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Equity Trust Co. v. Interactive Brokers LLC

Superior Court of Delaware

March 6, 2018


          Submitted: October 25, 2017

         Defendants' Motion to Dismiss - GRANTED

          Thomas R. Pulsifer, Esquire, Matthew R. Clark, Esquire, Daniel T. Menken, Esquire, Morris, Nichols, Arsht & Tunnell, LLP, 1201 N. Market Street P.O. Box 1347 Wilmington, DE 19899-1347. Attorneys for Plaintiff.

          Martin S. Lessner, Esquire, Mary F. Dugan, Esquire, Young Conaway Stargatt & Taylor, LLP, 1000 North King Street, Wilmington, DE 19801. Attorneys for Defendant.


          William C. Carpenter, Jr. Judge


         On December 31, 2000, Interactive Brokers LLC ("Defendant") entered into a service agreement with Delaware Charter Guarantee & Trust Company ("Delaware Charter") (the "Agreement"). Delaware Charter agreed to provide trust and related services for Defendant's customers' retirement accounts ("Accounts"), [1] in exchange for "payment [of] quarterly fees for all open accounts managed by Delaware Charter as well as fees for all accounts close[d] [during a calendar quarter]."[2] The parties executed Exhibit B of the Agreement, which outlined the Defendant's specific fee obligations ("Fee Schedule").[3] Payment of such fees was required within thirty business days after receiving an invoice from Delaware Charter.[4] The original Fee Schedule was properly amended pursuant to the Agreement's Amendment section[5]in 2012 ("Amended Fee Schedule").[6] The Amended Fee Schedule removed any references to retainer fees and lump quarterly fees, [7] and instead created: Non-Bulk Closing Fee of $20 per account and Bulk Closing Fee of $40.[8] The Bulk closing could become applicable if more than 20% of the account base was terminated in any agreement year.[9]

         Section 9 of the Agreement titled, Terms and Conditions of the Agreement, defined the length of the Agreement as an initial one-year non-cancelable term with an expiration date of December 31, 2001.[10] Section 9 also provides for automatic renewal for "additional one-year periods effective January 1st unless either party, upon at least sixty days written notice prior to the renewal date, terminates the Agreement."[11]

         The term "terminates" is not defined by the Agreement or in the Amended Fee Schedule and the termination provision set forth in Section 10 of the Agreement appears to be inapplicable to the facts of this case. It states:

In the event of any material breach of this Agreement by one party, the other party may (reserving cumulatively all other remedies and rights under this Agreement and at law and in equity) terminate this Agreement by giving at least thirty (30) days' written notice to the breaching party, provided, however, that any such termination shall not be effective if the party in breach has cured such breach prior to expiration of said thirty (30) day notice period. In the event a party initiates or becomes the subject of any proceeding under any federal or state bankruptcy or insolvency law, makes an assignment for benefit of its creditors, becomes insolvent, or if any substantial part of such party's property becomes subject to levy, seizure, assignment or sale for or by any creditor or governmental agency, then the other party may terminate this Agreement by giving thirty (30) days' written notice of such termination and designating a date upon which such termination shall be effective.[12]

         There is no assertion by either party that there was a material breach of the contract nor did any bankruptcy proceedings occur during the Agreement. Neither Section 9 or 10 of this Agreement cross-reference each other nor do they directly reference the Amended Fee Schedule.

