LIVESAY (KIMBALL) VS. STATTS (TIMOTHY SCOTT)
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RENDERED: NOVEMBER 12, 2010; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2009-CA-001250-MR
KIMBALL LIVESAY, F/K/A STATTS
v.
APPELLANT
APPEAL FROM JEFFERSON FAMILY COURT
HONORABLE ELEANORE GARBER, JUDGE
ACTION NO. 06-CI-502466
TIMOTHY SCOTT STATTS
APPELLEE
OPINION
AFFIRMING IN PART
REVERSING IN PART AND REMANDING
** ** ** ** **
BEFORE: ACREE, COMBS AND WINE, JUDGES.
ACREE, JUDGE:
The appellant, Kimball Livesay, appeals a decision of the
Jefferson Family Court. The family court determined that Kimball’s interest in
stocks and options, as set forth under the marriage settlement agreement between
her and her former husband, Timothy Statts, ended when the options were traded
for identical options in another company. Therefore, she no longer maintained an
interest. However, because the contract did not contemplate the type of transaction
that occurred, remand is necessary for the consideration of additional evidence
regarding the parties’ intent. The family court also denied Kimball’s request for
attorney’s fees and costs and we affirm. Therefore, the decision of the family court
is reversed in part and remanded and affirmed in part.
On March 30, 2007, Timothy and Kimball Statts divorced after three and
one-half years of marriage. They subsequently entered into a Marital Settlement
Agreement (MSA) setting forth, among other things, the parties’ interests in
Summit Energy Services, Inc. (Summit) stock and stock options.
Summit is a closely held corporation and is not publicly traded. Tim was an
employee of Summit both before and during the marriage. He obtained the stock
and options as a result of his employment. Restrictions placed on the stock and
options prevented Tim from transferring ownership of the stock to Kim upon their
divorce. Therefore, the parties agreed Tim would buy out Kim’s interest in the
stock and options for $113,248.77.
Although the MSA provided for Tim to buy out Kim’s interest in the stock
and options, Kim retained a financial interest that comes to fruition when the stock
is sold or redeemed. Specifically, the MSA instructs that “[i]n addition to the
payment set forth [above], [Tim] shall make additional payment to [Kim] if, when
he ultimately sells or redeems the Summit Stock, the sale price exceeds $20.00 per
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share.” (emphasis added). Tim, however, retained the right to receive all
dividends and distributions from the stock.
On July 31, 2007, Summit and SWP Holdings, Inc. (SWP) entered into a
plan of merger that closed on August 31, 2007. SWP is a privately held and
funded corporation formed for the purpose of acquiring 100% of Summit’s
outstanding stock. After obtaining a loan, SWP sought to acquire all of Summit’s
stock and options. SWP purchased most of the stock. However, some of the
Summit options were exchanged for SWP options.
Tim was a minority shareholder of Summit and his name does not appear on
any of the merger documents. SWP purchased 31,500 of Tim’s Summit stock and
he received $22.44 per share.1 In order to maintain his position with the company,
Tim exchanged 19,500 Summit stock options for 19,500 SWP stock options with
the same strike price. The exchange was a non-taxable event.
Kim’s share of the value received for the 31,500 shares sold to SWP is not at
issue and she received compensation for the same. However, Kim also had an
interest in 5,066 of the 19,500 Summit options transferred in exchange for the
SWP options. Those options are the subject of this controversy.
On August 30, 2007, Tim prepared and provided Kim with an Excel
worksheet setting forth the estimated price of the Summit stock, which at the time
was $22.32 per share. Based on that price—which was provided to him by
Summit controller Michelle Howard—Tim prepared a spreadsheet calculating
1
The final price for the Summit stock was $22.37. However, a working capital adjustment was
made later. The parties agree that the fair market value of the Summit stock was $22.44.
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Kim’s share of the sell price minus applicable taxes.2 However, Kim wanted more
information regarding the transaction.
The parties stipulate that on November 21, 2007, Kim received and cashed a
check for $30,422.39 which included payment for the 5,066 options exchanged by
Tim. On April 8, 2008, Tim sent a “settle-up” payment3 to reflect a subsequent
working capital adjustment. The family court determined that Tim was unaware of
the adjustment at the time of his initial calculation. His settle up payment was
accompanied by an excel sheet that reflected the adjustment. A letter from Steve
Wilhite,4 Summit’s new president, also accompanied Tim’s letter. While Wilhite
did not work for Summit at the time of the merger, Wilhite reviewed the
transaction documents. In his letter Wilhite advised Kim that “each share of voting
common stock and nonvoting common stock of Summit Energy Services, Inc. was
converted automatically into the right to receive cash. The total price the
shareholders related to this transaction was $22.44 per share.”
In May of 2008, Kim filed a subpoena and notice to take deposition on
Summit’s chief counsel. However, Summit did not wish to turn over information
regarding the transaction for confidentiality reasons. Summit’s counsel did not
seek a protective order, but objected to the subpoena. Tim’s counsel filed a motion
2
The extent of Tim’s tax liability was disputed at trial, but it was ultimately determined that Tim
suffered no immediate tax consequence for the exchange. This is not disputed on appeal.
