After his divorce, Todd Kozel, a former oil executive, was ordered by a family court to transfer 23 million shares from his oil company to his wife as equitable distribution. When he didn’t, a $38 million judgment was entered against him. Why was that enforcement order overturned?

Equitable Distribution Oil

Striking Oil

Todd and Ashley married in 1992, and she filed for divorce in 2010. Todd is the chief executive officer of Gulf Keystone Petroleum, Ltd., an oil and gas exploration company.

When the parties divorced, much of their shared wealth consisted of Gulf Keystone stock, which is publicly traded in London. The parties settled after he agreed to transfer Gulf Keystone stock to Ashley as equitable distribution.

Under their Settlement Agreement, the husband was obligated to transfer twenty-three million shares of Gulf Keystone stock to his wife as equitable distribution on or before January 27, 2012. Upon delivery, the former wife would then be free to sell her stock to anyone at any time.

But Todd didn’t deliver his twenty-three-million shares by January 27, 2012. Instead, he transferred the stock to her in four batches at later dates: (1) 2,034,447 shares on January 30, 2012; (2) 3,798,886 shares on February 3, 2012; (3) 5,666,667 shares on February 21, 2012; and (4) 11,600,000 shares on March 1, 2012.

Invoking the trial court’s continuing jurisdiction to enforce the agreement, Ashley filed papers with the family court. Although her filings were styled as petitions to enforce the agreement, they alleged what amounted to claims for money damages for alleged breaches of their agreement.

After granting partial summary judgment on liability and holding a trial on damages, the family court found Todd in breach and awarded her: $34,611,702 as damages for his failure to deliver the stock on time and another $3,850,500 as damages for the breach to provide tax information.

Florida Equitable Distribution

Why was Ashley awarded so much of Todd’s Gulf Keystone stock? I have written about equitable distribution before. Florida is an equitable distribution state when it comes to dividing business assets in divorce.

In a proceeding for dissolution of marriage, in addition to all other remedies available to a court to do equity between the parties, a court must set apart to each spouse that spouse’s non-marital assets and liabilities.

When distributing the marital assets between spouses, a family court must begin with the premise that the distribution should be equal, unless there is a justification for an unequal distribution based on all relevant factors.

When the Oil Runs Out

While Todd was in default for his failure to timely deliver the Gulf Keystone stock, he made all of the additional equitable distribution payments required. On November 28, 2012 — eight months after the final transfer of stock — Ashley argued that Todd’s breach of the agreement caused her to suffer substantial damages because it denied her an opportunity to sell the stock at a time when market conditions were favorable.

But Todd argued that a family court lacks jurisdiction to consider Ashley’s claim because what she was asking for amounted to a claim for general damages for breach of contract.

So, Ashley amended her petition, styling it as one to “enforce” the agreement. She alleged that the court had jurisdiction to enforce the agreement through an award of damages for losses that she allegedly incurred as a result of the failure to deliver the stock timely.

The family judge awarded her $34,611,702 and another for the tax basis dispute $3,850,500, to be placed in escrow (presumably pending the outcome of a refund request to the IRS).

The question in a case like this is whether and to what extent a family court’s continuing jurisdiction to enforce a final judgment extends to claims for money damages for breaches of a settlement agreement.

When a court orders compliance with the terms of a settlement agreement – when it requires a party to perform an obligation in the agreement — it is engaged in proper post-judgment enforcement over which it has continuing jurisdiction. But when a court awards damages as a substitute for a party’s performance, it is not engaging in legitimate post-judgment enforcement but a separate claim for breach.

The former wife sought and the family court awarded general, benefit-of-the-bargain damages for the breach of the agreement that was not specified in the agreement. In reversing the judgement, the appellate court ruled that “couching these remedies as “enforcement” of the [agreement] does not change what their substance is: general damages for breach.”

The opinion is here.