United States Court of Appeals

Fifth Circuit

FILED

December 27, 2004

Charles R. Fulbruge III

Clerk

In the

United States Court of Appeals

for the Fifth Circuit

_______________

m 03-11341

_______________

RHONDA SANCHEZ,

Plaintiff-Appellee,

VERSUS

VERIO INC., ET AL.,

Defendant,

VERIO INC.,

Defendant-Appellant,

_________________________

Appeal from the United States District Court

for the Northern District of Texas

m 3:01-CV-972-N

_________________________
2

Before JONES, SMITH, and STEWART,

Circuit Judges.

JERRY E. SMITH, Circuit Judge:*

A jury returned a verdict in favor of

Rhonda Sanchez, finding that her former

employer, Verio Inc. (“Verio”), breached its

contractual obligation to vest her stock

options fully on her termination. Verio

appeals, contending that the stock-option

agreement unambiguouslyrequires a condition

not present in Sanchez’s case before triggering

accelerated vesting, and thus the district court

erred in submitting the case to the jury. We

agree. Because the agreement unambiguously

does not require accelerated vesting in

Sanchez’s circumstances, we reverse and

render judgment in favor of Verio. 

I.

Sanchez was employed by Verio, an internet service provider, from February 1998 until

she was terminated in April 2000. At four

points during her employment, she received

stock options from Verio. Each time that

occurred, she was provided with and signed a

“Notice of Stock Option Award” (“Notice”)

that together with the “Stock Option Agreement” (“Agreement”) sets forth the terms and

conditions governing the vesting, exercise, and

expiration of the options. 

According to the general vesting schedule

in the Notice, Sanchez’s stock options vested

at a rate of twenty-five percent per year, beginning one year after issuance, with each

award fully vesting in four years provided that

Sanchez remained employed by the company.

Pursuant to § 2(a) ofthe Agreement, however,

this generalvesting schedule wassubject to the

provisions of § 4. Section 2(a) provides:

Right to Exercise. The Option shall be exercisable during itsterm in accordance with

the Vesting Schedule set out in the Notice

and the applicable provisions of the Plan

and this Option Agreement. The Option

shall be subject to the provisions of Section

4, below, relating to the exercisability or

termination of the Option upon a corporate

event.

Section 4, captioned “Corporate Transactions/Changes in Control/Related Entity

Dispositions,” enables, in itsthree subsections,

the accelerated vesting ofstock optionsin certain enumerated (and here contested)

circumstances. The relevant part of § 4SSthe

provision at the center of this disputeSSis

§ 4(b), which states,

The Option shall become fully vested and

exercisable upon termination of the Continuous Status as an Employee, Director or

Consultant of the Optionee if such Continuous Status as an Employee, Director or

Consultant is terminated by the Company

or aRelated Entitywithout Cause or voluntarily by the Optionee with Good Reason

within twelve (12) months of a Change in

Control.

The issue on appeal is whether Verio breached

an obligation to vest Sanchez’s options fully

on her termination pursuant to this provision.

During her tenure, Sanchez received grants

of options to purchase more than 40,000

shares of Verio common stock. As of the date

of her termination (April 26, 2000), 11,290 of

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published

and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
3

her options had vested, and 29,250 were

unvested. At the time she was terminated,

Verio was engaged in merger negotiations

with NTT Communications, Inc. (“NTT”).

After regulatory approval, the NTT/Verio

merger was executed on August 31, 2000,

more than four months after Sanchez was

terminated.

Having been terminated holding nearly

30,000 unvested options, Sanchez contacted

the company seeking to exercise all her options by invoking the accelerated vesting provision in § 4(b). Specifically, she claimed that

the company’s merger with NTT constituted a

“change in control” (as defined by the Agreement) occurring within twelve months of her

termination without cause, thereby triggering

Verio’s duty under § 4(b) to vest all her options fully. Verio refused, informing Sanchez

that she did not qualify for accelerated vesting

under § 4(b) because she had been terminated

before the merger.

