Morrison Informatics, Inc. v. Members 1st Federal Credit Union, 139 A.3d 1241

Background

Morrison Informatics, Inc. filed Chapter 7 in Sept. 2009; a Chapter 7 trustee (Haller) was appointed.
In May 2011 the Company and two shareholders filed a praecipe for writ of summons in Cumberland County against Members 1st Federal Credit Union, Zampelli, and Douglass alleging fraud, conversion, conspiracy, negligence (claims arose 2005–2009).
The Credit Union objected that upon bankruptcy the Company’s causes of action became part of the estate and only the trustee could prosecute them; it also argued the statute of limitations had run for adding a new plaintiff.
The Company/Shareholders filed an amended complaint stating the Trustee was pursuing the action and sought substitution of the Trustee as plaintiff; the trial court denied the substitution and dismissed for lack of capacity/standing.
The Superior Court reversed, adopting a relation-back approach used in other jurisdictions and remanded to allow substitution where the trustee is the real party in interest and substitution causes no prejudice.
The Pennsylvania Supreme Court affirmed the Superior Court: it held a bankruptcy trustee may be substituted for the debtor under a relation-back doctrine when (1) the trustee acts with reasonable diligence to seek substitution and (2) substitution does not prejudice the defendant.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether a bankruptcy trustee can be substituted as plaintiff for a debtor who initiated suit after the debtor filed Chapter 7 and after the limitations period expired for adding a new party	Trustee stands in debtor's shoes; substitution merely recognizes the real party in interest and does not add new claims or prejudice defendant	Original filing by debtor was a nullity because debtor lacked capacity; substitution after the statute of limitations is impermissible because it adds a new party	Court permits substitution under relation-back where trustee acted with reasonable diligence and defendant is not prejudiced; statute of limitations not offended when action was timely commenced by debtor
Whether Pennsylvania procedural rules authorize substitution similar to Fed. R. Civ. P. 17(a)(3)	Pennsylvania Rules (esp. Pa.R.C.P. 1033) permit liberal amendment; no state rule forbids substitution	Precedent treats substitutions changing party capacity as introducing a new party and a new cause of action barred by limitations	Court finds state rules allow liberal amendment and, combined with federal bankruptcy policy, justify relation-back substitution in appropriate cases
Whether substitution here would constitute adding a new party (triggering limitations bar under Pa. precedent)	Trustee's rights are derivative of debtor’s; substitution does not introduce new party or new cause	Pennsylvania precedents (La Bar, Thompson, etc.) treat capacity/caption changes as new parties causing bar	Court declines a per se rule; rejects strict application of older precedents in this bankruptcy context and applies a case-specific relation-back test
Whether policy concerns (protecting creditors vs. protecting defendants from stale claims) tip in favor of substitution	Allowing substitution vindicates creditors’ interests and avoids forfeiture of estate assets	Defendants rely on statutes of limitations and stare decisis protecting finality and repose	Court balances interests: favors trustee substitution when no prejudice and trustee reasonably diligent; respects statute of limitations by requiring timely commencement by debtor

Key Cases Cited

In re Emoral, 740 F.3d 875 (3d Cir.) (federal law principle that causes of action become property of the bankruptcy estate)
United States v. Whiting Pools, 462 U.S. 198 (U.S. 1983) (bankruptcy estate includes causes of action that accrued pre-petition)
La Bar v. N.Y., Susquehanna & W. R.R. Co., 218 Pa. 261 (Pa. 1907) (capacity/caption change after limitations may introduce a new cause of action)
Thompson v. Peck, 320 Pa. 27 (Pa. 1935) (action against a party lacking capacity may be void ab initio)
Borough of Berwick v. Quandel Grp., Inc., 440 Pa. Super. 367 (Pa. Super. Ct. 1995) (illustrative Superior Court precedent discussing post-limitations additions of parties)
Miller v. Campbell, 164 Wash.2d 529 (Wash. 2008) (permitting trustee substitution with relation-back where claims unchanged and no prejudice)