Opinion
NUMBER 13-16-00236-CV
04-26-2018
INTER NATIONAL BANK, Appellant, v. NETSPEND CORPORATION, Appellee.
On appeal from the 398th District Court of Hidalgo County, Texas.
MEMORANDUM OPINION
Before Justices Benavides, Longoria, and Hinojosa
Memorandum Opinion by Justice Benavides
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, 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.
This is the audit that forms the basis of INB's claims against defendants MetaBank and BDO USA, LLP d/b/a BDO Seidman. These claims were severed from this action, on May 5, 2015, when the trial court granted NetSpend's motion for severance and "ordered that INB's claims against MetaBank and BDO Seidman are hereby severed from the case" and assigned a separate cause number of C-2084-12-I(A). INB's claims against MetaBank and BDO Seidman are not a part of this appeal.
We recognize that the total of INB's 2008 transfer of funds and its 2009 transfer of funds is $34.8-35.8 million as opposed to the "approximately $40 million" overfunding identified by NetSpend in its 2008 forensic review.
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. 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.
The pleadings reflect that the parties first amended the 2006 LSA on July 8, 2008 by an addendum that addressed an earlier shortfall/overage. This earlier shortfall/overage is not at issue in this appeal. See TEX. R. APP. P. 47.1.
The live pleadings also refer to a third amendment. Although a copy of the third amendment does not appear in the record, each party set out that the third amendment extended the early termination of the 2006 LSA to September 30, 2011; it is also apparent by the pleadings that the third amendment discussed the transition procedures associated with the termination. Because the parties do not complain of the third amendment, we will construe it as a supplement to the 2006 LSA and need not address it. See id.
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 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.
INB brings to our attention that while NetSpend claimed that an $8.5 million shortfall had developed in the program accounts in May 2009, during that same time—May 2009—NetSpend had entered into an agreement with INB to reallocate between the institutions a $14.8 surplus in the INB program accounts.
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 Counterclaim Against INB
In 2013, NetSpend filed its first amended answer generally denying INB's allegations and asserting as an affirmative defense that the First and Second Releases barred INB's claims. NetSpend also asserted that INB's indemnification claims were not ripe because no such claims had been asserted against INB.
By its counterclaims, NetSpend sought a declaration regarding "its legal rights and INB's obligations under the [various agreements]," specifically "that NetSpend ha[d] no liability for the Shortfall." NetSpend also asserted a claim for breach of contract against INB because, in the absence of any valid indemnification claims, INB sued NetSpend on released claims, breaching the First and Second Releases.
C. The 2012 Agreed Order
On October 22, 2012, two years after the parties agreed to an early termination of the debit card program and after a several-day hearing on INB's and NetSpend's requests for a temporary injunction, the court signed an agreed order (2012 Agreed Order) that set out procedures and terms for transferring the cardholder funds on deposit at INB to Bancorp. According to the 2012 Agreed Order, NetSpend was required to maintain a minimum aggregate balance of $0 in INB's card program accounts, by funding the accounts to the extent necessary to ensure compliance with this requirement. The 2012 Agreed Order defined a "Shortfall" as "the total funds that NetSpend transfer[red] into the [a]ccounts pursuant to [the 2012 Agreed Order]." The order provided that any shortfall would be treated as if the funds "had never been paid by NetSpend" and as if "the [a]ccounts had persisted in a negative condition to the extent of the amount of the payments."
We offer no opinion as to whether the shortfall defined as an advance and the complained-of shortfall in the pleadings are the same. INB also discusses the shortfall in terms of pre-release shortfall and post-release shortfall. And we find no determination of the amount of the released shortfall for which NetSpend was found to have no liability. As discussed later, the summary judgment declared that "NetSpend has no liability to INB for the Shortfall." The summary judgment did not identify the shortfall or its amount. It set out that INB was to reimburse NetSpend for its advance to INB. The final judgment ordered that INB "take nothing by this suit on its claims against NetSpend." According to the judgment, NetSpend was to recover from INB $11,954,367.25, which represented the return of NetSpend's $10,547,971.39 advance plus interest. The final judgment did not set out the amount of the alleged shortfall. Neither the summary judgment nor the final judgment set out that the advance represented the amount of the shortfall to which the releases applied. These concerns illustrate why the facts are so confusingly interwoven that a severance is improper, as we determine later in this opinion.