II.

Sanchez sued in state court alleging that

Verio had breached its contractual obligation

to provide for accelerated vesting. Verio

removed the case to federal court based on

diversity of citizenship. The parties filed

cross-motionsforsummaryjudgment in which

each contended that the Agreement unambiguously reflected its own interpretation of § 4(b).

Finding the Agreement to be susceptible to

more than one interpretation, the district court

denied both motions and set the cause for trial.

After a four day trial, the jury returned a verdict for Sanchez. Having found that Verio

“failed to comply” with the stock option

agreement, the juryawarded Sanchez damages

of $1,945,000.2

Verio’s primary contention isthat the court

erred in finding the Agreement ambiguous and

thus erred in submitting the case to the jury.

Beyond this threshold challenge, Verio also

questions the sufficiency of the evidence; the

use of a general verdict form, as opposed to

special interrogatories; and the refusal to

instruct the jury to interpret § 4(b) in light of

the entire Agreement. 

III.

The determination of whether a contract is

ambiguous is a question of law subject to de

novo review. See, e.g., Stinnett v. Colo. Interstate Gas Co., 227 F.3d 247, 254 (5th Cir.

2000); Ad Two, Inc. v. City & County of Denver, 9 P.3d 373, 376 (Colo. 2000). Pursuant

to a choice of law provision not contested by

either party, we apply Colorado law to determine whether the Agreement is ambiguous.3

“Written contracts that are complete and free

from ambiguity will be enforced according to

their plain language.” Ad Two, 9 P.3d at 376

(citing USI Props. E., Inc. v. Simpson, 938

P.2d 168, 173 (Colo. 1997)). If, however, we

determine that the Agreement is ambiguous,

“its interpretation becomes an issue of fact for

the trial court to decide in the same manner as

other disputed factual issues.” Pepcol Mfg.

Co. v. Denver Union Corp., 687 P.2d 1310,

1314 (Colo. 1987) (quotingUnionRural Elec.

2 The court also awarded prejudgment interest

of $545,611.12.

3 Section 13 provides that the Agreement and

Notice “are to be construed in accordance with and

governed by the internal laws of the State of Colorado without giving effect to any choice of law rule

that would cause the application of the laws of any

jurisdiction other than the internal laws of the State

of Colorado to the rights and duties of the parties.”
4

Ass’n v. Pub. Util. Comm’n, 661 P.2d 247,

251 (Colo. 1983)).

IV.

A.

Verio contends that § 4(b) unambiguously

provides that if an employee is terminated

without cause,4accelerated vesting istriggered

only if the termination occurred in the twelvemonth period after a corporate change in

control. Because Sanchez was terminated

more than four months before the corporate

change in control was executed, Verio claims

it had no obligation to vest her options fully

upon her termination and that Verio is therefore entitled to judgment as a matter of law. 

Sanchez disagrees. She offers two interpretations of § 4(b), either of which she claims

supports the finding of ambiguity, and thus

supportsthe decision to submit this case to the

jury. Sanchez first contends that § 4(b) requires accelerated vesting upon her termination without cause regardless of the occurrence of any corporate event. In other words,

contrary to Verio’sinterpretation that § 4(b) is

a so-called “double-trigger” (i.e., accelerated

vesting only upon both termination without

cause and terminationwithin twelvemonths of

a change in control), Sanchez contends that

§ 4(b) is a “single-trigger” (i.e., accelerated

vesting upon termination without cause). 

According to this single-trigger theory, the

change in control provision of § 4(b) does not

modify the termination without cause provision; instead, the Agreement provides for

accelerated vesting “either if she was terminated ‘without Cause,’ orshe quit ‘with Good

Reasonwithin twelve (12) months of aChange

in control.’” Under this interpretation,

Sanchez is entitled to accelerated vesting

based solely on the jury’s factual finding that

she was terminated without cause.

