IN RE LANGHAMM v. KOLDE, 49974-2-I (Wash.App. 5-12-2003)

No. 49974-2-IThe Court of Appeals of Washington, Division One.
Filed: May 12, 2003 DO NOT CITE. SEE RAP 10.4(h). UNPUBLISHED OPINION

Appeal from Superior Court of King County Docket No: 93-3-05998-5 Judgment or order under review Date filed: 02/01/2002

Counsel for Appellant(s), Roberta Ellen Doyle, Attorney at Law, 9709 3rd Ave NE Ste 304, Seattle, WA 98115-2027.

Charles Kenneth Wiggins, Attorney at Law, 241 Madison Ave N, Bainbridge Island, WA 98110-1811.

Counsel for Respondent(s), Jerry Richard Kimball, Attorney at Law, 999 3rd Ave Ste 2525, Seattle, WA 98104-4019.

Patricia S. Novotny, Attorney at Law, 3418 N.E.35th St. Ste a, Seattle, WA 98115-7397.

Cynthia B Whitaker, Attorney at Law, 3250 Bk of Calif Ctr, 900 4th Ave, Seattle, WA 98164-1008.

BAKER, J.

Velle Kolde and Margo Langham each claimed that they owned certain stock options held by Kolde following their marriage dissolution. After Kolde exercised these options and later sold them, Langham requested that he exercise them for her. Kolde appeals a decision awarding Langham the value of the options and prejudgment interest.

We conclude that Kolde improperly exercised the options and later sold the shares of stock. But the court’s measurement of damages was inaccurate because Kolde converted the options when he sold the shares of stock, not when he exercised the options. And the court should not have included in the judgment taxes that Langham would later have to reimburse to Kolde. We accordingly remand to recalculate damages in light of our ruling.

I
Velle Kolde and Margo Langham were married more than five years before separating in 1993. They later dissolved their marriage in December 1994. Several months prior to the final dissolution decree, the court entered a temporary order requiring the parties to liquidate Microsoft stock options to satisfy some of their mounting debts. This sale, in April 1994, netted proceeds of $32,577.24 after taxes.[1] Kolde deposited $32,500 of these funds into a trust account with Langham’s attorney. Her attorney used a portion of these funds to pay both parties’ attorney fees and a counselor hired for their children. Her attorney periodically dispersed the remainder of these funds to pay the mortgage on the family home where Langham continued to reside.

In the final dissolution decree, the court divided assets equally. Langham was awarded the house, one car, trust funds, and a tax refund. The court awarded Kolde their 401K fund and other personal assets. To equalize the property division, Kolde was owed an equalizing payment of $27,754. But after taking into account a $55,000 premarital debt owed by Kolde, the court awarded Langham a net compensating payment of $32,082. Because the bulk of the couple’s marital assets were vested and unvested Microsoft stock options, the court made this amount payable to her by the exercise and sale of stock options.

The court then divided the remaining options equally between Kolde and Langham. The dissolution decree stated that Langham was awarded half of all vested and unvested stock options remaining after an award to her from the sale of some vested options:

Microsoft stock options . . . which options have vested as of November 1, 1994, in a number equal to the following: 50% of the options remaining after the award to wife of $32,082 (net of taxes which taxes shall be paid by husband). Net proceeds and sale procedure shall be accomplished as described herein. . . . 50% of the Microsoft stock options which vest following November 1, 1994 . . . .

The April sale (netting $32,500) was not mentioned in the dissolution decree.

Because the options were not transferable, they were left under Kolde’s control. If Langham wished to exercise or sell her options, she was required to notify Kolde, who would then exercise the requested number.

Because the options were in Kolde’s name, upon exercise he withheld and paid taxes and was to be reimbursed at a rate determined by the court. Calculating the shares remaining for each party after the compensating payment should have been simple. But stock splits, taxes, and subsequent sales complicated the accounting. In 1997, following this court’s decision affirming the decree, the parties attempted to reconcile the totals. Kolde and Langham exchanged numerous letters attempting to arrive at an exact figure. At the same time the attorneys negotiated over taxes and daycare expenses in dispute. At the heart of the accounting controversy was whether the April 1994 option exercise should be apportioned based on benefit, or equally. In November 1997, the parties reached a tentative agreement on the stock distribution that allocated most of the April 1994 sale to Langham. Langham’s attorney sent an unsigned copy of a stipulation, which Kolde’s attorney signed. Ten days later, Langham’s attorney again sent a stipulation on the option distribution, this time signed. But in the cover letter to the stipulation by Langham’s attorney, she expressed that this stipulation was contingent on resolving child care expenses and taxes:

As you and I have discussed in some detail, these matters must be settled at the same time. My client is tired of responding to multiple motions, and the parties should be able to bring closure at least to these financial affairs. The judgment cannot be filed or the check cashed without resolution of the outstanding income tax issue.

