                                                    United States Court of Appeals
                                                             Fifth Circuit
                                                            F I L E D
                    In the                                 December 27, 2004
United States Court of Appeals                           Charles R. Fulbruge III
          for the Fifth Circuit                                  Clerk
              _______________

                m 03-11341
              _______________




             RHONDA SANCHEZ,

                                   Plaintiff-Appellee,

                   VERSUS

             VERIO INC., ET AL.,

                                   Defendant,

                 VERIO INC.,

                                   Defendant-Appellant,



        _________________________

  Appeal from the United States District Court
      for the Northern District of Texas
              m 3:01-CV-972-N
       _________________________
Before JONES, SMITH, and STEWART,                         Sanchez remained employed by the company.
  Circuit Judges.                                         Pursuant to § 2(a) of the Agreement, however,
                                                          this general vesting schedule was subject to the
JERRY E. SMITH, Circuit Judge:*                           provisions of § 4. Section 2(a) provides:

   A jury returned a verdict in favor of                     Right to Exercise. The Option shall be ex-
Rhonda Sanchez, finding that her former                      ercisable during its term in accordance with
employer, Verio Inc. (“Verio”), breached its                 the Vesting Schedule set out in the Notice
contractual obligation to vest her stock                     and the applicable provisions of the Plan
options fully on her termination. Verio                      and this Option Agreement. The Option
appeals, contending that the stock-option                    shall be subject to the provisions of Section
agreement unambiguously requires a condition                 4, below, relating to the exercisability or
not present in Sanchez’s case before triggering              termination of the Option upon a corporate
accelerated vesting, and thus the district court             event.
erred in submitting the case to the jury. We
agree. Because the agreement unambiguously                   Section 4, captioned “Corporate Transac-
does not require accelerated vesting in                   tions/Changes in Control/Related Entity
Sanchez’s circumstances, we reverse and                   Dispositions,” enables, in its three subsections,
render judgment in favor of Verio.                        the accelerated vesting of stock options in cer-
                                                          tain enumerated (and here contested)
                        I.                                circumstances. The relevant part of § 4SSthe
   Sanchez was employed by Verio, an inter-               provision at the center of this disputeSSis
net service provider, from February 1998 until            § 4(b), which states,
she was terminated in April 2000. At four
points during her employment, she received                   The Option shall become fully vested and
stock options from Verio. Each time that                     exercisable upon termination of the Con-
occurred, she was provided with and signed a                 tinuous Status as an Employee, Director or
“Notice of Stock Option Award” (“Notice”)                    Consultant of the Optionee if such Contin-
that together with the “Stock Option Agree-                  uous Status as an Employee, Director or
ment” (“Agreement”) sets forth the terms and                 Consultant is terminated by the Company
conditions governing the vesting, exercise, and              or a Related Entity without Cause or volun-
expiration of the options.                                   tarily by the Optionee with Good Reason
                                                             within twelve (12) months of a Change in
    According to the general vesting schedule                Control.
in the Notice, Sanchez’s stock options vested
at a rate of twenty-five percent per year, be-            The issue on appeal is whether Verio breached
ginning one year after issuance, with each                an obligation to vest Sanchez’s options fully
award fully vesting in four years provided that           on her termination pursuant to this provision.

                                                             During her tenure, Sanchez received grants
   *
    Pursuant to 5TH CIR. R. 47.5, the court has de-       of options to purchase more than 40,000
termined that this opinion should not be published        shares of Verio common stock. As of the date
and is not precedent except under the limited cir-        of her termination (April 26, 2000), 11,290 of
cumstances set forth in 5TH CIR. R. 47.5.4.

