                                    NO. 07-08-0057-CV

                              IN THE COURT OF APPEALS

                       FOR THE SEVENTH DISTRICT OF TEXAS

                                      AT AMARILLO

                                         PANEL D

                                    JANUARY 27, 2010

                          ______________________________

                     IN THE MATTER OF THE MARRIAGE OF
              WILLIAM HERBERT WATSON AND NINA JOYCE WATSON
                           _________________________________

            FROM THE 99TH DISTRICT COURT OF LUBBOCK COUNTY;

            NO. 2006-533,951; HONORABLE WILLIAM SOWDER, JUDGE
                       _______________________________


Before QUINN, C.J., and CAMPBELL and PIRTLE, JJ.


                                MEMORANDUM OPINION


       In this appeal of a property dispute arising in a suit for divorce, appellant Nina

Watson contends the trial court mischaracterized as the separate property of her

husband, appellee William Herbert Watson, Jr. (Billy), shares of stock he received

during marriage from his father and funds he received under an “earnout agreement” on

the sale of the family business. Finding the trial court did not abuse its discretion in its

characterization of the property in question, we will affirm.
                                      Background


      Billy’s father, William Herbert Watson, Sr. (W.H.) founded Watson Institutional

Foods, Inc. (“Watson Foods”) in 1955 and was CEO. Mike Davis and later Billy worked

for Watson Foods while attending college and after graduation became full-time

employees. Each rose in responsibility. Davis ultimately became president and chief

operating officer. Billy became executive vice president of sales and marketing.


      In 1985, W.H. began to transfer shares of stock in the corporation to Billy and

Davis. From 1985 through 1999, W.H. annually transferred equal amounts of his Class

A, or voting, shares of the corporation to Billy and Davis. Through these transfers, each

eventually obtained 12.25 percent Class A share ownership. 1 According to W.H.’s trial

testimony, the stock transfers to Davis and the Watson children were gifts made

according to an estate plan.


      During the tenure of Billy and Davis, Watson Foods grew significantly. Davis

testified it more than doubled. Billy and Davis handled the day-to-day operations but

W.H. retained controlling share ownership and an active presence in the business. By

the 1990s, other entities expressed interest in purchasing the corporation. In early

2000, a deal was struck whereby Watson Foods merged with Sysco Food Services of

Texas, Inc. (Sysco Texas) a wholly-owned subsidiary of Sysco Corporation. Sysco

Texas was the surviving corporation of the merger.




      1
       W.H.’s other two children, who were not employees of Watson Foods, received
Class C shares.


                                            2
       According to Davis, the consideration Sysco paid for the merger was allocated

among an exchange of stock, replacement of the corporation’s employee stock

ownership plan with a Sysco 401(k) plan, a noncompetition agreement paying cash to

Billy, Davis, and W.H., and an earnout agreement. Entitlement to payment under the

earnout agreement required that Sysco Texas achieve agreed “performance goals” over

the three years following the merger.


       Billy and Nina married in June 1995 and in February 2006 Billy filed for divorce.

Nina counterclaimed seeking a disproportionate division of the community estate. The

major issues for trial were property characterization and division. Following a bench

trial, the court granted the divorce and divided the marital estate. On the request of

Nina, it made findings of fact and conclusions of law. Among other things, it classified

as Billy’s separate property the Sysco stock derived from the Watson Foods shares he

received from W.H., before and during marriage, and the principal balance of funds paid

Billy under the earnout agreement with Sysco.


                                         Analysis


       Through her first two issues Nina contends the trial court mischaracterized as

Billy’s separate property the Watson Foods stock he acquired from his father and the

proceeds paid under the earnout agreement.


       To determine whether the trial court erred in characterizing property, we apply an

abuse of discretion standard. See Boyd v. Boyd, 131 S.W.3d 605, 617 (Tex.App.–Fort

Worth 2004, no pet.). A trial court abuses its discretion when it acts without reference to

any guiding rules or principles or, said differently, the act under review was arbitrary and

                                             3
unreasonable. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex.

1985). Under the abuse of discretion standard, applied in a family law case, legal and

factual sufficiency of the evidence are not independent grounds of error, but are

relevant factors for determining whether the trial court abused its discretion. Boyd, 131

S.W.3d at 611; Moroch v. Collins, 174 S.W.3d 849, 857 (Tex.App.–Dallas 2005, pet.

denied).   See Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, 226 (Tex. 1991)

(turnover order). Only if the trial court’s mischaracterization is of such proportion that it

affects the just and right division of the community estate must we remand the entire

case for a just and right division based on the correct characterization of the property.

