencement of the case ( 541),
and it is to that estate that the automatic stay of s. 362 applied.
Dreske had no interest in the real estate which was the subject of
the foreclosure action. As a matter of fact, the schedules filed by
Dreske list no real estate whatsoever as belonging to him. The only
- 24 -

interest that he had was the right to demand and receive the
individual partner's interest, if any, in the partnership assets after
an accounting and payment of partnership debts out of the property
belonging to the partnership. (Emphasis supplied.) Dreske, at
270-271. See also, In re Gagnon, 26 B.R. 926, 929 (Bkrtcy.Pa.
1983).

In interpreting Dreske, the Court in In re Manning, 37 B.R. 755 (Bankr. D. Co. 1984),
stated that. Although general partners have a right in the specific partnership property as tenants
in partnership the incidents of this tenancy are so negligible that ownership of the property is,
for all practical purposes, in the partnership, not the partners. Law of Partnership, Crane and
Bromberg (1968) 40 at page 228. The partnership holds title to the real property and if the
entity theory of partnerships is respected, the general partners are not really co-owners of the
property itself. In re Manning, 37 B.R. 755, 759-60 (Bankr. D. Colo. 1984) (Emphasis added.).
In holding that the Trustee could not sell the underlying real estate in the partnership, the
Court held: the interest sought to be sold is the interest in real property. That is not property of
the estate as contemplated in 363(b) and (c), to which 363(f) refers. The property of the
estate is the debtor's interest in the partnership, as a tenant in partnership. Therefore, the
Trustee may not use 363(f)(1) or 363(f)(5) to sell the real property free and clear of the
interests of other entities because applicable non-bankruptcy law does not permit such a sale.
Further, these entities cannot be compelled, in a legal or equitable proceeding, to accept a money
satisfaction of their interests. Id. at 759. (Emphasis added.)
It is well-settled that that the property of a non-bankrupt partnership in which a bankrupt
defendant is a partner, is not part of the estate and therefore outside the scope of 362(a). See
Turner v. Lee (Matter of Minton Group), 46 B.R. 222 (S.D.N.Y. 1985); Hudgins v. Life Sav.
Bank (In re Hudgins), 153 B.R. 441 (Bankr. E.D. Vir. 1993); In re Palumbo, 154 B.R. 357
- 25 -

(Bankr. S.D. Fla. 1992); Cardinal Indus. v. Buckeye Fed. Sav. & Loan (In re Cardinal Indus.),
105 B.R. 834 (Bankr. S.D. Ohio 1989); David G. Epstein et al., Bankruptcy 11-35 (1992).
In Hudgins, Palumbo, and Cardinal Industries, partnership creditors sought to foreclose
on property of non-bankrupt partnerships, and individual debtor partners objected,
unsuccessfully, on the basis that the automatic stay was triggered by their own bankruptcies.
Like the Turner court, supra, the Hudgins court concluded that the rights arising from the
individual bankrupt partners status as tenant[s] in partnership were insufficient to characterize
partnership property as property of the partners estates under 362(a).
In Cardinal Industries, corporate general partners argued that acts to exercise control
over the assets of non-bankrupt partnerships were barred by application of the automatic stay
triggered by their Chapter 11 petitions for bankruptcy reorganization. The bankruptcy court
disagreed, explaining that an action against property of the partnerships, generally recognized as
separate legal entities in the Bankruptcy Code, does not violate the automatic stay of action
against property of the debtor. See Cardinal Industries, 105 B.R. at 846-52.
Citing the case of In re Jones, 121 B.R. 122, 125 (Bankr. Fla. 1990), the Court squarely
addressed the partnership issue, as here, in the context of the automatic stay. The debtor in that
case argued that as a partner of a non-debtor partnership, his estate held a substantial beneficial
interest in the partnership property. The Jones Court rejected the debtor's argument and held that
the assets of a partnership are not administered in the partner's bankruptcy proceeding,
reasoning that a contrary result would ignore the partnership structure, allowing the automatic
stay to benefit the debtor partner as well as the non-debtor partners, which would prejudice
creditors of the partnership. Id. at 125. (Emphasis added.)

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Similarly, the Palumbo Court held that Despite the debtor's 97 percent interest in the
partnership the actual real property owned by the partnership is not considered to be part of his
estate property. In re Palumbo, 154 B.R. at 359. See also In re Olszewski, 124 B.R. 743, 746
(Bankr. S.D.Ohio 1991) (ruling that the partners have no right to any distribution from the
partnership until partnership debts are fully satisfied).
Thus, in the instant case, the individual partnership and corporate assets never became
property of the Bankrupt Estates. It is firmly established that the assets of a partnership or a
corporation are not to be administered in a bankruptcy proceeding since a partnership or a
corporation is a separate entity from its partners or shareholders under bankruptcy law.
The primary and well-settled rule in bankruptcy cases, in considering a problem
involving partners or partnerships, is that a partnership is a distinct legal entity separate and
apart from the partners who formed it. 1A COLLIER ON BANKRUPTCY (14th ed.) 5.03;
Turner v. Central Nat'lBank, 468 F.2d at 591 (7th Cir.1972) (for bankruptcy purposes
partnership property is to be distinguished from property of the individual partners).
In Turner, the bankruptcy trustee argued, as does Goldberg, that the automatic stay
triggered by the corporate general partners involuntary bankruptcy rendered the subsequent
attempt to perfect a mortgage on property of the non-bankrupt partnership void. This Court, Hon.
Charles S. Haight, rejected the trustees position on the basis that rights arising from the
partners statutory interest in specific partnership property, as a tenant in partnership, were too
narrow to be considered property of the [debtor's] estate for the purposes of 362(a). See
Turner, 46 B.R. at 224.

