About a month since a federal judge dismissed its lawsuit
against Rabobank for allegedly cornering the bankruptcy banking services market
through an alliance with a developer of bankruptcy case management software, a
Chicago law firm has reintroduced its allegations, this time in a class action antitrust
lawsuit directed at the software maker it alleges has conspired with its
competitors to overcharge those depositing bankruptcy funds.
On Sept. 14, McGarry & McGarry LLC, of Chicago, filed
its complaint in Chicago federal court against Irvine, Calif.-based software
designer Bankruptcy Management Solutions Inc.
BMS markets its software to help bankruptcy trustees manage
the bankruptcy estates over which they are given charge. Particularly, the
software helps the trustees meet “reporting and other obligations” related to
the management of the estates under Chapter 7 bankruptcy protection.
While the trustees are not required to use such software,
the “vast majority of bankruptcy trustees” use such services, court documents
said – and BMS has grown to hold a dominant position, accounting for more than
half of the national market for such support services, according to the
In June, the McGarry firm filed a class action lawsuit
against Roseville, Calif.-based Rabobank, alleging the U.S. wing of the Dutch banking
group had used a contract with BMS since 2012 to generate enormous business for
itself and BMS by requiring all trustees using BMS software to deposit estate
funds into Rabobank accounts.
McGarry said this also allowed Rabobank to charge more than
it should for the banking services, because it also must pay BMS a cut of the
On Aug. 12, a federal judge dismissed McGarry’s lawsuit,
siding with Rabobank which argued it did not violate federal banking laws by “tying”
its services to any non-banking product, nor did it receive any benefit from
such a “tying arrangement.”
“The only benefit Rabobank received was the right to provide
deposit banking services, which is not an improper anticompetitive practice,”
Rabobank argued in its Aug. 4 motion to dismiss.
Rabobank also noted trustees were “free to seek deposit
banking services from a financial institution other than Rabobank.”
McGarry has appealed the judge’s dismissal.
As the appeal is pending, however, McGarry has also sued
In its latest action, McGarry alleged BMS colluded with its
largest competitors, identified in the complaint as Epiq and TrusteSolutions,
to agree to not charge trustees directly for their software and other support
services. Instead, McGarry alleged the software companies agreed in 2011 to
collect their fees exclusively from the banks with which they worked, and into
which the trustees deposited the estate funds.
McGarry alleged this “conspiracy” was necessary to allow BMS
to partner with Rabobank to create agreements under which trustees would pay a
combined fee for bankruptcy banking services and the software support services “based
upon a percentage of the money in the accounts of the Estate.” The bank would
then deduct that fee, and pay BMS from it, the complaint said.
The complaint said BMS and Rabobank charge fees of 1.75
percent, the same fee charged by Epiq and its partner bank. TrusteSolutions and
its banks charge 1.9 percent, the complaint said.
This setup resulted in McGarry, which was then “an unsecured
creditor” of the estate of bankrupt company Integrated Genomics Inc., losing
more than $500 to Rabobank and BMS on a payment of about $12,500 from the
Integrated estate – a payment McGarry alleged was an “overcharge.”
McGarry alleged BMS and its competitors have steadfastly
refused to negotiate their fees with trustees, and have fought attempts to
force them submit their fees to bankruptcy courts for approval, saying such
judicial review on a case-by-case basis would make it more difficult for trustees
to find banks willing to work with them.
McGarry has asked the court to create a class of additional
plaintiffs, including nearly anyone who has received payment from a bankruptcy
estate and paid fees to BMS. McGarry estimated the class would include “at
least hundreds” of potential additional plaintiffs.
The law firm has asked the court to order BMS to pay
unspecified damages, which could be tripled under an Illinois fee-fixing law,
plus attorney fees.
The McGarry firm is represented in the action by McGarry
attorney Marianne C. Holzhall, of Chicago, as well as the firm of Dunnegan
& Scileppi, of New York.
BMS was represented in the prior case by the firms of
LeonardMeyer LLP, of Chicago, and Dorsey & Whitney, of New York.
Rabobank was represented in the prior case by the firms of
Jenner & Block, of Chicago, and Davis Wright Tremaine, with offices in San
Francisco and Washington, D.C.