DA 07-0425

IN THE SUPREME COURT OF THE STATE OF MONTANA

2008 MT 449

TRACTOR & EQUIPMENT CO.,

 Plaintiff, Appellee and Cross-Appellant,

 v.

ZERBE BROTHERS, a Montana corporation,

 Defendant, Appellant and Cross-Appellee.

APPEAL FROM: District Court of the Seventeenth Judicial District,

In and For the County of Valley, Cause No. DV 05-51

Honorable John C. McKeon, Presiding Judge

COUNSEL OF RECORD:

For Appellant and Cross-Appellee:

Robert Hurly, Attorney at Law; Glasgow, Montana

Matthew W. Knierim; Christoffersen & Knierim, P.C.; Glasgow, Montana

For Appellee and Cross-Appellant:

Robert L. Sterup, Jr.; Holland & Hart, LLP; Billings, Montana

Submitted on Briefs: June 25, 2008

 Decided: December 30, 2008

Filed:

__________________________________________

Clerk

December 30 2008
2

Justice W. William Leaphart delivered the Opinion of the Court.

¶1 The present case stems from an agreement between Tractor and Equipment Co. 

(“T&E”) and Zerbe Brothers, Inc. (“Zerbe”) for the sale of farm equipment in 

northeastern Montana. Under the terms of the agreement, known as the Consignment and 

Sales Agreement, T&E agreed to consign and to ultimately sell certain equipment 

manufactured by Caterpillar, Inc. (“CAT”) to Zerbe for sale to Zerbe’s customers in 

northeastern Montana. In 2000, T&E filed an action for a judgment declaring the 

Consignment and Sales Agreement void. In 2004, however, the District Court granted 

partial summary judgment in favor of Zerbe holding that the Consignment and Sales 

Agreement was subject to the protective provisions of the Montana Farm Implements 

Dealership Act (“MFIDA”) §§ 30-11-801 through -811, MCA. The District Court denied 

a cross-motion for declaratory judgment as a matter of law filed by T&E. In 2007, the 

District Court entered Judgment in favor of Zerbe after concluding that T&E violated the 

MFIDA by substantially changing the competitive circumstances of the Consignment and 

Sales Agreement. The District Court awarded Zerbe $243,874.00 in damages, 

$64,575.11 in attorney fees, and $1,490.45 in costs. 

¶2 Zerbe appeals, claiming the District Court underestimated its damages by failing 

to include certain profits received from trade-ins or profits made from sales outside a 

five-county area specified in the Consignment and Sales Agreement. Zerbe asks this 

Court to remand the action to the District Court with instructions to award $1.8 million in 

damages. T&E cross-appeals the damage award and the District Court’s earlier 

determinations that the Consignment and Sales Agreement was subject to the MFIDA. 
3

T&E also claims the District Court erred, in a 2005 order, by concluding that Zerbe did 

not waive the MFIDA by agreeing to a termination provision in the Consignment and 

Sales Agreement, which allowed T&E to cancel the agreement for any reason with 30 

days notice to Zerbe. We affirm. 

¶3 The restated issues on appeal are as follows: 

¶4 I. Did the District Court err in concluding that the MFIDA applied to the 

Consignment and Sales Agreement?

¶5 II. Did the District Court err in concluding that Zerbe did not waive the MFIDA 

by entering into the Consignment and Sales Agreement?

¶6 III. Did the District Court err in its calculation of Zerbe’s damages? 

BACKGROUND

¶7 In the mid-1990s, T&E and Zerbe entered into discussions about Zerbe managing 

the sale and rental of a high-end tractor known as the Challenger tractor, which at that

time was manufactured by CAT. T&E, a Montana corporation with its principal place of 

business in Billings, Montana, was the exclusive dealer for CAT products and equipment 

in parts of eastern Montana, North Dakota, and Wyoming. After a series of events not 

relevant to the issues on appeal, T&E executed the Consignment and Sales Agreement on 

July 7, 1997. The agreement, which was drafted by counsel for T&E and reviewed by 

counsel for Zerbe, provided that T&E would consign and ultimately sell CAT equipment 

to Zerbe for sale to Zerbe’s customers in northeastern Montana. According to evidence 

set forth in the record, T&E sought to establish a relationship with Zerbe because of 

