Weinberg v. Waystar, Inc.
| Docket Number | 274, 2022 |
| Decision Date | 16 March 2023 |
| Citation | 294 A.3d 1039 |
| Parties | Tracey WEINBERG, Plaintiff Below, Appellant, v. WAYSTAR, INC., Derby TopCo Inc., Derby TopCo Partnership LP and Derby GP, LLC, Defendants Below, Appellees. |
| Court | United States State Supreme Court of Delaware |
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.
Before SEITZ, Chief Justice; VALIHURA, and VAUGHN, Justices.
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 ("Waystar"). During her employment at Waystar, the company granted her options to purchase stock in its co-defendant Derby TopCo, Inc., a Delaware corporation ("Derby Inc."), pursuant to a Derby TopCo 2019 Stock Incentive Plan (the "Plan"). Weinberg was awarded three option grants under the Plan pursuant to three option agreements executed between October 2019 and August 2020 (the "Option Agreements"). By the time Weinberg was terminated on August 16, 2021, 107,318.96 of her options had vested. She timely exercised all of them on November 12, 2021, and the options immediately converted to economically equivalent partnership units in co-defendant Derby TopCo Partnership LP, a Delaware limited partnership ("Derby LP") (the "Converted Units").
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.
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. Each 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 Third Option Agreement (the "Call Right Provision") provides Appellees with the right to repurchase Weinberg's Converted Units. It reads:
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
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.
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.
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, and 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.
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 of our review is limited to the contents of the pleadings.8
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 construing a contract, our goal is to give effect to the intent of the parties.9 "Delaware adheres to the ‘objective’ theory of contracts, i.e. a contract's construction should be that which would be understood by an objective, reasonable third party."10 We will read the contract as a whole and "enforce the plain meaning of clear and unambiguous language."11 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
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,...
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