In the case of Israel Discount Bank of New York v. First State Depository Company, LLC, C.A. No. 7237-VCP, the Court of Chancery reviewed Defendants’ application for certification of an interlocutory appeal in connection with the Court’s denial of a motion to dismiss the Complaint for lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted.
Certified Assets Management, Inc. (“CAMI”) and First State Depository Company, LLC (“FSD” or, collectively with CAMI, “Defendants”) moved to dismiss Israel Discount Bank of New York’s (“IDB” or “Plaintiff”) complaint for breach of contract and conversion of property (the “Complaint”) on the grounds set forth above. The Court denied Defendants’ motion to dismiss (the “Opinion”). On October 8, Defendants filed an application for certification of an interlocutory appeal of the ruling and order set forth in the Opinion.
In its application, Defendants assert that the Court lacked subject matter jurisdiction because the parties committed to submit to binding arbitration any dispute over the collateral at issue in this case. In particular, they argue that IDB’s rights to the collateral arise from Collateral Custody Account Agreements (“CCAAs”) and that these CCAAs contain an arbitration provision that requires the parties to arbitrate this dispute. Defendants further contend that a letter signed by IDB, FSD, and Republic, which sets forth IDB’s rights to direct FSD’s conduct with regard to the collateral (the “Bailment Agreement”), does not change the parties’ obligation to arbitrate this dispute.
The Court of Chancery denied Defendants’ application for certification. According to Supreme Court Rule 42(b), no interlocutory appeal will be certified by the trial court or accepted by the Supreme Court unless the order of the trial court determines a substantial issue, establishes a legal right, and meets one of five additional criteria enumerated in Rule 42. According to the Court, the Supreme Court only will accept an application for interlocutory appeal in extraordinary or exceptional circumstances.
In determining that the Opinion did not establish a substantial issue, the Court provided as follows:
The Supreme Court and this Court repeatedly have found that determinations of arbitrability do not relate to the merits of a claim and, thus, do not establish a substantial issue under Rule 42. This is because the parties’ rights “will be adjudicated as efficiently, promptly and economically in Delaware courts as they would be in  arbitration were [Defendants] subject to that process.” In this regard, “the issue of whether [plaintiff’s] claims should be heard in arbitration or this [C]ourt does not go to the actual merits of those claims.” Accordingly, my determination that IDB’s claims are not subject to arbitration is not sufficient to meet the “substantial issue” prong of Rule 42.
The Court further indicated that the Opinion did not establish a legal right, as it did not create or diminish CAMI’s rights under the CCAAs. The Court indicated that in denying Defendants’ motion to dismiss, the Court postponed a final resolution of the parties’ legal rights under the various agreements in this case and of Defendants’ potential liability on a conversion theory until the Court has a more fully developed record before it. Therefore, the Court did not establish a legal right under Rule 42.
This case is significant in that it provides a roadmap for the elements required for an application for certification of an interlocutory appeal under Supreme Court Rule 42, and also demonstrates the Court’s reluctance to grant such applications in the context of determinations of arbitrability.