Boyd, 131 S.W.3d at 618.


       Community property is property, other than separate property, acquired by either

spouse during marriage. See Tex. Fam. Code Ann. § 3.002 (Vernon 2006). Separate

property is property owned by a spouse before marriage, acquired during marriage by

gift, devise, or descent, or acquired as a recovery for personal injuries sustained during

the marriage. See Tex. Fam. Code Ann. § 3.001 (Vernon 2006). Property possessed

by either spouse during or on dissolution of marriage is presumed community property.

Tex. Fam. Code Ann. § 3.003(a) (Vernon 2006); Roach v. Roach, 672 S.W.2d 524, 529

(Tex.App.–Amarillo 1984, no writ).       To overcome the presumption of community

property, the contesting spouse must prove by clear and convincing evidence that the

property is separate. Tex. Fam. Code Ann. § 3.003(b) (Vernon 2006). “Clear and

convincing evidence” is that measure or degree of proof that will produce in the mind of

the trier of fact a firm belief or conviction as to the truth of the allegations sought to be

established. In re J.F.C., 96 S.W.3d 256, 264 (Tex. 2002).


                                              4
         A gift is a voluntary transfer of property to another made gratuitously and without

consideration.     Hilley v. Hilley, 161 Tex. 569, 342 S.W.2d 565, 569 (1961).          The

elements of a gift are: (1) the intent to make a gift; (2) delivery of the property; and (3)

acceptance of the property. Panhandle Baptist Found., Inc. v. Clodfelter, 54 S.W.3d 66,

72 (Tex.App.–Amarillo 2001, no pet.).


         In reviewing the legal sufficiency of the evidence under a clear and convincing

standard, we look at all the evidence, in the light most favorable to the judgment, to

determine if the trier of fact could reasonably have formed a firm belief or conviction that

its finding was true. In re J.F.C., 96 S.W.3d at 265-66. We presume that the trier of fact

resolved disputed facts in favor of its findings if a reasonable trier of fact could do so.

Id. We disregard any contrary evidence if a reasonable trier of fact could do so, but we

do not disregard undisputed facts. In the Interest of J.L., 163 S.W.3d 79, 85 (Tex.

2005).


         In conducting a factual sufficiency review under the clear and convincing

standard, we must consider all the evidence the fact finder could reasonably have found

to be clear and convincing, determining whether, on the entire record, the fact finder

could reasonably have formed a firm belief or conviction of the truth of the allegations.

See In re J.F.C., 96 S.W.3d at 266; In the Interest of C.H., 89 S.W.3d 17, 25, 27-29

(Tex. 2002).     In so doing, we consider whether disputed evidence is such that a

reasonable fact finder could have resolved it in favor of its finding. If, in light of the

entire record, disputed evidence that a reasonable fact finder could not have resolved in

favor of the finding is so significant as to prevent a fact finder reasonably from forming a

firm belief or conviction of the truth of the finding, then the evidence is factually

                                              5
insufficient. See In re J.F.C., 96 S.W.3d at 266; In re S.M.L.D., 150 S.W.3d 754, 757

(Tex.App.–Amarillo 2004, no pet.).


The Stock


      We turn first to the characterization of the Watson Foods stock that Billy received

from W.H. The evidence included transfer documents which, according to testimony,

reflected the 1995 through 1999 transfers of Watson Foods stock from W.H. to Billy,

during Billy’s marriage to Nina and prior to the merger. Except for their dates and the

details of the shares transferred, the transfer documents are identical in form. The

document is entitled, “Act of Donation Inter Vivos.” A sub-heading follows, stating, “Act

of Donation Inter Vivos By William H. Watson To William H. Watson, Jr.”           In part,

material to our discussion, the document continues:


      WILLIAM H. WATSON, of full legal age and resident of LUBBOCK, State
      of TEXAS who declared under oath to me, Notary, that in consideration of
      the relationship and services provided, do by these presents grant,
      bargain, donate, convey, transfer, assign, set over, abandon and deliver, .
      . . unto the said WILLIAM H. WATSON, JR., of full legal age and resident
      of LUBBOCK, State of TEXAS, here present and accepts such donation
      with gratitude as his/her separate property and estate for himself, his heirs
      and assigns, and acknowledging due delivery and possession thereof, all
      and singular the following property to-wit:


      An entire interest in the following described property:

             [here appears the number, class, and value of shares
             transferred] as of the date of this gift, as determined by an
             independent appraiser.
                                          ***

      TO HAVE AND TO HOLD the above-described property unto the said
      donee . . . forever.



