Schnopp v. Schnopp
Filed 9/5/12 Schnopp v. Schnopp CA2/6
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE
DISTRICT
DIVISION SIX
SYLVIA SCHNOPP,
Appellant,
v.
EDDIE K.
SCHNOPP,
Respondent.
2d Civil No.
B236111
(Super. Ct.
No. D227954)
(Ventura
County)
Sylvia
A. Schnopp appeals from the trial court's orders (1) modifying child support;
(2) denying her request to receive as additional child support a portion of
stock option gains realized by her former husband, respondent Eddie K. Schnopp;
and (3) denying her request for reasonable attorney fees and costs. We affirm.
The
parties married in August 1985 and separated in November 1994. They have two children: one born in October
1991 and the other in May 1994. A
judgment of dissolution was entered in December 1996. The judgment ordered the parties to comply
with a Marital Settlement Agreement
(MSA). The MSA required respondent to
pay monthly support of $366 for the elder child and $524 for the younger
child. The MSA further required him to
pay to appellant "as additional child support the sum of 8 percent of any
gross bonus he receives." The term
"bonus" was defined "as the gross amount of incentive based
compensation, other than nominal gifts."
This appeal "turns" on the meaning of the specific definition.
In
August 2010 appellant filed a motion requesting (1) "a modification of the
existing child support order to the guideline amount," (2) a determination that stock options
received by respondent qualified as a "bonus" within the meaning of
the MSA, (3) an order requiring respondent to pay to appellant her eight per
cent share of the stock options bonus, and (4) reasonable attorney fees and
costs. Appellant filed an income and
expense declaration showing average monthly income of $5,099 and average monthly
expenses of $6,161. The $5,099 figure
included a salary of $3,833 from California
Welcome Center,
but this employment ended on August
13, 2010.
In
opposition to appellant's motion, respondent declared that the stock options
issued by his former employer, Power-One, were not "incentive based"
compensation and therefore did not qualify as a bonus within the meaning of the
MSA. Respondent's employment with
Power-One terminated in 2005. Respondent
filed an income and expense declaration showing an average monthly loss of
$225,000 and average monthly expenses of $25,837. The losses arose from respondent's interest
in three limited liability companies.
Respondent received no income
from salary or wages.
In
February 2011 the parties filed updated income and expense declarations. Appellant's declaration showed average
monthly income of $819 and average monthly expenses of $6,844. Respondent's declaration showed an average
monthly loss of $2,000 and average monthly expenses of $24,244.
In
March 2011 the trial court conducted an evidentiary
hearing on whether respondent's stock options constituted a bonus within
the meaning of the MSA. Appellant
testified that, when she signed the MSA, she interpreted the MSA's definition
of "bonus" as "cover[ing] anything over and above a base
salary," including stock options.
Martin
Wertlieb, an executive compensation consultant, testified as an expert witness
for appellant. Wertlieb opined that any
gains respondent "realized on stock options are incentive-based
compensation . . . under the formula of the marital settlement agreement;
therefore, . . . the 8-percent formula should apply." Wertlieb testified that such gains constitute
incentive-based compensation because the purpose of granting the options was to
provide an "incentive . . . to stay [with the company until the options
vest] and to perform in such a way as to help the value of company stock
increase." According to Wertlieb,
in 2005 respondent exercised all of his "in-the-money" options and
realized a gain of over $1 million. He
did not pay any portion of this gain to appellant as additional child
support.
Respondent,
the former chief financial officer of Power-One, testified that he had always
interpreted "incentive-based compensation" to mean
"[p]erformance-based bonuses that were paid." Such compensation was "linked . . . to
exceeding goals, meeting goals, your personal performance." When he signed the MSA, respondent understood
that any gains realized from stock options would not be incentive-based
compensation but instead would be "just compensation as a result of
selling a long-term asset that I held."
Respondent explained that Power-One did not issue stock options based on
an employee's performance. Instead, the
company used stock options as "a retention tool." Power-One wanted employees to have enough
unvested options to deter them from leaving: "[A]s options vested, the
amount they would forfeit by leaving the company was less. And so we had . . . gotten a consultant to
come in . . . that kind of gave us the outline that said if you're at this
level within the company, you should have X amount [of options] on the table
[i.e., unvested] as a good retention tool." The Board of Directors would be asked to
approve the issuance of additional options if "the amount that's on the
table falls below the recommended amount to retain these people."
Steve
Goldman, the former president and chief executive officer of Power-One,
testified on respondent's behalf.
According to Goldman, the purpose of the stock options was to retain
present employees and provide "an incentive for new hires." The options were also used "as a means
of replacing base salaries for employees in order to reserve cash for the
company." Neither the issuance of
options nor their vesting was based on an employee's performance.