The 2012 Agreed Order specifically reserved for a future date the question of who bore liability for any shortfall and set out that this question could be resolved by summary judgment. The 2012 Agreed Order also explained that any advance deposited by NetSpend at INB to maintain the $0 aggregate balance would have no effect on the determination of liability and would not prejudice either party's right to argue that the other party was responsible for any shortfall. The 2012 Agreed Order contemplated a complete transfer of the accounts by December 31, 2012, with extensions of time possible.
NetSpend advanced $10,547,971.39 to INB to maintain an aggregate $0 balance. NetSpend deposited that amount into the accounts in February 2013.
D. Summary Judgment Proceedings
1. INB's Motion
On July 18, 2013, INB moved for summary judgment based on the First and Second Releases, asking the court to determine as a matter of law that "[a]ny claim that NetSpend might assert against INB about the Shortfall was released." In its motion INB asked
for a partial summary judgment that the releases resolve, as a matter of law, the issue of responsibility for any Shortfall. The releases wipe out any Shortfall prior to September 24, 2010. The only issues remaining for determination are any damages and attorneys' fees owed to INB for NetSpend's breach of these releases.
2. NetSpend's Response
In its introduction, NetSpend set out that it had no reason to try to recover the shortfall from INB because "[t]he shortfall exists at INB." Responding to the merits of INB's motion, NetSpend argued that (1) INB has no claim against NetSpend for breach of a release and (2) the releases do not bar NetSpend's counterclaims, which sought a declaration that NetSpend had no liability on the shortfall because of the releases and a determination of damages for INB's breach of the releases.
3. NetSpend's Motion
NetSpend filed its own motion for summary judgment on all of INB's claims. First it sought a defensive declaration that (1) the 2009 First Release barred any claim INB may have had against NetSpend for $8.5 million of the shortfall because that portion of the shortfall arose prior to the First Release, and (2) the broader 2010 Second Release because the entire amount of the $10.5 shortfall had accrued by the time the Second Release was signed. Second, NetSpend requested a no-evidence summary judgment on INB's claim for a declaration that NetSpend was responsible for the shortfall based on NetSpend's indemnity obligations to INB because there was no-evidence of a third-party claim against INB because of the shortfall.
Regarding its counterclaims, NetSpend urged that it was entitled to summary judgment on its counterclaim for declaratory relief because the releases and INB's admissions conclusively establish that NetSpend has no liability to INB for the shortfall. It also asserted that it was entitled to summary judgment on its counterclaim for breach of contract because the evidence and INB's admissions conclusively establish that INB sued on released claims, including injunctive relief, breach of contract claim g, fraud/breach-of-fiduciary duty, and negligence/unjust enrichment.
NetSpend sought damages, attorney's fees and costs, but noted that these could be dealt with following the resolution of the motion. It also sought INB's return of the funds NetSpend advanced to it, if the court granted NetSpend's summary judgment motion.
4. INB's Response and Reply
INB argued that the important issue for the cross-motions for summary judgment is which party is asserting claims in violation of the releases. INB set out that it did not seek to recover any money from NetSpend because of the alleged shortfall. Instead, "the releases prevent either party from recovering from the other."
5. NetSpend's Reply
NetSpend described the money that it provided to INB at the end as money to temporarily cover the shortfall as interim funds pending the outcome of INB's liability claim against NetSpend. NetSpend claimed it was entitled to a summary judgment that it had no liability for the shortfall on all of INB's claims that sought recovery from NetSpend for the shortfall, as well as on NetSpend's request for a declaration that it had no liability for the shortfall because of the two releases.
NetSpend claimed that it was also entitled to summary judgment on its breach-of-contract counterclaim against INB because INB breached the two releases by launching this litigation against NetSpend for breach of contract, breach of fiduciary duty, fraud, and provisional claims to recover the amount of the shortfall and by seeking injunctive relief that would require NetSpend to transfer funds to INB to cover the shortfall.
NetSpend again asserted that when the trial court granted summary judgment in favor of NetSpend, the court should enforce the parties' agreement memorialized in the 2012 Agreed Order and require INB to return the $10.5 million interim advance that NetSpend deposited at INB. NetSpend claims that it "is not now and has never asserted a claim to recover the Shortfall from INB." It sought the return of NetSpend's $10.5 million interim advance.
6. 2014 Summary Judgment Granting NetSpend's Motion
The trial court granted NetSpend's request for declaratory relief on its counterclaim, declaring that "NetSpend has no liability to INB for the Shortfall." The trial court also granted partial summary judgment on NetSpend's counterclaim for breach of contract, finding that INB committed breach of contract. The court reserved the issue of damages and any other appropriate relief for trial.
