Spinner Consulting LLC v. Bankr. Mgmt. Solutions, Inc.
| Decision Date | 12 June 2019 |
| Docket Number | No. 18-CV-12258-KM-MAH,18-CV-12258-KM-MAH |
| Citation | 604 B.R. 660 |
| Parties | SPINNER CONSULTING LLC, Plaintiff, v. BANKRUPTCY MANAGEMENT SOLUTIONS, INC., Defendant. |
| Court | U.S. District Court — District of New Jersey |
Laura J. Scileppi, Richard Weiss, Dunnegan & Scileppi LLC, New York, NY, Ronald D. Coleman, Mandelbaum Salsburg PC, Roseland, NJ, for Plaintiff.
Bruce R. Ewing, Dorsey & Whitney, LLP, Paramus, NJ, for Defendant.
OPINION (amended)
This matter comes before the Court on the motion of the defendant Bankruptcy Management Solutions, Inc. ("BMS") to dismiss the complaint. (DE 16). Plaintiff Spinner Consulting LLC ("Spinner") alleges that BMS participated in a horizontal conspiracy with its competitors to fix the manner of charging fees for its bankruptcy software and services in violation of the Sherman Act, 15 U.S.C. § 1.
When a debtor files a Chapter 7 petition in bankruptcy, an estate containing the debtor's property is created and a trustee is appointed to administer the estate. BMS provides software and services to assist in the trustee's administration of the estate.
After the 2008 financial crash, BMS and its competitors successfully lobbied the Executive Office of the United States Trustee ("EOUST") to suspend the former rule that prohibited banks from charging a fee. Sometime after April of 2011, BMS implemented the payment structure at issue here: Its bankruptcy support and software services would be sold only in combination with banking services, and it would charge a set percentage of the funds in the estate's bank account for those combined services. BMS's competitors have set up their payment structures in the same manner.
On March 31, 2015, Robert Fusari filed a Chapter 7 petition for bankruptcy. On April 27, 2015, Alan E. Gamza (the "Trustee" or "Gamza") was appointed as the Fusari estate's trustee. On June 8, 2015, Gamza entered into a contract with BMS, under which Gamza agreed to deposit with Rabobank N.A. ("Rabobank") the funds of the Fusari estate. Gamza agreed to allow Rabobank to automatically withdraw a monthly fee from the estate. Rabobank deducted $15,627.98 in fees from the Fusari estate for combined banking and software services. After the bankruptcy case settled, Fusari executed an agreement with Spinner, under which Spinner acquired the residual property that had re-vested in Fusari after distributions to creditors.
On July 31, 2018, Spinner filed a one-count antitrust complaint against BMS. BMS filed a motion to dismiss the complaint, arguing that (1) Spinner is not a "direct purchaser" of its product or a proper party to bring this suit, and therefore lacks antitrust standing; (2) its lobbying efforts to EOUST are absolutely privileged under the Noerr-Pennington doctrine; (3) a release provision in the Bankruptcy Court's May 6, 2016 Order bars this action; and (4) Spinner has failed to state a claim under Federal Rule of Civil Procedure 12(b)(6).
For the reasons stated below, Spinner's motion to dismiss the complaint for lack of antitrust standing is granted. The direct-purchaser rule—concededly a somewhat arbitrary, policy-based rule—dooms the claims of Spinner, an indirect victim of the alleged antitrust injury to the trustee on behalf of the estate as purchaser of BMS's services.
I do not reach the other grounds for dismissal.
Upon the filing of a Chapter 7 bankruptcy petition, the Office of the United States Trustee, a division of the United States Department of Justice, appoints a trustee from the private sector to administer the estate. (Compl ¶11). The trustee is compensated by the estate and is responsible for collecting and liquidating the debtor's property. (Compl ¶¶11-12). The trustee is also required to submit reports regularly to the Bankruptcy Court. (Compl. ¶12). Trustees use software to help them meet those reporting obligations. (Compl. ¶13).
Since approximately 1987, BMS has provided bankruptcy support services. (Compl ¶13). BMS is the largest provider of bankruptcy support services, including software, in the United States. (Compl ¶4). BMS has more than a fifty percent share of "the number of Trustees in the United States." (Compl ¶20). Epiq eDiscovery Solutions, Inc. ("Epiq") is BMS's largest competitor, with a thirty percent share, and TrusteSolutions ("TES") is the second largest competitor of BMS, having a fifteen percent share. (Compl ¶¶5-6, 20). BMS developed the software that is used by bankruptcy trustees, and secured copyright protection over their software. (Compl ¶¶15-16). BMS's competitors have developed and maintained comparable software. (Compl ¶17).
