SPINNER CONSULTING LLC v. BANKRUPTCY MANAGEMENT SOLUTIONS, INC.
Filing
52
OPINION (amended). Signed by Judge Kevin McNulty on 6/12/2019. (as, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
SPINNER CONSULTING LLC,
Plaintiff,
No. 18-cv-12258-KM-MAH
V.
BANKRUPTCY MANAGEMENT
SOLUTIONS, INC.,
Defendant.
OPINION
(amended)
KEVIN MCNULTY. U.S.D.J.:
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 (“EOUSV’) 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.
1
On March 31, 2015, Robert Fusari filed a Chapter 7 petition for
bankruptcy. On April 27, 2015, Alan ED. Gamza (the “Trustee” or “Gamza”) was
appointed as the Fusari estate’s trustee. On June 8, 2015, Gamza entered into
a contract with 3MB, 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, Pusan executed an
agreement with Spinner, under which Spinner acquired the residual property
that had re-vested in Pusan 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.
2
Facts’
I.
A. Bankruptcy Support Services
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 ¶fl 1-12). 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, EMS has provided bankruptcy support
services. (Compi
¶ 131.
EMS is the largest provider of bankruptcy support
services, including software, in the United States. (Compl ¶4). EMS has more
than a fifty percent share of “the number of Trustees in the United States.”
(Compl ¶20). Epiq eDiscovety Solutions, Inc. (“Epiq”) is EMS’s largest
competitor, with a thirty percent share, and TrusteSolutions (“TES”) is the
second largest competitor of EMS, having a fifteen percent share. (Compl ¶1156, 20). BMS developed the software that is used by bankruptcy trustees, and
secured copyright protection over their software. (Compi fl15-16). EMS’s
competitors have developed and maintained comparable software. (Compi ¶17).
Prior to the financial crisis in 2008, trustees had received software
services directly from the bank that held the estate’s assets. (Compl ¶3f 14, 25).
BMS therefore did not directly charge the estate for its services. (Compl ¶25).
As required at this stage, the Court accepts the factual allegations in the
complaint as true. For ease of reference, certain items from the record will be
abbreviated throughout this Opinion as follows:
DE
Docket entry number in this case;
=
Compl
DEr
PEr
=
=
DRBr
Spinner’s complaint (DE U;
Defendant EMS’s brief in support of its motion to dismiss (DE 16);
=
Spinner’s opposition brief (DE 22);
=
EMS’s reply brief (DE 24).
3
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 ¶2 1).
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
BMS started as a “spin-off off of a bank that had previously provided free
bankruptcy software to Trustees.” (Compl ¶ 14).
3
It is not clear from the complaint whether there was similar nile in place at the
time that barred bankruptcy support services from directly charging the estate.
2
4
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:
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. Although
the numbers vary slightly for each bank, the structure is constant
with two key components:
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.
Second, while there would be a base service fee percentage the
actual percentage applied would vary reflecting changes, hopefully
improvements, in the interest rate market by being tied to the
Effective Federal Funds rate. As the Effective Federal Funds Rate
increases, the service fee would be reduced, eventually
disappearing as bank interest rates increase.
(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)J may be adequate to
attract the banks to continue their full participation to include the funding of
the software providers.” (Compi, Ex. A at 4).4
Prior to submitting this letter, Spinner alleges that BMS considered selling its
software by directly charging estates a fee on either a (1) per trustee basis; (2) per case
basis, or (3) per transaction basis. (Compl fl27-28). Spinner claims that BMS
preferred the model of charging estates for combined software and banking services
5
Sometime after EMS drafted this letter, Epiq received and reviewed it,
and provided its own comments to the U.S. Trustee on January’ 18, 2011.
(Compi ¶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.” (Compi, Ex. B). With respect to
EMS’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 ¶j 39, 77).
Spinner alleges that the November 26, 2010 EMS document is evidence
of a conspiracy because it demonstrates that “EMS 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
EMS’s horizontal competitors, to Inc the manner of selling and charging for
combined bankruptcy support services and bankruptcy banking services.”
(Compl ¶74).
Spinner further alleges that “upon information and belief,” BMS, Epiq,
and TES “communicated directly about selling bankruptcy support services
only in combination with bankruptcy banking services” sometime before the
November 26, 2010 EMS document, and have since been in regular
communication. (Compl
¶
72, 82).
based on a percentage of the money in the bank account of the estate because it
“would not allow Estates to determine the extent to which EMS, as opposed to its
partner bank, received a fee.” (Compl ¶30).
5
To support its allegation that the three companies have been in regular contact
and communication, Spinner alleges that representatives from the three companies
have attended bankruptcy law conferences, which provided the companies an
opportunity “to meet with each other and discuss, coordinate and otherwise advance
the conspiracy among them.” (Compi fl83-85). Spinner has also pulled a portion of
court transcript from In re Bradley & Michelle Dorfier, et ci., No. 10-51411 (MSS) (N.D.
6
On or about January 21, 2021, Texas Capital Bank, on its and TEDS’s
behalf, proposed to the U.S. Trustee “that Estates be charged for combined
bankruptcy support services” and “banking services based upon a percentage
of the amount of money in the Estate.” (Compi ¶78). Texas Capital bank stated
the following:
Due to the current interest rate environment financial institutions
are able to secure deposits at virtually no operational cost. The
current UST program requires a high level of operational support,
including banking support, software support and hardware
support to bankruptcy trustees to remain in compliance with the
UST requirements to administer bankruptcy estates that cannot be
offset solely by the value of deposits maintained. Therefore TCB
will need to assess to the bankruptcy estates a monthly Custodial
Fee as a percentage of balances maintained to offset the
operational support provided. Depending on the level of operational
support required and the interest rate environment TCB will
annually adjust the Custodial Fee accordingly.
(Compl ¶78 (emphasis omitted)). Spinner alleges, “upon information and belief,”
that Texas Capital Bank communicated this information “to BMS and Epiq,
either directly or indirectly.” (Compl ¶79).
On or about April 29, 2011, the U.S. Trustee agreed to suspend the rule
that prohibited trustees from paying bank service fees from estate accounts.
(Compl ¶40). It appears that even though the rule was suspended, the U.S.
Trustee did not specify how the fee should be calculated, assessed, or paid.
