Jesse Morton Hilsen

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
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In re:
Chapter 7
JESSE MORTON HILSEN a/k/a
JESSE HILSEN GRUNENBAUM a/k/a 	Case No. 05-30850-ess
JOSEPH GRUNENBAUM a/k/a
JESS GRUNEN,
Debtor.
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MEMORANDUM DECISION ON OBJECTIONS TO CERTAIN EXEMPTIONS
CLAIMED BY THE DEBTOR
Appearances:
Avrum J. Rosen, Esq 	Michael T. Sucher, Esq.
The Law Offices of Avrum J. Rosen, PLLC 	The Law Offices of Michael T. Sucher, Esq.
38 New Street 	26 Court Street (Suite 2412)
Huntington, New York 11743 	Brooklyn, New York 11242
Attorneys for Richard E. O’Connell 	Attorneys for Jesse Morton Hilsen
as Chapter 7 Trustee
Steven H. Newman, Esq.
Katsky Korins LLP
605 Third Avenue
New York, New York 10158
Attorneys for Dr. Joan Margolis f/k/a/ Dr. Joan Packles,
Chuck Rockwell, Ltd. and Doug Landon, Ltd.
Case 1-05-30850-ess Doc 90 Filed 03/17/09 Entered 03/18/09 10:41:59

HONORABLE ELIZABETH S. STONG
UNITED STATES BANKRUPTCY JUDGE
Before the Court are the claims of Jesse Morton Hilsen, also known as Jesse Hilsen
Grunenbaum, Joseph Grunenbaum, and Jess Grunen, the debtor in this Chapter 7 bankruptcy
case (the “Debtor”), in his amended schedules, that his rights in the Chuck Rockwell Trust (the
“Chuck Rockwell Trust”) are exempt, and the objections brought by Richard E. O’Connell, the
Chapter 7 Trustee in this case (the “Trustee”), and Joan Beth Packles, also known as Joan
Margolis (“Dr. Margolis”), Chuck Rockwell, Ltd., and Doug Landon, Ltd. (together, the
“Margolis Objectors”), to the Debtor’s claimed exemptions of his rights in the trust. The Debtor
claims his exemptions pursuant to Section 522(l) of Title 11 of the United States Code (the
“Bankruptcy Code”), and the Trustee and the Margolis Objectors (the “Objecting Parties”) bring
their objections to the Debtor’s claimed exemptions pursuant to Rule 4003(b) of the Federal
Rules of Bankruptcy Procedure. The Objecting Parties also argue that the Debtor’s rights in the
Chuck Rockwell Trust arise from a fraudulent conveyance and the Debtor cannot claim an
exemption in a fraudulent trust instrument.
Jurisdiction
This Court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 1334(b)
and 157(b)(2)(B).
Background
This matter, and the state and federal litigation that precedes it, has a long and complex
history that need not be repeated in full here. This history includes the Debtor’s prior Chapter 7
bankruptcy case in the Southern District of New York, which was filed in 1987 as a voluntary
case under Chapter 11, converted to a case under Chapter 7 in 1988, and finally concluded in
2008. In re Jesse M. Hilsen, Case No. 87-11261 (Bankr. S.D.N.Y.). It also includes federal
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criminal proceedings under the Child Support Recovery Act of 1992, as amended by the
Deadbeat Parents Punishment Act of 1998, brought in 2003 in the Southern District of New
York. United States v. Jesse Hilsen, Case No. 03-00919 (S.D.N.Y.). In that action, the Debtor
entered a guilty plea to one count of failure to pay past-due court-ordered child support to his
former spouse, Rita Hilsen, and was sentenced to a term of time served and one year of
supervised release. United States v. Jesse Hilsen, Case No. 03-00919 (S.D.N.Y.), Docket No. 43
(Judgment in a Criminal Case). Rita Hilsen is a creditor in this bankruptcy case. Finally, the
prior proceedings include many years of contested matrimonial proceedings between the Debtor
and Rita Hilsen, including proceedings to determine and collect support and maintenance
payments, in New York State Court.
For purposes of this decision, certain background matters are reviewed below.
The Chuck Rockwell Trust
On August 17, 1991, Frances Packles established the Chuck Rockwell Trust. Docket No.
71, Exh. A (Trust Agreement) at 15. The trust is scheduled to “terminate upon the death of the
survivor of [Dr. Margolis], Jesse Morton Hilsen, Marc Johnson, Aaron Johnson, and Michelle
Packles . . . .” Docket No. 71, Exh. A (Trust Agreement) ¶ FIRST. The Chuck Rockwell Trust
designates Frances Packles as the grantor, Dr. Margolis and Marc Johnson as trustees, and Dr.
Margolis and the Debtor as beneficiaries. Docket No. 71, Exh. A (Trust Agreement) at 1.
The Chuck Rockwell Trust provides the Debtor with a conditional right to receive trust
income and conditional rights relating to the trust’s real property. As to the Debtor’s conditional
income rights, Paragraph FIRST of the Chuck Rockwell Trust provides that the trustees may, but
are not required to, distribute income generated by the trust principal to Dr. Margolis, the
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Debtor, and the grantor’s issue “in such amount or amounts (whether equal or unequal) as the
Trustees shall deem advisable . . . .” Docket No. 71, Exh. A (Trust Agreement) ¶ FIRST.
Paragraph SECOND of the Chuck Rockwell Trust provides that “any permissible income
beneficiary of the trust shall have the right to demand and withdraw from the principal of the
trust fund for each calendar year in which a gift or gifts to this trust are made” a certain amount
of property related to the value of the those gifts. Docket No. 71, Exh. A (Trust Agreement) ¶
SECOND.