The trial court ordered that INB take nothing on any claims that seek to impose liability on NetSpend based on the shortfall or to recover the amount of the shortfall from NetSpend, including (a) breach of contract based on NetSpend's alleged failure to reconcile accounts daily and accurately and alleged failure to detect, disclose, and prevent the shortfall; (b) fraud/failure to disclose; (c) negligence; and (d) unjust enrichment. Although the trial court found that INB must reimburse the amount of funds that NetSpend advanced to INB pursuant to 2012 Agreed Order or $10,547,971.39, plus pre-judgment interest, it did not equate the advance to the shortfall or set out the amount of the shortfall for which NetSpend was not liable.
7. January 23, 2014 Summary Judgment Denying INB's Motion
The trial court simply denied INB's motion.
E. Severance
1. Severance Motion, Responses, Replies
On August 6, 2015, INB filed a motion for severance, to which NetSpend responded, INB replied, and NetSpend sur-replied. While the parties agreed that the trial court should grant a severance, they could not agree on the form of the severance order.
INB asked the trial court to sever all claims not covered by the trial court's summary judgments so that the summary judgments would become final and appealable. According to INB, the summary judgment disposed of (1) NetSpend's breach of contract claim against INB, (2) NetSpend's declaratory judgment claim against INB, and (3) nine of INB's eleven breach-of-contract claims—a through i—against NetSpend. INB requested that only two claims—j and k—be severed from INB's other claims. Claims j and k involved NetSpend's liability for damages related to escheatment and its alleged failure to pay INB a post-termination fee.
NetSpend proposed a different severance order. It acknowledged that claims j and k were not resolved by summary judgment and should be severed. But NetSpend claimed that the summary judgment resolved only one of INB's remaining breach-of-contract claims: "NetSpend's alleged failure to reconcile accounts daily and accurately and alleged failure to detect, disclose, and prevent the Shortfall," identified as claim g in paragraph 25.
2. Severance Order
On January 28, 2016, the trial court granted severance. The order severed ten of INB's breach-of-contract claims—a, b, c, d, e, f, h, i, j, and k—against NetSpend into new Cause Number C-2084-12-I(B). The order also severed NetSpend's breach-of-contract claim against INB for filing suit on the shortfall despite the release provisions: it was severed into the new cause number to determine the amount of damages and other appropriate relief for such breach. Finally, the severance order stayed all proceedings in the new action "pending further order of the Court." F. Final Judgment, Motion for New Trial, and Appeal
On January 28, 2016, the same day the trial court granted the severance, it signed a final judgment on the non-severed claims in Cause Number C-2084-12-I. The trial court, "having severed the parties' claims that were not fully resolved by the Court's January 24, 2014 summary judgment orders . . . , render[ed] final judgment against [INB] and in favor of [NetSpend]." It ordered that INB take nothing by this suit on its claims against NetSpend. And, pursuant to the parties' 2012 Agreed Order, the judgment further ordered that NetSpend recover from INB $11,954,367.25—the amount NetSpend advanced to INB, plus pre-judgment interest. The judgment continued, "[a]ll relief requested in this case and not expressly granted (other than claims severed into Cause No. C-2084-12-I(B)) is denied. This judgment finally disposes of all parties and claims remaining in this cause and is appealable." And although the final judgment ordered that NetSpend recover the advance from INB, it did not reference the shortfall or the amount of the shortfall.
INB filed a motion to modify the judgment and for a new trial or to reconsider, claiming that the final judgment differed from the summary judgment order. After the motion was overruled by operation of law, see TEX. R. CIV. P. 329b(c), this appeal followed.
II. DISCUSSION
By its first issue, as reordered, INB contends that the trial court abused its discretion when it severed one cause of action with different breach-of-contract claims into multiple cases. INB asserts that the severance fails because its claims against NetSpend for breach of contract are too interwoven to sever. More specifically, INB claims that not one but nine of its eleven claims for breach of contract are related to the existence of, the amount of, or the responsibility for any alleged shortfall, and the trial court should not have severed one claim from the others. We agree.