Spinner alleges that after this rule was suspended, BMS, Epiq, and TEDS,
“upon information and belief, reaffirmed their conspiracy to sell Estates
Ohio), where the following exchange occurred between the court and a representative
of BMS, Steve Coffey, in the presence of an Epiq representative, Schott Field:
THE COURT: Okay. Mr. Coffey, you heard me P11 make sure your
counsel doesn’t mind my asking you questions directly. You know, if I’m
asking if I start to veer into any trade secrets or confidential
information, then simply say so.
MR. COFFEY: I don’t think there will be a problem. Mr. Field is in the
room and I don’t think we had a lot of secrets between us so that’s fine.
-
—
(Compl ¶86).
7
bankruptcy services only in combination with bankruptcy banking services,
and to charge no fee to an Estate for those combined services other than a
percentage of the amount in the bank account of the Estate.” (Compi
¶‘J
41-
42).
Sometime after April 29, 2011, BMS and “its partner bank entered into
agreements with Trustees that required their Estates to pay a combined fee for
bankruptcy support services and bankruptcy banking services” based on “a
percentage of the money in the account of the Estate.” (Compl ¶43). EMS and
its partner bank “then began deducting as a fee for those combined services a
percentage of the money” in the estates’ accounts. (Compl ¶44). BMS
“continues to sell bankruptcy support services only in combination with
bankruptcy banking services, and to charge Estates no fee for those combined
services other than a percentage of the amount in the bank account of the
Estate.” (Compl ¶46). Since 2012, EMS has used Rabobank as its “partner
bank,” and has required trustees to deposit the funds of the estate there.
(Compi
¶7).6
Neither EMS, Epiq, nor TES has charged a fee for bankruptcy support
services “(a) on a per trustee basis, (b) on a per case basis, or (c) on a per
transaction basis.” (Compl ¶45). At the time the complaint in this action was
filed, BMS and Rabobank charged fees at the annual rate of 1.75 percent “of
the amount on deposit at Rabobank.” (Compl ‘47). Epiq “and its partner banks
charge” a 1.75 percent fee on the amount on deposit, and TES and “its partner
banks charge fees at the annual rate of 1.9 percent of the amount on deposit at
those banks.” (Compl ¶47).7
Rabobank currently holds about two billion dollars in deposits from trustees
who contract with EMS. (Compl ¶24).
As noted by BMS, the complaint does not allege that the partner banks were
part of this conspiracy, or that EMS, Epiq, TES agreed on a certain percentage. (DBr
at 5). EMS also asserts that the complaint also does not allege “the date on which the
parties would switch” to this percent-based fee model, “the estate-size threshold above
which the percentage rate would kick in, or the estate-size at which the percentagebased fee would be capped.” (DEr at 5 (citing Compl 941-47)).
6
8
In June of 2011, BMS stated in a “publicly distributed” document that
the service fee was not negotiable, “[un order to provide equal treatment in all
bankruptcy cases.” (Compl ¶91). The “document” further stated that “the
Service Fee is based on a uniform rate as set forth above and is a condition of
participation in the BMS program.” (Compl ¶9 1).
Spinner claims that since late 2011, BMS, Epiq, and TEDS have “refused
to negotiate fees with Trustees.” (Compl ¶92). In a declaration submitted by
Coffey of BMS in In re Nanodynamics, Inc., No. 09-13438 (MJK) (W.D.N.Y.),
dated September 12, 2011, Coffey addressed the issue of the fee in response to
the Court’s concerns regarding the pricing for BMS’s services. (Compl
¶94).8
The Court expressed concern “that the business model, pricing,
.
.
.
[was]
not based on monthly activity [or] on the burdens upon the service providers,
[but was] based simply upon how many dollars are in an account.” (Compl ¶94
(alterations added)). In response, Coffey certified that:
21. The Court’s observation is essentially correct, but that should
not affect the allowance of the BMS Service Fee as an
Where, as
administrative expense, for at least three reasons.
here, the trustee in the exercise of his discretion has determined
that the foregoing requirements are satisfied, I am not aware of
anything that requires that a claim be measured by any particular
method, such as the (a) cost to the provider of providing the
service; (b) the amount of the service actually used by the estate
each day; or (c) the price at which a competitor might be willing to
offer a similar product, albeit with a lower quality of service. If it
were otherwise, then administrative expenses for things like a
trustee’s compensation under section 326(a), the UST’s quarterly
fees, or even the rent paid by a trustee for a facility to store estate
property, would all be subject to retrospective revaluation on an
individual case basis. I would submit that under such a regime,
few, if any, parties would be willing to do business with a chapter 7
trustee; BMS and BNY Mellon certainly would not.
.
.
.
22. Second, the BMS ‘flat’ percentage fee structure exists for a
reason, much like the rate structures for trustee compensation,
UST quarterly fees, and, say monthly premises rent, are ‘flat fee’
based, rather than being based [on] use or activity levels. The
B
Spinner has only provided the above-quoted snippets of the court transcripts.
9
reason is that no other structure is administratively feasible. BMS
and BNY Mellon do business with hundreds of trustees across the
nation, who collectively handle more than 50,000 ‘asset’ cases
currently (in addition to hundreds of thousands of ‘no asset’ cases
annually), it would be utterly impractical for BMS and BNY Mellon
to negotiate hundreds, or thousands, of ‘one-off deals’ with
individual trustees, based on the facts and circumstances of each
case; the costs of evaluating, negotiating and monitoring so many
unique contracts would by themselves be prohibitive, to both the
trustees and to BMS and BNY Mellon. While the trustee services
business may, if this interest rate environment continues,
ultimately evolve to a different model, where pricing is based on a
set schedule of fees and charges for numbers and types of
transactions, at this point, that is simply not a business model
that BMS and BNY Mellon are prepared to offer. When and if any
other providers are willing to offer services under such a model,
trustees of course have the ability to terminate their arrangements
with BMS and BNY Mellon on 30 days notice, and to contract with
such providers, to the extent that the trustees believe that they
should do so in accordance with the exercise of their fiduciary
duties.
(Compl ¶94).
Spinner’s complaint includes allegations of “circumstantial evidence” of
the alleged conspiracy. (Compl ¶11 80-102). On Epiq’s Form 10K, filed on
February 25, 2011 with Securities and Exchange Commission (before the U.S.