- 27 -

In In re Gunter, 179 B.R. 74 (Bank. S.D. Ohio 1995), the Court held that a fundamental
rule of bankruptcy law is that a partnership is a distinct legal entity, separate and apart from the
partners who formed it, and the Bankruptcy Act of 1978 continued this entity principle (citing
In re Wallen, 43 B.R. 408, 410 (Bankr. Idaho 1984)). (Here, although the debtor had an interest
in the Burnett/Gunter Partnership, and that interest is property of the debtor's bankruptcy estate,
any property owned by the partnership, e.g., the lease, is not considered property of the
individual partners estate.) (also citing In re Fulton, 43 B.R. 273 (Bankr. M.D. Tenn. 1984)
and In re Berlin, 151 B.R. 719 (Bankr.W.D.Pa. 1993).
Where the debtor is a member of a partnership, the debtor's interest in the partnership is
included in the estate. However, assets held by the partnership itself are not included in the
estate. E.A. Martin Machinery Co. v. Williams, 875 F.2d 668, 670 (8th Cir. 1989).
In In re Funneman, 155 B.R. 197, 199 (Bankr.S.D.Ill.1993), the Court made clear that
It is well-settled that assets owned by a partnership are not included in the bankruptcy estate of
the individual partner. The only partnership property before the court during an individual's
bankruptcy is the partner's personal property interest in the partnership, which consists of the
individuals interest, if any, in the partnership assets after an accounting and payment of
partnership debts out of the property belonging to the partnership.) Thus, the Court held that
the Partnership Property never entered the Estate as property.
Similarly, in In re Olszewski, 124 B.R. at 746 (Bankr. S.D. Ohio 1991), Although the
debtors, here, have an interest in the partnership and that interest is property of their bankruptcy
estate, any property owned by the partnership itself is not considered estate property, Where the
debtor is a member of a partnership, the debtor's interest in the partnership is included in the

- 28 -

estate. However, assets held by the partnership itself are not included in the estate (citing E.A.
Martin Machinery Co. v. Williams, 875 F.2d 668, 670 (8th Cir. 1989).
This principle was unequivocally violated with impunity by the Trustee in the Sturman
bankruptcies and simply cannot be assailed. See In re Pentell, 777 F.2d 1281, 1285 (7th Cir.
1985); In re Gunter, 179 B.R. at 75-6; Littner v. McKanic, 130 B.R. 129, 131 (E.D.N.Y. 1991);
In re Wallen, 43 B.R. 408, 410 (Bankr. D.Idaho 1984); In re Christian, 355 B.R. 161, 164
(Bankr. D. Az. 2006); In re Hale, 2004 WL 4960381, *3 (Bankr. D. Idaho 2004); Lampe
v.Williamson, 331 F.3d 750, 756 (10th Cir. 2003) (applying Kansas law.); In re Monsivais, 274
B.R. 263, 265 (Bankr. W.D. Texas 2002); In re Burnett, 241 B.R. 438, 440 (Bankr. E.D. Ark.
1999); In re Cooper, 128 B.R. 632, 636 (Bankr.E. D. Texas 1991); In re Russell, 80 B.R. 662,
665 (Bankr. D. Vt. 1987); Dixon v. Koplar, 102 F.2d 295, 298 (8th Cir. 1939) (applying Missouri
law); In re Corbett, 6 F.Cas. 528, 529 (D. Nev. 1878).

D. The Assets Of The

Corporations Were
Not Property Of The Estate
The corporate assets of [a corporation] are not property of the debtor and therefore
cannot become property of [the] bankruptcy estate. Fowler v. Shadel, 400 F.3d 1016 (7th Cir.
2005) (citing 2 COLLIER ON BANKRUPTCY 101.30[3], PG. 101-96 (15TH Ed. Rev.) (stating
that while the individuals interest in the partnership or corporation (which could be 100%)
would be property of the estate, the assets of the partnership or corporation would not be.);
GINSBERG AND MARTIN ON BANKRUPTCY 5.01 [B] (stating that the interest in
question [an interest in the estate] must be the debtors property. For example, if the debtor
owns shares in a corporation, the shares become part of the estate; the assets of the corporation
do not.)
- 29 -

The Circuit Court went on to say:

Bankruptcy courts confronted with this question in other contexts

have also held that corporate assets cannot become part of the
bankruptcy estate of the debtor stockholder. (Citing In re Murray,
147 B.R. 688, 690 (Bankr. E.D. Va. 1992) (denying the debtors
motion to enforce an automatic stay because property owned by
corporations of which debtors husband was sole shareholder was
not property of the bankruptcy estate because the debtors
equitable interests did not run to the property but only to the stock,
and thus there was no present property interest.); In re Russell,
121 B.R. 16, 17 (Bankr. W.D. Ark. 1990) (stating that [a]
corporation has a separate legal existence from its shareholders,
and the corporation, not its shareholders, owns the corporate assets
and owes corporate debts.)
The Brothers, by borrowing monies from the institutional creditors on the strength of
false financial statements, for which they were later convicted of in Federal Court, acted in
breach of their fiduciary duties to Donna Sturmans rights as an owner of the Entities by
encumbering some of the most valuable Entities to MHT.39 According to the testimony of the
Trustee, the proceeds of these assets were imposed with a constructive trust in favor of Ms.
Sturman since they were only the product of fraud but were easily traceable.40

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. It is also well-settled law that officers and

39

For instance, MHT lent money to the Debtors, encumbering the properties for their own use to meet
margin calls.
40
See Transcript of Motion to Approve the Sturman Settlement submitted herewith, at pp. 32-40 and 104109. As further discussed herein, since the Trustee sold the assets of the Entities, his conduct was in the
nature of a furtherance of the original wrongdoing of the brothers and should similarly be imposed with a
constructive trust. See Point III.

