Terrell v. Kiromic Biopharma, Inc.

IN THE SUPREME COURT OF THE STATE OF DELAWARE

JASON TERRELL §
§
Plaintiff Below, § No. 131, 2024
Appellant, §
§ Court Below: Court of Chancery
v. § of the State of Delaware
§
KIROMIC BIOPHARMA, INC., §
a Delaware corporation, §
§ C.A. No. 2021-0248
Defendant Below, §
Appellee. §

Submitted: October 30, 2024
Decided: January 21, 2025

Before SEITZ, Chief Justice; VALIHURA, and LEGROW, Justices.

Upon appeal from the Court of Chancery and the Superior Court of the State of
Delaware. REVERSED.

Scott James Leonhardt, Esquire, THE ROSNER LAW GROUP LLC, Wilmington,
Delaware, Alexander Klein, Esquire (argued), Donna Aldea, Esquire, BARKET
EPSTEIN KEARON ALDEA & LOTURCO, LLP, Garden City, New York,
Attorneys for Plaintiff Below, Appellant Jason Terrell.

Laurence V. Cronin, Esquire, Kelly A. Green, Esquire, SMITH, KATZENSTEIN &
JENKINS LLP, Wilmington, Delaware, Robert S. Friedman, Esquire, Joshua
Schlenger, Esquire (argued), Katherine Anne Boy Skipsey, Esquire, SHEPPARD,
MULLIN, RICHTER & HAMPTON LLP, New York, New York, Attorneys for
Defendant Below, Appellee Kiromic Biopharma, Inc.

LEGROW, Justice:
Kiromic Biopharma, Inc. awarded Jason Terrell stock options in three

separate agreements over the course of several years. The first option award

compensated Terrell for consulting services he provided to the company. The latter

two awards were related to Terrell’s service on the company’s board of directors.

After Terrell resigned from the board, the company refused to honor the options

awarded in the first two agreements, taking the position that Terrell waived his rights

to those options when he entered into the third agreement.

The Court of Chancery dismissed Terrell’s complaint that sought specific

performance of the first two option grants, finding that a waiver clause in the third

agreement unambiguously extinguished Terrell’s rights to the two previous option

awards. We find that the waiver language is susceptible to more than one reasonable

interpretation, and we therefore reverse the Court of Chancery’s dismissal of the

complaint and remand for further proceedings.

I. FACTUAL BACKGROUND

The appellant, Jason Terrell, M.D., performed consulting services and served

on the board of directors of the appellee, Kiromic Biopharma, Inc., between

December 2014 and May 2021.1 During that time period, Kiromic awarded Terrell

stock options in three separate agreements. The first agreement (“Agreement 1”), a

“Consulting Agreement,” was entered into on December 10, 2014, and granted

1
The facts are drawn from Plaintiff’s Verified Complaint. App. to Opening Br. at A13–24.
Terrell an option to purchase 500,000 Kiromic shares at a fixed price of $0.50 per

share in exchange for consulting services.2 The second agreement (“Agreement 2”),

a “Non-Employee Director Agreement,” was entered into on January 23, 2017, when

Terrell joined Kiromic’s board, and it granted him the option to purchase 500,004

shares at $0.17 per share.3

On November 10, 2017, Terrell and Kiromic entered into a “Notice of Stock

Option Grant” (“Agreement 3”), under which Terrell agreed to continue serving on

the board in exchange for the option to purchase 500,004 shares at $0.19 cents per

share.4 Agreement 3 incorporated a Stock Option Agreement (the “SOA”), which

was Exhibit A to Agreement 3, and Kiromic’s 2017 Equity Incentive Plan, which

the SOA incorporated by reference.5

Terrell resigned from Kiromic’s board in September 2019.6 After Terrell

resigned, Kiromic refused to recognize the options granted in Agreements 1 and 2.

Terrell therefore brought an action in the Court of Chancery seeking a declaration

that Agreements 1 and 2 were valid and enforceable and seeking specific

2
See id. at A15. The term to exercise this option was scheduled to expire on December 10, 2024.
Id. at A26–30 (Agreement 1).
3
Id. at A16. The term to exercise this option was scheduled to expire on January 23, 2027. Id. at
A34–35 (Agreement 2).
4
Id. at A17. The term to exercise this option was scheduled to expire on November 9, 2027. Id.
at A15, A37–69 (Agreement 3).
5
Id. at A37–38 (Agreement 3); A40–53 (SOA); A54–69 (Equity Incentive Plan).
6
Id. at A17.

