TRACEY WEINBERG, Plaintiff Below, Appellant, v. WAYSTAR, INC., DERBY TOPCO INC., DERBY TOPCO PARTNERSHIP LP and DERBY GP, LLC, Defendants Below, Appellees.
No. 274, 2022
IN THE SUPREME COURT OF THE STATE OF DELAWARE
March 16, 2023
Submitted: January 18, 2023.
Before SEITZ, Chief Justice; VALIHURA, and VAUGHN, Justices.
Upon appeal from the Court of Chancery. AFFIRMED.
Steven P. Wood, Esquire, (argued), Andrew S. Dupre, Esquire, Travis J. Ferguson, Esquire, McCarter & English, LLP, Wilmington, Delaware for Appellant.
Kevin M. Gallagher, Esquire, Caroline M. McDonough, Esquire, Richards, Layton & Finger, P.A., Wilmington, Delaware. Of Counsel: Sarah A. Zielinski, Esquire, (argued), Amy Starinieri Gilbert, Esquire, McGuire Woods LLP, Chicago, Illinois for Appellee.
VALIHURA, Justice:
This appeal turns on the meaning of the word “and” in three distinct, but related, option agreements. Specifically, the question is whether two separate events (separated by the word “and“) must both occur in order for the company to exercise a call right, or whether the call right may be exercised if only one event has occurred. Plaintiff-below, Appellant Tracey Weinberg (“Weinberg“) is the former Chief Marketing Officer of defendant-below, Appellee Waystar, Inc., a Delaware corporation
Each Option Agreement contains an identical call right provision providing Appellees (defined below) the right to repurchase Weinberg‘s Converted Units (the “Call Right“), “during the six (6) month period following (x) the (i) [t]ermination of [Weinberg‘s] employment with the Service Recipient for any reason . . . and (y) a Restrictive Covenant Breach.”1 On approximately November 18, 2021, five days after
Weinberg exercised her options, Appellees exercised the Call Right and repurchased all of Weinberg‘s Converted Units. Although Weinberg had been terminated within the time frame specified by the Call Right Provision (defined below), a Restrictive Covenant Breach had not occurred. The parties dispute whether the Call Right is available in the absence of a Restrictive Covenant Breach. The Vice Chancellor decided that it was. Weinberg filed suit against Appellees, and Appellees filed a counterclaim, to resolve whether Appellees validly exercised the Call Right under the Option Agreements. Weinberg appeals the Court of Chancery‘s judgment.
For the reasons set forth below, we AFFIRM the judgment of the Court of Chancery.
I. RELEVANT FACTS AND PROCEDURAL BACKGROUND2
A. The Option Agreements
Weinberg began working for Waystar in July 2018. During her approximately three-year employment with Waystar, Waystar awarded her three option grants under the Plan. Eaсh was governed by a distinct Option Agreement: (i) a Substitute Option Agreement, dated October 22, 2019 (the “First Option Agreement“); (ii) an Option Agreement, dated October 23, 2019 (the “Second Option Agreement“); and (iii) an Option Agreement, dated August 9, 2020 (the “Third Option Agreement“). Each Option
Agreement granted to Weinberg the option to purchase shares of common stock in Derby Inc. Once Weinberg exercised the options, the Derby Inc. stock would automatically convert into Converted Units.
1. The Call Right
Section 10(a) of the First and Second Option Agreement, and Section 10(b) of
The Converted Units shall be subject to the right of repurchase (the “Call Right“) exercisable by Parent, a member of the Sponsor Group, or one of their respective Affiliates, as determined by Parent in its sole discretion, during the six (6) month period following (x) the (i) the Termination of [Weinberg‘s] employment with the Service Recipient for any reason (or, if later, the six (6) month anniversary of the date of the exercise of the [Substitute] Options in respect of which the Option Stock was issued, and (y) a Restrictive Covenant Breach. The Call Right shall expire on the earlier of (i) an Initial Public Offering or (ii) a Change of Control.3
The Call Right provision in the First Option Agreement includes the word “Substitute,” but it is otherwise identical to the Call Right provision in the Second and Third Option Agreements.4
B. Waystar Terminates Weinberg
On August 16, 2021, Waystar terminated Weinberg without cause. On the date of her termination, 89,318.96 of the options under the First Option Agreement had vested;
16,000 of the options under the Second Option Agreement had vested; and 2,000 of the options under the Third Option Agreement had vested. Under each Option Agreement, Weinberg had 90 days from the date of her termination without cause to exercise the vested options. On November 12, 2021, within 90 days of her termination, Weinberg elected to exercise all of her vested options. She purchased 107,318.96 shares of Derby Inc. common stock, which were immediately converted into Converted Units in Derby LP, for a total purchase price of $898,756.74.
