SDNY Bankruptcy Court Bans Court-Appointed Claims Agent From Selling Direct Access to Creditor Claims Log Data to XClaim

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In a first impression case involving an important bankruptcy claims administration issue, Judge Sean H. Lane of the United States Bankruptcy Court for the Southern District of New York, recently denied the ability of an agent of court-appointed claims to sell and profit from providing direct access to publicly available claims registry information. The unsuccessful purchaser of this information was XClaim Inc. (“Xclaim”), a relatively new company seeking to develop a web-based claims exchange platform. Pursuant to an “access agreement” with the claims officer (which the judge ordered released to the public), Xclaim requested exclusive access to creditors’ data in a digital format compatible with Xclaim’s platform – presumably to immediately use this data to solicit creditors. and drive them to their debt trading website. In return for providing direct access and related services, the claims agent would have received a handling fee equal to 10% of the commission collected for each claim transferred.

The issue of claims agents entering into these access agreements with Xclaim was first revealed in the pareum case, where Judge Lisa G. Beckerman questioned whether this claims agent had a contractual relationship with Xclaim and questioned the legitimacy of such an arrangement. The issue was then raised again in the Traveler and Celsius bankruptcy case, but these claims agents agreed to enter into the access agreement with Xclaim and therefore avoided the issue altogether. Although Judge Lane rendered no judgment on the morality of such an enterprise, he found that the arrangement specifically violated numerous sections of federal law, including 28 USC § 156(c), 28 USC § 1930 (e) and SDNY Banker. Local Rule 5075-1. These Rules and Regulations govern the ability of a Claims Agent to act as Registrar of the Court by providing non-exclusive access to the Public Claims Registry as well as prohibiting and limiting the fees that may be charged for the performance of these quasi-clerical services. Judge Lane found that Xclaim’s fee arrangement could not be reconciled with applicable rules and regulations, including prohibited fees that may be charged.

Judge Lane’s decision can be found in the transcript of the hearing held on July 20, 2022 at In re Madison Square Boys & Girls Club, Inc. bankruptcy proceedings, case no. 22-10910-shl.

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