A. Standard of Review and Applicable Law
A trial court has broad discretion to sever cases. See Guar. Fed. Sav. Bank v. Horseshoe Oper. Co., 793 S.W.2d 652, 658 (Tex. 1990) (op. on reh'g). However, a severance is proper only where "(1) the controversy involves more than one cause of action, (2) the severed claim is one that would be the proper subject of a lawsuit if independently asserted, and (3) the severed claim is not so interwoven with the remaining action that they involve the same facts and issues." F.F.P. Operating Partners, L.P. v. Duenez, 237 S.W.3d 680, 693 (Tex. 2007) (op. on reh'g). "[A]voiding prejudice, doing justice, and increasing convenience are the controlling reasons to allow a severance." Id. (citing Guar. Fed. Sav. Bank, 793 S.W.2d at 658).
B. Analysis
1. The Controversary Does Not Involve More than One Cause of Action
First, "[i]t is well established that a trial court cannot sever a single cause of action into multiple claims, and that a court should not grant such a severance so that a party can appeal a partial summary judgment on only one part of a claim." Dalisa Inc. v. Bradford, 81 S.W.3d 876, 880 (Tex. App.—Austin 2002, no pet.). Indeed, "severance of a single cause of action into two parts is never proper and should not be granted for the purpose of enabling the litigants to obtain an early appellate ruling on the trial court's determination of one phase of the case." Id.
INB's first nine allegations of breach of contract a through i in paragraph 25 of its pleading relate to an alleged shortfall in the NetSpend accounts. INB's allegations cover time periods before and after the effective dates of the releases. The parties had a continuing relationship after they signed the 2010 Second Amendment, the early-termination agreement.
The severance order divided INB's cause of action for breach of contract, with nine breach-of-contract allegations, into two cases. Yet INB's nine breach-of-contract allegations were based on a continued shortfall—some of which was arguably released, some of which was arguably not; a shortfall on which damages would be based. The severance order divided allegations of a single breach-of-contract cause of action into separate causes and divided those allegations by time. Severance was not proper because INB's breach-of-contract claim did not involve more than one cause of action. See id.; see also F.F.P. Operating Partners, 237 S.W.3d at 693. The trial court's severance of this cause of action into two cases to obtain an early appellate ruling on the trial court's determination of these matters was not proper. See Dalisa, 81 S.W.3d at 880.
2. The Severed Claims Would Not Be the Proper Subject of a Lawsuit if Independently Asserted
Second, the severed allegations for breach of contract must be claims that could be brought in a separate lawsuit that would result in a separate final judgment. See In re State, 355 S.W.3d 611, 614 (Tex. 2011) (orig. proceeding); F.F.P. Operating Partners, 237 S.W.3d at 693. INB asserts that it must make all breach-of-contract allegations in a single case and could not assert some of the claims in a separate case and obtain a separate final judgment. It alleges that all nine allegations a through i support its cause of action for breach of contract and all affect the determination of the amount of the shortfall for which, it contends, liability was not released. In response, NetSpend argues that the "[c]laim in ¶ 25(g) was resolved solely based on the legal effect of the releases" and that "[a]djudicating the other claims, in contrast, will at the very least require examining the parties' post-release contractual agreements and behavior." But a severance is not supported simply because some claims may be based on different actions by NetSpend, at different times, or on different-but-related contract provisions.
INB's breach-of-contract claims deal with an alleged shortfall in the program accounts—including the existence of, the timing of, and the responsibility for any alleged shortfall. Many of INB's severed breach-of-contract claims relate to the post-release contractual agreements and NetSpend's behavior, the resolution of which appears to be relevant to a determination of what part of the shortfall was impacted by those agreements and behavior. The severance of multiple breach-of-contract claims could ultimately result in two judgments that cannot stand independently of each other; this may happen here because the current judgment holds that NetSpend is not liable for the shortfall, while the severed claims seek to hold NetSpend liable for portions of the shortfall that were not covered by the releases. Compare Guar. Fed. Sav. Bank, 793 S.W.2d at 658 ("The severed claim, Horseshoe's action for wrongful dishonor and debt against Guaranty Federal, is the proper subject of an independently asserted lawsuit.") with Ozcelebi v. Chowdary, Nos. 13-13-00659, 660, 661, 2015 WL 6119495, at *5 (Tex. App.—Corpus Christi Oct. 15, 2015, no pet.) (mem. op) ("The piecemeal litigation created as a result of the severance order prevents the court from effectively reviewing the trial court's judgments on liability and damages because they are contained in separate lawsuits.").
In this case, we cannot conclude that INB could have asserted breach-of-contract claim g against NetSpend in one lawsuit and breach-of-contract claims a, b, c, d, e, f, h, and i in a separate lawsuit and obtained separate final judgments. See In re State, 355 S.W.3d at 614; F.F.P. Operating Partners, 237 S.W.3d at 693. A single suit will suffice, see Pustejovsky v. Rapid-American Corp., 35 S.W.3d 643, 647 (Tex. 2005), a suit that will result in one final judgment, not two separate final judgments. See In re State, 355 S.W.3d at 614; F.F.P. Operating Partners, 237 S.W.3d at 693.
