Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-1_09-cv-00024/USCOURTS-almd-1_09-cv-00024-2/pdf.json

Nature of Suit Code: 160
Nature of Suit: Stockholder's Suits
Cause of Action: 15:78m(a) Securities Exchange Act

---

IN THE UNITED STATES DISTRICT COURT

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., BRIDGEVILLE )

TRAILERS, INC., and BARFIELD, )

MURPHY, SHANK & SMITH, P.C., )

)

Defendants. )

____________________________________ CIVIL ACT. NO. 1:09cv24-MHT

 (WO)

NATIONAL SECURITY GROUP, INC., )

)

Intervenor Plaintiff, )

)

v. )

)

PETER L. CASH, BARFIELD, )

MURPHY, SHANK & SMITH, P.C., )

MOBILE ATTIC, INC., and BAGLEY )

FAMILY REVOCABLE TRUST, )

)

Intervenor Defendants. )

RECOMMENDATION OF THE MAGISTRATE JUDGE and ORDER

I. INTRODUCTION

This case is about a promising business venture which did not turn out like its

principals hoped. In 2007, James Bagley, on behalf of the Bagley Family Trust (“Bagley

Family Trust” or “the Trust”), executed a Stock Purchase Agreement (“SPA”) under which

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 1 of 40
Bagley Family Trust acquired a majority interest in Mobile Attic, Inc. (“Mobile Attic” or

“MA”) from the original owners Peter and Russell Cash and National Security Group

(“NSG”). After execution of the SPA, Bagley and Mobile Attic’s new president, TonyWax 1

(“Wax”) who was also Bagley’s son-in-law, took over management of Mobile Attic. Soon,

as will be explained in detail later, Bagley and the Trust became dissatisfied because they

came to believe that the financial status and inventory of Mobile Attic had been

misrepresented. NSG, one of the other stockholders, grew equally dissatisfied with the

operation of the corporation, especiallywhen NSG did not receive an additional premium for

the shares ofstock NSG sold because Mobile Attic failed to meet certain performance targets

established in the SPA. This lawsuit ensued.

On January 9, 2009, plaintiffs Mobile Attic, MA Manufacturing Company, Inc.

(“MAMCI”), and Bagley Family Trust filed a complaint against defendants Peter L. Cash

(“Cash”), Cash Brothers Leasing, Inc. (“Cash Brothers”), Bridgeville Trailers, Inc.

(“Bridgeville Trailers”), and the accounting firm of Barfield, Murphy, Shank & Smith, P.C.

(“Barfield Murphy”) alleging twelve counts ofmisconduct surrounding and arising out ofthe

SPA. (Doc. # 1). The plaintiffs sought damages in excess of $7,858,681.25. 

The SPA contained an indemnification provision in which the Sellers agreed to 2

Bagley purchased 45 shares of stock from NSG, and 8 shares of stock from Peter Cash and Russell

1

Cash individually, for total ownership of 61 shares of stock.

The SPA defines the “Sellers” as “National Security Group, Inc., a corporation located in Elba, 2

Coffee County, Alabama (“Seller NSG”), Peter L. Cash, an individual and Alabama resident (“Seller PLC”)

(continued...)

2

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 2 of 40
“jointly and severally, indemnify, defend” and hold harmless the Purchaser and the 3

Purchaser’s assigns “from and against all losses, damages, liabilities or expenses (including

reasonable attorneys’ fees and expenses)” suffered as a result of or arising from (1) any

breach of a representation or warranty contained in the SPA; (2) any breach or default in the

performance of any covenant or agreement in the SPA; or (3) “any fraud, fraud in the

inducement or misrepresentation by any of the Sellers” regarding the SPA or any

“agreements to be executed and delivered pursuant to” the SPA. (Doc. # 164, Ex. 1 at 18,

¶ 6.3, 6.3.1, 6.3.2 & 6.3.3) (emphasis added). Because NSG, as a Seller, was party to the

SPA, and the plaintiffs sought indemnification from NSG for alleged misrepresentations

made by Peter Cash about the value of MA, NSG sought permission to intervene in this case

to allege claims against Peter Cash, Mobile Attic and Barfield Murphy. (Doc. # 37). On

August 17, 2009, NSG intervened pursuant to FED.R.CIV.P. 24(b)(1)(B). (Doc. # 45). In its

intervenor complaint, NSG alleged that it was defrauded by Cash, “who made numerous

misrepresentations about the Mobile Attic business to NSG while, at the same time,

affirmatively concealing the actual facts from NSG.” (Doc. # 46 at 2, ¶ 1). NSG asserted

claims of fraud and fraudulent inducement against Cash and MA, a claim of negligence

against MA and Barfield Murphy, and sought a declaratory judgment against Bagley Family

(...continued) 2

and Russell L. Cash, an individual and Alabama resident (“Seller RLC”) (collectively, “Sellers”). (Doc. #

164, Ex. 1 at 1) (emphasis in original).

 The SPA defines the Purchaser as “James W. Bagley, an individual and Texas resident, and/or 3

his assigns (“Purchaser”).” (Doc. # 164, Ex. 1 at 1) (emphasis in original).

3

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 3 of 40
Trust. (Doc. # 46). 

On September 8, 2009, plaintiffs Bagley Family Trust and MA filed a counterclaim

against NSG alleging breach of representations and warranties, breach of the SPA and

seeking indemnification for their losses. (Doc. # 50). On August 10, 2010, NSG sought leave

to amend its intervenor complaint, and Bagley Family Trust and MA sought leave to amend

their complaint and counterclaim. (Docs. ## 81 & 83). On August 13, 2010, the court

granted the parties leave to amend their pleadings. (Docs. # 86-88).

In their amended complaint, plaintiffs Bagley Family Trust and MA assert the

following claims: 

(1) Cash Brothers Leasing breached its contract with MA by failing to

deliver mobile storage containers in the quantities as promised; 

(2) Cash breached the SPA agreement; 

(3) Barfield Murphy negligently prepared financial statements, thereby

placing an excessive value on MA’s inventory, furniture, and

equipment, with knowledge that MA intended to furnish the statements

to Bagley during the course of negotiations to purchase a majority

interest in the company;

4

(4) Cash misrepresented the number and value of mobile storage units

owned by MA, its inventory, and the amount of MA’s accounts and

notes; 

(5) Cash engaged in securities fraud in violation of 15 U.S.C. § 78j(b) and 5

 The plaintiffs have settled with defendant Barfield, Murphy, Shank and Smith and the court has 4

dismissed this count and this defendant. See Doc. # 202.

15 U.S.C. § 78j(b) makes it illegal for an individual, through any means or instrumentality of 5

(continued...)

4

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 4 of 40
Rule 10b-5, by means and instrumentalities of interstate commerce, 6

when he made false statements of material fact to Bagley in connection

with the purchase of MA stock; 

(6) Bridgeville breached its agreement with MA Manufacturing; 

(7) Cash misrepresented to Bagley and MA Manufacturing the value of

Bridgeville assets being purchased by MA Manufacturing; 

(8) Cash and Bridgeville, using instrumentalities of interstate commerce,

made false statements of material fact to Bagley in connection with the

conveyance of stock in MA Manufacturing in violation of 15 U.S.C. §

78j(b) and Rule 10b-5; 

(9) Cash breached the guaranty agreement with Bagley; 

(10) MA Manufacturing is entitled to indemnity from Cash for incurred

expenses related to unauthorized loans; 

(11) Mobile Attic is entitled to indemnity from Cash and Cash Brothers due

to their presentation of a fake invoice to Trinity Bank; and

(12) the plaintiffs request a declaration that they have a first priority lien on

Cash’s shares in the companies, as well as a judicial foreclosure of

those liens. 

(Doc. # 91). 

The plaintiffs seek compensatory and punitive damages, and attorney’s fees as well

as declaratory and injunctive relief. (Id.) 7

(...continued) 5

interstate commence, to use manipulation or deception to sell securities. 

The Securities Exchange Commission enacted Rule 10b-5 to make it illegal to use any means or 6

instrumentality of interstate commerce to engage in scheme to defraud another in connection with the sale

or purchase of securities. See 17 C.F.R. § 240.10b-5 (1994).

