November 7, 2018
from the United States District Court for the Northern
District of Illinois, Eastern Division. No. 17 CV 5779 - Joan
H. Lefkow, Judge.
Rovner, Sykes, and Barrett, Circuit Judges.
& McGarry, LLC, a creditor in a closed Chapter 7
bankruptcy case, tried three times to bring a price-fixing
claim against Bankruptcy Management Solutions, Inc.
("BMS"), the trustee's software-services
provider. In the first suit, McGarry alleged claims under the
Sherman Act and the Illinois Antitrust Act. Because McGarry
is not a direct purchaser of bankruptcy software services,
the district court dismissed the Sherman Act claim, see
Ill. Brick Co. v. Illinois, 431 U.S. 720
(1977), and relinquished jurisdiction over the state-law
tried a different tack and moved to reopen the bankruptcy
proceedings. The bankruptcy court denied that request because
the case had been closed for more than three years.
Undeterred, McGarry filed a new lawsuit in state court
alleging a stand-alone claim under the Illinois Antitrust
Act. The state statute has an "Illinois Brick
repealer" provision that permits indirect purchasers to
sue. BMS removed the case to federal court and moved to
dismiss. The district judge granted the motion because
McGarry is not even an indirect purchaser of
bankruptcy software services; it does not purchase these
services at all. McGarry appealed.
affirm. McGarry is a one-time creditor in a closed Chapter 7
bankruptcy case. It does not participate in the market for
bankruptcy software services in any way that would make it a
proper plaintiff to bring an antitrust claim against a firm
that provides those services to bankruptcy trustees.
Chapter 7 bankruptcy petition creates a bankruptcy estate,
which becomes the temporary legal owner of the debtor's
property. 11 U.S.C. § 541(a). When a petition is filed,
the Executive Office of the U.S. Trustee (a division of the
U.S. Department of Justice) appoints a trustee to administer
the estate. The trustee collects and liquidates nonexempt
estate assets to maximize the return to creditors. The
trustee also files periodic reports with the bankruptcy court
and the U.S. Trustee. Id. § 704.
reports are prepared on special software, and trustees
typically use one of three providers to supply these
services. BMS is the largest supplier of bankruptcy software
services. The complaint alleges that BMS has a market share
of approximately 50% as measured by the total number of
bankruptcy trustees in the country. Epiq Systems and
TrusteSolutions have 35% and 15%, respectively. A trustee
normally does not use more than one software-services
provider at any one time.
many years BMS partnered with banks to jointly deliver
services to the estate. Under this model BMS directed the
trustee to deposit the estate's funds into a partner
bank, and in return the trustee received integrated
case-management and banking services. The bank earned money
from the deposit and paid interest to the estate and a fee to
BMS. This business model relied on the existence of a
"spread" between the interest the bank could charge
its borrowers and the interest it paid to its depositors. The
model worked well as long as interest rates remained high
enough to support the bank's flexibility to work within
the spread, allowing all parties to prosper.
model collapsed with the economic downturn in 2008. Interest
rates declined precipitously from more than 4% in late 2007
to near 0% one year later, so the spread evaporated. BMS had
to adapt to a new reality. It soon designed a different
business model: it would sell its software services in
combination with banking services (as it had in the past),
but the bank would charge a set percentage of the
estate's funds as a fee for the combined services and pay
a portion of that fee to BMS. For this new model to work,
however, BMS had to overcome two obstacles. First, it needed
its competitors to also adopt the new arrangement. The
complaint alleges that sometime before 2011 BMS approached
Epiq Systems and TrusteSolutions and proposed the new billing
model. Both agreed to implement a similar system.
BMS needed the Executive Office of the U.S. Trustee to
suspend its rule prohibiting trustees from using estate funds
to pay bank fees. All three providers asked the Executive
Office to do so. In April 2011 the agency suspended the rule.
All three providers then changed their billing model. Now the
standard agreement requires the estate to pay a combined fee
for software and banking services based on a percentage of
the funds in its bank account.
2011 Integrated Genomics, Inc., a software developer
specializing in genome analysis, filed a Chapter 7 petition
in the U.S. Bankruptcy Court for the Northern District of
Illinois. The U.S. Trustee appointed Eugene Crane as trustee.
Crane contracted with BMS for software services and deposited
the estate's funds with Rabobank, BMS's partner bank.
Crane also ...