In re Marriage of Langham

Decision Date10 February 2005
Docket NumberNo. 74508-1.,74508-1.
Citation153 Wash.2d 553,106 P.3d 212
CourtWashington Supreme Court
PartiesIn re MARRIAGE OF Margo R. LANGHAM, f/k/a Kolde, Petitioner, and Velle J. KOLDE, Respondent.

Patricia S. Novotny, Seattle, for Petitioner.

Charles Kenneth Wiggins, Bainbridge Island, Roberta Ellen Doyle, Seattle, for Respondent.

SANDERS, J.

Margo R. Langham (Margo) petitions from an adverse ruling in the Court of Appeals, holding that stock options are not converted until they are exercised and the resulting stock is sold. We hold that stock options, as valuable property distinct from stock, are converted when exercised. Damages are to be calculated at that date.

Velle J. Kolde (Velle) cross-petitions, seeking our determination that there is a binding stipulation between the parties. This stipulation would moot the remaining issues by giving Velle ownership of the disputed stock options long before he exercised them. But we do not find a binding stipulation, nor do we agree with Velle that the absence of a full trial for conversion abridged his rights. Accordingly, we affirm the Court of Appeals in part, reverse in part, and remand the case to the trial court for further proceedings.

FACTS1

The parties' marriage was dissolved on December 15, 1994. Their major asset was Microsoft stock options granted to Velle in the course of his employment. These options began to vest in 1993 and continued to vest periodically, expiring after 10 years.

In April 1994, pending the dissolution, the court ordered some of the options to be exercised and the stock to be sold. The net proceeds of the sale were deposited into the trust account of Margo's attorney, who used them to pay the mortgage on the family home, the parties' attorney fees, and a counselor. The trial court awarded the home to Margo in the decree and so she received the benefit of approximately 82 percent of the April proceeds.

Seeking a just and equitable property distribution, the trial court ordered enough options exercised to pay Margo $32,082, and the remaining options, vested and unvested, to be split evenly between the parties. Because the stock options were nontransferable they remained in Velle's name, but the court restrained him from exercising Margo's options without written authorization from her.

The decree also determined how taxes were to be handled. Since Velle alone could exercise the options, they were taxable to him in the year exercised.2 To reimburse him for this expense, he could withhold taxes at a specific rate when he exercised the options, and the parties would reconcile the exact amount during a final accounting after his tax return was filed.

Numerous stock splits over the years since the decree complicated accounting for the options. Beginning in May 1997 attorneys for both parties began corresponding to determine the number of options Margo still owned. The parties disputed whether the April 1994 sale should be split 50/50 or based on who received the benefit of the money. If the latter method is used, Margo would be charged with 82 percent of the shares sold in April 1994, thereby reducing her share of the remaining options split under the decree. Margo's attorney offered to split the April sale based on the benefit received, and sent Velle's attorney an unsigned stipulation to that effect on November 24, 1997 (with a signed cover letter). Velle's attorney agreed with the accounting and signed it, but Margo's attorney never did.

On December 19, 1997 Margo's attorney sent a signed stipulation with a cover letter stating that all outstanding issues between the parties must be settled at the same time (the parties were simultaneously negotiating taxes and day-care expenses).3 Velle's attorney again signed the stock option stipulation but the parties never reached agreement on the other issues. Velle's attorney sent several letters to Margo's attorney trying to follow up on the purported agreement, but she never received a response. On October 19, 1998 Margo's attorney sent Velle's attorney a letter denying any agreement because the other conditions were never met and revoking the purported stipulation. Margo's attorney said she would prepare a new stipulation but never did.

On July 30, 1999 Velle exercised 3,500 options, and on August 4, 1999 he exercised 2,500 more options. Finally, on February 22, 2000 he exercised 3,435 options. Velle borrowed the money to exercise the options, and he held the stock until April-May 2000 and sold it at a substantial loss. The taxes were still calculated at the date of exercise, but Velle's net cash was substantially less. On August 1, 2001 Margo moved to enter judgment against Velle for converting her options. Velle argued that the options he had exercised were his according to the 1997 stipulation and that he had acted in good faith reliance on the stipulation. The trial court commissioner ruled in favor of Margo, finding Velle had exercised 1,924 of Margo's options in the July 30 exercise, and all of the subsequent options he exercised also belonged to Margo. The total number of shares Velle exercised belonging to Margo was 7,859. The commissioner calculated the damages based on the fair market value of the stock the moment the options were exercised, and entered judgment in that amount after subtracting the taxes due. The commissioner also awarded pre- and post-judgment interest.