As to the Debtor’s conditional right to use and to veto the sale of the trust’s real property,
Paragraph FIFTH provides that “[t]he Trustees are authorized and empowered to permit any
permissible income beneficiary . . . to use any real property owned by the trust, free of rent or
other charges.” Docket No. 71, Exh. A (Trust Agreement) ¶ FIFTH. The Chuck Rockwell Trust
also grants the Debtor a conditional veto power over the trustees’ ability to sell the real property
owned by the trust. Under Paragraph FIFTH, “[a]t any time that [Dr. Margolis] shall not be
acting as a trustee hereunder, the Trustees shall not sell any real property owned by the trust . . .
without the prior written consent of Jesse Morton Hilsen, if he is then living and not under a
disability.” Docket No. 71, Exh. A (Trust Agreement) ¶ FIFTH.
The Debtor’s Financial Affidavit in the Criminal Case
On July 29, 2003, a criminal indictment was filed against the Debtor in the United States
District Court for the Southern District of New York in United States v. Jesse Hilsen. United
States v. Jesse Hilsen, Case No. 03-00919 (S.D.N.Y.), Docket No. 1 (Indictment). In that action,
the Debtor was charged with one count of unlawful failure to pay court-ordered child support
payments to Rita Hilsen for his son and daughter, as required by orders of the Family Court of
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the State of New York, dated August 3, 1988, July 6, 1992, and June 1994. See United States v.
Jesse Hilsen, 2005 WL 3434778, at *1 (S.D.N.Y. Dec. 14, 2005).
On October 12, 2004, the district court denied the Debtor’s motion for leave to submit a
financial affidavit ex parte and under seal in support of his request for appointed counsel.
United States v. Jesse Hilsen, 2004 WL 2284388 (S.D.N.Y. Oct. 12, 2004). On September 21,
2004, the Debtor completed a financial affidavit and indicated that he did not “own real estate,
stocks, bonds, notes, automobiles, or other valuable property.” Docket No. 69, Exh. B (CJA
Form 23 executed by Jesse Hilsen). In particular, the Debtor did not list any rights under the
Chuck Rockwell Trust as an asset. Id.
On October 18, 2004, the Debtor filed a request for the appointment of Allan P. Haber as
his attorney, which was approved and entered by the court on December 8, 2004. United States
v. Jesse Hilsen, Case No. 03-00919 (S.D.N.Y.), Docket No. 19 (CJA Form 20). On December
28, 2005, the court entered a judgment against the Debtor providing for a sentence of time served
and one year of supervised release, and a payment of a fine, for disbursement to Rita Hilsen, in
the amount of $161,975. United States v. Jesse Hilsen, Case No. 03-00919 (S.D.N.Y.), Docket
No. 43 (Judgment in a Criminal Case). See also United States v. Jesse Hilsen, 2005 WL
3434778, at *4-5.
The Trustee’s Adversary Proceeding Against the Margolis Defendants and Others
On April 13, 2006, the Trustee filed a complaint in an adversary proceeding against
Batya Tov Hilsen, Dr. Margolis, Chuck Rockwell, Ltd., Doug Landon, Ltd., and Optimum
Resources, Inc. (the “Adversary Proceeding”), seeking avoidance and recovery of certain alleged
fraudulent conveyances made to Dr. Margolis, Chuck Rockwell, Ltd., and Doug Landon, Ltd.
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(the “Margolis Defendants”) and others, as well as injunctive relief, a declaratory judgment, and
turnover of estate property. O’Connell v. Packles, Adv. Pro. 06-1249, Docket No. 1 (Complaint)
¶ 1.
After discovery, an extended period of negotiation and court-ordered mediation, the
Trustee and the Margolis Defendants reached an agreement to settle the Trustee’s claims. One
creditor, Rita Hilsen, objected to the settlement. The Trustee, the Margolis Defendants, and Rita
Hilsen attempted to resolve the objections to the settlement and this led to several modifications
of the settlement agreement. The Court held an evidentiary hearing on February 27, 2008, at
which the Trustee and Rita Hilsen appeared in person and by counsel and were heard, and the
Court heard testimony from the Trustee. Further hearings were held and a proposed order
approving the settlement agreement was submitted to the Court on December 16, 2008. On
March 17, 2009, the Court entered an memorandum decision and order approving the settlement.
The Debtor’s Claimed Exemptions and the Objections to His Exemptions
On October 13, 2005, the Debtor filed a voluntary petition for relief under Chapter 7 of
the Bankruptcy Code. Docket No. 1 (Petition). At the time the Debtor commenced this case, he
was not represented by counsel. Id. The Debtor later retained counsel to represent him, and on
January 4, 2007, Michael T. Sucher, Esq., filed an appearance in the bankruptcy case. Docket
No. 47 (Notice of Appearance and Request for Notice).
The Debtor filed Schedules A, B, and C with his petition, which set forth his scheduled
real property and personal property and his claimed exemptions. Petition, Schedule A (Official
Form B6A), Schedule B (Official Form B6B), Schedule C (Official Form B6C). The Debtor’s
Schedule A lists a “life estate (left to the Debtor in Mother’s Estate)” in “183 acres in Sullivan
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County NY plus 20 acres adjoining with house paid for by Nina Hilsen to Packles Trust.”
Petition, Schedule A (Official Form B6A). The value listed for this asset is “0.” Id.
The Debtor’s Schedule B lists an interest in an “oral trust from Debtor’s mother in care of
[Dr. Margolis] to provide for food and shelter for Debtor in the future.” Petition, Schedule B
(Official Form B6B). The value listed for this asset is $150,000. Id. Schedule B also lists the
Debtor’s interest in household goods and furnishings, and states that certain pieces of furniture
are in the possession of Dr. Margolis. Id. Schedule B also lists an interest in certain art objects,
antiques and other collectibles, including a number of these art objects and collectibles in the
possession of Dr. Margolis. Id. The Debtor’s Schedule B also lists an interest in certain jewelry
including a Rolex watch, and two Citroen automobiles. Id.