Trustee agreed to suspend the rule), Epiq represented that it does not compete
“in the market for bankruptcy support services based upon price.” (Compi
fl87-90). Jill Bauer, the Managing Director of Trustee and Fiduciary Services
for Epiq, executed a declaration on January 12, 2016, confirming that
bankruptcy support service providers competed only in terms of market share,
and not in terms of price. (Compl ¶95).
Spinner also alleges that Bankruptcy Courts have questioned whether
trustees “should pay combined fees for bankruptcy support services and
bankruptcy banking services from Estate accounts.” (Compl ¶90; see Compl
¶98 (citing In re Canopy, no. 09-44943 (ERW) (Bankr. N.D. Ill.))). Spinner
points to the following exchange between a Bankruptcy Court in the Northern
District of Illinois and a trustee:
10
MR. PALOIAN: And so what we face now are the bundled services
of Epic plus a bank.
THE COURT: Okay. I think what we need is to unbundle it.
MR. PALOIAN: Yeah, exactly, Judge. I couldn’t agree more. I’ve
tried to do this. I’ve had these discussions. We’re not necessarily at
the point. I have not been able to get a direct quote for just
trustee/Epic [sic] software services.
(Compl ¶98 (alteration in original)).
In terms of the amount charged by the software companies, Spinner
asserts that it is excessive, and that trustees have written complaints about the
amount charged to the National Association of Bankruptcy Trustees. (Compl ¶3j
100-0 1). Additionally, in a memorandum from Epiq to the Administrative Office
of the U.S. Courts dated April 2, 2012, an Epiq representative advised that
“Banks will not enter into this business and wait for an order in the future
authorizing the fee on a case-by-case basis or possibly risk disgorgement
should a court determine them unreasonable.” (Compl
¶ 102).
However, the
Epiq representative also noted that “This does not mean that the judiciary
needs to authorize the fees presently being charged by banks. The courts could
authorize some smaller number they feel is ‘reasonable’ (such as 0.50% to
0.75%) and then allow a bank to request a higher amount for unique
situations.” (Id.).
B. Fusari Bankruptcy Petition
On or about March 31, 2015, Robert Fusari filed a petition for
bankruptcy under Chapter 7 of the Bankruptcy Code in the United States
Bankruptcy Court for the District of New Jersey. (Compl
¶
8, 48). As a result
of that filing, an estate was created, comprised Pusan’s property at the time of
the filing of the petition. (Compl
¶ 10).
After the U.S. Trustee appointed a Chapter 7 trustee for the estate, on or
about April 27, 2015, the creditors of the Fusari estate elected Alan E. Gamza
Trustee (“Gamza”) to replace the appointed Chapter 7 trustee. (Compl ¶49).
11
On or about June 8, 2015, Gamza entered into a contract with BMS, and
agreed to deposit with Rabobank all, or substantially all, of the funds of any
estate for which he used BMS’s bankruptcy support services. (Compl ¶1J50-51).
Gamza also agreed with BMS to allow Rabobank to automatically withdraw a
monthly fee from the estate, “without any approval of the Bankruptcy Court or
notice to the creditors.” (Compl ¶5 1). On that same date, Gamza entered into a
separate contract with Rabobank that authorized Rabobank to automatically
withdraw the monthly fee from the estate accounts, without seeking approval
from the Bankruptcy Court of providing notice to the creditors. (Compl fl5253).
From April 27, 2015, through October 20, 2015, Gamza deposited the
funds from the Fusari estate into an account at Rabobank. (Compi ¶54).
Rabobank deducted $15,627.g8 from the Fusari estate as a fee. (Compl fl55,
57). Spinner alleges that Rabobank paid this fee to BMS and that the “amount
Rabobank deducted in fees.
.
.
was greater than the amount of the fees that
would have resulted in the absence of a conspiracy involving BMS to fix the
manner of charging Estates a combined fee for bankruptcy support services
and bankruptcy banking services.” (Compl ¶58).
On May 6, 2016, the Fusari case settled. (Compl ¶62). The Bankruptcy
Court entered an order on that date, incorporating the terms of the settlement.
That May 6, 2016 Order required that the residual property of the Fusari estate
be re-vested in Fusari. (Compl fl8, 63). In particular, paragraph 16 of the
Order provided as follows:
16. Revesting of Property in Debtor. Upon dismissal of the
Bankruptcy Case, all property of the Debtor’s estate and of the
Entities remaining after payment of the amounts set forth above
wherever located shall revest in the Debtor without further Order
of the Court.
EMS attached the May 6, 2016 order, which is referenced in the complaint, as
an exhibit to its motion to dismiss. (DE 17-2, Ex. B).
12
(Compi ¶63).b0
All payments under the order were made on or before June 1, 2018.
(Compi ¶66). Thereafter, on July 27, 2018, Fusari executed an agreement with
Spinner, and Spinner acquired the property that had vested in Fusari. (Compl
¶
9, 67). Spinner alleges that the property that it acquired from Fusari
“includes the claim asserted in this action.” (Compl ¶67). Spinner also claims
that “as successor to Pusan,” it has “sustained an injury in fact” that was
caused by the “overcharge.” (Compl
¶ 104).
C. Procedural History
On July 31, 2018, Spinner filed a complaint against BMS in this Court,
alleging that BMS, Epiq, and TES conspired to sell bankruptcy support services
“only in combination with bankruptcy banking services, and to charge Estates
no fee for those combined services other than a percentage of the amount in
the bank account of the Estate,” in violation of the Sherman Act, 15 U.S.C.
10
§
1.
The May 6, 2016 Order also included a release:
Upon the payment in fill of the Initial Settlement Payments identified
above to the applicable Parties, the estate and the Debtor on his own
behalf and on behalf of his Entities, hefts, executors, administrators,
agents, representatives, successors and assigns, and on behalf of any
and all heirs and assigns release, acquit and forever discharge the
Parties, the Creditors and the Parties-in-Interest identified above
(including Gaines and Lowenstein) and their present and former officers,
directors, parents, subsidiaries, affiliated companies, employees,
independent contractors, agents, representatives, and attorneys, and their
respective heirs, executors, administrators, agents, representatives,
successors and assigns of and from any and all debts, suits) claims,
judgments, actions, causes of action, demands, rights, damages,
expenses, costs, attorneys’ fees, and compensation whatsoever, known or
unknown, foreseen and unforeseen, that the Debtor or any of the Entities
has, had or may have, arising from facts, events, circumstances, actions or
omissions from the beginning of time until the Effective Date of this
Settlement Agreement, including without limitation all claims and causes
of action that were raised or could have been raised in this Bankruptcy
Case or relating to the Bankruptcy Case.