 The plaintiffs do not specify the amount of damages they seek in the amended complaint. 7

5

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 5 of 40
In its amended counterclaim against NSG, Bagley Family Trust and MA allege that

(1) NSG made false representations and warranties about the value of MA to induce Bagley

Family Trust to enter into the SPA; (2) NSG breached the SPA; and (3) under the SPA, NSG

is obligated to indemnify Bagley Family Trust for its losses and damages. (Doc. # 92).

In its amended intervenor complaint against BagleyFamilyTrust and MA, (doc. # 89),

NSG seeks a declaration that it does not owe indemnification to Bagley Family Trust. In

count 2, NSG alleges a breach of contract claim against Bagley Family Trust asserting that

the Trust breached implied obligations under the Stock Purchase Agreement. According to

NSG, Bagley Family Trust took actions that inured to the benefit of the Trust which resulted

in a loss of $1,800,000 to NSG because MA failed to meet the specific performance goals

that would have required an additional payment to NSG pursuant to the earn out provision

of the SPA. In count three, NSG alleges that BagleyFamilyTrust breached its implied duties

of good faith and fair dealing by changing MA’s business model specifically to avoid paying

to NSG $1,800,000 contained in the earn out provision of the SPA. NSG also accuses

Bagley Family Trust of secretly recapitalizing MA to the detriment of NSG. In count four,

NSG accuses Bagley Family Trust, as majority shareholder, of breaching the fiduciary duty

it owed to NSG as minority shareholder by changing MA’s business’s operating model and

secretly recapitalizing the debt. Count five is an unjust enrichment claim. In count six, NSG

accuses Mobile Attic of misrepresentation.

The court has jurisdiction of the securities fraud claim brought pursuant to 15 U.S.C.

6

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 6 of 40
§ 78j(b). See 28 U.S.C. § 1331. The court has supplemental jurisdiction of the state law 8

claims pursuant to 28 U.S.C. § 1367(a). 

Now pending before the court are Bagley Family Trust’s motion for summary

judgment. (Doc. # 164). Bagley Family Trust seeks summary judgment on counts two, 9

three and four of NSG’s amended intervenor complaint. (Id.). Bagley Family Trust does 10

not seek summary judgment on count one which seeks a declaratory judgment that NSG does

not owe indemnification to the Trust. Bagley Family Trust also does not seek summary

judgment on count six which alleges misrepresentations by Mobile Attic to NSG regarding

“inaccuracies” in financial documents, specifically balance sheets and inventories. (Doc. #

89 at 12). 

Also pending before the court is NSG’s motion for partial summary judgment (doc.

# 166). NSG does not seek summary judgment on any of the claims contained in Bagley

FamilyTrust’s amended counterclaimbut rather seeks to define how the measure of damages

Mobile Attic’s status as a closely-held corporation does not preclude the securities fraud claim. 

8

See 15 U.S.C. § 78j(b) (“It shall be unlawful for any person, ... [t]o use or employ, in connection with the

purchase or sale of any security registered on a nationalsecurities exchange or any security notso registered,

any manipulative or deceptive device. . . .” (emphasis added)). 

There is no pending motion forsummary judgment on any of the claims contained in the plaintiffs’

9

amended complaint against defendants Peter Cash, Cash Brothers Leasing, and Bridgeville Trailers. (Doc.

# 91). Consequently, it appears that the Bagley Family Trust and Mobile Attic are going to trial against these

defendants.

 The Bagley Family Trust and Mobile Attic also sought summary judgment on count five of the 10

intervenor complaint which is a claim of unjust enrichment. See Docs. # 164 & 165. NSG conceded that

the motions for summary judgment were due to be granted with respect to count five. See Doc. # 173 at 3;

Doc. # 186 at 3-4, 27. Consequently, the court granted summary judgment on count five of the intervenor

complaint, and dismissed this count. See Doc. # 202.

7

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 7 of 40
is to be calculated in the event of an adverse judgment. 

11

The court has carefully reviewed the motions, responses, and evidentiary material

submitted in support of and in opposition to the motions, and concludes that the Bagley

Family Trust’s motion for summary judgment as to NSG’s amended intervenor complaint is

due to be granted and NSG’s partial motion for summary judgment is due to be denied.

II. STANDARD OF REVIEW

“Summary judgment is appropriate ‘if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if any, show there is no

genuine [dispute] as to any material fact and that the moving party is entitled to judgment 12

as a matter of law.’” Greenberg v. BellSouth Telecomm., Inc., 498 F.3d 1258, 1263 (11th

Cir. 2007) (per curiam) (citation omitted); FED.R.CIV.P. 56(c) (Summary judgment “should

be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits

 NSG raises the following two couple of questions in its motion: 11

1. What standing does Bagley Family Trust have as a fellow

shareholder to sue NSG for anything other than a

contractual claim for diminution of stock value based on

the assignment of the SPA to the Trust?

2. How should damages be measured for a breach of

warranty under the SPA - the “before and after” test of

whether the stock was worth less . . . due to a breach or by

some other legal standard of measuring damages?

See Doc. # 166 at 7-8.

Effective December 1, 2010, the language of Rule 56(a) was amended. The word “dispute”

12

replaced the word “issue” to “betterreflect[]the focus of a summary-judgment determination.” FED.R.CIV.P.

56(a), Advisory Committee Notes, 2010 Amendments. 

8

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 8 of 40
show that there is no genuine [dispute] as to any material fact and that the movant is entitled

to judgment as a matter of law.”). The party moving for summary judgment “always bears

the initial responsibility of informing the district court of the basis for its motion, and

identifying those portions of the [record, including pleadings, discovery materials and

affidavits], which it believes demonstrate the absence of a genuine [dispute] of material fact.” 

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The movant may meet this burden by

presenting evidence which would be admissible at trial indicating there is no dispute of

material fact or by showing that the nonmoving party has failed to present evidence in

support of some element of its case on which it bears the ultimate burden of proof. Id. at

322-324. 

Once the movant meets his evidentiary burden and demonstrates the absence of a

genuine dispute of material fact, the burden shifts to the non-moving party to establish, with

appropriate evidence beyond the pleadings, that a genuine dispute material to his case exists. 

Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11 Cir. 1991); Celotex, 477 U.S. at 324; th

FED.R.CIV.P. 56(e)(2) (“When a motion for summary judgment is properly made and

supported, an opposing party may not rely merely on allegations or denials in its own

pleading; rather, its response must ... set out specific facts showing a genuine [dispute] for

trial.”). A genuine dispute of material fact exists when the nonmoving party produces

evidence that would allow a reasonable fact-finder to return a verdict in its favor. 

Greenberg, 498 F.3d at 1263. 

9

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 9 of 40
To survive the movant’s properly supported motion for summary judgment, a party

is required to produce “sufficient [favorable] evidence” “that a reasonable jury could return

a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49

(1986). “If the evidence [on which the nonmoving party relies] is merely colorable . . . or is

not significantly probative . . . summary judgment may be granted.” Id. at 249-250. “A mere

‘scintilla’ of evidence supporting the opposing party’s position will not suffice; there must

be enough of a showing that the [trier of fact] could reasonably find for that party.” Walker

v. Darby, 911 F.2d 1573, 1576-1577 (11 Cir. 1990) quoting Anderson, supra. Conclusory th

allegations based on subjective beliefs are likewise insufficient to create a genuine dispute

of material fact and, therefore, do not suffice to oppose a motion for summary judgment. 

Waddell v. Valley Forge Dental Assocs., Inc., 276 F.3d 1275, 1279 (11 Cir. 2001). Hence, th

when a nonmoving party fails to set forth specific facts supported by appropriate evidence

sufficient to establish the existence of an element essential to its case and on which the

nonmovant will bear the burden of proof at trial, summary judgment is due to be granted in

favor of the moving party. Celotex, 477 U.S. at 322 (“[F]ailure of proof concerning an

essential element of the nonmoving party’s case necessarily renders all other facts

immaterial.”).

For summary judgment purposes, only disputes involving material facts are relevant. 

United States v. One Piece of Real Prop. Located at 5800 SW 74 Ave., Miami, Fla., 363

th

F.3d 1099, 1101 (11 Cir. 2004). What is material is determined by the substantive law th

10

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 10 of 40
applicable to the case. Anderson, 477 U.S. at 248; Lofton v. Sec’y of Dep’t of Children &

Family Servs., 358 F.3d 804, 809 (11 Cir. 2004) (“Only factual disputes that are material th

under the substantive law governing the case will preclude entry of summary judgment.”). 

