Opinion ID: 2508486
Heading Depth: 2
Heading Rank: 3

Heading: Stock Options Are Property, and Are Converted When Exercised

Text: We recently noted that [p]recedent addressing stock options is scarce. In re Marriage of Chumbley, 150 Wash.2d 1, 7, 74 P.3d 129 (2003). Despite this dearth of case law, we have discussed stock options before, and in each case have assumed they are property. See id. at 6-7, 74 P.3d 129; In re Marriage of Short, 125 Wash.2d 865, 871, 890 P.2d 12 (1995). Both Chumbley and Short addressed how to characterize stock options as separate or community property in various contexts, but in neither case did we question that stock options are in fact property. `Property' is a term of broad significance, embracing everything that has exchangeable value, and every interest or estate which the law regards of sufficient value for judicial recognition. York v. Stone, 178 Wash. 280, 285, 34 P.2d 911 (1934) (citations omitted). Relying on this definition, the Court of Appeals has considered stock options property, defining them as the right to buy a designated stock at a particular price for a specified period of time. In re Marriage of Harrington, 85 Wash.App. 613, 624, 935 P.2d 1357 (1997) (citing Black's Law Dictionary 986-87 (5th ed.1979)). Given the ubiquity and the importance of stock options in today's business world, there can be little doubt that stock options are property. If stock options are property, the next question is whether they can be converted. Conversion is the unjustified, willful interference with a chattel which deprives a person entitled to the property of possession. Meyers Way Dev. Ltd. P'ship v. Univ. Sav. Bank, 80 Wash.App. 655, 674-75, 910 P.2d 1308 (citation omitted), review denied, 130 Wash.2d 1015, 928 P.2d 416 (1996). Velle argues that stock options are not chattels, and so cannot be converted. A chattel is [a]n article of personal property, as distinguished from real property. A thing personal and moveable. It may refer to animate as well as inanimate property. Black's Law Dictionary 236 (6th ed.1990). A newer edition of Black's defines chattel as [m]oveable or transferable property, and a chattel personal as a tangible good or an intangible right (such as a patent). Black's Law Dictionary 251 (8th ed.2004). If a patent (a governmental grant of a right) can be a chattel, then surely a stock option can be a chattel as well. Velle also argues that Margo did not have the right to possess the options since they were nontransferable. In Eggert v. Vincent, 44 Wash.App. 851, 855, 723 P.2d 527 (1986), the Court of Appeals stated the Washington rule as requiring the plaintiff to prove either possession or the immediate right to possession when the property was converted. Id. In Meyers Way, however, the Court of Appeals rejected this older approach in favor of the modern view: to maintain a conversion action, the plaintiff need only establish `some property interest in the goods allegedly converted.' Meyers Way, 80 Wash.App. at 675, 910 P.2d 1308. The court noted that Prosser and Keeton favor the modern view, regarding the older approach as archaic and formalistic. Id. at 675 n. 16, 910 P.2d 1308 (citing Prosser and Keeton on the Law of Torts § 15, at 90 (W. Page Keeton ed., 5th ed.1984)). Thus, in Meyers Way, the Court of Appeals found a sufficient property interest in a bank's security interest in the proceeds from a sale of sand to support an action in conversion. Id. at 675, 910 P.2d 1308; see also Valentine v. Dep't of Licensing, 77 Wash.App. 838, 847, 894 P.2d 1352 (1995) (conversion of a real estate contract and the sale proceeds). Here the Court of Appeals applied the older approach ruling stock options are converted when the resulting stock is sold. In re Marriage of Langham & Kolde, slip op. at 9. Only then, the court reasoned, is the plaintiff deprived of the right of possession. This reasoning confuses stock options with the stock itself. Stock may be converted when it is sold, but stock options, as a right to purchase stock, disappear when the owner exercises the options and purchases the stock. Once the owner exercises the options, he has irrevocably exchanged one kind of property (stock options) for another kind of property (stock), and has lost the ability to enter the stock markets at the time of his choosing. His range of elective action is now limited to retaining the stock or selling it. Am. Gen. Corp. v. Cont'l Airlines Corp., 622 A.2d 1, 10 (Del.Ch.), aff'd, 620 A.2d 856, 1992 WL 426435 (Del.1992). The older approach to conversion is misguided when applied to intangible property such as stock options, for if the would-be converter held the stock after exercising another's options, he would not have converted them, and the rightful owner could not sue for payment of their full value. The modern view of conversion more readily fits the reality that stock options are valuable property and are converted when exercised by limiting the owner's available choices. We hold that some property interest in the allegedly converted goods is all that is needed to support an action in conversion. Margo had a property interest in the stock options and that is enough. Further, we hold that stock options are property and are converted when exercised. The options Velle exercised belonged to Margo. He therefore converted the options when he exercised them, not when he sold the stock.