In Re The Marriage Of Robert P. Mccleskey v. Kathy A. Mcclesky ( 2018 )

•iLEU
COURI OF 7 APPEALS.DIVi
STATE OF WASHINGTON
2018 NOV 26 All 10: 4 I
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
In the Matter of the Marriage of
No. 77393-3-1
ROBERT P. McCLESKEY,
DIVISION ONE
Respondent,
UNPUBLISHED OPINION
and.
KATHY A. McCLESKEY,
Appellant. FILED: November 26, 2018
CHUN, J. — Robert("Bob") and Kathy McCleskey1 entered into a
separation contract as part of their marriage dissolution. Bob held significant
stock from his employer. During negotiations leading to the contract, Bob
claimed he could not immediately redeem his stock or accelerate the terms for
redemption under the company's shareholder agreement. As a result, the
separation contract entitled Kathy to half of any profit distributions from Bob's
employer prior to his first stock redemption payment. But Bob redeemed his
stock and ended the obligation to share profit distributions earlier than Kathy
anticipated. Kathy filed a motion for contempt to enforce the separation contract
for her share of a profit distribution, which the court denied. Kathy appeals,
arguing the trial court erred by failing to hold Bob to the correct interpretation of
1 For clarity, this opinion refers to the parties by first name. We mean no disrespect.
No. 77393-3-1/2
BACKGROUND
Kathy and Bob married in 1982. Bob filed for dissolution in May 2015.
The parties settled out of court, signing a CR 2A agreement at mediation in April
2016. After a dispute arose about implementation of the CR 2A agreement, the
parties participated in binding arbitration before the neutral who had served as
the mediator. They signed a separation contract and finalized their dissolution on
November 21, 2016. The final dissolution decree incorporated by reference the
separation contract.
Bob served as Chairman of the Board and CEO of Selien Construction
Inc. (Selien) and held 10,000 shares of the company's stock at the time of
dissolution. The stock paid profit distributions once per year in December. The
separation contract states, "Profit Distribution amounts are any distributions to
holders of shares of capital stock of Selien other than Tax Distributions, and are
set each year by Selien's Board of Directors, based on the company's business
income and need for working capital." Redemption of the stock shares generally
occurred on retirement from Selien after age 60. The 2012 SeIlen Shareholder
Agreement included specific procedures for early redemption of stock. After age
55, a shareholder could request to redeem up to 50 percent of held stock.
According to the terms of the Shareholder Agreement, redemption occurred only
on January 1st and required six months' notice and approval of the Board.
The parties negotiated the separation contract with this stock redemption
procedure in mind. Upon filing for dissolution, Bob provided Kathy a copy of the
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Sellen Stockholder Agreement and advised her to share the information with her
counsel. The parties discussed the Shareholder Agreement extensively
throughout mediation. While discussing possible acceleration of the cash
transfers during arbitration, Bob represented through counsel,"[The only way he
will be able to afford to pay Kathy a cash transfer installment is if he has received
payment from Sellen for the redemption of his stock, and he can't accelerate the
redemption payments from Sellen."
The separation contract divided the parties' assets, including the Sellen
stock. The contract specified Kathy would receive 50 percent of any Sellen profit
distributions paid to Bob prior to the first payment for redemption of his Sellen
stock. The parties also agreed to a "schedule" of installment payments from Bob
to Kathy with the following terms:
An equalizing non-taxable property transfer of $3,335,159
cash plus interest, to be paid by the husband to the wife in six
installments as follows:
a. $500,000 on or before April 29, 2016 (wife acknowledges
receipt of this installment);
b. $500,000 on the closing of the sale of the Rancho Mirage
house awarded to the husband or June 1, 2017,
whichever is earlier;
c. $1,000,000 paid to the Trust(see below) within three
business days of the husband's receipt of the first
payment for the redemption (or other disposition) of his
Sellen Construction Company Inc. ("Sellen") stock;
d. $500,000 paid to the Trust(see below) within three
business days of the husband's receipt of the second
payment for the redemption (or other disposition) of his
Sellen stock;
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e. $500,000 paid to the Trust(see below) within three
business days of the husband's receipt of the third
payment for the redemption (or other disposition) of his
Sellen stock; and
f. $335,159 paid to the Trust plus accrued interest(see
below) within three business days of the husband's
receipt of the fourth payment for the redemption (or other
disposition) of his Sellen stock.
g. In the event that husband's Sellen stock is redeemed or
otherwise disposed of in fewer than four payments, the
balance of the $3,335,159 cash payment owed to wife
plus accrued interest shall be due and paid to the Trust
within three business days of the husband's receipt of the
final redemption (or other disposition) payment for his
Sellen stock.