“The mere existence of some factual dispute will not defeat summary judgment unless that

factual dispute is material to an issue affecting the outcome of the case.” McCormick v. City

of Fort Lauderdale, 333 F.3d 1234, 1243 (11 Cir. 2003) (citation omitted). To demonstrate th

a genuine dispute of material fact, the party opposing summary judgment “must do more than

simply show that there is some metaphysical doubt as to the material facts. . . . Where the

record taken as a whole could not lead a rational trier of fact to find for the nonmoving party,

there is no ‘genuine [dispute] for trial.’” Matsushita Elec. Indus. Co, Ltd., v. Zenith Radio

Corp., 475 U.S. 574, 587 (1986). In cases where the evidence before the court which is

admissible on its face or which can be reduced to admissible form indicates that there is no

genuine dispute of material fact and that the party moving for summary judgment is entitled

to it as a matter of law, summary judgment is proper. Celotex, 477 U.S. at 323-324

(summaryjudgment appropriate where pleadings, evidentiarymaterials and affidavits before

the court show there is no genuine dispute as to a requisite material fact); Waddell, 276 F.3d

at 1279 (to establish a genuine dispute of material fact, the nonmoving party must produce

evidence such that a reasonable trier of fact could return a verdict in his favor).

However, if there is a conflict in the evidence, “the evidence of the non-movant is to

be believed, and all justifiable inferences are to be drawn in his favor.” Anderson, 477 U.S.

11

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 11 of 40
at 255; Ruiz de Molina v. Merritt & Furman Ins. Agency, 207 F.3d 1351, 1356 (11 Cir. th

2000). With these principles of law in mind, the court will determine now whether summary

judgment is appropriate and should be granted.

III. DISCUSSION

A. FACTS13

The Mobile Attic, Incorporated, was formed on September 12, 2001 by Peter Cash,

Russell Cash, and National Security Group in Elba, Alabama. ( Doc. # 167, Ex. C; Doc. #

164, Ex. 3 at 43 ). The company leased portable storage containers of differing sizes to its 14

customers. Prior to forming MA, Cash contacted William Brunson, Jr. (“Brunson”), the

President of NSG, an insurance holding company, to inquire about insurance, and at that

time, indicated that he was also seeking “venture capital sources” to fund MA. (Doc. # 164,

Ex. 3 at 44-45). As a result, NSG invested in MA and obtained 50 shares of common stock.15

(Id. at 48; Doc. # 167, Ex. C at 3). Brunson was named to the Board of Directors of MA and

At this stage of the proceedings, this court takes the facts alleged by the non-movant as true and 13

construes them in the light most favorable to it. Stewart v. Booker T. Washington Ins., 232 F.3d 844, 848

(11 Cir. 2000) (citations omitted) (“In assessing whether there is any ‘genuine issue’ for trial, the court th

‘must view all the evidence and all factual inferences reasonably drawn from the evidence in the light most

favorable to the nonmoving party,” ... and ‘resolve all reasonable doubts about the facts in favor of the nonmovant.’ ... Moreover, the court must avoid weighing conflicting evidence or making credibility

determinations....”). In addition, NSG filed a “Statement of Disputed Facts” which contain a number of

undisputed facts. See Doc. # 174 at 13-29. Thus, the facts set forth herein are drafted relying on the

undisputed facts and construing the facts in the light most favorable to the non-moving party. 

All page references to the exhibits refer to the deposition or exhibit’s page number, not the 14

numbering created by the court’s electronic filing system.

Peter Cash and his brother Russell shared another 50 shares of common stock. (Doc. # 164, Ex. 15

3 at 48).

12

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served as Chairman. (Doc. # 167, Ex. C). Peter Cash was elected President of MA. (Id.)

In the fall of 2006, Peter Cash and James Bagley (“Bagley”) entered into negotiations

for Bagley to purchase, on behalf of the Bagley Family Trust , a controlling interest in MA. 16

On April 5, 2007, Bagley, on behalf of the Trust, entered into the SPA to purchase 61 shares

of common stock in MA from Peter Cash, Russell Cash and NSG at a price of $60,000 per

share for a total purchase price of $3,660,000.00. (Doc. # 164, Exs. 1 & 4). Peter and

Russell Cash each sold 8 shares for $480,000 while NSG sold 45 shares for $2,700,000. The

SPA defines the Purchaser as “James W. Bagley, an individual and Texas resident, and/or

his assigns.” (Doc. # 164, Ex. 1 at 1). In conjunction with the execution of the SPA, Bagley

executed an assignment that conveyed his interest in the SPA to the Bagley Family Trust. 

(Doc. # 164, Ex. 2). The SPA also contained a Purchase Price Adjustment provision that

provided for an adjustment to the selling price of the shares and payment to the selling

shareholders of an additional “earn out” if certain financial goals were met. (Doc. # 174 17

at 14, ¶ 14; Doc. # 164, Ex. 1).

 1.3 Purchase Price Adjustment: The Purchase Price represents a value of

Sixty Thousand Dollars ($60,000) per Share. If during any period of

six consecutive months (“Six Month Period”) prior to the expiration of

twenty-four (24) months after the Closing Date either the (1) Operating

Profit of the Corporation averages One Hundred Twenty-Five

While the parties dispute the effect of the assignment on the Trust’s rights to recover in this

16

action, there is no dispute that the parties all knew that Bagley was executing the SPA on behalf of the Trust

and that the Trust would be the majority shareholder in MA.

The parties refer to this provision as the “earn out” provision. For the sake of simplicity and 17

clarity, the court will utilize this term rather than the term “Purchase Price Adjustment” contained in the

SPA.

13

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 13 of 40
Thousand Dollars ($125,000) each month or (b) Gross Revenue of the

Corporation reaches a total of Three Million Seven Hundred Fifty

Thousand Dollars ($3,750,000) (the “Adjustment Trigger”), the

Purchase Price shall be adjusted by an increase of Forty Thousand

Dollars ($40,000) per share and (a) Seller NSG shall be paid an

additional One Million Eight Hundred Thousand Dollars ($1,800,000),

Seller PLC shall be paid an additional Three Hundred Twenty

Thousand Dollars ($320,000) and Seller RLC shall be paid an

additional Three Hundred Twenty Thousand Dollars ($320,000). The

Purchase Price Adjustment, if any, shall be due and payable in cash

within forty-five (45) days after the last day of the Six Month Period. 

For purposes of this provision, the terms “Operating Profit” and “Gross

Revenue” shall mean the pre-tax profit and the gross revenue of the

Corporation.

(Doc. # 164, Ex. 1 at 3).

The parties negotiated the terms of the earn out provision. (Doc. # 174 at 15, ¶ 6). It

is undisputed that MA did not achieve either benchmark sufficient to trigger the earn out

provision. Consequently, none of the shareholders, including NSG, received anyadditional 18

payment for their shares in accordance with the earn out provision. 

In addition to the earn out provision, the SPA required Bagley Family Trust to obtain

the release of NSG from its guaranty obligation of MA’s debt to First Commercial Bank. 

(Doc. # 174 at 21, ¶ 14). 

1.5 Release of Guarantee: Condition Precedent. The parties acknowledge

and agree that the Corporation is currently indebted to First

Commercial Bank in Birmingham, Alabama for approximately

$9,400,000 (the “Debt”), and that the Seller NSG has executed one or

more continuing guarantees whereby Seller NSG has unconditionally

While the parties agree that there were two different trigger points, they disagree on who came 18

up with the idea of the second trigger point. Determining the origin of the idea of the second trigger point

is immaterial to the resolution of the pending motions for summary judgment.

14

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 14 of 40
guaranteed the repayment of said Debt (the “Guarantee”). Purchaser

hereby agrees that Purchaser shall use its best efforts to cause the

Guarantee of Seller NSG to be absolutely and unconditionally released,

such that Seller NSG is no longer individually obligated for the Debt. 

Purchaser acknowledges that causing such release may require

Purchaser to execute in favor of the aforesaid bank a guarantee of the

Debt, or paying down or all or (sic) a portion of the Debt. The parties

further agree that the release of the Guarantee contemplated hereunder

shall be a condition precedent to Seller NSG’s obligation to transfer any

shares hereunder.

