MEMORANDUM AND ORDER Banco Santander (Brasil), S.A. (“Banco Santander”) offers a credit card co-branded with American Airlines, Inc. Cardholders earn miles in American Airlines’ frequent-flier program through their purchases. Banco Santander, in turn, pays the airline for those miles. Under the parties’ agreement, the bank must buy a minimum number of miles each year, regardless of how many miles cardholders earn through their spending. When the COVID-19 pandemic struck, American Airlines temporarily suspended flights between Brazil and the United States. Banco Santander then sought to terminate the parties’ agreement. After the airline disputed the bank’s right to terminate, the bank filed this lawsuit. Banco Santander argues that it was entitled to terminate the parties’ contract based on a clause permitting such termination if the airline failed to perform or delayed performance under the contract for more than 90 days due to a force majeure event. In the alternative, the bank argues that it is excused from further performance based on the common-law doctrine of frustration of purpose. American Airlines has moved to dismiss the complaint. The motion is granted in part. Banco Santander is not entitled to terminate the agreement under the force majeure termination provision because American Airlines has not failed to perform or delayed its performance under the contract. But Banco Santander’s allegation that unforeseeable consequences of the COVID-19 pandemic rendered the contract essentially worthless to the bank states a claim for frustration of purpose that is adequate to survive the airline’s motion to dismiss. BACKGROUND The following facts come from the complaint, incorporated documents, documents integral to the complaint, and documents amenable to judicial notice. The allegations in the complaint are “accept[ed] as true” on a motion to dismiss. Hamilton v. Westchester Cnty., 3 F.4th 86, 90-91 (2d Cir. 2021) (quoting Dane v. UnitedHealthcare Ins. Co., 974 F.3d 183, 188) (2d Cir. 2020)). A. Factual Background 1. The Parties’ Agreement Banco Santander is a Brazilian bank. See Compl. 6 (Dkt. #1). American Airlines is an U.S. airline. See id. 7. In 2016, Banco Santander and American Airlines entered into a ten-year agreement that authorizes Banco Santander to offer a co-branded credit card. See AAdvantage Program Participation Agreement Ex. A, §3.1 (Dkt. #22-1) (“Participation Agreement”). Banco Santander offers, issues, and administers the card. See id. §§3.1-3.2. The bank identifies its cardholders to American Airlines, see id. §§6.1, 8.1, which enrolls these cardholders in its “AAdvantage” rewards program, see id. §6.1. When the cardholders make purchases, Banco Santander awards them AAdvantage miles. See id. §§9.1-9.2, 9.5. These miles can be redeemed for flights on American Airlines, as well as for other goods and services. Compl. 6. The bank pays the airline for every mile awarded. See Participation Agreement §12.1. The parties’ contract includes a revenue guarantee for the airline. Under that provision, Banco Santander agreed to purchase a minimum number of reward miles every year — no matter how many miles its cardholders earn. See id. §13.1. The minimum number of miles escalates over the life of the agreement, as does the rate per mile that the bank must pay. See Compl.
19-20. American Airlines is obligated to sell AAdvantage miles to Banco Santander at specified rates. Participation Agreement §6.8. But the agreement specifies that American Airlines “shall not be deemed to have made any representation, warranty or covenant or have assumed any obligation or indemnification to [Banco] under this Agreement with respect to flight activity, including any suspension, reduction or termination of flights by an [American Airlines] carrier.” Ibid. The parties’ contract permits Banco Santander to terminate the agreement under certain conditions. The bank may end the agreement “by providing written notice to American [Airlines]” if “ pursuant to Section 23 American [Airlines] delays performance or fails to perform due to a Force Majeure Event, and such delay continues for a period of ninety (90) days.” Id. §20.4.5. Section 23, in turn, defines a “Force Majeure Event” as “any act of God, war, strike, labor dispute, work stoppage, fire, act of government, act or attempted act of terrorism or any other cause, whether similar or dissimilar, beyond the control of that Party, including, with respect to American, and without limitation, any incident, accident or hijacking or attempted hijacking involving any aircraft of American or any of its Affiliates or any other airline carrier.” Id. §23; see id. §1. Banco Santander may also terminate the agreement if American Airlines’ market share in Brazil drops significantly. In particular, a provision entitled “Cessation of Services” allows Banco Santander to terminate the agreement upon timely written notice “[i]f American’s Market Share during…a calendar year is reduced by 50 percent or more relative to the 2016 calendar year.” Id. §20.4.6. The agreement defines “Market Share” as “available seats on flights operated by American between Brazil and the United States divided by the sum of available seats on Delta [Airlines], United [Airlines,] and American [Airlines] between Brazil and the United States as reported by Diio,” which tracks flight frequencies. Id. §1 (“Market Share”). 2. The COVID-19 Pandemic On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. See Compl. 23. Two days later, the United States declared a national emergency. Ibid. The following week, the Department of State advised American citizens “to avoid all international travel due to the global impact of COVID-19.” Id. 24. Brazilian states began to issue shelter-in-place orders by late March. Id. 26. By May, several Brazilian cities had instituted total lockdowns. Id. 27. On May 24, 2020, as Brazil’s COVID-19 outbreak grew, President Donald J. Trump suspended entry into the United States for “all aliens who were physically present within the Federative Republic of Brazil during the 14-day period preceding their entry or attempted entry into the United States.” Id. 28. American Airlines has acknowledged in public filings that the COVID-19 pandemic has led to an “unprecedented,” id. 30, and “precipitous” decline in the demand for air travel, id. 31. The airline took “aggressive actions” in response. Id. 30. It has significantly reducing flight capacity, ibid., and beginning on March 29, 2020, it temporarily suspended all flights between Brazil and the United States see id. 29. 3. Banco Santander’s Termination Letter Ninety-two days after American Airlines suspended flights between Brazil and the United States, Banco Santander sent a letter to the airline purporting to terminate the parties’ agreement. See Pl.’s Ltr. Re: AAdvantage Program Participation Agreement Ex. B (Dkt. #1-4). The letter contended that the bank had the right to terminate based on the force majeure termination provision governing situations in which the airline failed to perform or delayed performance under the contract for at least 90 days. That provision was triggered, the bank wrote, because “American stopped air travel between the United States and Brazil…due to the low demand caused by the ongoing COVID-19 global pandemic” and had “not resumed flights between the two countries for over 90 days.” Id. at 1. American Airlines disputed the bank’s right to terminate the agreement. See Def.’s Ltr. Re: AAdvantage Program Participation Agreement Ex. 1 (Dkt. #23-3). It argued that American Airlines “has neither delayed nor failed to perform…any of its obligations” under the agreement. Id. at 1. B. Procedural History Banco Santander filed this action on July 10, 2020, to resolve the dispute between the parties. See Compl. at 16. The first count in the complaint requests a declaratory judgment “that the Agreement has been terminated effective June 29, 2020″ — i.e., 90 days after American’s last flight between the United States and Brazil — “pursuant to the force majeure termination provision of the Agreement.” Id. 44. The second count requests, in the alternative, a declaratory judgment that Santander is excused from further performance under the common-law doctrine of frustration of purpose. Id.