C. Waystar Exercises its Call Right
On approximately November 18, 2021, Appellees exercised the Call Right and repurchased all of Weinberg‘s Converted Units for a total purchase price of $1,824,422.32. The parties agree that, as of this date, Weinberg had been terminated without cause and that a Restrictive Covenant Breach had not occurred.
D. Weinberg Files Suit
Five days after Appellees exercised the Call Right, on November 23, 2021, Weinberg sued Waystar and its affiliates Derby LP, Derby Inc, and Derby GP, LLC (collectively, “Appellees“), in the Court of Chancery. She sought, among other things, a declaratory judgment that Appellees breached the Option Agreements by exercising the Call Right, аnd an injunction enjoining Appellees from asserting the Call Right. The parties cross-moved for judgment on the pleadings. The Court of Chancery heard oral argument on April 20, 2022. Following supplemental letter submissions, it issued its memorandum opinion on July 6, 2022, granting Appellees’ Motion for Judgment on the Pleadings, and entered judgment on July 26, 2022.
Weinberg filed a notice of appeal on August 5, 2022. We heard oral argument on January 18, 2022.
Weinberg argues that the trial court erred in finding that “and” in the Call Right Provision was meant in its “several” sense. She presents four reasons in support of her contentions: (1) first, “and” can only unambiguously mean “or” if the trial court finds an absurd result, which the trial court did not do here;5 (2) second, the Call Right Provision is mandatory, thus, the word “and” must be read conjunctively; (3), third, the First Option Agreement governs more than 80% of Weinberg‘s options and did not contain the provision the Vice Chancellor found would be rendered superfluous by reading “and” in the conjunctive and joint sense; and (4) finally, because the Call Right is, at least,
ambiguous, and the Option Agreements are contracts of adhesion, the trial court should have construed the ambiguity against Appellees as the drafters.
III. SCOPE AND STANDARD OF REVIEW
Our standard of review of the grant of a motion for judgment on the pleadings “is to determine whether the court committed legal error in formulating or applying legal precepts.”6 Accordingly, we review the grant of a motion for judgment on the pleadings de novo.7 The scope оf our review is limited to the contents of the pleadings.8
IV. ANALYSIS
A. Delaware Principles of Contract Interpretation
In addressing the question of how to interpret the word “and” in the Call Right Provision, and specifically, whether both events must occur before Appellees can exercise the Call Right, we apply our well-established principles of contract interpretation.
In doing so, we endeavor “to give each provision and term effect” and not render any terms “meaningless or illusory.”12
Moreover, “[i]n giving sensible life to a real-world contract, courts must read the specific provisions of the contract in light of the entire contract.”13 Where language is unambiguous, we “will give effect to the plain meaning of the contract‘s terms and provisions.”14 “Language is ambiguous if it is susceptible to more than one reasonable interpretation.”15 “An interpretation is unreasonable if it ‘produces an absurd result’ or a result ‘that no reasonable person would have accepted when entering the contract.‘”16 “The parties’ steadfast disagreement over interpretation will not, alone, render the contract ambiguous.”17 “The determination of ambiguity lies within the sole province of the court.”18
B. An Overview of Interpreting “And”
Resolution of this dispute lies in the correct interpretation of “and” — one of the most common words in the English language. One should not be fooled by the size and ubiquity of the word.19 The use of this seemingly simple word in legal drafting has long been the cause of extensive litigation and debate.20 Yet, as illustrated below, the debate has not firmly established any clear rules for interpreting the word. Nevertheless, two avenues of interpretation — the “conjunctive or disjunctive”
1. Conjunctive or Disjunctive?
First, “and” may be interpreted conjunctively or disjunctively. Many legal authorities support Weinberg‘s suggestion that ordinarily “and” is conjunctive, while “or” is disjunctive, and that courts will construe each word accordingly, absent strong reasons to break from the general rule.21 When courts depart from the ordinary, conjunctive
meaning of “and,” and construe it, instead, as a disjunctive “or,” it is often because they acknowledge that sloppy drafting sometimes confuses the two.22 Accordingly, courts interpret “and” in the disjunctive sense to prevent an absurd or unreasonable result, or to give effect to the parties’ intent and reasonable expectations. In these cases, courts discern the meaning of the word from the context of the provision and the contract as a whole. In short, although “and” typically bears a conjunctive meaning, that presumption can be overcome by context.
