CA1: constructive trusts in bankruptcy and claim preclusion

McGarry v. Chew, No. 06-2123.  Underlying this dispute is a bitter family inheritance dispute over a home that the decedent agreed with the debtor to build for her (during her life) and him: one sibling filed for bankruptcy, and his siblings (now called creditors) tried to stop him from claiming a homestead exemption, arguing that the decedent wanted all the siblings to share in that home.  The siblings first sued in state court, arguing that a contract with the mother had been breached.  While this action was pending the debtor filed a filed a declaration of homestead with the Massachusetts Registry of Deeds.  The state court ruled that only the estate could bring such an action on the decedent’s behalf, but they could bring contract claims on their behalf against the debtor-sibling.  Based on this judgment, the siblings obtained a lien.

Then, the bankruptcy petition was filed, and the debtor invoked the homestead exemption to prevent his siblings from getting the home.  The siblings argued that there was a constructive trust   So, you see the problem: if the homestead exemption is for real, then he can wipe out the lien under 11 U.S.C. § 522(f)(1)(A).  If the constructive trust survives bankruptcy, he can’t.  The Bankruptcy court asked (in a non-evidentiary hearing) whether the siblings had a full opportunity to litigate the constructive trust claim in state court, and found that it did.  The First agrees, and finds that the constructive trust claims are precluded