Sorry to hear about your experience. I agree that if it was truly a known issue from the inbound flight, the gate agent should have called you up, explained the situation and offered you another seat in the cabin prior to processing upgrades. That said, I believe that would have just been the correct thing to do from a customer service perspective and not officially a policy sadly.

Last year flying in D1 from CDG to SEA the entire aircraft's in-flight entertainment system was INOP. Upon landing I had a proactive email for 12,500 SkyMiles. I would value a functioning D1 seat higher than working entertainment, so I would imagine if you file a complaint they might send you an additional 10,000 miles, but then again they might not. Regardless, I think 20,000 total is about as high as you will likely potentially see.

A word of advice, in the complaint do not ask for miles. Just explain how disappointed you were that the seat recline was INOP and other customers were upgraded into functioning seats, while you as a paying customer received a broken one. I've found if you ask for goodwill compensation they are likely to deny you and just send an apology. But if it's more of a disappointment complaint, they are likely to toss some miles your way. Best of luck!