Prior to the financial crisis in 2008, trustees had received software services directly from the bank that held the estate's assets. (Compl ¶¶14, 25). BMS therefore did not directly charge the estate for its services. (Compl ¶25). Instead of a direct charge, BMS "would direct the Estate to deposit its fund in a selected bank." (Compl ¶25). BMS required the trustees who used its services to deposit the funds of the estates at "a partner bank of BMS." (Compl ¶20). Before November of 2012, BMS required trustees to deposits funds at the Bank of New York Mellon. (Compl ¶21).
After the funds of the estate were deposited into BMS's selected bank, the bank would "earn money from these deposits" and would pay a fee to the bankruptcy software provider. (Compl ¶25).2 The bank paid this fee through a reduction in the estate's interest income, in essence, by providing a lower rate of interest on Chapter 7 estate deposits as compared to commercial clients. (Compl, ¶36, Ex. A at 2). This allowed the bank to earn money from the deposit, and the bank would then pay a fee to BMS as well as interest to the estate. (Id. ). It appears that the process was set up in this manner, instead of a direct charge because, at the time, the U.S. Trustees' rules governing Chapter 7 bankruptcy accounts prohibited banks from charging a fee for their services. (Compl ¶34).3
After the financial crisis in 2008, interest rates declined, and consequently, "the amount of money that the bank could earn from the deposits of Estates also declined, as did the bank's ability to pay BMS a fee." (Compl ¶26). Chapter 7 accounts were no longer profitable for banks, who responded by reducing interest rates and initial "collateral and administrative charges," and discouraging trustee deposits. (Compl, Ex. A, at 1). One major bank responded by ceasing its participation in the Chapter 7 program entirely. (Id. at 2).
In response, BMS, Epiq, and TES requested that the U.S. Trustee suspend the rule that prohibited banks from charging a fee in order to allow trustees to pay bank fees from estate accounts. (Compl ¶35). BMS recognized that the goal of any proposed solution should take into account certain "conditions," including that the crisis was temporary, that banks should receive adequate compensation so that they remained active participants in Chapter 7 programs, and that any solution should continue "the historical process of allocating the cost of the services to the estates that are the beneficiaries of those services." (Compl, Ex. A).
On or about November 26, 2010, BMS submitted a letter to the Executive Offices of the U.S. Trustee, noting the following:
(Compl ¶36). BMS proposed that a monthly fee be "applied evenly" to all Chapter 7 accounts. (Compl., Ex. A, at 3). Based on its "conversations with the banks and independent research regarding bank costs and profitability targets," BMS "believed that a rate as low as 3% with the fee adjustment reflecting the actual [Effective Federal Funds rate (EFF) ] may be adequate to attract the banks to continue their full participation to include the funding of the software providers." (Compl, Ex. A at 4).4
Sometime after BMS drafted this letter, Epiq received and reviewed it, and provided its own comments to the U.S. Trustee on January 18, 2011. (Compl ¶¶37-38, 76 Ex. B). In preparing its comments, Epiq reviewed the remarks that had been "submitted previously by other market participants and solicited input from all financial institutions with which Epiq Systems has relationships in the Chapter 7 environment." (Compl, Ex. B). With respect to BMS's proposal, Epiq indicated that the proposed "structure would promote future stability for trustees' activities," and "would be accessed uniformly to all estate accounts." (Compl ¶37, Ex. B). On or about January 21, 2011, TES requested that the U.S. Trustee allow this fee. (Compl ¶¶ 39, 77).
Spinner alleges that the November 26, 2010 BMS document is evidence of a conspiracy because it demonstrates that "BMS had conversations with various banks participating in the Chapter 7 program, which necessarily included the partner banks of BMS's horizontal competitors" and "BMS reached an agreement with at least one of those banks, and therefore one of BMS's horizontal competitors, to fix the manner of selling and charging for combined bankruptcy support services and bankruptcy banking services." (Compl ¶74).
Spinner further alleges that "upon information and...
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