2. Joint or Several?
Second, “and” may be used in the joint or several sense.23 Like the Court of
The determination between joint and several is distinct from the determination between conjunctive and disjunctive. As Judge John Rogers explained in his dissent in OfficeMax, Inc. v. United States:
In each sentence the word “and” has the same conjunctive meaning — the difference lies in whether the preceding words are distributed over the conjoined elements or not. Whether to interpret the preceding words as distributed over the conjoined elements or not depends on the context of the sentence, and what we externally know about the conjoined elements.27
The phrase preceding the two elements in the Call Right Provision, “[t]ermination . . . for any reason” and “a Restrictive Covenant Breach,” is “during the six (6) month period following.” If one distributed this preceding phrase across each element, the Call Right Provision would read, in relevant part:
The Converted Units shall be subject to the right of repurchase (the “Call Right“) exercisable by Parent, a member of the Sponsor Group, or one of their respective Affiliates, as determined by Parent in its sole discretion, during the six (6) month period following (x) the (i) the Termination of [Weinberg‘s] employment with the Service Recipient
for any reason (or, if later, the six (6) month anniversary of the date of the exercise of the Options in respect of which the Option Stock was issued, and during the six (6) month period following (y) a Restrictive Covenant Breach.
In both the Call Right Provision as written and the distributive interpretation above, the “and” remains conjunctive. Accordingly, when confronting whether “and” is several or joint, we will look to “the context of the sentence, and what we externally know about the conjoined elements.”28
3. Illustrating the “And” versus “Or” Debate
Courts have struggled with both the conjunctive or disjunctive determination and the joint or several determination, often conflating the two issues.29 The Vice Chancellor
used an example from Professor Reed Dickerson who explained that a writer intending “that the person covered by [a] statute [governing donations] is to be free to have either, neither, or both, [] may use any of these three sentences to express the idea“:
- ‘He may contribute to charitable or educational institutions.’
- ‘He may contribute to charitable institutions and educational institutions.’ Herе, ‘and’ is several, not joint.
- ‘He may contribute to charitable institutions or educational institutions.’ Here, ‘or’ is inclusive, not exclusive.30
Of the three options, Professor Dickerson recommended option (B) — using the “several” meaning of “and.” He noted that the only difference between sentences (B) and (C) is that one uses “and” and the other uses “or,” illustrating that “‘and’ and ‘or’ produce the same result in such a context.”31 Professor Dickerson noted that the several “and” and the inclusive “or” are interchangeable, but “this does not [mean] that ‘and’ means ‘or,‘” but rather, that “in such a context the two words are reciprocally related in that the implied meaning of one is the same as the expressed meaning of the other.”32
Perhaps the best illustration of this debate is the federal circuit split that has developed recently regarding the interpretation of “and” in a federal criminal statute
(known as the First Step Act).33 Both sides in this case have relied upon at least one of these federal appellate decisions in support of their interpretation of “and.”
Part of the First Step Act, set forth in
- the defendant does not have —
- more than 4 criminal history points, excluding any criminal history points resulting from a 1-point offense, as determined under the sentencing guidelines;
- a prior 3-point offense, as determined under the sentencing guidelines; and
- a prior 2-point violent offense, as determined under the sentencing guidelines.35
The Safety Valve Provision‘s use of “and” before prong (C) prompts the question of whether a defendant is ineligible for relief if he has any of the three subsections (the government‘s view)36 or a defendant is ineligible only if he has all three subsections (the defendant‘s view).37 Put another way, “[t]he question presented is whether — as the
government argues . . . — this provision requires the defendant to show that he has none of the criminal history described in subsections (A)-(C); or whether instead — as [the defendant] argues — the defendant must show only that he lacks the criminal history described in any one of [the] subsections.”38
At least seven federal circuit courts of appeal have addressed the “and” in the Safety Valve Provision in the last two years. Three have concluded that the “and” is several, or distributive, meaning that a criminal defendant must not have any of (A), or (B), or (C), to obtain relief under the statute. One reached the same conclusion about the meaning of the statute but reasoned that the “and” was disjunctive. And three found the opposite: that, so long as a criminal defendant did not have all three, (A), (B), and (C), the defendant was eligible for relief under the statute.
