Bottrell Family Investments Limited Partnership v. Diversified Financial, Inc

¶1 Bottrell Family Investments filed this breach of contract action in the Thirteenth

Judicial District Court, Yellowstone County, seeking damages and a declaratory

judgment against Diversified Financial, Inc., Stephen A. Zabawa, and Jason Blair

(collectively, "Defendants”). After both Bottrell and Defendants moved for summary

judgment, the District Court entered judgment in Defendants' favor. Bottrell appeals.

The issues on appeal are as follows:

1. Whether election of remedies doctrine bars Bottrell's pursuit of damages;

2. Whether laches bars Bottrell's action.

¶2 We reverse and remand for the District Court to enter judgment in Bottrell's favor

and to calculate damages.

PROCEDURAL AND FACTUAL BACKGROUND

¶3 In 2006, Defendants were developing an integrated software program called

Version 1 that would allow auto dealerships to initiate, complete, and account for vehicle

sales. Additionally, Defendants had developed a program called Red Flag that trained

auto dealership employees. Defendants approached Bottrell about investing in their

enterprise. In early 2007, the parties entered into an Operating Agreement to form

Dealerspan, LLC, which would own and operate Version 1 and Red Flag. The Operating

Agreement provided Bottrell a fifty percent share of the company, with the remaining

fifty percent split among Defendants. The Operating Agreement included a doomsday

election to buy or sell clause. Under this clause, a partner could inform another partner

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that, within ninety days, the other partner must elect either to sell his interests or to buy

the invoking partner's interests in the company for a specified price. The electing

partner's choice would form a binding contract.

¶4 In the summer of 2008, Bottrell and Defendants came to loggerheads about the

direction that Dealerspan should take. Defendants wanted to seek additional investment

to develop Version 1 for market, whereas Bottrell wanted to liquidate Dealerspan. On

August 13, 2008, Defendants notified Bottrell of a doomsday election to buy or sell for

$2.3 million. Bottrell elected to buy Defendants' interests in Dealerspan for that amount.

Defendants did not want to sell their interests, however, so the parties bargained for and

entered into a new contract ("the Contract”). The Contract provided that Defendants

would buy Bottrell's interests in Dealerspan for $2.3 million, plus interest, and would

reimburse Bottrell for any advances Bottrell would make to Dealerspan between the date

of the Contract's execution and November 14, 2008, the Contract's closing date. The

Contract contained language specifying what would happen in the event that Defendants

failed to purchase Bottrell's interests by the closing date: chiefly, Defendants would

forfeit their own fifty percent share in the business to Bottrell "in addition to other

remedies.”

¶5 Defendants failed to close and accordingly forfeited their fifty percent share to

Bottrell, with Bottrell assuming full control of the company. After the forfeiture, Bottrell

solicited offers for Dealerspan, but never sold the company. At one point, Bottrell

entered into a contract with defendant Zabawa granting him the power to sell Dealerspan

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to a third party for $5 million, but Zabawa was unable to reach terms with the third party.

Bottrell determined that Dealerspan was no longer worth the cost of operations, sold

some of Dealerspan's physical assets, and transferred employees working on Version 1 to

other subsidiaries. Bottrell continued to collect income from Red Flag.

¶6 On January 14, 2014, Bottrell commenced this action, seeking damages under the

August 2008 contract, as well as a declaratory judgment that the Contract is still effective

and that Defendants accordingly owe Bottrell $2.3 million, plus $628,000 in advances,

plus interest. In June 2014, both parties moved for summary judgment. Defendants

argued that the doctrines of election of remedies and laches barred Bottrell's suit.

Bottrell argued that it was entitled to judgment as a matter of law that Defendants

breached the Contract and that, as of June 2014, Defendants owed Bottrell $3,480,728.70

in damages.

¶7 In a terse opinion and order entered in October 2014, the District Court awarded

summary judgment to Defendants. Likening Bottrell's suit to an attempt to "have [its]

cake and eat it too,” the District Court determined that, by accepting Defendant's

forfeited interests in Dealerspan, Bottrell elected to pursue the remedy of forfeiture and

rescinded the Contract. Consequently, Bottrell could not seek to enforce the Contract's

payment provisions. The District Court also opined that the doctrine of laches would bar

Bottrell's suit. Bottrell filed a timely appeal.

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STANDARDS OF REVIEW

¶8 We review entries of summary judgment de novo. Albert v. City of Billings, 2012

MT 159, ¶ 15, 365 Mont. 454, 282 P.3d 704. Summary judgment is appropriate when the

moving party demonstrates the absence of a genuine issue of material fact and

entitlement to judgment as a matter of law. M. R. Civ. P. 56(c)(3); Albert, ¶ 15. We

review a district court's interpretation of a contract for correctness. Kaufman Bros. v.

