Last year we explained how a word as common as the conjunction “and” could be subject to different interpretations in a contract. See Grammarian’s Delight: It Depends On What The Meaning Of ‘And’ Is. The Delaware Supreme Court recently affirmed Vice-Chancellor Glasscock’s construction of the word “and” given the “range of possible interpretations” that courts have endorsed for the word—a good reminder for parties to exercise care when drafting agreements.
In Weinberg v. Waystar, Inc., et al., Waystar’s former chief marketing officer, Plaintiff Tracey Weinberg, sought a declaratory judgment over the “call right” provision in three separate option agreements between her and her former employer. After Plaintiff was terminated, she sought to exercise the options that she had accumulated while at the company, but Waystar notified her that it was exercising its “call right” to repurchase the shares (“Converted Units”):
The Converted Units shall be subject to the right of repurchase (the “Call Right”) exercisable by Parent . . . , as determined in its sole discretion, during the six (6) month period following (x) the Termination of such Participant’s employment . . . for any reason (or, if later, the six (6) month anniversary of the date of the exercise of the Options in respect of which the Option Stock was issued, and (y) a Restrictive Covenant Breach . . . [.]
(Emphasis added.) Although Waystar had noticed Plaintiff of its exercise of the Call Right within the six-month period following her termination, there had been no breach of a restrictive covenant. Plaintiff argued that the Call Right was not triggered unless both events—termination and a restrictive covenant breach—occurred. The company argued it could exercise its Call Right during the six-month period following either event.
The Delaware Supreme Court undertook a lengthy analysis of the interpretation of the word “and” in litigation, finding that the “two avenues of interpretation—the ‘conjunctive or disjunctive’ path and the ‘joint or several’ path—have emerged from the, at times, lively debate.” It explained that, although the ordinary use of “and” is conjunctive . . . sloppy drafting sometimes confuses the two” uses, and thus “courts [will] interpret ‘and’ in the disjunctive sense to prevent an absurd or unreasonable result, or to give effect to the parties’ intent and reasonable expectations.” Likewise, the court explained that “and” can be used jointly or severally: sometimes it refers to the several occurrence of events (“the law punishes assault and battery”) and sometimes it refers to the joint occurrence of events (“the law punishes drinking and driving”).
The court noted that this range of interpretations has been recognized by many different courts, and demonstrated in recent years by the federal courts of appeals’ different interpretations of the Safety Valve Provision in 10 U.S.C § 3553(f). The Supreme Court, in fact, has granted certiorari to resolve the circuit split over the construction of “and” in that statute. See United States v. Pulsifer, 2023 WL 2227657 (U.S. Feb. 27, 2023) (No. 22-340). The Waystar court explained that this circuit split showed not only that there could a “range of different interpretations” over the term, but also that “the language in [a] statute can be unambiguous, notwithstanding a plethora of conflicting views among panels of judges and even among the circuit courts of appeal.”
In deciding between the constructions of “and” in Waystar’s Call Right—“and” as conjunctive or disjunctive, and “and” as joint or several—the court relied on the plain language and context of the provision and the parties’ understanding of the events described. The court ultimately concluded that the Court of Chancery’s interpretation of the Call Right was the only interpretation “that gives effect to all provision of the Option Agreements.” Additionally, the court found that Plaintiff’s reading—which would have precluded Waystar from exercising its Call Right following a for-cause termination unless a restrictive covenant was breached—led to an illogical result. Under that reading, a company would “depriv[e] itself of the ability to repurchase equity from one who has willfully failed to perform, who has been substantially negligent, or who perhaps even has committed a felony, while inexplicably ordaining a Restrictive Covenant Breach with outsized importance by requiring a Restricted Covenant Breach to have occurred before the Call Right can be exercised.” Thus, the court held, the language of the Call Right was unambiguous and the word “and” should be read severally to allow exercise of the repurchase right (within six months of termination), even absent the breach of a restrictive covenant.
The decision offers a useful reminder to practitioners to exercise care when using conjunctives and (used severally) disjunctives in agreements. As the court noted, the word “or” itself creates questions of inclusivity or exclusivity: “If our host told the litigants, ‘You may take a yogurt, a muffin, or a bagel,’ the question would be raised whether the litigants could take all three food items, or they were limited to one.” Here, a prefatory phrase making clear that the six-month repurchase right was triggered “when one or more of the following events occurs,” “only if both of the following events occurs,” or “under any of the following circumstances” might have avoided significant confusion and costly litigation.
This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.