In re Leitner
United States Bankruptcy Court for the District of Kansas
236 B.R. 420 (1999)
Gary Leitner embezzled roughly $1 million from Leo Wetherill's (defendant) company over six years, using some funds to buy a home; after Wetherill discovered the fraud and sued in state court seeking a constructive trust on the home, Leitner eventually admitted the fraud and Wetherill submitted a proposed order imposing the trust, but before that order was signed, Leitner filed Chapter 7 bankruptcy, staying the state action. The bankruptcy trustee (plaintiff) then sought summary judgment declaring no constructive trust existed and that the home was part of Leitner's bankruptcy estate, while the state trial court, after the stay lifted, entered judgment declaring the home subject to a constructive trust for Wetherill's benefit.
Whether a constructive trust over property purchased with wrongfully obtained funds arises, for bankruptcy-estate purposes, at the time of the underlying wrongful transaction, or only once a state court has entered a final judgment declaring the trust before the bankruptcy filing.