(DE 17-2, Ex. B, at ¶5(c)). The order is binding on all the parties, “and their successors
and assigns.” (DE 17-2, Ex. B, at ¶32).
13
(Compi ¶69). The complaint alleges individual and class claims. (Compl
¶1J 113-
120).
On October 1, 2018, BMS filed a motion to dismiss the complaint,
arguing that (1) Spinner lacks antitrust standing because it is not the “direct
purchaser” of BMS’s software and support services; (2) BMS’s efforts to lobby
for regulatory change are absolutely privileged; (3) the release provision in the
May 6, 2016 order bars Spinner’s claim; and (4) Spinner has failed to plead
sufficient facts to state a claim. (DE 16). Spinner has filed papers in opposition
to EMS’s motion. (DE 22).
II.
Standard
Federal Rule of Civil Procedure 8(a) does not require that a complaint
contain detailed factual allegations. Nevertheless, “a plaintiffs obligation to
provide the ‘grounds’ of his ‘entitlement to relief requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will
not do.” Bell Atl. Corp.
i1’.
Twombly, 550 U.S. 544, 555 (2007); see Phillips v.
Cnty. of Allegheny, 515 F.3d 224, 232 (3d Cir. 2008) (Rule 8 “requires a
‘showing’ rather than a blanket assertion of an entitlement to relief.” (citation
omitted)). Thus, the complaint’s factual allegations must be sufficient to raise a
plaintiffs right to relief above a speculative level, so that a claim is “plausible
on its face.” Twombly, 550 U.S. at 570; see also West Run Student Hous.
Assocs., LLCv. Huntington Nat’l Bank, 712 F.3d 165, 169 (3d Cir. 2013).
That facial-plausibility standard is met “when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft a Iqbal, 556 U.S. 662,
678 (2009) (citing Twombly, 550 U.S. at 556). While “[tjhe plausibility standard
is not akin to a ‘probability requirement’.
.
.
it asks for more than a sheer
possibility.” Id.
Rule l2(b)(6) provides for the dismissal of a complaint if it fails to state a
claim upon which relief can be granted. The defendant, as the moving party,
bears the burden of showing that no claim has been stated. Animal Sci.
14
Products, inc. u. China Minmetals Corp., 654 F.3d 462, 469 n.9 (3d Cir. 2011).
For the purposes of a motion to dismiss, the facts alleged in the complaint are
accepted as true and all reasonable inferences are drawn in favor of the
plaintiff. New Jersey Carpenters & the Tmstees Thereof v. Tishman Const. Corp.
of New Jersey, 760 F.3d 297, 302 (3d Cir. 2014).
When deciding a motion to dismiss, a court typically does not consider
matters outside the pleadings. However, a court may consider documents that
are “integral to or explicitly relied upon in the complaint” or any “undisputedly
authentic document that a defendant attaches as an exhibit to a motion to
dismiss if the plaintiffs claims are based on the document.” In re Rockefeller
Ctr. Props., Inc. Sec. Litig., 184 F.3d 280, 287 (3d Cir. 1999) (emphasis and
citations omitted); see in re Asbestos Prods. Liab. Litig. (No. Vi), 822 F.3d 125,
133 n.7 (3d Cir. 2016); Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014).
Reliance on these types of documents does not convert a motion to
dismiss into a motion for summary judgment. “When a complaint relies on a
the plaintiff obviously is on notice of the contents the document,
and the need for a chance to refute evidence is greatly diminished.” Pension
Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196-97 (3d
document
.
.
.
Cir. 1993).
“While ‘there is no heightened pleading standard in antitrust cases, and
the general principles governing Rule 12(b)(6) motions apply,’ an antitrust
plaintiff must ‘plead his complaint with particularity; a complaint, or
counterclaim containing only conclusory recitations of law is insufficient to
survive a motion to dismiss.”’ Animal Sci. Prods., 34 F. Supp. 3d at 484
(quoting In re K-DurAntitnist Litig., 338 F. Supp. 2d 517, 529 (D.N.J. 2004)).
An antitrust plaintiff must do more than make “allegations of consequential
harm resulting from a violation of the antitrust laws,” and that is true even
when the complaint is “buttressed by an allegation of intent to harm.”
Associated Qen. Contractors of Cal., Inc. u. Cal. State Council of Carpenters
(“AGC”), 459 U.S. 519, 545, 103 S. Ct. 897, 74 L. Ed. 2d 723 (1983).
15
Even when a complaint makes these allegations, it may not proceed
when “[o]ther relevant factors
—
the nature of the [claimant’s] injury, the
tenuous and speculative character of the relationship between the alleged
antitrust violation and the [claimant’s] alleged injury, the potential for
duplicative recovery or complex apportionment of damages, and the existence
of more direct victims of the alleged conspiracy
—
weigh heavily against judicial
enforcement.” Id.; see Twombly, 550 U.S. at 557-58 (“[S]omething beyond the
mere possibility of [relief] must be alleged, lest a plaintiff with a largely
groundless claim be allowed to take up the time of a number of other people,
with the right to do so representing an in terro rem increment of the settlement
value.” (internal quotation marks omitted)).
An issue presented in this motion is antitrust standing. Article III
standing and antitrust standing are “distinct” concepts. Hartig Drug Co. Inc. v.
Senju Phann. Co., 836 F.3d 261, 269-70 (3d Cir. 2016). “Unlike Article III
standing, statutory standing is not jurisdictional.” Leyse u. Bank of Am. Nat’l
Ass’n, 804 F.3d 316, 320 (3d Cir. 2015) (citing Lexmark Int’l, Inc. v. Static
Control Components, Inc., 134 5. Ct. 1377, 1388, 188 L. Ed. 2d 392 & n.4
(2014)).