Alternatively, Sanchez contends that even

if § 4(b) is unambiguously a double-trigger

(requiring both termination without cause and

termination within twelve months of a change

in control), the Agreement is nonetheless

ambiguous because it is uncertain whether the

term “within” requires a change in control to

precede the termination or whether, instead, it

can follow a termination. Sanchez asserts that

“[n]othing about the plain meaning of ‘within’

indicates or requires that termination occur

specifically after a ‘Change in Control.’” And

because Sanchez was terminated only four

months before a change in control did in fact

occur, she contends that there is a fact question whether her options should have vested

on an accelerated basis given that “her termination took place ‘within’ twelve (12) months

of a Change in Control.”

B.

Under Colorado law, “[t]he meaning of a

contract is found by examination of the entire

instrument and not by viewing clauses or

phrases in isolation.” Kuta v. Joint Dist. No.

50(J), 799 P.2d 379, 392 (Colo. 1992).5 “In

determining whether a contractual provision is

ambiguous, the instrument’slanguage must be

4

 Verio does not challenge on appeal the jury’s

implicit finding that Sanchez was terminated without cause.

5

See also Pepcol, 687 P.2d at 1314 (“An integrated contract in the first instance is to be interpreted in its entirety with the end in view of

seeking to harmonize and give effect to all provisions . . . .”); Bevsek v. Huerfano Sch. Dist., 728

P.2d 325, 326 (Colo. App. 1986) (“[A] contract

must be construed as a whole, and each provision

must be given effect.”).
5

examined and construed in harmony with the

plain and generally accepted meaning of the

words used, with reference to all of the agreement’s provisions.” Fiberglass Fabricators,

Inc. v. Kylberg, 799 P.2d 371, 374 (Colo.

1990). “Of course, ‘the mere fact that parties

differ on their interpretations does not of itself

create an ambiguity.’” Dorman v. Petrol

Aspen, 914 P.2d 909, 912 (Colo. 1996) (citing

Fiberglass Fabricators, 799 P.2d at 374).

Instead, “[t]erms used in a contract are ambiguous when they are susceptible to more than

one reasonable interpretation.” Ad Two, 9

P.3d 373 at 376 (emphasis added).

Despite thisinterpretive canon requiring interpretation of a contract in its entirety, the

district court focused on § 4(b) in isolation.

Specifically, the court, in its written opinion

denying summary judgment, reasoned as

follows:

Section 4(b) of the Agreement includes an

‘or’thatseparatestwo clauses, but the term

‘Change of Control’ is included only in the

second clause. It is possible the parties

intended for the ‘Change of Control’ to

apply to both clauses or just to the latter

clause, so the Agreement is susceptible to

more than one meaning, and it is ambiguous.

When read in isolation, § 4(b) can indeed be

said to be ambiguous: It is not unreasonable

to read the “within twelve (12) months of a

change in control” clause of § 4(b) as modifying both the termination without cause

provision and the voluntarilywith good reason

provision; similarly, it is not unreasonable to

read the “within twelve (12) months of a

change in control” clause as modifying only

the voluntarily with good reason provision.

But Colorado contract law, as well as the

common law of contracts generally, requires

courts to determine ambiguity by reference to

all provisions of an instrument.6 

When read in context of the Agreement as

a whole, § 4(b) may still be susceptible to

more than one interpretation, but in context it

is no longer susceptible to more than one

reasonable interpretation.7 Read in light of

the entire Agreement, the provision is unambiguous: Before triggering accelerated vesting, it requires (1) both termination without

cause and termination within twelve months of

a change in control(i.e., it is a double-trigger);

and (2) termination without cause to occur

within the twelve-month period after a change

in control.

1.