- 30 -

directors of a corporation owe to the stockholders 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, 105 N.E. 818 (1914); (Billings v. Shaw, 209 N.Y. 265,103 N.E. 142
(1913); Pollitz v. Wabash R. R. Co., 207 N.Y. 113, 100 N.E. 721 (1912); Bosworth v. Allen, 168
N.Y. 157, 61 N.E. 163 (1901); Sage v. Culver, 147 N.Y. 241, 41 N.E. 513 (1895).
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).
See also Hazard v. Wight, 201 N.Y. 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.)
Stepping into the shoes of the Debtors, which apparently was a perfect fit, the Trustee
managed the Yorkville Associates partnership for eight (8) years, taking in what he stated was
$1,000,000 per year, despite the fact that Yorkville was non-debtor property, and then sold the
underlying non-estate property for $15,000,000, from which Donna, as a 25% owner, as shown
on the Tax Returns of Yorkvilleprepared by the Trusteewas entitled to receive
approximately $3,000,000none of which the Trustee segregated pursuant to 363 (e), paid to
her or provided adequate protection of Donna Sturmans interest pursuant to 361, which is
derived from the fifth amendment protection of property interests. See Wright v. Union Central

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Life Ins. Co., 311 U.S. 273 (1940); Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555
(1935).41
Ms. Sturmans right to an accounting herein rests on the existence of the fiduciary
relationship between her and the Trustee. Since the Trustee was unequivocally in a fiduciary
relationship with Ms. Sturman, she is entitled to an accounting by the Trustee as a matter of law.

E. The Trustees Motion

Lacks Any Legal Foundation
Or Support For Sanctions-Rather The Trustee Violated
Surrogate And State Court Orders
In this In Terrorem motion the Trustee has not cited a single case even suggesting that the
bare legal title acquired by the Debtors when they were put into an Involuntary Bankruptcy by
MHT on August 4, 1989, was sufficient to render the assets of the Entities part of the Brothers
bankruptcy estates. Thus such assets could not be subject to the automatic stay provisions.
Rather, as demonstrated herein, the property owned by the Entities were never property of the
Debtors estates.

41

See (H. Rept. No. 95-595 to accompany H.R. 8200, 95th Cong., 1st Sess. (1977) pp. 338-340.)
Notwithstanding the tax returns filed by Goldberg for Yorkville Associates, in which he listed her as
having a 25% interest, the Trustee took the reverse position in connection with the sale of Yorkville that
the parties were not tenants in partnership but tenants in common, as to which he could sell the
propertyearning himself handsome fees. The Trustee also entered into certain leases, lease
modifications or other agreements on behalf of Yorkville, and prepared K-1's in Yorkville's name. Tax
returns are 'significant evidence of a partnership and may constitute Bankruptcy Fraud and an
admission against interest by a party who denies the existence of partnership after having signed a
partnership return. See In re Vannoy, 176 B.R. 758, 766 (Bankr. M.D.N.C. 1994). In any event,
however, Ms. Sturman was entitled to have her 25% interest sequesteredsomething which the Trustee
also never did.

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To the contrary, notwithstanding Orders obtained by Donna Sturman in prior actions in

State and Surrogates Court preventing the transfer, sale or dissipation of the partnerships and
corporations, and notwithstanding the fact that the partnerships and corporations were not in
bankruptcy and the debtors had no interest in the real estate owned by such entities, the Trustee
willy-nilly sold the underlying real estate of the non-debtor partnerships and corporations in
violation of well-settled Bankruptcy Law and brought in at least $41 Million Dollars in the
Estates earning him and the numerous law firms he retained over $8,000,000 in fees and
commissions.42
Prior to the debtors involuntary no-asset bankruptcies, Donna Sturman had already
commenced two actions, one a derivative action to recover defalcations of the debtors of the
assets of the corporate and partnership entities in Supreme Court,43 in which orders had been
entered to prohibit any transfers of assets of such entities, and a Surrogate Court proceeding for
an accounting of the Muriel Estate (Donna Sturmans mother), in which orders were also entered
prohibiting any transfers of the Probate Estate.44
The Trustee nevertheless sold all of the underlying properties of the Entities or disposed
of their assets in knowing violation of, and without any vacatur of such Orders, and in violation
of the Bankruptcy Code. Mr. Goldberg stated in his adversary proceeding to object to the

42

See Transcript Approving Goldbergs Fee Applications, submitted herewith.

The named defendant entities in the Amended Complaint in the State Court Action instituted by Donna
Sturman were Pelham Parkway Corp., Cauldwell Management Corp., Anthony J. Griffen Corp., H.P.
Howard & Co., Inc., H. Development Corp., Wayne-Adam Corp., Cornwall Estates, Inc. Yorkville
Associates, Pelham Associates, Pelham Racquetball and Healthclub, A.B. Yale Corp., Astoria Terminal,
Inc., and Sea Bridge and Pier Terminal Corp. Each of these entities and their assets were either dissipated
by the Debtors, which, upon information and belief, came into the hands of the Trustee, or the Trustee
sold such properties, which were never part of the Debtors Estates.
44
See Order of Justice Martin Evans, dated July 10, 1987, at Exhibit E to the Surrogate Court Motion,
and the Order of Surrogate Renee Roth, dated September 21, 1990, at Exhibit D to the Surrogate Court
Motion.
43

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discharge of Bruce Sturman (92/8470A), that Bruces operation of the family-owned

enterprises45 was under judicial scrutiny based on Ms. Sturman (Butler)s state court and
probate actions in which Orders were entered prohibiting any disposition of such assets.46
It is beyond understanding how the Trustee could annex to his objection to Bruce
Sturmans discharge Ms. Sturmans State Court action as evidence of Bruces defalcations, and
yet claim, in direct contradiction of such position, when he settled Donnas claims with Alan
Nisselson that Donnas claim to the Entities had only a paucity of factual and legal support.47
Without having sought vacatur of such Orders, Goldberg alleges in the Bruce complaint at 26,
that [he was aware that] in the Butler action, the [State] Court issued emergency injunctive
relief to Mrs. Butler enjoining [Bruce and his Brothers (among others)] with respect to certain
family-owned enterprises in dispute.
Moreover, in the Trustees examination at a Hearing on July 3, 2001, to approve the first
proposed settlement with Donna Sturman, he admitted at pages 38-40 that the State and Probate
Courts issued injunctive relief to prevent the transfer of the Entities.48
Under 11 U.S.C. 704 (a) (2): The trustee shall(2) be accountable for all property
received. Thus, there is no question that, not only is it not a violation of the automatic stay to
compel the Trustee to account herein, it is his statutory duty.
Even under the common law, the Trustee has an obligation to account to Ms. Sturman. It
is well-settled that A trustee is under a duty to the beneficiaries of the trust to keep clear and
45

This statement demonstrates that the Trustee knew or should have known (had he taken Donna
Sturmans examination) that the properties were owned in part by Donna Sturman (Butler).
46
Annexed hereto as Exhibit B 23.
47
See the Nisselson Application, annexed hereto as Exhibit C at page 6, 23.
48
See Transcript of the Motion to Approve the Sturman Settlement of July 3, 2001, submitted herewith.

