Spinner Consulting LLC v. Stone Point Capital LLC

• Decision Date: 30 September 2020
• Docket Number: Civil No. 3:19cv1341 (JBA)
• Citation: 623 B.R. 671
• Parties: SPINNER CONSULTING LLC, Plaintiff, v. STONE POINT CAPITAL LLC, Defendant.
• Court: U.S. District Court — District of Connecticut

623 B.R. 671

SPINNER CONSULTING LLC, Plaintiff,

v.STONE POINT CAPITAL LLC, Defendant.

Civil No. 3:19cv1341 (JBA)

United States District Court, D. Connecticut.

Signed September 30, 2020

Deborah M. Garskof, Frederic S. Ury, Ury & Moskow, Fairfield, CT, William Dunnegan, Laura Scileppi, Richard Weiss, Dunnegan & Scileppi LLC, New York, NY, for Plaintiff.

David L. Belt, Hurwitz Sagarin Slossberg & Knuff LLC, Milford, CT, Jonathan Herman, Kaleb McNeely, Dorsey & Whitney LLP, New York, NY, for Defendant.

RULING GRANTING DEFENDANT'S MOTION TO DISMISS

Janet Bond Arterton, U.S.D.J.

Plaintiff Spinner Consulting LLC ("Spinner") brings several claims against Defendant Stone Point Capital LLC ("Stone Point") on behalf of itself and those similarly situated for violations of federal, California, and Connecticut antitrust law for price fixing in pricing its bankruptcy support services. Defendant moves to dismiss the Complaint for lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted. For the reasons that follow, Defendant's Motion to Dismiss [Doc. # 34] is granted.

I. Facts Alleged in Complaint

Plaintiff alleges that Stone Point, an affiliate of Bankruptcy Management Solutions, Inc. ("BMS"), engaged in a conspiracy with its two largest competitors to "fix the manner of. charging Chapter 7 bankruptcy estates ... for bankruptcy support services. (Compl. [Doc. # 1] ¶ 1.) BMS is the largest provider of bankruptcy support services, including bankruptcy software, in the United States, with about 50 percent market share for bankruptcy support services. (Id. ¶¶ 6, 22.) Its two largest competitors are Epiq eDiscovery Solutions, Inc. ("Epiq") and TrusteSolutions, which have a 35 percent and a 15 percent market share, respectively. (Id. ¶¶ 6-7, 22.) BMS and its competitors all develop and provide software to assist bankruptcy trustees in meeting their reporting requirements and other obligations. (Id. ¶¶ 17,19.)

Prior to 2008, instead of charging fees directly to estates, BMS would direct estates to deposit funds into a selected bank. (Id. ¶ 27.) The bank would earn interest on these deposits and then pay a fee to BMS and interest to the estate. (Id. ) When interest rates declined during the Financial Crisis of 2008, BMS sought to develop a new payment structure in order to maintain or increase profits. (Id. ¶¶ 28-30.) As a result, "BMS decided to sell bankruptcy support services only in combination with bankruptcy banking services ("Combined Services") and charging estates no fee for those Combined Services other than a percentage of the money in the bank account of the estate." (Id. ¶ 31.) Plaintiff alleges that this fee structure made it more difficult for trustees to determine whether fees for bankruptcy support services were "modest, reasonable, or excessive." (Id. ¶ 32.)

In order to get the marketplace to accept this new pricing structure, Plaintiff alleges that BMS proposed that the other two market participants—Epiq and TrusteSolutions—agree to the same pricing structure. (Id. ¶ 33.) They then lobbied the U.S. Trustee to suspend the rule giving the United States Bankruptcy Court authority to approve actual and necessary administrative expenses and allow bankruptcy trustees to pay bank service fees from estate accounts. (Id. ¶¶ 36-37.) BMS reflected this in a letter it sent to the Executive Offices of the U.S. Trustee writing:

In several conversations with various participant banks, a number of options have been discussed. Satisfying all of the conditions presented above, however, left a single structural option.... First, since estates do not currently pay for services (banking and software) through a reduction in their interest income, have them continue to pay for these services via a service fee, as a % of average deposit balance assessed monthly on each account.

(Id. ¶ 38.) BMS later referred to this new pricing structure as "a structural solution." (Id. ) Epiq submitted a similar request to the U.S. Trustee on January 18, 2011, and TrusteSolution on January 21, 2011. (Id. ¶¶ 40-41.) On April 29, 2011, the U.S. Trustee suspended its rule prohibiting trustees from paying bank service fees from estate accounts. (Id. ¶ 42.)

Plaintiff alleges that shortly after the U.S. Trustee suspended its rule, all three companies began selling bankruptcy support services only in combination with bankruptcy banking services and charging one combined percentage fee based on the amount in the bank account of the estate rather than separate fees for bankruptcy support services and bankruptcy banking services. (Id. ¶ 43-44.) BMS and Rabobank (BMS's banking partner) now charge an annual rate of 1.75 percent of the amount on deposit at Rabobank, Epiq also charges 1.75 percent, and TrusteSolutions now charges 1.9 percent. (Id. ¶ 49.)

