Opinion
14-P-1465
10-21-2015
SUSAN M. WILLIAMS v. SCOTT M. WILLIAMS.
NOTICE: Summary decisions issued by the Appeals Court pursuant to its rule 1:28, as amended by 73 Mass. App. Ct. 1001 (2009), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
Susan M. Williams appeals from an amended judgment of modification and contempt entered by a judge of the Probate and Family Court on her consolidated complaints for contempt and modification that, inter alia, excluded stock options from the child support provision of her separation agreement with Scott M. Williams. We remand for further proceedings.
Because they share a last name, we refer to the parties by their first names.
The judge issued a judgment of modification and contempt and a "rationale on judgment," both dated January 16, 2014 (entered on January 17, 2014). In response to Susan's motion to amend, the judge issued an amended judgment of modification and contempt and a memorandum and order, both dated March 21, 2014 (entered on March 24, 2014). Susan filed a notice of appeal from the amended judgment. In reviewing the amended judgment, we consider both the original underlying rationale and the subsequent memorandum and order.
Background. Scott and Susan entered into a separation agreement in 2008. After setting out a fixed amount of child support that Scott was to pay semimonthly, the separation agreement states in art. Two(B): "If and when Scott receives a bonus in 2008 and years going forward, he shall pay Susan 30% of the gross minus the taxes. He shall provide proof of payment in writing of said bonus to Susan." The term "bonus" is not defined anywhere in the agreement. The separation agreement was incorporated and merged into the judgment of divorce nisi of November 19, 2008.
Postdivorce, on November 25, 2008, and December 28, 2009, Scott received stock options from his employer (sometimes referred to as company) that vested incrementally over a period of years. The vesting could be accelerated in the event of a change of control of the company. Scott had only previously been granted a stock option in 2002 upon his joining the company. It appears that Scott retained the 2002 option as part of the marital property division. The record indicates that while Scott had at least sometimes received annual cash bonuses from his employer during his marriage to Susan, he did not receive any cash bonuses after 2007. According to Scott, the 2008 and 2009 options were granted to him to provide an incentive for him to remain employed with the company. He contends that the options had no value when issued and, in fact, would only realize value in connection with a change of control at the company.
In July, 2012, there was a change of control at Scott's company, and he received a substantial payout in exchange for the 2008 and 2009 stock options as part of an option cancellation agreement. Scott did not pay any percentage of the proceeds of the option cancellation to Susan as child support. In August, 2013, Susan filed an amended complaint for contempt seeking payment of 30% of the net proceeds of the option cancellation pursuant to the separation agreement's bonus provision.
The matter was tried before a Probate and Family Court judge on October 17 and 21, 2013. On January 16, 2014, the judge issued a judgment of modification and contempt, as well as a "rationale on judgment," concluding that Scott's 2008 and 2009 stock options did not constitute a "bonus" within the meaning of the parties' separation agreement and that Susan was not entitled to any money received from the stock options because of the mutual waivers contained in the division of assets provision in art. Six of the separation agreement. On March 21, 2014, the judge issued an amended judgment of modification and contempt, as well as a memorandum and order, concluding that future stock options received by Scott would also not be subject to the bonus provision of the separation agreement. See note 2, supra.
The waiver provision applicable to Susan provides: "Except as otherwise provided by the terms of this Agreement, Susan expressly waives and relinquishes any and all claim, right, title and interest she may have, whether arising out of the marital relationship of the parties or otherwise, in and to any bank or investment accounts, certificates of deposit, trusts, securities, bonds, shares of stock, IRA, pension or profit sharing plans, inheritances, past, present or future, causes of action, receivables, uncollected fees, entity or entities or other form of property, either real or personal, held by Scott individually, or with others, or in any other form for the benefit of Scott."
Discussion. Although separation agreements lose independent legal identity when merged in judgments, courts nonetheless apply contract principles to their interpretation. "The agreement between [the wife and husband], incorporated and merged in the judgment, defines in some detail the rights and obligations of the parties. . . . Where an agreement does not survive, it is nevertheless appropriate for a judge to take heed of the parties' own attempts to negotiate terms mutually acceptable to them. A judge who modifies a divorce judgment does not write on a tabula rasa. To the extent possible, and consistent with common sense and justice, the modified judgment should take into account the earlier, expressed desires of the parties." Bercume v. Bercume, 428 Mass. 635, 642, 644 (1999). In the present case, the parties and the judge have applied contract principles to the separation agreement. See Steeves v. Berit, 64 Mass. App. Ct. 265, 266 n.1 (2005). We do the same.