3
As provided for in the MSA, section D(3)(d) pg. 6.
4
The parties and the record below refer to Mr. Wilhite and Mr. Willett. However, Wilhite is
correct.
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to quash and a motion for protective order. The parties eventually entered into a
confidentiality agreement and protective order.
In July, the court entered an order for trial and the parties held an informal
discovery meeting. In response to matters sought in the subpoena, Wilhite
voluntarily prepared and provided a confidential worksheet styled “Tim Statts’
Sale of Summit Energy Services, Inc. stock and options—Schedule of total
Consideration Received.”
The case eventually went to trial and two issues are presented on appeal.
First, did Tim “sell or redeem” the Summit options as contemplated by the MSA?
Second, is Kim entitled to attorney’s fees and costs as a result of Tim’s alleged
breach of the MSA and can she recover attorney’s fees and costs pursuant to
Kentucky Revised Statute (KRS) 403.220?
Interpreting the Marriage Settlement Agreement
Interpretation of a marriage settlement agreement is governed by the same
rules and provisions applicable to the construction of other contracts. Richey v.
Richey, 389 S.W.2d 914, 917 (Ky. 1965). The primary object of contract
construction is to effectuate the intentions of the parties. Cantrell Supply, Inc. v.
Liberty Mut. Ins. Co., 92 S.W.3d 381,384 (Ky. App. 2002). “Any contract or
agreement must be construed as a whole, giving effect to all parts and every word
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in it if possible.” Id. at 384-85 (quoting City of Louisa v. Newland, 705 S.W.2d
916, 919 (Ky. 1986)).
Where a contract is ambiguous or silent on a vital matter,
a court may consider parol evidence involving the
circumstances surrounding execution of the contract, the
subject matter of the contract, the objects to be
accomplished, and the conduct of the parties. Absent
ambiguity in the contract, the parties’ intentions must be
discerned from the four corners of the instrument without
resort to extrinsic evidence. A contract is ambiguous if a
reasonable person would find it susceptible to different or
inconsistent interpretations. The fact that one party may
have intended different results, however, is insufficient to
construe a contract at variance with its plain and
unambiguous terms.
Id. at 385 (internal citations omitted).
The interpretation of a contract, including determining if the contract is
ambiguous, is a question of law and must be reviewed de novo. Id. “However,
once a court determines that a contract is ambiguous, areas of dispute concerning
the extrinsic evidence are factual issues and construction of the contract become
subject to resolution by the fact finder.” Id.
Both parties assert that the terms “sell” and “redeem” are not ambiguous.
As a result, the family court did not make a finding as to ambiguity and sustained
objections to testimony concerning the MSA’s formation. While the court heard a
variety of testimony concerning the transaction, the testimony generally concerned
the nature of the transaction and the exchange of information that took place
subsequent to the transaction. The family court ultimately determined that Tim
satisfied his obligation under the MSA by paying Kim her percentage of the fair
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market value of the Summit options. The court reached this conclusion by
determining that the transaction equated to a sale. On appeal, the parties maintain
that the contract is not ambiguous.
Kim avers that the exact terms of the contract require that a sale or
redemption take place before Kim’s interest is terminated. Therefore, because
there was no sale or redemption, she is entitled to a retained interest in either the
options exchanged or the options received in exchange.
Tim also argues that the contract language must control. However, Tim
asserts that Kim’s interest only comes to fruition when the stock is sold or
redeemed. Therefore, if Tim disposes of the stock by means other than a sale or
redemption, Kim’s interest is terminated and she receives nothing. Despite this
argument, Tim also accepts the family court’s determination that the shares were
“disposed of” or “bought back” for the equivalent of $22.44 per share and is
willing to pay Kim her percentage of the stock’s fair market value.
In addition to agreeing on the issue of ambiguity, the parties’ arguments
reveal that neither believes the contract contemplated the type of transaction that
occurred. In oral arguments, Kim’s counsel suggested that the parties intentionally
left out language describing this type of transaction because the parties
contemplated that she would retain an interest. Tim’s counsel also argued that the
contract did not contemplate this type of transaction. However, Tim asserts that
Kim is only entitled to payment if a sale or redemption occurs; any other type of
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transaction that is not a sale or redemption leaves her with no right to payment and
no retained interest.
Under either theory, it appears that the contract did not contemplate the type
of transaction that occurred and is silent. As a result, additional evidence must be
considered. This consideration is necessary to determine the parties’ intent. Bank
of New York v. Janowick, 470 F.3d 264 (6th Cir. 2006) (Finding when a contract is
silent on a vital matter, it is especially appropriate for courts to consider the
circumstances surrounding the parties, the object of the contract, and the contract’s
language, as well as the subject matter of the contract). Therefore, we must
remand to the family court which is in a better position to consider the extrinsic
and parol evidence necessary to determine the intent of the parties.
