In a significant legal ruling, U.S. District Judge Katherine Polk Failla in Manhattan declared on Tuesday that Walmart has the right to terminate its credit card partnership with Capital One ahead of schedule due to Capital One’s failure to meet the required level of customer service. This decision stemmed from a lawsuit initiated by Walmart, alleging that Capital One’s performance fell short in various aspects of customer service.
Failla’s ruling was based on the terms of a 2018 agreement between Walmart and Capital One, which established Capital One as the exclusive issuer of Walmart-branded credit cards in the United States. According to Failla, the agreement clearly stipulated that Walmart had the authority to terminate the partnership if Capital One failed to meet certain customer service standards repeatedly.
Walmart had accused Capital One of various shortcomings, including delays in posting transactions to cardholders’ accounts and inadequate responsiveness in replacing lost cards. These issues came to light in late 2022 and early 2023, prompting Walmart to seek recourse under the terms of the agreement.
One of the key points of contention was the interpretation of the agreement’s provisions regarding the threshold for invoking Walmart’s right to terminate the partnership based on customer service failures. While Capital One argued that Walmart could only terminate the agreement if Capital One failed any single critical standard at least five times, Walmart contended that it had the right to do so if Capital One failed to meet any of the 13 critical customer service standards at least five times in a 12-month period.
Failla’s ruling favored Walmart’s interpretation, deeming it to be consistent with the plain and unambiguous terms of the agreement. She noted that Capital One’s interpretation would effectively render Walmart powerless to terminate the partnership even in the face of persistent and widespread customer service failures, which she characterized as “patently absurd.”
The judge directed both Walmart and Capital One to provide input by April 19 on how to resolve their remaining claims and counterclaims. The lawsuit, which commenced in April 2023, has been closely watched, particularly against the backdrop of Capital One’s recent agreement to acquire credit card rival Discover Financial Services.
Overall, Failla’s ruling represents a significant legal victory for Walmart, affirming its right to hold Capital One accountable for deficiencies in customer service and providing clarity on the terms of their contractual relationship.