Delaware Supreme Court sides with Interactive Brokers in breach of contract dispute

Maria Nikolova

Equity Trust alleges Interactive Brokers’ choice to not renew an agreement triggered closing fees that Interactive Brokers has refused to pay.

The Supreme Court of the State of Delaware has sided with online trading major Interactive Brokers LLC in a lawsuit over alleged breach of contract brought by Equity Trust Company. In an Order, published on October 26, 2018, the Supreme Court supported an earlier ruling in favor of Interactive Brokers.

Under a service agreement between the parties, Equity Trust provided trust and related services to Interactive Brokers’ customers in connection with the customers’ retirement plans. This agreement provided for automatic renewal on the first day of the next year unless either party gave sixty days’ notice that it would terminate the agreement. In October 2016, Interactive Brokers gave notice that it would not renew the agreement for 2017.

Equity Trust alleges Interactive Brokers’ choice to not renew the agreement triggered closing fees that Interactive Brokers has refused to pay. Equity Trust claims the fees are owed under Section 2(k) of the service agreement. Equity Trust brought a claim for breach of contract.

The Superior Court granted Interactive Brokers’ motion to dismiss, holding that the contract provided the parties with a non-renewal option and exercising that option did not trigger any closing fees. Equity Trust then appealed from that decision. The Supreme Court reviews motions to dismiss de novo.

In the Order issued on Friday, the Supreme Court finds that the Superior Court correctly rejected Equity Trust’s argument that declining to renew the agreement prompted the payment of fees. The agreement shows that the obligation to pay closing fees is triggered not when the entire agreement is terminated, but rather when individual accounts are closed. Section 2(k), which is the basis for the alleged breach, requires Interactive Brokers to “pay all Equity Trust fees for Accounts closed during a calendar quarter and all quarterly trustee fees for all open Accounts.”

Thus, according to the Court, closing fees are payable only on the closing of “Accounts.” “Accounts” are in turn defined as “retirement plan accounts established by Customers,” with “Customers” defined as Interactive Brokers’ customers. Therefore,“Account” means an individual retirement plan account; that is, an account that an Interactive Brokers customer has with Interactive Brokers. Customers do not have “Accounts” with Equity Trust, which is only the trustee of the retirement plans. That means that the obligation to pay a closing fee is triggered only when an Interactive Brokers customer’s account is closed.

At no point in the complaint does Equity Trust plead facts supporting a rational inference that all the “Accounts” were closed. In fact, the complaint alleges that Interactive Brokers merely “assumed control of the Accounts,” “removed Equity Trust’s name from the Accounts,” and substituted itself “as trustee for the Accounts.” Those statements imply that Interactive Brokers did not close the Accounts, but instead just replaced Equity Trust as trustee once the agreement expired.

The Supreme Court notes that if Equity Trust wanted the non-renewal of the agreement to result in automatic Bulk Closing Fees, then it should have negotiated for a non-renewal to have that effect by operation of the agreement’s express terms. The easy way to do that would have been to provide that a non-renewal under Section 9 would be deemed to have the same effect as closing all the Accounts under Section 2(k).

Therefore, the Superior Court correctly granted Interactive Brokers’ motion to dismiss, the Supreme Court says.

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