Home Value Stores, Inc., 2012 MT 121, ¶ 6, 365 Mont. 196, 279 P.3d 157.

DISCUSSION

¶9 1. Whether election of remedies doctrine bars Bottrell's pursuit of damages.

¶10 The parties do not dispute that the Contract is binding, or that Defendants

breached it. They disagree, however, about whether, under the terms of the Contract and

the applicable law, Defendants' breach entitles Bottrell to institute the present action for

damages and declaratory judgment.

¶11 "The fundamental tenet of modern contract law is freedom of contract; parties are

free to mutually agree to terms governing their private conduct as long as those terms do

not conflict with public laws.” Winter v. State Farm Mut. Auto. Ins. Co., 2014 MT 168,

¶ 26, 375 Mont. 351, 328 P.3d 665 (quoting Arrowhead Sch. Dist. No. 75 v. Klyap, 2003

MT 294, ¶ 20, 318 Mont. 103, 79 P.3d 250). In construing a contract, we attempt to

discern and give effect to the mutual intent of the parties as reflected in the contract's

terms. Sections 28-3-301, -401, MCA.

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¶12 The Contract states that Defendants are "jointly and severally liable (personally) to

perform all the terms and conditions of this Agreement including the payment of all sums

hereunder including but not limited to the sum of $2.3 million plus any advances.” The

Contract then goes on to discuss Bottrell's remedies in case of Defendants' breach.

6. If [Diversified], Zabawa, and Blair fail to close the transaction on or

before the Closing Date, then, in addition to other remedies, they agree,

along with [Diversified], that their interest, free and clear of all claims or

liens of any nature, is forfeited that they and/or Diversified Financial

Incorporated shall have in Dealerspan, LLC and shall have no further

rights, interests or title to any of the management or ownership of

Dealerspan, LLC in any fashion. They waive any rights under the

Operating Agreement, including the right to be bought out and this

Agreement shall then act as their resignation from Dealerspan;

7. [Diversified], Zabawa, and Blair acknowledge that, by entering into this

agreement, [Bottrell] is compromising its rights significantly. Accordingly,

[Diversified], Zabawa, and Blair agree that, in the event Diversified,

Zabawa, and Blair are unable to pay the purchase price by the Closing Date,

then they shall forfeit and assign their interest in Dealerspan, LLC and

[Bottrell] shall have the sole right to liquidate Dealerspan, LLC in any

manner that it sees fit. [Diversified], Zabawa and Blair waive any rights

they may have against [Bottrell] regarding the liquidation of Dealerspan,

LLC. More specifically, [Diversified], Zabawa, and Blair waive any right

to require [Bottrell]:

a. Except as provided herein, to give notice of the terms, time, and place of

any public or private sale of assets belonging to Dealerspan, LLC, in any

specific manner or to comply with any provisions of the Uniform

Commercial Code or any provisions of the Montana Code Annotated that

relate to liquidation of limited liability companies;

b. To delay the liquidation or sale of assets of Dealerspan, LLC, beyond

any date specifically agreed upon by [Bottrell];

c. To sell or liquidate the assets of Dealerspan, LLC, for any minimum

price or value;

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d. To pursue any other remedy within [Bottrell]'s power such as

marshalling; or

e. To commit any act or omission of any kind, or at any time, with respect

to any matter whatsoever.

[Diversified], Zabawa, and Blair also waive any and all rights or defenses

arising by reason of any "one action” or "anti-deficiency” law or any other

law which may prevent [Bottrell] from bringing any action, including a

claim for deficiency, against [Diversified], Zabawa, and/or Blair, after

[Bottrell]'s liquidation of Dealerspan, LLC. [Diversified], Blair, and

Zabawa specifically acknowledge and agree that these waivers are fair and

reasonable given the nature of the business of Dealerspan, LLC, and the

position that [Bottrell] shall be left in should [Diversified], Zabawa, and/or

Blair fail to fund the purchase price by the Closing Date. . . .

While the Contract's remedies language is clumsy, we discern that it provides Bottrell

three sequential remedies in case of Defendants' breach. First, Bottrell may accept

Defendants' forfeiture of all their interests and rights in Dealerspan. Second, Bottrell

may liquidate Dealerspan. Third, if liquidation does not place Bottrell in the position it

would have been had Defendants performed, Bottrell may sue Defendants for

deficiency—the difference between the amount recovered through the forfeiture and

liquidation and the amount owed under the Contract.