Zerbe’s well-established relationship with customers in northeastern Montana. 
4

¶8 Under the terms of the Consignment and Sales Agreement, the parts and 

equipment on consignment to Zerbe (“Consigned Goods”) would remain the property of 

T&E until purchased by Zerbe for sale to its customers. Title would also remain with 

T&E pending sale to Zerbe’s customers, and Zerbe would keep the Consigned Goods at 

its facility in Glasgow. In addition to providing periodic requests for Consigned Goods 

to T&E, Zerbe was also required to furnish T&E with reports detailing the goods T&E 

had placed on consignment with Zerbe, and any losses sustained to those goods. It was 

also agreed that T&E would have “sole discretion as to which Consigned Goods” to place 

on consignment with Zerbe and that Zerbe would remain liable to T&E for any losses to 

the Consigned Goods. In the event any loss was sustained, Zerbe was obligated under the 

terms of the agreement to purchase those goods. Under paragraphs 13 and 14 of the 

agreement, Zerbe was precluded from selling or contracting to sell any of the Consigned 

Goods outside the counties of Valley, Phillips, Garfield, McCone, and Daniels. Further, 

Zerbe was to “use promotional literature, data, and information furnished by T&E for 

dissemination to customers only in furtherance of the objectives” of the agreement. And 

finally, but particularly important to this appeal, the agreement included a termination 

provision, which stated that “T&E has the right to terminate this Agreement for any 

reason at any time after thirty (30) days’ prior written notice to Zerbe.” 

¶9 On March 31, 1999, T&E sent a letter to Zerbe stating that it was terminating the 

Consignment and Sales Agreement on April 30, 1999. Through Counsel, Zerbe 

responded by stating that T&E’s letter violated Montana law for the termination of 

agricultural dealerships. Over a year later, on May 4, 2000, T&E filed a declaratory 
5

action in the Thirteenth Judicial District Court, Yellowstone County, claiming that it was 

“entitled to a declaratory judgment interpreting or construing the [Consignment 

Agreement] and declaring the rights, status and legal relations of the parties thereto.” 

T&E also claimed that it was “entitled to a judgment declaring that . . . the Contract is 

terminated.” In a letter dated May 5, 2000, T&E stated the following: “[I]n view of 

T&E’s changed business circumstances, and in the exercise of its business judgment, 

T&E desires to exercise its contractual right of termination consistent with the contract, 

effective thirty days from today’s date.” Zerbe then moved for a change of venue to 

Valley County, Montana—the location of Zerbe’s business. The court granted the 

motion, and T&E appealed the change of venue to this Court. We affirmed the change of 

venue in Tractor & Equipment Co. v. Zerbe Brothers, 2001 MT 162, 306 Mont. 111, 32 

P.3d 721. 

¶10 Zerbe counterclaimed following the change of venue to Valley County, arguing 

that the Consignment and Sales Agreement was a “dealership” agreement under the 

MFIDA and that T&E’s termination of the agreement was wrongful. Zerbe then moved 

for partial summary judgment on the issue of whether T&E violated the MFIDA by 

unilaterally cancelling the Consignment and Sales Agreement. On December 2, 2004, 

the District Court granted partial summary judgment to Zerbe that the Consignment and 

Sales Agreement was subject to the MFIDA. However, the District Court denied Zerbe’s 

motion that T&E violated the MFIDA after determining that factual issues remained as to 

“whether T&E directly or indirectly gave notice of termination in violation of this 

protective provision.” In the same order, the District Court determined that the “for any 
6

reason at any time” 30-day termination clause found in the subject Consignment and 

Sales Agreement was contrary to [the MFIDA] and thus, unenforceable. Based on this 

determination, the District Court voided the termination provision but enforced the 

remainder of the agreement, citing § 28-2-604, MCA, which provides that “[w]here a 

contract has several distinct objects of which one at least is lawful and one at least is 

unlawful, in whole or in part, the contract is void as to the latter and valid as to the rest.” 

The District Court also denied T&E’s cross-motion for declaratory judgment, which 

sought to void the entire agreement. 

