The Second Circuit agreed with a district court that American Express did not violate the securities laws by making—or failing to update—certain statements about its relationship with Costco. After AmEx ended its co-branding agreement with Costco Canada, AmEx’s CFO spoke about the company’s relationship in the United States, which the plaintiffs took as reassurance with a “forward intent.” The court found that the statements were not forward-looking and were strictly true, so there was no duty to update when the U.S. renewal negotiations deteriorated (Pipefitters Union Local 537 Pension Fund v. American Express Company, May 8, 2019, per curiam).
AmEx had separate co-branding agreements with Costco Canada and Costco United States. The company announced in September 2014 that it would not renew its agreement with Costco Canada. At the time of the announcement, an AmEx representative told a news outlet that the decision “is very specific and exclusive to Canada” and that there were separate contracts for the United States. In October 2014 AmEx CFO Jeffrey Campbell reiterated that the contracts were separate and said AmEx had “a longer and more significant relationship with Costco in the U.S., dating back over 15 years.”
In February 2015, AmEx announced that its agreement with Costco U.S. would expire in 2016. Plaintiffs sued Costco, Campbell, and then-CEO Kenneth Chenault for violations of the federal securities laws, specifically for making false and misleading statements about the renewal of the Costco U.S. agreement and for falsely contrasting the Canadian agreement with that in the United States. The plaintiffs argued that AmEx had a duty to update those statements. The district court dismissed the claims, and one plaintiff appealed.
No duty to update. Reviewing the dismissal de novo, the Second Circuit agreed with the district court that AmEx had no duty to update Campbell’s statements because they concerned only existing facts that were not forward-looking. Furthermore, those statements remained precisely correct: the Canada agreement was specific to Canada, there were separate contracts for the two Costco entities, and the relationship in the U.S. was older than that in Canada. Another of Campbell’s statements, that AmEx “works with Costco on an ongoing basis to find ways to drive value for both parties going forward,” was at most an expression of corporate optimism.
No other misleading statements. The plaintiffs also pointed to an earnings call that took place a few weeks before AmEx announced the termination of its agreement with Costco U.S. Responding to a question about when investors might hear about the Costco U.S. negotiations, Campbell spoke about the companies’ relationship, stressed that “I don’t think we’ve said anything about any ongoing discussions we’re having with Costco,” and then said that AmEx works with its partners generally every day to “evolve the relationship to make it better.” According to the plaintiffs, these statements amounted to a denial that AmEx was making any special efforts with respect to Costco U.S., which was not the case.
The appeals court disagreed. Campbell did not state that the companies were not negotiating; instead, his comment affirmed that AmEx would not comment on negotiations while they were underway. No reasonable investor could interpret the statements as denying the existence of renewal negotiations.
The case is No. 17-4142-cv.
AmEx had separate co-branding agreements with Costco Canada and Costco United States. The company announced in September 2014 that it would not renew its agreement with Costco Canada. At the time of the announcement, an AmEx representative told a news outlet that the decision “is very specific and exclusive to Canada” and that there were separate contracts for the United States. In October 2014 AmEx CFO Jeffrey Campbell reiterated that the contracts were separate and said AmEx had “a longer and more significant relationship with Costco in the U.S., dating back over 15 years.”
In February 2015, AmEx announced that its agreement with Costco U.S. would expire in 2016. Plaintiffs sued Costco, Campbell, and then-CEO Kenneth Chenault for violations of the federal securities laws, specifically for making false and misleading statements about the renewal of the Costco U.S. agreement and for falsely contrasting the Canadian agreement with that in the United States. The plaintiffs argued that AmEx had a duty to update those statements. The district court dismissed the claims, and one plaintiff appealed.
No duty to update. Reviewing the dismissal de novo, the Second Circuit agreed with the district court that AmEx had no duty to update Campbell’s statements because they concerned only existing facts that were not forward-looking. Furthermore, those statements remained precisely correct: the Canada agreement was specific to Canada, there were separate contracts for the two Costco entities, and the relationship in the U.S. was older than that in Canada. Another of Campbell’s statements, that AmEx “works with Costco on an ongoing basis to find ways to drive value for both parties going forward,” was at most an expression of corporate optimism.
No other misleading statements. The plaintiffs also pointed to an earnings call that took place a few weeks before AmEx announced the termination of its agreement with Costco U.S. Responding to a question about when investors might hear about the Costco U.S. negotiations, Campbell spoke about the companies’ relationship, stressed that “I don’t think we’ve said anything about any ongoing discussions we’re having with Costco,” and then said that AmEx works with its partners generally every day to “evolve the relationship to make it better.” According to the plaintiffs, these statements amounted to a denial that AmEx was making any special efforts with respect to Costco U.S., which was not the case.
The appeals court disagreed. Campbell did not state that the companies were not negotiating; instead, his comment affirmed that AmEx would not comment on negotiations while they were underway. No reasonable investor could interpret the statements as denying the existence of renewal negotiations.
The case is No. 17-4142-cv.