The court struck damages awarded of over 900K against Bank of New York Mellon
Bank of New York Mellon Corp. breached a longstanding contract with SS&C Technologies Canada Corp., an affiliate of the world’s biggest hedge fund and private equity administrator, when it shared SS&C data with dozens of its own affiliates, the Ontario Court of Appeal ruled Thursday.
Justice Michael Tulloch authored the opinion. Justices William Hourigan and Bradley Miller concurred.
In a separate opinion on damages authored by Hourigan, the court also reprimanded BNY, noting that the bank failed to preserve certain documents even after SS&C asked it to do so to prepare for litigation.
“Having been warned to preserve data and with full knowledge that litigation was going to be commenced, BNY refused to do so on the basis that it rejected the allegations made against it. The reasonable inference is that it did so to suppress the truth in the litigation,” Hourigan wrote.
“I am troubled by the position taken by BNY in this litigation. It smacks of contempt for the justice system,” the justice added. However, the justice reduced the damages owed to SS&C by approximately $900,000 USD, leaving $5.7 million intact. Tulloch and Miller concurred.
In a statement to Law Times, a BNY spokesperson said, “Though we continue to strongly deny SS&C’s claims, we are pleased that the Court of Appeal reduced the damages award, agreeing that SS&C is entitled to only a small fraction of its claimed damages.”
Counsel for SS&C declined to provide comment.
SS&C’s predecessor, the Securities Valuation Company Inc., first agreed to sell data services to two clients in 1999. The first client was Mellon Trust, which was not a legal entity but the brand name under which BNY’s predecessor operated. The second client was CIBC Mellon, the joint venture between Mellon Financial and the Canadian Imperial Bank of Commerce.
SS&C’s predecessor signed similar contracts with both Mellon Trust and CIBC Mellon, requiring the banks to exclusively use its market pricing data. The contracts also banned Mellon Trust and CIBC Mellon from sharing the data with any entities besides their customers and stated each party’s successors would be bound by the contracts’ terms.
SS&C acquired Securities Valuations in 2005, while Mellon Financial merged with Bank of New York to form BNY two years later. As the merger between Mellon Financial and Bank of New York was closing, a Mellon Financial executive sent SS&C a letter confirming that BNY would take over Mellon Financial’s rights and duties under its data contract with SS&C. The executive did not mention that Mellon Financial and the Bank of New York’s custodial entities would also become parties to the contract.
BNY went on to share data it acquired under its contract with SS&C with numerous entities it acquired, all without informing SS&C. In 2011, CIBC Mellon stopped paying SS&C for data, terminated its contract with the company, and began “surreptitiously obtaining” data from BNY instead, the OCA said.
SS&C discovered the scheme in 2016, when a CIBC employee forwarded CIBC Mellon’s complaints about data delivery to SS&C. SS&C confronted BNY, but the bank refused to disclose whether it was redistributing data to its other entities. SS&C filed a lawsuit against BNY, alleging its contract with the bank banned the latter from redistributing data to CIBC Mellon and its other entities.
The trial court agreed, ruling that BNY breached its contract with SS&C by redistributing data to other entities. The contract only gave data access to BNY and the non-CIBC entities Mellon Financial owned at the time it was signed, the court said. The court added that CIBC Mellon violated its own contract with SS&C when it began secretly taking data from BNY in 2011.
The court later amended the judgment about CIBC Mellon, replacing it with a finding that BNY breached its contract with SS&C when it shared data with CIBC Mellon.
BNY appealed, arguing its contract with SS&C allowed it to share data with CIBC Mellon and its other entities. SS&C filed a cross-appeal, arguing the lower court should have ruled that its contract with BNY only allowed BNY to access data.
The court of appeal agreed with SS&C. “Applying the law of contract interpretation to them should have led the trial judge to conclude that the contract only authorized BNY to receive data,” Tulloch wrote. “But instead of drawing this conclusion, he determined that the contract authorized not only BNY but also Mellon Financial’s custodial entities at the time of contracting to access data.”
The trial judge also overlooked the finding that the parties co-signed a letter in 2007 agreeing that Mellon Financial, and subsequently BNY, was SS&C’s contracting party, Tulloch wrote. The letter “unequivocally communicated that BNY and SS&C were the sole contracting parties,” Tulloch said. He added the spirit of the letter was consistent with how SS&C’s predecessor and CIBC Mellon approached their own contract, which had to be explicitly amended in 2003 to expand the definition of “client” to include a CIBC Mellon affiliate.
Meanwhile, Hourigan’s opinion, which addressed issues related to damages, commended the trial judge’s approach to the case.
SS&C had alleged it suffered $890 million USD in damages, a number the company partly arrived at by multiplying the monthly fees BNY paid to the company by 65 – the number of entities SS&C said wrongly accessed its data – and by the number of months those entities existed for. BNY countered that CIBC Mellon used more than 95 percent of the data, so SS&C suffered no damages.
The trial court judge awarded SS&C $922,887 in damages with respect to BNY improperly sharing data with CIBC Mellon – the amount CIBC Mellon would have paid to SS&C between 2011, when CIBC Mellon terminated their agreement, and 2017, when SS&C ended its relationship with BNY. He also awarded SS&C another $5,696,850 with respect to BNY’s distribution of data to other entities, based on the finding that these entities used 55.4 percent of the data SS&C provided.
Hourigan struck the $922,887 award.
He also addressed SS&C’s claim that BNY had engaged in spoliation when, prior to the lawsuit, SS&C sent a letter to BNY asking it to preserve records that would help the parties understand which entities were using the data at issue. BNY’s representative, whom Hourigan identifies as a lawyer who was at McCarthy Tétrault at the time, declined to comply on the basis that BNY denied any contract breach had occurred.
“It is not open to lawyers or parties to ignore their obligations under the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and at common law based on their opinion of the merits of a potential claim,” Hourigan wrote. “As found by the trial judge, BNY knew or ought to have known that the data was required for the litigation, yet it was never produced, and no explanation was ever proffered by BNY or its counsel regarding why it was not preserved.”
Noting it was evident that the trial judge was disturbed by BNY’s conduct, Hourigan said, “The failure to preserve and produce relevant documents is conduct worthy of censure and the [trial judge’s] drawing of an adverse inference was appropriate in the circumstances of this case.”
Hourigan added, however, that his criticism was “not directed at BNY’s former counsel. He is an experienced litigator, and I must assume he advised his client that its position was unsustainable.”
