A dispute between one of the world’s largest hoteliers and
one of the region’s biggest banks has landed in Cook County court, where Hilton
Hotels has accused BMO Harris Bank of attempting to withhold $40 million in an
attempt to “extort” a new credit card processing agreement, and the bank has
responded by accusing Hilton of trying to renege on its contractual obligations
and of hanging BMO out to dry in the wake of data breaches that it believes
will result in hefty fines assessed by Visa and Mastercard.
On July 13, Park Hotels & Resorts, the corporate entity
formerly known as Hilton Worldwide, and BMO Harris each filed suit against the
other in Cook County Circuit Court.
In its lawsuit, Hilton alleged BMO is guilty of “wrongful
and extortionate diversion and retention of approximately $40 million” due as
part of a merchant services agreement Hilton terminated on May 11. Under the
contract, which dated to 2009, BMO and its agent, POST Integrations, would
capture, process and settle credit card transactions for Hilton hotels.
However, Hilton said, when it attempted to end the
relationship, BMO, through POST, threatened to withhold payments unless Hilton
agreed to rescind the termination and extend the agreement for three years.
Hilton refused, and POST began withholding funds on May 16,
Park Hotels said. The pool of diverted funds has since grown to exceed $40
million. Hilton said it tried to execute terms of the agreement outlining
pre-litigation dispute resolution on May 20, but its complaint alleges BMO
Harris refused to participate.
In its lawsuit also filed July 13, BMO described the
According to the bank, Hilton is attempting to use
litigation to avoid paying what it owes to BMO and POST to cover the cost of
fines and other sanctions BMO expects to receive from Visa and Mastercard in
the aftermath of data breaches suffered by Hilton in 2014 and 2015.
BMO alleged the terms of its contract with Hilton required
the hotelier to indemnify it against such actions brought by the two credit
card companies and allowed the bank and its agents to set aside a pool of money
it may need to satisfy the adverse actions the credit card companies may bring
in response to the data breaches.
“After its data security breach, Hilton terminated the
Agreement to be effective June 15, 2016, and it prematurely and in violation of
the Agreement abruptly diverted its payment card processing services to another
company on May 14, 2016 in an effort to avoid its obligations and deprive POST
and BMO Harris of the security they are entitled to under the Agreement,” BMO
alleged in its complaint.
BMO has asked the court to order Park Hotels to drop its
litigation, and “engage in alternative dispute resolution processes, mediation
and/or arbitration” to settle the dispute.
Hilton has disputed BMO’s assertions concerning its
obligations related to the data breaches.
In its complaint, Park Hotels said BMO Harris issued an
ultimatum May 11 calling on Hilton to “cause its new processor to enter into a
multi-party agreement” under which the new processor would be liable for fines
resulting from the data breach, and releasing POST from any liability. Hilton said
BMO also wanted Hilton to deposit $120 million in a BMO account to cover
estimated fines. An alternative option was to extend the then-existing
agreement for another three years.
Hilton says because it could not, even if it wanted to,
compel its new processor to agree to such terms, the demand amounted to
extortion forcing Hilton to accept the three-year extension.
In addition to a jury trial, Hilton seeks injunctions ordering
BMO Harris to release the withheld funds to the appropriate merchant accounts, compensatory
damages and punitive damages several multiples larger than the disputed
amounts, as well as interest and legal fees.
Attorneys with the firm of Ropes & Gray, of Chicago, are
representing Parks Hotels.
BMO Harris is represented in the action by the firms of
Jenner & Block, of Chicago, and Debevoise & Plimpton, of New York. POST
Integrations is represented by the firms of Sidley Austin, of Chicago, and
Lewis Roca Rothgerber Christie, of Phoenix.