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