(Doc. # 164, Ex. 1 at ¶ 1.5).

Brunson testified that NSG was not willing to sell its shares to Bagley Family Trust

without a release from the debt guarantee. (Doc. # 174 at 21, ¶ 15; Doc. # 164, Ex. 8 at 199-

200). However, Brunson did not know how Bagley FamilyTrust was going to secure NSG’s

release from the debt guaranty. (Doc. # 164, Ex. 8 at 200). Moreover, it is undisputed that

the SPA did not specify the manner in which Bagley Family Trust was to obtain the release

of NSG from the debt guarantee. 

On April 6, 2007, the day after the SPA was executed, the MA Board of Directors

met. At that meeting, Josh Wilson (“Wilson”), a certified public accountant employed by

MA, was named Secretary/Treasurer of MA, and Bagley’s son-in-law Wax was given the

operating title of President. (Doc. # 164, Ex. 82 & 54 to Ex. 9). During this meeting, it was

discussed that Bagley would pay off the debt guaranteed by NSG, lend money to MA and

infuse $4,000,000 into the company as equity. (Id.) During the meeting, Cash made a

19

Bagley and Cash discussed this distribution of funds. (Doc. # 164, Ex. 9 at 739). There is no 19

evidence that NSG was aware of this plan.

15

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motion that Bagley Family Trust be issued preferred shares with a bond equivalency. (Doc.

# 164, Ex. 9 at 821-23). The motion was approved and Bagley Family Trust was issued the

preferred stock. (Id. at 822). Interest on the preferred stock was to be paid quarterly. (Id.

at 823).

On April 16, 2007, Bagley authorized wire transfers in the amounts of $5,000,000, 

$4,500,000, and $50,000. These funds were used to release NSG from the debt guarantee

as required by the SPA. (Doc. # 164, Ex. 19 to Ex. 6). On May 10, 2007, Community Bank

and Trust confirmed that MA “has fully satisfied the outstanding balance of their loan with

CB&T. Additionally, Russ Cash, Peter Cash, and National Security Group have been

released from their liability as guarantors for the indebtedness of Mobile Attic, Inc.” (Doc.

# 164. Ex. 10). 

Because of the manner in which Bagley accessed the funds, it was not possible to

place the funds into MA as equity. Nonetheless, the funds were initially entered into MA’s 20

accounting program as “paid in capital.” (Doc. # 164, Ex. 9 at 763-64). 21

When the Trust became the majority shareholder, Bagley and Wax pursued a business

strategy that focused on opening corporate owned locations instead of franchise

Although NSG complains that Bagley and MA “secretly recapitalized” the company to the benefit 20

of Bagley Family Trust, there is no dispute that Bagley Family Trust paid $9,500,000 to secure NSG’srelease

from the debt guarantee. It is further undisputed that one source of the funding came from an IRA which

restricted how Bagley could invest the money. (Doc. # 164, Ex. 9 at 738; Ex. 14 at 82; Ex. 13). It is not

clear, however, when Bagley discovered that the funds could not be invested as equity in MA.

The record is not clear as to who entered the funds into MA’s books as “paid in capital” or when 21

this entry was made.

16

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opportunities. (Doc. # 164, Ex. 6 at 203). This focus on corporate growth required MA to

expend additional amounts of capital. 

22

In May, 2008, for reasons he was unable to remember, Wilson sent Bagley a

23

Promissory Note and Security Agreement to document that the April 2007 $9,500,000

payment was a loan to MA. (Doc. # 164, Ex. 30 to Ex. 6; Ex. 9 at 736-39). Bagley executed

the promissory note and security agreement on August 19, 2008. (Doc. # 164, Ex. 12 at 128-

30, Ex. 60 attached). It is undisputed that no documents existed at the time of the $9,50,000

payment in April 2007 to demonstrate that the payment was actually a loan to MA. Further,

it is undisputed that the loan document and security agreement were created a year after the

payment was made and that the documents were back-dated with the wrong date.24

During the period of time when Bagley was negotiating the SPA, Peter Cash was also

busy. In fact, beginning in October 2005 and continuing until July 2008, Cash engaged in

a “check kiting” scheme to defraud two banks, and he engaged in fraudulent activities to

obtain loans. See United States v. Cash, Crim. No. 1:10cr185-WKW (M.D. Ala.) (Doc. # 1,

Information; Doc. # 8, Plea Agreement). As a result of Cash’s illegal activities, TrinityBank

suffered a loss of $1,244,118.06, and Citizen’s Bank suffered a loss of $7,534,632.61. (Id.

 It is undisputed that the SPA contains no representations or warranties by Bagley Family Trust

22

regarding the operation of MA after closing on the SPA. 

 In his deposition, Wilson testified that he didn’t “really remember” what prompted him to send 23

Bagley the promissory note and security agreement. (Doc. # 164, Ex. 9 at 739).

The note and security agreement indicate that the closing of the SPA was on March 28, 2007 when 24

the SPA was executed on April 5, 2007.

17

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 17 of 40
at Doc. # 20, Judgment). 

At some point, it became known that Cash’s actions extended into the operations of

MA. For example, 548 mobile storage containers which appeared on MA’s financial 25

books, did not exist. In addition, the financial statements reflected accounts receivable in the

amount of $1,802,198 which were overstated by $1,209,000. (Doc. # 167, Ex. H). 

Relying on the indemnification provision in the SPA, on February 18, 2009, Bagley,

26

on behalf of the Trust, wrote to Brunson seeking from NSG repayment of losses suffered by

the Trust as a result of Cash’s fraudulent activity. NSG denied responsibility for the Trust’s 27

The record does not indicate how or when the parties discovered Cash’s activities or the impact 25

of those activities on MA.

 Section 6.3 of the SPA provides as follows:

26

6.3. Remedy for Breach: Indemnification. Sellers shall, jointly and severally,

indemnify, defend and hold Purchaser and Purchaser’s permitted successors and

assigns (each a “Purchaser Indemnified Party” or, collectively, “Purchaser

Indemnified Parties”) harmless from and against all losses, damages, liabilities or

expenses (including reasonable attorneys’ fees and expenses) (“Loss” or “Losses”)

suffered by a Purchaser Indemnified Party that result or arise from:

6.3.1. any breach of a representation and warranty made by any of the

Seller in this Agreement.

6.3.2. any breach or default in the performance of any covenant or

agreement made by any of the Sellers under (i) this Agreement or (ii) any of the

agreements to be executed and delivered pursuant to this Agreement. 

6.3.3. any fraud, fraud in the inducement or misrepresentation by any of the

Sellers as regards (i) this Agreement or (ii) any of the agreements to be executed

and delivered pursuant to this Agreement.

(Doc. # 164, Ex. 1 at 18).

On October 25, 2010, Cash pleaded guilty to bank fraud. On January 26, 2011, Cash was 27

sentenced to 58 months of incarceration, and ordered to pay $8,778,750.67 in restitution to Trinity Bank and

(continued...)

18

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alleged losses, (Doc. # 167, Ex. I), and this lawsuit followed.

B. BAGLEY FAMILY TRUST’S MOTION FOR SUMMARY JUDGMENT

Bagley Family Trust moves for summary judgment on counts two, three and four of

National Security Group’s amended intervenor complaint. (Doc. # 164). The Trust does not

seek summary judgment on count one of the complaint which seeks a declaratory judgment

that NSG does not owe indemnification to the Trust. (Doc. # 89 at 8-9). Bagley Family

Trust also does not seek summary judgment on count six which alleges misrepresentations

by Mobile Attic to NSG regarding “inaccuracies” in balance sheets and inventories. (Id., at

12). Thus, the court turns to the counts upon which Bagley Family Trust seeks summary

judgment.

Count two of the amended intervenor complaint alleges a breach of contract claim

related to the earn out provision of the SPA. Specifically, NSG alleged that 

Bagley breached the implied obligations of the Stock Purchase Agreement by

diverting manpower and working capital from Mobile Attic’s core revenueproducing operations (including container sales, rentals and franchises), to

fund the opening and operation of new company-owned locations. As a result

of such actions, Bagley was able to allocate money to Mobile Attic that

otherwise would have been owed to NSG.

