Jonathan Bilyk Jun. 8, 2016, 3:32pm

A Chicago law firm has brought a federal class action lawsuit against Rabobank, alleging the U.S. wing of the Dutch banking group has violated federal law by unfairly cornered the market on bankruptcy banking services through an alliance with a software company marketing its support services to U.S. bankruptcy trustees, a tactic the lawyers claimed allowed the bank to charge fees which effectively created a “negative interest rate” on deposited bankruptcy funds.

On June 8, McGarry & McGarry LLC, of Chicago, filed suit in Chicago federal court against the Roseville, Calif.-based Rabobank N.A.

According to the lawsuit, Rabobank has become the largest player in the market for so-called “bankruptcy banking services, dominating more than half of the market in which banks compete to serve as the depository for estate funds that come under the control of U.S. bankruptcy trustees during federal bankruptcy proceedings.

However, the lawsuit said at least some of that market share has come as the result of actions Rabobank took to land an exclusive deal with a software company, identified in the complaint as Bankruptcy Management Solutions (BMS), which has designed and marketed products bankruptcy trustees use to help “in meeting their reporting and other obligations” in managing the estates under Chatper 7 bankruptcy protection.

The complaint said, while no rule requires bankruptcy trustees to use such software, “the vast majority of bankruptcy trustees” use the services.

The complaint said BMS has also grown to hold a “more than 50 percent share of the national market for support services” for bankruptcy trustees.

The lawsuit alleged that, since 2012, Rabobank and BMS have partnered under a confidential contract to require all bankruptcy trustees using BMS software to help manage an estate to deposit “all, or substantially all” of that estate’s funds into Rabobank accounts, and then allow Rabobank to “automatically withdraw … a monthly fee based upon a percentage of the funds” held in the Rabobank bankruptcy banking accounts for that estate.

The complaint alleged Rabobank also agreed to pay BMS a portion of those monthly fees.

McGarry said, as a result of this arrangement, Rabobank is able to hold the funds without paying any interest, and even charge fees which can create a “negative interest rate.”

McGarry said it discovered the fees when it assisted a corporate client in a bankruptcy proceeding in 2014, when it learned Rabobank had deducted a fee of $514 from the estate under bankruptcy protection under an arrangement with the bankruptcy trustee, without having sought explicit approval of the fee deal from the bankruptcy judge presiding over the case.

McGarry alleged Rabobank’s deals violated the federal Bank Company Holding Act.

The lawsuit asked the court to certify a class of additional plaintiffs, including anyone who was either paid through, or was entitled to be paid through, a bankrupt estate from which Rabobank deducted such fees.

McGarry said it believed the class could include “at least hundreds of persons.”

McGarry’s complaint has requested unspecified trebled compensatory damages,  plus attorney fees.

The McGarry firm is represented in the action by attorney Marianne C. Holzhall, an attorney at the McGarry firm, as well as by attorneys with the firm of Dunnegan & Scileppi, of New York.

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Organizations in this Story

McGarry and McGarry LLC
120 North LA Salle Street
Chicago, IL 60602

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