2
performance of those agreements.7 Kiromic moved to dismiss that claim, arguing

that Terrell waived his rights to the unexercised options granted to him in

Agreements 1 and 2.8 Kiromic based its waiver argument on a provision in

Agreement 3 (the “Waiver”), which provides:

By signing this Grant Notice, you acknowledge and agree that other
than the Shares, you have no other rights to any other options, equity
awards or other securities of the Company (except securities of the
Company, if any, issued to you on or prior to the date hereof, if any),
notwithstanding any commitment or communication regarding options,
equity awards or other securities of the Company made prior to the date
hereof, whether written or oral, including any reference to the contrary
that may be set forth in your offer letter, consultant agreement or other
documentation with the Company or any of its predecessors.9

The Waiver can be separated into three clauses: the “No-Rights Clause,”10

which generally waives all of the grantee’s rights to Kiromic securities other than

the Agreement 3 option; the parenthetical “Carveout,”11 which preserves from the

waiver any “securities . . . issued” before Agreement 3 was executed; and the

7
Id. at A13–24 (Complaint).
8
Id. at A102–27 (Mot. To Dismiss).
9
Id. at A38.
10
“By signing this Grant Notice, you acknowledge and agree that other than the Shares, you have
no other rights to any other options, equity awards or other securities of the Company . . . .” Id.
11
“([E]xcept securities of the Company, if any, issued to you on or prior to the date hereof, if any)
. . . .” Id.

3
“Notwithstanding Clause,” which reiterates that the waiver applies notwithstanding

other commitments or communications.12

Terrell’s claims have a tortured procedural history. Terrell filed his complaint

in March 2021, and Kiromic moved to dismiss it on the basis of what Kiromic argued

was the Waiver’s unambiguous effect.13 The Court of Chancery asked the parties to

brief whether a dispute-resolution provision in the SOA required disputes regarding

the Agreement’s interpretation to be submitted to a Kiromic committee (the

“Committee”) before they could be challenged in litigation.14 The parties briefed

the issue,15 and on January 20, 2022, the court held that the Committee must

determine in the first instance whether it had jurisdiction over the parties’ dispute

regarding the Waiver’s interpretation.16 The court instructed the parties to submit

their dispute to the Committee if it concluded that it had jurisdiction.17

The Committee ultimately determined that it had exclusive authority to

interpret Agreement 3 and that the Waiver extinguished Terrell’s options granted by

12
“[N]otwithstanding any commitment or communication regarding options, equity awards or
other securities of the Company made prior to the date hereof, whether written or oral, including
any reference to the contrary that may be set forth in your offer letter, consultant agreement or
other documentation with the Company or any of its predecessors.” Id.
13
Id. at A13–24 (Complaint), A102–27 (Mot. to Dismiss).
14
Id. at A221, see generally A191–222 (Tr. of Oral Argument on Mot. to Dismiss).
15
Id. at A162–67 (Terrell’s Suppl. Br. on Section 15.1), A168–73 (Kiromic’s Suppl. Br. on Section
15.1).
16
Terrell v. Kiromic Biopharma, Inc., 2022 WL 175858 (Del. Ch. Jan. 20, 2022).
17
Id. at *7.

4
Agreements 1 and 2.18 The Court of Chancery then issued an order on August 2,

2022, dismissing Terrell’s claims for lack of subject matter jurisdiction.19 Terrell

appealed that decision, arguing that the Court of Chancery was required to conduct

its own review of the Committee’s interpretation.20 This Court reversed the

dismissal on the basis that the Court of Chancery should have reviewed the

Committee’s conclusion de novo.21

On remand, after allowing the parties to make further submissions, the Court

of Chancery reviewed Agreement 3 de novo and held that Terrell waived his rights

to the unexercised options awarded to him in Agreements 1 and 2.22 The Court of

Chancery found that the language in the Waiver’s No-Rights Clause stating that “you

acknowledge and agree you have . . . no other rights to any other options, equity

awards or other securities of the Company” unambiguously constituted an express

waiver of Terrell’s unexercised options in Agreement 1 and 2, and that the Carveout

excepting from the waiver “securities of the Company, if any, issued to [Terrell] on

or prior to the date hereof, if any” did not preserve the unexercised options.23 In

18
App. to Opening Br. at A223–227 (Committee Decision).
19
Terrell v. Kiromic Biopharma, Inc., 2022 WL 3083229 (Del. Ch. Aug. 2, 2022).
20
App. to Opening Br. at A230–231 (Notice of Appeal).
21
Terrell v. Kiromic Biopharma, Inc., 297 A.3d 610, 614 (Del. 2023).
22
Terrell v. Kiromic Biopharma, Inc., 2024 WL 370040, at *3–8 (Del. Ch. Jan. 31, 2024)
(hereafter “Opinion”).
23
Id.