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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); accord, Frontier Excavating,
Inc. v. Sovereign Constr. Co., 294 N.Y.S.2d 994, 998 (N.Y. App. Div. 1968). Once a valid trust
is created, accountability must inevitably follow. 106 N.Y. Jur. 2d, Trusts 360, at 413 (1993).
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.
Moreover, 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 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 an attorney and was represented by numerous New York law firms, many
of which he was member, or of counsel, and the Trustee and the attorneys who worked for him
are subject to Code of Professional Responsibility, superseded by the Code of Professional
Conduct, (RPC). 9-102, N.Y. COMP. CODES R. & REGS., tit. 22, 1200.46 (1999), states
that the attorney must advise the client or third person when she receives funds or property in
which the client or third person has an interest, DR 9- 102(C)(1), safeguard those funds and
property, DR 9-102(C)(2), and [m]aintain complete records of all funds, securities, and other

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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. DR 9-102(C) (3).
The trustee in this case, as all trustees in bankruptcy, hold a fiduciary role with respect to
each creditor of the estate. Hall v. Perry, 703 F.2d 1339, 1357 (9th Cir. 1983).
While clearly present here, [A]n 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.).
Thus it is clearly frivolous that Mr. Goldberg is bringing a motion for contempt to
continue his persistent attempts at refusing to render an accounting in this 21 year old
bankruptcy casesomething he has never done.

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POINT III
THE TRUSTEES SALE OF NON-DEBTOR
PROPERTY CREATED A TRUST IN FAVOR OF DONNA STURMAN

As demonstrated herein to a certainty, upon the commencement of a case, pursuant to 11

U.S.C. 541 (d), property in which the debtor holds only legal title and not an equitable interest
in real property owned by a partnership or a corporation, does not become part of the bankrupt
estate. Thus since the only assets that came into the Estate were assets of the non-debtor Entities
which could not become property of the estate they came into the possession of the Trustee, as
a fiduciary, to return them to the rightful owner.
Instead, since the Trustee, despite his obligations as a fiduciary, wrongly acquired assets
and real property that were not property of the Estate, and accordingly, since he owed a fiduciary
duty to Donna Sturman, he held such property and interests in trust. See United Pacific Ins. Co.
v. McClelland, 993 F.2d 1211, 1216 (5th Cir. 1993).
In reaffirming its holding in In re Howard's Appliance Corp., 874 F.2d at 93, the Second
Circuit stated:
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 [**31] estate), cert. denied, 449 U.S.
- 37 -

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)]. (Emphasis added.)
Indeed, in the July 3, 2001 Transcript regarding the Trustees motion to approve a
settlement with Donna Sturman, he clearly and unequivocally stated that the money in the Estate
belonged to Ms. Sturman under a constructive trust theory.
Since Ms. Sturman has a genuine good faith basis to impose a trust on the assets of the
Estates, she would easily be able to do so. After significant analysis of Ms. Sturmans claims
by the Trustee, he conceded that her claims were indisputably valid and were imposed by a
constructive trust; as stated by Leonard I. Spielberg, the Trustees counsel at the July 3, 2001
Hearing:
[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.49
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.
49

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.

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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 asset50 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.
See Transcript of Motion to Approve the Sturman Settlement, dated July 3, 2001, at
pages 104-118, submitted herewith. (Emphasis added.)51
50

Mr. Spielberg is referring to Yorkville Associates, the partnership which owned five lots of real estate
on East 86th Street in Manhattan.
51
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

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As described earlier, Ms. Sturman easily makes out a claim for a constructive trust. All
of the non-debtor property which she owned was taken by the Trustee unlawfully and absent
jurisdiction of the bankruptcy court. Thus, the money taken in by the Trustee in these Cases can
easily be traced to the underlying assets which Mr. Goldberg wrongfully sold, never paid her, or
accounted for.
Nevertheless, since Mr. Goldberg apparently takes the positions that he feels are most
advantageous, as opposed to their validity, he should be estopped from claiming in this motion
that Ms. Sturman has standing solely for the purpose of punishing her for contempt. Justice can
ask for no less.
Ms. Sturman has been entitled to, and denied an accounting in these cases for over twenty
years after the unconstitutional taking of her propertyan accounting she is legally entitled to
receive. Twenty-one years, poverty, eviction, and trauma are enough.Each of Ms. Sturmans
allegations involved the defalcations of assets from corporations, partnerships and the Muriel
Estate in which she was a 25% owner. In fact, Ms. Sturmans proof of claim was partly based on
a constructive trust theory she asserted in her State Court action to recover assets the Debtors
transferred to corporations and partnerships they set up and excluded her from. (See Proof of
Claim at Exhibit C to N at Exhibit R to the Surrogate Court Motion.)
She further alleged that such conduct contravened equity and good conscience, and
resulted in substantial unjust enrichment of the debtors estates and the Trustee and the other
professionals in these Cases. See Mid-Atlantic Supply, Inc. v. Three Rivers Aluminum Co., 790

prior legal proceeding judicial estoppel protects the sanctity of the oath and the integrity of the 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).

