Thomas F. Botten v. Edward F. Shorma, Thomas D. Shorma, Patricia Shorma, Richard E. Shorma, Donald S. Shorma, William Shorma, David J. Shorma, Jane Shorma, Robert A. Shorma, Shelle Shorma

Citations: 440 F.3d 979; 24 I.E.R. Cas. (BNA) 393; 2006 U.S. App. LEXIS 6097Docket: 05-1530

Court: Court of Appeals for the Eighth Circuit; March 13, 2006; Federal Appellate Court

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Thomas Botten appealed the dismissal of his breach of contract claim against the Shorma family by the district court, which was affirmed by the Eighth Circuit Court of Appeals. Botten, who became President and COO of PrimeWood Inc. in 1994, entered into an Employment Agreement with the company in 1995. Following a merger in 1998, Botten claimed he was owed additional compensation under this agreement for the fiscal years ending in 1995-1998. An Assignment Agreement executed during the merger terminated his Employment Agreement and assigned the Shormas the liabilities under it.

After the Shormas rejected his demand for payment in 2003, Botten filed suit in January 2004, alleging breach of contract and asserting the Shormas' obligation to compensate him. The Shormas moved to dismiss, arguing the claims were barred by Minnesota's two-year statute of limitations for wage claims. The district court agreed, dismissing the case with prejudice.

The appeals court reviewed the dismissal de novo, determining that Botten's claims were correctly classified under the two-year statute as they stemmed from the Employment Agreement's breach, specifically concerning unpaid bonuses and incentives, which are defined as wages under Minnesota law. The court affirmed the lower court’s decision, confirming that the two-year statute of limitations applied to Botten's claim.

Botten contends that the breach of contract occurred when the Shormas denied his demand for compensation on May 21, 2003, which would render his claims timely under the two-year or six-year statute of limitations. However, the breach actually transpired when specific terms of the contract were violated, and the statute of limitations begins when a payment date is established. The contract in question, the Assignment Agreement, includes the Employment Agreement that outlines the bonus and deferred compensation schedule. The latest alleged breach dates back to 1998, exceeding the four-year limit before Botten initiated his lawsuit, thus rendering his claims time-barred under the two-year statute of limitations. 

The judgment affirming this conclusion is supported by dissenting opinions. The dissent emphasizes that the court incorrectly applied the wrong contract for the statute of limitations determination. It clarifies that Botten had an employment relationship with PrimeWood, not with the Shormas, and references Minnesota Statutes Section 541.07(5) regarding employment contracts. Additionally, it notes that the negotiations leading to Woodcraft's acquisition of PrimeWood were complicated by an ongoing dispute over compensation under the Executive Compensation Plan. 

Woodcraft chose not to inherit the dispute, seeking a swift sale and the dissolution of the Executive Compensation Plan to avoid complicating the merger with Botten. An agreement executed on June 16, 1998, stipulated that PrimeWood would assign liabilities under the Executive Compensation Plan to the Shormas, who would assume these obligations. Botten agreed to seek satisfaction solely from the Shormas and released PrimeWood and Woodcraft from any obligations related to his claims, while PrimeWood was to dissolve the Executive Compensation Plan that formed the basis of Botten's action.

The arrangement labeled as an "assignment agreement" between PrimeWood and Shorma-Botten is characterized as a new contract and a novation under Minnesota law. An assignment does not release the assignor from obligations unless the assignee's performance significantly deviates from what was originally promised. If the other party agrees to a complete substitution of parties, this constitutes a novation, which extinguishes the original obligation and transfers it to a new party by mutual consent. Consequently, Botten's wage claim against PrimeWood was extinguished by this novation, and the Shormas accepted liability for Botten's existing claim in their June 16, 1998, contract. Although the damages specified in this contract were limited to the existing wage claim, the right to recovery constituted a new contractual obligation, allowing Botten a six-year period to initiate litigation based on this new agreement, as per Minnesota Statute 541.05. The author of the excerpt expresses dissent regarding these conclusions.