(Id., at 10, ¶ 34). NSG claims damages in the amount of $1,800,000 owed under the earn out

provision.

In count three, NSG alleges that Bagley breached an implied duty of good faith and

(...continued) 27

Citizens Bank. See United States v. Cash, Crim. No. 1:10cr185-WKW (M.D. Ala.) (Doc. # 20, Judgment). 

19

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 19 of 40
fair dealing “by changing the business model of Mobile Attic to ensure that the performance

targets were not met. Bagley further breached this duty by secretly recapitalizing the

company without notice to NSG . . .” (Id., at 10-11, ¶ 38). NSG again seeks damages in the

amount of $1,800,000 owed under the earn out provision.

Finally, in count four, NSG alleges that Bagley Family Trust, as a majority

shareholder, owed a fiduciary duty to NSG as a minority shareholder, and that the Trust

breached that duty. 

42. Bagley breached his fiduciary duty to NSG by, among other things,

secretly recapitalizing the company without notice to NSG, and failing

to provide NSG with monthly financial statements so that it could

monitor whether Mobile Attic was on track to meet the performance

targets, and notice of management actions which were contrary to its

interest as a shareholder. Upon information and belief, Bagley has

made other decisions and taken other actions affecting the viability of

the company, and thus the ownership interests of minorityshareholders,

without notice to them and without any meeting of shareholders. 

Bagley has treated Mobile Attic as, in essence, its own alter ego and/or

instrumentality. 

(Id., at 11, ¶ 42). As damages, NSG claims the amount of $1,800,000 and any “other

damages (yet to be ascertained).” (Id. at ¶ 43). 

Because the allegations contained in count two and three of the amended intervenor

complaint coalesce, the court deems it prudent to examine these counts jointly. 

1. Count Two, Breach of Contract, and Count 3, Breach of Implied Duty of

Good Faith and Fair Dealing. In count two, NSG alleges that Bagley acted in a manner to

cause MA to fail to meet performance targets which in turn led to NSG’s loss of the

20

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 20 of 40
additional $1,800,000 payment contained in the earn out provision of the SPA. In count

three, NSG alleges that Bagley Family Trust and MA changed the business model of MA

which harmed NSG as a minority stockholder. NSG points to the “secret recapitalization”

of the $9,500,000 debt as evidence that Bagley Family Trust breached the duty of good faith

and fair dealing. Bagley FamilyTrust seeks summary judgment on these claims on the basis

that there are no implied covenant or duties in the SPA, and even if there was an implied duty

of good faith and fair dealing, there was no breach of that duty. According to Bagley Family

Trust, no duty is owed to NSG because the sale of the shares was negotiated at arms’ length.

NSG asserts that the earn out provision in the SPA “gave rise to an accompanying

good faith obligation by Bagley Family Trust to ‘make reasonable efforts’ to manage the

company to achieve those targets.” (Doc. # 173, Br. in Opp. at p.3). Bagley Family Trust

alleges that it is entitled to summary judgment on this breach of contract claim because NSG

cannot establish, as a matter of law, that there are any implied obligations under the Stock

Purchase Agreement that would prohibit Bagley Family Trust and MA from pursuing a new

growth strategy for MA. See Doc. # 164 at 20. 

1. Breach of Contract. BagleyFamilyTrust argues that Texas law applies to this

claim because NSG is complaining about a breach of a specific provision in the SPA. NSG

counters that “[a]ll issues of Mobile Attic’s corporate governance, and the duty relationship

to its shareholders to one another, are governed by Alabama law.” (Doc. # 173 at 6). Under

either theory and corresponding state law, Bagley Family Trust’s motion for summary

21

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 21 of 40
judgment is due to be granted. 

a. Construing the claims as breach of contract under Texas law. Bagley

FamilyTrust argues that, under Texas law, no implied covenant or implied duty of good faith

and fair dealing exists in the SPA, and thus, it is entitled to judgment as a matter of law. In

its amended intervenor complaint, NSG very clearly frames the claim in count two as breach

of contract. See Doc. # 89 at 9. NSG argues that Bagley breached the SPA by failing to

fulfill its implied obligations under the agreement to “exert reasonable efforts to achieve the

performance targets, and would continue to operate Mobile Attic in a manner designed to do

so.” (Id. at 9, ¶ 33). According to NSG, the breach of the earn out provision occurred

because Bagley “divert[ed] manpower and working capital from Mobile Attic’s core

revenue-producing operations (including container sales, rentals and franchises) to fund the

opening and operation of new company-owned locations.” (Id. at 10, ¶ 34). 

It is the earn out provision in the SPA, not the actions themselves, that forms the basis

of NSG’s claim that the Trust breached the SPA. Because NSG contends that Bagley and

MA breached the earn out provision of the SPA by failing to exert reasonable efforts to

achieve the performance targets and failed to operate MA in a reasonable manner, the court

construes NSG’s claim in count two of the amended intervenor claim as a breach of contract

claim specific to the SPA. 

Construing the claim as a breach of contract claim then implicates the choice of law

provision in the SPA. The SPA provides that the “[a]greement shall be construed and

22

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 22 of 40
enforced under and in accordance with and governed by the law of the State of Texas.” (Doc.

# 164, Ex. 1 at 21, ¶ 8.6). Consequently, to the extent that NSG presents a breach of contract

claim in count two, Texas law applies to that claim.28

To establish a breach of contract claim under Texas law, NSG must establish the

following elements: 

(1) the existence of a valid contract; (2) performance or tendered performance

by the plaintiff; (3) breach by the defendant; and (4) damages sustained by the

plaintiff as a result of the breach. Southwell v. University of Incarnate Word,

974 S.W.2d 351, 354–55 (Tex. App. 1998). 

Texas Dept. of Transp. v. Crockett, 257 S.W.3d 412, 416 (Tex. App., 2008). There is no 29

dispute that the SPA constitutes a valid contract and that NSG performed under the contract. 

It is on the third element, a breach, that NSG’s claim fails as a matter of law. 

In the case of a contingency contract, there can be no liability under the contract until

the contingency happens. Unless MA made a profit or increased revenue in accordance with

the terms set forth in the earn out provision, the selling shareholders, including NSG, were

not entitled to an adjustment of the sale price of their shares. Because the earn out provision

Moreover, under Texas law, because NSG described its claim as a breach of contract claim, NSG 28

is bound by its pleadings. “Allegations contained in the pleadings define the nature and character of a suit.”

Edlund v. Bounds, 842 S.W.2d 719, 726 (Tex. App. 1992). See also Erisman v. Thompson, 140 Tex. 361,

366-67, 167 S.W.2d 731, 733 (Tex. 1943) (“the plaintiff defined the cause of action this defendant was called

upon to meet, . . . Plaintiff was bound by her pleadings.”); Safety Cas. Co. v. Wright, 138 Tex. 492, 504, 160

S.W.2d 238, 245 (Tex. 1942) (“A plaintiff can recover, if at all, only on the cause of action pleaded by

him.”). 

The elements of a breach of contract claim are the same under Alabama law. See Southern Med. 29

Health Sys., Inc. v. Vaughn, 669 So. 2d 98, 99 (Ala. 1995) (setting out the elements of a breach of contract

claim).

23

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 23 of 40
was a contingency clause, and it is undisputed that the contingency did not occur, regardless

of the reason for the non-occurrence, Bagley Family Trust cannot be said to have breached

the Agreement. 

The parties to a contract may agree that it shall not become effective or

binding until or unless some specified condition is performed or occurs, in

which case there is no binding contract until such condition has been complied

with. 10 TEX.JUR., p. 52, § 29, and authorities there cited. Such a stipulation

is called a ‘condition precedent’ 10 TEX.JUR. p. 343, § 197, and authorities

there cited. When a promise is subject to a condition precedent, there is no

liability or obligation on the promissor and there can be no breach of the

contract by him until and unless such condition or contingency is performed

or occurs. 10 TEX.JUR., p. 396, § 225, and authorities cited; Ferguson v.

Mansfield, 114 Tex. 112, 263 S.W. 894, 900, par. 4; First Methodist Episcopal

Church v. Soden, 131 Wash. 228, 229 P. 534, 536, par. 3. 

Shaper v. Gilkison, 217 S.W.2d 878, 880 (Tex. Civ. App. 1949). 

