IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
TRACEY WEINBERG, )
)
Plaintiff and )
Counterclaim Defendant, )
)
v. ) C.A. No. 2021-1023-SG
)
WAYSTAR, INC., DERBY TOPCO, )
INC., DERBY TOPCO PARTNERSHIP )
LP, and DERBY GP, LLC, )
)
Defendants and )
Counterclaim Plaintiffs. )
)
MEMORANDUM OPINION
Date Submitted: April 29, 2022
Date Decided: July 6, 2022
Steven P. Wood, Andrew S. Dupre, and Travis J. Ferguson, of MCCARTER &
ENGLISH, LLP, Wilmington, Delaware; OF COUNSEL: Julie B. Porter, of
SALVATORE PRESCOTT PORTER & PORTER, Evanston, Illinois, Attorneys for
Plaintiff and Counterclaim Defendant.
Kevin M. Gallagher and Caroline M. McDonough, of RICHARDS, LAYTON &
FINGER, P.A., Wilmington, Delaware; OF COUNSEL: Sarah A. Zielinski and Amy
Starinieri Gilbert, of MCGUIREWOODS LLP, Chicago, Illinois, Attorneys for
Defendants and Counterclaim Plaintiffs.
GLASSCOCK, Vice Chancellor
I have been accused of a constitutional inability to write in clear and simple
English.1 Per this case, the use in the preceding sentence of the conjunction “and”
is an example. This contractual litigation involves the same conjunction. Its
outcome is determined by an analysis of whether the “and” in question denotes
options available to a party (“at our resort, you can swim, golf and play tennis”) or
prescribes rights only available if multiple conditions are met (“if you choose golf
and get rained out, we will refund your greens fee”). That is, was “and” intended in
its several, or its joint, sense? This is the sole issue necessary to resolution of the
matter at hand, and the parties have made cross-motions for judgment on the
pleadings.
Bad—unclear—contractual drafting is not rare, in my experience. Of course,
as a judge, I see a skewed subset. In any event, bad drafting keeps judges and
lawyers gainfully employed. Whether the contractual language here is an example
is of no moment; the provision in question is clear (and unambiguous) read in
context. Here, the use of “and” is permissive and several; it describes a pair of
periods when a call right may be exercised. Since in context the language is not
1
I offer no defense. See, e.g., Manti Holdings, LLC v. Carlyle Grp. Inc., 2022 WL 1815759, at
*13 (Del. Ch. June 3, 2022) (stating that “[u]nless [defendant] suffers from some financial
Munchausen syndrome or from autoschadenfreude, I infer that the immediate and unfair [s]ale
alleged worked a benefit—an enrichment—on [defendant]”).
ambiguous, the cross-motions must be resolved accordingly: the Plaintiff’s motion
is denied; the Defendants’ motion is granted. I explain below.
I. BACKGROUND 2
A. The Parties
Plaintiff Tracey Weinberg is the former Chief Marketing Officer of Defendant
Waystar, Inc. (“Waystar”),3 and a resident of Chicago, Illinois.4
Defendant Waystar is a Delaware corporation with its principal place of
business in Louisville, Kentucky.5
Defendant Derby TopCo Partnership LP (“Derby LP”) is a Delaware limited
partnership with its principal place of business in Louisville, Kentucky.6
Defendant Derby TopCo, Inc. (“Derby Inc.”) is a Delaware corporation with
its principal place of business in Louisville, Kentucky.7
Defendant Derby GP, LLC is a Delaware limited liability company with its
principal place of business in Louisville, Kentucky.8 Derby LP, Derby Inc., and
Derby GP, LLC are affiliates of Waystar.9
2
I base the facts for this ruling on the parties’ pleadings, together with the attachments thereto.
The facts relevant to this Memorandum Opinion are undisputed.
3
Verified Compl., Dkt. No. 1 ¶ 2 [hereinafter “Compl.”].
4
Defs.’ Answer Affirmative Defenses Verified Compl. and Waystar, Inc., Derby TopCo, Inc.,
Derby TopCo Partnership LP, and Derby GP, LLC’s Verified Countercl., Dkt. No. 19 ¶ 18
[hereinafter “Countercl.”].
