Stursberg v. Morrison Sund PLLC

648 F.Supp.3d 1075

Henry STURSBERG, Plaintiff, v. MORRISON SUND PLLC and Matthew Burton, Defendants.

File No. 22-cv-00841 (ECT/ECW)

United States District Court, D. Minnesota

Signed January 3, 2023

Amy S. Conners and Michael A. Stephani, Best & Flanagan LLP, Minneapolis, MN, and Daniel S. Bernheim, Wilentz, Goldman & Spitzer, P.A., Philadelphia, PA, for Plaintiff Henry Stursberg.

Eric G. Nasstrom and Ryan R. Dreyer, Morrison Sund PLLC, Minnetonka, MN, for Defendants Morrison Sund PLLC and Matthew Burton.

OPINION AND ORDER

Eric C. Tostrud, United States District Judge

In this diversity case, Plaintiff Henry Stursberg alleges that Defendant Morrison Sund, a law firm, abused the process available in the United States Bankruptcy Courts by filing a "wrongful and knowingly false" involuntary Chapter 7 case against him under 11 U.S.C. § 303. Stursberg asserts state common-law tort claims and seeks compensatory damages in excess of $1 million and punitive damages.

Morrison Sund has filed a motion to dismiss Stursberg's original Complaint, ECF No. 24, and a subsequent motion to dismiss an Amended Complaint that Stursberg claims to have filed properly as a matter of course under Federal Rule of Civil Procedure 15, ECF No. 32. Morrison Sund's motion to dismiss the Amended Complaint will be granted because the pleading was not authorized. The motion to dismiss the original Complaint will be granted because a Bankruptcy Code provision, 11 U.S.C. § 303(i), preempts Stursberg's state claims.

I¹

The Parties. "Stursberg is the principal owner of a mortgage brokerage and financial consulting firm located in Philadelphia[,]" where he also lives. Compl. [ECF No. 1] ¶¶ 2, 7. The firm arranges financing for mobile-home parks throughout the United States. Id. ¶ 8. Morrison Sund is a law firm with its principal place of business in Minnetonka, Minnesota. Id. ¶ 3.

Stursberg and a former business partner have a falling out. This case's origins trace to a dispute between Stursberg and Ken Titcomb, a former client of Stursberg's firm.² In 2013, Stursberg and Titcomb together purchased two mobile-home parks in Minnesota, one in Big Lake and one in Princeton. Id. ¶¶ 9-10. Stursberg and Titcomb each formed an entity to own the parks. Id. ¶ 11. Stursberg formed an entity called 1648 Properties, LLC, and it owned 49% of the parks. Id. Titcomb formed an entity called Amicorp, Inc., and it owned 51% of the parks. Id. Titcomb managed the parks' day-to-day operations. Id. ¶ 15. "By 2017," Stursberg determined that Titcomb's parks-related operational and business activities had become "intolerable." Id. ¶ 17. In May 2018, after attempts at selling the parks and mediating their disputes did not succeed, see id. ¶¶ 17-20, Stursberg's entity, 1648 Properties, brought suit against Titcomb and his entity, Amicorp, in Minnesota state district court, id. ¶¶ 21-22. The Complaint calls this case the "Minnesota Action," id. ¶ 22, and that convention will be followed here.

Stursberg and 1648 Properties retain Morrison Sund to represent their interests in the Minnesota Action, but the relationship terminates after roughly eight months. Stursberg and 1648 Properties retained Morrison Sund on March 18, 2019. Id. ¶ 23. Morrison Sund principal Matthew Burton was the primary attorney responsible for the matter. Id. Morrison Sund was the third law firm Stursberg retained in the case. See id., Ex. B [ECF No. 1-6] at 9 (transcript p. 26) (identifying first two firms).³ "From March 2019 until November 2019, Morrison Sund ran up legal fees of approximately $300,000 and accomplished basically nothing." Id. ¶ 24. Stursberg identifies several tasks the law firm failed to complete. Id. ¶¶ 24-25. And Stursberg alleges that the firm "wasted time with sanctions motions and other unproductive activities." Id. ¶ 24. In November 2019, Stursberg notified Morrison Sund "of the apparent necessity to change counsel." Id. ¶ 26. "Rather than wait for replacement counsel to enter their appearance, Morrison Sund withdrew from the case and began issuing threatening emails to Stursberg advising him that the firm's fees as of November 27, 2019[,] were $170,346.82 and that another $30,351.50 was to be billed, for a total of $200,698.32." Id. "As of that date, 1648 Properties had already paid Morrison Sund $95,000.00." Id.

