The estate of Marcia Israel -- who created Judy's clothing stores -- is suing Flagg for allegedly obtaining a bunch of extremely expensive paintings and Jade sculptures that were supposed to be reserved for the Marcia Israel Foundation.
Flagg allegedly got hold of the goods after they mysteriously disappeared from Israel's L.A. mansion -- when Israel's husband temporarily was staying there in 2004 after her death, according to the docs.
A private investigator claims to have snapped photos of the missing goods through the window of Flagg's home.
Here's the kicker: Flagg's lawyers claim Israel's estate has no case against him now because the statute of limitations has run out.
Flagg is being sued for damages for the alleged "wrongful taking of personal property."