5
reaching that conclusion, the Court of Chancery reasoned that the parties used the

word “issued” within the agreement only when referring to shares; of all the thirty-

five times in Agreement 3 when the verb “issued” and its derivatives were used, it

referred to shares and not options.24 Additionally, in many places, Agreement 3 used

the word “grant” instead of “issued” to refer to options.25 Finally, the court noted

that “[t]he definitions of ‘Shares’ and ‘Exercise Price’ both include the word

‘issuable;’ the definition of ‘Option’ does not.”26 Considering Agreement 3’s

language describing the delivery of options as compared to shares, the court held

that “shares are ‘issued’ while options are ‘granted.’”27

Terrell filed a timely appeal of that decision, arguing that the Court of

Chancery erred in its interpretation of the Waiver.28

II. STANDARD OF REVIEW

We review questions of contract interpretation de novo.29

24
Id. at *7.
25
Id.
26
Id.
27
Id.
28
App. to Opening Br. at A230–231 (Notice of Appeal); see Opening Br.
29
Salamone v. Gorman, 106 A.3d 354, 367–68 (Del. 2014); Kuhn Const. Inc. v. Diamond State
Port Corp., 990 A.2d 393, 396 (Del. 2010).

6
III. ANALYSIS

Terrell argues that the Court of Chancery erred in holding that the Waiver

unambiguously eliminated the unexercised options awarded in Agreements 1 and

2.30 Terrell posits that Agreement 3—including the Waiver—unambiguously

included options within the meaning of “securities,” and the plain meaning of the

Carveout, which preserved “securities . . . issued,” therefore expressly protected the

previously granted options.31 He also contends that even if the Carveout’s plain

meaning did not expressly preserve those options, the language was ambiguous and

his claim therefore should not have been dismissed at the pleadings stage before the

court could consider extrinsic evidence to resolve the ambiguity.32

Kiromic urges us to affirm the Court of Chancery’s dismissal because the

Waiver expressly states that Terrell would “have no other rights to any other

options . . . notwithstanding any commitment or communication regarding

options.”33 Kiromic contends that the Court of Chancery correctly held that the

Carveout’s reference to “securities . . . issued” did not preserve unexercised options

30
Opening Br. at 2, 10–23.
31
Id. at 12–15.
32
Id. at 19–23.
33
Answering Br. at 17; Opinion at *5–6.

7
because the parties, in the four corners of the agreement, did not intend for

unexercised options to be included in “issued” securities.34

In construing a contract, we aim to give effect to the parties’ intent.35

“Delaware adheres to the ‘objective’ theory of contracts, i.e. a contract’s

construction should be that which would be understood by an objective, reasonable

third party.”36 This Court “will give priority to the parties’ intentions as reflected in

the four corners of the agreement.”37 “When the contract is clear and unambiguous,

we will give effect to the plain-meaning of the contract’s terms and provisions unless

it appears the parties intended a special meaning.”38 “Language is ambiguous if it is

susceptible to more than one reasonable interpretation.”39 “An interpretation is

unreasonable if it ‘produces an absurd result’ or a result ‘that no reasonable person

34
Answering Br. at 24–28.
35
Weinberg v. Waystar, Inc., 294 A.3d 1039, 1044 (Del. 2023) (citing Salamone, 106 A.3d at 368).
36
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (quoting NBC Universal v.
Paxson Commc’ns, 2005 WL 1038997, at *5 (Del. Ch. Apr. 29, 2005)); AT&T Corp. v. Lillis, 953
A.2d 241, 252–53 (Del. 2008).
37
Salamone, 106 A.3d at 368 (citing and quoting GMG Capital Inv., LLC. v. Athenian Venture
Partners I, L.P., 36 A.3d 776, 779 (Del. 2012)).
38
Norton v. K-Sea Transp. Partners L.P., 67 A.3d 354, 360 (Del. 2013); Lorillard Tobacco Co. v.
Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006); Wenske v. Blue Bell Creameries, Inc., 2018
WL 3337531, at *10 (Del. Ch. July 6, 2018); see also Restatement (Second) of Contracts § 203(b)
(1981) (“express terms are given greater weight than course of performance, course of dealing,
and usage of trade . . . .”); see generally, Williston on Contracts § 34:5 (4th ed.) (“Courts will
generally accept the definition employed in the relevant industry unless those terms are
legislatively or judicially defined. Moreover, if words in a contract have a special meaning or
usage in a particular industry, then members of that industry are presumed to use the words in that
special way . . . .”).
39
Manti Holdings, LLC v. Authentix Acquisition Co., Inc., 261 A.3d 1199, 1208 (Del. 2021).

