Bottrell Family Investments Ltd. Partnership v. Diversified Financial, Inc.

Bottrell Family Investments Ltd. Partnership v. Diversified Financial, Inc., 2015 MT 185 (June 30, 2015) (Baker, J.) (5-0, rev’d)

Issue: (1) Whether the election of remedies doctrine bars Bottrell’s claim for damages; and (2) whether Bottrell’s action is barred by laches.

Short Answer: (1) No, and (2) no.

Reversed and remanded for entry of judgment in Bottrell’s favor and a determination of damages

Facts: In 2006, Defendants were developing software programs for auto dealerships. They entered into an operating agreement with Bottrell to form an LLC that would own and operate the two programs. Bottrell owned 50% of the company and the remaining 50% was split among the Defendants. The agreement had a doomsday clause under which a partner could tell another partner that within 90 days it must elect to sell its interests or buy the invoking partner’s interest for a specified price. The electing partner’s choice would form a binding contract.

In August 2008, Defendants notified Bottrell of a doomsday election to buy or sell for $2.3 million. Bottrell elected to buy, but Defendants did not want to sell. The parties entered into a new contract under which Defendants would buy Bottrell’s interest for $2.3 million plus interest and reimburse Bottrell for any advances Bottrell made between the date of the contract’s execution and the closing date of November 14, 2008. The contract provided that if Defendants failed to buy Bottrell’s interest by the closing date, they would forfeit their 50% share in the LLC “in addition to other remedies.”

Defendants failed to close and forfeited their shares to Bottrell. Eventually, Bottrell determined the LLC was no longer worth the cost of operations, sold off some assets and transferred employees working on one program to other subsidiaries. Bottrell continued to collect income from the second software program.

Procedural Posture & Holding: In January 2014 Bottrell filed suit, seeking damages under the August 2008 contract s well as a declaratory judgment that the 2008 contract is still effective and Defendants owe Bottrell $2.3million plus $628,000 in advances, plus interest. On cross-motions for summary judgment, Defendants argued Bottrell’s suit was barred by the election of remedies doctrine and laches, and Bottrell argued it was entitled to judgment that Defendants breached the 2008 contract and owed Bottrell $3,480,728 in damages. The district court entered judgment for Defendants. Bottrell appeals, and the Supreme Court reverses and orders judgment to be entered for Bottrell.

Reasoning: (1) The contract allows Bottrell to accept Defendants’ forfeiture. Second, it allows Bottrell to liquidate the LLC. Third, it allows Bottrell to sue Defendants for a deficiency judgment. Bottrell accepted Defendants’ forfeiture, but did not liquidate the LLC and is not seeking a deficiency judgment. Rather, it seeks the amount owed it under the contract. Defendants argue Bottrell does not have that remedy. But the contract says “in addition to other remedies,” and therefore does not limit Bottrell to only those remedies provided in the contract.

Defendants also argue that, having elected one remedy, Bottrell cannot then elect others as well. They argue that accepting their forfeiture is inconsistent with claiming money damages. But forfeiture did not negate the contract, and did not return the parties to the positions they held before executing the contract. However, Bottrell may not be placed in a better position through Defendants’ breach than it would have been through their performance. Bottrell may recover only those damages that resolve the difference between the benefit Bottrell derived from the breach and the purchase price.

(2) Defendants argue laches bars Bottrell’s claim. The statute of limitations on a contract claim is 8 years; Bottrell filed within six years. Because Defendants have not shown extraordinary circumstances or prejudice, laches does not apply.