663 S.W.3d 569
Tex.2023Background:
- In October 2013 Xerox’s EBT host system suffered a >10‑hour outage during planned maintenance; Wal‑Mart used an automated "store‑and‑forward" system (authorized by 7 C.F.R. §274.8(e)(1)) to accept SNAP purchases and re‑present transactions later.
- Wal‑Mart stored ~420,000 transactions; Xerox ultimately denied ~86,000: ~32,000 denials for insufficient funds/invalid PINs (NSF losses) and ~54,000 returned as Code 19 ("Re‑enter Transaction") even though benefits were available.
- First Data (Wal‑Mart’s processor) remapped some Code 19 responses to general denials, causing automated removal from Wal‑Mart’s re‑presentment queue; Wal‑Mart communicated with Xerox and First Data during the outage.
- Wal‑Mart sued Xerox for negligence, negligent misrepresentation, and breach of contract (as a third‑party beneficiary of Xerox’s state contracts); trial court entered take‑nothing summary judgment; court of appeals affirmed.
- The central legal dispute: whether the federal store‑and‑forward regulation ("at the retailer’s own choice and liability") precludes Wal‑Mart’s state‑law claims or otherwise shields Xerox; Supreme Court held the regulation does not bar common‑law claims against EBT contractors and reversed on tort claims but affirmed dismissal of the contract third‑party‑beneficiary claim.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 7 C.F.R. §274.8(e)(1) immunizes EBT contractors from state‑law claims arising from store‑and‑forward transactions | §274.8(e)(1) only allocates risk among USDA, states, and beneficiaries; it does not provide blanket immunity to contractors | "At the retailer’s own choice and liability" means retailers bear any and all loss; contractors are insulated | Regulation does not insulate EBT contractors from state common‑law liability; court reversed court of appeals as to NSF losses |
| Existence of duty / negligent‑misrepresentation liability for Xerox | Xerox owed a duty under Phillips factors and/or by voluntary undertaking; Xerox misrepresented system readiness | Regulation shifts the risk to retailer; no actionable misrepresentations or duty as a matter of law | Court reversed summary judgment on tort claims and remanded for further consideration (court of appeals relied on erroneous regulatory interpretation) |
| Causation / superseding‑cause (First Data remapping) | Remapping was Wal‑Mart’s automated process and does not absolve Xerox; proportionate responsibility is for the jury | First Data’s remapping was a new, superseding cause that severs Xerox’s liability | Court did not decide; remanded to court of appeals to address this alternative ground not previously resolved |
| Breach of contract — whether Wal‑Mart is an intended third‑party beneficiary of Xerox‑state contracts | Indemnity provisions and incorporated Quest Rules evince intent to benefit retailers | Contracts expressly disclaim third‑party beneficiaries; specific provisions allocate store‑and‑forward risk to retailers | Affirmed: Wal‑Mart is not a third‑party beneficiary; excerpts disclaiming beneficiaries were sufficient to shift burden and Wal‑Mart’s contract evidence did not raise a genuine fact issue |
Key Cases Cited
- Kisor v. Wilkie, 139 S. Ct. 2400 (2019) (limits on deference to agency regulatory interpretations and requirement of genuine ambiguity)
- Wyeth v. Levine, 555 U.S. 555 (2009) (presumption against federal preemption of state‑law claims)
- Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996) (preemption principles and respect for state remedies)
- First Bank v. Brumitt, 519 S.W.3d 95 (Tex. 2017) (test for third‑party‑beneficiary status under Texas law)
- Amedisys, Inc. v. Kingwood Home Health Care, LLC, 437 S.W.3d 507 (Tex. 2014) (summary‑judgment burden‑shifting principles)
- Paragon Sales Co. v. N.H. Ins. Co., 774 S.W.2d 659 (Tex. 1989) (indemnity evidence as some evidence of third‑party‑beneficiary status)
- Zive v. Sandberg, 644 S.W.3d 169 (Tex. 2022) (standard of review for summary judgment)