In a case pitting two American corporate giants against each other, the Texas Supreme Court has held that Wal-Mart is entitled to assert common law negligence claims against Xerox, which holds state contracts in Texas and several other states to process payments for the federally-funded Supplemental Nutrition Assistance Program (SNAP).
Wal-Mart Stores, Inc.; Wal-Mart Stores East, LP; Wal-Mart Louisiana, LLC; Sam’s East, Inc.; and Sam’s West, Inc. v. Xerox State and Local Solutions, Inc. a/k/a, f/k/a ACS State & Local Solutions, Inc. (No. 20-0980; March 17, 2023) arose from a 2013 incident in which Xerox’s electronic benefit transfer (EBT) system went on the fritz, leaving retailers scrambling to process transactions from customers with SNAP debit cards. During the outage, Wal-Mart used a so-called “store and forward” process to hold transactions until they could be submitted when the EBT system came back online. Due to a coding snafu, when Wal-Mart submitted thousands of transactions, they bounced back with error codes. When that happened, Wal-Mart lost the transactions and could not resubmit them. Wal-Mart sued Xerox for negligence, negligent misrepresentation, and breach of contract claims. The trial court granted summary judgment for Xerox on the basis that federal regulations provide that store and forward transactions are undertaken “at the retailer’s own choice and liability.” The Dallas Court of Appeals affirmed.
SCOTX affirmed as to the breach of contract claim but reversed and remanded to the court of appeals as to the negligence claim. In an opinion by Justice Devine, the Court focused primarily on the meaning of the term “liability” in the federal regulation. Xerox argued that the term protected them from common law claims asserted by retailers. Wal-Mart countered that it did not grant “blanket immunity” but provided only that the retailer assumes liability only against the governmental entities and SNAP beneficiaries. Otherwise, federal would pre-empt state-law claims “without any apparent congressional intent to bar such claims.” Noting that no authority construing the federal regulation exists for Xerox’s position, the Court applied timeworn principles of statutory construction and concluded that “the regulations allocate liability among the USDA, state agencies, and retailers to protect SNAP beneficiaries when using back-up procedures—manual voucher and store and forward—during a system outage. But the regulations related to back-up procedures do not contemplate the liability of other parties, for example, as between an EBT contractor and a retailer.”
Having determined that Wal-Mart’s negligence claims were not pre-empted by the regulations, the Court turned to whether Xerox owed a duty under either the “Phillips factors” or a voluntary-undertaking theory. Wal-Mart’s negligent misrepresentation claim asserted further that Xerox’s system represented that it was ready to receive transactions when it was not, causing Wal-Mart’s store-and-forward transactions to be lost. But rather than decide these issues, the Court remanded to the court of appeals with instructions to reconsider them in light of the Court’s holding as to liability. Xerox argued further that a coding error by Wal-Mart’s IT vendor, First Data, caused Wal-Mart to lose the transactions and constituted a “superseding cause” relieving it of liability. As this issue went unaddressed by the court of appeals, the Court sent that back as well. Finally, the Court upheld the court of appeals’ holding with regard to the breach of contract claim, finding that nothing in Xerox’s contract with the state could be construed to make retailers third-party beneficiaries under the contract.
This case is worth taking a look at for its discussion of federal pre-emption and of the principles of statutory construction as applied to a federal regulation. It also presents another good example of the Court’s consistent position of not deciding issues that it doesn’t have to, leaving the court of appeals to do the job it’s supposed to do.
