Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Bank of America allegedly conditioned loan on customer’s use of broker/dealer affiliate, (Oct 28, 2015)

By Linda O’Brien, J.D., LL.M.

Financial services corporation Bank of America engaged in an illegal tying arrangement by requiring a business borrower to assign its general public account as collateral and transfer the account to the bank’s broker/dealer affiliate as a condition for obtaining a syndicate loan, according to a complaint filed in the federal district court in Tampa, Florida (Bray v. Bank of America Corp., October 27, 2015).

Maritz Holdings is in the business of providing incentive and rewards to companies. Maritz formed a joint venture with American Express to operate American Express Incentive Solutions (AEIS), which issued prepaid gift cards to individuals and businesses. Patrick Ryan Bray is an independent registered investment advisor who managed the general public account (GPA) for AEIS in bonds and bond mutual funds. Bray competes for business with Bank of America, a multinational banking and financial services corporation.

The complaint states that, beginning in 2003, Maritz obtained a syndicated loan, renewable every two years, through Bank of America (BANA) which acted as the arranger, lead lender, and administrative agent. In 2009, Maritz went into a covenant default of the loan, due to a one tax distribution to Maritz’s owner. Maritz and BANA began discussions to renew the syndicated loan to obtain covenant relief. Additionally, Maritz advised BANA of its potential acquisition opportunity of American Express’ shares in AEIS and wanted the syndicate to allow for that opportunity.

The GPA managed by Bray had grown from $45 million in 2009. The monies were managed with the sole purpose being for redemptions by the general public of their previously purchased gift cards. New sales always outpaced the daily spend down of the cards and therefore the GPA was rarely, if ever, reduced. In September 2009, BANA allegedly notified Maritz that, after speaking with other members of the syndicate, the renewal of the syndicate loan would be conditioned upon the GPA monies used as collateral for the loan.

According to the complaint, the requirement of a collateral assignment on monies to perfect a loan is legal and frequently done by banks to protect their loan in the event of a default. However, this requirement was unusual, since the monies were not an asset of Maritz or AEIS. Further, Maritz’s campus property was already collateral for the syndicate loan. If Maritz defaulted on the loan, BANA would liquidate the GPA account to pay the debt, AEIS would become insolvent, and the public would lose its ability to utilize the prepaid gift cards that they had already purchased.

Maritz had no choice but to accept BANA’s illegal requirement in order to remain viable, as it was essential for the company to have an open line of credit in the event that opportunities arose or there were market downturns. Although Maritz rarely accessed the line of credit from the syndicated loan, it was essential for the company’s business model, the complaint states.

The complaint also alleges that BANA informed Maritz that the GPA must be moved to BANA or its affiliate, Merrill Lynch, as a condition of the loan in order to monitor the assets. A bank may not impose a requirement on an individual or business to accept an undesired product or service as a condition to receive a desired product, unless it is considered to be a traditional bank product or service. Here, BANA allegedly was conditioning the extension of credit on Maritz’s use of its affiliate’s broker-dealer services. Since Maritz was in a technical covenant default of the loan and the syndicate refused to grant any waivers, Maritz had no option than to accept those requirements to close the loan.

It was not possible for Maritz to acquire another syndicated loan, since the financial institutions involved in the syndicate comprised 71 percent of the syndicate transaction market and Maritz was in desperation after already being in covenant default. Bray had a long-standing relationship with AEIS prior to the imposition of BANA’s requirement and would have continued to manage the GPA but for the requirement. Subsequently, Bray was hired by Merrill Lynch to manage the AEIS account. However, Bray became dissatisfied with Merrill Lynch and resigned. BANA then notified Maritz that, if they moved to GPA with Bray, the loan would immediately be put in default. BANA’s requirement to maintain the GPA with its affiliate was an illegal tie and provided BANA with no extra monitoring capabilities, the complaint alleges.

The plaintiff asserts claims for illegal tying in violation of Sections 1 and 2 of the Sherman Act, Clayton Act, and Florida Antitrust Act. The action seeks injunctive relief, civil penalties, and punitive damages.

The case is No. 8:15-cv-02532-MSS-TBM.

Attorneys: Patrick Ryan Bray, pro se.

Companies: Bank of America Corp.; Bank of America, N.A.

News: Antitrust FloridaNews