On the threshold interpretive question

(namely, whether § 4(b) triggers accelerated

vesting merely on termination without cause,

or whether it requires termination without

cause within twelve months of a change in

6

See, e.g., Dorman, 914 P.2d at 912 (stating

that courts should determine ambiguity by reference to plain language “with reference to all of the

agreement’s provisions”); see also AMERICANJURISPRUDENCE, CONTRACTS § 331 (2d ed. 2004)

(“When deciding whether an agreement is ambiguous, particular words should be considered, not as

if isolated from the context, but in the light of the

obligation as a whole . . . .”); id. (“To determine

contract ambiguity, a court looks to the entirety of

the contract.”); WILLISTON ON CONTRACTS § 30.5

(“In determining whether a contract is ambiguous,

the court begins with its plain language . . . with

reference to all of the agreement’s provisions.”).

7

See Ad Two, 9 P.3d at 376 (“Terms used in a

contract are ambiguous when they are susceptible

to more than one reasonable interpretation.”)

(emphasis added).
6

control) the reasonableness of Sanchez’s

single-trigger interpretation is belied by various other provisions in the Agreement. Section 2(a), governing Sanchez’s “Right to Exercise,” expressly classifies § 4 as dealing with

corporate events:

Right to Exercise. The Option shall be exercisable during itstermin accordance with

the Vesting Schedule set out in the Notice

and the applicable provisions of the Plan

and this Option Agreement. The Option

shall be subject to the provisions of Section

4, below, relating to the exercisability or

termination of the Option upon a corporate

event. 

(Emphasis added.) Thus, § 2(a) indicates that

§ 4’s three accelerated vesting provisions are

operative on the occurrence of a “corporate

event.” 

The Agreement defines “Corporate Event”

in § 3(d) to mean “the occurrence of a CorporateTransaction,Change inControlor Related

Entity Disposition.” Given this tripartite

definition, § 4, captioned “Corporate Transactions/Changes in Control/Related Entity

Dispositions,” is structured accordingly: It

provides a separate subsection providing for

accelerated vesting on the occurrence of each

one of these three corporate eventsSScorporate transaction (§ 4(a)), change in control(§

4(b)), and related entity disposition (§ 4(c)).8

Despite thisstructure and the operative role

of corporate events, Sanchez’s interpretation

requires one to read § 4(b)SSthe subsection

dealing specifically with changes in corporate

control, itselfin the middle of a section dealing

with corporate events generallySSas fortuitously also including a general provision for

full vesting where an employee is terminated

without cause, regardless of any corporate

event generally, much less a corporate change

in controlspecifically. This is not a reasonable

interpretation of the Agreement.

Moreover, the application of § 2(a) renders

unreasonable Sanchez’s single-trigger theory.

Section 2(a) providesthat the vesting schedule

set forth in the NoticeSS25% per year, beginning one year after issuanceSSis subject to

§ 4’s accelerated vesting provisions. But the

general vesting schedule set forth in the Notice

is not subject to § 4’s accelerated vesting

provisions as a general matter; instead, it is

subject to § 4’s accelerated vesting provisions

“upon a corporate event.” 

In other words, Sanchez’s options vest

pursuant to the Notice at the standard rate of

25% per year, beginning one year after issuance, unless the provisions of § 4 “relating to

the exercisability or termination of the Option

upon a corporate event” are applicable. San8 This point is not intended to take meaning

from the title heading of § 4, because the Agreement specifically provides, in Section 14, that

“[t]he captions used in the Notice and this Options

Agreement are inserted for convenience and shall

not be deemed a part of the Option for construction

or interpretation.” Instead, the point is intended to

demonstrate the general problem with Sanchez’s

(continued...)

8

(...continued)

single-trigger theory: It requires one to ignore the

structure of the Agreement by reading a general

termination without cause vesting provision into

the middle of a sub-section dealing with changes in

corporate control. Even further, Sanchez’s singletrigger theory requiresthisreading notwithstanding

multiple other provisions treating § 4 as dealing

with corporate events.
7

chez’ssingle-triggertheory, however,requires

precisely the opposite: accelerated vesting

upon termination according to § 4SSas opposed to normal vesting pursuant to the NoticeSSwithout a corporate event. Here again,

Sanchez’s interpretation is not reasonable.

