SS&C: $890M At Stake in Legal Tussle With BNY Mellon

A longstanding dispute over a market data contract with SS&C Technologies, which could cost BNY Mellon up to a whopping US$890 million in damages, highlights the danger of intentionally violating or even misinterpreting a critical element of such an agreement– distribution rights.

At issue is whether BNY Mellon had the right to distribute market data received from SS&C Technologies to CIBC Mellon, a joint venture between CIBC and BNY Mellon, and dozens of other BNY entities. BNY Mellon thinks it did, but SS&C Technologies contends that BNY Mellon’s central asset servicing unit should never have distributed the data to CIBC Mellon or other BNY Mellon entities.

The saga of what occurred between BNY Mellon and SS&C originated in part from BNY Mellon’s corporate reorganizations. BNY Mellon was created in 2007 through the merger of Bank of New York and Mellon Financial Corporation. CIBC Mellon, which signed a separate contract with SS&C in 1999, canceled its agreement with SS&C in 2011. CIBC Mellon then continued to receive SS&C’s data from BNY Mellon.

In 2017 after SS&C discovered that CIBC Mellon and other BNY Mellon entities were still receiving the data from BNY Mellon it filed a breach of contract lawsuit against BNY Mellon and CIBC Mellon. SS&C subsequently uncovered that BNY Mellon had also distributed the data to other business units, besides CIBC Mellon, when it was not supposed to.  At least that is what SS&C believed. BNY Mellon countered that it had the right to distribute data to multiple entities under a contract signed in 1999 under the name of Mellon Trust. (Mellon Trust is not a legal entity, but the brand name for Mellon Financial’s custody and asset servicing businesses).

SS&C canceled BNY Mellon’s contract in 2017 after BNY Mellon refused to produce documentation on where its market data was being distributed, as required under its agreement. The vast majority of that data reflected prices of Canadian fixed-income securities which were needed for asset servicing clients, such as mutual funds and pension plans.  Market data prices are typically used to calculate net asset valuations and investment performance.

In 2021, Ontario Superior Court Judge Markus Koehnen agreed with SS&C that BNY Mellon violated the terms of its contract with SS&C. In a follow-up judgment in 2023, he calculated damages of about US$10 million based on his interpretation of how egregious BNY Mellon’s conduct was. However, SS&C thinks the figure for damages should be US$889 million based on its analysis and has just appealed Justice Koehnen’s ruling to the Ontario Court of Appeals.

In a statement to FinOps Report, BNY Mellon denied SS&C’s allegations of breach of contract and spoilation–or destruction– of documentation. The bank said it will fight SS&C’s appeal. However, SS&C appears confident it will win megabucks. In a statement to FinOps Report, SS&C said that it was pleased that the Ontario Court concluded that BNY Mellon repeatedly breached its data services agreement. “As a result, we intend to recover the monies owed as a result of this misconduct,” the statement concluded.

Data vendors charge clients annual subscription fees depending on the amount of data received, the type of data and where it is distributed. The language of where the data is allowed to be distributed is important to follow because any violation could prompt the vendor to terminate the contract or give rise to damages. The recipient of the data — the data vendor’s client — is required to document its distribution and usage to ensure it is not violating the terms of the contract. The client must provide the data vendor with all of the documentation upon request and must pay interest for a late payment.

Data vendors and clients typically negotiate any damages for breach of contract out of court with the recipient agreeing to pay either some portion or all of the difference of what it owes based on documentation held by the client. One can only presume that SS&C and BNY Mellon were not able to settle out of court, either because SS&C refused to settle or BNY Mellon refused to settle thinking it had a strong enough case if SS&C were to litigate.

What likely should have occurred in the case of SS&C and BNY Mellon, according to attorneys in contract law who spoke with FinOps Report but are not involved with the lawsuit, is that BNY Mellon should have renegotiated its contract with SS&C to explicitly include CIBC Mellon and the dozens of other BNY Mellon entities which received the data. Had it done so, SS&C wouldn’t have a leg to stand on.

In his decision to award SS&C over US$7 million in damages and CAD$4.33 million in legal fees, Judge Koehnen did not agree with either SS&C or BNY Mellon’s interpretation of how much SS&C should be paid in damages.  However, he decided BNY Mellon couldn’t entirely be let off the hook, as it wanted, because it was not honest with SS&C about where SS&C’s data was being used.  BNY Mellon could only account for what happened to about 44 percent of the data, leaving the door open for SS&C to argue that the judge should calculate damages based on a worst-case scenario. That worst case scenario was for BNY Mellon to be liable to pay for each unit of BNY Mellon which should not have received the data. The rate, according to SS&C, should be the same as the rate paid by BNY Mellon and a penalty fee should be imposed for late payment as per the terms of the contract.

SS&C estimated that at least 65 entities, including CIBC Mellon, were unauthorized to receive the data based on BNY Mellon’s acknowledgement in 2020 that 65 entities were within BNY Mellon’s trust and custody businesses.  In denying SS&C’s figure for damages, Justice Koehnen came to the conclusion that 44 entities were unauthorized to receive the data and the 44 entities included CIBC Mellon. His calculation of the number of entities differed from BNY Mellon’s which altered its figures throughout the course of the litigation. In 2017, the bank said that eight entities including CIBC Mellon were receiving the data; it subsequently cited 11 and ultimately ended up with 65. The judge based his figure of 44 entities on the number of custodial entities he was told by BNY Mellon fell under the Mellon Trust brand name as of 1999, with the exception of CIBC Mellon which had a separate data licensing contract.

