Metabank v. Conduent Business Services LLC
3:20-cv-01080
N.D. Tex.Nov 16, 2020Background
- MetaBank (issuer) and Xerox Card Services (XCS), a Conduent subsidiary, entered a Servicing Agreement (April 7, 2016) for a prepaid card program; the agreement contains a termination clause at §9.2(a)(iv) referencing "change, enactment, or change in interpretation or enforcement of any law or regulation" that materially affects performance.
- After execution, the parties discovered that state money-transmitter licensing (MTL) obligations applied in many more states than initially expected, increasing costs and regulatory burdens.
- Conduent alleges it exercised §9.2(a)(iv) to terminate the agreement in July 2018, but mistakenly authorized payments through February 2019; MetaBank sued in South Dakota (Aug. 2019) for breach/declaratory relief for unpaid fees; the case was transferred to N.D. Tex.
- Conduent filed counterclaims for declaratory judgment (about termination), rescission, and unjust enrichment; MetaBank moved under Rule 12(c)/12(b)(6) to dismiss the declaratory-judgment and unjust-enrichment counterclaims.
- The court applied South Dakota law (choice-of-law clause in the contract and Van Dusen principles) and analyzed whether §9.2(a)(iv) plausibly allows termination based on a party's private change in interpretation of law.
- The court dismissed Conduent’s declaratory-judgment counterclaim without prejudice, holding that "interpretation" in §9.2(a)(iv) is naturally read as governmental interpretation/enforcement (noscitur a sociis) and not a unilateral party re-interpretation; the unjust-enrichment claim survived as a companion to the rescission claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §9.2(a)(iv)'s phrase "change in interpretation or enforcement of any law or regulation" plausibly includes a party's private change in interpretation, allowing unilateral termination | MetaBank: implausible construction; clause contemplates governmental action, not a party's subjective reinterpretation; dismissal warranted | Conduent: clause is ambiguous and can be read to include parties' changed interpretation; ambiguity precludes dismissal | Court: Dismissed declaratory claim. "Interpretation" read in context (noscitur a sociis) refers to governmental action; party-based termination would produce absurd results; claim dismissed without prejudice |
| Whether unjust-enrichment claim must be dismissed because declaratory claim failed | MetaBank: unjust-enrichment depends on declaratory theory; with declaratory claim gone, unjust enrichment fails | Conduent: unjust enrichment ties to rescission; restitution is companion to rescission under SD law | Court: Denied dismissal. Unjust enrichment survives as companion/remedy to rescission under South Dakota law |
| Choice of law after transfer | MetaBank: South Dakota law governs (contract clause and transferor's law) | Conduent: did not successfully rebut application of South Dakota law | Court: Applied South Dakota law per contract choice clause and Van Dusen/Day & Zimmermann principles |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (two-step plausibility analysis for Rule 12(b)(6))
- Van Dusen v. Barrack, 376 U.S. 612 (1964) (transferee court applies law transferor court would have applied)
- Day & Zimmermann, Inc. v. Challoner, 423 U.S. 3 (1975) (federal courts follow forum state's choice-of-law rules)
- Dunes Hospitality, L.L.C. v. Country Kitchen Int'l, Inc., 623 N.W.2d 484 (S.D. 2001) (South Dakota applies Restatement choice-of-law rules and generally enforces parties' choice)
- Opperman v. Heritage Mut. Ins. Co., 566 N.W.2d 487 (S.D. 1997) (use of noscitur a sociis in contract interpretation)
- Tri-City Assocs., LP v. Belmont, Inc., 845 N.W.2d 911 (S.D. 2014) (context matters in interpreting contract language)
- Nelson v. Schellpfeffer, 656 N.W.2d 740 (S.D. 2003) (courts avoid literal readings that produce absurd results)
- Whitson v. Lende, 442 N.W.2d 267 (S.D. 1989) (restitution accompanies rescission)
- O'Connor v. King, 479 N.W.2d 162 (S.D. 1991) (rescission requires restoration and recovery of payments)
- Greenberg v. General Mills Fun Group, Inc., 478 F.2d 254 (5th Cir. 1973) (standard for judgment on the pleadings under Rule 12(c))