Tracey Weinberg v. Waystar, Inc.

Citation: Not availableDocket: CA No. 2021-1023-SG

Court: Court of Chancery of Delaware; July 6, 2022; Delaware; State Appellate Court

Original Court Document: View Document

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In the case of Tracey Weinberg v. Waystar, Inc. et al., the Delaware Court of Chancery addresses a contractual dispute centered around the interpretation of the conjunction "and" in a series of agreements. The critical issue is whether "and" signifies multiple options for the parties or if it requires compliance with several conditions simultaneously. The court determines that the language in question is clear and unambiguous, indicating that "and" is used in a permissive sense, allowing for the exercise of rights during specified periods. As a result, the Plaintiff’s motion for judgment is denied, while the Defendants’ motion is granted.

The background reveals that Tracey Weinberg, the Plaintiff and former Chief Marketing Officer of Waystar, was employed from July 2018 to August 2021 and was granted stock options under the Derby TopCo 2019 Stock Incentive Plan through three separate Option Agreements. The Defendants include various entities affiliated with Waystar, all based in Louisville, Kentucky. The court's ruling is based on undisputed facts from the pleadings and accompanying documents.

Upon exercising the options, stock from Derby Inc. converts into partnership units in Derby LP. On August 16, 2021, Waystar terminated Weinberg’s employment without cause, resulting in the vesting of specific options from three Option Agreements: 89,318.96 from the First Option Agreement, 16,000 from the Second, and 2,000 from the Third. Unvested options were forfeited. Weinberg had 90 days post-termination to exercise her vested options and chose to do so on November 12, 2021, acquiring 107,318.96 shares, which were converted into units in Derby LP.

The Option Agreements included a "Call Right," allowing Defendants to repurchase the Converted Units within six months following termination or a breach of restrictive covenants. This Call Right expires upon an Initial Public Offering or a Change of Control. On November 18, 2021, Defendants exercised their Call Right regarding Weinberg’s Converted Units. Subsequently, on November 23, 2021, Weinberg initiated legal action, claiming Defendants breached the Option Agreements by asserting the Call Right, and sought an injunction against it. 

On December 16, 2021, both parties agreed that Defendants would retain the Converted Units and Weinberg would keep the payment check until the case was resolved. A stipulation stated if judgment favored Defendants, their Call Right would be considered exercised as of November 18, 2021. Defendants filed an answer, affirmative defenses, and a counterclaim on December 17, 2021, seeking a declaratory judgment affirming their Call Right exercise. The parties moved for judgment on the pleadings on January 28, 2022, with arguments held on April 20, 2022, and the case submitted for judgment by April 29, 2022.

In analyzing the case, the Court will grant judgment on the pleadings where no material factual disputes exist, affirming the non-prevailing party's allegations. The Court will only grant such motions if the contract terms are unambiguous, defining ambiguity as provisions that can be interpreted in multiple ways. Contract interpretation requires a holistic view, ensuring all provisions are respected unless conflicting interpretations arise.

The parties acknowledge no material factual disputes and agree that the case can be resolved through judgment on the pleadings, focusing on the Call Right provision's plain language. The central issue is whether the Defendants can exercise their Call Right in the absence of a Restrictive Covenant Breach by Weinberg, which the parties agree has not occurred. The Call Right provision allows the Defendants to repurchase the Converted Units within six months following either the termination of a participant’s employment for any reason or a Restrictive Covenant Breach.

The Defendants argue they can exercise the Call Right after Weinberg's termination, while Weinberg contends that both conditions must be met for the Call Right to be invoked, citing the conjunction 'and' in the provision. She asserts that the six-month period only commences once both conditions are satisfied. The parties concur that Weinberg was terminated without cause and that no Restrictive Covenant Breach was claimed by the Defendants during the Call Right exercise, leading to differing interpretations on the timeliness of the exercise.

The analysis favors the Defendants' interpretation, suggesting that the 'and' in the Call Right provision is used in a permissive sense, allowing for the Call Right to be exercised if either condition occurs. This interpretation aligns with Professor F. Reed Dickerson's explanation regarding the use of 'and' in permissive versus mandatory contexts. Dickerson posits that in permissive contexts, the use of 'and' can imply that either condition may allow for action, distinguishing it from mandatory contexts where 'and' would require both conditions to be met. Thus, the Defendants' reading of the provision is deemed consistent with its plain language.

Professor Dickerson and Professor Bryan A. Garner support the interpretation that the term "and" typically conveys a 'several' meaning in legal contexts. A court has also noted that in permissive sentences, "and" is likely understood in this manner. Applying these concepts to the Call Right provision, which allows Waystar to act "in its sole discretion," it is reasonable to interpret "and" as allowing Waystar to exercise the Call Right both after Weinberg’s termination and after a Restrictive Covenant Breach. This interpretation aligns with standard English usage and is reinforced by the Second and Third Option Agreements, which stipulate different repurchase prices depending on the occurrence of a "Forfeiture Event."

The agreements define "Forfeiture Event" to include the date of a Restrictive Covenant Breach or a Participant’s termination for cause. If Weinberg's interpretation were adopted, the repurchase price applicable in the absence of a Forfeiture Event would have no effect, rendering it meaningless. In contrast, Waystar’s interpretation allows for a coherent distinction between repurchase prices based on the circumstances of the Call Right exercise. Thus, Waystar is justified in exercising the Call Right upon Weinberg’s termination for any reason, regardless of any Restrictive Covenant Breach. The Court asserts it will not interpret contracts in a way that nullifies any provisions.

Weinberg's affirmative defenses are insufficient to prevent a judgment in favor of the Defendants. She argues that the Defendants cannot legally prove they exercised the Call Right because she has not breached any restrictive covenant. Additionally, Weinberg claims that the Option Agreements are contracts of adhesion, suggesting that any ambiguity in the Call Right provision should be interpreted in her favor. However, the court determined that the Call Right provision is clear, allowing the Defendants to exercise it if Weinberg was 'Terminated for any reason,' regardless of a restrictive covenant breach. Weinberg does not contest her termination from Waystar. Consequently, her defenses do not impede the Defendants' motion for judgment. The court grants the Defendants’ Motion for Judgment on the Pleadings and denies Weinberg's Motion for Judgment on the Pleadings in full. The parties are instructed to confer and submit an appropriate order reflecting this decision.