- 40 -

F.2d 1121, 1124 (4th Cir. 1986) (when a debtor owns property in the capacity of a trustee, the
corpus of the trust is not part of the debtors estate.) The sole permissible administrative act
of the trustee or debtor-in-possesssion is to pay over or endorse over the property to the
beneficiary. Id. at 1126.
The term constructive trust is not altogether a felicitous one. It might be thought to:
suggest the idea that it is a fiduciary relation similar to an express
trust, whereas it is in fact something quite different from an
express trust. An express trust and a constructive trust are
divisions of the same fundamental concept. They are not species
of the same genus. They are distinct concepts. A constructive
trust is imposed as a remedy to prevent unjust enrichment
Any attempt to define a trust in such a way as to include
constructive trusts as well as express trusts is futile, since a single
definition which would include such distinct ideas would be so
general as to be useless. Restatement of Restitution 160 cmt. A
(1937).

Consequently, a constructive trust is not a trust at all. It is, instead, merely a device used
by a court to work out an equitable result in the simplest fashion. Bogert, The Law of Trusts,
471, p. 7 (2d ed. 1978).
As previously demonstrated, there were, in fact, no assets of the Estate since the only
property that came into the hands of the Trustee were assets of the non-debtor Entities which
were not part of the estate. 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).

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What is required, generally, is that a party holds 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 N.Y. 245,
253-254 (1923).
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, 71 S.Ct. 680 (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 in these Cases was not only given the imprimatur of this Court but
administered in a way so as to deprive Donna of her Property interests in non-debtor property,
leaving Donna and her three children to live in abject poverty.
Rather, 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)).
Thus, while Ms. Sturman repeatedly maintained that she had a constructive trust over the
assets fraudulently transferred by her brothers, the Debtors, she also claimed that a constructive
trust over the dissipated proceeds in her complaint against the Trustee. Since it is necessary to
satisfy the demands of justice, see Latham v. Father Divine, 299 N.Y. 22, 27, 85 N.E.2d 168,

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170 (1949), she may recover her lost assets from third parties to whom the Trustee paid her
property.
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.52 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.
52

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

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Nevertheless, Mr. Goldberg violated the injunction of Surrogate Renee Roth and the 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

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owed to Ms. Sturman entitling her to a constructive trust over all such fraudulently transferred
property and assets.
A constructive trust is the formula through which the conscience of equity finds
expression. When property has been acquired in such circumstances that the holder of the legal
title may not in good conscience retain the beneficial interest, equity converts him into a
trustee. Brand v. Brand, 811 F.2d 74, 77 (2d Cir. 1987) (quoting Simonds v. Simonds, 45
N.Y.2d 233, 241, 408 N.Y.S.2d 359, 363 (1978) (per Breitel, J.) (quoting Beatty v. Guggenheim
Exploration Co., 225 N.Y. 380, 386, 122 N.E. 378, 380 (1919) (Cardozo, J.)). The doctrine's
applicability is limited only by the inventiveness of men who find new ways to enrich
themselves unjustly by grasping what should not belong to them. Simonds, 45 N.Y.2d at 241,
408 N.Y.S.2d at 363 (quoting Latham, 299 N.Y. at 27, 85 N.E.2d at 170).
Not only does the Trustee owe Ms. Sturman a fiduciary duty, New York courts have
consistently enforced the doctrine to prevent unjust enrichment in a wide range of circumstances,
such as recovering monies paid out to professionals and other parties in these Bankruptcies. See
Palazzo v. Palazzo, 121 A.D.2d 261, 264, 503 N.Y.S.2d 381, 383-84 (1st Dept 1986).
The Trustee admittedly received FORTY-ONE MILLION DOLLARS of funds and
property in which Donna Sturman has an equitable interest as a beneficiary of the trust, and
never rendered an accounting. It would seem that after 21 years, she has earned her right to an
accounting, which, by law, she should have been given many years ago.
The Trustee argues in a parallel proceeding that he seeks to dismiss the appeal of Ms.
Sturman from obtaining an award of attorneys fees, commissions and other compensation, due
to conversion of her assets. In his moving brief at Point I of the Appeal Dismissal Motion,
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submitted herewith, the Trustee claims that Ms. Sturman purportedly lacks standing to bring
such appeal because of the (collusive, violative of public policy, settlement agreement) entered
into between Alan Nisselson, her trustee in Bankruptcy (who lacked any jurisdiction since Ms.
Sturman was never served) and Mr. Goldberg, who, by entering into the settlement agreement,
improperly and in violation of his fiduciary duty attempted to exculpate himself from an
adversary action brought by Ms. Sturman against Mr. Goldberg (99/8076A). (Referenced at
Exhibit 8 to his moving papers but submitted herewith since it was omitted from the copy
received by this office.)
There can be no question that the Trustee and the other professionals, including his own
firms, were unjustly enriched by the liquidation of non-debtor property, from which Donna
Sturman received no compensation.
Thus, the assets acquired by the Trustee became trust funds and were never part of the
Debtors Estates, nor could they be distributed to professionals or other creditors, since such
distribution constituted unjust enrichment of the trustee and the other creditors. It is not
improper for Ms. Sturman to reach each and every distribution to professionals and the trustees
commissions under a constructive trust theory.
Moreover, the third parties involved in the case, attorneys for the Trustee and the other
institutional creditors, the accountants, real estate agents, management agents, etc. all possessed
information which would cause a person exercising reasonable care and diligence to become
aware of the fraud and should be forced to disgorge their fees, as appropriately determined by
this Court.53 Whether under constructive notice or whether they knew of the underlying fraud,

53

While this request is made in a sense arguendo, it is not in the present Surrogate Court Motion.

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such as Otterbourg, and provided substantial assistance in the commission of the fraud, they can
be required to disgorge such trust funds.
A. The Evidence Of Collusion
By The Trustee Is Further
Evidence of His Wrongdoing
In Failing To Properly
Administer The Estates

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).54
(Emphasis supplied.)

One of the interim trustees first duties under the rules specified in the Trustees
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.) Moreover, the trustee is required to hold the Section 341 meeting
no fewer than 20 and no more than 40 days after the [filing of the petition]. FRBP 2003(a).

