Aubin v. Barton

123 Wash. App. 592
CourtCourt of Appeals of Washington
DecidedSeptember 27, 2004
DocketNo. 52069-5-I
StatusPublished
Cited by11 cases

This text of 123 Wash. App. 592 (Aubin v. Barton) is published on Counsel Stack Legal Research, covering Court of Appeals of Washington primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Aubin v. Barton, 123 Wash. App. 592 (Wash. Ct. App. 2004).

Opinion

Kennedy, J.

Steve R. Aubin filed a legal malpractice action against Lisa Kay Barton, an attorney who represented him in the action dissolving his marriage to Tanja Kitchel, claiming that Barton’s representation at a settlement conference fell below the standard of care required of an attorney representing a grantee of stock options in a marital dissolution action in the state of Washington. Aubin contended that, but for his attorney’s failure to properly advise him regarding the separate property character of the stock options, he never would have entered into a settlement agreement that treated the options as community property. A bench trial was held on the malpractice claim. At the “trial within a trial” the court found that if the marital dissolution action had gone to trial, the dissolution court would have found that the stock options were 60 percent Aubin’s separate property and 40 percent community property. In the malpractice action, the court found that the attorney’s performance fell below the standard of care in several respects, but for which Aubin would not have entered into the settlement agreement. The court then entered a money judgment in favor of Aubin.

[595]*595Barton contends, inter alia, that the trial court erred at the “trial within a trial” by excluding expert testimony on the factual question of whether the stock options at issue were granted to Aubin primarily as a reward for past services, or whether they were, instead, granted primarily for present and future services. Barton is correct. The trial court excluded the evidence on the untenable ground that only an attorney, and not a certified public accountant (CPA), may be heard to testify at the “trial within a trial” as to factors bearing on the primary purpose of the stock option grant. The trial court expressly found that Barton had failed to meet her burden to rebut Aubin’s evidence that the stock options were granted primarily to reward Aubin for past services. Because the erroneously excluded evidence went directly to this disputed issue of fact, the evidentiary error is not harmless. Although substantial evidence in the record supports the trial court’s findings of fact, the verdict cannot stand because the trial court failed to hear and consider all the relevant evidence before making its findings. Accordingly, we reverse and remand.

FACTS

In March 1992, Steve R. Aubin went to work for Apex PC Solutions, Inc. (Apex), as its sixth employee, for less than he had been earning at his previous place of employment. He was placed in charge of marketing and sales at Apex and caught up to his previous earning level within a few months. Between 1992 and 1995, Apex experienced phenomenal growth. In December 1995, Apex went through a leveraged recapitalization by which its sole shareholder transferred a significant amount of the company’s equity and debt to several venture capital firms. On December 29, 1995, the board of directors of Apex adopted the 1995 employee stock plan, which provided in pertinent part:

The purposes of this plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Outside [596]*596Directors of the Company and its Parent and Subsidiaries, if any, and to promote the success of the Company’s business.

Clerk’s Papers at 981. The plan gave the board the authority to select employees to whom options would be granted. No specific criteria were defined for the selection of eligible employees.

On January 1, 1996, Steve Aubin and Tanja Kitchel moved in together in anticipation of their marriage. Shortly thereafter, on February 2, 1996, Aubin received an unvested option to purchase 11,750 shares of Apex stock at a price of $0.735 per share. Several additional key employees received option grants at the same time. Aubin and these other key employees were the first, after the company’s chief executive officer, to be granted stock options. The options at issue in this case are nonqualified, nonstatutory stock options, which are treated as wages for federal income taxes when exercised and cashed in.

The resolution establishing the option grant set down a four-year vesting schedule by which 25 percent would vest on February 1, 1997, and by which the remaining 75 percent would vest in 36 equal monthly increments over the ensuing three years, the grant to become fully vested on February 1, 2000. By the terms of the grant, the employee was required to remain employed with the company in order to be qualified to exercise the options.

Aubin and Kitchel married on September 26,1996, before any of the options had vested.

In the meantime, Apex continued to thrive. On October 14, 1996, the board amended the vesting schedule, accelerating it in anticipation of taking the company public earlier than originally planned. By the accelerated schedule, 50 percent of the stock vested on that same day, October 14, 1996, with the remainder to vest in monthly increments and to become fully vested on February 1, 1998.

Aubin and Kitchel separated on June 11, 1999, by which time all the options here at issue were fully vested. Kitchel filed a petition for dissolution of marriage in June 1999. [597]*597Aubin retained Lisa Barton, a Washington attorney, to represent him. It is undisputed that Aubin’s Apex stock options were the single most valuable asset in the dissolution action. Barton does not contest that Aubin told her that the stock options had been granted to him primarily in recognition of his past services with Apex.

The parties to the marital dissolution scheduled a settlement conference for December 20, 1999, which they also describe as a mediation session, before retired King County Superior Court Commissioner Harry Slusher. Prior to the mediation session, Kitchel’s attorneys obtained an analysis from Roland Nelson, a certified public accountant, regarding the characterization and valuation of the Apex stock options. Nelson concluded that all of the stock options were community property. Barton received a copy of this analysis.

Barton contacted Sam Saracino, corporate legal counsel for Apex and the individual who had drafted the stock option plan at issue. According to Saracino, Barton seemed to lack a thorough understanding of stock options, and he gave her a “tutorial.” Saracino subsequently testified that Barton never asked him the purpose of the stock option grant.

Barton retained Clifford Hersman, a certified public accountant, to independently analyze and value Aubin’s stock options. Along with other information she had gathered regarding the options, Barton sent Hersman a copy of In re Marriage of Short, 125 Wn.2d 865, 890 P.2d 12 (1995).

On December 15, 1999, prior to receiving a written analysis from Hersman, Barton sent Commissioner Slusher a letter containing various mediation materials. Asserting that the period of community property began on the date of marriage rather than the date of cohabitation because the parties had not pooled their assets and incomes during the period of cohabitation, Barton argued that the Apex stock options were Aubin’s separate property. Although the letter-proper does not mention a different basis for arguing that the stock options were separate property — namely that the [598]

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Bluebook (online)
123 Wash. App. 592, Counsel Stack Legal Research, https://law.counselstack.com/opinion/aubin-v-barton-washctapp-2004.