¶13 After Defendants breached, Bottrell accepted Defendants' forfeiture. Bottrell has

admitted, however, that it did not liquidate Dealerspan, and it is not currently seeking a

deficiency judgment. Rather, Bottrell seeks to collect the amount owed under the

Contract.

¶14 Defendants essentially argue that the remedies outlined by the Contract (forfeiture,

liquidation, and deficiency) are the exclusive remedies available to Bottrell, so Bottrell

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cannot pursue different remedies. In Glacier Campground v. Wild Rivers, Inc., 182

Mont. 389, 597 P.2d 689 (1978), we similarly were tasked with discerning the effect of a

contract's remedies section on a plaintiff's ability to pursue a remedy not specifically

provided by the contract. Glacier Campground, 182 Mont. at 394, 597 P.2d at 692. That

case involved land purchasers who defaulted but argued that contractual language

outlining the seller's ability to repossess the property and retain improvements and

previous payments impliedly precluded the seller from pursuing an action for contract

damages. Glacier Campground, 182 Mont. at 391-92, 597 P.2d at 690-91. We

disagreed, stating, "In the absence of a contractual provision expressly limiting the

remedy or remedies available, a party may pursue any remedy which law or equity

affords, as well as the remedy or remedies specified in the contract.” Glacier

Campground, 182 Mont. at 403, 597 P.2d at 696.

¶15 Here, there is no provision in the Contract expressly limiting the remedies

available to Bottrell. In fact, the Contract states that the remedies it outlines are "in

addition to other remedies.” Accordingly, the Contract does not limit Bottrell to the

remedies provided in the Contract.

¶16 Defendants next argue that, even if the Contract remedies are not the exclusive

remedies from which Bottrell may choose, once Bottrell does choose the Contract

remedies, it cannot pursue any others. Defendants distinguish the case on appeal from

Glacier Campground on the ground that, in Glacier Campground, the plaintiff never

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elected a remedy before bringing suit, whereas in this case, Bottrell elected to accept

Defendants' forfeiture. Indeed, in Glacier Campground, we noted,

The seller here is not exercising his option to declare the contract at an end.

If he were to do so, then he would be precluded from suing to recover the

purchase price or payments past due, for he could not reclaim the property

under a forfeiture clause and at the same time recover any unpaid portion of

the sale price.

Glacier Campground, 182 Mont. at 400, 597 P.2d at 695.

¶17 Defendants' argument does not appear to rely on any specific language in the

contract. Rather, the argument relies on the doctrine of election of remedies. See 3 Dan

B. Dobbs, Law of Remedies § 12.7(6), at 185 (2nd ed. 1992) ("The traditional doctrine [of

election of remedies] is to be distinguished from the question whether a remedy provided

by the contract itself is the exclusive remedy which bars others.”). Election of remedies

doctrine prevents a plaintiff that has elected a remedy from asserting a subsequent,

inconsistent remedy. The doctrine of election of remedies requires "(1) the existence of

two or more remedies, (2) an inconsistency between such remedies, and (3) a choice of

one of them.” Kaufman Bros., ¶ 15; Frazer Educ. Ass'n, MEA/FEA v. Bd. of Trs.,Valley

Cnty. Elementary Sch. Dist. No. 2, 256 Mont. 223, 227, 846 P.2d 267, 270 (1993).

¶18 Defendants argue that accepting forfeiture is inherently inconsistent with a claim

for money damages.1

To support this proposition, Defendants cite a number of cases in

which a plaintiff's recovery of a defendant's forfeited property was held to preclude the

plaintiff's later pursuit of contract damages. See e.g., Kaufman Bros, ¶ 20; Edwards v.



1 We note that the Defendants have not argued that the forfeiture clause represents a liquidated

damages clause. See Dobbs, supra, § 12.9(5).

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Muri, 73 Mont. 339, 351, 237 P. 209, 213 (1925); see also Glacier Campground, 182

Mont. at 400, 597 P.2d at 695 (noting, as quoted above, that if the seller reclaimed

forfeited property, he could not sue for the purchase price).

¶19 As we have explained about election of remedies doctrine,

[T]he so-called "inconsistency of remedies” is not in reality an

inconsistency between the remedies themselves, but must be taken to mean

that a certain state of facts relied on as the basis of a certain remedy is

inconsistent with, and repugnant to, another certain state of facts relied on

as the basis of another remedy. For one proceeding to be a bar to another

for inconsistency, the remedies must proceed from opposite and

irreconcilable claims of right and must be so inconsistent that a party could

not logically assume to follow one without renouncing the other.