                                            6
       THUS DONE AND PASSED, in my presence, WILLIAM H. WATSON,
       Donor and WILLIAM H. WATSON, JR., Donee [date], in the presence of . .
       ., competent witnesses, who hereunder sign their names with the said
       appearers and me, Notary, after reading of the whole.


Each transfer document is signed by W.H., Billy, two witnesses and the notary public.


       Simply said, Nina contends the transfer document’s inclusion of the phrase “in

consideration of the relationship and services provided” provides conclusive evidence

the shares were transferred in consideration of Billy’s services during the marriage,

requiring their characterization as community property. Billy counters that the language

of the transfer document evidences a gratuitous transfer rendering the shares his

separate property. Neither party claims ambiguity in the transfer document. Thus, its

construction is a matter of law that we review de novo. See Borders v. KRLB, Inc., 727

S.W.2d 357, 359 (Tex.App.–Amarillo 1987, writ ref’d n.r.e.). As such, we need not defer

to any interpretation afforded the document by the trial court. Cross Timbers Oil Co. v.

Exxon Corp., 22 S.W.3d 24, 26 (Tex.App.–Amarillo 2000, no pet.). We strive to give

effect to the intent of the parties as taken from the language of the instrument, and we

consider the language in its entirety. Id. Specifically, we peruse the entire document to

understand, harmonize, and effectuate all of its provisions. Id.; State Farm Life Ins. Co.

v. Beaston, 907 S.W.2d 430, 433 (Tex. 1995) (contract is read as a whole, rather than

by isolating a certain phrase, sentence, or section).


       We cannot agree the phrase “in consideration of the relationship and services

provided,” in the transfer document has the effect Nina posits. Excepting only the two

words “services provided,” the transfer document in all respects speaks of a gift

transfer. Its title and sub-heading refer to a donation; its parties are referred to as donor

                                              7
and donee; by its acceptance language the donee “accepts such donation with gratitude

as his/her separate property and estate.” The four corners of the instrument give no

hint of the nature of the “services provided.” 2 Nina’s argument assumes the phrase can

mean only a valuable consideration, and her assumption likely would be accurate in

most instances.     But, like the “relationship” recited as constituting part of the

consideration for these share transfers, consideration recited in a document of transfer

may refer to a non-valuable consideration that is not inconsistent with a gift. See, e.g.,

Babb v. McGee, 507 S.W.2d 821, 823 (Tex.Civ.App.–Dallas 1974, writ ref’d n.r.e.)

(recitation in deed of $10.00 and love and affections held to constitute a gift); cf.

Glenney v. Crain, 352 S.W.2d 773, 775 (Tex.Civ.App.–Houston 1961, writ ref’d n.r.e.)

(love and affection is not a consideration deemed valuable in law).        Attempting to

reconcile and harmonize all of the language employed in the transfer document, we

seek guidance in a phrase recently employed by the Texas Supreme Court, noscitur a

sociis (“a word is known by the company it keeps”). United States Fid. & Guar. Co. v.

Goudeau, 272 S.W.3d 603, 606 (Tex. 2008) (construing insurance policy).           By this

canon of construction, the meaning of a particular word or phrase is ascertained by

reference to those words or phrases with which it is associated.        See Green Ave.

Apartments Inc., v. Chambers, 239 S.W.2d 675, 684-85 (Tex.Civ.App.–Beaumont 1951,

no writ) (quoting Williston on Contracts (rev’d ed.)).    Here, in the context of these

documents reflecting transfers from father to son, the “services provided” phrase is

associated with the “relationship” between the donor and donee. Accordingly, we find



      2
       Nor does the record contain evidence Billy rendered services for his father in
exchange for the shares.


                                            8
the phrase “in consideration of the relationship and services provided” here refers not to

some unspecified but valuable consideration but to those arising from the familial

relationship. See Stewart v. Damron, 63 Ariz. 158, 167, 160 P.2d 321, 325 (1945)

(equating love and affection consideration for gift with “services such as association,

care, mutual assistance, companionship, understanding, and support”). The phrase

does not conclusively demonstrate that W.H. transferred the Watson Foods shares to

his son Billy for a valuable consideration inconsistent with a gift.


