MAASSEN, Justice.
A divorcing couple disputed the nature of their marital interest in a limited liability company. They eventually agreed that the husband would retain the ownership interest but the wife would receive 25% "of the net commission" from certain sales if they occurred within a limited time after the divorce. When a sale occurred the parties disagreed on how to define "net commission": the wife contended that it meant the commission received by the company, but the husband contended that it meant only his share of it. The wife sought discovery in support of her interpretation of the agreement. The husband moved for a protective order, and the parties' attorneys compromised on some limited production. Although the husband produced information that appeared to satisfy the compromise, the wife filed a motion to compel. The court granted the motion to compel and awarded the wife attorney's fees for having had to file it. Then, following an evidentiary hearing, the superior court agreed with the wife's interpretation of the settlement agreement.
The husband appeals both the decision on the merits and the award of attorney's fees on the motion to compel. Because the language of the agreement and relevant extrinsic evidence favor the wife's interpretation of "net commission," we affirm the superior court's decision of that issue. But because we cannot see the rationale for the superior court's award of attorney's fees to the wife on her motion to compel, we remand that issue to the superior court for reconsideration.
Neil and Nona Gunn
In 2010 Neil and Nona divorced and divided their property through what the superior court termed an "amicable settlement" incorporated into the court's findings of fact and conclusions of law. The agreement noted the parties' "disagree[ment] as to whether they jointly ha[d] accrued a 50% marital interest, or whether [Neil] alone ha[d] accrued a 50% interest in the business operations and potential profits of Venture Group North [sic], LLC." And while the parties agreed that "the efforts invested in the business through the date of separation [were] marital earnings," they disagreed on the extent of those efforts.
Nonetheless, Neil and Nona were able to agree on a division of the Venture North ownership interest. Neil would "retain sole ownership and control of" the interest. But if Venture North succeeded in selling either of its two clients, Brice and Great Northern, "on or prior to June 30, 2011, [Nona] shall be paid 25% of the net commission from each such sale and [Neil] shall ensure that such payment is timely made." If a sale occurred "on or after July 1, 2011 and before January 1, 2013, [Nona] shall be paid 20% of the net commission from each such sale." And for any sale after January 1, 2013, Nona would receive nothing. The agreement also required that Neil give Nona his personal tax returns and those for Venture North for the tax years 2010 through 2012.
In July 2010 Venture North successfully brokered the sale of Brice and received a commission of $1,875,000. There is no dispute that Neil's membership interest entitled him to half this commission, and he wrote Nona a check for 25% of his half (that is, 12.5% of the commission earned by Venture North).
In November 2013 Nona served Neil with interrogatories seeking information about the sale of Brice and the commission Venture North received from the sale; asked that Neil produce a broad set of documents; and gave notice of the deposition of Venture North's accountant. Neil responded that "[Nona] ha[d] no right to discovery because the case is closed, and she does not have a judgment on which she is seeking execution."
In December 2013 Neil moved for a protective order. Shortly thereafter Nona's attorney wrote Neil's attorney, stating that the discovery dispute could be resolved if Neil provided "documentation that would show (1) whether [Great Northern] was sold and the timing of such a sale, (2) the actual amount actually received by Venture North for the Brice sale, and when, and (3) [Neil's] tax returns for the other two years in question." But the discovery dispute remained unresolved, and Nona filed an opposition to the motion for protective order, as well as a motion to show cause why Neil should not be held in contempt for failing to respond to her discovery requests.
The parties' attorneys exchanged emails in January 2014. On January 14, Nona's attorney wrote that he "need[ed] Neil Gunn's personal tax returns for 2010, 2011 and 2012, documentation of the full amount of the commission on the Brice sale, [and] documentation showing there was no sale of the second company during the relevant time period." He continued: "I am agreeing that if you will produce the things listed herein, we will review the materials and determine whether we need anything else.... If I do not receive these materials shortly, I will be forced to file a motion to compel." Neil's attorney responded the next day that she would "forward [the documents] ... this week," to which Nona's attorney immediately replied, "Thank you for agreeing to send the documents this week." (Emphasis in original.)
