Judge: Monette Farms Owner to Pay $12M

LINCOLN, Neb. (DTN) -- One of the largest farming operations in Canada has been ordered by the Supreme Court of British Columbia to pay $12 million in fees to a consultant who introduced the company's owner, Darrel Monette, to the owners of several ranches in B.C.

Monette Farms, a 350,000-acre farming and ranching operation in Canada and the United States and its owner Monette have disputed that they owed fees to Vancouver Island businessman David Dutcyvich.

Dutcyvich introduced Monette to the owners of Blue Goose Cattle Company (BGCattle). Blue Goose Capital (BGCapital), which has substantial ranching interests in B.C., owned the shares of BGCattle; it sold them in 16 separate ranches in 21 locations in the B.C. interior to Monette in 2021. Dutcyvich claimed he helped assist Monette purchase those BGCattle shares.

Monette eventually finalized a $63 million deal for 45,000 acres in B.C. but denied that he owed a consulting fee to Dutcyvich.

JUDGE CALLS FEE APPROPRIATE

A B.C. Supreme Court justice said in the ruling that it was "appropriate" for Dutcyvich to request a fee for what amounted to consulting services done by Dutcyvich's company that he owns, 3L Developments Inc.

"The evidence established the plaintiffs acted in good faith, undertaking this job for the defendants, who obtained the benefit of those efforts," B.C. Supreme Court Justice Emily Burke wrote in her decision.

"The defendants' duplicity throughout sought to minimize and deny the work undertaken by the plaintiffs and I do not accept those claims. As argued, Mr. Monette appears to be reluctant to pay for those who assist him on his path to accumulate his very significant wealth and the court will not assist him in those endeavors."

Her judgement highlighted the enforceability of a contract between the two parties, even if it was oral, as well as the importance of an introduction to a prospective investment, in this case of 3L Developments and Dutcyvich introducing Monette to BGCattle.

"The jurisprudence is clear that an enforceable contract can be established on the basis of oral terms. The terms of such an oral contract must, however, be clear, established, and certain, which can sometimes be challenging," Burke wrote.

MONETTE FARMING AND RANCHING OPERATIONS

Darrel Monette bought his first quarter of land in 2004 and incorporated it in 2009 as Monette Farms. He is the CEO and principal of Monette Farms. By 2016 he diversified the company which produces grains, pulses, beef, seeds and produce in different locations.

By the fall of 2020, Monette Farms had up to 450 people working for it operationally and 55,000 seeded acres. Based in Swift Current, Saskatchewan, Monette Farms is now a large ranching and agricultural corporation operating in Saskatchewan, Manitoba and B.C.

Monette began expanding into the U.S. under Monette Farms USA Inc. in 2019, in Havre, Montana. Since then, the company expanded its ownership of farming and ranching operations in the U.S. to Billings, Montana, as well as Tonopah, Arizona.

As part of the ruling, the court said there was evidence that Monette was set to sell part of his company in order to make the deal with Blue Goose.

Monette said in a statement on March 31 that he will be appealing the ruling and that his company's ownership hasn't changed.

"Regarding that decision, we completely reject and disagree with the findings of the judge and will be appealing the decision to the B.C. Court of Appeal immediately," he said.

"We remain committed to transparency, integrity and fairness in all our dealings, including the B.C. ranch transaction in question."

INVOLVEMENT OF DUTCYVICH, 3L DEVELOPMENTS INC.

Dutcyvich, 81, is originally from a farm in Saskatchewan.

According to court documents, Dutcyvich finished eighth grade and then began working in a butcher shop and meat processor in Saskatchewan. At 16, he started working as a logger on Vancouver Island. He later established Lemare Lake Logging, a logging company on Northern Vancouver Island, which at one time had 400 employees.

"Using the profits from this logging company, Mr. Dutcyvich acquired ranch and farmlands in Saskatchewan, which grew to more than 26,000 acres," according to the court's ruling. "He became a leader in cattle husbandry, utilizing genetics with his cattle herds which were viewed as being of superior quality as a result. In 2017, he sold his ranching and farming interests for $26 million."

