Court Opinion

ID: 8896936
Source: CourtListenerOpinion
Date Created: 2022-11-27 00:13:07.93045+00
Date Added: 2024-06-11T17:07:33.420457
License: Public Domain

LEVINSON, Judge
concurring in result only.
I disagree with the application of equitable distribution principles in the other opinions. Plaintiffs central contention on appeal is that the trial court erroneously classified and/or distributed the “ASA stock options” and its proceeds. Contrary to this contention and the characterizations of my colleagues, the “stock grants” to plaintiff were not stock options, vested or nonvested.
At issue is the following recitation of plaintiffs employment benefits:
As an employee-owned company, we are pleased to offer ASA stock grants to our new employees. If you are still an employee in good standing with ASA, assuming a January start date, you will be eligible to receive a stock grant in 2000 of 10,000 shares.
Plaintiffs “stock grant” was with reference to the ASA Phantom Stock Program (hereinafter “Program”) that outlined unique eligibility, terms, conditions and other features. Plaintiff executed two identical ASA Phantom Stock Program Agreements, which incorporated all the terms of the Program. Plaintiff received, contemporaneous with her employment engagement, the right to receive “units” of value which were part of a hybrid form of phantom stock program so long as she remained an employee for a specific duration. According to Section 6 of the Program, the units were
intended to represent the cash equivalent of one Share, although a Unit is not a legal security issued by ASA and, as such, confers no stockholder rights. In addition, no actual Shares shall be issued pursuant to the Plan or the individual Phantom Stock Agreements issued hereunder. The rights of Participants with respect to Units shall be limited to those rights which are specifically enumerated in the Plan and in the individual Phantom Stock Agreements issued to Participants hereunder, and such rights shall be, for all purposes, unsecured contractual creditor’s rights against ASA only, having a parity with the right of all other general creditors of ASA.
Section 2(r) provided that each “[u]nit shall mean a contingent right, subject to all of the terms of the Plan and the applicable Phantom Stock Agreement, to receive an amount pursuant to Section 7 (less required withholdings).” Section 7(d) defined the compensation formula as follows: “Amount payable per Participant = (number of Participants’ outstanding Units) multiplied by (the dividend per share *361declared by the Board).” “Share” is defined as “one (1) share of Common Stockf.]” Section 5 states, “[a]ll full-time and part-time . . . [e]mployees of the Company who are not eligible to participate in ASA’s Stock Grant Program are eligible to receive a grant of Units. . . .” Section 9 describes circumstances under which the total number of units subject to the Program could be adjusted; such adjustments were dependant upon changes in the number of equity shares of common stock.
“A stock option is the right, or option, to buy a certain number of shares of corporate stock within a specified period for a fixed price.” Clarence E. Horton, Jr., Principles of Valuation in North Carolina Equitable Distribution Actions, Institute of Government at the University of North Carolina at Chapel Hill, April 1993, Special Series No. 10 at 35.
According to Harvard Business Review author Brian J. Hall. . . executive stock options are “call options.” They give the holder the right, but not the obligation, to purchase a company’s shares at a specified price, called the “exercise” or “strike” price. Most often, the exercise price matches the stock price at the time of the grant; these options are granted “at the money.” If an exercise price is higher than the stock price, it is granted “out of the money.” It is a premium option. If an exercise price is lower than the stock price, it is granted “in the money.” It is a discount option.
Equitable Distribution of Stock Options, 17 Equitable Distribution Journal 85 (Aug. 2000).
The trial court’s equitable distribution order included the following:
(9) Prior to the separation of the parties on January 29, 2000, the Plaintiff had contracted to be employed by the ASA Corporation. As a part of the employment contract, plaintiff was entitled to receive 10,000 shares of ASA Corporation stock at the end of her probationary period. The ASA Corporation was a spinoff division of her former employer, Lucent Technologies, Inc. After the separation of the parties, the ASA Corporation was purchased by AON Corporation; and, as a result of said purchase, the plaintiff obtained the right to receive 4,298 shares of AON Corporation stock on October 2, 2000. The tax basis of the ASA common stock at the time of exchange was $16,438.62. The fair market value of *362the AON stock was $39.19 per share, or $168,483.62. The plaintiff was therefore required to pay taxes in the year 2000 on the gain of $152,000. The AON Corporation therefore withheld 1,954 shares for payment of the plaintiffs taxes and issued a stock certificate to the plaintiff for 2,344 shares. Therefore, the plaintiff was credited with having $76,577.26 withheld by her employer to be applied to her 2000 federal income taxes. Shortly thereafter, the plaintiff sold her 2,344 shares and received $82,637.00.
(10) The Court specifically finds that the AON Corporation stock and proceeds derived therefrom by the plaintiff in the year 2000 (after the date of separation, but before date of distribution) was acquired as a result of the efforts of plaintiff during the marriage and before the date of separation, said efforts including, but not limited to, bonuses and contractual rights. The Court makes the ultimate finding of fact that said AON Corporation stock and the proceeds derived therefrom by the plaintiff constitute divisible property pursuant to N.C.G.S. [§] 50-20(b)(4).
That the ASA Phantom Stock Program had features which mirror, in some ways, those attendant to stock options, does not make the these phantom “stock grants” into a form of stock options. In addition, the following facts do not make the “grant” of these units into stock options, vested or nonvested: (1) the “units” would not be issued until plaintiff completed the required employment duration; (2) a tax basis was ultimately utilized; (3) plaintiff ultimately received an AON Corporation common stock certificate representing 2,344 shares, each with a $1.00 par stock value; (4) the AON corporation retained certain shares to satisfy tax obligations as a result of the grant; (5) Section 7 of the Program utilized the term “vest” and outlined “vesting” timelines; and (6) the cash payment to holders of units was tied to the dividends paid to ASA common stock shareholders. Moreover, essential characteristics of stock options — the right to purchase shares at a specific price during a specific duration with reference to a collateral price — are not a part of the interest at issue here. And there is nothing in the Program that references the “exercise” of anything.1
*363Because there are no stock options in this case, this Court’s opinion in Fountain v. Fountain, 148 N.C. App. 329, 559 S.E.2d 25 (2002), is not directly implicated.2 In addition, the provisions of G.S. § 50-20.1 do not control the classification and distribution of these assets. Contrary to the implication of the decision in Fountain, I do not believe that all forms of “salary substitutes” or compensation, the receipt of which is deferred to some point in the future, must be classified and distributed in accordance with the provisions and limitations of G.S. § 50-20.1. See G.S. § 50-20.1(d) (awards pursuant to this statute must be determined using the “coverture fraction”); G.S. § 50-20.1(a) and (b) (limiting the method of distribution for awards made pursuant to this statute). Rather, the clear intent of that statute is to provide for the classification and distribution of only those “other forms of deferred compensation” that are in the nature of pension and retirement benefits. To interpret G.S. § 50-20.1 so broadly as to cover assets such as those at issue in this case would render G.S. § 50-20(b)(4)(b) meaningless.
Because the trial court in this case found that the proceeds from the stock grants were acquired as the result of the efforts of plaintiff during the marriage and before the date of separation, and that the proceeds were received by plaintiff before the date of distribution, the trial court correctly concluded that these assets fall within the plain language of the definition of divisible property set out in G.S. § 50-20(b)(4)(b).3
*364In summary, plaintiff’s central contention on appeal, that the trial court committed legal error in classifying and/or distributing the “ASA stock options,” is erroneous. Second, the trial court’s findings of fact are unchallenged and therefore binding on this Court. In my view, the appellate record reveals the trial court judge complied with our equitable distribution statutes in all regards.41 vote to affirm.

