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 ("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
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
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).
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:
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 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 BMS document, and have since been in regular communication. (Compl ¶¶ 72, 82).
On or about January 21, 2011, Texas Capital Bank, on its and TES's behalf, proposed to the U.S. Trustee "that Estates be charged for combined bankruptcy support
(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 TES, "upon information and belief, reaffirmed their conspiracy to sell Estates 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." (Compl ¶¶ 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). BMS 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, BMS has used Rabobank as its "partner bank," and has required trustees to deposit the funds of the estate there. (Compl ¶7).
Neither BMS, 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).
Spinner claims that since late 2011, BMS, Epiq, and TES 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).
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:
(Compl ¶94).
Spinner's complaint includes allegations of "circumstantial evidence" of the alleged conspiracy. (Compl ¶¶ 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." (Compl ¶¶87-90). 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:
(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 ¶¶ 100-01). 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.).
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 Fusari'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).
From April 27, 2015, through October 20, 2015, Gamza deposited the funds from the Fusari estate into an account at Rabobank. (Compl ¶54). Rabobank deducted $15,627.98 from the Fusari estate as a fee. (Compl ¶¶55, 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 ¶¶8, 63).
(Compl ¶63).
All payments under the order were made on or before June 1, 2018. (Compl ¶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
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. § 1. (Compl ¶69). The complaint alleges individual and class claims. (Compl ¶¶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 BMS's motion. (DE 22).
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. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (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 plaintiff's right to relief above a speculative level, so that a claim is "plausible on its face." Twombly, 550 U.S. at 570, 127 S.Ct. 1955; see also West Run Student Hous. Assocs., LLC v. 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 v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). While "[t]he plausibility standard is not akin to a `probability requirement' ... it asks for more than a sheer possibility." Id.
Rule 12(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. Products, Inc. v. 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 Trustees 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 plaintiff's claims are based on the document" In re Rockefeller Ctr. Props., Inc. Sec. Litig., 184 F.3d 280, 287 (3d Cir. 1999) (emphasis
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 document... 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 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. v. China Minmetals Corp., 34 F.Supp.3d 465, 484 (D.N.J. 2014) (quoting In re K-Dur Antitrust 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 Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters ("AGC"), 459 U.S. 519, 545, 103 S.Ct. 897, 74 L. Ed. 2d 723 (1983).
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, 127 S.Ct. 1955 ("[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 terrorem 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 Pharm. Co., 836 F.3d 261, 269-70 (3d Cir. 2016). "Unlike Article III standing, statutory standing is not jurisdictional." Leyse v. 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., 572 U.S. 118, 134 S.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. v. 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.").
BMS argues that Spinner lacks antitrust standing because it is not a "direct purchaser" of its software (and services, presumably). (DBr at 7-13 (citing Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (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 injury. See AGC, 459
The Sherman Act declares that "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations ... to be illegal." 15 U.S.C. § 1. To 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 harm they have caused or the business excuse for their use ... are price fixing, division of markets, group boycotts, and tying arrangements." Id. (quotation and citation omitted); see also Deutscher Tennis Bund v. 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 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, 102 S.Ct. 2540. In general, these doctrines seek to place antitrust claims in the hands of the most efficient enforcer of the antitrust laws. Animal Sci. 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, 103 S.Ct. 897 ("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 redressability). Id.
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." Bravman 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." LifeWatch Servs. v. Highmark Inc., 902 F.3d 323, 341 (3d Cir. 2018) (citing AGC, 459 U.S. at 538, 103 S.Ct. 897). Based on the Supreme Court's opinion in AGC, the Third Circuit has summarized those factors as follows:
Id. at 341-43 (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 v. 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, 510 U.S. 1113, 114 S.Ct. 1058, 127 L. Ed. 2d 378 (1994); see also Sw. Suburban Bd. of Realtors, Inc. v. Beverly Area Planning Assoc., 830 F.2d 1374, 1378 (7th Cir. 1987).
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 Sci. Prods., 34 F. Supp.
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 property" within the meaning of the Act. Illinois Brick, 431 U.S. at 729, 97 S.Ct. 2061.
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, 97 S.Ct. 2061. 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
Since Illinois Brick, the Supreme Court has reaffirmed the "bright line" quality of the direct purchaser rule. See UtiliCorp, 497 U.S. at 213-14, 110 S.Ct. 2807;
"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 Sci. 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 [the] Plaintiffs and [the manufacturer] makes the sale to the dealers.")); see also Warren Gen. Hosp. v. Amgen Inc., 643 F.3d 77 (3d Cir. 2011).
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
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 McGarry & McGarry, LLP v. Bankr. Mgmt. Sols., Inc., 2017 WL 2619143 *1-2, 2017U.S. Dist. LEXIS 93133 *1-4 (N.D. Ill. June 16, 2017).
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 *3, 2017 U.S. Dist. LEXIS 93133 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 reopen an estate specifically to investigate a potential antitrust claim." Id. at *3, 2017 U.S. Dist. LEXIS 93133 at *7 (citing In re Indus. Marine Diesel, Inc., 1997 WL 33474937, at *4 (Bankr. S.D. 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 trustee in bankruptcy owes a fiduciary duty to an estate's creditors, ... the trustee could `pursue the debtor's claim against the defendant
Finally, Spinner, as a putative class representative, "cannot rely on the direct purchases of other class members to establish its own standing." Animal Sci. 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 [Spinner]." Id. at 503.
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 ¶¶50-51; DE 23-1).
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. (Compl ¶¶52-53; DE 23-2, at 10 ("Rabobank may charge you a fee... a portion of which or all of which may be paid to BMS ... for providing technology services, case management and other banking related services.").
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
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 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 McGarry.
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.
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.
(Compl ¶86).
(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).
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, 97 S.Ct. 2061.
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, 110 S.Ct. 2807. 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, 110 S.Ct. 2807.
Id. at 675 (alteration added).
