Eugenie Sterling Trotter v. John C. Maxwell, Jr. ( 1997 )

COURT OF APPEALS OF VIRGINIA
Present: Judges Benton, Coleman and Elder
Argued at Richmond, Virginia
EUGENIE STERLING TROTTER
MEMORANDUM OPINION * BY
v. Record No. 1707-96-2 JUDGE LARRY G. ELDER
AUGUST 5, 1997
JOHN C. MAXWELL, JR.
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Donald W. Lemons, Judge
Sylvia Clute for appellant.
James C. Roberts (William F. Etherington;
Mays & Valentine, L.L.P.; Beale, Balfour,
Davidson & Etherington, P.C., on brief),
for appellee.
Eugenie Sterling Trotter (wife) appeals an order of the
trial court denying her claim that John C. Maxwell, Jr. (husband)
violated the trial court's earlier order enforcing the alimony
provision of the parties' property settlement agreement
(agreement). She contends that the trial court erred when it
concluded that the doctrine of collateral estoppel did not
preclude the parties from litigating whether husband had properly
excluded the income he earned from the distribution of his market
share reports from the calculation of his alimony payment in
1988, 1989, 1990, 1991, and 1994. In the alternative, wife
contends that the trial court erred when it concluded that
husband did not violate the alimony provision of the agreement in
*
Pursuant to Code § 17-116.010 this opinion is not
designated for publication.
these years. For the reasons that follow, we reverse and remand.
I.
FACTS
The parties married in 1953 and divorced in 1975. Since the
late 1950's, husband has worked as a research analyst in the
stock brokerage industry and has built a national reputation as
an expert in the food, beverage, and tobacco industries.
Throughout his employment as a research analyst, husband has
prepared for the investor-clients of his employers reports (stock
recommendation reports) that analyze the recent performance of
individual companies in the food, beverage, and tobacco
industries and recommend whether their stock should be bought,
sold, or held. Since 1960, husband's professional activity has
also included preparing reports (market share reports) about
recent trends in the food, beverage, and tobacco industries and
the current market share of companies competing in these
businesses. Historically, husband has earned income (market
share income) from sales of his market share reports to both
1
trade magazines and corporations whom he also consults.
Prior to their divorce, the parties entered into the
agreement on April 1, 1975. The agreement addressed numerous
1
Throughout the proceedings below, the parties referred to
the income earned by husband from his market share reports as
"hard dollar income" because this income was paid directly to
husband and was not subject to any contingency. For the sake of
clarity, we will refer to this income as "market share income"
because it arose from husband's writing and consulting activities
that involved the distribution of his market share reports.
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issues between the parties, including the payment of alimony by
husband to wife. The relevant portion of the alimony provision
states:
6. ALIMONY
* * * * * * *
Beginning January 1, 1976, Husband
agrees to pay to Wife as alimony twenty-eight
per cent (28%) of the first Three Hundred
Sixty Thousand and 00/100 Dollars
($360,000.00) gross income he may earn from
his employment per calendar year.
* * * * * * *
[Husband] agrees not to divert any funds
which he might receive from said employment
for the purpose of circumventing and/or
avoiding payment of alimony, except Husband
may defer compensation, provided that such
deferred compensation shall be treated as
gross income for the purpose of the
computation of alimony.
In 1976 and 1977, the trial court ordered, among other things,
that husband "continue to pay in a current fashion his alimony
obligations to [wife] under the April 1, 1975 Agreement between
the parties."
In 1984, wife filed a lawsuit in the Federal District Court
for the Southern District of New York (federal court) to enforce
the agreement's alimony provision. Wife contended that husband
underpaid her in 1982 by failing to include his market share
income in his "gross income . . . from his employment" for the
purpose of calculating his alimony obligation. The federal court
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held (1) that the parties intended "gross income . . . from his
employment" to mean the income husband earned "as an employee"
and (2) that husband violated the agreement in 1982 because his
market share income earned while working for Lehman Brothers was
from his employment and should have been included in the
calculation of his alimony obligation.
