Floberg v. Lecois , 2014 MT 102N ( 2014 )

April 15 2014
DA 13-0333
IN THE SUPREME COURT OF THE STATE OF MONTANA
2014 MT 102N
FLOBERG COMPANIES, a Montana corporation,
d/b/a PRUDENTIAL FLOBERG REALTORS,
Plaintiff and Appellant,
v.
LECOIS, LTD., a Montana corporation, d/b/a
C MOR REAL ESTATE, d/b/a PRUDENTIAL RED
LODGE REAL ESTATE, and HEATHER QUINN,
Defendants and Appellees.
APPEAL FROM: District Court of the Twenty-Second Judicial District,
In and For the County of Carbon, Cause No. DV 08-123
Honorable Blair Jones, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
J. Robert Planalp; Landoe, Brown, Planalp & Reida, P.C.; Bozeman,
Montana
For Appellees:
Raymond G. Kuntz; Attorney at Law; Red Lodge, Montana
Submitted on Briefs: March 12, 2014
Decided: April 15, 2014
Filed:
__________________________________________
Clerk
Justice Patricia Cotter delivered the Opinion of the Court.
¶1 Pursuant to Section 1, Paragraph 3(d), Montana Supreme Court Internal Operating
Rules, this case is decided by memorandum opinion and shall not be cited and does not
serve as precedent. Its case title, cause number, and disposition shall be included in this
Court’s quarterly list of noncitable cases published in the Pacific Reporter and Montana
Reports.
¶2 Floberg Companies is a Montana corporation conducting business as Prudential
Floberg Realtors (Floberg). Floberg is a franchisee of Prudential Real Estate Affiliates,
Inc. (PREA). Heather Quinn (Quinn) owns and operates LeCois, Ltd. d/b/a C Mor Real
Estate (LeCois).1 Floberg appeals from orders of the Twenty-Second Judicial District
Court, Carbon County, dismissing its claims with prejudice, finding it liable to LeCois
and Quinn for breach of contract and wrongful retention of “override” funds in the
amount of $28,517, and awarding LeCois and Quinn costs and attorney’s fees. We
affirm the order dismissing Floberg’s claims and finding Floberg liable to LeCois and
Quinn. We remand the order on costs and attorney’s fees.
¶3 This case arises out of a 2004 agreement between Floberg and LeCois to form an
LLC to conduct real estate sales in Red Lodge, Montana. Floberg and LeCois organized
Properties Red Lodge, LLC (LLC) on May 27, 2004. They later executed several other
agreements, including a Contract for Satellite Office and an operating agreement.
1
LeCois is currently known as Prudential Red Lodge Real Estate.
2
Marilyn Floberg (Marilyn), Floberg’s president, drafted all the contract documents
between the parties.
¶4 Neither party contributed any capital to the LLC. Floberg initially proposed that
LeCois receive 100% of the LLC’s income. When PREA protested, Floberg suggested
that LeCois receive 95% of the LLC’s income and Floberg receive 5%. During
negotiations, Floberg agreed that Quinn would retain ownership of LeCois, and that
everything LeCois put into the LLC would be returned to LeCois upon termination of the
LLC. The operating agreement reflects this arrangement, providing: “in the event of
termination of this Agreement for any reason, Lecois Ltd. shall be entitled to the return of
all assets and property held by Lecois, Ltd. or its principals prior to the execution hereof
and acquired by it during the term hereof.”
¶5 As part of the franchise deal with PREA, LeCois forwarded 6% of its gross
commission income on each transaction to Floberg. An exhibit to the operating
agreement provided: “Franchise Fee of 6% is collected all year long (Franchise year is
October 1st – Sept. 30th) and then rebated once per year when we determine the actual
average percentage franchise fee paid for the 12 months of the franchise year.” Marilyn
told Quinn that Floberg actually paid less than 6% to PREA and would rebate the
difference to LeCois at the end of each year. Marilyn never mentioned that Floberg
would keep part of the franchise fee as an “override.” Floberg nevertheless retained 1.6%
of LeCois’s gross commission income each year. In 2007, Floberg retained 4.2% of
LeCois’s gross commission.
3
¶6 The operating agreement required the consent of both members before a member
could withdraw, and it provided that the LLC would dissolve upon the withdrawal of a
member. In 2007, Quinn informed Marilyn that she no longer wished to be in business
with Floberg, and Marilyn said “that would be all right.” Floberg and LeCois advised
PREA that the LCC would “no longer continue as a going concern.” Floberg
independently renewed its franchise agreement with PREA on November 29, 2007. On
December 28, 2007, PREA granted LeCois a separate and independent franchise.
¶7 In July 2008, Floberg filed a complaint against Quinn and LeCois alleging various
tort and contract claims. In October 2008, Quinn and LeCois counterclaimed for breach
of contract and breach of the implied covenant of good faith and fair dealing, fraud,
malicious abuse of civil process, and tortious interference with economic relations. On
October 27, 2011, Floberg filed an amended complaint, alleging the following causes of
action: breach of statutory duties, breach of fiduciary duty and duty of loyalty, tortious
interference with economic relationship, breach of the implied covenant of good faith and
fair dealing, conversion, fraud, request for accounting, petition for judicial relief
including injunction, negligence, negligent misrepresentation, and constructive fraud.