5
Id. ¶ 13.
6
Id. ¶ 15.
7
Id. ¶ 16.
8
Id. ¶ 17.
9
Id. ¶ 14.
2
B. Waystar Grants Weinberg Options
Waystar employed Weinberg from July 2018 to August 16, 2021.10 During
Weinberg’s employment, Waystar granted her stock options in Derby Inc. pursuant
to a Derby TopCo 2019 Stock Incentive Plan (the “Plan”). 11 Weinberg was awarded
three options grants under the Plan, pursuant to (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”).12 I refer to the
First, Second and Third Option Agreements collectively as the “Option
Agreements.” The Option Agreements granted to Weinberg options to purchase
shares of common stock in Derby Inc.13 Once exercised, the Derby Inc. stock would
automatically convert into economically equivalent partnership units in Derby LP
(the “Converted Units”).14
1. Waystar Terminates Weinberg
On August 16, 2021, Waystar terminated Weinberg’s employment without
cause. 15 As of that date, 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;
10
Id. ¶ 19.
11
Compl. ¶ 14.
12
Id. ¶ 14.
13
See id. ¶ 4; Countercl. ¶ 5.
14
Compl. ¶¶ 4, 14, 27; Countercl. ¶¶ 5, 26.
15
Compl. ¶ 23; Countercl. ¶ 22.
3
and 2,000 of the options under the Third Option Agreement had vested. 16 The
remaining unvested options contemplated by the Option Agreements were
automatically forfeited. 17 With respect to the vested options, the Option Agreements
provided that Weinberg had 90 days from her termination date to exercise them.18
On November 12, 2021, Weinberg elected to exercise her vested options, purchasing
107,318.96 shares of Derby Inc. common stock, which were immediately converted
into Converted Units in Derby LP.19
2. The Defendants Purport to Repurchase the Converted Units and
Weinberg Brings This Action
The Option Agreements each contained a “Call Right,” which allowed the
Defendants to repurchase Weinberg’s Converted Units, according to the following
terms:
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 such Participant’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
[Substitute20] Options in respect of which the Option
Stock was issued, and (y) a Restrictive Covenant Breach.
16
Countercl. ¶¶ 23–25; see also Compl. ¶ 22.
17
Countercl. ¶¶ 24–25.
18
Id. ¶¶ 23–25.
19
Countercl. ¶ 26; Compl. ¶¶ 25, 27.
20
The Call Right provision in the First Option Agreement includes the word “Substitute,” but it is
otherwise identical to the Call Right provisions in the Second and Third Option Agreements.
4
The Call Right shall expire on the earlier of (i) an Initial
Public Offering or (ii) a Change of Control.21
On approximately November 18, 2021, the Defendants exercised their Call Right
with respect to all of Weinberg’s Converted Units. 22
Five days later, on November 23, 2021, the Plaintiff initiated this action,
seeking, among other things, a declaratory judgment that the Defendants breached
the Option Agreements by asserting the Call Right, and to enjoin the Defendants
from asserting the Call Right.23 On December 16, 2021, the parties stipulated that,
while this action is pending, the Defendants shall retain the Converted Units and the
Plaintiff shall retain the check for the funds paid by the Defendants. 24 The
stipulation further provided that if judgment is entered in the Defendants’ favor, the
Call Right shall be deemed to have been exercised on November 18, 2021.25 On
December 17, 2021, the Defendants filed an answer, affirmative defenses, and a
counterclaim, which seeks a reciprocal declaratory judgment that the Defendants
appropriately exercised their Call Right under the Options Agreements.26 The
parties moved for judgment on the pleadings on January 28, 2022, 27 and completed
21
Countercl., Ex. A ¶ 10(a); Ex. B ¶ 10(a); Ex. C ¶ 10(b).
22
Countercl. ¶¶ 45–46; Compl. ¶¶ 29–30.
23
Compl. at 11–13.
24
Order Resolving Mot. TRO and Governing Further Proceedings, Dkt. No. 16 ¶¶ 1, 3.
25
Id. ¶ 4.
26
Countercl. at 42–43.