In late 1987, husband began his current employment with
Wheat First Butcher Singer. Prior to beginning this employment,
husband negotiated a contract with Wheat that formally
distinguished his "business" of distributing his market share
reports from his employment relationship with Wheat. The
contract permitted husband to continue preparing and distributing
his market share reports to trade magazines and corporations as
an "independent contractor" and did not require that husband's
market share income flow through Wheat's accounting system. The
contract did require husband to make a periodic accounting of his
market share income, to terminate any relationship with any
client upon Wheat's request, and to "conduct [himself] in such a
way that no confusion exists as to the relationship between
[husband's business] and Wheat."
After commencing his employment with Wheat, husband
exclud[ed] his market share income from his "gross income . . .
from his employment" when calculating his alimony payment to
wife. In 1992 and 1993, wife received the maximum amount of
alimony possible under the agreement so that any exclusion of
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husband's market share income from his employment income was not
an issue. However, in 1988, 1989, 1990, 1991, and 1994, husband
earned less than $360,000 in salary from Wheat. His market share
income during these years was substantial. In each of these
years, husband excluded his market share income from his alimony
calculation and instead paid wife 28% of his salary from Wheat.
In August, 1995, wife filed a motion for judgment and a
petition for a rule to show cause to enforce both the alimony
provision of the agreement and the trial court's orders from 1976
and 1977. Wife alleged, among other things, that husband had
violated the agreement and the trial court's orders by
underpaying her in 1988, 1989, 1990, 1991 and 1994. She argued
that husband committed a breach when he excluded his market share
income from the calculation of his alimony obligation. After a
hearing, the trial court concluded that husband had not violated
the alimony provision of the agreement. It first concluded that
the federal court's holding that husband's market share income in
1982 was earned by him "as an employee" had no preclusive effect
on this case. It then reasoned that:
the [market share income] earned by [husband]
at Wheat is not income earned from his
employment. Therefore, [husband's] failure
to include the Wheat [market share income]
for the purpose of determining alimony in
1988, 1989, 1990, 1991, and 1994 does not
violate the [alimony provision of the
agreement]. 2
2
The trial court adjudicated numerous other issues litigated
by the parties that are not the subject of this appeal.
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II.
PRECLUSIVE EFFECT OF THE FEDERAL COURT'S DECISION
Wife contends that the trial court erred when it concluded
that the federal court's decision did not control the outcome of
this case. Specifically, she argues that the federal court's
decision that husband violated the agreement in 1982 by excluding
his market share income from his employment income while at
Lehman Brothers should have collaterally estopped husband from
arguing that the exclusion of his market share income from his
employment income at Wheat did not violate the agreement. We
disagree.
"The doctrine of collateral estoppel precludes the same
parties to a prior proceeding from litigating in a subsequent
proceeding any issue of fact that was actually litigated and
essential to a final judgment in the first proceeding." Glasco
v. Ballard, 249 Va. 61, 64, 452 S.E.2d 854, 855 (1995) (citing
Bates v. Devers, 214 Va. 667, 671, 202 S.E.2d 917, 921 (1974)).
Collateral estoppel applies only if the following requirements
are met:
(1) the parties to the two proceedings must
be the same, (2) the issue of fact sought to
be litigated must have been actually
litigated in the prior proceeding, (3) the
issue of fact must have been essential to the
prior judgment, and (4) the prior proceeding
must have resulted in a valid, final judgment
against the party against whom the doctrine
is sought to be applied.
Glasco, 249 Va. at 64, 452 S.E.2d at 855 (citing Bates, 214 Va.
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at 671, 202 S.E.2d at 921).
We hold that the trial court did not err by holding that the
federal court's decision that husband violated the agreement in
1982 had no preclusive effect on the issues here. The factual
issue in this case -- whether husband violated the agreement in
1988, 1989, 1990, 1991, and 1994 by excluding his market share
income from his employment income at Wheat -- was not actually
litigated in the federal proceeding. "The true test of the
conclusiveness of a former judgment with respect to particular
matters is identity of issues." Graham v. VEPCO, 230 Va. 273,
277, 337 S.E.2d 260, 263 (1985) (citations omitted). "[A]n
appropriate test for determining the identity of issues involved
in former and subsequent actions is 'whether the same evidence
will support both actions.'" Id. (citation omitted). The
factual issue resolved by the federal court was distinct from the
issue of fact before the trial court in this case because the two
cases dealt with husband's relationship with different employers
in different years. The evidence regarding husband's employment
with Lehman Brothers and his market share income in 1982 did not
establish the relationship between his market share income and
his income as an employee of Wheat in 1988, 1989, 1990, 1991, and
1994. Likewise, the evidence of husband's employment with Wheat
would not have supported his case before the federal court.