It was after that when Dutcyvich became involved in this case.

LBJ Capital Inc. was operated at the time by Lanny Benoit, principal of the company, along with Thomas Bunker and Mike Lessing who served as representatives.

In spring 2020, Dutcyvich was approached by LBJ Capital Inc. to provide services to LBJ in purchasing shares of BGCattle, according to court documents.

LBJ wanted 3L Developments and Dutcyvich for "the due diligence analysis of the purchase of the ranching interests, determination of an appropriate offering price and assistance in negotiating the purchase price of the shares, ranch interests and a term sheet for that purpose. These services were to be performed up to the closing of LBJ's purchase of BGCattle's shares."

The court ruling said Dutcyvich initially turned down LBJ, but "LBJ persisted." In April 2020, Dutcyvich agreed to provide the requested assistance on specific terms associated with the price of the shares, according to the court.

"BGCapital, the owner of the BGCattle shares, was asking for slightly over $100 million for the shares," the court said.

"This amount was derived from an appraisal dated Dec. 6, 2016, which valued BGCattle's ranching interests at $101,060,000. LBJ and 3L Developments agreed, as per Mr. Dutcyvich's proposal, that LBJ would pay 3L Developments an amount equal to 50% of the difference between the asking price of the $100 million and the purchase price ultimately agreed to between LBJ and BGCattle for the shares and ranch interests. For example, as Mr. Dutcyvich explained, if he was able to reduce the purchase price by $20 million, Mr. Dutcyvich and 3L Developments would receive $10 million."

Ultimately, it was this consultancy fee -- and who was responsible for paying it -- that was at the center of the court case at the B.C. Supreme Court.

ANALYSIS OF BGCATTLE

Blue Goose Capital, the financial entity that owned Blue Goose Cattle Company, is a subsidiary of the Dundee Corporation which is a public company listed on the Toronto Stock Exchange.

James MacIntyre, the chief financial officer of the 3L group, assisted Dutcyvich in a financial analysis of the Blue Goose assets, according to the court's ruling.

Court documents described the work Dutcyvich did as part of the analysis: "Dutcyvich travelled into the field to ascertain whether the information and identified assets did, in fact, exist. Mr. Dutcyvich said he would check and assess the identified equipment, review the land and the leases, check the herds, and importantly, do a cattle count of the 16 ranches in the interior of British Columbia. Mr. Dutcyvich said cows were a valuable part of the business, as each cow is worth approximately $2,300 to $2,500."

Dutcyvich tried to make sense of the situation.

"Mr. Dutcyvich said it appeared BGCattle was indicating it had 14,000 cows when it appeared the count was more likely 5,000 cows," the court said in its ruling.

"Mr. Dutcyvich said BGCattle was including cows, steers and calves in the count, when the essential question was only how many cows there were and the consistency of their pregnancies."

Among his other findings, Dutcyvich became concerned that equipment was being moved between ranches during his assessment, making it difficult for him to accurately assess the assets, the court said.

MacIntyre and Dutcyvich also assessed the payroll, noting it was "large for ranches of this size and it appeared many employees were relatives of the ranch manager, Doug Sinclair. Mr. Dutcyvich developed a concern about Mr. Sinclair as a result."

Along with other concerns of his, in Dutcyvich's completed assessment, he concluded that BGCattle's shares and ranch interests were worth $76 million and that he "would not pay more if he was purchasing these shares."

The court said this was in part because of the condition of the equipment, the cattle count and the problem with the leases. Dutcyvich provided that advice to LBJ.

Totaling up his work for LBJ, MacIntyre estimated he worked a total of 450 hours, "from the date of signing the NDA (April 14, 2020) to the date on which the term sheet between LBJ and BGCattle was created (June 12, 2020)" then continued to work on this as LBJ and BGCattle worked to substantiate a $76 million offer on the shares.