¶11 Thereafter, T&E filed a motion for partial reconsideration on April 4, 2005, 

claiming that Zerbe waived the MFIDA by agreeing to the 30-day termination provision 

in the Consignment and Sales Agreement. The District Court denied the motion on May 

5, 2005, after determining that the MFIDA was adopted for a public reason and could not 

be contravened through private agreement under § 1-3-204, MCA. A bench trial was 

held on April 4-6, 2006. The District Court issued its Findings of Fact, Conclusions of 

Law and Order on November 8, 2006, and entered Judgment in favor of Zerbe on May 

18, 2007. The District Court concluded that T&E violated the MFIDA by “substantially 

chang[ing] the competitive circumstances of the dealership agreement with Zerbe” and 

by failing “to give Zerbe proper notice and opportunity to rectify claimed deficiencies” 

under § 30-11-803, MCA, which requires a grantor of a dealership agreement to provide 

“at least 90 days’ prior written notice . . . of termination, cancellation, nonrenewal, or 

substantial change in competitive circumstances” along with a description of the reasons 

for termination. The District Court awarded Zerbe $243,874.00 in damages, $64,575.11 
7

in attorney fees, and $1,490.45 in costs. Zerbe appeals on the sole issue of whether the 

District Court correctly calculated its damages. T&E cross-appeals the damage award 

and the District Court’s related orders with respect to the application of the MFIDA. 

Further facts are provided as necessary throughout the following discussion. We affirm 

the District Court on all issues. 

STANDARD OF REVIEW

¶12 Our standard of review in appeals from summary judgment rulings is de novo. 

Mickelson v. Montana Rail Link, Inc., 2000 MT 111, ¶ 61, 229 Mont. 348, ¶ 61, 993 P.2d 

985, ¶ 61 (citing Oliver v. Stimson Lumber Co., 1999 MT 328, ¶ 21, 297 Mont. 336, ¶ 21, 

993 P.2d 11, ¶ 21. We review a district court’s conclusions of law to determine whether

they are correct and its findings of fact to determine whether they are clearly erroneous. 

H-D Irrigating, Inc. v. Kimble Props., Inc., 2000 MT 212, ¶ 16, 301 Mont. 34, ¶ 16, 8 

P.3d 95, ¶ 16. Finally, this Court has stated that “[a] district court’s damage 

determination is a factual finding, which must be upheld if it is supported by substantial 

evidence; we will not overturn a district court unless its determination was clearly 

erroneous.” Semenza v. Bowman, 268 Mont. 118, 125, 885 P.2d 451, 455 (1994). To 

determine whether a finding is clearly erroneous we first review the record to confirm 

that the finding is supported by substantial evidence. Denton v. First Interstate Bank of 

Com., 2006 MT 193, ¶ 18, 333 Mont. 169, ¶ 18, 142 P.3d 797, ¶ 18. If substantial 

evidence supports the finding, we then determine whether the trial court misapprehended 

the effect of the evidence. Denton, ¶ 18. Finally, “If substantial evidence exists and the 

effect of the evidence has not been misapprehended,” we may still conclude that a finding 
8

is clearly erroneous, if upon reviewing the record, we are left with the “definite and firm 

conviction that a mistake has been made.” Denton, ¶ 18. 

DISCUSSION

¶13 I. Did the District Court err in concluding that the MFIDA applied to the 

Consignment and Sales Agreement? 

¶14 The MFIDA, enacted by the Montana Legislature in 1985, provides broad 

protections to agricultural implement dealers and states that “[n]o grantor may, directly or 

indirectly, terminate, cancel, fail to renew, or substantially change the competitive

circumstances of a dealership agreement without good cause.” Section 30-11-802, MCA. 

A “grantor” under the MFIDA is a “person who grants a dealership.” Section 30-11-

801(9), MCA. A “dealer” is defined as a “person who is a grantee of a farm implements 

dealership situated in this state.” Section 30-11-801(2), MCA. A “farm implement” 

under the MFIDA, includes “any vehicle, machine, or attachment designed or adapted 

and used exclusively for agricultural operations . . . .” Section 30-11-801(7), MCA. 

