b'Karinski v. Stamps.com, Inc., Case No. 1934 Act, and Rule 10b-5 promulgated thereunder. 19-cv-1828-MWF, 2020 WL 281716 (C.D. Cal.Plaintiffs alleged that during the relevant Class Period, Jan. 17, 2020)defendants repeatedly touted Stamps.coms strong Termination of Supplier Partnership financial performance, which it linked to its partnership with USPS. Plaintiffs alleged these statements were Stamps.com, Inc. provides internet-based mailingfalse and misleading because, according to multiple and shipping solutions to customers in the U.S. andconfidential witnesses, Stamps.coms positive Europe. Stamps.com offers United States Postal Serviceperformance was built on manipulation of its contractual (USPS) products to its customers at discounted rates,relationship with USPS and thus its financial results allowing customers to print postage onto envelopes,were both misleading and unsustainable. Plaintiffs paper, and labels using their own computer, printer, andalso alleged that the individual defendants and other internet connection. This business model was madeStamps.com insiders, knowing that the companys possible by Stamps.coms partnership with USPS, whichmanipulation would be discovered by USPS, sold accounted for 87% of the companys revenue. USPShundreds of millions of dollars of company stock at granted the company exclusive access to its postageartificially inflated prices during the Class Period, and delivery market, while Stamps.com would generatean amount far greater than that sold by the same new sales and customers for USPS through its onlineindividuals in the two years prior to the Class Period. interface. USPS also permitted Stamps.com to purchaseDefendants moved to dismiss the consolidated postage in bulk from USPS at lower-than-advertisedcomplaint which the court denied on January 17, 2020. rates and resell to its customers below market price,The court rejected plaintiffs claims that the challenged with the caveat that such discounted rates wouldstatements regarding growth were misleading due only be offered to companies that would ship in largeto defendants failure to disclose their low-volume volumes and thus warrant bulk postage discounts.shipper program and secretly converted existing USPS Between May 3, 2017 and May 8, 2019, Stamps.comcustomers, because defendants adequately disclosed reported strong financial results each quarter, includingthe low-volume shipper and preexisting customer revenue and earnings growth, which it largely attributeddiscounts. The court also held that plaintiffs failed to its partnership with USPS. For example, during a firstto adequately allege that Stamps.coms statements quarter 2017 conference call, its CEO stated that [t] about past and future financial results were misleading he USPS has always been one of our most importantwhere plaintiffs had not demonstrated that any of partners and that Stamps.com continue[s] to enjoyDefendants sources of income were illegal and a great partnership with the USPS and feel that weStamps.com accurately reported its revenue. The court have created a sustainable win-win model for both ofdid, however, find that defendants alleged statements us, which will result in the continued growth of USPSabout the strength of Stamps.coms partnership with packages, in e-commerce and more generally. HeUSPS were misleading. The court noted that [n]also stated that the USPS is very happy with the veryormally, Defendants statements that USPS was very successful partnership. happy with Stamps and their business model and that On February 21, 2019, Stamps.com held a conferenceStamps had a great partnership with USPS would call to discuss quarterly financial results and revealedbe considered general statements of optimism that that the company was discontinuing its partnershipconstitutes corporate puffery. However, in this context, with USPS in order to fully embrace partnerships withwhen USPS was allegedly investigating Stamps.com other carriers and that 2019 revenue was expected toresellers and implementing changes in its partnership decline. Stamps.coms stock price dropped over 57%.with the company to reduce Stamps.coms reseller On February 26, 2019, a news outlet reported that,practice, the court found that plaintiffs sufficiently contrary to the companys representations, it was USPSalleged that Defendants statements affirmatively that elected to terminate the partnership with Stamps. create[d] an impression of a state of affairs that differ[ed] com because it was abusing the reseller program. Thein a material way from the one that actually exist[ed]. company subsequently lowered its profit outlook forAddressing scienter, the court held that [p]erhaps none the full year, which it attributed to potential unfavorableof the individual allegations alone would be sufficient to short- and long-term amendments, renegotiations, andestablish scienter. However, taken together, they gave termination of certain Negotiated Service Agreementsrise to a strong inference of scienter. Those collective (whereby USPS offered discounted postage rates toallegations included allegations that the defendants high-volume end users) between the USPS and theregularly referenced conversations they had with companys reseller partners. USPS regarding their partnership, which the court held Investors filed a putative class action complaintsupported an inference that defendants were aware against Stamps.com and several of its executives,that the USPS was not happy with Stamps, and in alleging violations of Sections 10(b) and 20(a) of theparticular, its reseller business practice. The allegations13'