In response to Bagley FamilyTrust’s motion for summary judgment, NSG argues that

there are genuine disputes of material facts that preclude summary judgment on this claim. 

NSG contends that Bagley Trust “diverted MA from a number of its traditional business

practices, practices which had generated the profit and revenues upon which the assumptions

used for the “earn-out” triggers set forth in Section 1.3 were based.” (Doc. # 173 at 8).

According to NSG, changing MA’s business strategy fromfranchises to corporate locations,

and the ‘secret recapitalization’ ofthe $9,500,000 debt, were done specificallyto prevent MA

from making a profit in order to avoid paying NSG the $1,800,000 it would have been

entitled to under the earn out provision. NSG further argues that there are genuine disputes

of material fact regarding Bagley Family Trust’s actions regarding the $9,500,000 payment

24

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 24 of 40
of the debt guarantee. NSG points to evidence that a loan agreement and security agreement

were created without its knowledge, that the documents were back-dated to a date

unconnected to the execution of the SPA or payment of the debt guarantee, and that Bagley

Family Trust was issued preferred stock that entitled it to interest before the other

shareholders as evidence that the Trust and MA acted in its own best interest and to the

detriment of NSG. 

Bagley FamilyTrust counters that there was no implied duty because NSG was aware

that the Trust was planning on shifting MA’s business model towards a corporate location

based business instead of focusing on franchises, and points to the testimony of Brunson as

the President of NSG. Brunson testified in deposition that he understood that MA would

continue to grow and expand after the execution of the SPA but he did not recall any specific

plans on how MA would expand. (Doc. # 164, Ex. 5 at 89). He further testified that he

anticipated that Bagley Family Trust would grow MA’s business by adding new locations. 

(Doc. # 164, Ex. 5 at 228). 

The problem NSG faces is that, regardless of the plans to alter MA’s business strategy

or the recapitalization of the debt, it is undisputed that the SPA does not specify how MA is

to reach the revenue or profit goals set forth in the earn out provision. It is also undisputed

that nothing in the SPA limits the management of MA, prohibits MA from pursuing any

business strategy, or otherwise specifies how MA is to be operated. The earn out provision

is quite clear. The purchase price of the shares will be adjusted only if certain financial goals

25

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 25 of 40
were met, and it is undisputed that those goals were not met. Consequently, as a matter of

law, NSG cannot demonstrate a breach of that provision. 

Construing count three of the complaint as a breach of the implied duty of good faith

and fair dealing implicit in the contract also renders Texas law applicable to this claim.

30

Count three of the complaint is substantially a restatement of count two, sounding in tort

rather than contract. For the same reasons that the condition precedent contained in the

agreement were not met, there was no breach of any duty, implied or otherwise. 

Consequently, Bagley Family Trust is entitled to summary judgment on this count as well.

b. Construing the claims under Alabama law. Even if the court were to

conclude NSG’s construction of its claim is correct that Alabama law applies, Bagley Family

Trust is still entitled to summary judgment on NSG’s claims. NSG argues that Alabama law

applies because its claims are based on solely on actions taken after the SPA was executed.31

According to NSG, the breach of the SPA occurred when actions were taken to cause MA

to fail to reach the performance targets sufficient to trigger the earn out provision. NSG’s

claims stem from the failure of MA to reach certain performance targets which would then

trigger the earn out provision causing an adjustment of the purchase price NSG received for

 Part of the difficulty in this case is the parties’ conflation of the issues. Repeatedly, the parties 30

have used language that suggest contract claims and then describe allegations that sound in tort.

Alabama applies the “internal affairs doctrine” when determining choice-of-law. See Ex parte 31

Bentley, 50 So. 3d 1063, 1071 (Ala. 2010). The “internal affairs doctrine” relies on the laws of the state of

incorporation to govern claims involving the internal corporate relationship. Id. See also, Massey v. Disc

Manufacturing, Inc., 601 S. 2d 449, 454 (Ala. 1992); Scrushy v. Tucker, 70 So. 3d 289, 298 (Ala. 2011). “In

Alabama, the law of the state of incorporation governs the internal corporate relationship.” Bentley, 50 So.

3d at 1070. MA was incorporated in Alabama. 

26

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 26 of 40
its shares. In essence, NSG accuses Bagley Family Trust of wasting MA’s assets,

mismanaging MA and engaging in self-dealing to the benefit of the Trust and the detriment

of NSG. This claim is clearly a derivative claim which NSG lacks standing to bring.

[A]n allegation of waste of corporate assets does not permit a minority

shareholder to recover on his own behalf; rather such wrongdoing gives rise

only to a derivative claim, which must be brought on behalf of the

corporation.” 

Brooks v. Hill, 717 So. 2d 759, 762 (Ala. 1998).

NSG argues that its claims against Bagley Family Trust are specific to NSG and do

not affect the other shareholders, and thus are not derivative. “[I]if the stockholder alleges

that the wrongs have been committed by the corporation as a direct fraud upon him, and that

such wrongs do not affect other stockholders, that one stockholder may maintain a direct

action in his individual name.” McDonald v. U.S. Die Casting and Development Co., 541

So. 2d 1064, 1068-69 (Ala. 1989). NSG is simply wrong. The SPA clearly provides that the

other two shareholders, Peter Cash and Russell Cash, are also entitled to additional monies

under the earn out provision, provided MA achieves certain performance targets. 

[T]he actual harm . . . was caused by the alleged mismanagement of

wrongdoing of the [Trust’s] officers and directors. This harm is not unique to

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

[MA]. Because the harm suffered by [NSG] also affects the other remaining

eligible shareholders in [MA], [NSG] do[es] not have standing to assert a

direct claim.

Altrust Fin. Servs., Inc. v. Adams, 76 So. 3d 228, 246 (Ala. 2011). Thus, because the claims

that NSG bring against Bagley Family Trust and MA regarding the earn out provision also

27

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 27 of 40
affect the other shareholders, NSG lacks standing to maintain this claim as a direct action in

its name only.

NSG complains about the manner in which Bagley Family Trust operated MA, and

about the business strategy pursued by Bagley Family Trust to increase corporate growth of

MA. It complains about the manner in which the Trust released NSG from its debt guarantee

and about how the Trust financed the debt through the issuance of preferred stock. “If the

wrong directly damages the corporation and its assets fromwaste, conversion and intentional

mismanagement, the claim is the corporation’s.” Altrust, 76 So. 3d at 241 citing Hardy v.

Hardy, 507 So. 2d 409 (Ala. 1987) and Shelton v. Thompson, 544 So. 2d 845 (Ala. 1989). 

NSG’s claimthat BagleyFamilyTrust mismanaged Mobile Attic and engaged in self-dealing

is “a quintessential derivative injury, merelyincidental to [its] status as stockholder.” Altrust,

76 So. 3d at 244. In asserting that the Bagley Family Trust breached its duty as majority

shareholder to 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. 

The court concludes therefore that NSG’s claims are derivative, and it lacks standing to bring

a direct action on its behalf.

2. Count 4 - Breach of Fiduciary Duty. NSG alleges that Bagley Family Trust,

as a majority stockholder owes a fiduciary duty to it, as minority stockholder, and that

Bagley Family Trust breached that duty by secretly recapitalizing the $9,500,000 payment

of the debt guarantee. In essence, in this count, NSG complains about the manner in which

28

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 28 of 40
Bagley Family Trust secured NSG’s release from its loan guarantee. Bagley Family Trust 32

seeks summary judgment on this claim because it asserts that, under Alabama law, it is a

derivative claim that NSG as a shareholder lacks standing to bring as a direct action. It is

undisputed that Alabama law applies to this claim. The court concludes that this claim is 33

a derivative claim for the same reasons that counts two and three are derivative under

Alabama law. Consequently, the court concludes that NSG lacks standing to bring this claim

as a direct action on its behalf.

In response to the argument that this claim is a derivative claim, NSG argues that this

claim is an oppression or squeeze out claim against Bagley Family Trust and MA. In its

supplemental brief on the issue of derivative actions, NSG contends that its claims against

Bagley Family Trust are “either contractual in origin or which result from shareholder

oppression by Bagley Trust.” (Doc. # 188 at 13). The court disagrees. To establish the tort

of oppression, NSG must demonstrate, not only that the Bagley Family Trust took control of

MA, but also that the Trust, “acting through the board and corporate officers, which they

control, deprive[d] [NSG] of [its] just share of corporate gains.” Burt v. Burt Boiler Works,

Inc., 360 So. 2d 327, 332 (Ala. 1978). See also Galbreath v. Scott, 433 So. 2d 454, 457 (Ala.