Section 4(d) provides further support for

Verio’s position that the Agreement is unambiguously a double-trigger. That subsection,

which addresses tax implications related to

accelerated vesting of options, provides, in

part:

The portion of the Option, if an Incentive

Stock Option, accelerated under this Section 4 in connection with a Corporate

Event shall remain exercisable as an Incentive Stock Option under the Code only to

the extent the $100,000 dollar limitation of

Section 422(d) of the Code is not exceeded.

(Emphasis added.) As with § 2(a), § 4(d)

characterizes acceleration under § 4 as occurring “in connection with a Corporate Event”

and not, as Sanchez’s single-trigger theory

would have it, with termination without cause

in and of itself.9

In light of these other provisions, Sanchez

attempts a global effort to render illegitimate

anyreference to other provisions ofthe Agreement when deciding the threshold ambiguity

question. To this end, Sanchez repeatedly

asserts in her brief that reference to other

provisions of the Agreement proves a priori

that the Agreement is ambiguous. This is

incorrect as a matter of law.

Reference is not made to other provisions

of the Agreement because a conclusion has

been made (explicitly or implicitly) that § 4(b)

is ambiguous;rather,such reference ismade to

give meaning to the terms of § 4(b). “The

meaning of a contract isfound by examination

of the entire instrument and not by viewing

clauses or phrases in isolation.” Kuta, 799

P.2d at 392.

In sum, when read in context of the entire

Agreement, § 4(b) unambiguously requires

both termination without cause and termination within twelve months of a change in

control before triggering accelerated vesting.

Thus, as a matter of law, Verio is not obligated to vest, on an accelerated basis, Sanchez’s options solely on her termination without cause.

2.

The second interpretive question is whether

§ 4(b) provides for accelerated vesting where

an employee is terminated without cause

before a corporate change in control, or

whether it requires termination without cause

after a change in control. Sanchez’s alternative reading ofthe Agreement, whichconcedes

that § 4(b) is a double-trigger (requiring both

termination without cause and termination

within twelve months of a change in control),

claims that the contract isstill ambiguous, and

thus the case was properly submitted to the

jury, because it is uncertain whether the term

9 Sanchez attempts to refute any implication

from § 4(d) by contending that it was not intended

to address “all possible accelerated vesting situations.” Sanchez does not, however, explain why

this provision dealing with tax issues related to accelerated vesting would apply to all of § 4 by its

own terms, save her situation; nor, for that matter,

does Sanchez identify any other provision of the

Agreement that would address tax implications

associated with accelerated vesting in a termination

without cause scenario not associated with a

corporate event.
8

“within” requires a change in control to

precede the termination or whether it can

follow a termination. And given her termination four months before a change in control

occurred, Sanchezmaintainsthat there is a fact

questionwhether Verio breached its obligation

to accelerate the vesting of her options. 

At many different levels, Sanchez’s doubletrigger interpretation of § 4(b)SStermination

may occur either in the twelve months before

or after a corporate change in controlSSis so

obviously a post-hoc invention of her lawyers

that it bears no relation to the rest of the

Agreement. Pursuant to the express terms of

the Agreement, if an employee is terminated

before a change in control, any unvested

options expire immediately upon termination.

Section 7 expressly provides that “to the

extent the Optionee was not entitled to

exercise the Option on the Termination Date .

. . t he option shall terminate.” As a result,

when the second trigger occursSSthe

corporate change in controlSSthere are no

options remaining to accelerate. 

The Notice merely provides that “the

Optionee acknowledges and agrees that the

sharessubject to the Option shall vest, if at all,

only during the period of the Optionee’s

continuous status as an employee.” The

Notice therefore expressly proscribes posttermination vesting of options. It follows that

a change in control occurring after an employee is terminatedSSthe second triggerSScannot operate to vest options in an employee who has previously been terminated;

options must vest, “if at all,” only during the

“Optionee’s continuous status as an employee.” 