Significant to this case, is the definition of “dealership” under the MFIDA, which is 

broadly defined as “a contract or agreement, expressed or implied, whether oral or 

written . . . by which a person is granted the right to sell or distribute farm implements, in 

which there is a community of interest in the business of offering, selling, or distributing 

farm implements.” Section 30-11-801(3), MCA. Therefore, two factors are required for 

the establishment of a “dealership” agreement under the MFIDA: (1) “a right to sell or 

distribute farm implements;” and (2) a “community of interest.” While “a right to sell or 

distribute” is not defined, the MFIDA does provide a definition for “community of 
9

interest.” Under § 30-11-801(1), MCA, “community of interest” is defined as “a 

continuing financial interest that the grantor and grantee have in common.” Although 

“community of interest” is a determinative factor in the applicability of the MFIDA, 

further explanation or clarification of “a continuing financial interest that the grantor and 

grantee have in common” is not provided under the MFIDA, and we have not previously 

addressed the scope of this term. 

¶15 In its 2004 order, the District Court concluded that the Consignment and Sales 

Agreement was subject to the MFIDA and granted partial summary judgment in favor of 

Zerbe on that issue. In reaching this conclusion, the District Court noted a variety of 

terms and provisions in the Consignment and Sales Agreement, which, according to the 

court, established a “continuing financial interest” and thus, a “dealership” agreement 

under the MFIDA. Specifically, the District Court noted that: 

ZERBE had a locked-in purchase price prior to consignment and thus, its 

financial interest would be to promote the sale of these farm implements 

among its customer base for the agreed purchase price and more. T&E

sought the promotion and protection of it’s [sic] financial interest by the 

consignment of these implements for resale to ZERBE’s customers, by 

mandating property and casualty insurance on the Consigned Goods, by 

obtaining monthly reports, by limiting competitive products, and by 

furnishing promotional literature, data and information. 

After evaluating these terms, the District Court determined that T&E’s “continuing 

financial interest in common with ZERBE” was its interest “to ‘ultimately sell’ the 

Challenger tractors for at least the price negotiated with Zerbe.” Based on these findings, 

the District Court held that the Consignment and Sales Agreement constituted a 

“dealership” agreement under the MFIDA. The District Court also noted that T&E failed 
10

“to present material and substantial evidence to raise a genuine issue of material fact” as 

to whether the Consignment and Sales Agreement was a “dealership” agreement. 

Ultimately, the District Court’s determination that the Consignment and Sales Agreement 

was a “dealership” agreement under the MFIDA served as the basis of the court’s later 

decisions and its damage award. 

¶16 On appeal, T&E claims the District Court erred by determining that the 

Consignment and Sales Agreement was subject to the protective provisions of the 

MFIDA. The basis of T&E’s claim is that the Consignment and Sales Agreement did not 

constitute a “dealership” as that term is defined under the MFIDA. Specifically, T&E 

claims that a “community of interest” under § 30-11-801(1), MCA, must mean something 

and cannot be established in this case, even though the definition of “community of 

interest” is broadly defined as a “continuing financial interest that the grantor and grantee 

have in common.” Section 30-11-801(1), MCA. T&E outlines a variety of claims in 

support of its position that a “community of interest” cannot exist in this case, including 

that the “Challenger sales represented only about 10% of Zerbe [sic] revenues,” that 

Zerbe “did not incur any capital costs” or have “personnel to handle the Challenger 

tractors,” that Zerbe “handled the sales of the Challenger tractors for only a short period 

of time,” and that Zerbe “typically did not have any Challengers on its lot.” T&E also 

claims that Zerbe shared no financial risk under the agreement and “was required to 

purchase the large tractors it handles as a dealer for Agco, Buhler, and New Holland.” 

Finally, T&E claims that Zerbe’s profits actually increased after it stopped requesting 

Challengers on consignment from T&E. 
11

¶17 In addition to these specific claims, T&E urges this Court to adopt a narrow 

interpretation of the term “community of interest” under the MFIDA, arguing that courts 

in other states with similar acts protecting franchise arrangements have done so. 

Specifically, T&E urges us to adopt an approach set forth in Ziegler Co., Inc. v. Rexnord, 

Inc., 139 Wis. 2d 593, 407 N.W.2d 873 (1987), in which the Wisconsin Supreme Court 

established various guideposts for interpreting the scope of the term “community of 

interest.” T&E finds Wisconsin’s approach particularly persuasive in light of the fact that 

the MFIDA was modeled after the Wisconsin Fair Dealership Law, Wis. Stat. § 135 

(2007). 

