Preview:

Supreme Court No. 2009-61-Appeal. (P 03-2791) Paula J. DiPaola v. Anthony DiPaola. : : :

NOTICE: This opinion is subject to formal revision before publication in the Rhode Island Reporter. Readers are requested to notify the Opinion Analyst, Supreme Court of Rhode Island, 250 Benefit Street, Providence, Rhode Island 02903, at Telephone 2223258 of any typographical or other formal errors in order that corrections may be made before the opinion is published.

Supreme Court No. 2009-61-Appeal. (P 03-2791) Paula J. DiPaola v. Anthony DiPaola. : : :

Present: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ. OPINION Chief Justice Suttell, for the Court. The plaintiff, Paula J. DiPaola, appeals from two Family Court post-final judgment orders in favor of her former husband, Anthony DiPaola (defendant). The first order, dated October 22, 2008, reversed a decision of the general

magistrate holding that the parties' marital settlement agreement was ambiguous. The second order denied the plaintiff's request to amend the first order, for the purpose of remanding to the general magistrate for a decision on whether the marital settlement agreement should be vacated. This case came before the Supreme Court for oral argument pursuant to an order directing the parties to appear and show cause why the issues raised in this appeal should not summarily be decided. After reviewing the record and considering the parties' written and oral submissions, we are satisfied that this appeal may be decided without further briefing or argument. For the reasons set forth in this opinion, we vacate the Family Court's order of October 22, 2008. I Facts and Procedural History After their divorce proceedings began, Mr. and Mrs. DiPaola executed a marital settlement agreement (agreement) on August 11, 2004. The agreement was incorporated by reference but not merged into a final judgment of divorce that was entered on November 18, -1-

2004. The agreement, approved by the Family Court, contains certain provisions that provide for the equitable distribution of the parties' marital estate. For a period of four to five years prior to and during the divorce action, defendant was employed as vice president and corporate controller of Ionics, Inc. Part of defendant's

employment compensation with Ionics included certain stock options. With respect to the division of those stock options as part of the divorce action, paragraph 7.D of the agreement, entitled "Stocks," provides: "The Husband has vested stock options as follow: "IONICS, INCORPORATED STOCK OPTIONS 5/22/00 Grant, 6,000 shares @ $27.06 p/s, 80% vested as of 5/22/04 11/1/00 Grant, 2,000 shares @ $21.06 p/s, 60% vested as of 11/1/03 8/14/02 Grant, 8,000 shares @ $21.09 p/s, 20% vested as of 8/14/04 2003 Grant 4/30/04 Grant, 25,000 shares @ $23.07 p/s, unknown % vested

unknown $5,448 $1,605 unknown unknown

"At such time as the Husband shall exercise said options, after payment of all federal and state income taxes, brokerage fees and other costs associated with exercising the options, the parties shall each receive a sum which shall be equal to one-half (1/2) of net value of the profit of said exercised shares. Provided, however, that in the event the Husband wishes to retain his options and the Wife wishes to exercise hers, the Husband, at the Wife's request, will either exercise the Wife's one-half share of the options for each vesting period, or he shall pay to her a sum which she would have received if the options had been exercised. In the event he exercises the Wife's share of the options, the Wife shall receive the net amount received from the cashing in of her share of the options, net of federal and state withholdings, brokerage fees and other costs associated with exercising the options; or, Husband shall at his option, provide Wife 1/2 of said options or shall purchase the identical amount of said options AND deliver same to Wife [within] 30 days. ALL costs [b]y Husband." (Emphasis added.)

-2-

On November 24, 2004, six days after final judgment of divorce was entered, Ionics entered into a merger agreement with General Electric. That merger triggered the immediate vesting of the portion of defendant's stock options that had not yet vested as of the date the marital settlement agreement was executed. Soon thereafter, in early 2005, defendant exercised all of his Ionics stock options--including those that vested both before and after the execution of the marital settlement agreement--realizing a net sum of $854,000. 1 The controversy in this case arose after plaintiff received a check from defendant for $61,780.73 in the spring of 2005, accompanied by a letter stating that the payment was for her one-half share of "the net proceeds of the vested stock options at the date of [the marital settlement agreement]." (Emphasis added.) The defendant calculated this payment based upon his understanding of paragraph 7.D of the agreement, which he interpreted to include only those stock options that had vested as of August 11, 2004, the date the agreement was executed. The letter explained that Ionics had been sold and that defendant had been "paid out" for his stock options as a result; the letter did not, however, refer to the remaining stock options that had vested on November 24, 2004. In response to defendant's letter, plaintiff contacted her attorney and subsequently learned that defendant had received a total of $854,000 from his stock holdings. In August 2005, plaintiff filed a postjudgment motion to enforce the terms of the agreement. The plaintiff contended that paragraph 7.D of the agreement unambiguously assigned to her one-half of all stock options held by defendant, including those that vested after the marital settlement agreement was executed. In her posttrial memorandum, plaintiff argued in the alternative that
1

Although defendant testified that he received $854,050 as a result of the merger, we use the value of $854,000 as referred to in the Family Court decisions.