Melissa
Dugan, a former director of Power-One, testified consistently with
Goldman. Dugan noted that, unlike the
stock option plan, Power-One had a bonus plan that was based on
performance. "The bonus plan was
designed to motivate and drive performance towards specific objectives. There was a component of the plan that was
based on individual performance as well as a component that was based on company
performance towards specific goals."
In its written ruling, the trial court
concluded that the MSA was ambiguous as to whether respondent's stock options
qualified as bonus compensation. The
trial court therefore considered extrinsic evidence in ascertaining the intent
of the parties when they signed the MSA.
The court accepted the testimony of respondents' witnesses and rejected
Wertlieb's testimony: "While the expert opinion of Mr. Wertlieb was informative,
the court does not believe that definition [of bonus compensation] was in the
minds of the parties when they negotiated and executed the MSA." Thus, the court found "that the parties
did not intend to include stock options as a form of bonus." The court denied appellant's request to pay to
her, as additional child support, eight per cent of respondent's stock option
gains.
As
to appellant's request for "a modification of the existing child support
order to the guideline amount," the trial court imputed to her the $3,800
monthly salary that she had earned as a former employee of California Welcome
Center. The court concluded that this
imputation was justified because appellant testified that she had voluntarily
"terminated her employment less than two weeks after filing for a
modification." Furthermore,
appellant had "stated on her Income and Expense Declaration, 'I intend to
replace this source of income with marketing and business consulting work. I do not expect a change in income at this
time.' " Using a Dissomaster
calculation, the court ordered respondent to pay to appellant monthly child
support of $247 from September through November 2010. Thereafter, appellant was ordered to pay to
respondent monthly child support of $587.
Both
parties requested an award of reasonable attorney fees and costs. The court denied the requests because it
found "that an order for either party to pay the other's fees and costs
would constitute an undue hardship."
The court noted that "[r]espondent is unemployed and has not worked
since June, 2005."
"Marital settlement agreements incorporated into a
dissolution judgment are construed under the statutory rules governing the
interpretations of contracts generally.
[Citations.]" (
Cal.App.4th 1434, 1439.) " 'The
fundamental goal of contractual interpretation is to give effect to the mutual
intention of the parties. (Civ.Code, §
1636.) If contractual language is clear
and explicit, it governs. (Civ.Code, §
1638.)" (People v. Shelton (2006) 37 Cal.4th 759, 767.) "Extrinsic evidence
is admissible, however, to interpret an agreement when a
material term is ambiguous. [Citations.]" (Wolf
v. Walt Disney Pictures and Television (2008) 162 Cal.App.4th 1107,
1126.) A term " ' "is
ambiguous when it is capable of two or more constructions, both of which are
reasonable." [Citation.]' [Citation.]
Whether language in a contract is ambiguous is a question of law. [Citation.]" (Producers
Dairy Delivery Co. v. Sentry Ins. Co. (1986) 41 Cal.3d 903, 912.) " 'Extrinsic evidence is
"admissible to interpret the instrument, but not to give it a meaning to
which it is not reasonably susceptible" [citations], and it is the instrument
itself that must be given effect.
[Citations.]' [Citations.]" (U. S.
Leasing Corp. v. DuPont (1968) 69 Cal.2d 275, 284.)
Ambiguous,
Its Meaning
Appellant contends that the bonus
provision of the MSA is not ambiguous. We disagree. Paragraph 5.a. of the MSA states that
"Husband and Wife's employers pay, at their discretion, performance
bonuses." In view of this
statement, it is reasonable to infer, as the trial court did, that the bonus
provision at issue here encompasses only performance-based compensation. But in the next sentence, the MSA defines
"bonus" as the "gross amount of incentive based
compensation." Incentive-based
compensation is not necessarily related to performance. "Incentive compensation . . . is
generally understood as an ' "inducement to employees to procure efficient
and faithful service." '
[Citations.]" (
Cal.4th 610, 621.) Stock options are
commonly used as incentive compensation, and their issuance or vesting may not
be linked to performance: "If any of the various purposes of stock option
plans can be said to bear emphasis, it is probably that of providing
incentive. 'One of the most widespread
programs for providing employees with additional incentive and creating an
identification of interest between the company and the key employees is a stock
option plan.' [Citation.] 'Share options are a form of incentive
compensation based on the idea that good management results in higher prices
which render the share option valuable.'
[Citations.]" (
Cal.App.3d 780, 785-786; see also Newberger
v. Rifkind (1972) 28 Cal.App.3d 1070, 1075 ["stock options are given
to employees as an inducement to continue employment or to put forth
greater efforts."])
