McGarry & McGarry, LLC v. Rabobank, N.A., No. 16-3164 (7th Cir. 2017)

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Justia Opinion Summary

BMS provides administrative services to bankruptcy trustees. It uses Rabobank as the depositary for banking services that BMS provides through its software. Crane, the trustee in the Integrated bankruptcy, hired BMS; the contract required Crane to hire Rabobank for banking services in the proceeding. In a separate contract, Crane authorized Rabobank to withdraw its monthly fee. The plaintiff, a law firm, was a creditor of Integrated and filed a bankruptcy claim, ultimately receiving a distribution of $12,472.55. It would have received $12,666.90, but for its part of Rabobank’s fee, and more had Rabobank paid interest on the estate’s deposits. Plaintiff sued under the Bank Holding Company Act, 12 U.S.C. 1972(1)(E), which states that a bank shall not "extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition … that the customer shall not obtain some other credit, property, or service from a competitor of such bank … other than a condition … to assure the soundness of the credit.” The Seventh Circuit affirmed dismissal. Had Rabobank conditioned its provision of services on the trustee never hiring any other bank in any bankruptcy proceeding, it would constitute exclusive dealing. No one forced Crane to deal with BMS and Rabobank and there was no argument that the fee was exorbitant, or would have been lower with a different bank.

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In the United States Court of Appeals For the Seventh Circuit ____________________ No. 16 3164 MCGARRY & MCGARRY, LLC, Plaintiff Appellant, v. RABOBANK, N.A., Defendant Appellee. ____________________ Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 16 C 5978 — Milton I. Shadur, Judge. ____________________ ARGUED JANUARY 5, 2017 — DECIDED JANUARY 26, 2017 ____________________ Before POSNER, MANION, and WILLIAMS, Circuit Judges. POSNER, Circuit Judge. Bankruptcy Management Solu tions, Inc. (“BMS” for short) provides a variety of adminis trative services, including software and banking services, to bankruptcy trustees. See www.google.com/?gws_rd=ssl#q= Bankruptcy+Management+Solutions%2C+Inc (visited Jan. 26, 2017). It is not a bank, but it uses a bank, Rabobank, N.A., as the depositary for the banking services that BMS provides to bankruptcy trustees through its software. Ra 2 No. 16 3164 bobank appears to be the largest provider of depositary ser vices to such trustees, just as BMS apparently is the largest supplier to them of software that makes it easier for a bank ruptcy trustee to manage a bankruptcy by helping him keep track of documents, distribute money to creditors, and com ply with reporting obligations. Eugene Crane, the trustee in the bankruptcy of a compa ny named Integrated Genomics, Inc., hired BMS to provide a variety of services in Integrated’s bankruptcy proceeding. The parties’ contract required the trustee to hire Rabobank to provide banking services to him in the proceeding and to deposit with the bank substantially all of the funds in any bankruptcy estate in which the trustee uses BMS’s services. A separate contract between the trustee and the bank, to which BMS was not a party, authorized Rabobank to with draw from the funds a monthly fee for the services it renders in the bankruptcy proceeding. These contracts may have been the product of a prior agreement between BMS and Rabobank in which BMS promised Rabobank that it would require trustees who used its services to hire Rabobank and Rabobank promised BMS that it would remit to BMS a por tion of the fees it obtained. The plaintiff, a law firm, was a modest creditor of Inte grated and filed a claim in the bankruptcy proceeding, at the conclusion of which it received a distribution of $12,472.55. It would have received $12,666.90 had not the trustee de ducted $194.35 to pay for a small part of Rabobank’s fee for providing banking services to him, and even more had Ra bobank paid interest on the bankruptcy estate’s deposits, which it did not. No. 16 3164 3 The plaintiff alleges that the three contracts—between Rabobank and BMS, between the trustee and BMS, and be tween the trustee and Rabobank—violated 12 U.S.C. § 1972(1)(E), a section of the Bank Holding Company Act that states that “a bank shall not in any manner extend cred it, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition or requirement … that the customer shall not obtain some other credit, property, or service from a compet itor of such bank, a bank holding company of such bank, or any subsidiary of such bank holding company, other than a condition or requirement that such bank shall reasonably impose in a credit transaction to assure the soundness of the credit.” The plaintiff argues that by requiring the trustee in the Integrated bankruptcy to obtain banking services exclu sively from Rabobank, the bank conditioned its provision of services on the trustee’s not obtaining equivalent services from a competitor of that bank, and so violated the Act. The district judge was right to reject the argument. The plaintiff fails to distinguish between exclusive dealing and a single transaction. Had Rabobank conditioned its provision of services to trustee Crane on his agreeing never to hire any bank other than Rabobank in any bankruptcy proceeding in which he’s the trustee, that would be exclusive dealing. But if, as in this case, all Crane decides is that he needs a bank— not a bunch of banks—to provide banking services to him in a particular bankruptcy of which he’s the trustee, there is no exclusivity; in his next trusteeship Crane will be free to hire a different bank. He may well hire Rabobank the next time too, assuming he wants to hire BMS, since BMS and Ra bobank work closely together and in the present case BMS made it a condition of agreeing to work with the trustee that 4 No. 16 3164 he hire Rabobank. But again it would be a decision based on the trustee’s needs in a new and different case, not based on a commitment made before the new case existed. Although Crane has agreed that in any future case in which he is a trustee and hires BMS he will hire Rabobank as well, he has not committed to hiring BMS, and if he doesn’t then he won’t have to hire Rabobank. The fact that he prefers to work with these two companies is not a commitment not to work with any others and therefore to deal exclusively with those two. Exchange National Bank of Chicago v. Daniels, 768 F.2d 140, 143 (7th Cir. 1985), “construed [12 U.S.C.] § 1972 as prohibit ing exclusive dealing practices—those that attempt to pre vent customers from dealing with other banks.” The cus tomer in this case was trustee Crane. No one forced him to deal with BMS and Rabobank. He chose to deal with them rather than with other suppliers of banking services because they’re highly experienced in the provision of the services that the trustee required. Suppose your doctor tells you to take an 81 mg aspirin every night before going to bed, in or der to reduce the likelihood of a heart attack. So you go and buy a small bottle of Bayer 81 mg aspirin. After a while it runs out and you buy another, identical, bottle of Bayer 81 mg aspirin. And so on indefinitely. Could a competitor of Bayer sue you for engaging in exclusive dealing, because you refuse to deal with Bayer’s competitors? No, and the premise of the plaintiff’s suit is as flimsy. There is another ground on which the plaintiff’s claim must be rejected. The only quantified harm he incurred was the $194.35 fee deducted from his share of the distribution of the bankrupt’s assets to the creditors in order to compensate No. 16 3164 5 Rabobank for a share of the services that the bank had ren dered in the bankruptcy proceeding—had rendered to all the creditors, including the plaintiff. There is no evidence, or even an argument, that the fee was exorbitant, or that it would have been any lower had the trustee been allowed to hire a different bank or a plurality of banks. The judgment of the district court dismissing the plain tiff’s suit with prejudice is AFFIRMED.