Richards Layton & Finger
 

Judge Carpenter Grants Motion to Dismiss Breach of Contract Claim after Finding Defendant Presented the Only Reasonable Interpretation of Contractual Language

April 26, 2018

In Equity Trust Company v. Interactive Brokers LLC, C.A. No. N17C-05-252 WCC CCLD, Judge Carpenter granted a motion to dismiss after finding that the defendant’s interpretation was the only reasonable interpretation of the contractual agreement at issue.

The dispute arose out of an agreement executed in 2000 between defendant Interactive Brokers LLC and Delaware Charter Guarantee & Trust Company in which Delaware Charter agreed to provide services for Interactive Brokers’ customers’ retirement accounts. The agreement also provided for automatic renewal for additional one-year periods unless either party gave 60 days’ notice of its intent not to renew for the next calendar year.

In 2012, the agreement was amended so that Delaware Charter’s rights and obligations were assigned to Equity Trust. Four years later, Interactive Charter sent notice to Equity Trust of its intent not to renew. The parties disagreed over whether the notice was a proper notice of non-renewal, or whether it constituted a termination, which would require Interactive Brokers to pay certain closing fees. This litigation followed.

In considering the defendant’s motion to dismiss, Judge Carpenter concluded that the only issue was whether the defendant breached the agreement when it gave notice that it was ending the parties’ relationship in 2016 and by failing to pay the closing fees as required in connection with termination. To support their competing arguments, the parties relied on the express language of the agreement. Interactive Brokers contended that 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. In contrast, Equity Trust argued that there was no non-renewal option in the agreement—there was simply a renewal option or termination option.

Judge Carpenter ultimately found that the agreement was clear and unambiguous and held that (1) the agreement provided the parties with a non-renewal option, and (2) Interactive Brokers’ non-renewal did not “terminate” the agreement such that closing fees were triggered.

In reaching his first conclusion, Judge Carpenter found that the renewal provision of the agreement was clear despite using both “renew” and “terminate.” Judge Carpenter concluded that neither term was defined by the agreement and the use of “terminate” instead of “non-renewal” was effectively meaningless. Accordingly, Judge Carpenter found that the agreement contemplated an option for non-renewal based both on common sense and the absence of language suggesting otherwise.

Judge Carpenter also concluded that Interactive Brokers’ exercise of the non-renewal option did not trigger closing fees. He based this conclusion on the following: (1) Interactive Brokers’ notice to Equity Trust included language stating that the agreement would continue through December 31, 2016; (2) the agreement’s timeframe was previously defined to mean January 1 through December 31; (3) there were no allegations that Interactive Brokers did not meet its contractual fee responsibility; and (4) these sophisticated parties could have easily bargained for a clear non-renewal penalty.

Given that the Interactive Brokers’ contractual interpretation was the only reasonable one, Judge Carpenter granted the motion to dismiss.

Analysis: In addressing issues of contractual interpretation, the Court aims to determine the parties’ shared intent. Although the Court cannot choose between two differing reasonable interpretations of ambiguous provisions at the motion to dismiss stage, dismissal is proper if a defendant’s interpretation is the only reasonable construction as a matter of law. Vanderbilt Income & Growth Assocs., L.L.C. v. Arvida/JMB Managers, Inc., 691 A.2d 609, 613 (Del. 1996). Here, Judge Carpenter analyzed the contract and held the parties to a bargain reflected in an unambiguous agreement.

Related Practices