a. The Ninth Circuit
The Ninth Circuit was the first to confront the issue, in United States v. Lopez, a case cited by Weinberg. That court asked whеther the Safety Valve Provision‘s “and” is conjunctive or disjunctive.39 After “[a]pplying the tools of statutory construction,” it held that “[the Safety Valve Provision‘s] ‘and’ is unambiguously conjunctive.”40 “Put another
way, [it held] that ‘and’ means ‘and.‘”41 The Lopez court began its analysis by emphasizing, that “the government concedes that the plain
b. The Eighth Circuit
Over a year later, the Eighth Circuit decided United States v. Pulsifer,45 a case relied upon by Appellees here. The court acknowledged that “[t]he most natural reading of ‘and’ is conjunctive” and that it should be construed as such absent “clear indications in the
statute that dictate” it means “or.”46 But it framed the issue differently, using the distributive/several framework:
The parties discuss whether “and” should be read conjunctively or disjunctively, but we do not believe that is the important question. . . . The important question here is in what sense the statute uses the word “and” in the conjunctive. When used as a conjunctive, the word “and” has “a distributive (or several) sense as well as a joint sense.”47
The court then concluded that the “better reading of the statute” was that the “and” in the Safety Valve Provision was distributive (or several).48 In other words, “[t]he text distributes the introductory phrase ‘does not have’ across each statutory condition.”49 The court pointed to a “strong textual basis to prefer a distributive reading of ‘and,‘”50 namely, that prong (A) would be rendered surplusage if “and” were read jointly.51 In other words, the
Although the defendant did not have a two-point violent offense, he had a four-point offense and a three-point offense, and, thus, he was not eligible.52
c. The Seventh Circuit
Then, two months after Pulsifer, the Seventh Circuit threw its hat in the ring in United States v. Pace.53 The Pace court is an outlier: It held that “[a]lthough Mr. Pace is correct that the word ‘and’ is commonly utilized conjunctively and is used in that way in other parts of
The Seventh Circuit is the only federal appellate court to ultimаtely conclude that to be eligible for relief, a criminal defendant must demonstrate that he does not have any of the criminal history criteria described in the Safety Valve Provision, because the meaning of “and” is disjunctive. This reasoning drew a concurring opinion from Judge Kirsch, who agreed with the Eighth Circuit that the “and” was conjunctive, several, and distributive.58
d. The Fifth Circuit
Writing two months after Pace, the Fifth Circuit next weighed in. In United States v. Palomares, it stated: “We agree with the Eighth Circuit that Congress‘s use of an em-dash following ‘does not have’ is best interpreted to ‘distribute’ that phrase to each following subsection.”59
distributive (or several) sense as well as a joint sense.”61 “To determine whether ‘and’ is used in a ‘joint’ sense or a ‘distributive’ sense in [the Safety Valve Provision], we must look to the context of the statute itself.”62
Looking to the context, the court confirmed “the ‘distributive approach’ is the most natural and indeed the most likely intent behind Congress’ choice of a unique structure for [the Safety Valve Provision].”63 It concluded that “the distributive meaning of ‘and’ . . . is the preferred interpretation because it avoids violating the canon against surplusage,”64 whereas “[t]he alternative readings are implausible because they each fail to account for the plain meaning of the statute in some way.”65 Accordingly, the defendant could not have any of the сriminal history described in subsections (A)-(C) to qualify for relief.
e. The Sixth Circuit
The Sixth Circuit then addressed the issue in United States v. Haynes, and it agreed with the Eighth and Fifth Circuits.66 It held that the “and” in the Safety Valve Provision was conjunctive, in accordance with its ordinary meaning, and several, as confirmed by the statutory context. The Haynes court primarily relied on two reasons to support its reading
of the Safety Valve Provision. First, the content of the government‘s proposed reading (that “and” is several) is “logically coherent” and “more plausible” because each of the conditions, (A)–(C), “is quite plausibly an independent ground to deny a defendant the extraordinary relief afforded by the safety valve.”67 Second, the distributive “and” is the only interpretation that abides by the “cardinal principle” of statutory construction to avoid surplusage.68 The Sixth Circuit affirmed the district court‘s judgment that the defendant, Haynes, was ineligible for safety valve relief because he had a prior conviction for which he was assigned three points under the Sentencing Guidelines.