Thus, dismissal for lack of statutory standing is properly addressed as a
matter of sufficiency of pleading under Rule 12(b)(6), rather than under Rule
12(b)(1). See id.; see also NicSand, Inc. u. 3M Co., 507 F.3d 442, 449 (6th Cir.
2007) (“antitrust standing and Article III standing are not one and the same,
and we not only may
—
but we must
—
reject claims under Rule 12(b)(6) when
antitrust standing is missing.”).
III.
Discussion
BMS argues that Spinner lacks antitrust standing because it is not a
“direct purchase?’ of its software (and services, presumably). (DBr at 7-13
(citing illinois Brick Co. v. illinois, 431 U.S. 720, 97 S. Ct. 2061 (1977)).
Relatedly, BMS argues that Spinner is not a “proper party,” or the most
effective plaintiff from among those who have suffered the alleged antitrust
16
injury. See AGC, 459 U.S. at 537-38; see also Ethyphami S.A. France a Abbott
Labs., 707 F.3d 223, 232-33 (3d Cir. 2013).
i. The Sherman Act and Antitrust Standing
The Sherman Act declares that “every contract, combination in the form
of trust or otherwise, or conspiracy, in restraint of trade or commerce among
to be illegal.” 15 U.S.C. § 1. To
the several States, or with foreign nations
.
.
.
state a claim, a plaintiff must establish four elements: “(1) that the defendants
contracted, combined, or conspired among each other; (2) that the combination
or conspiracy produced adverse, anti-competitive effects within relevant
product and geographic markets; (3) that the objects of and the conduct
pursuant to that contract or conspiracy were illegal; and (4) that the plaintiff
was injured as a proximate result of that conspiracy.” Animal Sci. Prods., 34 F.
Supp. 3d at 480 (citation and internal quotations omitted).
“While the rule of reason typically mandates an elaborate inquiry into the
reasonableness of a challenged business practice, there are certain agreements
or practices which because of their pernicious effect on competition and lack of
any redeeming virtue are conclusively presumed to be unreasonable.” Id. at
481 (quotations and citation omitted). The types of “agreements or practices”
that lack “any redeeming virtue” and are therefore “presumed to be
unreasonable and therefore illegal without elaborate inquiry as to the precise
are price
harm they have caused or the business excuse for their use
fixing, division of markets, group boycotts, and tying arrangements.” Id.
.
.
.
(quotation and citation omitted); see also Deutscher Tennis Bund u. ATP Tour,
Inc., 610 F.3d 820, 830 (3d Cir. 2010) (“Some categories of restraints, such as
horizontal price-fixing and market allocation agreements among competitors,
‘because of their pernicious effect on competition and lack of any redeeming
virtue are conclusively presumed to be unreasonable.”’ (citation omitted)).
Section 4 of the Clayton Act, 15 U.S.C. § 15, provides a private right of
action to “any person who shall be injured in his business or property by
reason of anything forbidden in the antitrust laws.” (emphasis added). The
17
broad language of § 4 reflects Congress’ intent to “create a private enforcement
mechanism that would deter violators and deprive them of the fruits of their
illegal actions, and would provide ample compensation to the victims of
antitrust violations.” Blue Shield of Va. v. Mccready, 457 U.S. 465, 472, 102 S.
Ct. 2540, 73 L. Ed. 2d 149 (1982). Although the statutory language is broad,
courts have developed a number of related doctrines that limit which parties
may assert claims for damages. Id. at 473. In general, these doctrines seek to
place antitrust claims in the hands of the most efficient enforcer of the
antitrust laws. Animal Sd. Prods., 34 F. Supp. 3d at 491.
“The term ‘standing’ as used in the antitrust context is conceptually
difficult and has not been delineated with precision.” In re Processed Egg Prods.
Antitrust Litig., 881 F.3d 262, 268 (3d Cir. 2018) (citing AGC, 459 U.S. at 536
(“There is a similarity between the struggle of common-law judges to articulate
a precise definition of the concept of ‘proximate cause,’ and the struggle of
federal judges to articulate a precise test to determine whether a party injured
by an antitrust violation may recover treble damages.”)). Antitrust standing
requires more than the familiar three-part test for Article III standing (injury in
fact, causation, and redressabilityj. Id.
Antitrust standing “requires a plaintiff to ‘prove more than injury
causally linked to an illegal presence in the market.tm Id. (quoting In re
Modafinil Antitrust Litig., 837 F.3d 238, 263 (3d Cir. 2016)). The Supreme Court
has observed that an “antitrust violation may be expected to cause ripples of
harm to flow through the Nation’s economy.” McCready, 457 U.S. at 476-77.
Nonetheless, “[i]t is reasonable to assume that Congress did not intend to allow
every person tangentially affected by an antitrust violation to maintain an
action to recover threefold damages for the injury to his business or property.”
Id. at 477; see Cromar Co. a Nuclear Materials & Equip. Corp., 543 F.2d 501,
to
505 (3d Cir. 1976) (noting that treble damages should be “confine[d]
.
.
.
those individuals whose protection is the fundamental purpose of the antitrust
laws.”).
18
Therefore, “the courts have sought to narrow the scope of the remedy
provided by § 4 by limiting the class of persons who have standing to sue
under that statute.” Brauman v. Bassett Furniture Indus., Inc., 552 F.2d 90, 96
(3d Cir. 1977). The Supreme Court has “articulated several factors to consider
when analyzing whether a plaintiff has such standing.” Life Watch Sews. v.
Highmark Inc., 902 F.3d 323, 341 (3d Cir. 2018) (citing AGC, 459 U.S. at 538).
Based on the Supreme Court’s opinion in AGC, the Third Circuit has
summarized those factors as follows:
(1) the causal connection between the antitrust violation and the
harm to the plaintiff and the intent by the defendant to cause that
harm, with neither factor alone conferring standing; (2) whether
the plaintiff’s alleged injury is of the type for which the antitrust
laws were intended to provide redress; (3) the directness of the
injury, which addresses the concerns that liberal application of
standing principles might produce speculative claims; (4) the
existence of more direct victims of the alleged antitrust violations;
and (5) the potential for duplicative recovery or complex
apportionment of damages.
Id. at 34 1-43 (quoting In re Lower Lake Erie Iron Ore Antitrust Litig., 998 F.2d
1144, 1165-66 (3d Cir. 1993)).