         It is undisputed that the parties (including Equity Trust Company) renewed the Agreement for over fifteen years, and throughout that period amended the Agreement on four different occasions.[13] One of these amendments, in addition to the Amended Fee Schedule discussed above, took place in October 2012. The Agreement was amended so that Delaware Charter could assign its rights and obligations under the Agreement to Equity Trust Company ("Plaintiff').[14] Defendant alleges that after the assignment, Plaintiff continuously struggled to meet its contractual obligations.[15] After two years, Defendant decided not to renew the Agreement for 2017, and on October 28, 2016, Defendant notified Plaintiff of its decision not to renew the Agreement via the following correspondence ("Notice"):

Pursuant to Section 9 of the Service Agreement between Interactive Brokers LLC and Delaware Charter Guarantee & Trust Company (the "Agreement"), of which Equity Trust Company is a successor to Delaware Charter, Interactive Brokers LLC elects not to renew the Agreement on January 1, 2017. December 31, 2016 will be the last day the Agreement is effective.[16]

         This Notice is at the center of the current dispute. The parties disagree whether the Notice was a termination of the Agreement or simply the required notice under Section 9 to not renew the Agreement. Plaintiff considered the Defendant's Notice as a termination of the Agreement and since all of the account bases would be terminated by the Notice it meets the criteria for more than 20% of the base being terminated and as such demanded Defendant pay the Non-Bulk Closing Fee and the Bulk Closing Fee (jointly the "Closing Fees") for all of the 46, 317 Accounts.

         Despite Plaintiffs demands for payment, Defendant refused to pay any Closing Fees, but instead offered to pay Plaintiff the proportionate fee for all accounts that remained open in the first quarter of 2017. Specifically, Defendant offered to pay the Plaintiff $4 for any accounts still open, instead of the $60 per account Closing Fee that the Plaintiff is seeking.[17]

         As a result, Plaintiff filed the instant action on May 17, 2017, asserting a claim for breach of contract seeking $2.75 million in termination fees, for the 46, 317 Accounts "terminated" at the end of the Agreement, pre-judgment and post-judgment interest; and costs and expenses incurred including reasonable attorneys' fees. Plaintiff alleges Defendant breached Section 2(k) of the Agreement by failing to pay Plaintiff the Closing Fees within thirty business days of receiving Plaintiffs quarterly invoice on November 29, 2016.[18] Plaintiff also argues Defendant has deprived Plaintiff of its contractual rights "under Section 2(1) of the Agreement to '(i) authorize and instruct Interactive Brokers ... to liquidate Account assets in order to pay the fees specified per Exhibit B, and (ii) deduct outstanding fees from the proceeds of such liquidated Account assets .. . .'"[19]

         Defendant responded by filing the instant Motion to Dismiss the Complaint on July 26, 2017, pursuant to Superior Court Civil Rule 12(b)(6). The Court now turns to the substance of that Motion.


         In considering the Motion to Dismiss for failure to state a claim filed pursuant to Rule 12(b)(6), the Court must assume the truthfulness of the Complaint's well-pleaded allegations, [20] and afford Plaintiffs "the benefit of all reasonable inferences that can be drawn from [their] pleading."[21] Certain documents that are "integral to a plaintiffs claims...may be incorporated by reference without converting the motion to a summary judgment."[22] At this preliminary stage, dismissal will be granted only when the Court is able to determine with "reasonable certainty" that Plaintiffs would not be entitled to relief "under any set of facts that could be proven to support the claims asserted" in the Complaint.[23]


         To survive a motion to dismiss for failure to state a breach of contract claim, a plaintiff must allege (1) the existence of a contract; (2) the breach of an obligation imposed by that contract; and (3) resulting damages.[24] In the instant case, the parties do not dispute the sufficiency of Plaintiff s allegations with respect to the elements of an existing contract and, if proven, the damages that would flow from the breach. Instead, the parties disagree as to whether Plaintiff has adequately alleged that Defendant breached the Agreement when it gave notice that it was ending their relationship in 2016 and by failing to pay Closing Fees at the end of their Agreement.