Morrison Sund files an involuntary Chapter 7 bankruptcy petition against Stursberg, and the Bankruptcy Court dismisses the petition. Morrison Sund filed the petition in the United States Bankruptcy Court for the District of Minnesota on January 8, 2020. Id., Ex. A at 2. The petition's filing followed additional communications between the firm and Stursberg regarding the firm's outstanding bills, with the firm threatening collection efforts and Stursberg insisting "that Morrison Sund cease issuing threats over collection of his invoices which appeared padded and for actions not authorized nor completely litigated." See id. ¶¶ 27-28. One week after the petition's filing, on January 15, 2020, Bankruptcy Judge Kathleen H. Sanberg held an expedited hearing. See id. Ex. B [ECF No. 1-6]. At that hearing, Judge Sanberg expressed concern that Morrison Sund had filed the petition, not in the interest of Stursberg's creditors generally, but instead as a "debt collection device," which she viewed as "a huge problem." Id. ¶ 32 and Ex. B at 9 (Tr. at 28). Judge Sanberg remarked: "[W]hen I look at this whole case, it - quite frankly, it smells bad." Id. (Tr. at 29). On Stursberg's request, and with Morrison Sund's agreement, Judge Sanberg dismissed the petition specifically under 11 U.S.C. § 305(a)(1) (entitled "Abstention"); Stursberg sought a § 305(a)(1) dismissal specifically because it did not require Stursberg to "notify all creditors as would otherwise be necessary for a dismissal under" a different section of the Bankruptcy Code, 11 U.S.C. § 303. Id. ¶ 31 and Ex. B at 10 (Tr. at 33), 11 (Tr. at 36-37). Judge Sanberg ordered this dismissal from the bench at the conclusion of the January 15 hearing. See id. Ex. B at 11 (Tr. at 36-37).

Stursberg sues Morrison Sund and Burton in the United States District Court for the Eastern District of Pennsylvania. Stursberg filed the case on March 26, 2020. See Stursberg v. Morrison Sund, PLLC, No. 20-cv-1635-KSM, 2020 WL 7319546, at *5 (E.D. Pa. Dec. 11, 2020), reconsideration denied, 2021 WL 288899 (E.D. Pa. Jan. 28, 2021). Stursberg asserted claims for abuse of process, wrongful use of civil proceedings, intentional infliction of emotional distress, intentional interference with existing and prospective contractual relations, breach of contract, and credit defamation. See id. at *1, *5. Morrison Sund moved to dismiss the case on four grounds. Three of these grounds—insufficient service of process, lack of personal jurisdiction, and improper venue—were essentially procedural. Id. at *1. One was substantive—Morrison Sund argued that the Bankruptcy Code preempted Stursberg's state-law claims. Id. In a thorough memorandum opinion, District Judge Karen Spencer Marston granted Morrison Sund's motion on all three procedural grounds. Judge Marston determined first that Stursberg had failed to show that the Morrison Sund receptionist who signed a certified-mail receipt for the summons and complaint was authorized to accept service. Id. at *5-6. Judge Marston next determined that the court lacked personal jurisdiction over Stursberg's claims for breach of contract, intentional infliction of emotional distress, contractual interference, and credit defamation. Id. at *12-15. Finally, Judge Marston determined that venue in that court was improper over Stursberg's abuse-of-process and wrongful-use-of-proceedings claims. Id. at *15-18.

While his case is pending in the Eastern District of Pennsylvania, Stursberg returns to the Bankruptcy Court in Minnesota with a motion seeking attorney fees and other relief. Stursberg filed the motion on May 18, 2020. ECF No. 6-1 at 282-84. In the motion, Stursberg sought to recover "his attorneys' fees and costs that were reasonably incurred by him in seeking the dismissal of the Involuntary Petition" filed by Morrison Sund, an order "reserving [his] right to file and pursue claims and remedies under 11 U.S.C. § 303(i)(2) or otherwise" and other unspecified relief that the court might have found "just and appropriate." Id. at 284. Judge Sanberg held a hearing on the motion on June 10, 2020. See ECF No. 6-1 at 6-67 (hearing transcript). Judge Sanberg denied the motion from the bench for two basic reasons. First, she determined that the motion was untimely under Fed. R. Bankr. P. 7054. That rule, as Judge Sanberg explained, requires that "a motion for fees and related nontaxable expenses must be filed no later than 14 days after entry of judgment[.]" ECF No. 6-1 at 57. Judge Sanberg explained:

Here the court entered judgment on January 15, 2020. Under the Federal Bankruptcy Rules and Rules of Civil Procedure, the deadline to file a motion for fees and costs expired on January 29, 2020. [Stursberg] did not file the instant motion until May 18, 2020, over 100 days after the time expired.

Id. at 59. Second, Judge Sanberg determined that "dismissals pursuant to [11 U.S.C. §] 305 preclude recovery under section 303(i)." Id. at 60. As support for this determination, Judge Sanberg cited the "plain language" of § 303(i) and decisions from bankruptcy courts within the Eighth Circuit holding that "damages under 303(i) are unavailable in a case dismissed under 305." Id. at 61. Judge Sanberg also observed that these decisions' "underlying rationale is sound." Id. She explained: "It would be inconsistent to decline to exercise jurisdiction and dismiss a case on the grounds that the parties' interests are best served by the court's noninvolvement but then consider a suit for damages stemming from the same procedure." Id.

Stursberg commences this case in the Eastern District of Pennsylvania, and that court transfers the case here. Stursberg...