The Debtor’s original Schedule C does not list any rights in the Chuck Rockwell Trust as
exempt property. Petition, Schedule C (Official Form B6C). On April 20, 2007, the Debtor, by
counsel, amended his Schedule C to claim, as exempt personal property of unknown value, his
“Benefits due as beneficiary under a certain Trust (the ‘Chuck Rockwell Trust’) made August
17, 1991,” and served notice of this amendment on the Trustee and his creditors. Docket No. 55,
Amended Schedule C and Affidavit of Service.
On May 11, 2007, the Trustee and the Margolis Objectors filed objections to the Debtor’s
claimed exemptions relating to the Chuck Rockwell Trust. Docket No. 67 (Motion Objecting to
Debtor’s Claimed Exemption in Benefits Under a Certain Trust (the “Trustee’s Objection”));
Docket No. 69 (Objection to Certain Exemptions Claimed by the Debtor in the Debtor’s
Amended Schedules (the “Margolis Objection”)).
On May 22, 2007, an initial hearing was held on the Trustee’s Objection at which
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counsel for the Trustee appeared and was heard. Docket Entry dated May 22, 2007. On June 15,
2007, the Debtor, by counsel, amended his Schedule B to add “Benefits due Debtor as
beneficiary under a certain Trust (the ‘Chuck Rockwell Trust’) made August 17, 1991,” and filed
an Affirmation in Opposition to Motions Objecting to Debtor’s Amended Exemptions (the
“Affirm. in Opp.”). Docket Nos. 70, 71.
On June 18, 2007, a hearing was held on the Trustee’s Objection and the Margolis
Objection, at which counsel for the Debtor, counsel for the Trustee, and counsel for the Margolis
Objectors appeared and were heard. Docket Entry dated June 18, 2007. On July 2, 2007, the
Debtor filed a Supplemental Affirmation in Opposition to Motions Objecting to Debtor’s
Amended Exemptions (the “Supp. Affirm. in Opp.”). Docket No. 73. On July 16, 2007, the
Trustee filed a Response to Debtor’s Supplemental Affirmation in Opposition to the Trustee’s
Motions Objecting to Debtor’s Claim of Exemption In Benefits Under a Certain Trust (the
“Trustee’s Response”). Docket No. 74. On July 17, 2007, the Margolis Objectors filed a
Supplemental Statement in Support of Objection to Certain Exemptions Claimed by the Debtor
in the Debtor’s Amended Schedules (the “Margolis Supp. Objection”). Docket No. 76.
On February 27, 2008, a hearing was held on the Trustee’s Objection and the Margolis
Objection, at which counsel for the Trustee and counsel for the Margolis Objectors appeared and
were heard. The Debtor did not appear in person or by counsel. At the close of the hearing,
based on the entire record, the Court sustained the objections in part and overruled the objections
in part as set forth on the record, and directed the parties to settle a proposed order on thirty
days’ notice. Docket Entry dated February 27, 2008. No objections to the entry of the proposed
order were filed.
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Discussion
Upon the commencement of a bankruptcy case, a bankruptcy estate is created, which is
comprised of “all legal or equitable interests of the debtor in property as of the commencement
of the case.” 11 U.S.C. § 541(a)(1). Section 522(l) of the Bankruptcy Code provides that a
debtor must file a list of the property that the debtor claims as exempt. 11 U.S.C. § 522(l). See
11 U.S.C. § 522(b). Bankruptcy Rules 4003(a) and 1007(c) provide that a debtor must list
property claimed as exempt on schedules of assets filed with his bankruptcy petition. F ED . R.
BANKR . P. 4003(a), 1007(c). And Bankruptcy Rule 1009(a) permits a debtor to amend these
schedules at any time during the bankruptcy case. FED . R. BANKR . P. 1009(a).
Bankruptcy Rule 4003 sets forth the procedure for a party in interest to object to an
exemption claimed by a debtor and the allocation of the burden of proof as follows:
A party in interest may file an objection to the list of property claimed as exempt
only within 30 days after the meeting of creditors held under § 341(a) is
concluded or within 30 days after any amendment to the list or supplemental
schedules is filed, whichever is later. . . .
. . .
In any hearing under this rule, the objecting party has the burden of proving that
the exemptions are not properly claimed.
FED . R. BANKR . P. 4003(b), (c).
Here, the record shows that the Debtor filed timely original schedules and provided
notice to the Trustee and creditors when he filed his amended Schedule C and Schedule B, and
the Trustee and the Margolis Objectors filed timely objections to the Debtor’s claimed
exemptions. The Objecting Parties bear the burden of proving that the Debtor’s asserted
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exemption of his rights under the Chuck Rockwell Trust is not properly claimed.1
Section 541(a)(1) of the Bankruptcy Code defines property of the estate broadly to
include “all legal or equitable interests of the debtor in property as of the commencement of the
case.” 11 U.S.C. 541(a)(1). As one commentator notes, “[i]t is this central aggregation of
property that promotes the effectuation of the fundamental purposes of the Bankruptcy Code. . . .
Congress’ intent to define property of the estate in the broadest possible sense is evident from the
language of the statute . . .” 5 COLLIER ON BANKRUPTCY ¶ 541.01 (15th ed. rev. 2007).
But Section 541(c)(2) of the Bankruptcy Code places a boundary on property of the
estate in accordance with applicable nonbankruptcy law so that “[a] restriction on the transfer of
a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy
law is enforceable in a case under this title.” 11 U.S.C. § 541(c)(2). See Taft v. O'Connell (In re
Taft), 184 B.R. 189, 190 (Bankr. E.D.N.Y. 1995). The question of whether a debtor has an
interest in property that passes to the bankruptcy estate upon the commencement of the case, and
the scope and extent of any applicable exemptions, may be determined by the bankruptcy court
and is informed by applicable state law. See Butner v. United States, 440 U.S. 48, 54-55 (1979).