1983); Brooks, 717 So. 2d at 764-65.

The amended intervenor complaint does not, and cannot be read to, raise an

 NSG also complains that Bagley Trust failed to provide it with monthly financial statements. 32

See Fn 28, supra. 33

29

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oppression or squeeze out claim. In court four, NSG alleges that 

Bagley breached his fiduciary duty to NSG by, among other things, secretly

recapitalizing the companywithout notice to NSG, and failing to provide NSG

with monthly financial statements so that it could monitor whether Mobile

Attic was on track to meet the performance targets, and notice of management

actions which were contrary to its interest as a shareholder. Upon information

and belief, Bagley has made other decisions and taken other actions affecting

the viability of the company, and thus the ownership interests of minority

shareholders, without notice to them and without anymeeting ofshareholders. 

Bagley has treated Mobile Attic as, in essence, its own alter ego and/or

instrumentality. 

(Doc. # 89 at 11 ¶ 42).

NSG seeks in damages the amount owed as the adjusted purchase price of the shares

of $1,800,000. NSG does not seek “its just share of corporate gains,” but rather the adjusted

purchase price contained in the earn out provision. See Burt, supra. The damages that NSG

seeks is indicative of its claim. It doesn’t seek lost corporate profits because it has not

alleged a squeeze out claim. See Michaud v. Morris, 603 So. 2d 886, 889 (Ala. 1992) (“there

were no corporate earnings, so the majority did not unfairly deprive [the minority] of his pro

rata share in corporate earnings by oppressively managing the affairs of the corporation.”) 

NSG’s claim for damages, coupled with the language of the claim itself, make clear

that NSG did not allege an oppression or squeeze out claim. “Even a generous reading of

[NSG’s] amended complaint in light of liberal pleading rules reveals that the complaint

nowhere states an [oppression or squeeze out] claim. The complaint never so much as

mentions the words [“oppression” or “squeeze out”]” Thompkins v. Lil’ Joe Records, 476

F.3d 1294, 1310 (11 Cir. 2007). NSG “may not amend [its] complaint through argument th

30

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 30 of 40
in a brief opposing summary judgment.” Gilmour v. Gates, McDonald & Co., 382 F.3d

1312, 1315 (11 Cir. 2004). Finally, framing the issue as an oppression or squeeze out claim th

does not change the nature of the claim.

“Although this Court has held that majority shareholders in a close corporation

‘owe a duty to at least act fairly to minority interest,’ Burt Boiler Works, 360

S. 2d [327] at 331 [(Ala. 1978)], the squeeze-out cause of action is not a

panacea for any and all conduct taken by majority shareholders of a close

corporation that could be deemed ‘unfair’ to a minority. As our holding in

Galbreath [v. Scott, 433 S. 2d 254 (Ala. 1983)] indicates, a minority

shareholder cannot parley a wrong committed primarily against the

corporation, which gives rise to a derivative claim only, into a personal

recovery of damages under a squeeze-out theory by simply stating that the

injury to the corporation is also ‘unfair’ to him as well. 

Altrust, 76 So. 3d at 244. Consequently, the court concludes that NSG has not alleged, and

may not now, raise an oppression or squeeze out claim against Bagley Family Trust.34

Finally, and perhaps most importantly, although NSG complains about the manner in

which the Bagley Family Trust retired its debt guarantee, the SPA required the Trust to

remove NSG as the guarantor of MA’s debt, and specifically contemplated the possibility

that the Trust might be required to pay the balance of the loan. Section 1.5 of the SPA state

as follows.

1.5 Release of Guarantee: Condition Precedent: The parties acknowledge

and agree that the Corporation is currently indebted to First Commercial Bank

in Birmingham, Alabama for approximately $9,400,000 (the “Debt”), and that

the Seller NSG has executed one or more continuing guarantees whereby

Seller NSG has unconditionally guaranteed the repayment of said Debt (the

The appropriate vehicle for raising this claim would have been to seek to amend the intervenor 34

complaint. Gilmour v. Gates, McDonald & Co., 382 F.3d 1312, 1315 (11 Cir. 2004). NSG has not sought th

to do so, and at this late date, a motion to amend is untimely.

31

Case 1:09-cv-00024-MHT-CSC Document 205 Filed 05/21/12 Page 31 of 40
“Guarantee”). Purchaser hereby agrees that Purchaser shall use its best efforts

to cause the Guarantee of Seller NSG to be absolutely and unconditionally

released, such that Seller NSG is no longer individually obligated for the Debt. 

Purchaser acknowledges that causing such release may require Purchaser to

execute in favor of the aforementioned bank a guarantee of the Debt, or paying

down or (sic) all or a portion of the Debt.” 

(Doc. # 164, Ex. 1 at 4, ¶ 1.5) (emphasis added). The SPA does not limit the manner in

which Bagley Family Trust was to release NSG from its debt guarantee, and plainly

contemplates that the Trust could pay off the entire debt if necessary. NSG got exactly what

it bargained for, and what the SPA called for – its release from its debt guarantee. The court

can think of no better way to release NSG from its guarantee than by completely paying off

the debt, as Bagley Family Trust did. When Bagley Family Trust paid the debt to remove

NSG from its guarantee, the Trust satisfied the condition precedent required by the SPA. 

NSG further contends that Bagley Family Trust breached its fiduciary duty by taking

other actions including issuing preferred stock that benefitted the Trust. MA’s Board of

Directors voted to give the Trust preferred stock, and the SPA allowed for the distribution

of preferred stock. See Doc. # 164, Ex. 1 at 19, ¶ 7.1.1 & 7.1.2. Moreover, it is clear that

prior to the execution of the SPA, NSG and Cash were aware that the SPA permitted the

Bagley Family Trust to be issued preferred shares at will. (Doc. # 164, Ex 11). In an email

to Josh Wilson and Peter Cash, Mobile Attic’s attorney Paul Turner reviewed the proposed

Shareholders’s Agreement and expressed the following concern.

Article I - in general, and this harkens back to my review of the

agreement, note that the Trust has the ability to issue preferred shares pretty

much carte blanche, with the preferences for such shares to be at the Trust’s

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discretion. For example, he could convert his common shares into preferred

shares that receive the first 10.0m in distributions each year. An extreme

example, but just wanted to point this out. 

(Doc. # 164, Ex. 11). Cash forwarded this email to Brunson and Brunson forwarded the

email to another NSG employee, Brian Mcleod. (Id.) 

In essence, NSG argues that the Bagley Family Trust should have found a different

way to release NSG from its debt guarantee. However, the SPA specifically permits the

Trust to pay off the debt completely in order to remove NSG from the guarantee. The SPA

required the Trust to refinance the debt which it did, and the SPA permitted MA to issue

BagleyFamilyTrust preferred shares “in exchange for [the Trust]investing additional capital

in the Corporation.” (Doc. # 164, Ex. 1 at 19, ¶ 7.1.2). The court concludes that no

reasonable jury could conclude that the Bagley Family Trust breached its fiduciary duty to

NSG by fulfilling its explicit duty under the SPA in a manner contemplated by and in

accordance with the SPA. Consequently, the plaintiffs are entitled to summary judgment on

count four of NSG’s amended intervenor complaint. 

Accordingly, for the reasons as stated, the court concludes that Bagley FamilyTrust’s

motion for summary judgment on counts two, three and four of the amended intervenor

complaint is due to GRANTED.

C. NSG’S MOTION FOR SUMMARY JUDGMENT

In count one of its amended counterclaim, Bagley Family Trust alleges that NSG

falsely represented and warranted MA’s financial statements to induce Bagley to (1) enter

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into the SPA and (2) release NSG from its guarantees on the loans of MA. In count two,

Bagley Family Trust alleges that NSG breached the SPA. Finally, in count three, Bagley

Family Trust seeks indemnification from NSG for all damages and losses that resulted from

the false representations and warranties. See Doc. # 92. 

