Bank of Louisiana v. Sungard Recovery Services, Inc.

Citations: 551 F. Supp. 2d 463; 2008 U.S. Dist. LEXIS 20788; 2008 WL 728971Docket: Civil Action 07-1228

Court: District Court, E.D. Louisiana; March 17, 2008; Federal District Court

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The United States District Court for the Eastern District of Louisiana granted Sungard Recovery Services, now known as Sungard Availability Services, LP, summary judgment on both Bank of Louisiana's breach of contract claim and Sungard's counterclaim. The case arose from the aftermath of Hurricane Katrina, which incapacitated Bank of Louisiana's IT operations. The bank had a Recovery Services Agreement with Sungard, initiated in 1997, to ensure operational recovery during disasters. Following Hurricane Katrina on August 29, 2005, the bank's CFO, Peggy Schaefer, contacted Sungard for assistance but was unable to retrieve necessary data. Consequently, Bank of Louisiana sued Sungard for $901,992.50 in damages, attorneys' fees, and costs, claiming breach of contract. In response, Sungard counterclaimed for unpaid fees for the remaining term of the agreement. 

The court outlined the legal standard for summary judgment, emphasizing that it is appropriate when no genuine issue of material fact exists, and the moving party is entitled to judgment as a matter of law. Sungard argued that Bank of Louisiana failed to prove any breach of duty under the agreement, asserting it was prepared to fulfill its obligations from the disaster alert's initiation until the alert was canceled.

SunGard claims that the responsibility for providing backup tapes and shipping them to its Georgia facility rested with the Bank of Louisiana. Over a four-day period, SunGard assisted Schaefer in locating the backup tapes, but she was unsuccessful in obtaining help from Bank of Louisiana’s IT staff or in making contact with George Harrison Scott, the bank’s chairman. On September 8, 2005, Schaefer opted to send the hard drives from her AS/400 computer to Michigan for recovery with Metavante/Kirchman instead of proceeding with the agreement with SunGard. The governing law for the agreement is Pennsylvania law, which requires three elements for a contract: mutual understanding, exchanged consideration, and clearly defined terms. To prove a breach of contract, a plaintiff must demonstrate the existence of a contract, a breach of its terms, and resulting damages. The main issue in Bank of Louisiana's complaint is SunGard's alleged lack of proactive support, claiming that SunGard breached specific sections of the agreement by failing to send necessary equipment and personnel to New Orleans. Bank of Louisiana contends that SunGard did not provide Schaefer with alternatives for handling the tapes or the equipment. The agreement outlines various recovery services available to the subscriber in the event of a disaster, including mobile recovery options and the delivery of a replacement recovery system within 48 hours after a disaster declaration.

Recovery support during a disaster is provided by SunGard's Support Staff, which includes personnel from various operational sectors such as communications, security, and customer support. They assist subscribers in contacting vendors and obtaining necessary equipment. In the context of the Bank of Louisiana's disaster plan post-Hurricane Katrina, deposition testimony from CFO Schaefer highlighted the requirements set by the FDIC and the Louisiana Office of Financial Institutions for a disaster recovery plan. Schaefer was responsible for disaster planning, though IT was managed by Scott, who oversaw the coordination of the plan initially drafted with the help of a professional team led by former employee Jimmy McAlpin. An audit in mid-2005 showed no deficiencies in the recovery plan, with IT vice-president Mule maintaining the plan's documentation. 

Key recovery procedures included the use of backup computer tapes, with annual drills conducted by operations manager Martinez in collaboration with SunGard. Schaefer clarified that in a disaster, an IT employee would retrieve backup tapes for immediate transport to SunGard's facility in Georgia. Following the declaration of an emergency on September 4, 2005, Schaefer coordinated with SunGard's Studstill to ensure the availability of compatible computer systems. However, communication with bank employees was challenging due to evacuations. Ultimately, Schaefer reached Granger and attempted to access the vault for backup tapes, finding them missing or incorrect. Efforts to locate the tapes continued with assistance from FDIC-recommended technicians, indicating a breakdown in the recovery process during the critical period following the disaster.

On September 6, 2005, Schaefer informed Lucy Ortiz that CMA and Roper would be using a generator to run the AS/400, but the generator failed to provide sufficient power, preventing the creation of backup tapes. Schaefer did not request a mobile data center or a replacement recovery system. On September 7, after consulting with Kirchman’s Charles Thompson, Schaefer hired Lance Thompson for data recovery, deciding to remove and ship the hard drives to Diverse Computer Marketers in Michigan, without considering SunGard for this task. Schaefer communicated her choice to recover data using Kirchman to Ortiz and officially ended the disaster declaration with SunGard on September 14 during a call with Bob DiLossi. 