3. The Severed Breach-of-Contract Claims Are So Interwoven with the Remaining Claim That They Involve the Same Facts and Issues
Third, the severed claims must not be so interwoven with the remaining claim that they involve the same facts and issues. F.F.P. Operating Partners, 237 S.W.3d at 693. In this case, INB's breach-of-contract allegations against NetSpend found in paragraph 25 a through i of its third amended petition all address the shortfall in the NetSpend accounts. The facts regarding the allegations of breach and how the facts impact the total shortfall are so interwoven as to override a proper severance. See id.
As to the claims that were severed out, a, b, c, d, e, f, h, and i, the parties will certainly argue and introduce evidence of the 2006 Servicing Agreement, the 2009 Settlement Agreement with the First Release, the 2010 Second Amendment with the Second Release, and the 2012 Agreed Order either to establish or to controvert INB's breach allegations. See, e.g., F.F.P. Operating Partners, 237 S.W.3d at 693 (determining that the severance of claims against a drunk driver and a seller of alcohol was an abuse of discretion because the facts were interwoven); State Dep't of Highways v. Cotner, 845 S.W.2d 818, 819 (Tex. 1999) (per curiam) (holding that the severance of husband and wife's related claims against the same defendant was improper). Specifically, the claims include: (a) NetSpend's failure to cooperate with INB to ensure an orderly termination of the NetSpend card program; (b) its entry into new agreements with third parties to act as distributors for cards after the transfer commencement date; (c) its failure to exercise commercially reasonable efforts to transfer the accounts to another bank; (d) its failure to transfer the accounts to another bank by the September 30, 2011 account transfer date and its failure to obtain an agreement from a successor bank to assume the obligations and liabilities of INB with respect to the accounts; (e) its failure to cause the accounts to be converted to another bank by December 29, 2011; and (f) its failure to provide INB a complete copy of the cardholder account database in a format acceptable to INB. Each claim requires evidence of how the alleged breach impacted the amount of the shortfall and what portions of the shortfall, if any, occurred post-release.
Furthermore, while the trial court did not sever allegation g which complains of NetSpend's alleged "failure to reconcile the accounts daily and accurately and failing to detect, disclose, and prevent the alleged shortfall," it severed allegations h and i. Allegation h complains of NetSpend breaching the contract by seeking to impose liability on INB for the alleged shortfall, a claim that appears to have been resolved by the final judgment yet has been severed into a new cause number. And allegation i asserts that NetSpend breached the contract by failing and refusing to properly respond to INB's repeated requests for records and documentation. Without a time designated, this allegation could relate to allegation g or to any of the other breach allegations and would require the same facts and issues to resolve.
INB does not complain of the severance of its breach allegations against NetSpend regarding (j) NetSpend's failure to pay INB $400,000 by July 29, 2011, and (k) NetSpend's failing to timely carry out its responsibilities relating to escheatment of dormant funds. We also note that INB does not complain of the court's severance of NetSpend's breach-of-contract claim against it for filing suit on the shortfall despite the release provisions. The severance of those claims is not before us, see TEX. R. APP. P. 47.1, and such claims remain severed in Cause No. C-2084-12-I(B) and abated pursuant to the severance order.
Determinations regarding the allegations of breach of contract impact the amount of the shortfall for which liability has been imposed, including the determination of those severed claims that will involve the same facts and issues. See F.F.P. Operating Partners, 237 S.W.3d at 693. The parties will likely argue and introduce evidence for all claims which involve the same facts and issues. The eight severed claims—a, b, c, d, e, f, h, and i—and the single claim g before this Court are interwoven. The trial court is being asked to determine how each alleged breach by NetSpend, including those involving the transfer of the NetSpend accounts, impacted the shortfall. The jury will hear essentially the same evidence in both cases, and severance is improper if the cases are so related that the parties will introduce evidence on the same facts or issues.
NetSpend argues that even if the outcome of the claim at issue before this Court could have some effect on the outcome or damages available from the other claims, that does not mean that the claims "present the same legal and factual issues." We disagree. All claims appear to address NetSpend's acts either before or after the dates of the releases. All claims are relevant to the issues of if, when, and how a shortfall occurred, which party was responsible for any such shortfall, and how the releases affected any shortfall. The legal issues and the factual testimony regarding the effect on the shortfall will be very similar even if the applicable contractual provisions vary. See In re State, 355 S.W.3d at 614.