Sanchez attempts to avoid this result by arguing that the options of an employee terminated without cause do, in fact, vest at termination “even if at that time it was not yet

known whether the options would be accelerated.” Sanchez purports to find support for

this argument by quoting § 4(b) in her brief as

follows: “The Option shall become fully

vested and exercisable upon termination . . .”

From this Sanchez contends that § 4(b) provides for the immediate vesting and exercisabilityofa terminated employee’s options,

“subject to the contingency that a Change in

Control occurs within twelve months after the

termination.”

This self-styled “retroactive” or “contingent” vesting theory, which attempts to avoid

the expiration mandated by the clear terms of

§ 7 and the Notice, is demonstrably incorrect.

Putting aside the absence of any provisions in

either the Agreement or the Notice that speak

to such retroactive or contingent vesting,10

§ 4(b) does not, as Sanchez claims, provide for

optionsto become fully vested and exercisable

on termination; it provides (in the portion

replaced by Sanchez with an ellipsis) that

options become fully vested on termination if

the employee is terminated within twelve

months of a change in control. It therefore

follows as a matter of logic that (1) because

the options must vest, if at all, before

termination and (2) theyvest on an accelerated

basis only on a change in control, then (3) the

10 In fact, Sanchez concedes in a footnote that

“[t]he Agreement does not spell out the logistics of

the purchase of shares subject to such an accelerated vesting contingency, but such logistics could

be handled any number of ways.” Indeed, such logistics could be handled any number of ways. The

trouble here, of course, is that the plain terms of

the Agreement indicate that the absence of such

logistics is not an oversight, but, rather, is the

consequenceof an Agreement that does not provide

for such retroactive vesting.
9

change in control must occur before the

termination. Because Sanchez was terminated

more than four months before the change in

control, Verio is not, as a matter of law,

obligated to vest her options fully.

3.

Sanchez tries to demonstrate that the

Agreement is ambiguous by pointing to experts. She relies on the testimony of two law

professors familiar with stock option agreements and other forms of contingent equity

compensation: The first stated that “virtually

all” of the other stock option agreements he

had reviewed provided for full vesting upon

termination without cause; the second testified

to an “industry custom” of providing for the

exercisability of stock options on termination

without cause, opining that “in such circumstances” a change in control “is not a condition

to the vesting of compensation.” 

Sanchez may not, however, establish ambiguity by reference to such testimony: “Extrinsic evidence of intent is relevant only if,

after examination of the entire instrument, the

terms are ambiguous.” Union Rural Elec., 661

P.2d at 251.11 “Absent such ambiguity, we

will not look beyond the four corners of the

agreement to determine the meaning intended

by the parties.” Ad Two, 9 P.3d at 376–77.

Because we have determined as a threshold

matter that the Agreement is unambiguous,

Sanchez cannot establish ambiguity on the

basis of this extrinsic evidence. 

V.

In sum, we do not doubt that Sanchez’s

lawyers presented a compelling story to the

jury: She was fired without cause before the

merger was executed so the company could

avoid payment of herstock options. Whatever

the merits of this story, it may not serve to

defeat conditions expressed in unambiguous

terms in the governing instrument. Because

the Agreement plainly requires termination

without cause within the twelve-month period

after a corporate change in control, and the

undisputed circumstances of Sanchez’s termination do not satisfy these conditions, Verio is

entitled to judgment as a matter of law.12 The

judgement is REVERSED, and judgment is

RENDERED in favor of Verio.

11 See also Kuta, 799 P.2d at 382 (“Extrinsic

evidence is only admissible to prove intent where

the terms of a contract are ambiguous.”); Pepcol,

687 P.2d at 1314 (“It is axiomatic that in the absence of an ambiguity a written contract cannot be

varied by extrinsic evidence.”); id. (“It is only

where the terms of an agreement are ambiguous or

are used in some special or technical sense not

apparent from the contractual document itself that

the court may look beyond the four corners of the

agreement to determine the meaning intended by

the parties.”).

12 Because Verio is entitled to judgment as a

matter of law, we need not address its additional

arguments on appeal.