                                                      2
her options had vested, and 29,250 were                 of $1,945,000.2
unvested. At the time she was terminated,
Verio was engaged in merger negotiations                   Verio’s primary contention is that the court
with NTT Communications, Inc. (“NTT”).                  erred in finding the Agreement ambiguous and
After regulatory approval, the NTT/Verio                thus erred in submitting the case to the jury.
merger was executed on August 31, 2000,                 Beyond this threshold challenge, Verio also
more than four months after Sanchez was                 questions the sufficiency of the evidence; the
terminated.                                             use of a general verdict form, as opposed to
                                                        special interrogatories; and the refusal to
   Having been terminated holding nearly                instruct the jury to interpret § 4(b) in light of
30,000 unvested options, Sanchez contacted              the entire Agreement.
the company seeking to exercise all her op-
tions by invoking the accelerated vesting pro-                                 III.
vision in § 4(b). Specifically, she claimed that            The determination of whether a contract is
the company’s merger with NTT constituted a             ambiguous is a quest ion of law subject to de
“change in control” (as defined by the Agree-           novo review. See, e.g., Stinnett v. Colo. Inter-
ment) occurring within twelve months of her             state Gas Co., 227 F.3d 247, 254 (5th Cir.
termination without cause, thereby triggering           2000); Ad Two, Inc. v. City & County of Den-
Verio’s duty under § 4(b) to vest all her op-           ver, 9 P.3d 373, 376 (Colo. 2000). Pursuant
tions fully. Verio refused, informing Sanchez           to a choice of law provision not contested by
that she did not qualify for accelerated vesting        either party, we apply Colorado law to deter-
under § 4(b) because she had been terminated            mine whether the Agreement is ambiguous.3
before the merger.                                      “Written contracts that are complete and free
                                                        from ambiguity will be enforced according to
                       II.                              their plain language.” Ad Two, 9 P.3d at 376
   Sanchez sued in state court alleging that            (citing USI Props. E., Inc. v. Simpson, 938
Verio had breached its contractual obligation           P.2d 168, 173 (Colo. 1997)). If, however, we
to provide for accelerated vesting. Verio               determine that the Agreement is ambiguous,
removed the case to federal court based on              “its interpretation becomes an issue of fact for
diversity of citizenship. The parties filed             the trial court to decide in the same manner as
cross-motions for summary judgment in which             other disputed factual issues.” Pepcol Mfg.
each contended that the Agreement unambigu-             Co. v. Denver Union Corp., 687 P.2d 1310,
ously reflected its own interpretation of § 4(b).       1314 (Colo. 1987) (quoting Union Rural Elec.

                                                           2
   Finding the Agreement to be susceptible to                The court also awarded prejudgment interest
more than one interpretation, the district court        of $545,611.12.
denied both motions and set the cause for trial.           3
                                                             Section 13 provides that the Agreement and
After a four day trial, the jury returned a ver-        Notice “are to be construed in accordance with and
dict for Sanchez. Having found that Verio               governed by the internal laws of the State of Colo-
“failed to comply” with the stock option                rado without giving effect to any choice of law rule
agreement, the jury awarded Sanchez damages             that would cause the application of the laws of any
                                                        jurisdiction other than the internal laws of the State
                                                        of Colorado to the rights and duties of the parties.”

                                                    3
Ass’n v. Pub. Util. Comm’n, 661 P.2d 247,                Reason within twelve (12) months of a Change
251 (Colo. 1983)).                                       in control.’”    Under this interpretation,
                                                         Sanchez is entitled to accelerated vesting
                      IV.                                based solely on the jury’s factual finding that
                       A.                                she was terminated without cause.
    Verio contends that § 4(b) unambiguously
provides that if an employee is terminated                  Alternatively, Sanchez contends that even
without cause,4 accelerated vesting is triggered         if § 4(b) is unambiguously a double-trigger
only if the termination occurred in the twelve-          (requiring both termination without cause and
month period after a corporate change in                 termination within twelve months of a change
control. Because Sanchez was terminated                  in control), the Agreement is nonetheless
more than four months before the corporate               ambiguous because it is uncertain whether the
change in control was executed, Verio claims             term “within” requires a change in control to
it had no obligation to vest her options fully           precede the termination or whether, instead, it
upon her termination and that Verio is there-            can follow a termination. Sanchez asserts that
fore entitled to judgment as a matter of law.            “[n]othing about the plain meaning of ‘within’
                                                         indicates or requires that termination occur
   Sanchez disagrees. She offers two inter-              specifically after a ‘Change in Control.’” And
pretations of § 4(b), either of which she claims         because Sanchez was terminated only four
supports the finding of ambiguity, and thus              months before a change in control did in fact
supports the decision to submit this case to the         occur, she contends that there is a fact ques-
jury. Sanchez first contends that § 4(b) re-             tion whether her options should have vested
quires accelerated vesting upon her termina-             on an accelerated basis given that “her termi-
tion without cause regardless of the occur-              nation took place ‘within’ twelve (12) months
rence of any corporate event. In other words,            of a Change in Control.”
contrary to Verio’s interpretation that § 4(b) is
a so-called “double-trigger” (i.e., accelerated                                B.
vesting only upon both termination without                  Under Colorado law, “[t]he meaning of a
cause and termination within twelve months of            contract is found by examination of the entire
a change in control), Sanchez contends that              instrument and not by viewing clauses or
§ 4(b) is a “single-trigger” (i.e., accelerated          phrases in isolation.” Kuta v. Joint Dist. No.
vesting upon termination without cause).                 50(J), 799 P.2d 379, 392 (Colo. 1992).5 “In
                                                         determining whether a contractual provision is
   According to this single-trigger theory, the          ambiguous, the instrument’s language must be
change in control provision of § 4(b) does not
modify the termination without cause provi-
sion; instead, the Agreement provides for                   5
                                                              See also Pepcol, 687 P.2d at 1314 (“An in-
accelerated vesting “either if she was termi-            tegrated contract in the first instance is to be in-
nated ‘without Cause,’ or she quit ‘with Good            terpreted in its entirety with the end in view of
                                                         seeking to harmonize and give effect to all pro-
                                                         visions . . . .”); Bevsek v. Huerfano Sch. Dist., 728
   4
     Verio does not challenge on appeal the jury’s       P.2d 325, 326 (Colo. App. 1986) (“[A] contract
implicit finding that Sanchez was terminated with-       must be construed as a whole, and each provision
out cause.                                               must be given effect.”).

