Schnuck Markets, Inc. v. First Data Merchant Services Corp.
2017 U.S. App. LEXIS 809
| 8th Cir. | 2017Background
- Schnuck Markets contracted with First Data (processor) and Citicorp (acquiring bank) under an MSA and Bankcard Addendum that incorporate First Data’s Operating Procedures and the card associations’ (Visa, MasterCard) rules.
- The agreements require Schnucks to indemnify Defendants for "Data Compromise Losses" (including issuer reimbursements) but also contain a $500,000 general limitation of liability (§5.4) with carve-outs for certain categories (e.g., "third party fees," "fees, fines or penalties"); a separate §25 of the Addendum includes a $3,000,000 cap for data-security breaches.
- In March 2013 Schnucks suffered a cardholder-data breach; MasterCard assessed Citicorp for case-management costs, issuer reimbursements (card monitoring/replacement and fraud), and related charges; Citicorp (and First Data) established a reserve and withheld over $500,000 from Schnucks.
- Schnucks sued for declaratory relief and breach of contract, arguing its liability for the associations’ assessments is capped at $500,000; Defendants counterclaimed seeking a declaration that the limitation does not apply to association-imposed fees/assessments and moved for judgment on the pleadings.
- The district court granted Schnucks’s motion and denied Defendants’, holding the issuer-reimbursement assessments were not "third party fees" or "fees, fines or penalties" and therefore fell within the $500,000 cap; the court ordered return of funds withheld above $500,000 (plus certain association charges).
- Defendants sought reconsideration/leave to amend to invoke the $3,000,000 §25 cap; the district court denied relief. Defendants appealed; the Eighth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Schnucks’s indemnity exposure for issuer-reimbursement assessments is subject to the MSA’s $500,000 limitation of liability | Limitation of liability (§5.4) applies to "all losses...for any cause whatsoever," so Schnucks’s indemnity obligations are capped at $500,000 | The assessments are carved out of the cap because they fall outside the limitation (as "third party fees" or "fees, fines or penalties") | Court: §5.4 applies; Schnucks’s liability for the issuer reimbursements is capped at $500,000. |
| Whether the associations’ issuer-reimbursement assessments are "third party fees" under §13.3 | Assessments are not fees for services and thus not within the "third party fees" carve-out; the contract’s listed fee types show a narrower meaning | The broad definition "all fees and charges without limitation" includes issuer reimbursements | Court: Assessments are reimbursements for losses, not payments for services; they are not "third party fees." |
| Whether the assessments qualify as "fees, fines or penalties" (another carve-out) | The assessments are compensatory reimbursements, not punitive fines or penalties, and association rules treat them as reimbursements | The assessments are association-imposed charges and thus fit the "fees, fines or penalties" exception | Court: Ordinary meaning and association rules show assessments are compensatory reimbursements, not fines/penalties; carve-out does not apply. |
| Whether the district court abused discretion by denying reconsideration/leave to amend to assert the separate $3,000,000 §25 cap | Schnucks: Defendants failed to timely plead/invoke the §25 $3M limit and did not show good cause to amend post-judgment | Defendants: §25 $3M limitation (for data-security breaches) applies and was effectively raised; leave to amend should be allowed | Court: Denial affirmed — Defendants did not raise §25 below or show good cause; district court did not abuse discretion. |
Key Cases Cited
- Jones v. W. Plains Bank & Tr. Co., 813 F.3d 700 (8th Cir. 2015) (standard for Rule 54(b) certification review)
- Waldron v. Boeing Co., 388 F.3d 591 (8th Cir. 2004) (de novo review for judgment on the pleadings)
- Deal v. Consumer Programs, Inc., 470 F.3d 1225 (8th Cir. 2006) (contract interpretation and enforcing unambiguous agreements)
- Farmland Indus., Inc. v. Republic Ins. Co., 941 S.W.2d 505 (Mo. 1997) (ordinary meaning of "fine" or "penalty")
- Shaw Hofstra & Assocs. v. Landco Dev., Inc., 673 F.3d 819 (8th Cir. 2012) (court must determine contract ambiguity as a matter of law)