27
Pl.’s Mot. J. Pleadings, Dkt. No. 24; Waystar, Inc., Derby TopCo, Inc., Derby TopCo Partnership
LP, and Derby GP, LLC’s Mot. J. Pleadings, Dkt. No. 26.
5
briefing on those motions on March 11, 2022.28 I held oral argument on April 20,
2022, and the parties submitted supplemental letters on April 29, 2022. 29 I consider
the matter fully submitted as of that date.
II. ANALYSIS
A. Legal Standards
The parties have cross-moved for judgment on the pleadings. This Court will
grant a motion for judgment on the pleadings “when there are no material issues of
fact and the movant is entitled to judgment as a matter of law.”30 On cross-motions
for judgment on the pleadings, I must accept as true the non-prevailing party’s
well-pleaded factual allegations and make all reasonable inferences in that party’s
favor. 31
“When analyzing a contract on a motion for judgment on the pleadings, this
Court will grant such a motion only if the contract provisions at issue are
unambiguous.”32 Contracts are ambiguous “when the provisions in controversy are
reasonably or fairly susceptible of different interpretations or may have two or more
28
See Pl.’s Opening Br. Supp. Mot. J. Pleadings, Dkt. No. 25 [hereinafter “Pl.’s OB”]; Waystar,
Inc., Derby TopCo, Inc., Derby TopCo Partnership LP, and Derby GP, LLC’s Br. Supp. Mot. J.
Pleadings, Dkt. No. 27 [hereinafter “Defs.’ OB”]; Pl.’s Answering Br. Opp. Defs.’ Mot. J.
Pleadings, and Further Supp. Pl.’s Mot. J. Pleadings, Dkt. No. 36 [hereinafter “Pl.’s AB”];
Waystar, Inc., Derby TopCo, Inc., Derby TopCo Partnership LP, and Derby GP, LLC’s Br. Opp.
Tracey Weinberg’s Mot. J. Pleadings, Dkt. No. 37.
29
See Dkt. Nos. 43, 44.
30
McMillan v. Intercargo Corp., 768 A.2d 492, 499 (Del. Ch. 2000).
31
TravelCenters of Am. LLC v. Brog, 2008 WL 5272861, at *2 (Del. Ch. Dec. 5, 2008).
32
Cooper Tire & Rubber Co. v. Apollo (Mauritius) Holdings Pvt. Ltd., 2013 WL 5787958, at *4
(Del. Ch. Oct. 25, 2013).
6
different meanings.”33 Ambiguity does not exist merely because the parties disagree
about what the contract means.34 When interpreting contracts, this Court
“construe[s] them as a whole and give[s] effect to every provision if it is reasonably
possible.” 35 “A meaning inferred from a particular provision cannot control the
agreement if that inference conflicts with the agreement’s overall scheme.”36
The parties here agree that there are no material factual disputes and that this
matter can be resolved through a judgment on the pleadings based on the plain
language of the Call Right provision. 37
B. Exercise of the Call Right Provision Does Not Require a Restrictive
Covenant Breach.
The parties dispute whether the Defendants’ Call Right is available in the
absence of a “Restrictive Covenant Breach” by Weinberg, which the parties agree
has not occurred. The Call Right provision states, 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 such Participant’s employment with the
Service Recipient for any reason . . . , and (y) a Restrictive
Covenant Breach.38
33
Id. (quoting United Rentals, Inc. v. RAM Holdings, Inc., 937 A.2d 810, 830 (Del. Ch. 2007)).
34
Id. (quoting United Rentals, 937 A.2d at 830).
35
Norton v. K-Sea Transp. Partners L.P., 67 A.3d 354, 360 (Del. 2013).
36
Id.
37
See Oral Arg. re Cross-Mots. J. Pleadings Held Via Zoom at 25:8–16, 31:19–22.
38
Countercl., Ex. A ¶ 10(a); Ex. B ¶ 10(a); Ex. C ¶ 10(b).
7
To state it even more succinctly: the Defendants may exercise the Call Right
“ . . . during the six (6) month period . . . following . . . (x) . . . the Termination of
such Participant’s employment . . . for any reason . . . , and (y) a Restrictive Covenant
Breach.”