                                                     4
examined and construed in harmony with the               common law of contracts generally, requires
plain and generally accepted meaning of the              courts to determine ambiguity by reference to
words used, with reference to all of the agree-          all provisions of an instrument.6
ment’s provisions.” Fiberglass Fabricators,
Inc. v. Kylberg, 799 P.2d 371, 374 (Colo.                   When read in context of the Agreement as
1990). “Of course, ‘the mere fact that parties           a whole, § 4(b) may still be susceptible to
differ on their interpretations does not of itself       more than one interpretation, but in context it
create an ambiguity.’” Dorman v. Petrol                  is no longer susceptible to more than one
Aspen, 914 P.2d 909, 912 (Colo. 1996) (citing            reasonable interpretation.7 Read in light of
Fiberglass Fabricators, 799 P.2d at 374).                the entire Agreement, the provision is unam-
Instead, “[t]erms used in a contract are ambig-          biguous: Before triggering accelerated vest-
uous when they are susceptible to more than              ing, it requires (1) both termination without
one reasonable interpretation.” Ad Two, 9                cause and termination within twelve months of
P.3d 373 at 376 (emphasis added).                        a change in control (i.e., it is a double-trigger);
                                                         and (2) termination without cause to occur
   Despite this interpretive canon requiring in-         within the twelve-month period after a change
terpretation of a contract in its entirety, the          in control.
district court focused on § 4(b) in isolation.
Specifically, the court, in its written opinion                               1.
denying summary judgment, reasoned as                       On the threshold interpretive question
follows:                                                 (namely, whether § 4(b) triggers accelerated
                                                         vesting merely on termination without cause,
   Section 4(b) of the Agreement includes an             or whether it requires termination without
   ‘or’ that separates two clauses, but the term         cause within twelve months of a change in
   ‘Change of Control’ is included only in the
   second clause. It is possible the parties
   intended for the ‘Change of Control’ to                  6
                                                               See, e.g., Dorman, 914 P.2d at 912 (stating
   apply to both clauses or just to the latter           that courts should determine ambiguity by refer-
   clause, so the Agreement is susceptible to            ence to plain language “with reference to all of the
   more than one meaning, and it is ambigu-              agreement’s provisions”); see also AMERICAN JUR-
   ous.                                                  ISPRUDENCE, CONTRACTS § 331 (2d ed. 2004)
                                                         (“When deciding whether an agreement is ambigu-
   When read in isolation, § 4(b) can indeed be          ous, particular words should be considered, not as
said to be ambiguous: It is not unreasonable             if isolated from the context, but in the light of the
to read the “within twelve (12) months of a              obligation as a whole . . . .”); id. (“To determine
change in control” clause of § 4(b) as modi-             contract ambiguity, a court looks to the entirety of
fying both the termination without cause                 the contract.”); WILLISTON ON CONTRACTS § 30.5
                                                         (“In determining whether a contract is ambiguous,
provision and the voluntarily with good reason
                                                         the court begins with its plain language . . . with
provision; similarly, it is not unreasonable to          reference to all of the agreement’s provisions.”).
read the “within twelve (12) months of a
change in control” clause as modifying only                 7
                                                             See Ad Two, 9 P.3d at 376 (“Terms used in a
the voluntarily with good reason provision.              contract are ambiguous when they are susceptible
But Colorado contract law, as well as the                to more than one reasonable interpretation.”)
                                                         (emphasis added).