Velle moved for reconsideration, which was denied on January 4, 2002, except for striking a finding of intransigence and the related attorney fees. The trial judge denied Velle's motion to revise the commissioner's order on February 1, 2002. Velle then appealed to Division One of the Court of Appeals on February 7, 2002.

In an unpublished opinion the Court of Appeals affirmed the trial court on the conversion issue, holding that no enforceable stipulation was entered but reversed on the calculation of damages. In re Marriage of Langham & Kolde, noted at 116 Wash.App. 1067, slip op. at 7, 2003 WL 21055463 (2003). The court ruled that the conversion took place when Velle sold the stock, rather than when he exercised the options. The court reasoned that the exercise of the options "did not affect Langham's right to possess the property." Id. at 9. Margo petitioned this court, seeking review of the damages issue, and Velle cross-petitioned on the stipulation issue. We granted review on May 4, 2004.

STANDARD OF REVIEW

The parties dispute the appropriate standard of review. Velle argues it should be de novo since the record is entirely documentary evidence. Margo argues for the abuse of discretion standard normally used in property settlement cases. See In re Marriage of Thompson, 97 Wash.App. 873, 877, 988 P.2d 499 (1999)

. Since the parties do not dispute the underlying facts but only the conclusions drawn from the facts, the correct standard is de novo since the trial court commissioner relied solely on documentary evidence and credibility is not an issue.4

ANALYSIS
I. Analogizing to Conversion Was Proper to Enforce the Dissolution Decree in a Motion on the Family Law Calendar

Velle argues that he was deprived of the usual protections afforded a tort defendant because this case arose as an enforcement of a dissolution decree. In a normal tort action, he would have time to answer, the opportunity for discovery, and a jury trial with the ability to cross-examine witnesses. But here he had to respond to Margo's motion to enter judgment that was placed on the family law motion calendar and decided after a brief hearing based on documentary evidence. Velle cites no authority to support his position. We find no merit in Velle's contentions since precedent establishes the trial court's authority to enter such a judgment.

"Having before it at the outset a cause cognizable in equity, the court retain[s] jurisdiction over the subject matter and the parties to be affected by its decree for all purposes — to administer justice among the parties according to law or equity." Yount v. Indianola Beach Estates, Inc., 63 Wash.2d 519, 524-25, 387 P.2d 975 (1964). The superior court unquestionably has authority to enforce property settlements. RCW 26.12.010. It further has the authority to use "any suitable process or mode of proceeding" to settle disputes over which it has jurisdiction, provided no specific procedure is set forth by statute and the chosen procedure best conforms to the spirit of the law. RCW 2.28.150. Indeed, "`[w]hen the equitable jurisdiction of the court is invoked ... whatever relief the facts warrant will be granted.'" Ronken v. Bd. of County Comm'rs, 89 Wash.2d 304, 313, 572 P.2d 1 (1977) (quoting Kreger v. Hall, 70 Wash.2d 1002, 1008, 425 P.2d 638 (1967)) (alteration in original).

The trial court had jurisdiction over the subject matter and the parties via the equitable action to enforce the decree, and it properly entered judgment against Velle when he admitted the facts relevant to the tort of conversion. Velle admitted he exercised the options. He claims to have done so in good faith, but that is irrelevant: "`Therefore, neither good nor bad faith, neither care nor negligence, neither knowledge nor ignorance, are of the gist of the action [in conversion].'" Judkins v. Sadler-MacNeil, 61 Wash.2d 1, 4, 376 P.2d 837 (1962) (quoting Poggi v. Scott, 167 Cal. 372, 375, 139 P. 815 (1914)). Since Velle admitted he exercised the options, which did not belong to him, he admitted to converting them. Additional safeguards would have done him little good.

II. The Parties Did Not Enter a Binding Stipulation

Velle then argues attorneys for both parties entered a binding stipulation that settled accounting for the shares in 1997. If that accounting is followed, then he owned the options exercised in 1999 and 2000, defeating Margo's conversion claim. Both the trial court and the Court of Appeals rejected Velle's arguments and ruled that no stipulation took place. We agr...

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