Most recently, the Fourth Circuit Court of Appeals voiced its opinion on the matter in United States v. Jones.69 It concluded “the [g]overnment‘s argument is nothing more than an exaggerated way of saying ‘and’ means ‘or,’ an interpretation we must reject.”70 It was compelled to reject the government‘s argument because the Safety Valve Provision‘s “plain language is unambiguous.”71 “And” means “along with or together with,” requiring all of the conditions in a list, and such meaning “does not change simply because it is preceded by a negative marker.”72 It found this ordinary meaning was buttressed by the canon of consistent usage.
g. The Eleventh Circuit
The Eleventh Circuit presents a microcosm of the debate all by itself. Writing a few weeks before Haynes, an en banc panel of the Eleventh Circuit reached the opposite conclusion as the Fifth, Sixth, Seventh, and Eighth Circuits, in United States v. Garcon.73 In doing so, it reversed a unanimous three-judge panel, which had itself vacated the judgment of the district court.74 The district court had held that “and” in the Safety Valve Provision was conjunctive such that Garcon, the criminal defendant, needed to have all three prongs before he is ineligible for relief. The three-judge panel of the Eleventh Circuit vacated and reversed the district court, holding that, although “‘and’ is presumed to have its ordinary, conjunctive meaning unless the context dictates otherwise,” “and,” as used here, was disjunctive.75 It reasoned that if “and” were read conjunctively, subsection (A) would be superfluous.
However, the Eleventh Circuit en banc panel agreed with the district court and interpreted “and” in accordance with its ordinary conjunctive meaning, a meaning which it held was retained “when a list of requirements follows a negative.”76 Relying in part on the ordinary-meaning canon of construction, the court found that the statutory context confirmed its reading of “and.”77 And, importantly, the en banc panel found that the ordinary meaning of “and” did not produce a surplusage.78 In doing so, the court expressly rejected the distributive, or several, interpretation of “and” advocated for by the government-appellee and accepted by the Fifth, Sixth, and Eighth Circuits.79 Reframing the issue, it stated:
Essentially, the government invites us to read “and” to mean “or,” even as it concedes elsewhere in its briefs that this reading is mistaken. Neither the government
nor our dissenting colleagues offer any authority that adopts this novel reading of “and,” other than recent decisions by our sister circuits that concern the same statutory provision. . . . The government is asking us to inject the words “does not have” into the statute where they do not appear.80
Accordingly, the en banc panel rejected the government‘s arguments that to construe “and” in the joint sense would produce surplusage, an absurd result, and be contrary to legislative intent. Four judges dissented, three of whom wrote separately, and two judges concurred.81
In explaining their differing views on the interpretation of “and,” the federal circuit courts also divided on the canon of surplusage, with a majority (four) of the federal circuit courts holding that the joint construction of “and” would impermissibly render subsection (A) surplusage, and the remaining (three) circuit courts reaching the opposite conclusion. As the “Safety Valve” example illustrates, there is room for disagreement even among aрpellate panels when interpreting the word “and,” and even where the context remains constant.
C. The Trial Court‘s Decision
We acknowledge that the Safety Valve statute‘s text, structure, and context is different from the text before us and, thus, the ultimate resolution by the United States Supreme Court, which has granted certiorari, will not bear on this case.82 However, the foregoing discussion of the federal courts’ epic battle over “and” illustrates the range of possible interpretations our federal appellate sister courts have endorsed in construing “and.” Notably, the conjunctive/several interpretation is not, as Appellants vehemently suggest, a mere aberrational academic construct invented by a law professor that is unsupported by case law. These opinions also illustrate that the language in the statute can be unambiguous, notwithstanding a plethora of conflicting views among panels of judges and even among the circuit courts of appeal. As this Court recently reaffirmed, “[t]he parties’ steadfast disagreement over interpretation will not, alone, render the contract ambiguous.”83
Because the Call Right Provision gave Appellees the broad right to repurchase Weinberg‘s Converted Units, exercisable at Derby LP‘s sole discretion, the Court of Chancery found the Call Right Provision to be permissive. Accordingly, the “and” in the Call Right Provision was several, in accordance with its ordinary meaning.85 The trial court noted that this does not mean “and” means “or,” rather, it means that “in such a context the two words are reciprocally related in that the implied meaning of one is the same as the expressed meaning of the other.”86
Second, the Court of Chancery found that Appellees’ interpretation of the Call Right is the only interpretation that gives effect to all terms in the Second and Third Option Agreements. Specifically, the court found that Weinberg‘s interpretation would render another provision, which determines the price which Appellees will pay to repurchase Weinberg‘s Converted Units, surplusage. Accordingly, the Court of Chancery hеld that the Call Right Provision is exercisable upon satisfaction of one of the conditions, and that both a termination for any reason and a Restrictive Covenant Breach are not required. Because Waystar exercised its Call Right on November 21, within six months of the date Weinberg was terminated, the exercise was timely and valid.
