648 F.Supp.3d 1075
D. Minn.2023Background:
- Plaintiff Henry Stursberg, principal owner of a mortgage brokerage, had a business dispute with former partner Ken Titcomb over two Minnesota mobile‑home parks owned via separate entities.
- Stursberg retained Morrison Sund PLLC (attorney Matthew Burton) to represent him in Minnesota litigation; the relationship ended after substantial fees and alleged poor performance.
- Morrison Sund filed an involuntary Chapter 7 petition against Stursberg in the U.S. Bankruptcy Court (D. Minn.) on January 8, 2020; the petition was dismissed at a January 15, 2020 hearing under 11 U.S.C. § 305(a)(1) (abstention/dismissal).
- Stursberg sought § 303(i) relief in bankruptcy but his fee motion was denied as untimely and the bankruptcy judge stated dismissals under § 305 preclude § 303(i) recovery (per that court).
- Stursberg sued Morrison Sund (and later attempted to add Burton) in federal court in E.D. Pa.; the action was transferred to D. Minn. After transfer Stursberg filed a purported Amended Complaint.
- The District of Minnesota held the Amended Complaint was not authorized (Plaintiff had exhausted his Rule 15(a)(1) right pre‑transfer) and dismissed the original state tort claims as preempted by 11 U.S.C. § 303(i); dismissal was with prejudice.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether post‑transfer Amended Complaint is operative | Stursberg: Rule 15(a) allows amendment as of right because D. Minn. defendants filed renewed 12(b) motion | Morrison Sund: Plaintiff exhausted his single right to amend while case was in E.D. Pa.; transfer does not reset that right | Amended Complaint not operative; Plaintiff exhausted Rule 15(a)(1) pre‑transfer |
| Whether the bankruptcy court’s §305 dismissal precludes relitigation (claim preclusion) | Stursberg: prior dismissal should bar some defenses | Morrison Sund: prior bankruptcy judgment precludes relitigation of same claims | Dismissal under §305 is an abstention, not a judgment on the merits; claim preclusion does not apply |
| Whether state tort claims are preempted by 11 U.S.C. §303(i) | Stursberg: Third Circuit precedent (Paradise Hotel line) permits state remedies; §303(i) not exclusive | Morrison Sund: §303(i) and Code’s comprehensive scheme for involuntary petitions occupy/conflict with state remedies; bankruptcy courts must adjudicate §303(i) claims | Court: state claims conflict‑preempted by §303(i); allowing state jury trials would frustrate Congress’s remedial scheme |
| Statute of limitations for IIED claim against Burton (if permitted) | Stursberg: asserted IIED against Burton in Amended Complaint | Burton: barred by limitations and procedural defects | Court did not reach merits because Amended Complaint was not operative; claim dismissed |
Key Cases Cited
- New Hampshire v. Maine, 532 U.S. 742 (2001) (federal claim‑preclusion standard)
- Taylor v. Sturgell, 553 U.S. 880 (2008) (preclusive effect of federal judgments determined by federal common law)
- Beneficial Nat’l Bank v. Anderson, 539 U.S. 1 (2003) (complete preemption can create federal‑question jurisdiction)
- Van Dusen v. Barrack, 376 U.S. 612 (1964) (transfer under §1404(a) does not change procedural posture of the case)
- In re Miles, 430 F.3d 1083 (9th Cir. 2005) (§303(i) can completely preempt state tort claims based on involuntary petition filings)
- Paradise Hotel Corp. v. Bank of Nova Scotia, 842 F.2d 47 (3d Cir. 1988) (declined to find §303(i) exclusive in particular conversion‑risk facts)
- In re Reid, 854 F.2d 156 (7th Cir. 1988) (discussing §303(i) impact on equitable redistribution of fees)