"The interpretation of unambiguous language in a written contract is a question of law for the court to decide. If the words of a contract are plain and free from ambiguity, then they must be construed in accordance with their ordinary and usual sense." Fried v. Fried, 5 Mass. App. Ct. 660, 662-663 (1977) (citation omitted). "Contract language is ambiguous where the phraseology can support a reasonable difference of opinion as to the meaning of the words employed and the obligations undertaken." Bank v. Thermo Elemental Inc., 451 Mass. 638, 648 (2008) (quotation omitted). "The interpretation of the separation agreement is a question of law, and is therefore afforded plenary review." Colorio v. Marx, 72 Mass. App. Ct. 382, 386 (2008) (quotation omitted). We must therefore determine whether the judge correctly concluded that the stock options awarded to Scott were not bonuses under the separation agreement and that Susan waived any interest in those options.
The judge, without explicitly stating that the term "bonus" was unambiguous here, apparently concluded as a matter of law that stock options do not fall under the umbrella of bonuses in the separation agreement: "In their normal usage, bonuses are given to employees to reward past performance, while stock options are given to employees to incentivize future performance." In reaching this conclusion, the judge relied on decisions from this court in Brower v. Brower, 61 Mass. App. Ct. 216 (2004); Wooters v. Wooters, 74 Mass. App. Ct. 839 (2009); and Casey v. Casey, 79 Mass. App. Ct. 623 (2011). Those cases, however, are not dispositive here. The fact that some of our opinions may list "bonus" separately from "stock options" is, without more, not instructive on the meaning of the term "bonus" in the separation agreement before us.
The March 21, 2014, memorandum and order on Susan's motion to amend the judgment states that "[t]he Court properly considered the parties' intent and [Susan's] waiver of past, present or future interest in [Scott's] equity compensation. [Scott's] receipt of stock options was not a bonus, and [Susan] is not entitled to a percentage of said stock options under the Separation Agreement." However, while Scott testified on the first day of trial as to his understanding of how long he was required to provide health insurance coverage to Susan, he did not testify as to his intent or understanding regarding the bonus provision's scope. On the second day of trial, when Susan's counsel asked Susan for her understanding of what a "bonus referred to" when she signed the separation agreement in 2008, the judge initially sustained an objection. Susan's counsel then represented, mistakenly, that Scott's counsel had "asked the exact same question of her client last week" and that "[h]is testimony was that it [was] intended to refer only to cash bonuses, bonuses in terms of payments." In response to the judge's questions as to whether he had "allowed that question," Scott's counsel said, "[n]ot for [the] bonus" and that she did not "recall asking the question." Although the judge had no note or memory that the question had been asked and answered by Scott, apparently based on Susan's counsel's representation, he permitted her to ask Susan: "[W]hat was your understanding of the bonus referred to in the agreement?" Susan answered, "That anything received outside referred to compensation was a bonus." In short, it is not clear what evidence of the parties' intent the judge considered apart from the language of the separation agreement itself.
To be sure, bonuses can be used to reward past performance. But such performance bonuses represent just one of the many species of the genus bonus present in the compensation family. To name just a few others, there are (i) signing bonuses to attract desirable employees; (ii) retention bonuses to encourage employees to remain in their positions; (iii) referral bonuses to incent employees to help recruit talented colleagues; and (iv) holiday bonuses to spread cheer and improve morale.
Some bonuses can also serve multiple purposes. For example, year-end performance review bonuses also promote retention, not just for employees to remain through year-end but also for future years where an employee sees that her contributions are being recognized and valued.
At its essence, a bonus is "money or an equivalent given in addition to [an employee's] usual compensation" (emphasis added). Webster's Third New Intl. Dictionary 252 (2002). See Black's Law Dictionary 206 (9th ed. 2009). But even the dictionary definition is not dispositive. Because the complex language of executive compensation comprises many variations with collateral consequences intended to achieve particular results in the context of overall compensation packages, a broad dictionary definition may not address adequately all of the intended meanings. There is nothing inherent about stock options that precludes their use as bonus compensation.
"In their simplest form, stock options are another way for employers to compensate their employees." Wooters, 74 Mass. App. Ct. at 841, quoting from Baccanti v. Morton, 434 Mass. 787, 795 (2001). In fact, we touched briefly on the potential interchangeability of stock options with other forms of compensation in Wooters, supra at 843, when we observed that "if the exercised stock options were not deemed income for alimony purposes, a person could potentially avoid his or her obligations merely by choosing to be compensated in stock options instead of by a salary."
Article Two(B) of the separation agreement does not explicitly include any qualification on the purpose behind, or the form of, the bonuses subject to its scope. The lack of explicit restrictions or qualifications on the bonuses subject to the separation agreement and the absence of other clear guidance on the question in the agreement itself leave art. Two(B) open to reasonable interpretations on both sides of the applicability of the bonus provision to Scott's stock options.