Prepayment. The husband may pre-pay any or all of the
foregoing installments without penalty.
Interest. Installments a., b., and c. of the non-taxable cash
property transfer shall not bear interest. Installments d., e., and f.
shall accrue simple interest at 2.25% per annum from the date of
the husband's receipt of the first payment for the redemption (or
other disposition) of his Sellen stock to the date such installment
(d., e., or f.) is paid to the wife. Notwithstanding the foregoing, if
installment b. or c. is not timely paid, such installment shall bear
interest at 2.25% per annum until it is paid to the wife. The interest
accrued on installments d., e., and f. shall be paid on or before the
due date for installment f.
Kathy and Bob signed the separation contract in November 2016, effective
April 27, 2016, and incorporated the terms into their final dissolution decree
entered on November 21, 2016.
Eight days later, on November 29, 2016, the Sellen Board approved Bob's
redemption of 500 shares of stock, effective December 1, 2016. Bob received
the proceeds from the redemption on December 15, 2016, and transferred
$1 million to Kathy as installment c. under the separation contract. Bob also
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received a profit distribution from SeIlen on December 22, 2016. He did not pay
any portion of the profit distribution to Kathy.
By June 1, 2017, Bob had not sold the Rancho Mirage house or
transferred the $500,000 of installment b. to Kathy, as required by the schedule
of payments in the separation contract. Interest began accruing on the $500,000
as of June 1.
On June 14, 2017, Kathy filed a motion for contempt, asking the trial court
to enforce the separation contract.2 Specifically, she claimed the separation
contract required payment of the installments in order, and Bob's $1 million
payment represented prepayment of installment b. and half of installment c. She
requested the court order Bob to pay 50 percent of the profit distribution from
December 2016 in keeping with the terms of the contract.
After a hearing, a King County Superior Court commissioner denied the
motion. The commissioner ruled Kathy did not have a right to the profit
distribution because "it was paid after she received $1,000,000 upon the first
redemption of the petitioner's Selien stock" and "Where is no requirement in the
Separation Contract that installment b. for $500,000 be paid before
installment c." The commissioner ordered Kathy to pay Bob $5,000 in attorney
fees.
Kathy moved for revision of the commissioner's order. She again argued
Bob failed to comply with the terms of the separation contract. She also claimed
2 Bob filed his own contempt motion regarding his access to family photographs and
videos. His motion and resulting trial court decisions are not on appeal.
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Bob breached his fiduciary obligation to carry out the terms of the agreement.
The trial court conducted a hearing and denied the motion for revision. The trial
court concluded the separation contract was clear and unambiguous on its face
and declined to consider extrinsic evidence, including the Shareholder
Agreement. The court explained,"The contract is clear. It may not have been
what people thought. But this Court can't substitute or write in terms that aren't
there or consider parol evidence or intent of parties that is directly in
contravention of the signed contract." The language of the contract did not
reflect a specific timeline for stock redemption and the trial court declined to read
one into the terms. The court reasoned as follows:
If the intention of the parties had been that the stock payouts
wouldn't start until 2017, then they could have negotiated and
contracted for that, but they didn't. And if that was a condition
precedent that they were expecting or assuming or intending based
on whatever reason, then it either should have been in there or the
parties can seek civil relief in terms of seeking to find . . . bad faith
and dissolve the contract.
Kathy appeals.
ANALYSIS
A. Interpretation of the Separation Contract
Kathy moved for contempt to enforce the separation contract as allowed
by the terms of the agreement incorporated into the dissolution decree and
RCW 26.09.070(6).3 "A court in a dissolution proceeding has the authority to
enforce its decree in a contempt proceeding." In re Marriage of Mathews, 70 Wn.
3"Terms of the contract set forth or incorporated by reference in the decree may be
enforced by all remedies available for the enforcement of a judgment, including contempt, and
are enforceable as contract terms." RCW 26.09.070(6).
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App. 116, 126, 853 P.2d 462(1993). Contempt of court is "disobedience of any
lawful judgment, decree, order, or process of the court." RCW 7.21.010(1)(b).
"In determining whether the facts support a finding of contempt, the court must
strictly construe the order alleged to have been violated, and the facts must
constitute a plain violation of the order." In re Marriage of Humphreys, 79 Wn.
App. 596, 599, 903 P.2d 1012(1995).