Two days later Neil's attorney hand-delivered to Nona's attorney the following documents: (1) Neil's 2011 and 2012 tax returns;
Without further communication between the parties on the subject, Nona filed a motion to compel discovery on February 4. The motion asserted that Neil had failed to provide documentation of the sale of Brice, the non-sale of Great Northern, or any commissions paid; had not provided responses to interrogatories; and had "provided only partial responses" to Nona's other discovery requests. The motion also asserted that Nona's counsel had "undertaken reasonable efforts to meet and confer with opposing counsel to obtain without court intervention the requested documentation of the sales and commissions for Brice, Inc. and Great Northern Engineering." In opposition, Neil explained that the parties had discussed whether a more limited production would satisfy
In May 2014 the superior court held an evidentiary hearing to determine how much of the commission from the Brice sale was due Nona under the settlement agreement. The court heard argument from counsel as well as testimony from Nona and Neil about their respective roles in Venture North. In a written decision, the superior court concluded that Nona was entitled to 25% of the net commission paid to Venture North rather than 25% of Neil's half of that commission. In support of this decision the court cited the language of the agreement, a discussion between counsel and the court at the time the agreement was put on the record in 2010, and the parties' circumstances at the time. The court observed that Nona could have been awarded 25% of the company if the case had gone to trial; her agreement instead to stepped-down percentages of sales made within three years of the divorce, with the attendant risk that she would receive nothing if no sales occurred, supported her claim to the higher amount.
Neil appeals. He challenges the superior court's interpretation of the settlement agreement and its decisions to grant Nona's motion to compel and to award her attorney's fees on the motion.
"Contract principles govern the interpretation of property settlement agreements incorporated in dissolution decrees."
"We review discovery rulings and awards of attorney's fees for abuse of discretion."
Neil argues that the superior court erred in deciding that Nona was entitled to 25% of Venture North's commission from the Brice sale rather than 25% of Neil's 50% interest in that commission. We conclude that the superior court correctly interpreted the parties' agreement.
When interpreting a contract, a court "begin[s] by viewing the contract as a whole and the extrinsic evidence surrounding the disputed terms, in order to determine if
Of course, the "interpretation of a contract term does not take place in a vacuum, but rather requires consideration of the provision and agreement as a whole."
The superior court also considered extrinsic evidence in reaching its decision. "Where the superior court considers extrinsic evidence in interpreting contract terms, ... we will review the superior court's ... inferences drawn from that extrinsic evidence for support by substantial evidence,"
The superior court found that Nona could have been awarded half the marital interest in Venture North (that is, 25% of the company) at trial, and that "[i]f this had occurred she would have been entitled to her 25% share for as long as Venture North earned commissions."
But the parties' agreement was specifically premised on their failure to agree on "whether the husband alone has accrued a 50% interest in the business operations and potential profits of Venture Group North." (Emphasis added.) We see no reason why they could not agree to assign different values, or different methods of determining value, to "potential profits" on the one hand and every other aspect of "business operations" on the other; this appears to be what they did.
Neil also argues that, because the superior court found that more than 50% of the work on the Brice sale was done after separation, the parties must have intended that Nona receive less than half of Neil's share of the commission. He analogizes to "active appreciation" — in which separate property's increase in value during the marriage can itself become marital property
To support this argument Neil cites Young v. Kelly.
We conclude that the superior court did not clearly err when it found that the parties intended Nona to give up a continuing interest in Venture North in exchange for a 25% share of the commissions received from certain sales within a limited time frame.
Neil also argues that the superior court, in finding Nona entitled to 25% of Venture North's commission, failed to consider that Neil did not control the company, and that his share of the commission could have been reduced during the period covered by the agreement by the addition of new members to the LLC. He contends that under Nona's interpretation he could be forced to pay her 25% of a commission under circumstances in which he was entitled to receive less than 50% of it himself, whereas if Nona's entitlement was based on his share only, he could carry out the agreement (giving Nona 25% of his share) regardless of how Venture North's commission was distributed among the members.
This theoretical argument is unconvincing, as it ignores the "goals sought to be accomplished[] and surrounding circumstances
The parties' agreement requires Neil to "provide a true and accurate copy of the Venture North Group, LLC federal tax return" to Nona. The superior court noted that both parties relied on this provision as supporting their interpretation of the agreement, but the court concluded that the provision was not "helpful in determining the reasonable expectations of the parties as to the amount of commission Nona was to receive." Instead, the court found that the "evidence suggest[ed] an intent that neither party disputes; i.e., that the percentage Nona was to receive was to be based on the net commission after taxes rather than the gross commission received by Venture North." (Emphasis in original.)
Neil contends, however, that Venture North's structure for tax purposes supports his position. He explains that Venture North, as an LLC, is a pass-through entity that does not pay income taxes; instead, its members are taxed personally on distributions from the company. Neil argues that if Nona's share were to be calculated on Venture North's commission, determining the "net commission" would require determining the individual tax rates of each member — a task that would be practically difficult given that the other members were not parties to the divorce action. Therefore, he argues, Nona's interpretation cannot reflect the parties' intent, and "[t]he only reasonable way to interpret `commission' is ... that it refers to the commission Neil receives through his fifty percent interest in Venture North Group."