8
would have accepted when entering the contract.’”40 “The parties’ steadfast

disagreement over the interpretation of disputed language will not, alone, render the

contract ambiguous.”41

This appeal turns on the Carveout’s meaning. More specifically, Terrell’s

appeal asks us to determine that the Carveout’s reference to “issued” securities

includes the options granted in Agreements 1 and 2. Kiromic concedes that “of

course” the plain meaning of securities includes options under the parties’ usage,42

but urges us to affirm the Court of Chancery’s finding that by referring to “issued”

securities, the parties intended to exclude unexercised options from the Carveout.

The only issue presently before us is whether a reasonable person in the parties’

position would understand the Carveout’s reference to “securities . . . issued” to

include the options granted to Terrell in Agreements 1 and 2.

In concluding that the parties unambiguously intended the Carveout to apply

only to preserve “issued” securities, and that they did not intend “issued” securities

to include granted-but-unexercised options, the Court of Chancery considered how

the parties used “issued” or its derivatives throughout Agreement 3 and the

documents it incorporated, including the SOA and the Equity Incentive Plan.43 The

40
Id. (quoting Osborn, 991 A.2d at 1160).
41
Id.
42
Answering Br. at 24.
43
Opinion at *7.

9
court noted several instances in which the word “grant” was used alongside options,

while the word “issued” was used with respect to shares.44 The court then concluded

that if the parties had “intended for the Carveout to include grants and not just

issuances, they would have included the word ‘granted,’ as they did other times when

‘grant and issuance’ were to be construed together.”45

The Court of Chancery’s holding—that the parties’ usage of the verb “to

issue” and its related nouns indicate an intent to exclude unexercised options from

the Carveout—is a reasonable interpretation. Although Terrell points to sources

outside the agreement’s four corners that provide that “issued” or similar derivatives

can include options, this Court gives priority to usage within the agreement itself.46

But we cannot conclude that Kiromic’s interpretation is the only reasonable

reading of the Waiver or the Carveout. From a practical perspective, it is difficult

to understand why a reasonable person in the parties’ position would rely on fairly

obtuse language that turns on the meaning of the word “issued” to affect a waiver of

options to purchase one million shares. Had the parties intended such a waiver, they

could have said so much more clearly, including by expressly referencing the

previously awarded options. Had they intended to limit the Carveout to shares rather

44
Id. at nn.58–64.
45
Id. at *8.
46
See Salamone, 106 A.3d at 368 (citing and quoting GMG Capital Inv., LLC., 36 A.3d at 779).

10
than a broader class of securities, the parties also could have expressly done so. And

although the Court of Chancery concluded that the third agreement “never uses the

word ‘issued’ in relation to options,” Terrell has pointed to at least two instances in

the SOA and the Equity Incentive Plan in which the parties used “issuance” and

“issue” to refer to something other than just shares, including one instance in which

the word “issue” includes options.47

Because the parties did not use the word “issued” to refer exclusively to

shares, and because the Carveout expressly preserved securities—which included

options under the parties’ usage—Terrell’s interpretation of the Waiver and the

Carveout is also a reasonable one. Under that interpretation, the Waiver applies to

previous commitments or communications regarding securities, while the Carveout

preserves securities that have been formally issued, as opposed to just promised.

This is particularly so because the parties used the phrase “securities . . . issued,”

rather than “shares issued,” and they plainly intended the word “securities” to

include options. If the parties intended to limit the Carveout to just shares, rather

than securities, they easily could have said so, as they did numerous times in other

47
“[T]he grant of the Option, the issuance of Shares . . . or any other issuance of securities under
the plan.” App. to Opening Br. at A43 (Section 7.1(d)). Section 9.3 gives the Committee the
authority to “issue new Awards,” and “Awards” include “any Option.” Id. at A61 (Section 9.3),
A67 (definition of Award).

11
portions of their agreement.48 And although Kiromic argues otherwise, Terrell’s

interpretation does not render the Notwithstanding Clause meaningless. Under

Terrell’s interpretation, that clause clarifies the parties’ distinction between

securities formally issued by contract and informal promises made in written or oral

commitments and communications.

Because we find that both parties have proffered reasonable interpretations of

the Waiver, the agreement is ambiguous. The trial court cannot choose between two

reasonable interpretations of an ambiguous contract in resolving a motion to

dismiss.49 Dismissal is proper only if the moving party’s interpretation is the only

reasonable construction as a matter of law. Having concluded that Kiromic’s

interpretation is not the sole reasonable construction of the Waiver, we hold that

Terrell’s complaint adequately states a claim for relief.

IV. CONCLUSION

Accordingly, we REVERSE the judgment below and REMAND for further

proceedings consistent with this decision. Jurisdiction is not retained.

48
The Court of Chancery noted thirty-five times where “issued” or its derivative was used with
“Shares” alone. Opinion at *7; see e.g., App. to Opening Br. at A54, A60.
49
VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 615 (Del. 2003).

12