A contempt determination rests within the sound discretion of the trial
court and will not be disturbed on appeal absent an abuse of discretion.
Mathews, 70 Wash. App. at 126. A trial court abuses its discretion by exercising it
on untenable grounds or for untenable reasons. In re Marriage of Eklund, 143
Wash. App. 207, 212, 177 P.3d 189(2008).
Here, the parties incorporated the separation contract into the final
dissolution decree. "When an agreement is incorporated into a dissolution
decree, we must ascertain the parties' intent at the time of the agreement." In re
Marriage of Smith, 158 Wash. App. 248, 255, 241 P.3d 449(2010). The court
attempts to determine the parties' intent "by focusing on the objective
manifestations of the agreement, rather than on the unexpressed subjective
intent of the parties." Hearst Commc'ns, Inc. v. Seattle Times Co., 154 Wash. 2d
493, 503, 115 P.3d 262(2005). Subjective intent lacks relevance if intent can be
determined from the actual words used. Hearst, 154 Wash. 2d at 503-04. The
court must examine the reasonable meaning of the words used, giving effect to
their ordinary, usual, and popular meaning unless the entirety of the agreement
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demonstrates a contrary intent. Hearst, 154 Wash. 2d at 504. "Courts will not
revise a clear and unambiguous agreement or contract for parties or impose
obligations that the parties did not assume for themselves." Condon v. Condon,
177 Wash. 2d 150, 163, 298 P.3d 86 (2013).
A trial court may examine extrinsic evidence "for the limited purpose of
construing the otherwise clear and unambiguous language of a contract in order
to determine the intent of the parties." Go2Net, Inc. v. C I Host, Inc., 115 Wn.
App. 73, 84,60 P.3d 1245(2003). Extrinsic evidence relating to the context of
the agreement may be examined to determine the meaning of specific words and
terms used, but cannot show "intention independent of the instrument" or "vary,
contradict or modify the written word." Hollis v. Garwall, Inc., 137 Wash. 2d 683,
695-96, 974 P.2d 836 (1999). "[E]xtrinsic evidence of a party's subjective,
unilateral, or undisclosed intent regarding the meaning of a contract's terms is
inadmissible." RSD AAP, LLC v. Alveska Ocean, Inc., 190 Wash. App. 305, 315,
358 P.3d 483(2015).
The appellate court reviews the language of a separation contract in a
dissolution decree de novo. Smith, 158 Wash. App. at 255.
Kathy claims the contract's use of the words "installment" and "schedule"
connotes a series of events in succession and demonstrates the parties intended
the payments to occur in a specific order. She does not contend Bob was in
contempt for failing to pay installment b., but by prepaying installment c. to avoid
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her entitlement to his profit distribution. Bob argues the terms "installment" and
"schedule" do not establish a strict order of the payments.
The contract clearly specified Kathy's entitlement to 50 percent of the
profit distributions prior to Bob's receipt of the first payment for stock redemption.
Under the terms of the contract, Kathy's entitlement to a share of the profit
distributions ended after Bob's first redemption of stock. For installment c., the
contract did not include a date, deadline, or condition precedent other than Bob's
first redemption of stock. To require payment of the installments in strict
sequence would add terms to the agreement inconsistent with the existing
language. See Condon, 177 Wash. 2d at 163.
A strict sequence would also improperly contradict the prepayment clause
allowing Bob to prepay "any or all" installments. See Hollis, 137 Wash. 2d at 695-
96. Regardless of the meaning of "installment" or "schedule," the separation
contract includes a clear and unambiguous provision allowing Bob to prepay "any
or all" of the installments without penalty. In this case, Bob chose to exercise his
option to prepay installment c. Based on the plain language of the contract, he
was within his rights to do so.
While Bob redeemed stock earlier than Kathy anticipated, her subjective
intent is irrelevant in light of the language of the separation contract. See Hearst,
154 Wash. 2d at 503-04. Reliance on extrinsic evidence related to the Shareholder
Agreement would serve to modify the contract, rather than give effect to the
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terms as written. This is an impermissible use of parol evidence. See Hollis, 137
Wash. 2d at 695-96.
Because the separation contract allowed Bob to prepay any installment,
his payment of installment c. before installment b. did not violate the terms of the
agreement. When Bob redeemed the stock and paid the $1 million to satisfy
installment c., he terminated Kathy's entitlement to a share of the profit
distribution. Bob's actions did not contravene the separation contract.
Therefore, the trial court did not abuse its discretion in denying Kathy's contempt
motion.
