Mobile Attic, Inc. et al v. Cash et al

Filing 230

OPINION AND ORDER as follows: (1) Dft-Intervenor Bagley Family Revocable Trust's and plf-intervenor's National Security Group, Inc.'s 207 & 208 Objections are overruled; (2) The US Magistrate Judge's 205 Recommendation is ad opted; (3) Dft-Intervenor Bagley Family Revocable Trust's 164 Motion for Summary Judgment is granted; (4) Plf-Intervenor National Security Group, Inc.'s 166 Motion for Partial Summary Judgment is denied; (5) Judgment is entered in favor of dft-intervenor Bagley Family Revocable Trust and against plf-intervenor National Security Group, Inc., with plf-intervenor National Security Group, Inc. taking nothing as to counts two, three, and four of its amended intervenor-complaint for breach of contract, breach of implied duty of good faith, and breach of fiduciary duty, as further set out in order. Signed by Honorable Judge Myron H. Thompson on 6/12/2012. (Attachments: # 1 Civil Appeals Checklist)(wcl, )

IN THE DISTRICT COURT OF THE UNITED STATES FOR THE
MIDDLE DISTRICT OF ALABAMA, SOUTHERN DIVISION

MOBILE ATTIC, INC.,
MA MANUFACTURING COMPANY,
INC., and BAGLEY FAMILY
REVOCABLE TRUST,
Plaintiffs,
v.
PETER L. CASH, CASH
BROTHERS LEASING, INC.,
and BRIDGEVILLE
TRAILERS, INC.,
Defendants.

)
)
)
)
)
)
)
)
)
)
)
)
)
)
)

)
NATIONAL SECURITY GROUP,
)
INC.,
)
)
Plaintiff-Intervenor, )
)
v.
)
)
PETER L. CASH, MOBILE
)
ATTIC, INC., and BAGLEY
)
FAMILY REVOCABLE TRUST,
)
)
Defendant-Intervenors. )

CIVIL ACTION NO.
1:09cv24-MHT
(WO)

OPINION AND ORDER
After

an

independent

and

de

novo

review

of

the

record, it is ORDERED as follows:
(1) Defendant-Intervenor
Trust’s

and

Group,

Inc.’s

Bagley

plaintiff-intervenor’s
objections

(Doc.

Family

Revocable

National

Security

Nos.

207

&

208)

are

overruled.
(2) The

United

States

Magistrate

Judge’s

recommendation (Doc. No. 205) is adopted.
(3)

Defendant-Intervenor

Bagley

Family

Revocable

Trust’s motion for summary judgment (Doc. No. 164) is
granted.
(4) Plaintiff-Intervenor National Security Group,
Inc.’s motion for partial summary judgment (Doc. No. 166)
is denied.
(5)

Judgment

is

entered

in

favor

of

defendant-

intervenor Bagley Family Revocable Trust and against
plaintiff-intervenor National Security Group, Inc., with
plaintiff-intervenor National Security Group, Inc. taking

2

nothing as to counts two, three, and four of its amended
intervenor-complaint for breach of contract, breach of
implied duty of good faith, and breach of fiduciary duty.

***

The court adds these comments.

Plaintiff-Intervenor

National Security Group (“NSG”) sets forth three specific
objections that the court will address.1
First, NSG objects to the magistrate judge’s “finding
that NSG’s Motion for Partial Summary Judgment, which
concerned the measure of damages that Bagley Trust could
claim

as

a

matter

of

law,

was

Objections (Doc. No. 207) at 2-3.

‘premature.’”

NSG

NSG argues that,

because it now concedes that it cannot disprove two

1.
Defendant-Intervenor Bagley Family Revocable
Trust also objects to certain “factual findings” of the
magistrate judge. Bagley Objections (Doc. No. 208) at 1.
Of course, at the summary-judgment stage, the court
construes the facts in the light most favorable to the
non-movant, and Bagley is free to make these arguments at
trial.
3

warranty breaches, the court should now “construe the
breadth of the indemnity provision.”

Id. at 7.

The

court disagrees. In attempting to limit the issue of
damages at this juncture, NSG conflates the issue of
damages with the question of indemnification.

There

remain genuine disputes of material fact regarding the
scope of the Stock Purchase Agreement and indemnification
provision regarding damages.
Next, NSG objects to the magistrate judge’s finding
that “NSG has not previously asserted that the Bagley
Family Trust’s claims were derivative.”

Id. at 3.

The

court addresses this objection by separate order.
Finally,

NSG

objects

to

the

magistrate

judge’s

“failure to address, in ruling on NSG’s counterclaim,
that

under

shareholder

Alabama
owed

a

law,

Bagley

fiduciary

shareholders including NSG.”2

Trust
duty

to

as

majority

the

other

Id.

2.
NSG also challenges the magistrate judge’s
specific finding that Bagley Trust had been issued
“preferred stock.” The court finds NSG’s objection
(continued...)