D. The Plain Language and Context Confirm the Court of Chancery‘s Interpretation
Weinberg challenges the trial court‘s reliance on Professor Dickerson‘s permissive versus mandatory principle, and she argues, in the alternative, that the Call Right Provision is mandatory, not permissive. Although, like the Vice Chancellor, we view the provision as permissive,87 we conclude that the Court of Chancery‘s
1. “[I]f later, the six (6) month anniversary of the date of the exercise of the Options . . .”
First, the Call Right Provision not only specifies under which conditions the Call Right may be exercised, but it also specifies its temporal limits. It provides that the Call Right is exercisable during the six-month period following Weinberg‘s termination for any reason “(or, if later, the six (6) month anniversary of the date of the exercise of the Options in respect of which the Option Stock was issued” and “a Restrictive Covenant Breach.” The “if later” clause relates to Section 3 of each Option Agreement, which allows an award recipient 90 days after the date of their termination without cause, or their resignation, to exercise their vested and exercisable options.
But Section 3 of the Second and Third Option Agreements further provides that, immediately upon a Forfeiture Event, the award recipient “may not exercise any vested and exercisable Options” and “such vested Options shall immediately terminate and expire (without payment of any consideration therefor).”89 In both agreements, a “Forfeiture Event” includes “the date of a Restrictive Covenant Breach.”90 This means that the date of exercise of an award recipient‘s vested and exercisable options can never be after the date of a Restrictive Covenant Breach. Under Weinberg‘s reading, Appellees may only exercise the Call Right if a Restrictive Covenant Breach has occurred, effectively depriving the “if later” clause in the Second and Third Option Agreements of meaning or application.91
Second, we agree with the Court of Chancery that Weinberg‘s reading of the Call Right would render another provision in the Second and Third Option Agreements, a two-tiered repurchase price provision (the “Repurchase Price Provision“), surplusage.92 Although all three Option Agreements have identical Call Right Provisions, the Second Option Agreement and the Third Option Agreement contain the Repurchase Price Provision, which the First Option Agreement lacks.93
The Repurchase Price Provision, in Paragraph 10(b) of the Second Option Agreement and Paragraph 10(c) of the Third Option Agreement, provides:
In the event the Call Right is exercised, the purchase price for the Converted Units subject to the exercised Call Right shall be the Fair Market Value (as defined in the Partnership Agreement) per unit on the closing date of the repurchase; provided that in the case of a Forfeiture Event, the purchase price for the Converted Units subject to the exercised Call Right shall be the lesser of (x) the per unit price paid by the Participant for the Converted Units, as adjusted to reflect any dividends or distributions paid in respect of such units and (y) the Fair Market Value (as dеfined in the Partnership Agreement) per unit on the closing date of the repurchase.94
In other words, the Second and Third Option Agreements set two different prices at which Appellees may exercise their Call Right, depending on whether a “Forfeiture Event” has occurred. Both agreements define “Forfeiture Event” to include “the date of a Restrictive Covenant Breach“:
“Forfeiture Event” means (A) the date of the Participant‘s Termination for Cause (or voluntary resignation by the Participant at a time when the Board reasonably determines that the Employer could have terminated the Participant‘s employment for Cause) or (B) the date of a Restrictive Covenant Breach.95
Accordingly, if we were to read the Call Right Provision as Weinberg does, the first tier of the Repurchase Price Provision would be rendered meaningless and would
The inclusion of the two tiered Repurchase Price Provision demonstrates that the drafters contemplated (and Weinberg reasonably should have understood) that the Call Right could be triggered absent a Forfeiture Event, i.e., absent a Restrictive Covеnant Breach. Otherwise, there would have been no need to provide a purchase price for that scenario.96
On appeal, Weinberg points out that the First Option Agreement, which governs 89,318.96 of Weinberg‘s Converted Units (approximately 83% of the options), does not have the same Repurchase Price Provision. Instead, the First Option Agreement has a repurchase price provision with only one tier: It sets the repurchase price at “the Fair Market Value (as defined in the Partnership Agreement)97 per unit on the closing date of the repurchase.”98 It does not differentiate between a price when the Call Right is triggered by a Forfeiture Event or absent a Forfeiture Event. She argues that it was error for the Court of Chancery not to analyze each Option Agreement independently, as separate, and independent contracts. Further, she contends that if the presence of the Repurchase Price Provision in the Second and Third Option Agreements requires us to affirm the Court of Chancery‘s ruling, then the absence of the Repurchase Price Provision in the First Option Agreement compels us to reverse its ruling as to those options.