LBJ AGREES TO PAY

In July 2020, LBJ agreed to pay 50% of the price reduction from Blue Goose Capital's $100 million asking price. That resulted in the $12 million fee to 3L Developments based on a $76 million purchase price.

However, during the next few months LBJ was unable to secure the necessary funds and Blue Goose Capital cut off a deal in early January 2021.

After LBJ's failure to secure funds, Blue Goose Capital relied on 3L Developments to find a new buyer while maintaining a cooperative relationship, according to the court's opinion.

According to Burke's ruling, "At this time, unknown to Mr. Dutcyvich and 3L Developments, it appears that the defendants, Darrel Monette and Monette Farms, were making arrangements to have some measure of involvement with LBJ. Mr. Monette disputes this. However, I find that the evidence supports this involvement, and I therefore conclude that it did occur and was underway at this pertinent time."

The document said Dutcyvich testified that he had various conference calls in late 2020 with LBJ and that the calls included Monette.

"Specifically, Mr. Dutcyvich testified that Mr. Monette was on two or three conference calls he had with Mr. Thomas Bunker and Mr. Benoit, two members of LBJ," the court said.

"Mr. Dutcyvich says that during these calls, Mr. Monette expressed substantial interest in matters relating to Mr. Dutcyvich's prior cattle ranching experience and herd quality. Specifically, Mr. Monette was very interested in Mr. Dutcyvich's previous ranch, which had been ranked highly in North America. Mr. Monette wanted to know what Mr. Dutcyvich had done differently to achieve these results."

As a result of the calls, according to Dutcyvich's testimony in court, he was under the impression that Monette was in partnership with LBJ, including Bunker and Benoit at the time, and that Monette was to be part of the LBJ transaction that was delayed continuously in late 2020, the court said.

DUTCYVICH AND MONETTE MEET

Dutcyvich first met Monette in person in March 2021.

Monette approached Dutcyvich with an offer to assist in buying Blue Goose Cattle shares independently of LBJ.

However, in testimony before the court, Dutcyvich said he was under the impression that Monette was "in partnership with LBJ." The two reportedly had conversations about a potential transaction in the works.

Dutcyvich testified that Monette contacted him in early March 2021 after BGCapital told LBJ they were no longer interested in dealing with LBJ, according to the court's ruling.

According to the Dutcyvich testimony, Monette told him he was "going to leave those three buggers and do the deal on his own" and that he would like Dutcyvich's help.

"As part of this conversation, Mr. Dutcyvich said to Mr. Monette: 'you know the deal, my fee is $12 million," according to the court ruling, "are you going to pay me?"

Dutcyvich testified that Monette replied "yes, he would pay the fee." As a result, Dutcyvich agreed to help and said he would have his accountant send a letter to Monette to sign.

Meanwhile, 3L Development's MacIntyre was concerned about Monette and wanted to make sure he was financially sound to complete the deal with BGCapital.

"As part of his CFO responsibilities, Mr. MacIntyre said he did not want 3L Developments to spend any more time on this matter while not being paid for it," the court said.

"At this point, 3L Developments had spent nine months working on this matter without being paid and Mr. MacIntyre did not want that to happen again."

When he received proof of sufficient liquidity for 3L Developments to work with Monette Farms to buy the BGCattle shares, MacIntyre was persuaded to help with the sale.

Monette was introduced to Blue Goose Capital to make a deal.

On March 14, 2021, Monette Farms signed a term sheet for the purchase of the shares of BGCattle, including the purchase of the shares of Lambert Creek Organic Meats Ltd., which was a processing facility of BGCattle in North Vancouver.

DEAL STRUCK

The court said MacIntyre directed Blue Goose Capital to pay Monette on March 16, 2021.

Monette eventually acquired Blue Goose shares through a subsidiary of Monette Farms, 102134752 Saskatchewan Ltd.

However, according to court documents, MacIntyre did not know, "In the meantime, on March 10, 2021, unbeknownst to 3L Developments and prior to Monette Farms signing a term sheet to purchase the shares of BGCattle from BGCapital, Monette Farms and LBJ signed a term sheet in which LBJ agreed to purchase 75% of the shares of Monette Farms."