Under our review of the third factor, we again conclude that the severance was not proper. See F.F.P. Operating Partners, 237 S.W.3d at 693. The severed claims are so interwoven with the remaining claim that they involve the same facts and issues. See id.
4. Summary
We have concluded that the controversy at issue involves one cause of action, the severed breach-of-contract claims are not claims that would be the proper subject of a lawsuit if independently asserted, and the severed breach-of-contract claims are so interwoven with the remaining breach-of-contract claim that they involve the same facts and issues. See id. Furthermore, the order severing these claims does not avoid prejudice, do justice, or increase convenience. See id. (citing Guar. Fed. Sav. Bank, 793 S.W.2d at 658). The severance of INB's eight breach-of-contract allegations—a, b, c, d, e, f, h, and i—from the one remaining claim g will cause great inconvenience and prejudice to INB for the reasons discussed above. It also appears to immunize NetSpend from liability for the shortfall, yet the severed claims seek the opposite. Finally, we cannot conclude that the severance of these claims will lead to a more convenient resolution of the case. See id. The trial court abused its discretion when it improperly severed INB's breach-of-contract claims against NetSpend into two cases. See id. We sustain INB's first issue.
We turn now to the effect of the improper severance of the breach-of-contract claims. Because the severance of the breach-of-contract claims was improper, we conclude the summary judgment as to those claims is interlocutory, and INB's appellate issues other than the issue challenging the severance are not properly before us. See In re Hoover, Bax & Slovacek, L.L.P., 6 S.W.3d 646, 649 (Tex. App.—El Paso 1999, orig. proceeding) (explaining that when the court reverses on the basis of improper severance, it lacks jurisdiction to address the remaining issues, which become interlocutory); Nicor Expl. Co. v. Fla. Gas Transmission Co., 911 S.W.2d 479, 483 (Tex. App.—Corpus Christi 1995, writ denied) (declining to reach the remaining issues after determining severance was improper).
The trial court's error in granting a severance does not divest this Court of jurisdiction over the appeal. See Nicor Expl. Co. v. Fla. Gas Transmission Co., 911 S.W.2d 479, 482 (Tex. App.—Corpus Christi 1995, writ denied). It is clear from the language of the trial court's final judgment that it intended to enter a final judgment as to this portion of the case. Compare TEX. CIV. PRAC. & REM. CODE §§ 41.012, .014 (West, Westlaw through 2017 1st C.S.) and Lehmann v. Har-Con Corp., 39 S.W.3d 191, 195 (Tex. 2001) (providing that absent a statute allowing for an interlocutory appeal, a party may only appeal from a final judgment) with Davati v. McElya, 530 S.W.3d 265, 268 (Tex. App.—Houston [1st Dist.] 2017, no pet.) ("[S]everance of a partial summary judgment into a separate cause does not make the judgment final and appealable when, as here, [the language is qualified, and] the judgment merely disposes of one of multiple claims between the parties seeking review and their other claims against one another remain pending.") and Duke v. Am. W. Steel, LLC, 526 S.W.3d 814, 815 (Tex. App.—Houston [1st Dist.] 2017, no pet.) ("Although the trial court's severance order severed the Dukes' CTFA claims into a separate cause, it did not dispose of the Dukes' other claims against the same parties, and it does not contain finality language or any other clear indication that the trial court intended the order to completely dispose of all parties and all claims."). So, we have jurisdiction to consider the propriety of the severance order. See In Interest of B.T.G., 494 S.W.3d 839, 843 n.5 (Tex. App.—Dallas, 2016, no pet.) (op. on reh'g); Nicor Expl., 911 S.W.2d at 482; see also In re Hoover, Bax & Slovacek, L.L.P., 6 S.W.3d 646, 649 (Tex. App.—El Paso 1999, orig. proceeding) (setting out that when a court reverses on basis of improper severance, it lacks jurisdiction to address remaining issues, which become interlocutory).
III. CONCLUSION
Accordingly, having determined that the trial court abused its discretion when it improperly severed INB's breach-of-contract allegations a, b, c, d, e, f, h, and i from its allegation g against NetSpend, we reverse and remand this case to the trial court for further proceedings consistent with this memorandum opinion.
GINA M. BENAVIDES
Justice Delivered and filed the 26th day of April, 2018.