A spendthrift trust is defined as “[a] trust that prohibits the beneficiary’s interest from
being assigned and also prevents a creditor from attaching that interest; a trust by the terms of
which a valid restraint is imposed on the voluntary or involuntary transfer of the beneficiary’s
interest.” BLACK ’ S LAW DICTIONARY 1552 (8th ed. 2004). See RESTATEMENT (SECOND ) OF
TRUSTS § 152(2) (1959); 2A Austin W. Scott, Jr., T HE LAW OF TRUSTS § 151 (4th ed. 2001).
1 The Objecting Parties also argue that the Debtor is precluded from claiming the exemptions at
issue by operation of the doctrine of judicial estoppel. See pp. 19-24, infra.
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Under New York law, “all express trusts are presumed to be spendthrift unless the settlor
expressly provides otherwise.” Regan v. Ross, 691 F.2d 81, 86 n.14 (2d Cir. 1982).
Section 7-1.5(a) of New York’s Estates Powers & Trusts Law (“EPTL”) provides that a
trust is a spendthrift trust unless the instrument creating the trust expressly grants its
beneficiaries the power to transfer their rights:
The right of a beneficiary of an express trust to receive the income from property
and apply it to the use of or pay it to any person may not be transferred by
assignment or otherwise unless a power to transfer such right, or any part thereof,
is conferred upon such beneficiary by the instrument creating or declaring the
trust.
N.Y. EST . POWERS & TRUSTS § 7-1.5(a)(1).
A spendthrift trust under New York law, therefore, is characterized by the kind of
“restriction on the transfer of a beneficial interest of the debtor” that Section 541(c)(2) of the
Bankruptcy Code contemplates and makes enforceable in a bankruptcy case. For these reasons,
unless some other provision of law applies, a beneficiary’s rights in a valid spendthrift trust are
not property of a bankruptcy estate.
The Debtor’s Conditional Income Rights Under the Chuck Rockwell Trust
As described above, the Chuck Rockwell Trust gives the Debtor a conditional right to
receive income. Specifically, the trust provides that the trustees may, but are not required to,
distribute income generated by the trust principal to Dr. Margolis, the Debtor, and the Grantor’s
issue “in such amount or amounts (whether equal or unequal) as the Trustees deem advisable . . .
.” Docket No. 71, Exh. A (Trust Agreement) ¶ FIRST. See Docket No. 71, Exh. A (Trust
Agreement) ¶ SECOND. See also p. 3, supra.
The Trustee argues that the Debtor’s income rights under the Chuck Rockwell Trust are
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property of the estate under Section 541 and not exempt under Section 542(b) and (c). Trustee’s
Response ¶ 4. The Trustee argues that while a valid spendthrift trust would be excepted from
property of the estate under Section 541(c), the Chuck Rockwell Trust allows the Debtor to
control the res of the trust, so that “the Trust Agreement is not a valid spendthrift trust and is
therefore not exempt.” Trustee’s Response ¶ 5.
The Trustee further argues that even if the trust principal is exempt, then by operation of
CPLR 5205(d)(1), “at a very minimum, 10 percent of the Debtor’s income is available for the
creditors of the Estate.” Trustee’s Response ¶ 10 and n.1. That section provides that “ninety per
cent of the income or other payments from a trust the principal of which is exempt under [CPLR
§ 5205(c)]” is exempt from application to satisfy a money judgment. N.Y. C.P.L.R. 5205(d)(1).
The Margolis Objectors argue that the Debtor may not exempt any interest in the Chuck
Rockwell Trust because “pursuant to the express terms of the Chuck Rockwell Trust, the Debtor
has no pecuniary interests in the Chuck Rockwell Trust.” Margolis Objection ¶ 7. The Margolis
Objectors also argue that they are prejudiced by the Debtor’s claimed exemption because under
the Settlement Agreement, the Debtor’s rights in the Chuck Rockwell Trust are “terminated
and/or conveyed” to Dr. Margolis. Margolis Objection ¶ 6. And as discussed below, the
Margolis Objectors further argue that the Debtor should be barred from claiming an exemption
in his rights under the Chuck Rockwell Trust by the doctrine of judicial estoppel. Margolis
Objection ¶¶ 9-10, 12-13; Margolis Supp. Objection ¶ 15. See pp. 19-24, infra.
The Debtor argues that he is an income beneficiary provided for in Paragraph FIRST of
the Chuck Rockwell Trust. Supp. Affirm. in Opp. ¶ 5. He argues that his income rights are not
alienable because the Chuck Rockwell Trust does not expressly grant him the power to transfer
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his future interest in trust income. Supp. Affirm. in Opp. ¶ 8. The Debtor also argues that
because his income rights under the Chuck Rockwell Trust are not expressly alienable, pursuant
to EPTL Section 7-1.5(a)(1), they are “exempt from the reach of creditors, or sale by a
bankruptcy Trustee.” Supp. Affirm. in Opp. ¶ 7.
Here, the record shows that Paragraph FIRST and Paragraph SECOND of the Chuck
Rockwell Trust provide the Debtor with a conditional right to income. Affirm. in Opp., Exh. A
(Trust Agreement), ¶ FIRST, ¶ SECOND. The record also shows that the Chuck Rockwell Trust
does not provide the Debtor with the power to transfer this right. Id. Viewed another way, the
Chuck Rockwell Trust provides the Debtor with conditional income benefits, but not with
transferable rights to those benefits.
