A Chicago law firm has struck out yet again in its attempt to press an antitrust action against a company specializing in developing bankruptcy case management software, as a federal judge declared McGarry & McGarry LLC simply didn’t have the standing needed to press its claims against Irvine, Calif.-based Bankruptcy Management Solutions Inc.

On June 16, U.S. District Judge Joan H. Lefkow dismissed with prejudice the McGarry’s firm lawsuit against BMS, which alleged the company had masterminded a conspiracy to corner the bankruptcy banking market to jack up the fees it could charge to estates in bankruptcy.

McGarry launched its legal actions against BMS in September 2016, shortly after a federal judge had tossed the firm’s lawsuit against Roseville, Calif.-based Rabobank for allegedly conspiring with BMS. According to that lawsuit, McGarry had alleged the U.S. wing of the Dutch banking group since 2012 had used a contract with BMS to generate enormous business for itself and BMS by requiring all trustees using BMS software to deposit estate funds into Rabobank accounts.

After its lawsuit vs Rabobank was dismissed, McGarry appealed to the U.S. Seventh Circuit Court of Appeals in Chicago. However, that appeal was slapped aside in February 2017 by a three-judge panel, including Judge Richard Posner, who authored the court’s opinion. In that decision, Posner declared U.S. District Judge Milton Shadur was right to reject McGarry’s arguments that the arrangement between Rabobank and BMS constituted improper exclusive dealing.

Bankruptcy trustees, Posner wrote, would be free to hire any bank or software providers they wish to facilitate their handling of a particular bankruptcy estate or case.

“He may well hire Rabobank the next time too, assuming he wants to hire BMS, since BMS and Rabobank work closely together and in the present case BMS made it a condition of agreeing to work with the trustee that he hire Rabobank,” Posner wrote. “But again it would be a decision based on the trustee’s needs in a new and different case, not based on a commitment made before the new case existed …

“The fact that he prefers to work with these two companies is not a commitment not to work with any others and therefore to deal exclusively with those two.”

Further, Posner said McGarry presented “no evidence, or even an argument, that the fee was exorbitant, or that it would have been any lower had the trustee been allowed to hired a different bank or plurality of banks.”

In the wake of this decision, McGarry still attempted to press its separate lawsuit against BMS, continuing to assert BMS and its two largest competitors, Epiq Systems Inc. and TrusteSolutions LLC conspired to “fix the manner of charging fees for their services.”

According to the lawsuit, McGarry alleged BMS, the largest of the three competitors, moved to “implement a new payment structure” to shore up its declining business amid the Great Recession. Whereas the company in the past would earn a fee from a partner bank with which bankruptcy trustees would do business, McGarry persuaded Epiq and TrusteSolutions to agree to revamp their business model to only sell their software products in combination with bankruptcy banking services, “charging a set percentage of the funds in the estate’s bank account for those combined services.”

In May 2011, the McGarry firm alleged Rabobank and BMS had received a $514 fee from a bankruptcy estate to which the firm was a creditor. In response, McGarry sued, arguing, but for the conspiracy, BMS and Rabobank would not have been able to charge that much.

BMS, however, did not address the accusations, instead asking the judge to dismiss McGarry’s lawsuit because McGarry shouldn’t have been allowed to bring the action in the first place.

Judge Lefkow agreed, declaring she did not believe McGarry had standing to bring an antitrust action against BMS, as the law firm was only an “indirect customer” of BMS and was never a purchaser “in markets affected by antitrust violations.”

In this case, the judge said, it was the estate that suffered the “injury,” as the alleged overcharge depleted its available funds to satisfy debts, such as that purportedly owed to the McGarry firm.

“McGarry … has participated in no market,” Judge Lefkow wrote. “Rather, it is simply a creditor of an estate that was injured by an antitrust violation.”

The McGarry firm represented itself in the action, with the assistance of attorneys from the firm of Dunnegan & Scileppi LLC, of New York.

BMS was represented by the firms of LeonardMeyer LLP, of Chicago, and Dorsey & Whitney LLP, of New York and Minneapolis.

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Organizations in this Story

McGarry & McGarry LLC
804 North Olive Ave., Second Floor
Chicago, IL 60602

Dorsey & Whitney LLP
1801 K Street Northwest
Washington, DC 20006

LeonardMeyer LLP
203 North LaSalle Street
Chicago, IL 60601

Rabobank NA
40723 Murrieta Hot Springs Rd
Murrieta, CA 92562

U.S. District Court for the Northern District of Illinois
219 S Dearborn St
Chicago, IL 60604

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