       Nina next argues that the trial court abused its discretion in characterizing the

stock as the separate property of Billy because the finding is not supported by factually

sufficient evidence.


       The essence of Nina’s factual insufficiency claim is Billy was undercompensated

and received the Watson Foods stock from his father as additional consideration for his

services as an officer of Watson Foods. To support this argument, Nina relies on the

“services provided” language of the transfer document.            She also points to facts

surrounding the relationship among Billy, his father, Davis, and Watson Foods. Davis is

not related to W.H. or Billy. Yet W.H. transferred an identical number of Class A shares

to Billy and Davis each year they served as officers for Watson Foods.             Davis’s

testimony indicated the corporation’s performance each year had an impact on the

determination of the number of shares W.H. transferred to him and Billy the following

year. W.H., Billy, and Davis were the only holders of Class A shares at the time of the

merger. At that time, the Class A stock in Watson Foods was valued at $9,000,000.

Watson Foods stock was annually appraised for the corporation’s employee stock



                                              9
ownership plan. On four occasions during 1995 through 1997, the value of shares

transferred to Billy was discounted from the appraised value. 3


       To support the theory of undercompensation, Nina presented at trial a CPA with

certification as a valuation analyst. In his opinion, Watson Foods undercompensated

Billy a total of $271,000 for 1996 through 1999. This conclusion drew his attention to

the transfer documents where he noted the phrase “services provided.” He then formed

an “impression” of a compensatory element in the transfer documents. In his opinion,

“perhaps    the   after-marriage   transfers    would   constitute   services   and   assets,

compensation.” As a basis for his opinion concerning the appropriate level of

compensation for Billy from Watson Foods, the CPA relied on data he obtained from a

website, “salary.com.” When asked if this website was generally accepted in the

profession, he responded that he knew of its use by a number of certified valuation

analysts.


       The CPA was subject to a lengthy cross-examination. He explained that he did

not consider other salary-reporting websites in making his undercompensation

determination.    The information obtained from salary.com was particular to a vice

president of sales position but was not specifically tailored to Billy. The CPA was not

familiar with Billy’s job description.   But he believed the job description for a vice

president of sales obtained from salary.com was appropriate “based on what little [he]




       3
        Correspondence contained in the record from Billy’s accountant mentions, in
general terms, discounting based on a lack of marketability and minority shareholder
status.


                                               10
knew” about Billy’s work. In making his evaluation, the CPA did not inquire of Watson

Foods or Sysco Texas of Billy’s job responsibilities. He could not say if salary.com

included information about the food service industry in west Texas and agreed the

information on which he relied was from unknown industries. The CPA was not aware

of positions in Lubbock comparable to Billy’s nor did he know how Billy’s salary was

calculated. In his opinion, establishing a rate of compensation is an internal matter

subject to outside influences such as competition.         He believed profitability of the

company could also impact salary.                 Except for his belief that Billy was

undercompensated, the CPA agreed that gifting of stock by W.H., with corresponding

reporting on gift tax returns, was a “typical” approach in estate planning.


       The evidence showed W.H. began transferring Watson Foods stock to Billy and

Davis in 1985. W.H. testified that he initiated the program of stock transfers on advice

of tax professionals for the purpose of estate planning.          He received nothing of

monetary value from Billy in return for the stock and added that it was not expected. He

believed the transfer documents were prepared by his accountant. Gift tax returns filed

by W.H. were admitted at trial. These reported gifts of Watson Foods stock to Billy and

Davis as well as gifts of units in another entity, Watson Development, Ltd., to W.H.’s

other two children. The record contains no evidence that Billy rendered toil or labor for

his father in consideration for valuable compensation.       On cross-examination, W.H.

agreed that he set the salaries of Billy and Davis for Watson Foods.


       Davis testified that during the 1980s, W.H. appointed him president of Watson

Foods and Billy vice president. W.H. also began gifting Watson Foods stock to Davis

and Billy. According to Davis, no consideration for the stock passed from Davis and

                                             11
Billy to W.H. At the time of the merger, Billy and Davis each possessed approximately

12.25 percent of Watson Foods Class A stock. On cross-examination, Davis agreed

that his money and that of Billy was “tied up” in the corporation.


       Nina testified that before marriage Billy told her nothing about his shares of

Watson Foods. And during marriage he stated that his pay was not adequate. Billy

testified that in a premarital conversation he told Nina of the Watson Foods stock and its

status as a gift from his father.