For these reasons, and based on the entire record, the Objecting Parties have not shown
that the Debtor’s asserted exemption in his conditional right to income under the Chuck
Rockwell Trust is not properly claimed, but the Objecting Parties have shown that ten percent of
the Debtor’s income benefits under the Chuck Rockwell Trust is not included within that
exemption and is available to the Debtor’s Chapter 7 estate.2
The Debtor’s Conditional Right To Use Real Property Under the Chuck Rockwell Trust
As described above, the Chuck Rockwell Trust gives the Debtor a conditional right to use
2 The Trustee also argues that under CPLR Section 5205(c)(4), a creditor with an unpaid support
obligation may collect on that obligation from trust assets that would otherwise be beyond the
reach of judgment creditors under CPLR Section 5205(c)(1). Trustee’s Response ¶ 10 n.1. He
also argues that he may step into the shoes of Rita Hilsen, as a creditor with an unpaid support
obligation. Id. The rights of a trustee under Section 544 of the Bankruptcy Code are broad, and
encompass those of a judgment lien creditor or a bona fide purchaser, but they do not permit the
Trustee to step into the shoes of a creditor with an unpaid support obligation. See, e.g., 11
U.S.C. § 544(a)(1), (a)(3).
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real property owned by the trust. Specifically, the trust provides that the trustees may, but are
not required to, “permit any permissible income beneficiary . . . to use any real property owned
by the trust, free of rent or other charges.” Docket No. 71, Exh. A (Trust Agreement) ¶ FIFTH.
See p. 3, supra. The Chuck Rockwell Trust does not give the Debtor the right to transfer or
alienate his conditional right to use the real property.
The Trustee argues that the Debtor’s conditional right to use real property owned by the
Chuck Rockwell Trust amounts to a life estate in that property, and notes that the Debtor’s
Schedule A lists a “‘life estate (left to Debtor in Mother’s Estate)’ in 183 Acres in Sullivan
County, New York plus 20 acres adjoining with house paid for by Nina Hilsen to Packles Trust.”
Trustee’s Response ¶ 1. The Trustee notes that the Debtor did not amend his Schedule A, so
“[n]o exemption is claimed in the life estate which, as listed by the Debtor, derives from the
[Rockwell] Trust.” Trustee’s Obj. ¶ 8.
The Trustee also argues that the Debtor’s conditional right to use this real property, taken
together with his conditional right to veto a sale of the property, establishes that the Debtor “has
control over the res of the trust and that this is not a spendthrift trust.” Trustee’s Response ¶ 7.
See Trustee’s Response ¶ 6. And the Trustee adds that under the Settlement Agreement, he
transferred his rights in the Chuck Rockwell Trust to the defendants in the Adversary
Proceeding, so that the Debtor’s claimed exemptions in the transferred rights is prejudicial to
those defendants. Trustee’s Obj. ¶ 7.
As noted above, the Margolis Objectors argue that the Debtor may not claim an
exemption in any rights in the Chuck Rockwell Trust because the terms of the trust do not
provide the Debtor with any pecuniary interest in those rights, and because under the Settlement
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Agreement, those rights were “terminated and/or conveyed” to Dr. Margolis. Margolis
Objection ¶¶ 6-7. The Margolis Objectors also argue that the Debtor’s claimed exemption
should be barred by the doctrine of judicial estoppel. Margolis Objection ¶¶ 9-10, 12-13;
Margolis Supp. Objection ¶ 15. See pp. 19-24, infra.
The Debtor argues that under Paragraph FIFTH of the Chuck Rockwell Trust, he has a
conditional right to use real property owned by the trust, but does not have a life estate in that
property. Supp. Affirm. in Opp. ¶¶ 10, 11. A life estate, he argues, is more than a “right to
occupy,” which is personal in nature and nontransferable. Supp. Affirm. in Opp. ¶¶ 12-13. “At
best,” the Debtor argues, he has “a conditional right of occupancy, which appears to be solely in
the discretion of the Trustees. . . . As such, it cannot be transferred by the Debtor, and thus
cannot become property of the Debtor’s estate under 11 U.S.C. §541.” Supp. Affirm. in Opp. ¶¶
16, 18.
“The law is clear that a life estate and a right to occupancy are not the same. . . . A life
estate is more than a right to occupancy.” In re Estate of Strohe, 2004 WL 2903616, at *2 (N.Y.
Sur. Ct. Nassau County 2004) (citations omitted). A life estate includes a full bundle of rights,
including alienability, and it is property of the estate even if it is contingent. 5 COLLIER ON
BANKRUPTCY ¶ 541.05[1] (15th ed. rev. 2007) (“Under the Code, the life estate becomes
property of the estate even if the right was contingent and not vested as of the date of the
commencement of the case. There is no exception in section 541 excluding contingent property
interests.”).
The granting of a life estate may be indicated by the particular words used in a trust.
“Traditionally, the ‘descriptive words denoting a life tenancy are “use and occupation”’” In re
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Estate of Sauer, 194 Misc. 2d 634, 636, 753 N.Y.S.2d 318, 320 (N.Y. Sur. Ct. Nassau County
2002) (citations omitted). See also Rizzo v. Mataranglo, 16 Misc. 2d 20, 21, 135 N.Y.S.2d 92,
93 (N.Y. City Mun. Ct. 1953) (the absence of the words “use and occupation” precluded the
granting of a life estate).
The granting of a life estate may also indicated by the conveyance of the full bundle of
rights associated with the “use and occupation” of the real property. Courts have found that
these rights include the right to exclude others from possession, the right to lease and collect
rents, and under certain circumstances, the right to force a sale of the real property, as well as the
responsibility for the maintenance of the real property. See Estate of Abouchar, 2006 N.Y. Misc.
LEXIS 6366 at *3 (N.Y. Sur. Ct. Suffolk County 2006); In re Estate of Strohe, 2004 WL
2903616, at *2; In re Estate of Sauer, 194 Misc. 2d at 636.