         In addressing issues of contract interpretation, the Court aims to determine the parties' shared intent, referring first to "the relevant document, read as a whole, in order to divine that intent."[25] The Court will interpret contract terms according to their "common or ordinary meaning" and contract provisions as a whole, "giving effect to each and every a manner that does not render any provision 'illusory or meaningless.'"[26] If contractual language "is plain and clear on its face, i.e., it...conveys an unmistakable meaning, the writing itself is the sole source for gaining an understanding of intent."[27] If, however, the terms are ambiguous, extrinsic evidence may be considered to determine the parties' intentions.[28]Ambiguity exists "when the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings."[29] At the motion to dismiss stage, the Court "cannot choose between two differing reasonable interpretations of ambiguous provisions."[30] In other words, "[d]ismissal is proper only if the defendant['s] interpretation is the only reasonable construction as a matter of law."[31] "[W]hen parties present differing-but reasonable- interpretations of a contract term, the Court turns to extrinsic evidence to understand the parties' agreement. Such an inquiry cannot proceed on a motion to dismiss."[32]

         Notably, both parties rely on the express language of Section 9 and the Amended Fee Schedule as support for their respective positions. Defendant focuses on the renewal language in Section 9 and argues the right to not renew the Agreement was a valid option, separate and distinct from termination.[33] Specifically, Defendant contends the Agreement created three options for the parties-to allow the Agreement to automatically renew, terminate the Agreement during the one-year term, or not renew the Agreement for another year.[34] Additionally, Defendant argues that even if the right to not renew the Agreement is considered a "termination, " Defendant did not terminate any Accounts in the Agreement year of 2016 as it promised to continue its obligations until midnight of December 31, 2016 (the expiration date).[35] Therefore, it did not trigger Closing fees. Further, Defendant asserts Plaintiffs interpretation of the Agreement produces an absurd result.[36] By reading out any non-renewal option, Defendant "would, in essence, be subject to a penalty for exercising its right not to renew the Agreement, and [Plaintiff] would be entitled to a significant windfall, even if [Plaintiffs] non-performance or breach served as the basis for [Defendant's] decision not to renew."[37]

         Plaintiff argues there is no non-renewal option in the Agreement-there is simply a renewal option or termination option.[38] Plaintiff asserts "[t]he Agreement does not contemplate, and [Defendant] did not bargain for, a neutral "non-renewal" option that would allow [Defendant] to terminate the Agreement without incurring the Closing Fees."[39] Plaintiff also argues that Defendant "obtained control of the Accounts post-expiration when they were 'closed' by Equity Trust and 'transferred' to Interactive Brokers"[40] which triggered an obligation to pay the Closing Fees. Plaintiff also rejects Defendant's theory that the Agreement was not terminated during an Agreement year for several reasons. First, Plaintiff asserts the Non-Bulk Closing Fees are not tied to termination during an Agreement year, and the Defendant must pay them regardless.[41] Second, Plaintiff also argues that termination occurs pursuant to Section 9 as soon as the notice of non-renewal was sent.[42]

         Finally, Plaintiff contends that Defendant has failed to demonstrate why Plaintiffs interpretation would lead to an absurd result. Plaintiff argues "[i]t is neither beyond the bounds of reason nor contrary to the purposes of the Agreement for the parties to have agreed that Equity Trust should be entitled to a fee when an account is closed to compensate Equity Trust for its services."[43] Plaintiff urges the Court to find the Closing fees to be "part of the bargained for consideration... for managing the Accounts."[44]

         The Court finds the instant Agreement to be unambiguous and it does not require extrinsic evidence to resolve the current dispute. The Court is able to read the Agreement and the Amended Fee Schedule to interpret and reach two reasonable conclusions regarding the Agreement and the Defendant's notice. First, the Court agrees with the Defendant that the Agreement provided the parties a non-renewal option, which Defendant properly exercised. Second, the Court finds the Defendant's non-renewal did not "terminate" the Agreement during a calendar quarter in the 2016 Agreement year;[45] that would have triggered the Closing Fees asserted by the Plaintiff.

         To reach these conclusions, the Court has focused on the specific language in Section 2(k), Section 9, and the Amended Fee Schedule. It has interpreted the Agreement provisions according to their "common or ordinary meaning"[46] and has "adopt[ed] the construction that is ...

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