¶18 In determining whether T&E and Zerbe shared “a community of interest” in the 

present case, we look to the plain language of § 30-11-801(1), MCA, which defines “a 

community of interest” as “a continuing financial interest that the grantor and grantee 

have in common.” In this case, it is clear from the terms of the Consignment and Sales 

Agreement that a “community of interest” existed as that term is defined under the 

MFIDA. As the District Court noted in its 2004 order granting partial summary 

judgment to Zerbe, “T&E had a continuing financial interest in common with Zerbe, towit: to ‘ultimately sell’ the Challenger tractors for at least the price negotiated with 

Zerbe.” The District Court provided additional clarification of its determination that the 

Consignment and Sales Agreement was a “dealership” agreement under the MFIDA in its 

2006 Conclusions of Law. Specifically, the court stated that, in this case, “[t]he 

community of interest was more than the mere sharing of common goals.” Of particular 

value to the court was its determination that “T&E also sought a profit on each 
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Challenger sale” and that “T&E could expect to benefit financially from Zerbe’s 

promotion and sale of the Challenger in northeastern Montana by making sales itself in 

areas adjacent to [the five-county area].” The District Court also noted that “[t]he clear, 

explicit and unambiguous language of the Consignment Agreement . . . shows the clear 

intent of the parties to promote and sell Challenger tractors in northeastern Montana.” 

¶19 We agree with the District Court that the terms of the Consignment and Sales 

Agreement clearly evidenced a “community of interest” in this case. It is undisputed that 

T&E had an interest in having Zerbe ultimately sell the Challenger tractor in the fivecounty area described in the agreement—it is the only explanation for why T&E entered 

into the Consignment and Sales Agreement to begin with. Further, the evidence in the 

record clearly suggests that T&E specifically sought to establish a relationship with Zerbe 

because of Zerbe’s well-known status as an implement dealer in the area, and that T&E 

benefited from the greater exposure to Zerbe’s potential buyers. Zerbe likewise benefited 

from adding a high-end tractor such as the Challenger to its inventory. In this case, each 

party had something to gain financially in the agreement, and consequently, each party 

had something to lose if there was a substantial alteration or termination of the 

agreement. This financial co-dependence represents an ongoing financial relationship 

that establishes a “community of interest” under the MFIDA. While the definition of 

“community of interest” is broad, it is not ambiguous and thus, we see no need to look to 

another state’s approach in interpreting its scope. Further, a broad reading of the statute 

supports the underlying purpose of the MFIDA, which is clearly to provide protections to 

rural dealers and communities from the harsh results of dealership cancellation without 
13

good cause. To the extent that T&E argues for a narrowing of the definition of 

“community of interest,” that is a policy matter which should be addressed to the 

legislature. Therefore, we hold that the District Court did not err in concluding that the 

Consignment and Sales Agreement was subject to the MFIDA. 

¶20 II. Did the District Court err in concluding that Zerbe did not waive the 

MFIDA by entering into the Consignment and Sales Agreement? 

¶21 In its 2005 order, the District Court determined that Zerbe did not waive the 

MFIDA by agreeing to the termination provision in the Consignment and Sales 

Agreement. The District Court applied § 1-3-204, MCA, which provides the following: 

Any person may waive the advantage of a law intended solely for that 

person’s benefit. A law established for a public reason cannot be 

contravened by a private agreement. 

To determine whether the MFDIA was “established for a public reason,” the District 

Court examined the MFIDA’s legislative history and determined that it was “designed 

not just to benefit the farm implement dealer but to protect such dealer and the 

community where the dealer is located from the termination or substantial alteration of a 

dealership franchise without good cause.” The District Court correctly observed that the 

Montana Legislature showed a concern for “the loss of profitable, taxpaying, job 

producing, community serving businesses,” and the “unequal economic or political power 

resulting from the acquisition of competing farm implement manufacturers by ‘a large 

conglomerate.’” See MT Sen. Comm. on Agriculture, Livestock, and Irrigation, Review 

of Senate Bill 407 (Feb. 18, 1985). Based on these findings, the District Court 

determined that the MFIDA was “a legislative attempt to compensate for this unequal 
14

economic and political power” and that “[a]llowing a grantor to seek a ‘for any reason at 

any time’ waiver from those persons the statute intended to protect would defeat the very 

purpose of the Act.” 