On September 20, Schaefer signed a three-year outsourcing contract for core processing, stating she had no alternatives to meet SunGard's demands due to a lack of bank employees. The outsourcing plans had been initiated pre-Katrina to update core processing and reduce costs. DiLossi detailed SunGard's disaster recovery procedures, which involve verifying the customer’s issues, allocating resources, configuring equipment, and supporting recovery without replacing the customer’s IT staff. SunGard conducts annual testing and provides resources to assist during disasters. Prior to Hurricane Katrina, SunGard had opened an alert status related to Hurricane Dennis, identifying a deficiency in the Bank of Louisiana’s disaster declaration form. SunGard monitored Hurricane Katrina and processed multiple disaster alerts and declarations, but the Bank of Louisiana did not reach out until September 4, 2005. SunGard then reserved equipment and offered technical assistance because Schaefer indicated she lacked a technical background and could not locate her IT staff or backup tapes.

Schaefer sought permission to ship the AS/400 to a SunGard facility, but SunGard advised her to back up the tapes first. DiLossi noted that Schaefer did not request SunGard to send equipment or staff to Louisiana, and even if she had, logistical challenges post-Hurricane Katrina would have made it impractical. On September 6, 2005, Schaefer informed SunGard of her efforts to back up tapes, and by September 8, she reported restoring the AS/400's data through Kirchman. She had inquiries about check sorting, but DiLossi clarified that this required physical access to tapes or the AS/400, and he faced difficulties contacting Schaefer due to incomplete forms. On September 14, Schaefer decided to send the hard drive to Kirchman under pressure to restore operations and instructed SunGard to close the disaster declaration.

The Bank of Louisiana's claim against SunGard for breach of contract was supported by Scott's deposition, in which he believed SunGard should have proactively managed disaster recovery under the contract. He criticized the disaster plan that involved relocating to Georgia, deeming it a "mistake". However, the court found, based on evidence and testimonies, that SunGard did not breach the contract. The Bank had developed a disaster recovery plan and conducted drills, aligning with Schaefer and SunGard's understanding of the protocol during a disaster. Scott acknowledged this understanding, although he later disagreed with it. The failure in execution was attributed to the absence of Bank IT personnel to initiate the plan. Schaefer made significant efforts to coordinate recovery, including reaching out to local technicians, but did not request any deviations from the established plan or additional resources from SunGard.

Access to the New Orleans area was challenging, and electric power was unreliable. Schaefer, accompanied by state troopers, found the IT center without power and maintained contact with SunGard from September 4 to September 8, 2005. During this time, she decided to remove the hard drives and send them to Michigan due to her lack of expertise in data extraction, relying on SunGard's support technicians via phone. SunGard complied with the contract by providing necessary space and equipment at their Georgia facility, but the Bank of Louisiana's IT staff had to be present at both the bank’s center and SunGard’s facility, similar to prior drills.

There is no indication that Schaefer sought alternative recovery methods or communicated with SunGard about her actions after removing the hard drives. She ceased contact until canceling the disaster declaration on September 14, 2005, and sent the hard drives to Michigan. On September 15, 2005, Martinez returned to work, available to assist. Under challenging circumstances, Schaefer decided to contract with another company for data recovery and core processing, a move partly pre-planned prior to Hurricane Katrina.

The court found that SunGard established there were no genuine issues regarding a breach of contract, while the Bank of Louisiana failed to provide evidence of such a breach. Consequently, SunGard is entitled to judgment on the breach of contract claim.

In a counterclaim, Bank of Louisiana attempted to void the contract based on alleged inadequate assistance during the disaster, which led them to outsource core processing. SunGard refuted this claim, asserting that the contract remained valid, and sought payment for outstanding invoices dated back to August 2005. SunGard's vice-president supported their claim for unpaid fees under a contract executed on June 15, 2003, with a sixty-month term, noting that Bank of Louisiana made no payments after August 2005. According to contract law, any nonperformance when a duty is due constitutes a breach, and the materiality of that breach determines the non-breaching party's rights under the contract.

Termination for cause can occur if either party materially breaches the Agreement and fails to cure the breach within the specified periods. The cure period for breaches related to SunGard's Recovery Services during a disaster is five days, while for Subscriber's payment obligations, it is ten days from receiving a non-payment notice. Bank of Louisiana has not demonstrated a material breach by SunGard, which means there is no valid cause for contract termination. Consequently, there are no material factual disputes, and SunGard is entitled to judgment regarding the counterclaim for unpaid balance for the 60-month term. Additionally, SunGard reserves the right to seek costs and attorney's fees as stipulated in the Agreement. Key incidents mentioned include Scott's unavailability due to an accident, Mule's absence during the hurricane leading to his termination, and Martinez's communication issues post-storm, along with concerns about the backup tapes.