                                                     5
control) the reasonableness of Sanchez’s
single-trigger interpretation is belied by vari-
ous other provisions in the Agreement. Sec-                     Despite this structure and the operative role
tion 2(a), governing Sanchez’s “Right to Ex-                of corporate events, Sanchez’s interpretation
ercise,” expressly classifies § 4 as dealing with           requires one to read § 4(b)SSthe subsection
corporate events:                                           dealing specifically with changes in corporate
                                                            control, itself in the middle of a section dealing
   Right to Exercise. The Option shall be ex-               with corporate events generallySSas fortu-
   ercisable during its term in accordance with             itously also including a general provision for
   the Vesting Schedule set out in the Notice               full vesting where an employee is terminated
   and the applicable provisions of the Plan                without cause, regardless of any corporate
   and this Option Agreement. The Option                    event generally, much less a corporate change
   shall be subject to the provisions of Section            in control specifically. This is not a reasonable
   4, below, relating to the exercisability or              interpretation of the Agreement.
   termination of the Option upon a corporate
   event.                                                      Moreover, the application of § 2(a) renders
                                                            unreasonable Sanchez’s single-trigger theory.
(Emphasis added.) Thus, § 2(a) indicates that               Section 2(a) provides that the vesting schedule
§ 4’s three accelerated vesting provisions are              set forth in the NoticeSS25% per year, begin-
operative on the occurrence of a “corporate                 ning one year after issuanceSSis subject to
event.”                                                     § 4’s accelerated vesting provisions. But the
   The Agreement defines “Corporate Event”                  general vesting schedule set forth in the Notice
in § 3(d) to mean “the occurrence of a Corpo-               is not subject to § 4’s accelerated vesting
rate Transaction, Change in Control or Related              provisions as a general matter; instead, it is
Entity Disposition.” Given this tripartite                  subject to § 4’s accelerated vesting provisions
definition, § 4, captioned “Corporate Transac-              “upon a corporate event.”
tions/Changes in Control/Related Entity
Dispositions,” is structured accordingly: It                   In other words, Sanchez’s options vest
provides a separate subsection providing for                pursuant to the Notice at the standard rate of
accelerated vesting on the occurrence of each               25% per year, beginning one year after issu-
one of these three corporate eventsSScorp-                  ance, unless the provisions of § 4 “relating to
orate transaction (§ 4(a)), change in control (§            the exercisability or termination of the Option
4(b)), and related entity disposition (§ 4(c)).8            upon a corporate event” are applicable. San-


   8                                                           8
      This point is not intended to take meaning                 (...continued)
from the title heading of § 4, because the Agree-           single-trigger theory: It requires one to ignore the
ment specifically provides, in Section 14, that             structure of the Agreement by reading a general
“[t]he captions used in the Notice and this Options         termination without cause vesting provision into
Agreement are inserted for convenience and shall            the middle of a sub-section dealing with changes in
not be deemed a part of the Option for construction         corporate control. Even further, Sanchez’s single-
or interpretation.” Instead, the point is intended to       trigger theory requires this reading notwithstanding
demonstrate the general problem with Sanchez’s              multiple other provisions treating § 4 as dealing
                                       (continued...)       with corporate events.