¶22 According to T&E, however, Zerbe “waived the protections of the Act when it 

voluntarily signed the Consignment Agreement with a 30-day termination clause.” 

Stated differently, T&E claims that “by signing the Consignment Agreement, Zerbe 

waived any right to invoke statutory terms that contradict the contract as a predicate for 

pursuing a damages claim.” Specifically, T&E claims that Zerbe cannot claim the 

protections of the MFIDA for the following reasons: (1) Zerbe was aware of the clause 

when it signed the agreement; (2) Zerbe consulted with an attorney about the agreement 

and specifically inquired about the termination clause; and (3) Zerbe did not object to the 

termination clause at the time the agreement was made. T&E also claims it would not 

have entered into the clause if they had known the MFIDA would apply to the 

Consignment and Sales Agreement. 

¶23 The primary focus of T&E’s argument, however, is that the public benefit 

exception cannot apply in this case. Specifically, T&E claims that the Consignment and 

Sales Agreement’s termination provision was intended solely for Zerbe’s benefit and that 

Zerbe, as a result, voluntarily waived the protections of the MFIDA. In support of this 

argument, T&E suggests that § 1-3-204, MCA, has typically been applied by this Court 

in the context of employment agreements and cannot, therefore, apply in the context of 

the MFIDA. We do not agree. As noted by the District Court, we reasoned in Campbell 

v. Mahoney, 2001 MT 146, 306 Mont. 45, 29 P.3d 1034, that the non-wavier “public 
15

reason” exception can apply in situations where the State Legislature has attempted to 

“compensate for unequal economic or political power between groups such as employers 

and employees.” (Emphasis added.) By citing an example, we did not limit the 

application of § 1-3-204, MCA, to statutory protections relating to the 

employer/employee relationship. T&E appears to claim that, by entering into a private 

contractual arrangement, a party waives any provision of the MFIDA that is contrary to 

the agreement. However, that would be contrary to the very purpose the MFIDA was 

designed to achieve. The District Court specifically concluded that the MFIDA “was a 

legislative attempt to compensate for this unequal economic and political power” and that 

“allowing a grantor to seek a ‘for any reason at any time’ waiver from those persons the 

statute intended to protect would defeat the very purpose of the Act.” It also reasoned

that the legislators showed concern for the dealer and for the community in which the 

dealer operated. We agree that the MFIDA was enacted for a public purpose and that 

Zerbe did not waive the protective provisions of the MFIDA by entering into the 

Consignment and Sales Agreement. 

¶24 III. Did the District Court err in its calculation of Zerbe’s damages? 

¶25 After concluding that T&E violated the MFIDA by substantially changing the 

competitive circumstances of the Consignment and Sales Agreement, the District Court 

awarded damages in favor of Zerbe pursuant to § 30-11-809, MCA, which permits the 

award of civil damages to a dealer who has suffered “pecuniary loss.” The District Court 

calculated Zerbe’s damages in the findings of fact from November 8, 2006, as follows: 
16

(a) Start with the average annual gross profit/Challenger sale of $9,110.00; 

(b) deduct therefrom an 11.6% operating overhead; (c) multiply the net 

profit/sale ($8,053.25) by an average of 3.2 Challenger sales every 12 

consecutive months; (d) multiply the average annual net profit for 

Challenger sales ($25,770.40) by the reasonably expected product work life 

of 20 years; and (e) apply at 8.5% discount rate to the $515,408.00 total. 

The net present value, after application of this 8.5% discount rate, is 

$243,874.00. 