54

The Handbook for Chapter 7 Trustees is available at:

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

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In these cases, there was no 341 meeting, the banks and the other institutional creditors
were never examined in 21 years and, despite the fact that the Trustee objected to Ms. Sturmans
Proof of Claim,55 and even asserted that he could not administer this case without her he never
did. In his application for a 2004 examination of Ms. Sturman, he states:
[T]he Trustee believes that Ms. Sturman Butler has relevant and pertinent information
concerning the Estates of the Debtor and the Brothers.In order to properly effectuate the
administration and subsequent liquidation of the Estate, the trustee believes that an examination
of Ms. Sturman Butler is of utmost importance. (See affirmation of Morton Gitter, Otterbourg
counsel for the Trustee in the Appendix of Exhibits.) Why did Goldberg fail to follow his
claimed need to examine Ms. Sturman, which he repeatedly cancelled and never took?
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).)

55

Notably, the Court stated that the Trustees objections were ridiculous. In fact in his formal
objections, January 7, 1999, (which will be submitted tomorrow in an Appendix of Exhibits) he
purportedly objected to her claimed interests in the various entities by reviewing Tax Returns of each of
the entities in which he clearly saw that she was an owner.

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There was absolutely no investigation of MHTs involuntary petitionat least not in the
docket record. This failure was 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.56
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 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 Corp., 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 Co., Inc., 37
B.R. 496 (Bankr. D. Mass. 1984); In re Grecian Heights Owners' Assoc., 27 B.R. 172 (Bankr. D.
Or. 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
56

The requirements for creditors to file an involuntary petition are set forth in 303(b) of the Bankruptcy
Code. A creditor who files an involuntary petition against an alleged debtor must hold a claim that
is not contingent as to liability or the subject of a bona fide dispute as to liability or amount.
Clearly, MHTs filing was at the very least a prima facie bad faith filing and should have been
investigated by the Trustee.

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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.)57 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
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), affd, 549 U.S. 365, 127 S. Ct. 1105 (2007). (Emphasis added.)
The Supreme Court could have been talking about the Trustee 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
57

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

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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.

As the 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).
Unjust enrichment, however, does not require the performance of
any wrongful act by the one enriched ( Lengel v. Lengel, 86
Misc.2d 460, 465-66, 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, 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
- 51 -

N.Y.2d 119, 123, 386 N.Y.S.2d 72, 76, 351, 351 N.E.2d 721, 724,
supra; Sinclair v. Purdy, 235 N.Y. 245, 253-254, 139 N.E. 255,
258-259).
45 N.Y.2d at 242, 380 N.E.2d at 194, 408 N.Y.S.2d at 364.
As previously 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
dismissed Donna Sturmans own adversary complaint against Mr. Goldberg, which should be
found by this Court to be abrogated, and which strongly suggests bankruptcy fraud and
conspiracy, was dismissed.58
Prior to such dismissal, this Court failed to discharge the requirement of a notice and a
hearing. However, since Ms. Sturmans case was dismissed, under 11 U.S.C. 349, this is the
equivalent of dismissal of a case without prejudice. See In re Porges, 44 F.3d 159 (2d Cir.
1995); In re Querner, 7 F.3d 1199, 1201-02 (5th Cir. 1993). Thus, all property rights of
Donna which she had prior to the fraudulent bankrutpcy were restored to her. See 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

58

Should the Court decide to receive additional evidence on this matter, Ms. Sturman respectively
requests this Court to grant her the courtesy of additional briefing on this issue since the timing of the
Trustees motion is insufficient to lay out all of the intentional concealment, tax fraud and embezzlements
involved in these 21 year old cases.

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estate in the entity in which the property was vested at the commencement of the Case.
Thus, Donna Sturman clearly has standing to perfect her appeal.

B. 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. 111 (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
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equitable interests of the true owner That bare interest is not property of the estate available
to satisfy the claims of creditors.).
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. 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.
The circumstances of the Trustees taking in $41 Million Dollars of non-estate, nonbankrupt property and converting it to pay creditors, including $8 Million Dollars of professional
fees, certainly created trust property in the hands of the Trustee and subjects him to the
obligation to render an accounting. Moreover, it is well-settled that a trust will follow property
through all changes in its form so long as the property and proceeds are capable of identification
as they are in these Cases.
Where a Trustee in breach of trust disposes of trust property and receives other property
in exchange, the beneficiaries can charge him as a constructive trustee of the property or at their

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option can enforce an equitable lien upon it to secure their claim against the trustee for damage
for breach of trust. 5 Scott on Trusts, Sec. 508 at 555.
Moreover, even when the specific proceeds cannot be traced, the plaintiff is not without a
remedy, inasmuch as a personal judgment could be enforced against the wrongdoer. See
Kupferman v. Scott, NYLJ, July 28, 2004, p. 23 (Sup. Ct., Suffolk County, Justice Arthur Pitts.)
POINT IV
THE PARTNERSHIP DISPUTE
OVER THE YORKVILLE PROPERTY
DECIDED BY THE BANKRUPTCY
COURT WAS NON-CORE AND IS VOID

This principle has far reaching implications in this case, specifically the inability of the
Bankruptcy Court to render any final orders on these non-core matters regarding ownership of
partnership property. See 28 U.S.C. 157 (c) (1). Pursuant to that section:
A bankruptcy judge may hear a proceeding that is not a core
proceeding but that is otherwise related to a case under title 11. In
such proceeding, the bankruptcy judge shall submit proposed
findings of fact and conclusions of law to the district court, and
any final order or judgment shall be entered by the district judge
after considering the bankruptcy judge's proposed findings and
conclusions and after reviewing de novo those matters to which
any party has timely and specifically objected.

