Court Opinion

ID: 1076516
Source: CourtListenerOpinion
Date Created: 2013-10-09 20:19:17.808167+00
Date Added: 2024-06-11T09:00:35.384263
License: Public Domain

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.

                                 -2-
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

                                  -3-
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

                                  -4-
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.

                                -5-
                                  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.

                                  -6-
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

                                  -7-
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

                                 -8-
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

                                 -9-
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

                               -10-
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

                               -11-
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

                                 -12-
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

                               -13-
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.

                                 -14-