The
bonus provision's reference to both "performance bonuses" and
"incentive-based compensation" creates an ambiguity as to whether the
provision applies to respondent's stock options. "The fact that both parties in good faith
question the true meaning of the words and phrases they have used in their
agreement is of itself some evidence that the agreement is ambiguous. [Citations.]" (Jacobson
v. Jacobson (1963) 211 Cal.App.2d 580, 583.) "Where, as here, the written agreement
before the court is ambiguous and its meaning uncertain, extrinsic evidence is
admissible to explain what the parties meant by the language they have
used. [Citation.]" (
extrinsic evidence as an aid in determining whether the parties intended the
bonus provision to encompass respondent's stock options.
Options
Both parties testified as to their
subjective understanding of the type of compensation covered by the bonus
provision. Appellant interpreted
the provision as "cover[ing] anything over and above a base salary,"
including stock options. Respondent, on
the other hand, interpreted the provision as applying only to "[p]erformance-based
bonuses that were paid." Since
neither the issuance nor the vesting of respondent's stock options was based on
performance, respondent understood that the bonus provision did not encompass
his options.
"While this 'subjective intent' evidence was
conflicting, it was not competent extrinsic evidence, because evidence
of the undisclosed subjective intent of the parties is irrelevant to
determining the meaning of contractual language. [Citations.]" (Winet
v. Price (1992) 4 Cal.App.4th 1159, 1166, fn. 3.) "California recognizes the objective
theory of contracts [citation], under which '[i]t is the objective intent, . .
. rather than the subjective intent of one of the parties, that controls
interpretation' [citation]." (
Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944,
956.) " 'The mutual intention to
which the courts give effect is determined by objective manifestations of the
parties' intent, including the words used in the agreement,
as well as extrinsic evidence of
such objective matters as the surrounding circumstances
under which the parties negotiated or entered into the contract;
the object, nature and subject matter of the contract;
and the subsequent conduct of the parties.
[Citations.]'
[Citations.]" (
Appellant's
expert, Martin Wertlieb, opined that any gains respondent "realized
on stock options are incentive-based compensation . . . under the formula of
the marital settlement agreement." But Wertlieb's
opinion is not competent evidence of the objective intent of the parties when
they signed the MSA. "[T]he interpretation of
contractual language is a legal matter for the court . . . and '[e]xpert
opinion on contract interpretation is usually inadmissible.' [Citation.]" (In re
Tobacco Cases I (2010) 186 Cal.App.4th 42, 51.)
The
question is whether the bonus provision allowing increased child support
applies generally to incentive compensation irrespective of performance, or
whether it applies only to incentive compensation based on performance. If it applies generally to incentive
compensation irrespective of performance, then it encompasses respondent's
stock options. All of the witnesses
agreed that one of the purposes of the options was to provide an incentive for
employees to remain with the company until their options vested. If, on the other hand, the bonus provision
applies to incentive compensation based on performance, the provision does not
encompass respondent's stock options.
Respondent's witnesses testified that the issuance of the options
was not linked to performance and that the vesting schedule was the same for
all employees irrespective of their performance. As indicated, the trial court expressly
credited this testimony.
There
is no competent conflicting extrinsic evidence on whether the parties intended
the bonus provision to apply generally to incentive
compensation irrespective of performance, which would include respondent's
stock options, or only to incentive compensation based on performance, which
would not include his stock options.
"When a trial court's interpretation of a written agreement is
appealed and no conflicting extrinsic evidence was admitted, the interpretation
of the contract is a question of law which we review de novo. [Citations.]" (Nava
v. Mercury Cas. Co. (2004) 118 Cal.App.4th 803, 805.) Accordingly, we independently determine the
meaning of the bonus provision.
The
bonus provision is included in paragraph 5 of the MSA. Paragraph 5.a. provides, "The parties
have agreed to a formula to allocate the bonuses they have received or will
receive during calendar years 1995 and 1996." The paragraph lists the bonuses received by
respondent: "[Respondent] received a $15,000 bonus in 1995 and a $40,000
bonus in 1996." The paragraph then
sets forth the formula for allocating these bonuses between the parties.
Paragraph
5 does not mention stock options. But
respondent testified that in April 1996 Power-One had issued stock options to
him. If the parties had intended these
stock options to constitute a bonus within the meaning of paragraph 5, they
would have said so. Paragraph 5
specified respondent's bonus compensation in 1996. It follows that the bonus provision does not
encompass respondent's stock options.
This construction of the MSA reasonably harmonizes the first sentence of
paragraph 5, which refers to "performance bonuses," with the second
sentence, which refers to "incentive-based compensation." "Courts must interpret [contracts] to
try to give effect to every clause and harmonize the various parts with each
other. [Citation.]" (Friedman
Professional Management Co., Inc. v. Norcal Mut. Ins. Co. (2004) 120
Cal.App.4th 17, 33-34.)