Courts have reasoned that a matter is core if it involves a right created by federal
bankruptcy law or if it is one that would arise only in bankruptcy. See Wood v. Wood, 825 F.2d
90, 97 (5th Cir. 1987); Hassett v. Bancohio Natl Bank (In re CIS Corp.), 172 B.R. 748, 755

- 55 -

(S.D.N.Y. 1994). However, if the substantive right was not created by bankruptcy law and could
exist outside of bankruptcy, the matter is not a core proceeding. Id.
The Second Circuit has refined the analysis by stating that the relevant analysis is
whether the nature of [the] adversary proceeding, rather than the state or federal basis of the
claim falls within the core of federal bankruptcy power. In re Manville Forest Products Corp.,
896 F.2d 1384, 1389 (2d Cir. 1990). Proceedings which involve a cause of action created solely
by state law, brought by or on behalf of the debtor, and which do not otherwise fall with the
provisions of 28 U.S.C. 157(b) (2), are non-core matters. Sullivan v. Maryland Casualty Co.
(In re Ramex Intl, Inc.), 91 B.R. 313, 315 (E.D. Pa. 1988) (quoting In re Athos Steel and
Aluminum, Inc., 71 B.R. 525, 534 (Bankr. E.D. Pa. 1977).
An action to determine the ownership of property in disputewhich the Bankruptcy
Court did in its Decision regarding the ownership of Yorkville, one of the partnerships arises
under state lawand is independent and outside the reach of the bankruptcy process.59
In In re Toledo, 170 F.3d 1340, 1348 (11th Cir. 1999), the Court reiterated the
unequivocal principle established herein, namely that The distinction between property
belonging to a partnership of which the debtor was partner, and property belonging to the debtorpartner, is well-established in bankruptcy law. In so finding, the Court determined that a
resolution of a partnership dispute between partners based on the Wood test as well as the
constitutional concerns expressed in Northern Pipeline, we conclude that the instant case was
not a core proceeding. [An] action to determine the validity, priority, and extent of liens on the
Partnership Property did not invoke a substantive right created by bankruptcy law, and could

59

In re Sturman, 222 B.R. 694 (1998).

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clearly occur outside of bankruptcy. See also McGahren v.First Citizens Bank & Trust Co.
(In re Weiss), 111 F.3d 1159, 1166 (4th Cir.), cert. den., 522 U.S. 950, 118 S.Ct. 369, 139
L.Ed.2d 287 (1997); In re Manning, 831 F.2d 205, 207 (10th Cir. 1987) (bankruptcy trustee of
partner cannot sell partnership assets). Therefore, the property which this Court allowed the
Trustee to sell was never part of the Debtors Estates.
Thus, it is clear that the one decision written by Judge Beatty was defective and void
since it was determining a non-core issue solely as to the ownership of Yorkville Associates.
Since the matter concerned the ownership of property, as to which Bankruptcy Courts must look
to state law, she was required, after notice and a hearing, to make findings of fact, conclusions of
law and submit such to the District Court for its review. This the Bankruptcy Court did not do.
This is a jurisdictional issue under Article III of the Constitution and was not, and cannot be,
waived.
In finding that a dispute over the ownership of partnership, as there was consistently in
this case, was a non-core proceeding, which this Courts Decision clearly was, the 11th Circuit
held in In re Toledo, 170 F3d 1340, 1347-48 (1999):
The district court held that the instant case was a core proceeding
under 28 U.S.C. 157(b)(2)(K), which applies to "determinations
of the validity, extent, or priority of liens." See District Court
Order at 5. This reliance on 157(b)(2)(K) was misplaced. The
district court apparently reasoned that since the purpose of the
instant adversary proceeding was to obtain a judicial determination
of the validity of the Bank's mortgage, which is a lien on real
estate, it fit the language of subsection (b)(2)(K). However, the
case law on (b)(2)(K) indicates that it encompasses only
proceedings to determine the validity, extent, or priority of liens on
the estates or the debtor's property. First State Bank of Wykoff v.
Grell (In re Grell), 83 B.R. 652, 657 (Bankr.D.Minn.1988);
Climate Control Engineers, Inc. v. Southern Landmark, Inc. (In re
Climate Control Engineers, Inc.), 51 B.R. 359, 361
- 57 -

(Bankr.M.D.Fla.1985). Otherwise, [bankruptcy courts] would be

asserting a form of jurisdiction ferae naturae, capable of the
adjudication of property rights wherever found and by whomever
owned. Allis-Chalmers Corp. v. Borg-Warner Acceptance Corp.
(In re Dr. C. Huff Co.), 44 B.R. 129, 134 (Bankr.W.D.Ky.1984).
Here, the real property on which the disputed mortgage existed
belonged to the non-debtor Partnership, not to the Toledos or the
Estate. The Estate owned a 50% interest in the Partnership, but
no direct interest in the Partnership Property. Thus,
157(b)(2)(K) is no basis for calling the instant proceeding a "core
proceeding." (Emphasis added.)
Nor do any of the other types of core proceedings appearing in
157(b)'s list fit the instant adversary proceeding, especially in light
of the fact that they are to be construed in light of the constitutional
limitations that prompted their enactment. Lacy v. FDIC (In re
Lacy), 183 B.R. 890, 893 (Bankr.D.Colo.1995). To the extent that
the literal wording of some of the types of proceedings might
conceivably seem to apply, it should be remembered that engrafted
upon all of them is an overarching requirement that property of the
estate under 541 be involved. Gallucci v. Grant (In re Gallucci),
931 F.2d 738, 742 (11th Cir.1991) (noting that 157(b)(2)(E)
category for turnover actions applies only to orders to turn over
property of the estate); Guild & Gallery Plus, 72 F.3d at 1179.
Because the list in the statute is non-exhaustive, it is not the end of
our inquiry whether the adversary proceeding was core. The most
helpful explanation of what is a core proceeding, accepted almost
universally by the courts, is found in the Fifth Circuit's decision in
Wood v. Wood (In re Wood), 825 F.2d 90 (5th Cir.1987):
If the proceeding involves a right created by the federal
bankruptcy law, it is a core proceeding; for example, an action by
the trustee to avoid a preference. If the proceeding is one that
would arise only in bankruptcy, it is also a core proceeding; for
example, the filing of a proof of claim or an objection to the
discharge of a particular debt. If the proceeding does not invoke a
substantive right created by the federal bankruptcy law and is one
that could exist outside of bankruptcy it is not a core proceeding; it
may be related to the bankruptcy because of its potential effect, but
under section 157(c)(1) it is an otherwise related or non-core
proceeding. Id. at 97 (Emphasis in original).
Based on the Wood test as well as the constitutional concerns
expressed in Northern Pipeline, we conclude that the instant case
was not a core proceeding. Sanchez' action to determine the
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validity, priority, and extent of liens on the Partnership Property

