MAVERICK BENEFIT ADVISORS, LLC; MOUNTAIN BENEFIT ASSOCIATES, LLC; TAYLOR H. HAYNES; and ELISABETH A. WASSON, Appellants (Plaintiffs/Third Party Defendants),
DAVID J. BOSTROM; BOSTROM ENTERPRISES, LLC; and MOUNTAIN STATES REVIEW, INC., Appellees (Defendants/Third Party Plaintiffs).
from the District Court of Washakie County The Honorable
David B. Park, Judge
Representing Appellants: Douglas W. Bailey and Henry F.
Bailey, Jr. of Bailey|Stock|Harmon|Cottam P.C., Cheyenne,
Wyoming. Argument by Mr. Douglas Bailey.
Representing Appellees: Timothy W. Miller of Miller Law
Office, Casper, Wyoming.
BURKE, C.J., and HILL, DAVIS, FOX, JJ, and DAY, D.J.
The purchasers of a health claims administration company
learned that they had not acquired all the assets they
contracted to purchase. After continuing to operate the
business for 18 months, they stopped making payments on the
Promissory Note and commenced an action asserting breach of
contract, among other claims. The seller counterclaimed for
breach of contract, seeking full payment under the Asset
Purchase Agreement, and the purchasers raised the affirmative
defense that seller was first to breach. At trial, at the
close of the purchasers' evidence, the district court
granted seller's Rule 50 motion for judgment as a matter
of law. It held that the purchasers failed to prove damages,
and noted that rescission was no longer available because
they elected to seek damages. The district court went on to
enter judgment in favor of the seller, ruling that the
purchasers' first-to-breach affirmative defense was no
longer available. We conclude that because they continued
operating the business long after they had knowledge of the
seller's alleged breach, the purchasers waived the
first-to-breach affirmative defense, and we affirm the
district court's order.
We consolidate and restate the issues as follows:
1. May the purchasers assert the first-to-breach affirmative
defense on the seller's breach-of-contract counterclaim?
2. Does the seller have a contractual right to its attorney
fees on appeal?
Mountain Benefit Associates, LLC (MBA) is a third-party
administrator of health benefit plans for self-insured and
partially self-insured employers. David Bostrom started MBA
in the mid-1980s. In August or September of 2009, Mr. Bostrom
approached Taylor Haynes (Dr. Haynes) regarding his potential
purchase of MBA, and over the course of the next few months,
Mr. Bostrom; Dr. Haynes; and Elisabeth Wasson, Dr.
Haynes' wife, had a number of discussions and written
communications regarding the sale of MBA. During that time,
Mr. Bostrom provided Dr. Haynes and Ms. Wasson with
information, including enrollment records for the clients of
MBA. In addition, Dr. Haynes and Ms. Wasson submitted written
questions to Mr. Bostrom.
One such question asked for a "[b]rief description of
any significant client relationships severed within the last
two years." In response, Mr. Bostrom identified three
groups that had terminated their relationships with MBA over
the last two years. Ms. Wasson explained that because the
major asset they were purchasing was the client list, or
MBA's book of business, the retention rate of MBA's
clients was significant to her when she evaluated the
business. Mr. Bostrom represented that MBA had a client
retention rate of 98 percent.
On February 1, 2010, Dr. Haynes and Ms. Wasson's
business, Maverick Benefit Advisors, LLC (Maverick), entered
into an Asset Purchase Agreement with MBA pursuant to which
Maverick was to purchase MBA's health insurance claims
administration business. That agreement contained a provision
warranting the information provided by MBA was true:
The representations and warranties of the Seller contained in
this Agreement or other instrument furnished by the Seller
pursuant to this Agreement do not contain any untrue
statement of a material fact and do not omit to state any
fact necessary to make any statement herein or therein not
misleading or necessary to a correct presentation of all
material aspects of the Business and the matters contemplated
under this Agreement.
agreed to pay a total of $4, 395, 582 for the business.