Frazer Educ. Ass'n, 256 Mont. at 229, 846 P.2d at 271 (1993) (quoting 25 Am. Jur. 2d

Election of Remedies § 11 (1966)). "To determine whether remedies are inconsistent, the

court looks at whether one theory alleges what the other denies or whether one theory is

repugnant to the other.” 25 Am. Jur. 2d Election of Remedies § 20 (2014).

¶20 There is a significant difference between the state of facts present in the cases that

Defendants cite and the facts in this case. In the cases that Defendants cite, the subject of

the contract also was the thing that was forfeited. For instance, in Kaufman Bros., the

seller of land retook possession of that land after the purchaser's breach. Kaufman Bros.,

¶ 3. By retaking control of the subject of a contract, a seller may be thought of as

returning herself to the position she was in before the contract was created—in effect,

negating the contract. This negation conflicts with pursuing damages under a contract

because the pursuit of contract impliedly affirms the contract. Thus, in Kaufman Bros.,

because one remedy negated the contract while the other affirmed it, we determined that

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"[t]he remedy of the [seller] by way of cancellation of the contract and the continued

liability of the purchaser for the purchase money are totally inconsistent,” Kaufman

Bros., ¶ 17 (quoting Adamczik v. McCauley, 89 Mont. 27, 36, 297 P. 486, 488 (1931)),

and barred the seller's pursuit of damages.

¶21 Here, by contrast, the Contract's subject was Bottrell's interests in Dealerspan, but

the property that was forfeited was Defendants' interests in Dealerspan. Defendants'

forfeiture of their interests in Dealerspan did not return the parties to the positions they

were in before executing the Contract. In other words, the forfeiture in this case did not

negate the Contract. As Defendants themselves recognized in March 2009, after the

forfeiture occurred, the Contract remained "in full force and effect.” The election of

remedies cases Defendants cite simply do not stand for the proposition that Bottrell could

not accept Defendants' forfeited interests and then pursue additional remedies. Indeed,

the Contract specifically provides for additional remedies beyond forfeiture.

¶22 The Contract does not provide, however, that Bottrell should be placed in a better

position through Defendants' breach than through Defendants' performance. The

successive remedies that the Contract outlines are designed to make Bottrell whole but no

more. Under the Contract, if Bottrell accepts Defendant's forfeited interests and

liquidates Dealerspan, it can then sue for deficiency—in other words, the amount left

under the purchase price of the Contract. This would not provide Bottrell a double

recovery. See also § 27-1-302, MCA ("Damages in all cases must be reasonable.”);

McEwen v. MCR, LLC, 2012 MT 319, ¶¶ 65-66, 362 Mont. 38, 291 P.3d 1253

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(explaining that damages for breach of contract should not lead to a double recovery or to

placing a party in a better position than if the contract had been performed as bargained).

¶23 Thus, while we discern no basis in Defendants' arguments on the Contract or the

law for barring Bottrell's pursuit of damages, Bottrell may recover only those damages

that resolve the difference between the benefit Bottrell derived from Defendants' breach

(including the value of Defendants' forfeited interests, profits from Red Flag, and profits

from selling Dealerspan's physical assets) and the contract purchase price.

¶24 2. Whether laches bars Bottrell's action.

¶25 Defendants also assert that laches bars the current action. A party asserting the

defense of laches bears the burden of showing that it was prejudiced by the other party's

lack of diligence in asserting its rights. Dollar Plus Stores, Inc. v. R-Montana Assocs.,

L.P., 2009 MT 164, ¶ 31, 350 Mont. 476, 209 P.3d 216. Bottrell waited over five years

from the breach of contract in 2008 to file this action in 2014. The statute of limitations

for a breach of contract action is eight years. Section 27-2-202(1), MCA. When a party

files suit within the applicable period of limitations, we apply the doctrine of laches only

in extraordinary circumstances. McGregor v. Mommer, 220 Mont. 98, 107, 714 P.2d

536, 542 (1986).

¶26 Defendants argue that Bottrell's delay in filing this action prejudiced them because

Dealerspan is worth substantially less today than it was at the time of the breach. But

Bottrell's complaint does not request specific performance of the Contract, under which,

for the purchase price, Bottrell would be entitled to Dealerspan as it existed in 2008 or

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2009. Rather, Bottrell's complaint seeks damages resulting from Defendants' breach.

Defendants have not submitted evidence showing that Bottrell's delay in filing this action

changed the nature of those damages other than perhaps to increase the amount of interest

that may be awarded. Accordingly, Defendants have not shown extraordinary

circumstances or prejudice sufficient to justify the application of laches.

¶27 We reverse the District Court’s award of summary judgment in favor of

Defendants and remand for entry of judgment in favor of Bottrell. We also remand for a

determination of damages, if any, that are consistent with this opinion.