Appellant
argues that "[t]here is no evidence that [respondent] disclosed [the April
1996 stock options] to [her] or that [she] knew about this fact when the
parties executed the MSA on October 30, 1996." We disagree.
Respondent testified that, during the divorce proceedings, appellant's
counsel had sought discovery from Power-One.
"[I]n that discovery [counsel] did . . . in fact receive evidence
that [respondent] owned stock and stock options with Power[-]One." Appellant testified that her counsel had
"actually joined Power[-]One to the [divorce] proceedings." Power-One signed the MSA to indicate its
approval "as to form only." In
paragraph 36 of the MSA, the parties acknowledged that they are "fully and
completely informed as to the facts relating to the subject matter of this
Agreement." Thus, it is reasonable
to infer that appellant knew about the April 1996 stock options when she signed
the MSA.
Appellant
contends that respondent "affirmed in the MSA that he had not
received" the stock options issued in April 1996. Appellant relies on paragraph 13 of the MSA,
where respondent specified the proceeds he had received from the sale of
Power-One on September 30, 1995. In
paragraph 13.d., respondent "acknowledges and agrees that he has not
received and is not entitled to any additional compensation, including but not
limited to shares of stock or stock options, resulting from the sale of
Power-One." But this provision does
not encompass the April 1996 stock options.
There is no evidence that these options were additional compensation for
the 1995 sale of Power-One. Appellant
testified that the April 1996 stock options were issued for retention
purposes.
Appellant
argues that the trial court erroneously denied her request for an evidentiary
hearing on (1) whether the amount of monthly child support payable by
respondent should be modified, and (2) whether she should be awarded reasonable
attorney fees and costs. Appellant
asserts, "The trial court neither provided a finding of good cause nor
stated any reasons on the record or in writing for its refusal to receive live
testimony on the issue of [respondent's] income." On the contrary, the court stated that
appellant was not entitled to an evidentiary hearing because she had not filed
and served a witness list as required by Family Code section 217, subdivision
(c).
alleged statutory noncompliance and did not request a continuance for the
purpose of filing and serving the required list.
Appellant
claims that, on February 28, 2011, she filed and served the required witness
list. But that list was for the hearing
on March 2, 2011, which pertained only to whether respondent's stock
options constituted a bonus within the meaning of the MSA. Furthermore, that list was inadequate because
it did not set forth "a brief description of the anticipated
testimony" of each witness. (Fam.
Code, § 217, subd. (c).)
Even if the trial court had
erroneously denied appellant's request for an evidentiary hearing, the error
would not have been preserved for appeal because appellant has failed to show
that she made an offer of proof of her witnesses' proposed testimony. (Magic
Kitchen LLC v. Good Things Intern. Ltd. (2007) 153 Cal.App.4th 1144, 1164-1165;
Gutierrez v. Cassiar Min. Corp.
(1998) 64 Cal.App.4th 148, 161.)
"In general, a judgment may not be reversed for the erroneous
exclusion of evidence unless 'the substance, purpose, and relevance of the
excluded evidence was made known to the court by the questions asked, an offer
of proof, or by any other means.'
(Evid.Code, § 354, subd. (a); [citations]. This rule is necessary because, among other
things, the reviewing
substance of the excluded evidence in order to assess prejudice. [Citations.]" (People
v. Anderson (2001) 25 Cal.4th 543, 580.)
The
orders appealed from are affirmed.
Respondent shall recover his costs on appeal.
NOT FOR PUBLICATION .
YEGAN,
J.
We concur:
GILBERT,
P.J.
PERREN,
J.
Ellen Gay Conroy, Judge
Superior Court County of Ventura
______________________________
Guy C. Parvex, Jr., and John C. Castellano,
for Appellant.
Sumalpong & Sumalpong, for Respondent
name="_ftn1" title="">[1] In its written order following the evidentiary hearing,
the trial court stated: "The company was joined in the action, and signed
off on the MSA, and thus it can be assumed that the parties knew about the
existence of stock options."
title="">[2] Family Code section 217 provides:
"a) At a hearing on any order
to show cause or notice of motion brought pursuant to this code, absent a
stipulation of the parties or a finding of good cause pursuant to subdivision
(b), the court shall receive any live, competent testimony that is relevant and
within the scope of the hearing and the court may ask questions of the parties.
In appropriate cases, a court may make a finding of good cause to refuse to
receive live testimony and shall state its reasons for the finding on the
record or in writing. The Judicial Council shall, by January 1, 2012, adopt a
statewide rule of court regarding the factors a court shall consider in making
a finding of good cause.
A party seeking to present live testimony from witnesses other than the parties
shall, prior to the hearing, file and serve a witness list with a brief
description of the anticipated testimony.
If the witness list is not served prior to the hearing, the court may,
on request, grant a brief continuance and may make appropriate temporary orders
pending the continued hearing."
