Opinion ID: 202863
Heading Depth: 2
Heading Rank: 1

Heading: Factual and Early Procedural Background

Text: In 1984, Stephen Chew and his mother, Eleanor, orally agreed that Eleanor would provide Chew and his wife, Christine, approximately $140,000 toward the construction of a residence on the understanding that Eleanor would live in an attached apartment and retain an interest in the property that would be distributed among all of her children upon its eventual disposition. Eleanor lived in the apartment until her death in 1998. The Chews sold the house for $625,000 in 2001; however, instead of distributing Eleanor's portion of the proceeds in accordance with the agreement, they used the entire amount to purchase another property. This appeal concerns the efforts of Chew's siblings [1]  to whom we shall refer collectively as the creditors  to recoup their proportionate share of the sale proceeds. Three months after the sale, in November 2001, the creditors filed suit in Massachusetts Superior Court. Although the parties' submissions before the state court are not in the record before us and the state court's opinion is not entirely clear on some points, it appears that the creditors brought claims on Eleanor's behalf and in their own capacities as third party beneficiaries to the agreement between Eleanor and Chew alleging a variety of wrongs done to Eleanor. These included breach of contract, misrepresentation and deceit, unjust enrichment, conversion and breach of fiduciary duty. They sought a one-third interest in the property, based on the terms of the oral agreement; the state court calculated the value of this interest as approximately $206,250. Ruling on the Chews' motion to dismiss under Massachusetts Rule of Civil Procedure 12(b)(6), the state court concluded that Eleanor's dissatisfied children were not permitted to bring a claim for breach of contract on her behalf because, while her contractual rights endure[] beyond her life, they must be enforced by her estate. However, it found that where the children are suing in their own capacities as third party beneficiaries, they had standing to continue with the contract claim on that basis. It is not clear from the court's decision whether Eleanor's children brought the tort-based claims only on her behalf or also in their capacity as third party beneficiaries. In any event, the court dismissed the remaining claims, ruling that the misrepresentation and conversion claims do not survive Eleanor's death. It also dismissed the claims for unjust enrichment and breach of fiduciary duty for lack of standing, finding that the siblings could neither bring these claims on Eleanor's behalf nor under a third party beneficiary theory. After further proceedings, the court issued a judgment against Chew on the contract claim and dismissed the claims against Christine Chew. On appeal, the Massachusetts Appeals Court upheld the contract claim and reversed the dismissal of the claims against Christine Chew. Based on this judgment, the creditors obtained a lien against the Chews' home, thus creating a legally enforceable claim against the Chews' equity in the house. Before the Superior Court's ruling, in October 2003, Christine Chew filed a declaration of homestead with the Massachusetts Registry of Deeds. Under Massachusetts law, an estate of homestead valued at up to $500,000 shall be exempt from the laws of conveyance, descent, devise, attachment, levy on execution and sale for payment of debts or legacies, Mass. Gen. Laws ch. 188, § 1. In October 2005  after the Superior Court's ruling, but before the Massachusetts Appeals Court's decision  Stephen Chew filed for Chapter 7 bankruptcy protection. Based on his wife's earlier declaration, Chew listed his homestead on schedule C of his bankruptcy petition, which lists property claimed as exempt. [2] Under 11 U.S.C. § 522(b), a debtor may exempt from property of the bankruptcy estate a homestead recognized as exempt under State law. [3] Thus, by claiming a homestead exemption under Massachusetts law, Chew sought to remove the property from the bankruptcy estate and thereby protect it from distribution to his creditors in the bankruptcy process. In January 2006, the creditors filed an objection in bankruptcy court to Chew's homestead exemption, arguing that, while Chew held legal title to his home, the portion of the equity financed by their mother should be held in trust for them as its true equitable owners. They relied on Massachusetts law allowing a constructive trust as an equitable remedy in the absence of any intention of the parties to create a trust, in order to avoid the unjust enrichment of one party at the expense of the other where the legal title to the property was obtained by fraud or in violation of a fiduciary relation. . . . Mass. Wholesalers of Malt Beverages, Inc. v. Att'y Gen., 409 Mass. 336, 567 N.E.2d 183, 186 (1991) (quoting Barry v. Covich, 332 Mass. 338, 124 N.E.2d 921, 924 (1955) (internal quotation marks omitted)). Asserting that property held in trust is not eligible for the homestead exemption, see Ass't Recorder of the N. Registry Dist. v. Spinelli, 38 Mass.App.Ct. 655, 651 N.E.2d 411, 413 (1995) ([T]he homestead statute does not provide for the application of the statute to property held in trust.), the creditors urged the bankruptcy court to deny the exemption. [4] If the creditors had been successful in establishing their right to a constructive trust on the property, [5] Chew would not have been able to exempt their equity in the home from the bankruptcy estate, and the creditors, subject to the automatic stay provisions of the bankruptcy code, 11 U.S.C. § 362, could seek to enforce their lien against the Chews' home in the state courts. However, if Chew succeeded in claiming the exemption, Chew could then avoid the creditors' judicial lien in bankruptcy under 11 U.S.C. § 522(f)(1)(A), which provides that a debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption . . . if such lien is a judicial lien. Thus, § 522(f) permits a debtor to wipe out the interest that a creditor has in particular property if the debtor's interest in that property would be exempt but for the existence of the creditor's lien or interest. 4-522 Collier on Bankruptcy P 522.11[1](15th ed. rev.2006). In short, the prize in this dispute is the judicial lien on the Chews' home  whether it will survive as security for the indebtedness incurred by Chew as a result of the state court judgment against him, or whether it will be avoided by the bankruptcy court.