“Participant” Re-Defined: Delaware Supreme Court Recasts Ambiguity Analysis for Integrated Equity Incentive Agreements

1. Introduction

Village Practice Management Company, LLC (“Village”) granted Class B units to Ryan West under a complex bundle of documents (Plan, Award Agreements, Notices of Grant, Operating Agreement—collectively, “Agreement”). After West resigned and joined Duly Health—allegedly a competitor—Village declared that his vested units were forfeited by reason of “Detrimental Activity.” West sued in the Court of Chancery for a declaration that only current employees could be “Participants” subject to forfeiture. The Vice Chancellor agreed, granted judgment on the pleadings, denied Village’s application to stay the case pending Committee review, and awarded West attorneys’ fees.

On appeal, the Delaware Supreme Court (en banc) reversed, holding that:

The term “Participant” is ambiguous because it is given two competing definitions inside the integrated Agreement. Therefore, judgment on the pleadings was improper.
West is no longer the prevailing party; his fee award is vacated.
The Court of Chancery properly denied Village’s motion to stay; Section 4(d) of the Plan is not the type of mandatory expert-determination clause that divests the court of jurisdiction.

The matter is remanded for factual development and, if necessary, a reasonableness analysis of the forfeiture provision under Ainslie and related authority.

2. Summary of the Judgment

1. Because “Participant” is defined (i) in the Plan (limiting it to “any Employee or Consultant” in the present tense) and (ii) in the Award Agreements (simply as “the participant identified on the cover page,” i.e., Ryan West), the Supreme Court found at least two reasonable meanings. Ambiguity precludes Rule 12(c) relief; the Vice Chancellor’s grant of judgment on the pleadings was therefore error.

2. West’s attorneys’-fees award, based on a prevailing-party clause in the Operating Agreement, evaporates because he is no longer the prevailing party.

3. The Court of Chancery did not abuse its discretion in refusing to stay proceedings under Section 4(d); unlike the “submit-and-be-bound” language evaluated in Terrell v. Kiromic, Section 4(d) merely grants the Committee broad administrative powers, not exclusive jurisdiction over disputes.

3. Analysis

3.1 Precedents Cited and Their Influence

Terrell v. Kiromic Biopharma, Inc. (“Terrell I” & “Terrell II”)
Treated a clause mandating Committee resolution as an expert determination. Delaware Supreme Court in Terrell II required judicial review of the Committee’s decision. Village argued Section 4(d) paralleled that clause; the Supreme Court disagreed, distinguishing the texts.
Page v. Village Practice Management Group, LLC
Chancery stayed a similar dispute until Village’s Committee acted. The Supreme Court noted that Page involved an undeclared forfeiture, giving the Committee something to decide, whereas here Village had already acted.
Cantor Fitzgerald v. Ainslie
Clarified that forfeiture-for-competition provisions in partnership/LLC agreements are presumptively enforceable contractual risk-allocations, not restraints of trade. The Supreme Court flagged that a reasonableness analysis might still occur on remand, but did not reach it.
LKQ Corp. v. Rutledge
Recent decision upholding a “forfeiture-for-competition” clause. Mentioned in supplemental briefs; Court again declined to reach enforceability pending factual development below.
Contract-construction staples: GMG Capital, Kuhn Construction, Osborn v. Kemp, etc., governing ambiguity determination and reading integrated instruments as a unitary scheme.

3.2 Legal Reasoning

Integration Clause Controls the Lens – The Award Agreements’ merger clause created a single “unitary contractual scheme.” Hence every appearance of “Participant” across four documents had to be harmonised.
Competing Definitions –
- Plan § 2(u): “any Employee or Consultant” (present-tense verbs).
- Award Agreements intro: “the participant identified on the cover page.”
Both are capitalised, both purport to be definitions, and neither yields to the other by an express hierarchy. Result: plausible readings that include only current employees or both current and former holders.
Surrounding Text Cuts in Both Directions – Several Plan sections (9(a) “Detrimental Activity … at any time”; 10(a) lock-up obligations; 17 beneficiary designation) presume that one can remain a “Participant” post-employment. Other clauses, however (4(a) forfeiture upon detrimental activity), are written in the present tense and may imply contemporaneous employment. The Court concluded the provisions did not resolve the ambiguity.
Ambiguity → No Rule 12(c) Relief – Under BitGo and Waystar, where contractual language supports two reasonable interpretations, the case cannot be decided on the pleadings.
Stay Request Properly Denied – Section 4(d) lacked obligatory language (“shall be final and binding”) similar to Terrell. In any event, Village had already acted, leaving no undecided question for the Committee.
Fee Award Vacated – The Operating Agreement’s prevailing-party clause is contingent on final success; reversal of judgment eliminates the predicate.

3.3 Impact of the Decision

Equity Incentive Plans Must Harmonise Definitions – Drafters can no longer rely on generic present-tense employee language when other integrated documents extend rights and obligations beyond employment.
Pleading-Stage Strategy – Defendants now have a roadmap for resisting Rule 12(c) motions by identifying any textual cross-currents within an incentive-plan suite. Plaintiffs must anticipate and neutralise multiple-definition arguments.
Dispute-Resolution Clauses Scrutinised – Merely granting a committee “administrative” authority will not oust Delaware courts. Parties desiring pre-litigation expert determination must use unmistakable language (“shall be final and binding”).
Forfeiture v. Restrictive Covenant – The Court flagged, but left open, whether contractual forfeiture provisions must satisfy common-law reasonableness when applied to post-employment competition. Future opinions will likely refine the post-Ainslie landscape.

4. Complex Concepts Simplified

Integrated Agreement – When several signed documents are glued together by an “entire-agreement” clause, courts treat them as one contract.
Judgment on the Pleadings (Rule 12(c)) – A fast-track motion saying “we win even if all well-pleaded facts in the complaint are true.” It only works if the contract is unambiguous.
Ambiguity – Exists when reasonable professionals can give the text two different yet sensible meanings—not merely because the parties disagree.
Expert Determination vs. Arbitration – An expert resolves a narrow, technical question (often without judicial review unless fraud or bad faith); arbitration is broader and governed by the FAA or state arbitration acts.
Prevailing-Party Fee Clauses – “Loser-pays” provisions that shift fees only after a final, non-reversed victory.

5. Conclusion

Village v. West is less about forfeiture than about contract drafting and Delaware’s disciplined ambiguity analysis. By holding that two competing definitions of “Participant” create reasonable, duelling interpretations, the Supreme Court:

Reaffirmed that integrated equity documents must be internally consistent or risk protracted litigation.
Clarified that administrative-committee clauses do not automatically stay court proceedings unless they contain unmistakably preclusive language.
Maintained judicial gate-keeping over fee-shifting: the “prevailing-party” label dissolves when the appellate court reverses.

On remand, the Court of Chancery must untangle factual issues (e.g., the parties’ course of performance, Committee designations) and, if West is deemed a “Participant,” decide whether Section 4(a)’s forfeiture remedy survives Delaware’s evolving reasonableness standards. Corporate counsel should heed the warning: define plan terms once, clearly, and for all life-cycle stages of the equity award—otherwise, “Participant” may again become the pivot on which fortunes turn.