The Texas Supreme Court questioned counsel during oral arguments Wednesday on whether to revive Walmart’s lawsuit seeking $4 million in damages from Xerox over a data processing outage, or whether the federal law that protects government-benefit recipients from such suits extends to provide immunity to technology contractors like Xerox.
The dispute stems from a 12-hour outage at a Xerox data processing center that affected more than 1,400 Walmart and Sam’s Club stores in October 2013 and prevented the retailer from processing Supplemental Nutritional Assistance Program transactions. SNAP offers food assistance to low-income individuals. Xerox contracts with the government and operates a system, called Electronic Benefits Transfer, or EBT, that allows a SNAP participant to pay for food using those benefits.
This case asks the court to decide if the Fifth Court of Appeals got it right in November 2020 when it held Walmart couldn’t recover tort or breach of contract damages from Xerox for the losses it suffered during the outage. A panel of that court held that the federal regulation governing the EBT system immunizes Xerox from Walmart’s claims.
Walmart argues that while that law immunizes SNAP beneficiaries and the government from being sued for benefit shortfalls caused by problems in the EBT system, that shield does not extend to parties like Xerox. And Xerox has argued that it has no contract with Walmart and cannot be sued for allegedly breaching a nonexistent agreement.
Justice Jimmy Blacklock asked Walmart’s counsel, Raffi Melkonian of Wright Close & Barger, whether the court needs to “step back and be careful” when it comes to considering Walmart’s argument that it is a third-party beneficiary to the contract between Xerox and the government and can therefore sue Xerox for alleged negligent misrepresentations it made about the outage.
“Perhaps we should be particularly hesitant to conceptualize a program like this as existing for the benefit of the vendors,” Justice Blacklock said. “For a court to say that the SNAP program exists and the government’s operation of it through Xerox is done for the benefit of people who sell food as opposed to the benefit of people who need food, it just strikes me as an odd way of conceptualizing what’s going on here.”
Melkonian told the court that was a fair concern and one he understood.
“But these contracts have specific indemnity provisions that run to us. They say they run to us,” he said. “The fact that, in general, the prime beneficiary of the SNAP program is the SNAP recipient does not alter the fact that these contracts have very specific language that gives us an indemnity in exactly these circumstances.”
Walmart lodged its petition for review with the Texas Supreme Court in February 2021, after the Fifth Court of Appeals affirmed the trial court’s ruling.
Walmart, which filed suit in November 2015, is appealing two trial court orders: a May 2017 order granting Xerox’s partial motion for summary judgment and an August 2018 order granting Xerox’s traditional and no-evidence motion for summary judgment.
David Coale of Lynn Pinker Hurst & Schwegmann, arguing on behalf of Xerox, told the court there was no need to disturb the lower court ruling disposing of this case.
“This just isn’t a claim,” he said. “It’s not something covered by tort or covered by contract. There’s not a duty and there’s not a contract. At the end of the day, there’s just not a claim here.”
Justice Jeff Boyd asked Coale whether the federal regulation “on its face” immunizes Xerox from breach of contract claims like those in this lawsuit.
“No,” Coale said. “I think it makes it impossible for them to meet their burden of an implied third-party beneficiary … it’s not a magic wand.”
Walmart is also represented by Brittany R. Greger and Michael Adams-Hurta of Wright Close & Barger.
Xerox is also represented by Christopher W. Patton of Lynn Pinker Hurst & Schwegmann.
The case number is 20-0980.