Attorney’s Fees and Costs
On appeal, Kim attempts to separate her second and third arguments. First,
Kim asserts the trial court erred as a matter of law by failing to enforce the
information sharing requirements of the MSA and improperly shifted the burden of
discovery to her. Second, Kim states that she should receive attorney’s fees.
However, both issues were combined into a single argument below. Specifically,
Kim argued that the failure to comply with the MSA’s provisions entitles her to
attorney’s fees and costs.
Kim is not permitted to give one can of worms to the trial court and another
to the appellate court. Kennedy v. Commonwealth, 544 S.W.2d 219, 222 (Ky.
1976). Therefore, the alleged breach of contract may only be considered to the
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extent it weighs on the determination of attorney’s fees and costs. This court must
determine whether Kim is entitled to attorney’s fees and costs as a result of Tim’s
alleged breach and whether Kim is entitled to fees and costs under KRS 403.220.
Kim’s attempts to seek attorney’s fees as special damages of the contract
breach are futile. Kim asserts that Lyon v. Whitsell provides an exception to the
general rule that attorney’s fees are not damages. See Lyon v. Whitsell, 245
S.W.2d 926 (Ky. App 1952) (citing Bolling v. Ford, 213 Ky. 403, 281 S.W. 178
(Ky. App. 1926)). In Lyon, property was held in a constructive trust and Whitsell
breached his duty as constructive trustee. Id. at 927. As a result, Whitsell had to
return the property to the beneficiaries. Id. However, unlike Bolling, there was no
“definitively fixed or acknowledged” trust relationship and there were “no clear
incidents of actual fraud.” Id. Therefore, the case was distinguished from Bolling
and Lyon could not collect attorney’s fees as damages. Id.
In this case, there is a provision in the contract regarding a constructive trust.
Kim argues that, as a result of this provision, Tim held the stock and options in a
constructive trust and breached his duties by not complying with the information
sharing provisions. The MSA states that “[t]he signing of this document by the
parties, herein, creates a constructive trust on behalf of any party to whom the
property is to be transferred in said property and creates an equitable interest in
said property on behalf of the transferee whether or not the party executes any
documentation to affect the transfer.” The constructive trust language appears to
apply to property that will be transferred to the other party. The language does not
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create a definitive trust relationship as to the stock and options. Indeed, the
contract does not place any restrictions on Tim’s use of the stock and entitles him
to receive all income and distributions associated with the stock and options.
As for breach of the contract, the family court found that Tim made a good
faith effort to comply with the MSA. The circuit court’s finding is supported by
substantial evidence because Tim immediately notified Kim that the transaction
occurred and made good faith attempts to adequately compensate her. The circuit
court did not make any findings as to fraud.
There is no definitively fixed trust relationship governing the stock and
options, and there are no incidents of actual fraud. Therefore, Kim cannot recover
fees under the narrow exception considered in Lyon. It is also important to note
that the MSA provides that the parties will pay their own attorney’s fees and costs.
Moreover, in response to Kim’s motion to alter, amend, or correct, the
family court stated that “[e]ven if this court did find that [Tim] breached the MSA,
[Kim’s] attorney’s fees were not a result of the alleged breach.” The court went on
to explain that the litigation primarily concerned whether Kim’s interest was
transferred to the SWP holdings, which is a matter of contract interpretation.
In addition to determining that Tim did not breach the contract, the family
court also considered the appropriateness of attorney’s fees under KRS 403.220.
The trial court’s finding regarding KRS 403.220 may only be overturned if an
abuse of discretion occurred. Sexton v. Sexton, 125 S.W.3d 258, 272 (Ky. 2004).
“The test for abuse of discretion is whether the trial judge's decision was arbitrary,
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unreasonable, unfair, or unsupported by sound legal principles.” Id. (citations
omitted).
The family court considered each of the factors set forth under KRS 403.220
including: the amount and character of the services rendered, the labor time and
trouble involved and nature and importance of the litigation or business in which
the services were rendered, the responsibility imposed, the amount of money or the
value of property affected by the controversy, the skill and experience called for in
the performance of the services and professional character and standing of the
attorneys, and the results secured. The family court determined that, despite
disparity between the parties’ incomes, the other factors weighed in Tim’s favor.
The family court noted that even if Tim had produced the information sought by
Kim, the litigation would have continued to determine if the options were sold or
redeemed.
The family court engaged in a well reasoned analysis of the factors set forth
under KRS 403.220. There is no indication that the court’s ruling was arbitrary,
unreasonable, unfair, or unsupported by sound legal principles.
For the reasons set forth above, the decision of the family court is reversed
in part and remanded and affirmed in part.
ALL CONCUR.
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BRIEFS AND ORAL ARGUMENT
FOR APPELLANT:
BRIEF AND ORAL ARGUMENT
FOR APPELLEE:
Christina R. L. Norris
Louisville, Kentucky
Melanie Straw-Boone
Louisville, Kentucky
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