McGarry & McGarry v. Bankruptcy Management Solutions, Inc

Case Type:
Case Status:
18-2619 (7th Circuit, Sep 05,2019) Published
The Seventh Circuit affirmed the District Court’s decision.
Procedural context:
McGarry & McGarry, LLC (“McGarry”), a creditor in a closed Chapter 7 bankruptcy case, tried three (3) times to bring a price-fixing claim against Bankruptcy Management Solutions, Inc. (“BMS”), the bankruptcy trustee’s software-services provider. First, McGarry filed a suit in the district court alleging claims under the Sherman Act and the Illinois Antitrust Act. Since McGarry was not a direct purchaser of the bankruptcy software services, the District Court dismissed the Sherman Act claim, and renounced jurisdiction over the claim under the Illinois Antitrust Act. Thereafter, McGarry attempted to reopen the bankruptcy proceedings. However, given that the bankruptcy case had been closed for more than three (3) years at that point, the bankruptcy court subsequently denied McGarry’s request. For its third strike, McGarry filed a new lawsuit in Illinois state court alleging a stand-alone claim under the Illinois Anti-Trust Act. BMS removed the case to federal court and moved to dismiss. The district court granted the motion to dismiss and this appeal followed.
BMS is the largest supplier of bankruptcy software services. For many years, BMS used to partner with banks to jointly deliver solutions to the bankruptcy estate. The result was a sharing of fees between the banks and BMS in exchange for the trustee’s usage of the case-management software and banking services. However, when the economy took a turn in 2008, BMS changed its model, which entailed all providers of bankruptcy software services requesting that the Executive Office of the U.S. Trustee suspend its rule prohibiting trustees from using bankruptcy estate funds to pay bank fees. In May of 2011, Integrated Genomics, Inc., a software developer, filed a Chapter 7 petition in the U.S. Bankruptcy Court in for the Northern District of Illinois. McGarry was an unsecured creditor of Integrated Genomics, Inc. and filed a claim. The trustee used BMS’ software and one of its partner banks in the administration of the estate. When the estate’s funds were disbursed and the case was closed in April 2014, a service-fee payment of $514.16 to BMS’ partner bank was deducted from the estate. Two years later, McGarry learned that most of that $514.16 went to BMS and the three attempts to sue BMS in the alleged price-fixing conspiracy began. An important note with the procedural history is that in the third suit, the subject of this appeal, when the state court claim was removed to federal court, it was assigned to the same judge who handled the first lawsuit. In its decision, the 7th Circuit goes through a thorough analysis of McGarry’s ability to bring an antitrust suit against BMS. Within its analysis, it discusses a key distinction between Illinois’ Antitrust Act and its federal counterpart: Illinois’ adoption of an “Illinois Brick repealer” clause that permits indirect purchasers to sue. However, the 7th Circuit concluded that this clause does not apply here, as McGarry was not a participant in the market for bankruptcy software services, and instead was just a creditor of a Chapter 7 debtor. Thus, McGarry’s alleged injury was entirely derivative of the bankruptcy estate’s injury, and thus not sufficient to confer antitrust standing. In the final paragraphs of its decision, the 7th Circuit made an important note regarding any potential antitrust claim associated with BMS. It reasoned that the most appropriate person to pursue this claim, if it was in the bankruptcy estate’s interest to do so, would be the bankruptcy trustee, since the trustee owes a fiduciary duty to an estate’s creditors. Thus, the trustee could pursue the debtor’s claim against the alleged conspirators on behalf of all creditors equally.
Rovner, Sykes, and Barrett

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