Tuesday, February 7, 2017

FYI: 7th Cir Rejects "Anti-Tying" Challenge to Software Company's Required Use of Bank

The U.S. Court of Appeals for the Seventh Circuit recently held that a bank's relationship with a software services company, under which the software services company required its customers to use the bank for the depositary services ancillary to the software, did not violate anti-tying provisions of the federal Bank Holding Company Act, at 12 U.S.C. § 1972. 


A copy of the opinion is available at:  Link to Opinion


A bankruptcy trustee hired an administrative services company to provide a variety of services in a bankruptcy proceeding.  Among other things, the administrative services company provides software to bankruptcy trustees to help manage a bankruptcy, including keeping track of documents, distributing money to creditors, and complying with reporting obligations. The company uses the defendant bank as the depository for the banking services provided through the software.


The contract between the bankruptcy trustee and the administrative services company required the trustee to hire the bank to provide the banking services, and to deposit with the bank substantially all the funds in any bankruptcy estate in which the trustee uses the administrative services company's services. A separate contract between bankruptcy trustee and the bank authorized the bank to withdraw a monthly fee for the services it rendered in the bankruptcy proceedings.


The plaintiff law firm was a creditor in a bankruptcy proceeding for which the bankruptcy trustee engaged the administrative services company and the bank.  The plaintiff filed a claim in the bankruptcy and received a distribution of $12,472.55. The firm should have received $12,666.90 but the trustee deducted $194.35 to pay for a small part of the bank's fee for services.


The law firm alleged that the contracts between the trustee and the administrative services company, the trustee and the bank, and the company and the bank, violated the anti-tying provisions of the federal Bank Holding Company Act, at 12 U.S.C. § 1972.


As you may recall, 12 U.S.C. § 1972(1)(E)  states that:


a bank shall not in any manner extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition or requirement --


that the customer shall not obtain some other credit, property, or service from a competitor of such bank, a bank holding company of such bank, or any subsidiary of such bank holding company, other than a condition or requirement that such bank shall reasonably impose in a credit transaction to assure the soundness of the credit.


The law firm alleged that by requiring the bankruptcy trustee to obtain banking services exclusively from the bank, the bank conditioned its provision of services on the bankruptcy trustee's not obtaining equivalent services from a competitor of that bank, thus violating the anti-tying provisions of the federal Bank Holding Company Act. The district court rejected this argument and dismissed the lawsuit with prejudice.


On appeal, the Seventh Circuit held that the law firm "fails to distinguish between exclusive dealing and a single transaction."  Here, the Court explained, the bank did not condition its provision of services to the bankruptcy trustee on his agreeing to only hire the bank in any bankruptcy proceeding in which he is the trustee.  This the Court noted would be exclusive dealing.


Instead, the Seventh Circuit reasoned, the bankruptcy trustee here was free to hire a different bank and a different administrative services company in his next trusteeship.  Although the bankruptcy trustee might again hire the administrative services company and the bank in a future bankruptcy, he has not committed to hiring the company or the bank.


Thus, the Court held, there is no exclusive dealing.


The Seventh Circuit recited that the anti-tying provisions of the federal Bank Holding Company Act have been interpreted as "prohibiting exclusive dealing practices -- those that attempt to prevent customers from dealing with other banks."  Exchange National Bank of Chicago v. Daniels, 768 F.2d 140, 143 (7th Cir. 1985).  However, the Court noted that the bankruptcy trustee was not forced to deal with the administrative services company and the bank, and could easily hire a different administrative services company and bank in another proceeding.


In addition, the Court held that there was no evidence -- or even any argument -- that the $194.35 fee deducted from the plaintiff's share of the bankruptcy distribution for the bank's services was exorbitant or that the fee would have been lower had the trustee been allowed to hire a different bank or a plurality of banks.


Accordingly, the Seventh Circuit affirmed the judgment of the district court.





Ralph T. Wutscher
Maurice Wutscher LLP
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Email: rwutscher@MauriceWutscher.com


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