-3-

the court should vacate the agreement based upon defendant's alleged fraudulent nondisclosure of "the merger and its vesting effect on [the] non-vested options." Finally, plaintiff argued that the court should vacate the agreement because it no longer provided "substantial justice" between the parties. The defendant objected to plaintiff's motion. First, defendant maintained that the

agreement unambiguously entitled plaintiff to one-half of only those stock options that had vested at the time the parties signed the agreement on August 11, 2004. The defendant further argued that the contractual cutoff date of plaintiff's interest was August 11, 2004, and that plaintiff contractually waived any interest in all other assets acquired by defendant subsequent to said date. Lastly, defendant filed a counterclaim for reckless misrepresentation, arguing that he did not know about the merger prior to August 11, 2004 and that plaintiff's claim of fraud was both frivolous and uncorroborated. A hearing was conducted before the general magistrate in Family Court on December 4, 2007. The issue before the general magistrate was whether the agreement entitled plaintiff to one-half of all stock options held by defendant, rather than one-half of only those stock options that were vested on August 11, 2004, the date the agreement was executed. At the hearing, defendant testified that his primary role with Ionics was to file various documents with the Securities and Exchange Commission and "maintain accounting and finance organization." He also served as the primary contact between Ionics and its auditors, and as a liaison with an outside law firm. The defendant worked in close proximity to other executive officers, including corporate counsel Stephen Korn and chief financial officer Daniel Kuzmak. The defendant testified that he first became aware of discussions about the merger "[o]n or about October 22[, 2004]," the day that he signed a nondisclosure agreement concerning the merger negotiations.

-4-

Around this time, defendant became aware that the potential merger would entitle him to over $800,000 for his stock options. The defendant testified that he did not convey this information to plaintiff because he was prohibited from doing so by the nondisclosure agreement. The plaintiff testified that she learned about the merger around late November 2004, after it was announced publicly. Based on her understanding of the agreement, plaintiff believed that she was entitled to one-half "of whatever the options were at the time they were exercised," including those options that vested as a result of the merger. Despite her allegations of fraud, plaintiff admitted on cross-examination that she had no concrete evidence that defendant knew about the merger at the time the parties executed the agreement in August 2004. In support of her allegations, plaintiff pointed to the deposition testimony of several Ionics executives showing that they learned about the merger prior to October 22, 2004, the date that defendant claimed to have learned of the proposed merger. This deposition testimony, however, also indicated that defendant was not involved in these early discussions about the merger. The plaintiff testified that considering defendant's "position in the company[,] I find it hard not to be true" that defendant was aware of the merger before the agreement was executed. The president of Ionics, Douglas Brown, had first become involved in the discussions about a potential merger on July 7, 2004. Several other Ionics executives, including Mr. Korn and Mr. Kuzmak, also were involved in early discussions before October 22, 2004. Mr. Brown testified at his deposition that defendant was not one of the "five or six" people who had knowledge of the potential merger prior to signing a nondisclosure agreement. The deposition testimony of Mr. Korn and Mr. Kuzmak corroborated Mr. Brown's testimony, indicating that

-5-

defendant had no knowledge of the merger discussions until the date defendant signed his nondisclosure agreement in October 2004. The general magistrate issued a bench decision on April 15, 2008, and a corresponding order was entered on May 5, 2008. The general magistrate found paragraph 7.D to be

ambiguous because it was "reasonably susceptible of different constructions." The general magistrate determined that it was unclear whether the term "said options" in the agreement referred to both vested and non-vested stock options. He further indicated that the court must adopt a construction that was "most equitable" without giving one party "an unconscionable advantage" over the other. The general magistrate next addressed plaintiff's allegations of fraud. He stated that to establish a case of common law fraud, plaintiff must prove that defendant "intentionally failed to disclose the merger and its effect on the non-vested stock in order to deprive [plaintiff] of her equitable interest in their marital estate." The general magistrate found that the record "clearly reflects impropriety on [defendant's] part" for failing to provide information during discovery about his stock options that vested after the marital settlement agreement was executed, and for sending plaintiff $61,780.73 without explaining the total amount he received after the merger. However, the general magistrate did not find that defendant's impropriety amounted to fraud. The general magistrate concluded that "[t]he [a]greement was ambiguous * * * and in order to not allow unconscionable advantage to one over the other, the [agreement] must be set aside or vacated, or in the alternative to give the [p]laintiff her one-half share of the

-6-

$854,000.00." Pursuant to G.L. 1956

Download 09-61.pdf

Rhode Island Law