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Inter National Bank v. Netspend Corp.

Court of Appeals of Texas, Thirteenth District, Corpus Christi-Edinburg

April 26, 2018


          On appeal from the 398th District Court of Hidalgo County, Texas.

          Before Justices Benavides, Longoria, and Hinojosa


          GINA M. BENAVIDES Justice

         This case involves a commercial dispute between appellant Inter National Bank (INB) and appellee NetSpend Corporation (NetSpend) that resulted in a $10.5 million summary judgment granted in favor of NetSpend, a severance, and a judgment from which INB appeals. By four issues, which we have reorganized, INB contends that the trial court: (1) abused its discretion when it severed different theories of liability for a single cause of action into multiple cases; (2-3) erred when it granted NetSpend's motion for summary judgment because (a) NetSpend did not prove a predicate issue as a matter of law-that any deficiency in the NetSpend accounts at INB existed before the effective date of the releases, (b) some claims were not covered by the releases including but not limited to any indemnification claims that arose before and after the 2010 Release and any claims involving the transition period, and (c) there were genuine issues of material fact on all claims; and (4) improperly entered a final judgment that was inconsistent with the summary judgment. We reverse and remand.

         I. Background

         A. Pre-Paid Debit Card Program Agreements and Amendments

         1. In 2006, INB and NetSpend Entered into a Ten-Year License and Servicing Agreement for a Pre-Paid Debit Card Program

         Our review of the record shows that on January 1, 2006, INB and NetSpend entered into a ten-year License and Servicing Agreement (2006 LSA) to set up a pre-paid debit card program; NetSpend, the developer/marketer and manager of the program, and INB, an issuing bank for the card program and the holder of the funds associated with this card program. Under the 2006 LSA, INB set up accounts to administer the program.

         2. In 2008, after Reconciling the Program Accounts, INB and NetSpend Reallocated Approximately Half of an Overfunding

         It is undisputed that in 2008, based on a forensic review conducted by NetSpend, the program accounts at INB were overfunded by approximately $40 million. It is further undisputed that in December 2008, NetSpend instructed INB to transfer $20-$21 million to MetaBank, a federal savings bank that also issued debit cards in NetSpend's card program. INB complied. With the agreement of INB and MetaBank, NetSpend hired a national accounting firm, BDO USA, LLP d/b/a BDO Seidman, to provide support for any further transfer of funds that may be necessary to balance the accounts.

         3. In 2009, INB and NetSpend Entered into a Settlement Agreement and a First Release that Reallocated the Remaining Money in the Overfunded Program Accounts

         On May 27, 2009, after the BDO Seidman audit, [1] INB and NetSpend entered into an agreement (2009 Settlement Agreement) reallocating the remaining $14.8 million surplus of the program-related funds. INB agreed that it owed NetSpend approximately $4.8 million. INB also agreed to reallocate approximately $10 million to MetaBank, $5.7 million of which MetaBank owed to NetSpend.[2]

         The 2009 Settlement Agreement included a release (First Release) that contained, among other things, the following provisions:

Each Party hereby (a) agrees that the payments [set out above] are in full satisfaction of each Parties' obligations with respect to the matters within the scope of the [BDO Seidman] Audit; and (b) releases and acquits each of the other Parties, and agrees to indemnify, defend and hold the other Parties harmless, from and against any and all claims, counter claims liens, demands, causes of action, obligations, damages and liabilities, expenses costs, attorneys' fees, damages, indemnities, obligations or liabilities of any nature whatsoever, whether known or unknown, that each Party ever had, now has or may hereafter claim to have against the other Parties and their respective stockholders, successors or assigns thereof, in any way related to the matters within the scope of the [BDO Seidman] Audit and the Net Funding Positions Worksheet and the payment of any amounts other than the amounts set [out above] for the periods audited by the [BDO Seidman] Audit (the "Released Claims"). . . .

         In other words, after reallocating the monies in the program accounts, each party released any claim it had against the other party that related to the periods covered by the BDO Seidman audit.

