Walmart Inc. v. Capital One, National Association

Background

Walmart and Capital One entered into a Credit Card Partnership Agreement in July 2018. Capital One was to be the exclusive issuer of Walmart credit cards in the United States. The agreement established 20 customer-service benchmarks, called service-level agreements, or SLAs. Some SLAs were classified as “Critical.” The agreement also established financial penalties for missed SLAs and a termination provision.

The termination provision stated: “If [Capital One] fails to meet a Critical SLA, five or more times in a rolling 12 calendar month period ... Walmart may terminate the Agreement.” The parties disagreed about whether “a Critical SLA” meant any critical SLA or the same critical SLA repeated five times.

Between June 2022 and January 2023, Capital One reported five failures involving critical SLAs. The failures included three missed payment-processing standards, one missed card-replacement standard, and one missed transaction-posting standard. Walmart invoked the termination provision on April 6, 2023. Capital One disputed the validity of the termination and refused to perform certain post-termination obligations, according to the opinion.

The Parties’ Motions

Walmart’s amended complaint included a request for a declaration that its interpretation of the termination provision was correct, as well as breach-of-contract and anticipatory-breach claims. Capital One asserted a matching declaratory-judgment counterclaim and additional contract counterclaims. The parties filed cross-motions for partial summary judgment limited to whether the agreement’s text triggered Walmart’s termination right.

Court’s Analysis

Under Federal Rule of Civil Procedure 56, summary judgment is appropriate when there is no genuine dispute about a material fact and the moving party is entitled to judgment under the law. Because the dispute concerned contract language, the Court first considered whether the agreement was ambiguous. Applying New York law, the Court concluded that the termination provision was unambiguous.

The Court held that “a Critical SLA” meant “any one of the Critical SLAs,” not “the same Critical SLA.” It reasoned that the ordinary meaning of “a” generally refers to an unspecified member of a group, and that the agreement did not include words limiting the provision to repeated failures of the same SLA. The Court also found that the surrounding provisions supported this reading because the agreement used more specific language when referring to the same SLA.

The Court rejected Capital One’s argument that Walmart’s interpretation conflicted with the agreement’s graduated penalty system or produced an unreasonable result. The Court viewed the termination provision as an additional remedy for serious performance problems, and it noted that the agreement specifically classified the relevant SLAs as “Critical.”

Ruling

Judge Katherine Polk Failla granted Walmart’s motion for partial summary judgment as to Count One of Walmart’s amended complaint and Count One of Capital One’s counterclaims. She denied Capital One’s motion for partial summary judgment as to those claims. The Court declared under 28 U.S.C. § 2201 that Walmart was legally entitled to, and legally did, terminate the agreement.

The opinion did not resolve all remaining claims and counterclaims. The Court directed the parties to submit a joint letter addressing next steps and proposals for resolving those remaining matters.