Because the identical factual issue before the trial court was
not actually litigated in the federal proceeding, the trial court
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correctly concluded that the federal court's decision that
husband violated the agreement in 1982 did not preclude it from
deciding whether he violated the agreement in 1988, 1989, 1990,
1991, or 1994.
III.
VIOLATION OF THE AGREEMENT
Wife argues that, even if the federal court's decision did
not bar litigation regarding the husband's employment at Wheat,
the trial court erred when it concluded that husband's alimony
payments in 1988, 1989, 1990, 1991, and 1994 did not violate the
agreement. She argues that husband violated the agreement when
he calculated his alimony payment in these years without
including his market share income in his "gross income he
[earned] from his employment." She asserts that the trial court
erred when it concluded that husband's market share income was
not income earned from his employment with Wheat. We agree.
In reaching its conclusion that husband's market share
income was not earned as an employee of Wheat, the trial court
considered husband's duties as a research analyst, Wheat's view
of husband's market share activities and income, and the actual
financial cost and benefit to Wheat arising from husband's
production of his market share reports. The trial court found
that husband's income from his market share reports was not
income from his employment because his market share reports do
not contain investment advice, are not within the scope of his
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duties as a research analyst, and are of little interest to
Wheat's clients. It also reasoned that Wheat views husband's
distribution of his market share reports as an activity distinct
from his employment and that Wheat neither pays husband to
produce his market share reports nor receives any income from
their distribution.
Under the agreement, husband is required to pay wife 28% of
the first $360,000 "gross income he may earn from his employment
per calendar year." As the trial court noted, neither party
contests the federal court's conclusion that they intended to
limit the reach of this clause to the income that husband earns
"as an employee." Logically, employment includes both income
paid directly to an employee by his or her employer and income
derived from other sources that compensates work within the scope
of his or her employment. An employee's activity is generally
within the scope of his or her employment if
(1) it was expressly or impliedly directed by
the employer, or is naturally incident to the
business, and (2) it was performed . . . with
the intent to further the employer's
interest, or from some impulse or emotion
that was the natural consequence of an
attempt to do the employer's business, "and
did not arise wholly from some external,
independent, and personal motive on the part
of the [employee] to do the act upon his [or
her] own account."
Kensington Assoc. v. West, 234 Va. 430, 432, 362 S.E.2d 900, 901
(1987) (citation omitted).
Whether a breach of contract has occurred is a mixed
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question of law and fact.
It is a question of law whether particular
facts constitute a performance or breach of a
contract; whether such facts have occurred
is, on conflicting evidence, a question of
fact.
17A C.J.S. Contracts § 630(a) (1963). Thus, the trial court's
findings regarding husband's relationship with Wheat and the
distribution of his market share reports are questions of fact,
while the issue of whether husband breached the agreement by
excluding his market share income from his employment income for
the purpose of calculating his annual alimony payment is a
question of law.
We hold that the trial court erred when it concluded that
husband did not violate the agreement in 1988, 1989, 1990, 1991,
and 1994 when he calculated his alimony payment without including
his market share income. We hold that husband's market share
income was part of his "gross income he [earned] from his
employment" in these years because husband earned this income
from an activity that was within the scope of his employment as a
research analyst at Wheat. Husband's work preparing and
distributing his market share reports was incidental to his
employment as a research analyst, performed during his hours of
employment at Wheat, and partially intended to benefit Wheat's
business.
First, husband's work preparing and distributing his market
share reports was a natural incident to his employment as
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research analyst with Wheat. This activity was incidental to
husband's employment because it established his national
reputation as an expert analyst, which consequently assisted him
in attracting both brokerage and underwriting business to Wheat.
The record established that husband built and then
maintained his national reputation as an expert in the food,
beverage, and tobacco industries in part through writing his
market share reports and distributing them first to trade
magazines and later to corporations seeking his counsel. Hundley
Davenport, an officer with Wheat, testified that husband's market
share reports "establish[ed] his overall presence in the industry
as being an authority." Husband's reputation in the industry was
important to his duties as a research analyst with Wheat. Mr.
