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Rabobank and Bankruptcy Management Overcharges to Trustee Accounts Class Action

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While an entity is in bankruptcy proceedings, assets may be held by a bank or other entity to protect and conserve them so that the bankruptcy can be properly resolved. But the complaint for this class action alleges that Rabobank USA Financial Corporation (which does business as Rabobank, NA) and Bankruptcy Management Solutions, Inc. (BMS), among others, charged excessive fees that were not appropriate for the level of services provided. 

The class for this action is any creditor (or other entity to whom funds may be distributed) in a Chapter 7 case under the US Bankruptcy Code in which Rabobank USA Financial Corporation, Rabobank, NA, or Bankruptcy Management Solutions, Inc. charged bank and technology services fees at a monthly nominal percentage rate of 1.75% for services that may not have been performed or which were not necessary to preserve the assets of the bankruptcy estate. 

The class period is not specified except to say that it “begins within the past ten years and continues.” 

The case is brought by Recovery Fund II USA, LLC, which sought to recover funds from Nexity Financial Corporation in a Chapter 7 bankruptcy case. The Recovery Fund filed a proof of claim in 2011 for over $14 million. The complaint says it expects to recover less than $74,000. 

Rabobank provides banking services to Chapter 7 Trustees. Banks are allowed to charge service fees in Chapter 7 cases, the complaint says, “but only if such fees qualify as administrative expenses…” 

Rabobank is also a signatory to the Uniform Authorized Depository Agreement (UADA) for its services to Chapter 7 trustees. The complaint says that the UADA “requires firms charging bank service fees to demonstrate that any service fees charged represent actual, necessary costs and expenses of preserving the estate, such that they properly qualify as administrative expenses under Section 503(b) of the Bankruptcy Code.” The complaint says that the UADA also requires that banks “quantify and report service fees as a separate and discrete billing line item” to ensure that the fees are appropriate administrative expenses.

However, during a majority of this particular bankruptcy, the complaint says, Rabobank charged a “banking and technology services fee” of 1.75% of all funds in the bankruptcy estate’s account. Much of this charge went to BMS. By the time of the Trustee’s Final Report on the bankruptcy, these fees added up to more than $93,000—more than the Recovery Fund was hoping to be able to recover. 

The Recovery Fund alleges that Rabobank and BMS have violated the Racketeer Influenced and Corrupt Organizations (RICO) Act in their conspiracy to overcharge and in the commission of larceny, along with violation of the Bankruptcy Code, among other things.

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