In her response letter, Kolde’s attorney questioned the need to tie all the issues together:

The Stipulation Establishing Petitioner’s Ownership of Microsoft Stock Options is correct and agreed. I have signed it. I would assert that it should be filed with the court and that there is no authority nor good reason to withhold your consent to having this correct and completed document finalized by filing. Please reconsider the validity of your position that you are withholding consent to finalization of a correct and valid Stipulation in order to get some leverage in another matter which is only related to the subject matter of the Stipulation by the fact that it involves the same parties.

The parties did not reach any further agreements on how many stock options each party had remaining.

In October 1998, Langham’s attorney sent Kolde’s attorney a letter revoking any purported agreement on the options. In the letter, she explained that ‘[a]lthough a stipulation was signed by [Langham’s other attorney] there were a number of outstanding conditions which were apparently never met. . . . This stipulation is explicitly revoked.’ She said that she would prepare a new stipulation and send it to Kolde, but none was ever sent. Beginning in late July 1999, Kolde began exercising all of the remaining options.[2] In March 2001, Langham requested that Kolde exercise all of the options she claimed to own. Kolde responded that she owned far fewer options, based on his claim that a binding agreement had been reached in 1997, and that he had exercised those options and later sold the shares. Eventually, a court commissioner concluded that Kolde had wrongfully exercised 7,859 of Langham’s options. After an unsuccessful motion to revise, this appeal followed.

II
Generally, our standard of review in dissolution cases is for abuse of discretion.[3] ‘[T]rial court decisions in dissolution proceedings will seldom be changed on appeal.’[4] One challenging such decisions must show a manifest abuse of discretion by the trial court.[5] And a trial court only abuses its discretion `if its decision is manifestly unreasonable or based on untenable grounds or untenable reasons.’[6]
But Kolde argues that we should employ a de novo standard of review because the commissioner entered the judgment without testimony or exhibits. As support, he cites to In re Parentage of Hilborn,[7] a recent Division III opinion which states that ‘[w]e review de novo if the commissioner’s decision is based entirely on documentary evidence.’[8]
As support for this proposition, the Hilborn court cited to In re Marriage of Balcom.[9] But in Balcom, the court did not discuss the standard of review that the appellate court would apply. Instead, it examined the standard of review for the superior court to use in reviewing a commissioner’s decision.[10] We decline to follow Hilborn. Kolde argues that the precise division of assets was unclear in the dissolution decree. He claims that `Judge Mertel’s Decree of Dissolution required some accounting in order to determine exactly how many Microsoft options were awarded to Margo.’ Because Kolde paid the taxes due, there might be discrepancies between the taxes he paid and the amount actually due. He argues that this created confusion as to the number of options that Langham was awarded. But the decree is clear in its distribution of assets. The dissolution decree stated that Langham was awarded half of all vested and unvested stock options remaining after an award to her from the sale of some vested options:

Microsoft stock [which] have vested as of November 1, 1994, in a number equal to the following: 50% of the options remaining after the award to wife of $32,082 (net of taxes which taxes shall be paid by husband). Net proceeds and sale procedure shall be accomplished as described herein. . . . 50% of the Microsoft stock options which vest following November 1, 1994 . . . .

This language clearly requires that the options be evenly split after selling options to provide Langham with $32,082, net of taxes. The decree does not mention the April 1994 option exercise. Kolde argues that because there was an accounting required by the decree, that option exercise could be revisited. But there is no indication in the decree that any tax adjustments or payments would adjust the number of options owned by each party.

Civil Rule 2A (CR 2A) agreements require a stipulation in open court on the record, or a writing acknowledged by the party to be bound.[11] The party moving to enforce a settlement agreement has the burden of proving that there is no genuine dispute regarding the agreement’s existence and material terms.[12]

Here, the purported 1997 stipulation provided that 82 percent of the $32,557 in stock options sold prior to the dissolution decree would be charged to Langham’s remaining options. But in the cover letter to the stipulation, Langham’s attorney expressed that this stipulation was contingent, and Kolde’s attorney acknowledged Langham’s position in a response letter. The trial court found that there was no CR 2A agreement, and we agree.