Quinn and LeCois later filed an amended counterclaim and cross-claim, adding four
additional counterclaims.
¶8 After a flurry of briefing, the District Court held a bench trial on September 24 and
September 25, 2012. On December 12, 2012, the District Court issued its findings of
fact, conclusions of law, and order. It awarded Quinn and LeCois $28,517 in wrongly
4
retained “override” funds. After briefing on the issue of attorney’s fees, the District
Court issued an order awarding attorney’s fees to Quinn and LeCois in the amount of
$165,085.50 with interest of 10% per annum until paid in full. Floberg timely appealed
the orders.
¶9 Floberg argues that the written agreements between the parties had not terminated
prior to Quinn’s alleged breach of the implied covenant. Floberg asserts that Marilyn
consented to Quinn withdrawing from the satellite office but did not consent to her
withdrawing from, and thus dissolving, the LLC. LeCois and Quinn counter that the
evidence shows Marilyn agreed to terminate the business relationship and consented to
LeCois’s withdrawal from the LLC.
¶10 The District Court noted that “Floberg drafted the contract documents without
scrupulous attention to substance and detail.” The court properly construed all
ambiguities in the documents regarding dissolution and disassociation against Floberg
pursuant to § 28-3-206, MCA. Though the record suggests that Marilyn may have been
“unhappy with the idea of PREA granting [Quinn] a small market franchise, at no time
did Marilyn ever tell [Quinn] that she could not withdraw from the LLC or that she was
prohibited by law or contract from establishing a [standalone] franchise with PREA.” By
the terms of the operating agreement, the LLC dissolved when “[a]ll of the [m]embers
consent to a dissolution.” We conclude the District Court did not err in finding that the
LLC terminated because Floberg consented to LeCois’s dissociation.
5
¶11 Because we reject Floberg’s argument that the operative agreements and the LLC
remained in effect, we decline to reach Floberg’s argument that Quinn was the manager
of the LLC and that she breached her fiduciary duties, as the alleged breaches occurred
after the dissolution of the LLC. We also decline to address the other events that could
have caused dissolution of the LLC.
¶12 We next address the parties’ dispute regarding the existence of any damages. The
District Court found that “Floberg had no reasonable expectation of profit from the
arrangement with LeCois because LeCois had no obligation to renew the franchise
agreement or continue in business with Floberg.” It further found that Floberg had no
contractual right to an “override.” A review of the record establishes that these findings
were supported by substantial evidence. We conclude the District Court did not err in
concluding Floberg suffered no recoverable damages.
¶13 Floberg also alleges that Quinn and LeCois did not have standing to pursue a
claim for increased rebates under the Contract for Satellite Office because only the LLC
had standing for such a claim. Quinn and LeCois counter that they had standing because
LeCois was a party to the Contract for Satellite Office, Quinn executed the signature page
as LeCois’s president, and they were the intended third-party beneficiaries of the parties’
various agreements. They argue Floberg is judicially estopped from making this
argument because it alleged in its complaint that they were parties to the contract who
were bound by an implied covenant of good faith and fair dealing.
6
¶14 In its complaint, Floberg alleged that “[a]s parties to the Operating Agreement and
Addendum to Real Estate Brokerage Franchise Agreement, Defendants Quinn and
Lecois, Ltd. are bound by an implied covenant of good faith and fair dealing.” We agree
with LeCois and Quinn that Floberg is estopped from arguing that they lack standing
because of its original position regarding their role as parties to the contracts. Thus, we
conclude LeCois and Quinn had standing to pursue their claim against Floberg for breach
of contract and wrongful retention of “override” funds. Further, we conclude the District
Court did not err in its calculation and award of “override” funds to LeCois and Quinn.
¶15 As to attorney’s fees, the Contract for Satellite Office provides: “If either party
institutes legal action for the enforcement of this Contract, the prevailing party shall be
entitled to a reasonable attorney’s fee in addition to costs of suit.” Floberg maintains the
District Court erred in awarding attorney’s fees to LeCois and Quinn because they did not
have standing to institute legal action under this contract. Given our disposition of Issues
One and Two, we conclude that the District Court did not err in awarding costs and
attorney’s fees to LeCois and Quinn. However, we note that the District Court awards
Quinn and LeCois costs and attorney’s fees in the amount of $165,085.50 in its order, but
awards costs and fees in the amount of $193,602.50 in its judgment. Thus, we remand on
this issue for a determination of the proper award of costs and attorney’s fees. In
addition, we remand for consideration of Quinn and LeCois’s request for attorney’s fees
and costs incurred on appeal.
7
¶16 We have determined to decide this case pursuant to Section I, Paragraph 3(d) of
our internal Operating Rules, which provides for noncitable memorandum opinions.
¶17 For the forgoing reasons, we affirm the District Court’s order dismissing Floberg’s
claims and finding Floberg liable to LeCois and Quinn. We remand the District Court’s
order on costs and attorney’s fees.
/S/ PATRICIA COTTER
We concur:
/S/ MIKE McGRATH
/S/ LAURIE McKINNON
/S/ MICHAEL E WHEAT
/S/ JIM RICE
8