Maverick paid one-half of the purchase price in cash and
executed a Promissory Note for the remaining balance of $2,
197, 791. Maverick's principals, Dr. Haynes and Ms.
Wasson, personally guaranteed the note. In addition, Maverick
entered into a Personal Service Contract with Mr. Bostrom,
the previous owner of MBA, to secure his assistance with the
transition in ownership and management of the business.
Ms. Wasson testified that over the next 18 months, she
discovered a number of inaccuracies in the information
provided by Mr. Bostrom prior to the sale. For example, the
98 percent retention rate provided by Mr. Bostrom was not
supported by the facts: over the two years prior to the
purchase, MBA had lost 35 percent of its business. At trial,
Mr. Bostrom admitted that when he responded to the question
of whether MBA had lost any significant clients, he should
have included a fourth group, Oftedal Construction Company,
which had approximately 200 members enrolled on average, but
that he failed to do so. He also admitted that MBA lost a
number of other clients that he did not consider to be
significant and therefore did not disclose to Dr. Haynes and
Ms. Wasson. In fact, in 2008, MBA lost a total of 19 groups;
and in 2009, it lost a total of 15 groups.
Ms. Wasson and Dr. Haynes also discovered that Mr. Bostrom
had failed to disclose information relating to the Wyoming
Associated Builders Insurance Trust (WABIT) group, MBA's
largest client. The enrollment figures provided by Mr.
Bostrom to Dr. Haynes and Ms. Wasson showed that WABIT had
780 enrolled members; after the purchase, they learned that
WABIT's enrollment had steadily declined from July of
2009 through closing on the sale of MBA to 300-350 members,
roughly half of what had been represented. In addition, in
July of 2009, MBA advanced $84, 241 to WABIT because WABIT
did not have enough money to cover pending claims. MBA made a
second advance to WABIT in November of 2009 in the amount of
$73, 000. Also in November, Mr. Bostrom learned that
WABIT had lost a lawsuit and its checking account was being
garnished to pay attorney fees. Mr. Bostrom admitted that he
did not disclose WABIT's declining enrollment, the money
MBA had advanced to WABIT, or WABIT's legal and financial
trouble to Dr. Haynes and Ms. Wasson.
In August of 2009, MBA's net income was approximately
$40, 000 per month. Maverick purchased MBA in February of
2010. By the end of 2010, its net income was $5, 000 per
month. Maverick stopped making payments on the Promissory
Note after August of 2011 and filed this lawsuit against Mr.
Bostrom; Bostrom Enterprises, LLC; and Mountain States
Review, Inc. (hereinafter collectively referred to as
Mountain States), seeking damages but not rescission.
Mountain States counterclaimed on the Promissory Note and
brought a third-party complaint against Maverick, MBA, Dr.
Haynes, and Ms. Wasson (hereinafter collectively referred to
as Maverick) on the Personal Guaranty. Maverick asserted an
affirmative defense that Mr. Bostrom was the first to breach
the contract and Maverick is therefore excused from
performing its contractual duties.
At trial, after Maverick rested its case, Mountain States
moved for judgment as a matter of law on all of the pending
claims. The district court granted the motion, ruling that
Maverick had not proven damages:
I think the jury just would have no way of computing damages
in this case for any of those claims so based on the lack of
evidence from which the jury could with some certainty
compute damages and the law is clear that a jury may not
speculate or guess as to damages, those claims have to fail
because of the fact that even if the jury were to find those
breaches they would be unable to award any damages.
district court also granted the motion with respect to
Mountain States' claims on the Promissory Note and the
Personal Guaranty and ruled that Maverick's
first-to-breach affirmative defense could not be presented to
the jury. The court entered judgment for the balance of the
note, plus interest, in favor of Mountain States. Maverick
timely filed this appeal, raising only the issue of its
ability to assert its affirmative defense.