The trial court found that Kolde converted Langham’s stock options when he exercised them, and calculated damages based on the value of the stocks at the time of exercise. Washington courts have defined conversion as “the act of willfully interfering with any chattel, without lawful justification, whereby any person entitled thereto is deprived of the possession of it.”[13] Although Langham could not exercise the options herself, she did have a recognizable interest in them.[14]
Accordingly, she could bring an action against Kolde for converting her options. Kolde argues that the court should not have awarded Langham the value of the stock at the time he exercised the options. Instead, he argues that Langham should be awarded the market value of the stock at the time she later asked him to exercise the options. But damages for conversion of stock is usually measured by the value of the stock as of the date of the wrongful transfer or refusal to transfer.[15] And in the case of fluctuating values, the measure of value may be even higher.[16] To maintain a conversion action, a plaintiff need only establish some property interest in the goods allegedly converted, and does not need to be in possession or have the immediate right to possess the property.[17] Nevertheless, a conversion can only occur when a plaintiff is deprived of the right to possess that property.[18] Here, Kolde did not convert the shares when he exercised the options, because this act did not affect Langham’s right to possess the property. Instead, he converted her property when he sold the stocks. But the trial court awarded damages based on the higher value when he exercised the options, not when the stock was later sold. If the award were based on principles of equity, it would still be incorrect. Family law courts function as courts of equity. But the measure of damages applied by the court below bore no relation to what Kolde actually received. Because he did not sell the stocks when he exercised the options, Kolde did not realize the profits imputed to him by the trial court. Instead, the award must be based on the value of the stock when Kolde sold it.

We remand for a determination of damages based on the value of the stocks at the time that Kolde sold the stock, not when he exercised the options. Kolde also argues that Langham’s claim was barred by laches, and that she cannot bring her claim because she unreasonably delayed in bringing a motion before the family law court. Laches is an equitable defense based on estoppel and only bars a cause of action if: (1) the plaintiff was aware or should have been aware of the facts constituting the cause of action; (2) commencement of the action was unreasonably delayed; and (3) the defendant is damaged by the delay.[19] Because Langham delayed almost four years from the `stipulation,’ and three years from the purported revocation, Kolde argues that it is inequitable for a court to award her the value of the option, when he exercised them. And because Kolde borrowed money to exercise the options, he suffered by her delay in claiming ownership to the options. Essentially, Kolde claims that he relied on the purported stipulation, and that Langham should have known that he would rely on the stipulation. But he confuses who has the duty here. First, the decree clearly awarded her the stock options at issue, and nothing altered her ownership. Kolde does not explain why Langham should have been aware that he was exercising her options. Kolde was required to hold her options until she instructed him to exercise them. In fact, had Kolde reasonably believed the options were his, in contravention of the original dissolution decree, he should have moved the court to enter the purported CR 2A agreement. But he did not. After discovering that Kolde had exercised her options and later sold the stock, Langham timely brought this action for conversion. Kolde cannot show that Langham unreasonably delayed in bringing her claim.

The trial court’s order also requires that Kolde amend his tax returns to report option income consistent with the decree of dissolution, and requires him to indemnify Langham from any adverse taxes resulting from his failure to comply with tax filing requirements in the decree. Kolde argues that either laches or equitable estoppel bars this part of the order because he filed the 1997 and 1998 returns as Langham requested. But the order does not specify that he amend any returns. Instead, it requires that he comply with the decree and adjust his returns to take into account the September 2001 judgment. Presumably, this was to take into account that he exercised options in 1999 and 2000 that were not his. Because Kolde has failed to show that there was an abuse of discretion as to this requirement, we affirm.[20] Although the dissolution decree requires Kolde to withhold 31 percent as taxes from any exercise of options, this amount only serves as a benchmark. If the actual tax amount exceeds 31 percent, the decree requires Langham to reimburse Kolde for the difference within 30 days of the computation. It is possible that the court may have improperly failed to account for taxes in excess of 31 percent that Kolde paid. If this is the case, then this amount, along with its prejudgment interest, should be deducted from the ultimate amount awarded.[21] We remand this issue to the trial court to determine what the actual tax amount is, and to deduct this from the judgment awarded to Langham.

The decree clearly divided the options equally after crediting Langham for $32,082. There was no enforceable CR 2A stipulation altering the number of options each party owned. We direct that the decision be modified by changing the valuation date for determination of damages to when Kolde sold the stock. Finally, the judgment should not include taxes that Langham will later have to reimburse to Kolde.

REVERSED in part, AFFIRMED in part.

ELLINGTON and GROSSE, JJ., concur.