                                                        6
chez’s single-trigger theory, however, requires             attempts a global effort to render illegitimate
precisely the opposite: accelerated vesting                 any reference to other provisions of the Agree-
upon termination according to § 4SSas op-                   ment when deciding the threshold ambiguity
posed to normal vesting pursuant to the No-                 question. To this end, Sanchez repeatedly
ticeSSwithout a corporate event. Here again,                asserts in her brief that reference to other
Sanchez’s interpretation is not reasonable.                 provisions of the Agreement proves a priori
                                                            that the Agreement is ambiguous. This is
   Section 4(d) provides further support for                incorrect as a matter of law.
Verio’s position that the Agreement is unam-
biguously a double-trigger. That subsection,                    Reference is not made to other provisions
which addresses tax implications related to                 of the Agreement because a conclusion has
accelerated vesting of options, provides, in                been made (explicitly or implicitly) that § 4(b)
part:                                                       is ambiguous; rather, such reference is made to
                                                            give meaning to the terms of § 4(b). “The
   The portion of the Option, if an Incentive               meaning of a contract is found by examination
   Stock Option, accelerated under this Sec-                of the entire instrument and not by viewing
   tion 4 in connection with a Corporate                    clauses or phrases in isolation.” Kuta, 799
   Event shall remain exercisable as an Incen-              P.2d at 392.
   tive Stock Option under the Code only to
   the extent the $100,000 dollar limitation of                In sum, when read in context of the entire
   Section 422(d) of the Code is not ex-                    Agreement, § 4(b) unambiguously requires
   ceeded.                                                  both termination without cause and termina-
                                                            tion within twelve months of a change in
(Emphasis added.) As with § 2(a), § 4(d)                    control before triggering accelerated vesting.
characterizes acceleration under § 4 as occur-              Thus, as a matter of law, Verio is not obli-
ring “in connection with a Corporate Event”                 gated to vest, on an accelerated basis, San-
and not, as Sanchez’s single-trigger theory                 chez’s options solely on her termination with-
would have it, with termination without cause               out cause.
in and of itself.9
                                                                                   2.
   In light of these other provisions, Sanchez                 The second interpretive question is whether
                                                            § 4(b) provides for accelerated vesting where
                                                            an employee is terminated without cause
   9
      Sanchez attempts to refute any implication            before a corporate change in control, or
from § 4(d) by contending that it was not intended          whether it requires termination without cause
to address “all possible accelerated vesting situa-         after a change in control. Sanchez’s alterna-
tions.” Sanchez does not, however, explain why
                                                            tive reading of the Agreement, which concedes
this provision dealing with tax issues related to ac-
celerated vesting would apply to all of § 4 by its
                                                            that § 4(b) is a double-trigger (requiring both
own terms, save her situation; nor, for that matter,        termination without cause and termination
does Sanchez identify any other provision of the            within twelve months of a change in control),
Agreement that would address tax implications               claims that the contract is still ambiguous, and
associated with accelerated vesting in a termination        thus the case was properly submitted to the
without cause scenario not associated with a                jury, because it is uncertain whether the term
corporate event.

