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McGarry & McGarry, LLP v. Bankruptcy Management Soultions, Inc.

United States District Court, N.D. Illinois, Eastern Division

June 16, 2017



          Joan H. Lefkow U.S. District Judge.

         Plaintiff McGarry & McGarry, LLP, filed a putative class action against Bankruptcy Management Solutions, Inc. (BMS), alleging a horizontal conspiracy to fix the manner of charging fees for its bankruptcy software services in violation of Section 1 of the Sherman Act (count I), as well as an identical claim of violation of the Illinois Antitrust Act, 740 ILCS 10/3 (count II).[1] BMS has moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6). (Dkt. 26.) For the reasons stated below, the motion is granted.[2]


         This case involves an alleged horizontal conspiracy among BMS, Epiq Systems, Inc., and TrusteSolutions, LLC-the three largest bankruptcy software providers in the United States-to fix the manner of charging fees for their services. When a debtor files a Chapter 7 petition in bankruptcy, an estate containing the debtor's property is created. (Dkt. 1 ¶ 11.) The Executive Office of the United States Trustee (EOUST), a division of the United States Department of Justice, then appoints a specific trustee to administer the estate.

         Historically, BMS, the largest bankruptcy software provider, directed a trustee who wished to use its software to deposit all of an estate's funds with a partner bank. (Id. ¶ 19.) The partner bank would earn money from the deposit, paying interest to the estate as well as a fee to BMS.[4] (Id.) But as a result of the financial crisis of 2008, interest rates declined, and, not surprisingly, so did the partner bank's ability to pay BMS. (Id. ¶ 20.) In response, BMS decided to implement a new payment structure: it would sell bankruptcy software services only in combination with bankruptcy banking services, and it would charge a set percentage of the funds in the estate's bank account for those combined services. (Id.) For the new billing structure to succeed in the marketplace, however, BMS needed Epiq and TrusteSolutions to agree to sell their services in the same manner. (Id. ¶ 25.)

         Sometime before 2011, BMS approached the two entities, and both agreed to implement a similar billing structure. (Id. ¶¶ 26-27, 55-56.) The plan, however, would potentially violate a EOUST rule that prohibited a trustee from using estate funds to pay bank fees, so the three conspirators appealed to the EOUST to suspend the rule, which it did in April 2011. (Id. ¶¶ 28- 29.) With that barrier removed, BMS, Epiq, and TrusteSolutions put their conspiracy into motion.

         In May 2011, Integrated Genomics, Inc., petitioned in Chapter 7 bankruptcy in this District. (Id. ¶ 42.) Eugene Crane was appointed trustee of the estate. (Id. ¶ 43.) At some point, Crane entered into a contract with BMS. (Id. ¶ 38.) As one condition of the contract, Crane agreed to deposit all (or substantially all) of the estate's funds with Rabobank, BMS's partner bank at the time. (Id.) Crane also entered into a contract with Rabobank, authorizing it to automatically withdraw a monthly fee from the Integrated estate's account. (Id. ¶ 40.)

         McGarry, a law firm located in Chicago, was an unsecured creditor of the Integrated estate. (Id. ¶¶ 10, 46.) It received $12, 472.55 of its allowed claim of $78, 308.94. (Id. ¶ 46.) Following Crane's final account and distribution report filed in April 2014, McGarry learned that a $514.16 fee had been paid to Rabobank from the Integrated account. (Id. ¶¶ 47-48.) Rabobank paid most, if not all, of that amount to BMS. (Id. ¶ 49.) McGarry alleges that the amount of money paid to BMS was greater than the amount it would have received absent the alleged conspiracy, and without that overcharge, McGarry would have received a larger distribution from the Integrated estate.[5] (Id. ¶ 51.)


         A motion to dismiss under Rule 12(b)(6) challenges a complaint for failure to state a claim on which relief may be granted. In ruling on such a motion, the court accepts as true all well-pleaded facts in the plaintiff's complaint and draws all reasonable inferences from those facts in the plaintiff's favor. Active Disposal, 635 F.3d at 886 (citation omitted). To survive a Rule 12(b)(6) motion, the complaint must not only provide the defendant with fair notice of a claim's basis but must also establish that the requested relief is plausible on its face. See Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The allegations in the complaint must be “enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. At the same time, the plaintiff need not plead legal theories; it is the facts that count. Hatmaker v. Mem'l Med. Ctr., 619 F.3d 741, 743 (7th Cir. 2010); see also Johnson v. City of Shelby, 574 U.S. ----, 135 S.Ct. 346, 346, 190 L.Ed.2d 309 (2014) (per curiam) (“Federal pleading rules call for ‘a short and plain statement of the claim showing the pleader is entitled to relief'; they do not countenance dismissal of a complaint for imperfect statement of the legal theory supporting the claim asserted.” (citations omitted)).


         BMS argues that McGarry's claims should be dismissed for four reasons: (1) the complaint does not allege sufficient facts to satisfy Twombly; (2) the alleged efforts by BMS to lobby for regulatory change are privileged pursuant to the Noerr-Pennington doctrine; (3) McGarry lacks antitrust standing; and (4) the claims are barred by waiver, res judicata, and bankruptcy law. Because McGarry's lack of antitrust standing is dispositive, the court does not address the other arguments.

         BMS argues that McGarry is not a direct purchaser of its bankruptcy software services and therefore is barred from bringing an antitrust claim under Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977).[6] Illinois Brick forbids “a customer of the purchaser who paid a cartel price to sue the cartelist, even if his seller-the direct purchaser from the cartelist-passed on to him some or even all of the cartel's elevated price.” Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816, 821 (7th Cir. 2015), cert. denied, 135 S.Ct. 2837, 192 L.Ed.2d 875 (2015). The reasoning behind this rule is twofold. First, because a direct purchaser is entitled to the full recovery of any overcharge, allowing its customers (the indirect purchasers) to bring an antitrust claim “would create a serious risk of multiple liability for defendants.” Illinois Brick, 431 U.S. at 730. Second, allowing indirect purchasers to sue in antitrust “would transform treble-damages actions into massive efforts to apportion the recovery among all potential plaintiffs that could have absorbed part of the overcharge, from direct purchasers to middlemen to ultimate consumers.” Id. at 738. McGarry runs afoul of both lines of reasoning.

         To begin, McGarry contends that the Integrated estate is the direct purchaser of BMS's services.[7] The Integrated estate therefore owned any antitrust claim and was entitled to one hundred percent of any overcharge. Were the Integrated estate and McGarry (and potentially other creditors) to bring claims against BMS, BMS could be subject to multiple liability. Although McGarry alleges that it is the only party that could bring an antitrust claim, this is not the case, as the Bankruptcy Code, 11 U.S.C. § 350, permits any interested party to move to reopen an estate. For example, a debtor may petition to reopen an estate specifically to investigate a potential antitrust claim. See, e.g., In re Indus. Marine Diesel, Inc., No. ...

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