The Defendants contend that under this provision, they may exercise the Call
Right during the six-month period following Weinberg’s “Termination . . . for any
reason,” and also during the six-month period following a “Restrictive Covenant
Breach.” 39
Weinberg argues that the Defendants’ reading conflicts with the plain
meaning of the conjunction “and” in the Call Right provision. 40 According to
Weinberg, the Defendants’ interpretation would transform the conjunctive “and”
into a disjunctive “or.” 41 Instead, Weinberg argues that the Defendants can only
exercise the Call Right if she has been “Terminated . . . for any reason” and she has
also committed “a Restrictive Covenant Breach.” 42 According to Weinberg, the
“six (6) month period” only begins once both conditions have been satisfied. 43 The
parties agree that Weinberg was terminated without cause, and that the Defendants
did not assert a “Restrictive Covenant Breach” when they exercised the Call Right.
39
See Defs.’ OB § I.A.
40
E.g., Pl.’s OB §§ I–II.
41
E.g., id.
42
Id.
43
Pl.’s AB § III.D.
8
Thus, under the Defendants’ reading, the Call Right was timely exercised; under
Weinberg’s reading, it was not.
I find that the plain language of the Call Right provision supports the
Defendants’ interpretation because it is consistent with the “several” use of “and”
that is used in permissive sentences.44 As Professor F. Reed Dickerson, known as
the “dean of American legislative drafting,” observed in his article, The Difficult
Choice Between “And” and “Or,” “it is not always clear whether the writer intends
the several ‘and’ (A and B, jointly and severally) or the joint ‘and’ (A and B, jointly
but not severally).”45 Professor Dickerson explained that whether “and” is “several”
or “joint” depends in part on whether it is used in a permissive or mandatory
sentence.46
Professor Dickerson illustrated this principle using the following example:
“charitable institutions and educational institutions.”47 “If the sentence is
mandatory,” Professor Dickerson explained, “you must have both kinds of
institutions,” so “‘and’ is joint rather than several.”48 But “[i]f the sentence is
permissive, it is normally inferred that you may have one kind without the other,”
44
See Mason v. Range Res.-Appalachia LLC, 120 F. Supp. 3d 425, 445 (W.D. Pa. 2015) (“When
the word ‘and’ is used in a permissive sentence, it is likely to be used in its several sense.”).
45
F. Reed Dickerson, The Difficult Choice Between “And” and “Or,” 46 A.B.A. J. 310, 310
(1960).
46
Id. at 312 (“[G]rammatical alternatives are conditioned by whether the enumeration is assumed
to appear in a mandatory or permissive sentence.”).
47
Id. at 312–13.
48
Id. at 312.
9
and therefore “‘and’ is several rather than joint.” 49 Professor Dickerson further
explained that a writer intending “that the person covered by the statute is to be free
to have either, neither, or both, [] may use any of these three sentences to express
the idea”:
(A) ‘He may contribute to charitable or educational
institutions.’
(B) ‘He may contribute to charitable institutions and
educational institutions.’ Here, ‘and’ is several, not
joint.
(C) ‘He may contribute to charitable institutions or
educational institutions.’ Here, ‘or’ is inclusive, not
exclusive.50
Of the three options, Professor Dickerson recommended option (B)—using the
“several” meaning of “and,” which he asserted is least ambiguous. 51 Notably, 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.” 52 Professor Dickerson noted that “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.” 53
49
Id.
50
Id. at 313.
51
Id.
52
Id.
53
Id.
10
Professor Dickerson is not the only scholar to assert that the “several”
meaning of “and” is commonplace. Indeed, Professor Bryan A. Garner agreed in
his Dictionary of Legal Usage that “[t]he meaning of and is usually several.”54
Moreover, at least one court has agreed that “[w]hen the word ‘and’ is used in a
permissive sentence, it is likely to be used in its several sense.” 55
Applying these principles to the Call Right provision supports Waystar’s
interpretation. The Call Right provision is permissive: Waystar may exercise it “in
its sole discretion.”56 It is thus natural to read the word “and” in its “several” sense,
to mean that Waystar can exercise the Call Right during “the six (6) month period”
following Weinberg’s “Termination . . . for any reason,” during “the six (6) month
period” following “a Restrictive Covenant Breach,” or both. This comports not only
with the sources referred to above; more importantly, it complies with a colloquial
understanding of English as commonly used. “You can take a doughnut, a danish,
and a bagel” invites, but does not mandate, gluttony.
