McGarry & McGarry, LLC v. Rabobank, N.A.

Case Type:
Case Status:
16 C 5978 (7th Circuit, Jan 26,2017) Not Published
Contracts between the trustee, his administrative servicer, and his bank, did not violate section 1972(1)(E) of the Bank Holding Company Act because the plaintiff could not show that the contracts contained any exclusivity condition.
Procedural context:
A creditor in bankruptcy argued that certain contracts between the trustee, his administrative servicer, and his bank, violated section 1972(1)(E) of the Bank Holding Company Act. The district court found in favor of the defendant bank, and the Seventh Circuit Affirmed.
Bankruptcy Management Solutions, Inc. (“BMS”) provides a variety of administrative services to bankruptcy trustees in order to help the trustees keep track of documents, distribute funds to creditors, and comply with reporting obligations. A trustee hired BMS in the bankruptcy of Integrated Genomics, Inc. The contract with BMS 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 used BMS’s services. A creditor law firm filed a claim in the bankruptcy, and received a distribution of $12,472.55, about $194.35 short of what it would have received had not the trustee deducted the latter amount to pay for a small part of Rabobank’s fee for providing banking services to the trustee. The creditor filed suit alleging that contracts between Rabobank and BMS, between the trustee and BMS, and between the trustee and Rabobank, violated 12 U.S.C. § 1972(1)(E), a section of the Bank Holding Company Act preventing a bank from, inter alia, conditioning its provision of services on a customer’s not obtaining equivalent services from a competitor of that bank. The district court disagreed with the plaintiff law firm, and the appellate court affirmed. The appellate court held that the law firm failed to show any exclusivity condition in the contracts. The court followed precedent in construing Section 1972 as prohibiting exclusive dealing practices, and distinguished the facts of this case from facts which may have violated the provision at issue: “had Rabobank conditioned its provision of services to the trustee 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 here, because the trustee chose to deal with Rabobank and BMS, and because the trustee could hire a different company to perform similar services as BMS in the future, thereby negating any requirement to use Rabobank in those cases, the exclusivity requirement was not present.
Posner, Manion, Williams

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