To reach this calculation, the District Court evaluated the testimony of four expert 

witnesses who each presented a distinct method for calculating Zerbe’s damages. The 

District Court, however, did not find the majority of this testimony credible. Specifically, 

the District Court rejected the opinion of James Smrcka (“Smrcka”), a Certified Public 

Accountant who testified at trial that Zerbe sustained $1,917,888 in damages. Smrcka’s

calculation was based on what the District Court referred to as a “wash-out tree” 

accounting method, which allegedly traced the profits from trade-ins associated with the 

sale of each Challenger tractor. However, according to the District Court, the “wash-out 

tree” accounting method was not a suitable method for calculating Zerbe’s damages. The 

District Court reasoned that the “wash-out tree” method was not appropriate because 

T&E retained no ownership interest in the trade-ins, was not entitled to any benefits from 

the trade-ins, and “was neither willing nor obligated to assume any of the risk related to 

accepting a trade.” Additionally, the District Court noted that, under the Consignment 

and Sales Agreement, Zerbe was required to purchase the Challenger tractors prior to 

selling them to its customers. “This contract obligation,” according to the District Court, 

“meant Zerbe had to come up with the cash to pay T&E in full regardless of whether or 

not it accepted a trade to complete a Challenger sale.” Further, the District Court 
17

reasoned that the “wash-out” transactions “were not part of the competitive 

circumstances established by the Consignment Agreement” and that “[f]or purposes of 

this case, these ‘wash out’ transactions were separate transactions” and thus, could not be 

included in the calculation of Zerbe’s damages. The District Court also rejected 

Smrcka’s opinion that Zerbe’s annual average sale estimate was 4.7 Challenger tractors. 

According to the District Court, “Zerbe’s ‘competitive circumstances’ did not include a 

contractual right to sell Challengers” outside the five-county area specified in the 

Consignment and Sales Agreement without T&E’s consent, and T&E had no obligation 

to honor such sales. Accordingly, the District Court adjusted the annual average sale rate 

to 3.2 Challengers per year. 

¶26 On appeal, Zerbe claims the District Court underestimated its damages, and 

specifically, that its findings which served as the basis of the damage determination were 

“inadequate, speculative, and outside the record.” Zerbe’s primary claim is that the 

District Court erred by not including profits from trade-ins associated with the sale of 

each Challenger tractor or profits from Challenger tractor sales made outside the fivecounty area specified in the Consignment and Sales Agreement. Zerbe contends that the 

“wash-out tree” method advocated by Smrcka was a valid method for calculating Zerbe’s 

damages. Zerbe reasons that the sale of each Challenger tractor was “intrinsically linked 

to the sale of the trade-in tractor or implement” and that the District Court’s exclusion of 

these profits resulted in a significant reduction in the calculation of Zerbe’s lost profits. 

Zerbe claims that, because of the expense of purchasing a new Challenger tractor,

purchasers were almost always required to trade-in a used tractor. The value received 
18

from the trade-in was then discounted from the price of the new Challenger tractor. 

Zerbe would then sell the trade-in tractor and so forth until a final profit, according to 

Zerbe, could be ascertained. Zerbe claims, that “after ‘shaking out’ or disposing of all the 

multiple trades,” its average annual profit per Challenger tractor was $24,989 or $15,879 

more than the average annual profit calculated by the District Court. As to profits made 

outside the five-county area specified in the Consignment and Sales Agreement, Zerbe 

argues that the District Court should have included these profits within its calculation 

because T&E worked with Zerbe to facilitate Challenger sales outside the five-county 

area. T&E counters by arguing that the “District Court was correct in rejecting Zerbe’s 

astronomical damages claim” and the “wash-out tree” method advocated by Smrcka. In 

support of its argument, T&E claims that “all numbers used in the washout tree were 

based on guesstimates or assumptions.” T&E cites testimony given by Smrcka at trial in 

which he agreed that the value of the trade-ins could not be determined until they were 

actually sold. T&E states that, if anything, the District Court actually overstated Zerbe’s 

damages by applying an “entirely speculative” twenty-year period for Zerbe’s projected 

lost profits and by failing to “properly account for risk in the discount rate.” T&E also 

claims the “future sales projections exceeded actual financial risk.” 