We are not persuaded by Weinberg‘s arguments. All three Option Agreements are between the same parties, Appellees and Weinberg, and concern the same subject matter — the granting of options to purchase shares of Derby Inc. under the Plan. All three Option Agreements were executed within the same year, with the First Option Agreement and the Second Option Agreement executed within 24 hours of each other. The Call Right Provision is identical in all three Option Agreements and should be interpreted consistently. It would be illogical to conclude that the identical Call Right Provision in the First Option Agreement, signed the day before the Second Option Agreement, by the same parties, has a different and contradictory meaning than the one in the Second and Third Option Agreements. If the parties had intended for the Call Right Provisions to have different meanings, and conditions, it is reasonable to conclude that they would have changed the language in the Call Right Provision itself.
Further, although Weinberg sets forth arguments as to why “and” means “and,” (in the conjunctive, joint sense) and why we should not rely on an article written 60 years ago by a law professor, she does not set forth any arguments as to why “and” should be interpreted jointly, rather than severally. This is problematic because, for one, interpreting “and” severally does not contradict Weinberg‘s proposition that “and” is conjunctive, or in other words, that “and” means “and.”
Weinberg does not explain why the Court of Chancery‘s interpretation is tantamount to reading “and” as “or.” As discussed above, the joint versus several determination is distinct from the conjunctive versus disjunctive determination. Moreover, there is another distinction that would come into play, even if we were to hold that “and” is disjunctive, i.e., that “and” means “or,” that is also separate from the conjunctive versus disjunctive determination. We would need to ask (as in the charitable/educational institution example above) whether “or” was being used inclusively (A or B, or both) or exclusively (A or B, not both).99 As that example illustrated, the inclusive “or” may be used interchangeably with the several “and,” but this does not mean that “and” means “or.” More importantly, the several use of “and” is the only reasonable reading of the Call Right Provision for the additional reasons set forth below which consider, more broadly, the context of the provision.
1. The Permissive Use of “And” Here Suggests Its “Several” Sense
First, as a baseline, although some scholars maintain that “the meaning of and is usually several,”100 it is, at least, commonplace. This is especially true in permissive sentences101 and aligns with our understanding of common, ordinary usage. For example, if the litigants went to a breakfast meeting and the host said, “You may have a yogurt, a muffin, and a bagel,” the litigants would understand that they may take any of the food items, all of the food items, or none of the food items. In the same situation, albeit with a more demanding host, if the litigants were told, “You must take a yogurt, a muffin, and a bagel,” they would understand that they must take all three food items. The example is easily tweaked to demonstrate why Weinberg‘s suggestion, which is offered without explanation, that the Court of Chancery‘s interpretation renders “and” to mean “or” is illogical. If our host told the litigants, “You may take a yogurt, a muffin, or a bagel,” the question would be raised whether the litigants could take all three food items, or they were limited to one. In other words, a question would exist as to whether “or” was inclusive or exclusive. As our example illustrates, “and” does not mean “or.”102
Second, the nature of a Call Right and the plain language of the Call Right Provision in each Option Agreement suggest that a reasonable third party would expect that Appellees retained a broad right to repurchase Weinberg‘s Converted Units. The phrasing of the provision, “[t]he Converted Units shall be subject to the right of repurchase,” rather than being mandatory and obligating Appellees, is a statement subjecting Weinberg‘s Converted Units to Appellee‘s repurchase right, which they have “sole discretion” to exercise.103
3. The Joint Reading of “And” Produces an Illogical Result
Third, Weinberg‘s joint interpretation of “and” in the Call Right Provision would prevent Waystar from exercising its Call Right despite an employee‘s for-cause termination, other than one based upon a Restrictive Covenant Breach. For-cause termination is defined in the Plan as including, for example, willful failure to substantially perform her duties and responsibilities, substantial negligence in the performance of her duties and responsibilities, and conviction of a felony.104 Her reading is not logical. It is highly unlikely a company would structure its right to repurchase its equity in such a restrictive manner — depriving itself of the ability to repurchase equity from one who has willfully failed to perform, who has been substantially negligent, or who perhaps even has committed a felony, while inexplicably ordaining a Restrictive Covenant Breach with outsized importance by requiring a Restricted Covenant Breach to have occurred before the Call Right can be exercised.105