       As trier of fact the court was the exclusive judge of the credibility of the witnesses

and the weight to be given their testimony. City of Keller v. Wilson, 168 S.W.3d 802,

819 (Tex. 2005). Giving due consideration to the evidence that the trial court could

reasonably have found to be clear and convincing, we find the evidence was both

legally and factually sufficient to support the trial court’s finding that the stock was the

separate property of Billy. Accordingly, we overrule Nina’s first issue.


The Earnout

       In her second issue, Nina argues the trial court abused its discretion by

classifying proceeds received by Billy from Sysco Texas under the earnout agreement

as Billy’s separate property. Nina advances her argument through three grounds. Her

first contention depends, however, on the presupposition that the trial court abused its

discretion by characterizing the Watson Foods stock as Billy’s separate property.

Because we have found the trial court did not mischaracterize the stock, and did not,

accordingly, abuse its discretion, we focus on Nina’s remaining two grounds. These

issue from the contention that the earnout proceeds were dependent on the profitability


                                             12
of Sysco Texas, a company in which Billy was an executive officer responsible for sales.

Nina contends the earnout proceeds were income to the community because they were

either compensation for Billy’s labor or income from his separate property.


      The parties do not present disputed material issues of fact pertaining to

characterization of the earnout proceeds. Rather, our task again involves examination

of documents neither party claims are ambiguous. In the sale of a business employing

an earnout agreement as part of the purchase consideration, the buyer pays an agreed

“up-front” portion of the purchase price with the final amount determined by the future

profits of the business. Ordinarily the seller participates in management of the business

for a time following closure of the sale. In re A.P.F. Co., 270 B.R. 567, 572 n.8 (Bankr.

D. Del. 2001).


      The merger agreement provides the shareholders of Watson Foods would

receive, as consideration for their shares, $9,060,066 plus “Earnout Cash.”       In this

respect, the agreement further provides the Watson shareholders “shall have the right

to earn up to $4 million in cash (‘Earnout Cash’) over a three-year period based upon

achievement of operating results of Surviving Corporation [Sysco Texas] during such

three-year period.”   The particular conditions for obtaining the earnout cash are

specified by a contemporaneously executed “Earnout Agreement.” The parties to the

earnout agreement are Sysco, Sysco Texas, W.H., Billy, and Davis. It identifies the

three individuals as “Earnout Shareholders.”      The earnout shareholders are paid

according to their percentage of Class A share ownership in Watson Foods. Under the

agreement Billy was paid $500,000 of which $353,907.03 remained in an account at the

time of the divorce proceeding. We find these contractual provisions consistent with an

                                           13
agreement conditioning the final payment of consideration for the sale of a business on

the future performance of the business. Such language is not, on the other hand,

consistent with an employee bonus arrangement.


      The targeted pre-tax earning goals for Sysco Texas were a flat, unchanging

percentage for each of the three years. This is consistent with an agreement making

payment of the final purchase price of a business contingent on maintaining agreed,

targeted earnings following the sale. See A.P.F., 270 B.R. at 572. Conversely, it is not

consistent with an incentive earning agreement that rewards employees for achieving

an agreed performance level or profit amount. Id.


      The merger agreement provides a conditional offer of employment to Watson

Foods employees on “substantially the same terms and conditions” as afforded by

Watson Foods. Notably, the merger agreement and earnout agreement do not treat

earnout cash as additional compensation for W.H., Billy, and Davis. See A.P.F., 270

B.R. at 573.   Indeed, the agreements do not require continued employment of the

shareholders as a condition to the payment of the earnout agreement.


      The parties do not point us to, nor do we find, any record fact or legal authority

leading to a conclusion other than the earnout cash was the final payment of

consideration for the surrender by W.H., Billy, and Davis of their shares of stock in

Watson Foods.     We accordingly find the trial court did not abuse its discretion by

characterizing the earnout cash received by Billy as his separate property.      Nina’s

second issue is overruled.




                                           14
       By her final issue, Nina seeks remand for a just and right division of the

community estate, based on findings by this court that the trial court abused its

discretion in characterizing the Watson Foods stock and earnout cash as Billy’s

separate property. Because we have found no error by the trial court, discussion of

Nina’s third issue is unnecessary to our disposition of the appeal. Tex. R. App. P. 47.1.


                                          Conclusion


       Having overruled Nina’s issues necessary to the disposition of the appeal, we

affirm the judgment of the trial court.




                                                       James T. Campbell
                                                            Justice




                                              15