¶27 As noted in the standard of review section, a district court’s damage determination 

is a factual finding that this Court will uphold if is supported by substantial evidence and 

not clearly erroneous. See Semenza, 268 Mont. at 125, 885 P.2d at 445. We have also 

stated that “since the district court is in the best position to determine the proper amount 

of damages . . . its decision will not be disturbed ‘unless the amount awarded is so grossly 
19

out of proportion to the injury as to shock the conscience.”’ Harding v. Savoy, 2004 MT 

280, ¶ 45, 323 Mont. 261, ¶ 45, 100 P.3d 976, ¶ 45 (internal citations omitted). Further, 

while a damages judgment “must be supported by substantial evidence that is not mere 

guess or speculation,” “mathematical precision is not required.” In re Mease, 2004 MT 

59, ¶ 42, 320 Mont. 229, ¶ 42, 92 P.3d 1148, ¶ 42. Finally, “Proof of damages must 

consist of a reasonable basis for computation and the best evidence obtainable under the 

circumstances which will enable a judge to arrive at a reasonably close estimate of the 

loss.” In re Mease, ¶ 42. 

¶28 In this case, there was substantial evidence in the record to support the District 

Court’s determination that Zerbe sustained $243,874 in damages. Because T&E and 

Zerbe collectively challenge specific figures used by the District Court to calculate 

Zerbe’s damages, we address only those figures contested on appeal. First, with respect 

to the “wash-out tree” advocated by Zerbe, we note that the central question before the 

District Court on this issue concerned the average gross profit received per Challenger 

sale. In this case, the record included transactional data for each Challenger tractor sold, 

including the price paid by the buyer and the amount Zerbe remitted to T&E. The record 

also noted that, regardless of whether Zerbe ultimately accepted a trade-in from a 

customer, it paid T&E in cash for the full amount of the Challenger as determined by 

T&E. Based on this information, the court established a gross profit per sale of $9,110. 

While Zerbe contends that its profit per sale should have been $24,989, as determined by 

using the “wash-out tree” method, we conclude that the District Court did not err in 

rejecting this claim. Zerbe’s “wash-out tree” method used estimates of future profits 
20

from potential trade-ins—numbers that were neither certain nor ascertainable. As T&E 

points out, Zerbe’s own witness, Smrcka, admitted at trial that the price for the trade-ins 

could not be ascertained until they were actually sold by Zerbe. Consequently, we affirm 

the District Court’s determination of the profit per sale and its rejection of the “wash-out 

tree” method in this case. 

¶29 In addition, the District Court’s decision to adjust the annual average sales rate 

from 4.7 to 3.2 was, contrary to Zerbe’s assertions, also supported by the record in this 

case. The Consignment and Sales Agreement specifically provided that Zerbe was 

limited to a five-county selling area in northeastern Montana and T&E had no obligation 

under the terms of the agreement to accept sales from outside this area. Therefore, we 

conclude that the District Court did not err by limiting the average annual sale average to 

the counties provided for in the agreement. We also note that the District Court’s use of a 

20-year time period was based on information in the record that the Challenger had been 

on sale for 20 years and that there was no reason to expect that it would not be available 

20 years from the time the District Court issued its findings. We determine that this was 

a reasonable conclusion based on the record. Finally, T&E’s claim that the District Court 

used an improper discount rate in its calculation is equally unpersuasive. The District 

Court’s use of an 8.5% discount rate was derived from competing discount rates 

introduced at trial by Zerbe and T&E. The District Court’s conclusion that Zerbe’s 

proposed rate was too low and that T&E’s proposed rate was too high was based on the 

District Court’s evaluation of the evidence and the credibility of the witnesses. In Tefft v. 

State, 271 Mont. 82, 894 P.2d 317, 325 (1995), we stated that “[t]he trial judge has the 
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duty to resolve conflicts in evidence and this Court gives due regard to the trial judge’s 

superior opportunity to judge the credibility of witnesses.” We also stated that “a district 

court is not bound by the opinion of a particular party or expert but remains free to adopt 

any reasonable valuation that is supported by the record.” Tefft, 271 Mont. at 82, 894 

P.2d at 325 (citing Goodover v. Lindey’s, 255 Mont. 430, 440, 843 P.2d 765, 771 (1992)). 

In this case, the District Court was in the best position to evaluate the competing 

positions of the witnesses as to the discount rate, and there was substantial evidence in 

the record to support the District Court’s findings on this issue. Therefore, we hold that 

the District Court did not err in calculating Zerbe’s damages. 

¶30 Affirmed. 

/S/ W. WILLIAM LEAPHART

We concur: 

/S/ KARLA M. GRAY

/S/ PATRICIA COTTER

/S/ JOHN WARNER

/S/ BRIAN MORRIS