Finally, while a life estate is a property right, a conditional right of occupancy is more
closely akin to a personal right rather than a property right. As the Surrogate’s Court found, “the
distinction is critical since a right of occupancy is a personal privilege only and does not carry
with it the added rights and responsibilities of a life tenancy.” In re Estate of Strohe, 2004 WL
2903616, at *2 (citations omitted). Such a personal right, unlike a full property right, is
generally not transferable. See Jetton v. University of the South, 208 U.S. 489, 500 (1908) (a
tax-exempt university may not transfer its tax-exempt status to its lessee); In re Little & Ives Co.,
262 F. Supp. 719, 722 (S.D.N.Y. 1966) (a trustee may not transfer the debtor’s contract right to
use copyrighted material); In re McCourt, 12 B.R. 587, 590 (Bankr. S.D.N.Y. 1981) (a trustee
may not exercise the debtor’s personal right of election to take his share of his deceased spouse’s
estate); In re Brand, 251 B.R. 912, 915-16 (Bankr. S.D. Fla. 2000) (unexercised personal rights,
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unlike property rights, are not property of the estate).
Here, the record shows that Paragraph FIFTH of the Chuck Rockwell Trust provides the
Debtor with a conditional right to use any real property owned by the trust. Docket No. 71, Exh.
A (Trust Agreement) ¶ FIFTH. The record also shows that as with the Debtor’s conditional
income benefits, the Chuck Rockwell Trust does not provide the Debtor with the power to
transfer this right. Id.
The record further shows that the Debtor’s conditional right to use any real property
owned by the trust amounts to less than the full bundle of rights in property that accompanies a
life estate. Those rights include alienability, the right to exclude others from possession, the
right to lease and collect rents, the right to force a sale of the property under certain
circumstances, and the responsibility for the maintenance of the property. See pp. 14-15, supra.
Nor does the Chuck Rockwell Trust use the terms “use and occupation” that are commonly
associated with a life estate.
For these reasons, and based on the entire record, the Objecting Parties have not shown
that the Debtor’s asserted exemption in his conditional right to use any real property owned by
the Chuck Rockwell Trust is not properly claimed.
The Debtor’s Conditional Right To Veto a Sale of Real Property Owned by the Chuck Rockwell
Trust
As described above, the Chuck Rockwell Trust gives the Debtor a conditional right to
veto a sale of the real property owned by the trust. Specifically, the trust provides that “at any
time that [Dr. Margolis] shall not be acting as a trustee hereunder, the Trustees shall not sell any
real property owned by the trust . . . without the prior written consent of Jesse Morton Hilsen, if
he is then living and not under a disability.” Docket No. 71, Exh. A (Trust Agreement) ¶ FIFTH.
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The Trustee argues that the Debtor’s right to veto a sale of the trust’s real property
provides the Debtor with “control over the res of the trust” and therefore is property of the estate.
Trustee’s Response ¶ 7. The Trustee argues that the provision granting the Debtor a conditional
veto over the sale of trust property shows that “the Trust Agreement was created for the benefit
of the Debtor and, specifically, to ensure the Debtor has control over the ownership of the
property, in the event that Dr. Margolis no longer acts as a trustee.” Trustee’s Response ¶ 6.
And the Margolis Objectors argue that the Debtor may not claim an exemption in any
rights in the Chuck Rockwell Trust because the trust does not provide him with any pecuniary
interest in those rights, and because they are “terminated and/or conveyed” to them in the
Settlement Agreement. Margolis Objection ¶¶ 6, 7. The Margolis Objectors also argue that the
Debtor’s claimed exemption should be barred by the doctrine of judicial estoppel. Margolis
Objection ¶¶ 9-10, 12-13; Margolis Supp. Objection ¶ 15. See pp. 19-24, infra.
The Debtor argues that his conditional right to veto a sale of real property owned by the
Chuck Rockwell Trust constitutes a power, and since powers are distinct from property rights
under common law, they are not property of the estate. Supp. Affirm. in Opp. ¶¶ 10, 20-22. The
Debtor acknowledges that “general powers of appointment, presently exercisable . . . sometimes
called Beneficial Powers” may be property of the estate, but that powers of appointment that are
subject to a condition that has not occurred are not property of the estate. Supp. Affirm. in Opp.
¶¶ 23-25. The Debtor notes that the condition in Paragraph FIFTH, that Dr. Margolis is not
acting as a trustee, has yet to occur. Supp. Affirm. in Opp. ¶ 27.
And the Debtor notes that while a “beneficial power” may be property of the estate, a
“power in trust” – that is, a power that benefits persons other than the grantor of the power – is
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not property of the estate. Supp. Affirm. in Opp. ¶ 30. The Debtor asserts that because his
power in Paragraph FIFTH benefits not only him but also the other trust beneficiary, it is a
“power in trust.” Supp. Affirm. in Opp. ¶ 31.
Powers with respect to property are distinct from rights in the property itself. EPTL
Secction 10-2.1 defines a power as “an authority to do any act in relation to property.” N.Y.
EST . POWERS & TRUSTS § 10-2.1. As the Surrogate’s Court found, “[s]eparation of a power over
property from title or interest therein is well established in our law.” In re Estate of Hart, 177
Misc. 183, 184, 30 N.Y.S.2d 147, 149 (N.Y. Sur. Ct. N.Y. County 1941). A power that is
personal in nature may be exercised only by its holder. For these reasons, unless some other
provision of law applies, such a power is not property of a bankruptcy estate.
A general power of appointment that is presently exercisable, by contrast, may be
reached by creditors and be property of the estate. N.Y. EST . POWERS & TRUSTS § 10-7.2.
Under EPTL Section 10-3.2(b), “[a] power of appointment is general to the extent that it is
exercisable wholly in favor of the donee, his estate, his creditors or the creditors of his estate.”
N.Y. EST . POWERS & TRUSTS § 10-3.2(b). At the same time, EPTL Section 10-3.3(d) limits
powers of appointment by declaring them “postponed” where they are not presently exercisable:
“A power of appointment is postponed if it is exercisable by the donee only after the expiration
of a stated time or after the occurrence or non-occurrence of a specified event.” N.Y. EST .
POWERS & TRUSTS § 10-3.3(d).