Merely derivative injuries sustained by employees, officers, stockholders,
and creditors of an injured company do not constitute “antitrust injury”
sufficient to confer antitrust standing. Pitchford v. PEPI, Inc., 531 F.2d 92, 97
(3d Cir. 1975) (holding that indirect harm that individual stockholder suffered
may not to be redressed through injury inflicted upon the corporation), cert.
denied, 426 U.S. 935, 96 S. Ct. 2649, 49 L. Ed. 2d 387 (1976); Loeb v. Eastman
Kodak Co., 183 F. 704 (3d Cir. 1910) (holding that injury to corporation, even if
caused by Sherman Act violation, is a claim belonging to the corporation, and
not to its stockholders or creditors); see Lovett u. General Motors Corp., 975
F.2d 518, 521 (8th Cir. 1992) (denying antitrust standing to sole shareholder
where only alleged injury stemmed from failure of corporation caused by
antitrust violation), cert. denied, 127 L. Ed. 2d 378, 114 S. Ct. 1058 (1994); see
19
also Sw. Suburban Bd. of Realtors, Inc. v. Beverly Area Planning Assoc., 830
F.2d 1374, 1378 (7th Cir. 1987).
ii. Direct Purchaser Rule
A second, closely related doctrine that affects which parties can sue for
antitrust damages is the direct-purchaser rule. “The illinois Brick direct
purchaser rule limits the scope of liability by choosing the most suitable
plaintiff from among the purchasers potentially harmed by cartel pricing.”
Animal Sd Prods., 34 F. Supp. 3d at 492. Pursuant to illinois Brick, 431 U.s.
720, there is a “general rule that only direct purchasers from antitrust violators
may recover damages in antitrust suits.” Howard Hess Dental Labs., liw, p.
Dentsply Intern., Inc. (“Hess I”), 424 F.3d 363, 369 (3d Cir. 2005); see Apple Inc.
v. Pepper, 139 5. Ct. 1514, 1520 (2019) (“we have consistently stated that ‘the
immediate buyers from the alleged antitrust violators’ may maintain a suit
against the antitrust violators.”); see also McCarthy a Recordex Sew., Inc., 80
enunciat[ed] a
F.3d 842, 847-48 (3d Cir. 1996) (“[T]he [illinois Brick] Court.
.
.
bright-line rule that only the purchaser immediately downstream from the
alleged monopolist may bring an antitrust action.”).”
On the other hand, “indirect purchasers who are two or more steps
removed from the violator in a distribution chain may not sue.” Apple Inc., 139
S. Ct. at 1520. Therefore, this private right of action does not extend to indirect
purchasers. Only overcharged direct purchasers, and not others in the chain of
manufacture or distribution, are parties “injured in [their] business or
The direct purchaser rule was first considered by the Supreme Court in
Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481,88 S. Ct. 2224,20 L. Ed.
2d 1231 (1968). In that case, a shoe manufacturer sued another manufacturer and
distributor of shoe machinery, alleging that the manufacturer had monopolized the
shoe industry. 392 U.S. at 483-84. The defendant argued that the plaintiff lacked
standing to sue because the plaintiff had effectively “passed on” any injury to its
customers. Id. at 488 n.6. The Supreme Court rejected that defense, finding that only
the “direct purchaser” of an illegally overcharged good, and not others in the chain of
manufacturing or distribution, is the party “injured” within the meaning of § 4. Id. at
489-9 1.
‘I
20
property” within the meaning of the Act. illinois Brick, 431 U.S. at 729.12 As is
the case with bright-line rules, the direct-purchaser rule means that there is no
reason to ask whether the rationales of illinois Brick “apply with equal force” in
every individual case. Kansas a UtiliCorp United, Inc., 497 U.S. 199, 216, 110
S. Ct. 2807, 111 L. Ed. 2d 169 (1990). The Court does not engage in “an
unwarranted and counterproductive exercise to litigate a series of exceptions.”
Id. at 217. The rule, by design, is somewhat rigid and arbitrary.
In illinois Brick, the defendant was a brick manufacturer and distributor,
who sold bricks to contractors who, in turn, submitted bids to general
contractors. 431 U.S. at 726. These general contractors then created and
submitted bids to final consumers, like the State of Illinois. Id. The State of
Illinois, representing a number of customers, sued the original manufacturer,
alleging that the brick manufacturer had engaged in an illegal price-fixing
conspiracy. Id. at 726-27. The Supreme Court held that Illinois, which
purchased the bricks following “two separate levels in the chain of
distribution,” id. at 726, was an indirect purchaser without standing. Id. at
735.
The direct purchaser rule seeks “to avoid the complications that would flow
from allowing suits by indirect purchasers.” Wallach u. Eaton Corp., 837 F.3d 356, 365
(3d Cfr. 2016). Such complications include “(1) the difficulty courts (and litigants)
would have in parsing how much of the harm caused by supracompetitive prices
charged by an antitrust violator was incurred by the direct purchaser as opposed to
being passed down to indirect purchasers;” “(2) the possibility that multiple lawsuits
could result in inconsistent adjudications of liability or could result in an antitrust
violator paying more than the injury it actually inflicted once both direct and indirect
purchasers obtained recovery;” and “(3) the deleterious effect that the combination of
uncertainty around damages and the likelihood that each individual indirect
purchaser’s share of damages would be small would have on the incentive for private
parties to initiate suits.” Id.
Balancing these concerns, the Supreme Court concluded that more effective
enforcement of antitrust laws would be achieved by allowing antitrust suits only to be
filed by direct purchasers. illinois Brick, 431 U.S. at 734.
12
21
Since illinois Brick, the Supreme Court has reaffirmed the “bright line”
quality of the direct purchaser rule. See UtiliCorp, 497 U.S. at 2l3-14;’ see
also McCarthy, 80 F.3d at 848 (interpreting UtiliCorp, illinois Brick, and
Hanover Shoe as “enunciating a bright-line rule that only a purchaser
immediately downstream from the alleged monopolist may bring an antitrust
action.”).
“When determining whether a plaintiff and defendant are involved in a
direct purchaser/seller relationship, courts look to the ‘economic substance of
the transaction,’ rather than the physical attributes of the transaction or the
geographical movement of goods and services.” Animal Sd. Prods., 34 F. Supp.