This plain language reading of the Call Right provision is bolstered by a
separate provision in the Second and Third Option Agreements that would be
rendered meaningless if I were to adopt Weinberg’s interpretation of the Call Right
54
See BRYAN A. GARNER, GARNER’S DICTIONARY OF LEGAL USAGE 639 (3d ed. 2011) (quoting
SCOTT J. BURNHAM, THE CONTRACT DRAFTING GUIDEBOOK 163 (1992)).
55
See Mason, 120 F. Supp. 3d at 445.
56
Countercl., Ex. A ¶ 10(a); Ex. B ¶ 10(a); Ex. C ¶ 10(b).
11
provision. Specifically, Paragraph 10(b) of the Second Option Agreement and
Paragraph 10(c) of the Third Option Agreement provide for different repurchase
prices when the Defendants exercise their Call Right, depending on whether a
“Forfeiture Event” has occurred (the “Repurchase Price Provision”):
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
defined in the Partnership Agreement) per unit on the
closing date of the repurchase.57
In other words, the Second and Third Option Agreements provide for two repurchase
prices—one where a “Forfeiture Event” has occurred, and one in the absence of a
“Forfeiture Event.”
The Second and Third Option 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. 58
57
Countercl., Ex. B ¶ 10(b); Ex. C ¶ 10(c).
58
Countercl., Ex. B ¶ 2(c)(iv); Ex. C ¶ 2(c)(iii).
12
Therefore, if Weinberg were correct that the Call Right exists only upon Termination
and a Restrictive Covenant Breach, then the repurchase price applicable to Forfeiture
Events would always apply. This interpretation would render the repurchase price
that applies in the absence of a Forfeiture Event nugatory. In contrast, Waystar’s
interpretation of the Call Right provision can be reconciled with the Repurchase
Price Provision: A Call Right exercised after Termination for cause or after a
Restrictive Covenant Breach would be subject to the repurchase price applicable to
Forfeiture Events, whereas a Call Right exercised after Termination without cause
would be subject to the repurchase price applicable in the absence of a Forfeiture
Event. This Court “will not read a contract to render a provision or term
‘meaningless or illusory.’”59 Only Waystar’s interpretation of the Call Right
provision preserves the meaning of the Repurchase Price Provision in the Second
and Third Option Agreements.
I therefore find that Waystar was entitled to exercise the Call Right upon
Weinberg’s “Termination . . . for any reason,” regardless of whether she committed
a “Restrictive Covenant Breach.”
59
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010); see also Sonitrol Holding
Co. v. Marceau Investissements, 607 A.2d 1177, 1183 (Del. 1992).
13
C. Weinberg’s Affirmative Defenses Fail
Weinberg asserts two affirmative defenses that she contends defeat judgment
on the pleadings in the Defendants’ favor. First, Weinberg contends that the
Defendants cannot prove as a matter of law that they properly exercised the Call
Right because Weinberg has not violated a restrictive covenant. 60 Second, Weinberg
contends that the Option Agreements are contracts of adhesion, meaning that if the
Call Right provision is ambiguous, it must be construed in Weinberg’s favor. 61 But
as I held above, the Call Right provision is unambiguous in context; it
unambiguously allows the Defendants to exercise the Call Right so long as Weinberg
was “Terminated” “for any reason,” even if she did not commit “a Restrictive
Covenant Breach.” Weinberg does not dispute that she was “Terminated” from
Waystar. Accordingly, neither of Weinberg’s affirmative defenses precludes a
judgment on the pleadings in the Defendants’ favor.
III. CONCLUSION
For the foregoing reasons, the Defendants’ Motion for Judgment on the
Pleadings is GRANTED in its entirety. The Plaintiff’s Motion for Judgment on the
Pleadings is DENIED in its entirety. The parties should confer and submit a form
of order consistent with this Memorandum Opinion.
60
Pl.’s AB § IV.
61
Id.
14