Regardless of the number of entities involved, Justice Koehnen disputed SS&C’s premise that each of the entities should have paid the same fee as BNY Mellon. He presumed there should be a discounted rate because the data was distributed through a central asset servicing unit to multiple entities. The judge also noted that SS&C had amended its agreements with BNY Mellon and CIBC Mellon to add securities or affiliates at lower rates in 2000 and 2003 respectively.

Although BNY Mellon denied SS&C’s charge of “spoliation” or destruction of the documentation of data usage requested by SS&C, the bank’s legal department did not produce the documentation requested by SS&C after SS&C first caught wind that the data might have been sent to unauthorized entities. Even after some analysis was done by BNY Mellon, the bank could not account for the whereabouts of about 56 percent of SS&C’s data.

Instead of ruling in favor of “spoliation,” Justice Koehnen decided to draw an adverse inference against Bank of New York Mellon because it knew or should have known it was required to produce evidence required for litigation and it did not explain why that documentation was not preserved. Simply put, the justice would only agree that BNY Mellon failed to produce the documentation SS&C was legally entitled to receive. Justice Koehnen did not address whether BNY Mellon actually destroyed the documentation.

However, Justice Koehnen didn’t buy the varying reasons BNY Mellon gave as to why SS&C should not be paid any damages or at worst minimal damages. Among those arguments were that the entities in question had “minimal” usage of the data because only Canadian-based firms use Canadian fixed-income prices. Therefore, it stood to reason that CIBC Mellon must have used most of the data.

The judge also didn’t agree with BNY Mellon that SS&C either knew of where BNY Mellon was distributing the data or wouldn’t have minded where it was being distributed. “Mellon Trust and CIBC Mellon had separate agreements with SS&C pursuant to which each was paying SS&C full fees for access to the data,” wrote Justice Koehnen in his opinion. “It is one thing to allow two affiliates to share data when each is paying a license fee. It is entirely another thing to share data with affiliates that are not paying license fees.”

Justice Koehnen decided that it was BNY Mellon’s fault that CIBC Mellon and the other entities erroneously received data from BNY Mellon. As a result, he dismissed any allegation of CIBC Mellon’s breach of contract with SS&C. Nonetheless, he calculated that the damage for CIBC Mellon using SS&C’s market data came to about CAD$922,887 for fees that CIBC Mellon should have been paying between March 2011, when CIBC Mellon canceled its contract with SS&C and February 2017 when SS&C canceled its contract with BNY Mellon. Justice Koehnen calculated the fee based on the average amount that CIBC Mellon was paying for the last three months of its own contract with SS&C.

Justice Koehnen did not buy BNY Mellon’s argument that CIBC made the mistake of paying twice for the same data– once fed through CIBC Mellon and a second time through BNY Mellon. He also ruled that BNY Mellon and CIBC Mellon were to blame for not providing SS&C with a candid explanation of why they terminated CIBC Mellon’s agreement with SS&C. “It was BNY Mellon who shared data with CIBC Mellon without verifying with SS&C it was acceptable to do so,” he wrote in his decision. “It [BNY Mellon] simply assumed that the dual contracts were the result of a mistake without checking if SS&C shared the same view.”

Justice Koehnen calculated a separate figure of US$5.7 million in damages for BNY Mellon erroneously sending 44 entities data from SS&C. He presumed all of the entities used all of the data BNY Mellon received from SS&C which could not be accounted for. The judge based the fee as the same rate BNY Mellon paid for data for which it could account. Justice Koehnen did not accept BNY Mellon’s differing explanations — or rather speculation– of where the missing data might have been located, which included BNY Mellon’s InvestOne platform or CIBC Mellon’s own custody platform. The justice also did not accept BNY Mellon’s reasoning that SS&C was responsible for accounting for where the data was distributed based on its own audit trail because BNY Mellon gave contradictory testimony as to whether that option was possible.

After combining the damages for inappropriate distribution of data to CIBC Mellon and other BNY Mellon entities, Justice Koehnen added pre-judgment interest andCAD$4.3 million for SS&C’s court expense. That is how he reached the total figure of over US$10 million as a feasible solution.  The justice rejected BNY Mellon’s last-ditch effort to minimize the amount of damages by insisting it should be calculated on the basis of SS&C’s lost profits, not lost revenues. BNY Mellon had argued that SS&C would be “overcompensated” if it were to be paid on the basis of lost profits because SS&C will not be paying any vendor fees or sales commissions on the damages.

Justice Koehnen ruled that BNY Mellon’s rationale was flawed for two reasons. The first was that damages for breach of contract are intended to make a plaintiff whole. Therefore, SS&C was entitled to receive the same amount of money it would have received had the contract been followed. The second is that BNY Mellon is not entitled to ask if SS&C will incur all of the costs that might have been built into the original price. The reason: “That is simply none of the respondent [BNY Mellon’s] business,” Justice Koehnen wrote in his opinion.

It is unlikely the Court of Appeal for Ontario will dismiss SS&C’s lawsuit, say legal experts unrelated to the case who spoke with FinOps Report. There is simply too much evidence in SS&C’s favor that there was a breach of contract, so now all that must be decided is the value of damages. The lower court’s ruling of over US$10 million could stand or SS&C could be awarded a whopping US$889 million. Alternatively, the appeals court could come up with another figure.

Regardless of the final value of damages BNY Mellon must pay SS&C or even whether it wins the case by a long shot, its tumultuous legal saga with SS&C proves that violating the terms of a data contract — or even misinterpreting it — can be costly. In an age where mergers and takeovers are common, renegotiation of contracts is the optimal choice. The onus falls on the recipient of the data to be transparent with a third-party vendor as to why their contract is being canceled and how data is being used. An ounce of prevention can go a long way to avoiding a nasty court battle.