The Supreme Court has reinstated Wal-Mart’s lawsuit against Xerox over $4 million in denied reimbursements for food purchases made during a prolonged outage of the electronic benefit transfer system. Justices last week reversed a trial court’s take-nothing judgment that was upheld in 2020 by the Fifth Court of Appeals.
On a Saturday in October 2013 Xerox’s system authorizing purchases by federal food program beneficiaries went offline for more than 10 hours when Xerox suffered a power failure while performing planned maintenance at its Dallas data center. Wal-Mart stored 420,000 transactions and later presented them for processing. Xerox declined reimbursement for about 86,000 transactions, worth around $4 million.
The case required the Texas court to study the history and purpose of a federal regulation governing how retailers should respond when the benefit verification system is offline for the federally-funded, state-operated Supplemental Nutrition Assistance Program. The regulations require state agencies to ensure that a manual purchase system is available for use. State agencies also “may opt to allow retailers, at the retailer’s own choice and liability, to perform” transactions that are electronically stored and later forwarded to the benefit contractor.
The appeals court had found that the federal regulation was “clear in imposing liability on Wal-Mart for the risks associated with its ‘store and forward’ transactions.”
The Supreme Court disagreed. Justice John Devine, in his opinion, delved into the regulation’s text, structure, history and purpose in finding that it does not insulate an EBT contractor from state common-law liability.
“Xerox’s contrary reasoning, on the other hand, would allow an EBT contractor to escape independently negotiated contractual obligations with a retailer and avoid liability not only for its negligent conduct but also for intentional torts related to store-and-forward losses,” Devine said. “If EBT contractors are not incentivized to minimize the risks of outages, retailers might be more likely to turn away SNAP customers during outages, limiting their options to purchase food. Such a construction runs counter to regulatory objectives.”
The court remanded Wal-Mart’s tort claims to the court of appeals to consider Xerox’s alternative grounds for affirmance. The court affirmed summary judgment on the breach-of-contract claims because Wal-Mart stores failed to produce evidence of their status as third-party beneficiaries.
Justice Debra Lehrmann did not participate in the decision.
Wal-Mart was represented at oral argument by Raffi O. Melkonian of Wright Close & Barger. Xerox was represented by David S. Coale of Lynn Pinker Hurst & Schwegmann.
The case number is 20-0980.