That amount was later reduced to $425 million and included plans to roll Blue Goose Cattle shares into Monette Farms, according to court records.

After the March 16, 2021, term sheet between LBJ and Monette Farms was signed, MacIntyre, who was unaware of this term sheet between LBJ and Monette, said 3L Developments continued to work for Monette Farms to ensure that $76 million was the right price for BGCattle, the court said.

MacIntyre and Monette continued to work together into May, according to court records. Dutcyvich even did a helicopter ride with Monette in May 2021 to tour the ranches that were part of the deal.

"Mr. Dutcyvich said he had a brief early morning conversation with Mr. Monette just prior to the helicopter tour, during which he advised Mr. Monette that his work was essentially done, and he expected his $12 million when the deal closed," Burke wrote in the ruling.

Monette told the court the conversation never took place. The court also said Monette tried to "minimize" Dutcyvich's role in the share purchase "to the point where one has to ask why Mr. Dutcyvich was even part of this helicopter tour of the ranch lands."

Burke said in her ruling that "while at least one helicopter tour of the ranches was Mr. Dutcyvich's choice, it was part of his work to assist Monette Farms" in buying the BGCattle shares.

Although Monette claimed he was making the deal on his own, the court said he maintained a partnership with LBJ that he withheld from 3L Developments and Blue Goose Capital.

"At this time, unknown to Mr. Dutcyvich and 3L Developments, it appears that the defendants, Darrel Monette and Monette Farms, were making arrangements to have some measure of involvement with LBJ," the court said in its ruling.

"Mr. Monette disputes this. However, I find that the evidence supports this involvement and I therefore conclude that it did occur and was underway at this pertinent time."

The purchase of Blue Goose Cattle shares was assigned to Monette's subsidiary and the $63 million transaction was completed with Blue Goose Capital on Oct. 21, 2021.

ENFORCEABLE CONTRACT

Burke said in her ruling that there was an enforceable oral contract between Monette and Dutcyvich.

A contract is formed, she said, when offered by one party and accepted by another, when intended to create a legal relationship and supported by consideration and pointed out "the contract does not need to be written or signed to be binding, even in complicated commercial contexts. Additionally, the essential terms of the contract must be sufficiently certain and agreed to by the parties."

Burke added, "In the case at hand, I am satisfied on the evidence that Mr. Dutcyvich and Mr. Monette entered into an oral contract during their initial conversation in early March 2021. I am satisfied that the vital or fundamental terms of the contract were agreed to and sufficiently certain -- essentially, that Mr. Dutcyvich would assist Mr. Monette in purchasing the shares of BGCattle in exchange for a fee of $12 million, so long as Mr. Monette demonstrated that Monette Farms had sufficient financial capability."

The promises, according to the court, "operated as the consideration supporting the agreement. I do not accept that 3L Developments was not working for Monette Farms as purchaser's agent because it sought a fair price for both parties. A fair price for both parties incentivizes a deal, which is what both parties wanted."

Burke concluded, "I find that there was an objective intention by the parties to create a legally enforceable contract. This is evidenced by the oral agreement made in March 2021, the subsequent conduct of the parties according to the terms of that agreement (including the introduction, promotion, work and other services undertaken by 3L), and the reference to the $12 million figure in the March 2021 emails. While Mr. Monette sought to minimize the efforts of Mr. Dutcyvich and 3L Developments, the evidence establishes that the introduction by itself was critical to BGCapital entertaining any dealings at all with Mr. Monette and Monette Farms in view of recent history and Mr. Dutcyvich continued to provide advice and information to Mr. Monette at its request. All of this facilitated Mr. Monette's ultimate purchase of the BGCattle shares -- his specific goal at the time, which he achieved."

DTN/Progressive Farmer Associate Content Manager Elaine Shein contributed to this story.

Todd Neeley can be reached at todd.neeley@dtn.com

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