3d at 500 (citing Hess i 424 F.3d at 373 (finding that plaintiffs-purchasers did
not become direct purchasers from a manufacturer who drop-shipped products
to them because “the dealers still make the sale to [thej Plaintiffs and Ithe
manufacturer] makes the sale to the dealers.”)); see also Warren Den. Hosp. v.
Amgen Inc., 643 F.3d 77 (3d Cir. 2011).
In UtiliCorp, several public utilities sued a pipeline company and natural gas
producers, alleging that the defendants conspired to inflate the price of the natural gas
supplied to public utilities. 497 U.S. at 204-05. This fuel was bought by a utility and
the entire cost was passed on to consumers. Id. The states of Kansas and Missouri,
acting as parens patriae, asserted the same claims on behalf of all persons residing in
those states who purchased the gas. Id. at 204. The defendants argued that the utility
companies (the direct purchasers of the gas) lacked standing to bring suit because
state and municipal regulations ensured that the utility companies had “passed on”
the alleged overcharge to their customers. Id. at 205. The states argued that the
residential customers should have standing to bring suit because the customers bore
the full cost of the price-fixing conspiracy. Id. at 208.
‘3
The Supreme Court acknowledged that “the rationales of Hanover Shoe and
illinois Brick may not apply with equal force in all instances” but held that it was
“inconsistent with precedent and imprudent in any event to create an exception for
regulated public utilities.” Id. The Court rejected Kansas’s claim, explaining that the
consumers were “not the immediate buyers from the alleged antitrust violators” and,
instead, they “bought their gas from the utilities, not from the suppliers said to have
conspired to fix the price of gas.” Id. at 207. Essentially, it was the utility that had the
right to sue the suppliers for antitrust violations and allowing the utility’s customers
to also sue the suppliers would risk multiple recoveries and create difficult
apportionment problems. Id. at 207, 212.
22
Recently, the Court of Appeals in Warren, 643 F,3d at 79, 88, reaffirmed
the importance of considering “the mechanics of the transactions” at issue to
determine who is the direct purchaser. There, a pharmaceutical manufacturer
would sell its products to wholesalers, who in turn would resell those products
to the member hospitals. The Court affirmed the district court’s decision that
the hospital-plaintiff lacked standing to assert a claim against the
pharmaceutical manufacturer.
In particular, the Court noted the following qualities of the transaction:
(1) the hospital places an order through the wholesaler; (2) the wholesaler
negotiates the final sales price of the products separately with the hospital; (3)
the hospital physically takes delivery of the shipment from the wholesaler; and
(4) the hospital pays the wholesaler directly, and does not transmit funds to the
manufacturer. Id. at 88. Thus, the hospital’s purchases “go through at least
one other stage in the chain of distribution” before reaching the hospital, and
the hospital was thus an indirect purchaser that lacked standing. Id.; see also
In reHypodennicProds. Antitrust Litig., 484 F. App’x 669, 675 (3d Cir. 2012).’
A similar action has been brought against BMS in the Northern District
of Illinois that alleged a horizontal price-fixing conspiracy based on the same
operative facts and among the same software providers, BMS, Epiq, and TES.
See McGanij & McGamj, LLP v. Bankr. Mgmt. Sols., Inc., 2017 U.S. Dist. LEXIS
The Third Circuit in In re Hypodermic Prods. Antitrust Litig., 484 F. App’x at
675, essentially recognized the same factors. In that case, plaintiffs were the
distributors of defendant’s hypodermic products and certain healthcare providers that
purchased defendant’s products. Id. at 670-71. In concluding that the healthcare
providers, unlike the distributors, were not the direct purchasers, the Court noted
that:
(1) when Healthcare Providers needed hypodermic products, they placed
orders through Distributors; (2) Distributors negotiated the final sales
price of the hypodermic products separately with the Healthcare
Providers; (3) Distributors physically shipped the products to Healthcare
Providers; and (4) Healthcare Providers paid Distributors directly and did
14
not transmit funds to [defendants].
Id. at 675 (alteration added).
23
93133, *14 (N.D. 111. June 16, 2017).’ In McQarry, the trustee entered into a
contract with BMS, but the estate paid for the services. 2017 U.S. Dist. LEXIS
93133, at *6 n.7. The creditor-plaintiff argued that the estate was the “direct”
purchaser of the bankruptcy software because “the estate paid for the
services.” Id. BMS argued, as it does in this case, that the trustee or the bank
was the “direct purchaser.” The court did not expressly decide which entity was
the direct purchaser of the bankruptcy software. It concluded, however, that if
the estate was the direct purchaser, then it “owned any antitrust claim and
was entitled to one hundred percent of any overcharge.” To allow the creditor to
bring an antitrust claim, the court held, could subject BMS “to multiple
liability.” Id. at *6.
The court further noted that “the estate was injured by the overcharge: it
had less in assets than before.” To the extent that the estate was solvent after
satisfying creditors, the remaining assets would be returned to the debtor. Id.
at *8. “If BMS overcharged a solvent estate, fewer assets would return to the
debtor.” Id. In passing, the court also noted that 11 U.S.C. § 350 permits any
interested party to move to reopen an estate, and that “a debtor may petition to
*7
reopen an estate specifically to investigate a potential antitrust claim.” Id. at
*4 (Bankr. S.D.
(citing In re Indus. Marine Diesel, Inc., 1997 WL 33474937, at
Ga. Jan. 31, 1997) (granting debtor’s motion to reopen an estate to allow
debtor to pursue an antitrust claim that was based on facts discovered after
the bankruptcy case had closed)). Additionally, the court pointed out, “as a
the
trustee in bankruptcy owes a fiduciary duty to an estate’s creditors,
.
.
.
trustee could ‘pursue the debtor’s claim against the defendant on behalf of all
the debtor’s creditors equally, without preference for any particular creditor.”
Id. at *9; see also McGarry & McGarry LLP u. Bankr. Mgmt. Sols., 2018 U.S.
Dist. LEXIS 110264, at *67 (N.D. III. July 2, 2018) (“Because, according to
The facts of this case are practically indistinguishable from the McGarry matter,
except that the plaintiff in McGan-y was a creditor of the estate. I observe that
plaintiff’s counsel in this matter represented the creditor/plaintiff in McGamj,
Plaintiffs counsel also represented one of Fusari’s creditors in this case.