                                                        7
“within” requires a change in control to                  nated without cause do, in fact, vest at termi-
precede the termination or whether it can                 nation “even if at that time it was not yet
follow a termination. And given her termina-              known whether the options would be acceler-
tion four months before a change in control               ated.” Sanchez purports to find support for
occurred, Sanchez maintains that there is a fact          this argument by quoting § 4(b) in her brief as
question whether Verio breached its obligation            follows: “The Option shall become fully
to accelerate the vesting of her options.                 vested and exercisable upon termination . . .”
                                                          From this Sanchez contends that § 4(b) pro-
    At many different levels, Sanchez’s double-           vides for the immediate vesting and ex-
trigger interpretation of § 4(b)SStermination             ercisability of a terminated employee’s options,
may occur either in the twelve months before              “subject to the contingency that a Change in
or after a corporate change in controlSSis so             Control occurs within twelve months after the
obviously a post-hoc invention of her lawyers             termination.”
that it bears no relation to the rest of the
Agreement. Pursuant to the express terms of                  This self-styled “retroactive” or “contin-
the Agreement, if an employee is terminated               gent” vesting theory, which attempts to avoid
before a change in control, any unvested                  the expiration mandated by the clear terms of
options expire immediately upon termination.              § 7 and the Notice, is demonstrably incorrect.
Section 7 expressly provides that “to the                 Putting aside the absence of any provisions in
extent the Optionee was not entitled to                   either the Agreement or the Notice that speak
exercise the Option on the Termination Date .             to such retroactive or contingent vesting,10
. . t he option shall terminate.” As a result,            § 4(b) does not, as Sanchez claims, provide for
when the second trigger occursSSthe                       options to become fully vested and exercisable
corporate change in controlSSthere are no                 on termination; it provides (in the portion
options remaining to accelerate.                          replaced by Sanchez with an ellipsis) that
                                                          options become fully vested on termination if
   The Notice merely provides that “the                   the employee is terminated within twelve
Optionee acknowledges and agrees that the                 months of a change in control. It therefore
shares subject to the Option shall vest, if at all,       follows as a matter of logic that (1) because
only during the period of the Optionee’s                  the options must vest, if at all, before
continuous status as an employee.” The                    termination and (2) they vest on an accelerated
Notice therefore expressly proscribes post-               basis only on a change in control, then (3) the
termination vesting of options. It follows that
a change in control occurring after an em-                   10
ployee is terminatedSSthe second trig-                          In fact, Sanchez concedes in a footnote that
gerSScannot operate to vest options in an em-             “[t]he Agreement does not spell out the logistics of
                                                          the purchase of shares subject to such an acceler-
ployee who has previously been terminated;
                                                          ated vesting contingency, but such logistics could
options must vest, “if at all,” only during the           be handled any number of ways.” Indeed, such lo-
“Optionee’s continuous status as an em-                   gistics could be handled any number of ways. The
ployee.”                                                  trouble here, of course, is that the plain terms of
                                                          the Agreement indicate that the absence of such
   Sanchez attempts to avoid this result by ar-           logistics is not an oversight, but, rather, is the
guing that the options of an employee termi-              consequence of an Agreement that does not provide
                                                          for such retroactive vesting.

                                                      8
change in control must occur before the                  Because we have determined as a threshold
termination. Because Sanchez was terminated              matter that the Agreement is unambiguous,
more than four months before the change in               Sanchez cannot establish ambiguity on the
control, Verio is not, as a matter of law,               basis of this extrinsic evidence.
obligated to vest her options fully.
                                                                                V.
                       3.                                   In sum, we do not doubt that Sanchez’s
    Sanchez tries to demonstrate that the                lawyers presented a compelling story to the
Agreement is ambiguous by pointing to ex-                jury: She was fired without cause before the
perts. She relies on the testimony of two law            merger was executed so the company could
professors familiar with stock option agree-             avoid payment of her stock options. Whatever
ments and other forms of contingent equity               the merits of this story, it may not serve to
compensation: The first stated that “virtually           defeat conditions expressed in unambiguous
all” of the other stock option agreements he             terms in the governing instrument. Because
had reviewed provided for full vesting upon              the Agreement plainly requires termination
termination without cause; the second testified          without cause within the twelve-month period
to an “industry custom” of providing for the             after a corporate change in control, and the
exercisability of stock options on termination           undisputed circumstances of Sanchez’s termi-
without cause, opining that “in such circum-             nation do not satisfy these conditions, Verio is
stances” a change in control “is not a condition         entitled to judgment as a matter of law.12 The
to the vesting of compensation.”                         judgement is REVERSED, and judgment is
                                                         RENDERED in favor of Verio.
    Sanchez may not, however, establish ambi-
guity by reference to such testimony: “Ex-
trinsic evidence of intent is relevant only if,
after examination of the entire instrument, the
terms are ambiguous.” Union Rural Elec., 661
P.2d at 251.11 “Absent such ambiguity, we
will not look beyond the four corners of the
agreement to determine the meaning intended
by the parties.” Ad Two, 9 P.3d at 376–77.

   11
      See also Kuta, 799 P.2d at 382 (“Extrinsic
evidence is only admissible to prove intent where
the terms of a contract are ambiguous.”); Pepcol,
687 P.2d at 1314 (“It is axiomatic that in the ab-
sence of an ambiguity a written contract cannot be
varied by extrinsic evidence.”); id. (“It is only
where the terms of an agreement are ambiguous or
are used in some special or technical sense not
apparent from the contractual document itself that
                                                            12
the court may look beyond the four corners of the             Because Verio is entitled to judgment as a
agreement to determine the meaning intended by           matter of law, we need not address its additional
the parties.”).                                          arguments on appeal.

                                                     9