4

In this objection, NSG argues that the magistrate
judge failed to consider properly its claims that, as
majority shareholder, Bagley Trust owed a fiduciary duty
to NSG, as a minority shareholder.

In its objections,

NSG argues for the first time that Bagley Trust's actions
as

majority

shareholder

violated

the

1975

Ala.

§ 10A-2-8.31 and the Alabama Constitution § 234.

Code

NSG did

not rely on this law in opposition to Bagley Trust’s
motion for summary judgment, and its arguments are a
rehashing

of

its

unsuccessful

arguments

on

summary

judgment, albeit propped up by law not previously cited.

(...continued)

regarding the issuance of preferred stock to be without
merit. In its Statement of Disputed Facts in Support of
Response to Motion for Summary Judgment (Doc. No. 174),
NSG sets forth the facts regarding the issuance of
preferred stock to Bagley Trust. Id. at 22, ¶ 17. NSG
disputed several statements regarding the $ 9.5 million
dollars contributed by James Bagley but does not dispute
that the Stock Purchase Agreement authorized, and at a
special board meeting, the board voted to issue Bagley
Trust preferred stock.
Id. at 23-24.
Once again, on
summary judgment, the court construes the facts in the
light most favorable to the non-movant, and at trial NSG
may present evidence regarding whether preferred stock
was issued or not.
5

More importantly, however, the court concludes that
the magistrate judge considered NSG’s claims regarding
Bagley Trust’s duties as majority shareholder.
NSG

argues

that

the

magistrate

judge

failed

to

consider properly Alabama law that recognizes the "unique
duties

owed

to

minority

shareholders

by

a

majority

shareholder controlling a closely-held corporation." NSG
Objections (Doc. no. 207) at 31. According to NSG, the
magistrate judge’s statement of the law is incorrect:
“Although there may be some confusion
based on the relative dearth of Alabama
law on this subject, nevertheless, as a
matter of law, a shareholder in NSG's
position has a personal remedy for
breach of fiduciary duty.
Michaud v.
Morris, 603 So.2d 886 (Ala. 1992); see
also Davis v. Dorsey, 495 F. Supp. 2d
1162 (M.D. Ala. 2007). This portion of
the Recommendation (which has already
been published on some internet sites)
needs to be corrected as far as its
statement of applicable law.”
Id.
The court disagrees. Relying on Altrust Fin. Servs.,
Inc. v. Adams, 76 So. 3d 228, 246 (Ala. 2011), which NSG

6

does not refer to in its objections, the magistrate judge
concluded that NSG’s claims in this regard are derivative
and that NSG lacks standing to raise such claims as
personal claims.

Throughout this litigation, NSG has

alleged that the Bagley Family Trust took actions to
cause Mobile Attic to fail to reach certain performance
targets which would have then triggered the earn-out
provision causing an adjustment of the purchase price NSG
received for its shares.
While NSG is correct that the law in Alabama lacks
depth and clarity, the Alabama courts have held that, “If
the wrong directly damages the corporation and its assets
from waste, conversion and intentional mismanagement, the
claim is the corporation’s.” Id. at
Hardy,

507

So.

2d

409

(Ala.

241 (citing Hardy v.

1987),

Thompson, 544 So. 2d 845 (Ala. 1989)).
the

plaintiffs

of

wasting

Mobile

and

Shelton

v.

NSG has accused
Attic’s

assets,

mismanaging Mobile Attic, and engaging in self-dealing.
NSG complains about the business strategy pursued by

7

Bagley

Family

Trust

to

increase

corporate

growth

of

Mobile Attic and about the manner in which the Trust
released NSG from its debt guarantee.

NSG’s allegations

that Bagley Family Trust mismanaged Mobile Attic and
engaged in self-dealing demonstrate that its claim in
this regard is the “quintessential derivative injury,
merely incidental to [its] status as stockholder.”
at

244.

Regardless

of

how

NSG

now

seeks

Id.
to

recharacterize its claim, by asserting that the Bagley
Family Trust breached its duty as majority shareholder to
NSG as the minority shareholders by the manner in which
it ran the company, NSG’s claims are clearly “incidental
to its status as a shareholder,” and thus, derivative.
Id. at 246.

Thus, the court concludes that there is no

clear error in the magistrate judge’s determination that
NSG’s fiduciary-duty claims are derivative claims and
that it lacked standing to bring a direct action on its
behalf:

“[T]he actual harm . . . was caused by the

alleged mismanagement of wrongdoing of the [Trust’s]

8

officers and directors.

This harm is not unique to

[NSG]; rather it is suffered equally by all remaining
eligible shareholders in [Mobile Attic].

Because the

harm suffered by [NSG] also affects the other remaining
eligible shareholders in [Mobile Attic], [NSG] do[es] not
have standing to assert a direct claim.”

Id.

DONE, this the 12th day of June, 2012.
/s/ Myron H. Thompson
UNITED STATES DISTRICT JUDGE