On April 12, 2017, Stone Point caused Trident, a fund that it manages and owns, to acquire a controlling ownership interest in BMS. (Id. ¶ 67.) Plaintiff alleges that prior to acquiring BMS, Stone Point learned of the conspiracy to fix the manner of selling and charging for Combined Services.

(Id. ¶ 69.) Plaintiff further alleges that Stone Point has engaged in acts in furtherance of the conspiracy, including approving BMS business plans "that required the continuation of the existing manner of selling and charging for Combined services," appointing co-CEOs who would effectuate the conspiracy, and causing a former employee of Epiq to be elected director of BMS in order to further the conspiracy. (Id. ¶ 75.)

On March 31, 2015, one Robert Fusari filed a petition under Chapter 7 of the Bankruptcy Code. (Id. ¶ 50.) The U.S. Trustee appointed an individual trustee, who was eventually replaced by Alan E. Gamza at the election of the creditors of the Fusari estate. (Id. ) The Fusari Estate, through Mr. Gamza, entered into a contract with Rabobank. (Id. ¶ 53.) Pursuant to the contract, Rabobank automatically withdrew a monthly fee from the Fusari Estate account. (Id. ¶ 44.) In total, Rabobank deducted $15,627.98 from the Fusari Estate account. (Id. ¶ 58.) Rabobank paid this entire amount to BMS pursuant to its contract with BMS. (Id. ¶ 59.) Plaintiff alleges that the Fusari Estate would have paid lower fees absent the conspiracy to fix the manner of charging estates for bankruptcy support services. (Id. ¶ 61.)

Fusari's bankruptcy case settled and was dismissed on May 26, 2016. (Id. ¶ 63.) By agreement as of July 27, 2018, Spinner acquired from Fusari the property that had vested in Fusari under the bankruptcy settlement's revesting provision. (Id. ¶ 66.) That property includes the claim asserted in this action. (Id. )

II. Discussion

A. Legal Standard

"[A] claim is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory authority or constitutional power to adjudicate it." Morrison v. Nat'l Australia Bank, Ltd. , 547 F.3d 167, 170 (2d Cir. 2008) (quoting Arar v. Ashcroft , 532 F.3d 157, 168 (2d Cir. 2008) ). "When considering a motion to dismiss pursuant to Rule 12(b)(1), the court must take all facts alleged in the complaint as true and draw all reasonable inferences in favor of plaintiff." Sweet v. Sheahan , 235 F.3d 80, 83 (2d Cir. 2000). In response to a motion to dismiss pursuant to Rule 12(b)(1), "[a] plaintiff asserting subject matter jurisdiction has the burden of proving by a preponderance of the evidence that it exists." Makarova v. United States , 201 F.3d 110, 113 (2d. Cir. 2000).

To survive a motion to dismiss under Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face. ’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). Although detailed allegations are not required, a claim will be found facially plausible only if "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. Conclusory allegations are not sufficient. Id. at 678-679, 129 S.Ct. 1937.

B. Defendant's Motion to Dismiss

Stone Point moves to dismiss the complaint under Fed. R. Civ. P. 12(b)(1) and Fed. R. Civ. P. 12(b)(6) for six reasons: (1) "Stone Point had no involvement in BMS until nearly one year after the events at issue," thereby destroying any proximate cause between Stone Point's conduct and Plaintiff's claims; (2) "[Plaintiff] is not a direct purchaser of Stone Point's (or BMS's) services, and thus lacks standing to bring its Sherman Act claim (and its Connecticut state law claim) under the Illinois Brick line of cases"; (3) "Plaintiff's Sherman Act and Connecticut antitrust claims against Stone Point are foreclosed by the doctrine of collateral estoppel"; (4) Defendant's efforts to lobby the Executive Office of the United States Trustee are privileged under Noerr - Pennington doctrine; (5) Plaintiff's claims are barred by waiver, res judicata , and release for failing to object to the trustee's payment of fees in the Fusari bankruptcy proceedings; and (6) Plaintiff fails to allege facts sufficient to satisfy the Supreme Court's test under Twombly. (Def.'s Mem. Supp. Mot. to Dismiss [Doc. # 34-1] at 8-9.) In its Supplemental Brief, Defendant also asserts that Plaintiff lacks standing to pursue its California antitrust claims under the relevant test set forth in Associated General Contractors of California v. California State Council of Carpenters. (Def.'s Suppl. Mem. [Doc. # 43] at 8 (citing 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983) ).)

1. Illinois Brick Rule

The Illinois Brick rule limits standing in Sherman Act claims for damages to direct purchasers of the product or service. Illinois Brick Co. v. Illinois , 431 U.S. 720, 745-746, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977) ; Salveson v. JP Morgan Chase & Co. , 663 F. App'x 71, 74 (2d Cir....