‘S
24
McGarrv, the Integrated estate was the direct purchaser, this court held that
the estate, through its trustee, was the proper party to bring an antitrust
claim.”).
Finally, Spinner, as a putative class representative, “cannot rely on the
direct purchases of other class members to establish its own standing.” Animal
Sd. Prods., 34 F. Supp. 3d at 502 (citation omitted). At this stage, Spinner
“must establish its own standing, either through its own direct purchases or
through the direct purchases of some entity that validly assigned its claims to
lSpinnerl.” Id. at 503.
iii. Analysis
This matter does not involve the typical horizontal price-fixing allegation.
In the ordinary case, a product goes through a chain of distribution that
includes three key players: the manufacturer; the distributor; and the
consumer, who ultimately receives and uses the product. In this case, however,
the mechanics of the transaction are as follows.
On June 8, 2015, Gamza, solely in his capacity as the trustee of the
Fusari estate, entered into a contract with BMS. (Compl flSO-51; DE 231)i6
Gamza, who was identified as the “Client” in the contract, agreed to deposit the
funds of the Fusari estate in Rabobank. (Compl ¶51; DE 23-1, at 2, ¶7). The
agreement also granted “BMS, Bank, or Financial Institution
.
.
.
the right to
charge” Gamza’s account a “service fee” for combined banking and technology
services. (Compl ¶51; DE 23-1, at 2, ¶8). Throughout the agreement, it is clear
that BMS’s services were being provided directly to Gamza as the trustee.
On that same day, Gamza entered into a Trustee Deposit Agreement with
Rabobank, which authorized Rabobank to automatically withdraw a monthly
fee from the estate account. (Compi ¶J52-53; DE 23-2, at 10 (“Rabobank may
Spinner has attached the contract between BMS and Gamza, a Software
Licensing Agreement, as an exhibit to its opposition. (DE 23- 1). Spinner has also
attached the Trustee Deposit Agreement that was executed between Gamza and
Rabobank. (DE 23-2). Both documents were referenced in the complaint, and EMS
does not dispute the authenticity of the documents. (DRBr at 2-6). They are properly
considered on a 12(b)(6) motion. See Section II, supra.
16
25
charge you a fee
.
.
.
a portion of which or all of which may be paid to BMS
for providing technolor services, case management and other banking related
services.”).’7 BMS was not a party to this separate contract between the bank
and Gamza. Prior to the closing of the bankruptcy case, Rabobank deducted
$15,627.98 in fees in accordance with the agreements. (Compl
¶11
55, 57).
The individual debtor and Spinner as the individual debtor’s assignee
were not at all involved in the direct exchange of BMS’s services for a fee.
Based on the mechanics of the transactions, Gamza, as the trustee, negotiated,
executed, and was bound by the agreements that governed the use of the
product at issue. Gamza executed the Licensing Agreement with BMS, used the
software, and arranged for its payment.
Any antitrust violation caused by the alleged price-fixing conspiracy
would have ultimately caused injury to the estate, and decreased the amount
of assets available for creditors, and ultimately for the debtor. Cf McGarnj &
McGarry, LLC v. Rabobank, N.A., 847 F.3d 404, 406 (7th Cir. 2017) (noting that
bank fees would be deducted from the creditors’ “share of the distribution of
the bankrupt’s assets.”); see also 11 U.S.C.
§
726 (setting forth order in which
property of estate is to be distributed). Additionally, the trustee, who is paid a
percentage of funds from the estate, would also be harmed by the alleged
antitrust violation.
This matter is unique in that Gamza did not buy the product at issue for
his own personal use. He used the product at issue for the benefit of another,
the estate. He paid for the product using funds from the estate. And finally, he
entered into the contracts governing the transactions at issue solely in his
capacity as trustee of the estate.
Therefore, I conclude that the estate is the “direct purchaser,” and the
trustee, as the representative of the estate, is the proper party to bring this
Both the Licensing Agreement and the Trustee Deposit Agreement had anti
assignment clauses, barring Gamza from assigning the agreement without BMS’s prior
written approval. (DE 23-1, at 3, ¶16; DE 23-2, at 2).
17
26
antitrust claim. See 11 U.S.C.
§
323. The trustee is in a fiduciary relationship
with the estate and has a duty to pursue claims on behalf of the estate. The
overcharge, to the extent that there was any, was suffered by the estate. To put
it another way, the trustee was making the purchase here. The trustee
was
the
party who, but for the alleged restraint on trade, would have negotiated in a
competitive market for the best price and terms that could be obtained on
behalf of the bankruptcy estate.
That injury was suffered only indirectly by the individual debtor (or the
creditors). The individual debtor is no more a “direct purchaser” than were the
creditors in McGamj.’8 Indeed, the creditors are upstream of the debtor; they
are entitled to a distribution, with the debtor receiving only the residue, if any.
See 11 U.S.C.
§
726. To be sure, the amount of assets left in the estate may
ultimately be reduced by the amount paid for support services. And the
amount left over, in turn, affected the availability of funds for the settlement.
That effect, however, is indirect; it is a knock-on consequence of the direct
antitrust injury suffered by the trustee (on behalf of the bankruptcy estate).
Spinner is appropriately seen as occupying a position downstream of the
estate. Spinner received an assignment from the individual debtor, after the
bankruptcy proceeding concluded and the remaining assets of the estate re
vested. Spinner as successor assignee stands in the shoes of the individual
debtor. It cannot have greater rights than the debtor did.
BMS’s motion to dismiss the complaint for lack of antitrust standing is
therefore granted. Because this dismissal is with prejudice, I do not address
BMS’s remaining arguments.
In another filing with this Court, Spinner recognized that the injury is more
directly felt by the estate: “The price fixing conspiracy that plaintiff challenges in this
action continues to drain many millions of dollars per year out of Chapter 7
bankruptcy estates, to the detriment of creditors across the United States.” (DE 28).
18
27
IV.
Conclusion
For the reasons stated above, BMS’s motion to dismiss the complaint (DE
15) is granted. Since amendment of the complaint would be futile, this
dismissal will be entered with prejudice.
An appropriate order has been filed (DE 51) and remains in effect.
Dated: June 12, 2019
K yin McNulty
United States District Ju
28
e
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