Here, the record shows that the Debtor’s conditional right to veto a sale of real property
owned by the Chuck Rockwell Trust is a power with respect to that real property that is not
presently exercisable. The record also shows that the Chuck Rockwell Trust does not provide
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the Debtor with a presently exercisable power of appointment, because the Debtor’s rights are
“postponed” under EPTL Section 10-3.3(d). As a consequence, the Debtor’s conditional right to
veto a sale of trust property may not presently be reached by creditors.
For these reasons, and based on the entire record, the Objecting Parties have not shown
that the Debtor’s asserted exemption in his conditional right to veto the sale of any real property
owned by the Chuck Rockwell Trust is not properly claimed. For the same reasons, and based
on the entire record, the Objecting Parties have not shown that the Debtor’s conditional right to
veto the sale of any real property owned by the Chuck Rockwell Trust, taken together with his
other rights with respect to that property, give him control that is presently exercisable over the
res of the trust.
Whether the Debtor Is Precluded from Claiming an Exemption in His Rights Under the Chuck
Rockwell Trust by the Doctrine of Judicial Estoppel
The Trustee argues that the Debtor should be estopped from claiming an exemption in his
rights under the Chuck Rockwell Trust because he did not list an interest in the trust in his
original schedules, and because he did not disclose that interest in the financial affidavit that he
filed, under penalty of perjury, in the criminal case. Trustee’s Response ¶ 11. The Trustee
asserts that “[t]he timing of the Debtor’s claim to an exemption raises the question of whether
the Debtor has claimed the exemption in bad faith.” Trustee’s Response ¶ 12.
The Margolis Objectors argue that the Debtor should be precluded by the doctrine of
judicial estoppel from asserting an exemption in his rights under the Chuck Rockwell Trust
because he omitted these assets in his original schedules, which he swore were true and correct
under penalty of perjury, and only first listed them in his Amended Schedules. Margolis
Objection ¶¶ 2-3, 12. See Docket No. 12 (Amended Schedule B). They assert that the Debtor’s
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omission was intentional and in bad faith since the Debtor must have been aware of his asserted
interest in the Chuck Rockwell Trust when he commenced this bankruptcy case. Margolis
Objection ¶¶ 9-10.
The Margolis Objectors also argue that the Debtor should be judicially estopped from
claiming an exemption in his rights under the Chuck Rockwell Trust because he did not disclose
an interest in the Chuck Rockwell Trust in the financial affidavit that he filed in the criminal
case, United States v. Hilsen. Margolis Objection ¶¶ 4, 12; Margolis Supp. Objection ¶¶ 1-6.
They further argue that since the Debtor’s rights in the Chuck Rockwell Trust are part of the
consideration in the proposed settlement of the Adversary Proceeding, “the Debtor’s claim of
exemption at this late date is prejudicial” to them. Margolis Objection ¶ 6.
The Margolis Objectors urge that the doctrine must be invoked when a party contradicts a
statement made under oath and adopted by a previous tribunal, and argue that a final judgment is
not required for judicial estoppel to apply. Margolis Supp. Objection ¶¶ 9-13 (citing cases).
And in all events, they note that a judgment was entered in the criminal case. Margolis Supp.
Objection ¶ 8 and Exh. E (Judgment in a Criminal Case).
The Debtor argues that a judgment is required for judicial estoppel to apply. Affirm. in
Opp. ¶ 24. The doctrine of judicial estoppel, he argues, applies only “‘where a party to an action
has secured a judgment in his or her favor by adopting a certain position and then has sought to
assume a contrary position in another action simply because his [or her] interests have
changed.’” Id. (quoting Matter of One Beacon Ins. Co. v. Espinoza, 37 A.D.3d 607, 608, 830
N.Y.S.2d 287, 289 (N.Y. App. Div. 2d Dep’t 2007)).
The Debtor argues that the circumstances surrounding the filing of his original schedules
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are “indicative of his good faith attempt to honor his obligation of full disclosure.” Affirm. in
Opp. ¶ 20. The Debtor notes that he amended his Schedule B to include his interest in the Chuck
Rockwell Trust and states that he has never received a statement of the “nature, extent or amount
of the Trust res” from the trustees. Affirm. in Opp. ¶ 11. See Affirm. in Opp. ¶ 18, 22. He
states that “prior to reading the Trustee’s objections, it was unclear what the res of this Trust
consists of at present, or who are presently the Trustees of this Trust.” Affirm. in Opp. ¶ 9. The
Debtor states that any inconsistencies in these filings should be excused because he made several
attempts in his schedules to give notice of his trust interest and was incarcerated when he filed
his schedules. Affirm. in Opp. ¶¶ 18-20. Finally, the Debtor argues that Dr. Margolis, as a
trustee of the Chuck Rockwell Trust, knew of the Debtor’s interest in the trust and cannot claim
“surprise” at the Debtor’s assertion of that interest. Affirm in Opp. ¶ 21.
The Debtor also argues that the order directing appointment of counsel in the criminal
case was not a final judgment and that the Margolis Objectors “can point to no judgment
occasioned by the petition herein or the prior (allegedly) erroneous affidavit, save for the
appointed representation itself.” Affirm. in Opp. ¶ 25. See Supp. Affirm. in Opp. ¶ 34. The
Debtor notes that “the three types of benefits [claimed by the Debtor under the Chuck Rockwell
Trust] would not likely have swayed the District Court to rule other than it did on the counsel
motion before it” because each of the conditional benefits under the trust is either unlikely to
occur, or not property at all. Supp. Affirm. in Opp. ¶ 35. See Supp. Affirm. in Opp. ¶¶ 36-38.