The parties did not further define the term "net commission" in their agreement. Nona contends that the net commission received by the company — what she argues was the basis of the agreement — is not affected by the tax liabilities of members, paid individually on their distributed shares. She posits that the term "net commission" could reflect deductions other than taxes, such as "expenses incurred to earn the commission." She further argues that the LLC's tax structure supports her claim to a larger share; if the parties had agreed that the amount due Nona would be based on Neil's share of the commission alone, his individual tax returns would have been all she needed to verify this information, making the mandated disclosure of Venture North's returns unnecessary. We find Nona's arguments persuasive, and we conclude that the superior court did not err in deciding that the LLC's tax structure did not support Neil's position.
The superior court also relied on a discussion of the settlement in 2010 when the parties placed their agreement on the record, finding that it supported Nona's position. The court noted in particular the statement of Nona's counsel that the agreement would entitle his client to "25% of the `net after-tax commission received from that sale or sales,'" not limiting it to the amount of the
Neil is correct that, because he and Nona were entitled to equal shares of the Brice commission if it was earned before July 1, 2011, Nona's interest was not "discounted" during that time. But we disagree that the full discussion supports Neil's interpretation. After saying that Nona "ha[d] discounted essentially what she would be taking from any eventual sale," her counsel went on to describe that discount in terms of the step-down provisions: from 25% to 20% to zero over the course of three years. Her counsel summed up: "So there's a break in here as far as a discount for additional work that might have to be done. The parties cannot guarantee and there is no guarantee that there will be any proceeds whatsoever."
This language supports the superior court's findings about the parties' intent. As reasonably read, Nona's counsel's remarks identified the "discount" as Nona's willingness to forgo any continuing interest in Venture North and to assume the risk that she would receive a smaller percentage of any commission as time went by and, ultimately, no commission at all if sales did not materialize in the three years after divorce (as in fact happened with regard to Great Northern). To the extent the superior court relied on the discussion in 2010 as supporting Nona's interpretation of the agreement, it did not clearly err.
"Because the superior court's ... inferences drawn from extrinsic evidence are otherwise supported by substantial evidence, and because the plain text of the [settlement] agreement supports the superior court's interpretation,"
Neil contends that the superior court abused its discretion when it awarded Nona attorney's fees for having to bring a motion to compel discovery.
Alaska Rule of Civil Procedure 37(a)(4)(A) provides that, if a motion to compel is granted or discovery is provided after the motion is filed, "the court shall, after affording an opportunity to be heard, require the party or deponent whose conduct necessitated the motion... to pay to the moving party the reasonable expenses incurred in making the motion, including attorney's fees." The rule also provides, however, that an award of fees is not appropriate if "the opposing party's
The factual background for the superior court's award of fees in this case appears to be undisputed. Nona served her discovery requests in November 2013. Although Neil's initial position was that she was not entitled to discovery, and although he filed a motion for a protective order on that ground in early December, the parties nonetheless communicated about whether some limited production would be sufficient to resolve the dispute. In their initial exchange on the subject, Nona's attorney stated that he saw "cooperation on these issues as a possibility" and that the discovery dispute could be resolved if Neil would "provide documentation that would show (1) whether the other business [Great Northern] was sold and the timing of such a sale, (2) the actual amount actually received by Venture North for the Brice sale, and when, and (3) [Neil's] tax returns for the other two years in question." The attorneys' follow-up email exchange in January 2014 confirmed this limited production as the basis of the parties' agreement. Nona's attorney concluded, "I am agreeing that if you will produce the things listed herein, we will review the materials and determine whether we need anything else.... If I do not receive these materials shortly, I will be forced to file a motion to compel." (Emphasis added.) Within a few days Neil's counsel hand-delivered materials ostensibly responsive to Nona's compromise demands: Neil's tax returns for 2011 and 2012, a letter on Brice letterhead stating the amount of Venture North's commission, and a Great Northern biennial report reflecting that the company had not changed ownership. In early February, however, with no more correspondence about discovery in the interim, Nona filed her motion to compel.
On these facts, it is difficult to see why Neil's position was not "substantially justified" for purposes of avoiding an award of fees under Civil Rule 37(a)(4)(A).
The superior court did not explain its decision to award fees to Nona, and we cannot discern its rationale from the record. We remand the issue to the superior court for an express determination whether Neil's position in discovery was substantially justified.
The superior court's decision that Nona is entitled to 25% of Venture North's commission on the Brice sale is AFFIRMED. The issue of attorney's fees on the motion to compel is remanded for further proceedings consistent with this opinion, and we retain jurisdiction.
A footnote defined "existing client" to mean "any business or person who retained the services of Venture Group North, LLC on or before February 14, 2010." The entities meeting the definition were identified as Brice and Great Northern.