The susceptibility of the broad, unqualified language in the bonus provision to multiple readings in the context of stock option retention incentives makes construction of the language here more challenging than other cases. Compare Katzman v. Healy, 77 Mass. App. Ct. 589, 598 (2010) (finding no abuse of discretion in judge's decision to exclude stock in closely held company from calculation of child support where separation agreement explicitly provided for division of any "cash bonus" received) (emphasis in original). See Cummings v. Lamoureux, 81 Mass. App. Ct. 506, 508 (2012) ("[T]here is nothing ambiguous in this case about the provision that '[i]n addition, husband shall pay, upon receipt of his yearly bonus, a check equal to 25% [twenty-five percent] of that bonus as child support to the Wife'").
It is also worth noting that the judge in Cummings found it useful to further define the term "yearly bonus" going forward in order "[t]o avoid future litigation." 81 Mass. App. Ct. at 508-509. The judge here did the same: "[Scott] shall pay [Susan] as additional child support thirty percent (30%) of the gross less taxes of any bonuses he receives in the form of cash compensation and not stock options, if and when received, until all the children are emancipated."
The specific words used -- or not used -- by the parties reflect the intent of the parties and the compromises struck in a negotiated agreement. See Robert Indus., Inc. v. Spence, 362 Mass. 751, 755 (1973). The various provisions of a separation agreement interact as parts of a whole in service of the overall arrangement accepted by the parties in facilitating the dissolution of their marriage. See Pierce v. Pierce, 455 Mass. 286, 302-303 (2009) (noting that while husband could have negotiated for provision in separation agreement that he subsequently sought through modification, addition of that provision at time of divorce might have affected other aspects of separation agreement). This is especially true in situations such as this where the parties arrived at a fixed amount for base support payments (presumably based on an expectation of a certain amount of income from certain sources) and also included a bonus provision to catch some kind of additional income. Unfortunately, the language used by the parties here is not sufficiently precise to identify the additional income they sought to capture.
We conclude that art. Two(B) of the separation agreement "as applied to the subject matter" of Scott's postdivorce stock options is ambiguous, "uncertain [and] equivocal in meaning." Robert Indus., 362 Mass. at 753-754. The provision is "susceptible of more than one meaning and reasonably intelligent persons would differ as to which meaning is the proper one." Bercume, 428 Mass. at 641 (quotation omitted). In light of the ambiguity of the bonus provision as applied to Scott's stock options, the record needs to be developed to decipher the parties' intent. See Parrish v. Parrish, 30 Mass. App. Ct. 78, 86 (1991), quoting from USM Corp. v. Arthur D. Little Sys., Inc., 28 Mass. App. Ct. 108, 116 (1989) ("Extrinsic evidence bearing upon the background and purpose of the parties, as well as their understanding of the meaning of particular language used in the contract, may be considered both in the construction of ambiguous contract language and in resolving uncertainties in applying the terms of the written contract to the subject matter"). Additional fact finding concerning the intent of the parties and the nature of the 2008 and 2009 options and the circumstances surrounding their receipt is necessary.
We also conclude that the judge erred as a matter of law in interpreting the mutual waivers in the separation agreement to mean that Susan had waived any interest in the stock options. The mutual waivers are prefaced by the language, "Except as otherwise provided by the terms of this Agreement," a preface that unambiguously limits the scope of the catchall provision that follows and excludes any items specifically addressed elsewhere in the separation agreement. "The intent of the parties to a contract must be determined from a fair construction of the contract as a whole." Fried, 5 Mass. App. Ct. at 663 n.3. Here, the clear language that precedes and limits the scope of each party's waiver in art. Six directs us to do just that. Consequently, if the stock options are indeed bonuses, art. Six does nothing to diminish Susan's claim to them under art. Two(B) any more than the inclusion of bank accounts in the waiver would diminish her interest in a cash bonus subject to art. Two(B) that was directly deposited into Scott's bank account.
So much of the amended judgment as excludes Scott's stock options from art. Two(B) of the separation agreement and purports to modify the terms of art. Two(B) going forward on the basis of the judge's construction of the separation agreement is vacated, and the case is remanded to the Probate and Family Court for further proceedings consistent with this memorandum and order. In all other respects, the amended judgment is affirmed.
We do not address Scott's argument that he is entitled to an equitable credit offset in the event that he is ordered to pay any portion of the proceeds from the stock options to Susan on remand. We do not prejudge the outcome of the proceedings on remand, and by Scott's own if/then formulation, this issue is not before us. In addition, Scott did not file an appeal from the judge's rejection of Scott's argument for a credit based on previous overpayments. As a rule of practice, failure to take a cross appeal precludes a party from obtaining a judgment more favorable to it than the judgment entered below. See Aetna Cas. & Surety Co. v. Continental Cas. Co., 413 Mass. 730, 734 & n.4 (1992). Other matters raised by Scott are also properly best left for consideration by the judge below after he has first resolved the question of the treatment of the stock options under the bonus provision.
So ordered.
By the Court (Cypher, Katzmann & Vuono, JJ.),
The panelists are listed in order of seniority. --------
Clerk Entered: October 21, 2015.