The two seats were released one at a time, you and your wife could therefore not be upgraded when the first seat was made available, they went to the next passenger, your daughter, then they released the next seat once again you weren’t eligible because there was only one seat, I think the choose not to relates to not having split the pnr which was your best chance

I get that you don’t like the outcome but it is the way it works, I never ever travel on the same pnr as my wife for this very reason,