B. Breach of Fiduciary Duty
Kathy argues Bob violated his fiduciary duties to her by misrepresenting
his ability to accelerate redemption of his stock. The trial court determined the
issue was not properly before it on the contempt motion, and Kathy would need
to bring a separate civil action on any such claims. Kathy contends the trial court
had authority to resolve all issues relating to enforcement of the contract and
urges reversal of the denial of the contempt motion due to breach of fiduciary
duty.4 A contempt motion cannot provide Kathy with the relief she seeks.
Spouses owe each other the highest fiduciary duty. In re Marriage of Lutz,
74 Wash. App. 356, 369, 873 P.2d 566(1994). This duty does not cease during
dissolution. In re Marriage of Sanchez, 33 Wash. App. 215, 218, 654 P.2d 702
(1982).
4 Bob contends Kathy failed to raise the issue of fiduciary duty below. The record shows
Kathy's counsel raised the issue of fiduciary duty and good faith and fair dealing in argument for
revision of the order on contempt.
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[A] party to a property settlement agreement owes a fiduciary
obligation and a duty of good faith and fair dealing to attempt to
draft formal contract language that will honor that agreement. Any
deliberate effort to draft language intended to subvert the
agreement is a breach of the fiduciary obligations of marriage and a
blatant violation of the duties of good faith and fair dealing in the
contractual relationship.
In re Marriage of Sievers, 78 Wash. App. 287, 311, 897 P.2d 388 (1995).
Kathy cites In re Marriage of Langham and Kolde, 153 Wash. 2d 553, 106
P.3d 212(2005), to support the trial court's authority to reach the issue of breach
of Bob's fiduciary duty. In Langham, the wife moved for entry of judgment for
conversion against her former husband after he exercised stock options awarded
to her upon dissolution of their marriage. 153 Wash. 2d at 556. The trial court
heard and decided the case on the family law motion calendar. Lanqham, 153
Wash. 2d at 560. The Washington State Supreme Court upheld this decision,
noting "[t]he superior court unquestionably has authority to enforce property
settlements. 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." Lanqham, 153 Wash. 2d at 560 (citation omitted)(citing RCW
26.12.010; RCW 2.28.150). The trial court had jurisdiction over the subject
matter and parties through the equitable action to enforce the dissolution decree
and properly acted within its authority to enforce the property settlement.
Lanqham, 153 Wash. 2d at 560.
Similarly, in NewIon v. Alexander, 167 Wash. App. 195, 272 P.3d 903
(2012), Division Three concluded the trial court had jurisdiction over a post-
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decree dispute involving the remains of the parties' child. The parties filed a
motion requesting the court determine the disposition of their son's remains.
NewIon, 167 Wash. App. at 198. The appellate court concluded, "[e]ven after a
decree of dissolution, the superior court acting as family court has authority to
resolve disputes between former spouses." NewIon, 167 Wash. App. at 203-04.
Kathy contends Lanoham and NewIon demonstrate the trial court's ability
to reach any issue in equity as part of an action in equity to enforce the
dissolution decree. However, the procedural postures of these cases differ from
the case at hand. In Langham, the wife moved to enter judgment for conversion
against the husband, and he admitted the facts relevant to the tort of conversion.
153 Wash. 2d at 558, 560. Thus, the wife's motion specifically requested
adjudication of the husband's tortious conduct and the question was squarely
before the trial court. Similarly, in Newlon, the parties filed a motion requesting
the trial court resolve their dispute. 167 Wash. App. at 198. The parties placed the
specific issue before the court for resolution.
Here, Kathy filed a motion to hold Bob in contempt for failing to obey the
court-ordered dissolution decree. As a motion for contempt, the only question
before the court was whether Bob disobeyed the court's order. Resolution of this
issue required the trial court to determine the meaning of the separation contract
and Bob's compliance with that agreement. Bob's duty to Kathy and his conduct
was not before the court on the limited motion. Therefore, the trial court properly
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concluded Kathy needed to bring her claims of breach of fiduciary duty and good
faith outside of the contempt motion.
C. Attorney Fees
Bob and Kathy both request attorney fees pursuant to RAP 18.1(a) and
the provisions of the separation contract. The separation contract includes a
provision for attorney's fees, "[i]n any proceeding brought to enforce this
Contract, the prevailing party shall be awarded his or her reasonable attorney's
fees and costs." Because Bob prevails on appeal, he is entitled to his
reasonable attorney fees and costs.
Affirmed.
WE CONCUR:
„A&AAA.,,v, a.
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