Davenport testified that Wheat hired husband in 1987 because it
expected his reputation as an expert in the food, beverage, and
tobacco industries to help build Wheat's research department.
Husband likewise testified that his expert reputation was vital
to his duty as an analyst to convince institutional investors to
use Wheat as their stock broker. He testified:
I'm sort of a traveling salesman, whether
with Wheat or Morgan. I've got to go out and
sell my products, brains or whatever you want
to call it to the various institutional
clients which we were trying to get business.
The maintenance of husband's reputation through the distribution
of his market share reports was incidental to his employment also
because it enhanced the stature of Wheat's underwriting business
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with prospective corporate clients. Mr. Davenport testified that
the key in [corporate] financing is it is
important that you have an analyst that
follows a particular industry and company.
[Husband] has been an institutional all
American analyst 15, 20 times in various
groups, and it is certainly known by these
industry participants that he is an expert in
these areas . . . .
The incidental relationship between husband's market share
reports and his employment with Wheat was also indicated by the
manner in which Wheat and husband agreed to package the market
share reports. Despite Wheat's and husband's initial agreement
that husband conduct the "business" of distributing his market
share reports in a manner that avoided "confusion" regarding
husband's independence from Wheat in this capacity, both Wheat
and husband agreed to label his market share reports so that
recipients would believe that they were produced by husband in
the course of his employment with Wheat. The market share
reports contained the names and telephone numbers of Wheat's
research staff and also bore Wheat's logo, which Davenport
testified would lead both husband's clients and Wheat's
institutional clients who received them "to think that Wheat is
associated with the document." In addition, many of the reports
contained the following disclaimer clause: "While the
information herein has been obtained from sources we believe to
be reliable, Wheat First Securities does not guarantee its
accuracy or completeness." Although the subscription fees for
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the market reports were paid directly to husband rather than to
Wheat under the terms of his employment contract, the costs of
preparing, printing, and disseminating the report were borne by
Wheat. In addition, husband prepared the report during the hours
of his employment at Wheat.
Husband's work distributing his market share reports was at
least partially motivated by a desire to benefit Wheat's
business. The evidence in the record established that husband's
effort to prepare and distribute his market share reports was
prompted by a synergy of personal benefit to himself and
commercial gain to Wheat: as husband built his reputation as an
expert in the food, beverage, and tobacco industries, he not only
profited from his increased market share income, he was also able
to conduct more brokerage business for Wheat. At the hearing,
husband testified that, as a research analyst employed by Wheat,
he is essentially a "salesman" and that his ultimate purpose is
to "cause" stock transactions, "either buy or sell," to occur.
Although husband's market share reports do not themselves include
investment advice, the evidence in the record indicates that
husband intended their distribution to enhance his reputation as
an analyst and consequently to increase his ability to "cause"
more transactions, and thus profits, for Wheat's brokerage
business. Husband's intent to benefit his employer's business
through the production of his market share reports was also
indicated by his apparent acquiescence to Wheat's requests for
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permission to send these reports to its institutional clients.
Although the employment contract stated that in his capacity
of producing the market share reports the husband was an
independent contractor, that characterization is not dispositive
of whether the income the husband earned was earned "as an
employee." The employment contract stated that the husband was
required (1) to report to Wheat the revenue he earned from the
reports, (2) to submit an audit, and (3) to provide a subscriber
list. Most significantly, husband prepared the report during his
working hours at Wheat. This involvement and oversight by Wheat
represents significant control over the husband's production of
the market share reports. Accordingly, the statement in the
contract that the husbnad was an independent contractor is not
dispositive of the character of the income.
Because husband's market share income was earned from an
activity within the scope of his employment, we conclude that
husband violated the alimony provision of the agreement in 1988,
1989, 1990, 1991, and 1994 when he calculated his alimony payment
to wife without including this income as part of the "gross
income he [earned] from his employment."
For the foregoing reasons, we reverse the judgment of the
trial court denying wife's claim that husband violated its order
enforcing the alimony provision of the agreement and remand for
proceedings consistent with this opinion.
Reversed and remanded.
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