did not invoke a substantive right created by bankruptcy law, and
could clearly occur outside of bankruptcy. Indeed, actions similar
to the instant case are filed in state court all the time. See, e.g.,
Ocean Bank of Miami v. Inv-Uni Investment Corp., 599 So. 2d 694
(Fla. 3d DCA) (declaratory judgment action regarding validity of
mortgage conveyed by corporate officers, purportedly acting on
behalf of corporation, to secure non-corporate debt), rev. denied,
606 So. 2d 1165 (Fla.1992).
Here, of course, the property in question was owned by the Partnership, not by the Estates
of the Brothers. Thus, the bankruptcy court was not empowered to enter final, appealable
orders without the parties consentwhich was never given by Ms. Sturman.
Instead, after it had conducted the required proceedings, it was required to submit its
proposed findings of fact and conclusions of law for consideration by the district courtwhich
it did not do. See 28 U.S.C. 157(c) (1); Cong. Credit Corp. v. AJC Int'l, Inc., 42 F.3d 686, 690
(1st Cir. 1994). The role of the district court in turn is to conduct a de novo review of the
findings of fact and the conclusions of law submitted by the bankruptcy court. In so doing, the
district court may receive further evidence,60 modify the findings proposed by the bankruptcy
court, and/or remand to the bankruptcy court with instructions. See FRBP 9033(d). At that
stage, any appeal from the final district court order may be taken only to the court of appeals,
which applies a deferential standard of review. Id. 158(d).
Since a bankruptcy judge may only hear non-core proceedings that are otherwise related
to a title 11 case, Judge Beatty had no subject matter jurisdiction to decide this controversy
60

There were numerous errors of fact in the Decision, including the erroneous claim by the Court that Ms.
Sturman never objected to the 1991 to 1998 management orders. (Ms. Sturman will submit this exhibit to
the Court tomorrow in an Appendix of Exhibits due to the plethora of documents in this 21 year old case.)
In addition, counsel for the Debtors, Strook, Strook & Lavan stated in its letter dated April 9, 1987 to Ms.
Sturmans counsel Millbank, Tweed, that the assets of Yorkville Associates while held in the personal
names was held equitably by the Partnership. See letter and Partnership Agreement in the Appendix of
Exhibits to be filed tomorrow.

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which involved not only a dispute between three Debtors, Donna Sturman, a non-debtor, nondebtor property, and a determination of the rights of the Probate Court over the property of the
Surrogates Court. See 28 U.S.C. 157(c) (1).
*

Finally, while the Trustee claims, without any factual basis, that the universal protection
of statements in judicial proceedings (the absolute privilege) does not apply in this case, he is
simply playing hardball without a bat. There is no basis for this claim in his papers, and it should
be summarily denied.
As the Appellate Division, First Department has held, the privilege embraces anything
that may possibly be pertinent or which has enough appearance of connection with the case.
Seltzer v. Fields, 20 A.D.2d 60, 63, 244 N.Y.S.2d 792, 796 (1963), affd, 14 N.Y.2d 624, 249
N.Y.S.2d 174 (1964).
See also Broome v. Biondi, 1997 U.S. Dist. LEXIS 1431 (S.D.N.Y. 1997):
Under New York law, absolute privilege applies to all
communications made in the course of a judicial proceeding, and
that are pertinent to the pending proceeding. See Zirn v. Cullom,
187 Misc. 241, 63 N.Y.S.2d 439, 441 (N.Y. Sup. Ct. 1946).
In O'Brien v. Alexander, 898 F. Supp. 162, 171 & n.13 (S.D.N.Y.
1995)(Chin, J.), aff'd in part, rev'd in part, 101 F.3d 1479 (2d Cir.
1996) (applying absolute privilege to an attorney's statements that
were made to persons with knowledge of and connections to the
events in issue, during the course of a judicial proceeding, in
preparation for trial).
See Simon v. Potts, 33 Misc. 2d 183, 225 N.Y.S.2d 690, 704 (N.Y.
Sup. Ct. 1962) (It has been held that if a publication is privileged
as to counsel, it is privileged as to his client and the converse is
true.)

- 60 -

It is well established that a statement made in the course of legal

proceedings is absolutely privileged if it is at all pertinent to the
litigation. (Youmans v. Smith, 153 N.Y. 214, 219, 47 NE 265, 266
(1897). In this seminal case, the Court made clear that the rule rests
on the policy that counsel should be able to speak with that free
and open mind which the administration of justice demands
without the constant fear of libel suits. (Id. at 223.)

Furthermore, it is well-settled that comments that essentially summarize or restate the

allegations of a pleading filed in an action are the type of statements that fall within section 74's
privilege. See Ford v Levinson, 90 A.D.2d 464, 454 N.Y.S.2d 846 (1st Dept 1982).
If anything, the statements made in the papers submitted about Mr. Goldberg are gentle
given the circumstances, nor has he pointed to a single defamatory comment that was not made
by Ms. Sturman or her counsel out of Court, not in papers filed with the Court, or in connection
with prosecuting this action. Thus, the hoped-for sledgehammer falls of its own weight.

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WHEREFORE, Donna Sturman, by her counsel, respectfully requests that this Court
dismiss this frivolous motion filed in direct contradiction with Mr. Goldbergs appeal, grant Ms.
Sturmans cross-motion to compel the Trustee to account as to all proceedings in the Bankruptcy
Court, and grant her such other, further and different relief as this Court deems just and proper.
Dated: February 16, 2009
New York, New York

Respectfully submitted,
THE LAW OFFICES OF DAVID H. RELKIN
Counsel for Donna Sturman
/s/ David H. Relkin, Esq.
By: ____________________
David H. Relkin
575 Eighth Avenue-Suite 1706
New York, New York 10018
(212) 244-8722
[email protected]

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