Fourth, the meaning of the Call Right Provision that best aligns with the scheme of the Plan is the conjunctive, several interpretation.106 Thus, we disagree with Weinberg‘s contention that her interpretation of the Call Right is “entirely consistent with ordinary executive compensation arrangements and serves a fulsome, rational contract purpose: to incentivize Appellant to abide by her Restrictive Covenant obligations, on pain of forfeiting her future upside participation in Appellees’ companies.”107
As Weinberg acknowledges, a typical and logical purpose of an equity incentive plаn is to align employee incentives with those of the company.108 Accordingly, call rights allow companies to “retire the shares of a departing shareholder who is no longer important to the success of the venture.”109 An employee is generally no longer important to a venture when they cease to be an employee, for any reason.110 Weinberg argues that it is a reasonable aspect of the scheme of the Plan for her to
Further, the Plan documents state that the purpose of the Plan is to attract and retain key personnel, with an end goal of “strengthening their commitment to the welfare of the Company Group and aligning their interests with those of the Company‘s stockholders.”112 The Second and Third Option Agreements provide that Weinberg‘s options were to vest upon two schedules: one based on her time at the company113 and one based on whether the company achieved certain performancе goals.114 This structure indicates that the Option Agreements were meant to induce Weinberg both to continue her services to the company and to increase the company‘s value, as well as to benefit her own financial position.115 Thus, we reject Weinberg‘s characterization of the Call Right as a sanction. We observe that Weinberg netted approximately $925,665 when Waystar repurchased her Converted Units.
F. The Option Agreements are Unambiguous: The Doctrine of Contra Proferentum Does Not Apply
Finally, Weinberg argues that the Call Right Provision is, at least, ambiguous. Accordingly, she asserts that we must apply the doctrine of contra proferentum because the Option Agreements, and the Partnership Agreement, are contracts of adhesion. However, for the reasons discussed above, we hold that the Call Right Provision is unambiguous and accordingly, contra proferentum does not apply.116
For the foregoing reasons, we AFFIRM the judgment of the Court of Chancery.
Notes
There is a strong textual basis to prefer a distributive reading of “and” in § 3553(f). If “and” is read jointly, then subsection (A) is rendered superfluous. A defendant who has a prior three-point offense under subjection (B) and a prior two-point violent offense under subjection (C) would always meet the criterion in subsection (A), because he would always have more than four criminal history points. Thus, reading “and” in its joint sense would leave subsection (A) without any independent operation.This is the argument that the Ninth Circuit rejected in Lopez.
Readers would understand that “must not have —” independently modifies (and is distributed over) each item. Thus, no baseball fan would insist that she could enter the stadium with a weapon just because she did not have food or a drink. Id. at 644.To enter the stadium, you must not have —
- a weapon;
- any food; and
- any drink.
Id. at A37. The Second and Third Option agreements provide for a potential exception to Section 6(c)(iii)‘s rules regаrding the fate of unvested options upon termination, further discouraging actions giving rise to for-cause termination. If terminated for cause, an award recipient‘s options are not subject to a “Tail Period” allowing options to vest for a further three-month period after the employee‘s termination date. See id. at A66 (Second Option Agreement § 3(a), at 4), A84 (Third Option Agreement § 3(a), at 4). The First Option Agreement does not have a “Tail Period” provision, presumably because options granted under that agreement were subject to an entirely different vesting schedule, with 98.95% of the options vesting on the date of the grant.Unless otherwise provided by the Committee, whether in an Award Agreement or otherwise, in the event of: (A) a Participant‘s Termination by the Service Recipient for Cause, all outstanding Options granted to such Participant shall immediately terminate and expire; (B) a Participant‘s Termination due to death or Disability, each outstanding unvested Option granted to such Participant shall immediately terminate and expire, and each outstanding vested Option shall remain exercisable for one (1) year thereafter (but in no event beyond the expiration of the Option Period); and (C) a Participant‘s Termination for any other reason, each outstanding unvested Option granted to such Participant shall immediately terminate and expire, and each outstanding vested Option shall remain exercisable for ninety (90) days thereafter (but in no event beyond the expiration of the Option Period).
Purpose. The purpose of [the Plan] is to provide a means through which the Company and other members of the Company Group may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants, and advisors of the Company and other members of the Company Group can acquire and maintain an equity interest in the Company, or be paid incentive compensation measured by reference to the value of Common Stock, thereby strengthening their commitment to the welfare of the Company Group and aligning their interests with those of the Company‘s stockholders.