Introduction

In the case of Tracey Weinberg v. Waystar, Inc., the Delaware Supreme Court addressed a pivotal issue concerning the interpretation of the conjunctive term "and" within stock option agreements. Tracey Weinberg, the appellant and former Chief Marketing Officer of Waystar, Inc., challenged the defendants' interpretation of the call right provision in her option agreements. The core dispute centered on whether the call right could be exercised upon either the termination of her employment for any reason or a breach of restrictive covenants, or if both events needed to occur simultaneously. The Supreme Court's decision has significant implications for contract interpretation, particularly in employment and equity incentive contexts.

Summary of the Judgment

Weinberg held stock options under Waystar's Derby TopCo 2019 Stock Incentive Plan, which included provisions allowing Waystar and its affiliates the right to repurchase her converted partnership units under specific conditions. Upon her termination without cause, Weinberg exercised her vested options and Waystar promptly repurchased her units within the six-month period stipulated by the call right provision. However, since no restrictive covenant breach occurred, Weinberg contended that Waystar’s exercise of the call right was unwarranted. The Court of Chancery sided with Waystar, interpreting "and" in the agreements to mean that either termination or a covenant breach individually sufficed to trigger the call right. Weinberg appealed, arguing that "and" should be construed jointly, requiring both events to occur. The Delaware Supreme Court upheld the lower court's decision, affirming the distributive, several interpretation of "and."

Analysis

Precedents Cited

The Court extensively reviewed Delaware contract interpretation principles, citing cases such as Le Tourneau v. Consol. Fisheries Co. and Lipman v. GPB Cap. Hldgs. LLC. These precedents emphasize interpreting contracts based on the objective intent of the parties, utilizing the plain and ordinary meaning of terms unless context dictates otherwise. Additionally, the Court referenced Manti Holdings, LLC v. Authentix Acquisition Co. to support the principle that internal disagreements on contract interpretation do not inherently create ambiguity.

Legal Reasoning

The primary legal issue was the interpretation of the word "and" in the call right provisions of Weinberg's option agreements. The Supreme Court analyzed whether "and" should be read conjunctively (requiring both termination and covenant breach) or severally (allowing either event to trigger the call right). The Court applied Delaware’s objective theory of contracts, emphasizing the necessity to uphold the plain meaning of contract language in context.

The Court examined how various federal circuits had approached similar interpretative challenges, noting a split in how "and" is construed in different contexts. However, focusing on the specific language and structure of the option agreements, the Court found that a distributive interpretation was necessary to avoid rendering any provisions superfluous, particularly the repurchase price provisions in the second and third option agreements.

Furthermore, the Court considered the permissive nature of the call right, as it was subject to Waystar's sole discretion, and the overarching scheme of the stock incentive plan aimed at aligning employee and company interests. This alignment reinforced the reasoning that "and" was intended to be distributive, allowing Waystar to exercise the call right based on either condition independently.

Impact

This judgment clarifies the interpretation of conjunctive terms within contract provisions, especially in equity incentive plans. By affirming the distributive interpretation of "and," the Court reinforces the principle that contract language should be upheld in its ordinary sense unless it leads to absurdity or contradicts the contract's overall scheme. This decision provides greater predictability for employers in structuring option agreements and can influence future litigation concerning the interpretation of similar contractual terms.

Complex Concepts Simplified

Distributive vs. Joint Interpretation of "And"

When a contract uses "and," it can be interpreted in two main ways:

• Distributive (Several): Each condition linked by "and" operates independently. Meeting any one condition is sufficient to trigger the provision.
• Joint: All conditions linked by "and" must be met simultaneously to trigger the provision.

In Weinberg's case, a distributive interpretation means Waystar could repurchase her units if either her employment was terminated or she breached restrictive covenants. A joint interpretation would require both events to occur for the repurchase right to be exercised.

Call Right Provision

This is a contractual clause that gives the company the right to buy back an employee’s equity (such as stock or units) under certain conditions. Understanding whether "and" in this provision is distributive or joint is crucial to determining when the company can exercise this right.

Doctrine of Contra Proferentum

This legal principle dictates that any ambiguity in a contract should be interpreted against the party that drafted it. Weinberg argued for this doctrine, claiming the agreements were ambiguous and should thus be interpreted in her favor. However, the Court found the language clear and unambiguous, negating the need to apply this doctrine.

Conclusion

The Delaware Supreme Court's affirmation in Tracey Weinberg v. Waystar, Inc. underscores the importance of clear contractual language and the necessity of adhering to the ordinary meaning of terms within their context. By upholding the distributive interpretation of "and," the Court provided clarity on how option agreements can be structured and interpreted, ensuring that companies retain necessary protections within their equity incentive plans. This decision not only resolves the immediate dispute between Weinberg and Waystar but also sets a precedent for future cases involving similar contractual language, promoting consistency and fairness in contractual interpretations.