CASE STUDY:
Mestayer v. Williams 1990

Mestayer v. Williams, 569 So.2d 1102 (La. Ct. App. 3d Cir. 1990).

Facts and procedural history: The husband and wife were divorced in March 1987. The community of acquets and gains terminated on January 11, 1984. The wife filed a petition for partition of community property on March 23, 1987. The parties, by oral stipulation, divided all items of community property except 1,264 shares of Halliburton stock issued to the husband under the Halliburton Company Career Executive Incentive Stock Plan (Plan).

 

At the time the community was dissolved, the husband had been issued 876 shares of Halliburton stock which were free of restrictions under the Plan. These shares of stock are not at issue in this appeal. At the time of termination of the community the husband also held 1,370 restricted shares of stock issued under the Plan. The trial judge stated in his reasons for judgment that “of these, 106 shares were returned by Mr. Williams in order to pay federal income tax on the shares, leaving a net of 1,264 shares to be divided between the parties.”

 

The parties entered into an oral stipulation which acknowledged the return of the 106 shares of stock and also stipulated that the husband paid $2,727 in taxes from his separate funds on shares which became unrestricted after the termination of the community.

 

The wife argues that the 1,264 restricted shares are community property to be divided equally between the parties. The husband contends that the 1,264 restricted shares are his separate property because the restrictions did not lapse until after the termination of the community. Mr. Robert Kennedy, Vice President of the legal department of the Halliburton Company, testified as to the implementation of the Plan, its provisions, and interpretations. Kennedy testified that the Plan represents an incentive tool to reward longtime employees and to retain them for future service to the company. Mr. Kennedy testified that employees are recommended for the award of shares of common stock by the management of the company.

 

Once such a recommendation has been accepted, the company notifies the employee that he can acquire a number of shares under the Plan for the purchase price of $2.50 per share. The number of shares to be purchased by the employee is also determined by the management. Once the purchase price has been paid by the employee, the company instructs the transfer agent, in this case, Republic Bank, to issue the total number of shares to the individual employee. The shares are then issued pursuant to the terms and conditions of the Plan and subject to certain restrictions. Certificates bearing a restrictive legend are issued by the company to the individual employee. The physical possession of the restricted certificates remains with the company. The individual employee receives a copy of the certificates. While a recipient of shares of stock under the Plan remains employed, the restrictions on 10% of the issued shares lapse on each anniversary of the date of issuance. A new certificate representing ownership of the 10% unrestricted shares of stock is then issued to the individual employee. This process continues until all restrictions have lapsed on the issued stock.

Finally, Mr. Kennedy testified, and the Plan bears out, that restrictions on shares which have not lapsed, shall lapse on the date on which the employee's employment terminates by reason of death, normal retirement at or after age 65, or medical disability retirement. If the employment of the employee is terminated for any reason other than death, normal retirement or medical disability retirement, the shares purchased by the employee under the Plan which are still restricted must be surrendered to the company by the employee.

 

At that point the company must return to the employee the purchase price paid for the shares. If the employee decides to take early retirement, the restricted shares are forfeited to the company unless the company approves the retention of all or a portion of the shares by the employee. For the above reasons, the trial court ruled that stock was community property and former husband appealed. Mestayer v. Williams, 569 So. 2d 1102, 1105 (La. Ct. App. 1990).

Issue: Whether the stock is community property or the separate property of the husband.

Rule: Community property comprises property acquired during the existence of the legal regime through the effort, skill or industry of either spouse. LSA–C.C. art. 2338. LSA–C.C. art. 2340 provides: “Things in the possession of a spouse during the existence of a regime of community of acquets and gains are presumed to be community, but either spouse may prove that they are separate property.” Mestayer v. Williams, 569 So. 2d 1102, 1105 (La. Ct. App. 1990).

 

Analysis: This court agreed with the trial court’s finding that the incentive stock plan at issue in this appeal contemplates compensation to the employee.

 

The Plan clearly envisions providing not only a reward for past services to the company but an incentive to retain that employee's services in the future. Even in its restricted state the stock was earned and acquired during the existence of the community.

 

The court also found that the stock in question became community property when it was issued, not when the restrictions lapsed. The court stated that the existence of the restrictions does not affect ownership. The restrictions merely qualify the privilege of dealing with the stock.

 

Ownership of the stock, notwithstanding its restricted nature, began the moment Williams exercised the right to purchase the stock and paid for it at the rate of $2.50 per share. The sole effect which followed the periodic lapsing of restrictions was the lifting of the restriction regarding sale, transfer, hypothecation, or other disposition of the stock.

 

The restricted shares at issue were awarded to the husband during the existence of the community and they were issued to the husband during the existence of that community through the issuance of certificates of stock. Therefore, the restricted shares at issue are an asset of the community. The community interest is not limited to the refund of community funds paid, and the wife's interest is a full and irrevocable proprietary interest to one-half of the 1,264 restricted shares of common stock at issue. The court also found that the trial court correctly awarded this one-half interest to the plaintiff.

 

Appellant argued alternatively that the trial court erred in not ordering the reimbursement of $1,363.50 to him for the use of his separate funds in payment of taxes on the disputed shares of stock. This court found that the oral stipulation between counsel clearly reflects a reimbursement due the husband for the payment of one-half of the $2,727 in taxes he expended, or $1,363.50.

Conclusion: The judgment of the trial court was amended to reflect that, in addition to the amount which the trial court judgment provides as due to the appellant as reimbursement from the community, appellant is entitled to reimbursement from the community in the amount of $1,363.50 for payment of taxes on community shares of stock paid for by him from his separate funds. Mestayer v. Williams, 569 So. 2d 1102, 1108 (La. Ct. App. 1990).