903 F.3d 493
5th Cir.2018Background
- Conn Credit sold consumer goods and optional Retail Service Agreements (RSAs); many RSAs were financed with the underlying purchase and not paid up-front.
- Conn charged off defaulted accounts, canceled the RSAs, but did not credit customers (or reduce balances) for the unused portion of canceled RSAs.
- TF LoanCo III bought a portfolio of charged-off accounts from Conn via a Purchase and Sale Agreement: an initial bulk sale plus twelve future-flow deliveries; TF Loan paid based on account balances.
- The Sale Agreement contained seller warranties that accounts were originated, serviced, and collected in accordance with applicable law, and Section 10.2 made those warranties a condition precedent to TF Loan’s obligation to accept future deliveries.
- TF Loan refused to close on several August deliveries, alleging Conn’s RSA practice violated Texas Occupations Code §1304.159(c); Conn sued for breach and the district court awarded Conn damages; the Fifth Circuit reversed.
Issues
| Issue | Conn's Argument (Plaintiff) | TF Loan's Argument (Defendant/Counterplaintiff) | Held |
|---|---|---|---|
| Whether Conn’s failure to credit canceled, financed RSAs violates Tex. Occ. Code §1304.159(c) | Statute’s “purchase price” excludes financed RSAs when customer paid nothing up front, so no refund required | “Purchase price” includes the financed amount actually paid over time; statute requires prorated refund (credit) when provider cancels | Held for TF Loan: “purchase price” includes financed amounts; §1304.159(c) applies and Conn’s practice violated the statute |
| Whether Conn’s statutory violation made its Sale Agreement warranties untrue as of the August 28 closing (i.e., whether condition precedent in §10.2 failed) | Warranties were not materially breached or condition need not bar TF Loan’s obligations; district court found no prejudice/essentiality | Warranties in §8.5 (accounts serviced in accordance with law) were false because Conn failed to credit accounts; §10.2 is an unambiguous condition precedent | Held for TF Loan: §10.2 is an unambiguous condition precedent and Conn did not satisfy it, excusing TF Loan’s obligation to close |
| Whether TF Loan had to show prejudice or materiality to rely on the condition precedent | Argues condition not essential and prejudice required; district court applied prejudice/materiality | TF Loan contends no prejudice requirement applies to conditions precedent beyond contexts like insurance; the Sale Agreement does not require materiality for §10.2 | Held for TF Loan: Texas law does not impose a prejudice/materiality requirement on this condition precedent; court will not import one into §10.2 |
| Whether TF Loan waived the condition precedent by collecting on some accounts or by course of conduct | Conn argues TF Loan’s collection activity and conduct waived enforcement of §10.2 | TF Loan points to the contract’s express nonwaiver clause requiring a written waiver and no written waiver exists | Held for TF Loan: nonwaiver clause controls; no written waiver shown and collection activity did not waive the contractual nonwaiver provision |
Key Cases Cited
- Steele v. Leasing Enters. Ltd., 826 F.3d 237 (5th Cir.) (standards for reviewing bench-trial findings and legal conclusions)
- Ergon–W. Va., Inc. v. Dynegy Mktg. & Trade, 706 F.3d 419 (5th Cir.) (contract interpretation under Texas law is question of law)
- Smith Intern., Inc. v. Egle Grp., LLC, 490 F.3d 380 (5th Cir.) (elements of breach of contract under Texas law)
- Boren v. U.S. Nat'l Bank Ass'n, 807 F.3d 99 (5th Cir.) (applying Erie-guess framework when state high court has not decided an issue)
- Starr Indem. & Liab. Co. v. SGS Petroleum Serv. Corp., 719 F.3d 700 (5th Cir.) (refusing to import prejudice requirement outside insurance context)
- Horn v. State Farm Lloyds, 703 F.3d 735 (5th Cir.) (enforce unambiguous contract language as written)