         4. In 2010, INB and NetSpend Amended the 2006 LSA to Early-Terminate the Agreement

         Although the 2006 LSA was to continue until 2016, on September 24, 2010, the parties signed an early-termination amendment (2010 Second Amendment) to the 2006 LSA.[3] The 2010 Second Amendment set out that the parties agreed to begin "an orderly termination of the Programs, " transitioning the card program from INB to Bancorp, another pre-paid-debit-card issuing bank. It identified the Commencement Date for the transition period as September 24, 2010. The parties set the termination date for the 2006 LSA as "the earlier of the Account Transfer Date [or Cease Date] or July 29, 2011, or such other date as mutually agreed in writing by [INB] and [NetSpend]." The 2010 Second Amendment also set out the procedures for transferring all cardholder funds at INB to Bancorp.[4]

         The 2010 Second Amendment included a Second Release, which it attached as Exhibit 3. The Second Release provided, in relevant part, that each party,

fully, finally and unconditionally releases and forever discharges the other . . . from any and all lawsuits, appeals, claims, charges, complaints, liens, debts, liabilities, demands, obligations, rights, grievances, promises, damages, costs, legal fees, expenses, actions and causes of action of every nature, character, and description whatsoever in law or equity, that [NetSpend] and [INB] had, now has or may have had prior to the date of this Agreement against each other, whether known or un-known, absolute or contingent, arising out of, in connection with or related to [the 2006 LSA, as amended] . . . .

         The Second Release expressly excepted either party's obligations related to the transition procedures necessary to effectuate the account transfer from INB to Bancorp. The Second Release also excepted either party's indemnification obligations under the 2006 LSA's indemnification provisions, as amended and restated in the 2010 Second Amendment.

         5. During the Transition Period NetSpend Informed INB of an Underfunding of Approximately $10.5 Million

Our review of the record reveals that in June 2011, approximately six weeks before the original transfer date of July 29, 2011, NetSpend informed INB that the program accounts were underfunded by about $10.5 million. According to NetSpend, an underfunding occurs when too little money is paid into an account or too much money is paid out. NetSpend claimed that the underfunding had developed and grown to $8.5 million by the date of the First Release in May 2009[5] and then had grown by an additional $2 million by the time of the second release in September 2010. The ongoing process of terminating the parties' contractual relationship in this card program faltered and litigation ensued.

         B. Live Pleadings

         1. INB's Third Amended Petition

         In 2012, INB sued NetSpend, among others. Its third amended petition, filed in 2013, sought a declaration that (a) the 2009 Settlement Agreement and the 2010 Second Amendment, including their release and indemnity provisions, barred any claim NetSpend had against INB concerning any shortfall; (b) INB had no responsibility or liability for any shortfall; and (c) NetSpend was responsible for satisfying any "[s]hortfall-related payments to cardholders, Network Providers, states or state agencies, and other third parties, including but not limited to any penalties and interest charges assessed against INB for late escheatment of dormant cardholder accounts."

         At paragraph 25 of its petition, INB also brought breach-of-contract claims alleging that NetSpend had breached the parties' agreements,

by, among other things, (a) failing to cooperate with INB to ensure an orderly termination of the NetSpend card program; (b) continuing to enter into new agreements with third parties to act as Distributors for Car[d]s after the [September 24, 2010] Commencement Date; (c) failing to exercise commercially reasonable efforts to transfer the accounts to another bank; (d) failing to transfer the accounts to another bank by the September 30, 2011 Account Transfer Date and failing to obtain an agreement from a successor bank to assume the obligations and liabilities of INB with respect to the Accounts; (e) failing to cause the Accounts to be converted to another bank by December 29, 2011; (f) failing to provide INB a complete copy of the cardholder account database in a format acceptable to INB; (g) failing to reconcile the accounts daily and accurately and failing to detect, disclose, and prevent the alleged shortfall; (h) seeking to impose liability on INB for the alleged shortfall; (i) failing and refusing to properly respond to INB's repeated requests for records and documentation; (j) failing to pay INB $400, 000 by July 29, 2011; and (k) failing to timely carry out its responsibilities relating to escheatment of dormant funds.

         INB asserted that these breaches caused it damages in an amount to be determined by the trial court.

         Finally, INB claimed, in the "alternative, " that NetSpend committed fraud based on (i) misrepresentations that accounting and settlement procedures and protocols had been revamped, resolving matters, and (ii) failure to disclose to INB the nature and extent of any shortfall and the extent of NetSpend's systemic deficiencies in its accounting and settlement processing procedures. And INB raised "provisional" claims against NetSpend and BDO Seidman for negligence based on alleged errors relating to the 2009 agreed-upon procedures performed by BDO Seidman. It also raised "provisional" claims against NetSpend (and MetaBank) for unjust enrichment to the extent INB was required to transfer funds that should not have been transferred.

         2. NetSpend's Answer and ...

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