As the Supreme Court has observed, “judicial estoppel ‘is an equitable doctrine invoked
by a court at its discretion . . . .’” New Hampshire v. Maine, 532 U.S. 742, 750 (2001) (quoting
Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir. 1990)). The purpose of judicial estoppel is “‘to
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protect the integrity of the judicial process,’ by ‘prohibiting parties from deliberately changing
positions according to the exigencies of the moment . . . .’” New Hampshire, 532 U.S. at 749-50
(quoting Edwards v. Aetna Life Ins. Co., 690 F.2d 595, 598 (6th Cir. 1982) and United States v.
McCaskey, 9 F.3d 368, 378 (5th Cir. 1993)). Judicial estoppel is not a mandatory doctrine, and
“‘the circumstances under which judicial estoppel may appropriately be invoked are probably
not reducible to any general formulation of principle . . . .’” New Hampshire, 532 U.S. at 750
(quoting Allen v. Zurich Ins. Co., 667 F.2d 1162, 1166 (4th Cir. 1982)).
The Supreme Court identified several factors that courts should consider in determining
whether judicial estoppel should apply:
First, a party’s later position must be “clearly inconsistent” with its earlier
position. Second, courts regularly inquire whether the party has succeeded in
persuading a court to accept that party’s earlier position, so that judicial
acceptance of an inconsistent position in a later proceeding would create “the
perception that either the first or the second court was misled.” Absent success in
a prior proceeding, a party’s later inconsistent position introduces no “risk of
inconsistent court determinations,” and thus poses little threat to judicial integrity.
A third consideration is whether the party seeking to assert an inconsistent
position would derive an unfair advantage or impose an unfair detriment on the
opposing party if not estopped.
In enumerating these factors, we do not establish inflexible prerequisites or an
exhaustive formula for determining the applicability of judicial estoppel.
Additional considerations may inform the doctrine’s application in specific
factual contexts.
New Hampshire, 532 U.S. at 750-51 (citations omitted). The Second Circuit has recognized that
“judicial estoppel does not apply when the first statement resulted from ‘a good faith mistake or
an unintentional error.’” Mitchell v. Washingtonville Cent. School Dist., 190 F.3d 1, 6 n.2 (2d
Cir. 1999) (citation omitted).
It also seems clear that these considerations must be viewed in the context of whether the
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earlier position was asserted with the benefit of advice of counsel. Where the position giving
rise to the claim of judicial estoppel was advanced by an unrepresented person, some additional
restraint may be appropriate before the judicial estoppel is invoked. See Lerman v. Board of
Elections, 232 F.3d 135, 139-40 (2d Cir. 2000).
Here, the record shows that the Debtor did not fully disclose his interest in the Chuck
Rockwell Trust in his financial affidavit in the criminal case and in his original schedules filed in
this bankruptcy case. But the record does not show that the Debtor’s statements in his financial
affidavit were adopted by the court in connection with the entry of the judgment in the criminal
case. And even if those statements may be deemed to have been adopted by the court or
reflected in the judgment, the record suggests that the Debtor’s interest in the Chuck Rockwell
Trust was not of tangible value to him, because his benefits under that trust were conditional or
unrealized. That is, the record does not establish that a different result would have been obtained
in the criminal case if the Debtor had identified the interests in the Chuck Rockwell Trust that he
now seeks to exempt here. This is so regardless of whether judicial estoppel requires the entry of
a judgment, or whether a judgment was entered based on the Debtor’s financial affidavit.
The record also shows that in this bankruptcy case, the Debtor amended his schedules to
identify and claim as exempt his interests in the Chuck Rockwell Trust shortly within a few
months after he retained counsel to represent him. That amendment was permitted under
Bankruptcy Rule 1009(a), and this Court has not entered a judgment based on those schedules.
Looking to the considerations identified by the Supreme Court in New Hampshire, this
situation does not appear to be one where a party asserted a “‘clearly inconsistent’” position in a
later case after:
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[the party] succeeded in persuading a court to accept that party’s earlier position,
so that judicial acceptance of [the later position] would create ‘the perception that
either the first or the second court was misled,’ . . . . [and where the Debtor]
would derive an unfair advantage or impose an unfair detriment on the opposing
party if not estopped.
New Hampshire, 532 U.S. at 750-51 (quoting Edwards, 690 F.2d at 598). 3
Finally, the Debtor prepared his original schedules while incarcerated and without the
benefit of assistance of counsel. As the Second Circuit has stated, “[s]ince most pro se plaintiffs
lack familiarity with the formalities of pleading requirements, we must construe pro se
complaints liberally, applying a more flexible standard to evaluate their sufficiency than we
would when reviewing a complaint submitted by counsel.” Lerman, 232 F.3d at 139-40. See
Haines v. Kerner, 404 U.S. 519, 520-21 (1972).
For these reasons, and based on the entire record, the Objecting Parties have not shown
that the Debtor is barred by the doctrine of judicial estoppel from asserting an exemption in his
rights under the Chuck Rockwell Trust.
Conclusion
Based on the entire record, and for the reasons set forth on the record and stated herein,
the objections to certain exemptions claimed by the Debtor in benefits from the Chuck Rockwell
Trust are sustained in part, to the extent that the Debtor’s exemption in future income benefits
under the Chuck Rockwell Trust does not apply to ten percent of such income benefits that he
receives. The objections are overruled in all other respects. 	An order in accordance with this
3 It bears note that Dr. Margolis, one of the Margolis Objectors, appears to be among the trustees
who determines whether the Debtor shall receive any benefit in respect of his conditional right to
income and conditional right to use property owned by the Chuck Rockwell Trust. And so long
as Dr. Margolis is living, the Debtor’s conditional right to veto the sale of real property owned
by the trust may not be exercised. Docket No. 71, Exh. A (Trust Agreement) ¶ FIRST, ¶ FIFTH.
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Memorandum Decision will be entered simultaneously herewith.
Dated: Brooklyn, New York
March 17, 2009
___s/Elizabeth S. Stong_____________________
ELIZABETH S. STONG
UNITED STATES BANKRUPTCY JUDGE
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