. The dissent suggests that because the assignments of error and the parties’ briefs call the ASA units “stock options” that we should treat them as such on appeal. This, however, overlooks an obvious problem. The trial court judge did not find that the ASA grant consisted of “stock options.” Moreover, it is not at all evident that the trial court was even presented with an argument that these were nonvested stock options such that Fountain, 148 N.C. App. 329, 559 S.E.2d 25 (2002), and/or the cover-ture formula in G.S. § 50-20.1 should apply. As an appellate court, our function is to *363pass upon assignments of error made by the parties; assignments of error may only be made pursuant to rulings made by the trial court on the basis of the arguments made at trial. N.C. R. App. Proc. 10(b)(1). We must not, therefore, consider arguments which were not presented to the trial court for determination and which are argued for the first time on appeal. Id.

. The lead opinion provides differing characterizations of the ASA units at issue. They are interchangeably described as “ASA common stock” (when there never was any grant of ASA common stock), “stock grants”, and “stock options.” Adding further ' confusion, in discussing this Court’s holding in Fountain, the lead opinion replaces the term “stock options” as utilized in that case with “stock rights.” In the present appeal, I emphasize that plaintiff’s argument is that the ASA grant involved nonvested stock options and that, pursuant to Fountain and the coverture formula in G.S. § 50-20.1, the trial court erred. While the lead opinion’s use of different terms suggests its reliance on Fountain is particularly suspect, I interpret its holding as resting, in large measure, on the treatment of the ASA units as nonvested stock options and erroneously applying and extending Fountain.

. We cannot review the sufficiency of the evidence to support these findings because the record on appeal does not include a transcript. Therefore, we must accept the findings of the trial court as conclusive on the issue of whether and to what extent the stock grants and proceeds were earned as the result of the efforts of plaintiff during the marriage and before the date of separation.

. The plaintiff has essentially framed the issue on appeal as whether, as a matter of law, nonvested stock options with contingencies require a District Court Judge to hold that the options are, at least in part, separate property earned as a result of nonmarital efforts. Alternatively, plaintiff asks this Court to hold that nonvested stock options are, as a matter of law, necessarily within the ambit of the coverture formula in G.S. § 60-20.1. Though reaching different results, the other opinions reveal a critical and common fallacy. In general, they have improperly replaced this Court’s judgment with that of the District Court and not deferred to the trial court’s evaluation of the relative importance of various evidentiary facts surrounding this asset. This is clearly erroneous, especially when one considers the infinite variety of “salary substitutes” that might be found to have no connection (or some) to marital efforts — or a wide variety of assets that may have more than one component — or any number of other assets our District Court Judges must classify and distribute. It cannot be, as the other opinions suggest, that necessarily, as a matter of law, an asset like that at issue in this case must be all marital or all divisible or all separate or must be a certain combination of these.