NSG does not seek summary judgment on any particular count of Bagley Family

Trust’ amended counterclaim (doc. # 92) but rather

asserts two questions of law: First, what standing does Bagley Trust have, as 

a fellow MA shareholder, to sue NSG for anything other than a contractual

claim for diminution of stock value based on the assignment of the SPA to the

Trust? Second, how should damages be measured for a breach of warranty

under the SPA – whether by the “before and after” test of whether the stock

was worth less (using Bagley’s same pricing formula) due to a breach, or by

some other legal standard of measuring damages?

(Doc. # 166 at 7-8) 

According to NSG, answering these questions in a motion for summaryjudgment will

“narrow the issues for trial.” (Id., at 2). NSG seeks to “define the limits and parameters 35

of Bagley [Family] Trust’s standing (if any) to sue under the SPA for all of the claims and

damages alleged against NSG in its Amended Counterclaim.” (Id. at 14, ¶ 16). The court

now turns to each question presented by NSG.

Relying on the Assignment of Stock Purchase Agreement signed by James Bagley in

conjunction with the signing of the SPA, NSG first argues that the rights of the Bagley

Family Trust arise “only by virtue of [the] assignment,” and therefore, the Trust can only

NSG also moves summary judgment on count one of its’ amended intervenor complaint, seeking 35

a declaration that it does not owe indemnification to the Bagley Family Trust. See Doc. # 166. 

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bring contractual claims based on the SPA, and does not have standing to bring any personal

tort claims. According to NSG, under Alabama law, misrepresentation claims are personal

in nature and cannot be assigned. NSG relies on Rice v. Birmingham Coal &Coke Co., Inc.,

608 So. 2d 713 (Ala. 1992) for the proposition that personal rights are not assignable.

Moreover, it has long been the law in Alabama that a chose in action for

recovery of converted property is not assignable. In Goodwyn, 8 Port. at 240,

this Court said, “That a chose in action is not at common law assignable, or,

in other words, that the right to sue for and recover the possession, cannot be

transferred to another, is an ancient doctrine of the common law- (Coke's Litt.

214, A.; 2 Black. Com. 397).” Similarly, this Court held that when one knows

that his property has been taken by another with a claim to title, his title is

changed into a chose in action, which cannot be transferred or conveyed to

another. Dunklin v. Wilkins, 5 Ala. 199 (1843); Foster v. Goree, 5 Ala. 424

(1843); Brown v. Lipscomb, 9 Port. 472 (Ala.1839).” Similarly, this Court held

that when one knows that his property has been taken by another with a claim

to title, his title is changed into a chose in action, which cannot be transferred

or conveyed to another. Dunklin v. Wilkins, 5 Ala. 199 (1843); Foster v.

Goree, 5 Ala. 424 (1843); Brown v. Lipscomb, 9 Port. 472 (Ala.1839).

Rice, 608 So. 2d at 715.

This appears to be a correct proposition of the law in Alabama. See Miller v. Jackson

Hosp. & Clinic, 776 So. 2d 122, 125 (Ala. 2000); Lowe v. Fulford, 442 So. 2d 29, 32 (Ala.

1983) (“‘It is . . . well settled that, in the absence of statutory provision, rights of action for

torts purely personal do not survive, and are not assignable.’”). 

However, this argument avails NSG nothing. Bagley Family Trust has rights under

the SPA separate from the Assignment. Under the SPA, NSG, as one of the Sellers, agreed

to, jointly and severally, indemnify, defend and hold harmless, not only Bagley as the

Purchaser but also the Trust as “Purchaser’s permitted successors and assigns,” from “all

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losses, damages, liabilities or expenses (including reasonable attorneys’ fees and expenses),

that arise from any breach of a representation or warranty, any breach or default in

performance, and any fraud, fraud in the inducement or misrepresentation” regarding the

SPA. (Doc. # 164, Ex. 1 at 18, ¶ 6.3) (emphasis added). Thus, NSG’s standing argument

is not a simple matter of an assignable personal right. Rather, the question of Bagley Family

Trust’s standing to seek damages against NSG for breach ofthe SPA is inextricably entwined

with the indemnification provisions contained therein. Because the parties have not sought

summary judgment on the merits of the underlying claims, summary judgment on the

indemnification issues is also precluded. Consequently, the court should not, and will not,

attempt to parse the issues at this juncture.

In posing its second question, NSG seeks a pretrial determination of how damages

will be measured should Bagley Family Trust prevail on any of its claims. FED.R.CIV.P. 36

56 was amended in 2010 to permit a party to move for summary judgment on only a part of

a claimor defense. See FED.R.CIV.P. 56(a), AdvisoryCommittee Notes, 2010 Amendments. 

While FED.R.CIV.P. 56(g) permits the court to entertain the issues raised by NSG at the

See Doc. # 166 at 17 (“assuming Bagley Trust can prevail in proving any breach of the SPA, its 36

measure of damages would necessarily be in relation to the decrease in MA’s stock price, measured as of the

date of closing using a “before/after” test.); at 18 (“Assuming (for the sake of argument) that Bagley Trust

can factually prove some breach of warranty by the Sellers, its damages are not unlimited.”); at 19 (“Based

on discovery to date, NSG anticipates that Bagley Trust, despite being only an Assignee of shares, will take

a “kitchen sink” approach to damages.”); at 26 (“Assuming that the Trust can prove a breach of the SPA, the

damage to the Trust is the difference in value by such breach (and not by other factors) between the purchase

price of the shares of MA, and the actual fair market value of the shares as of the date of the SPA.”); at 27

(“Having addressed the extent of the Trust’s standing to sue NSG as assignee of the SPA, and the proper

measure of damages for any breach, NSG now turns to why certain other damage claims which NSG expects

Bagley Trust to assert are non-recoverable as a matter of law.”).

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summary judgment stage, in the circumstances of this particular case, the court declines to

exercise its discretion to do so, primarily because NSG’s motion for partial summary

judgment is premature. 

The SPA provides thatBagleyFamilyTrust would be held harmless “fromand against

all losses, damages, liabilities, or expenses (including reasonable attorney’s fees and

expenses) for any fraud or misrepresentation.” According to BagleyFamilyTrust, the proper

measure of damages includes a return of the $3,660,000 it paid for the 61 shares of MA,

reimbursement of $9,500,000 it paid to remove NSG as MA’s loan guarantor, return of

$560,000 it paid NSG as a guarantee fee, amounts paid into MA as operating funds,

$1,700,00 it paid for non-existent inventory/receivables, and reasonable attorney’s fees. 

NSG contends that the indemnity provision does not extend to the losses detailed by Bagley

Family Trust.37

Section 6.3.3 of the SPA reads:

any fraud, fraud in the inducement or misrepresentation by any of the Sellers

as regards (i) this Agreement or (ii) any of the agreements to be executed and

delivered pursuant to this Agreement.

It is not until Bagley Trust is successful on its claims, that the issue of damages even

In its supplemental brief on the issue of derivative claims, NSG argues that Bagley Family Trust

37

claims are derivative to MA, and attached additional evidentiary material in support of its position. See Doc.

# 188. NSG has not previously asserted that Bagley Family Trust’s claims were derivative, and Bagley

Family Trust filed a motion to strike NSG’s brief and evidentiary material. (Doc. # 190). The court will not

permit NSG to raise a new ground for summary judgment in a supplemental brief directed at a very limited

issue, and nor will the court permit or consider new evidentiary material at this late date. See Gilmour, 382

F.3d at 1315. Bagley Family Trust’s motion to strike will be granted in part. 

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arises. Once liability has been established, an award of damages would then necessitate a

determination regarding indemnification under the SPA. However, if Bagley Family Trust

is unsuccessful on its claims, then damages and indemnification become moot points.

Furthermore, there are genuine disputes of material facts related to the extent of the

Bagley Family Trust’s claims for damages in this case, including how the stock purchase

price was calculated and how the earn-out provision developed. For example, NSG contends

that Bagley FamilyTrust’s standing is limited to rights assigned to it byBagley. (Doc. # 166

at 16-18). Bagley Family Trust, on the other hand, asserts that it was the direct purchaser of

the MA stock and all the parties knew the Bagley Family Trust was the entity purchasing the

shares from NSG and the Cash brothers. (Doc. # 166 at 4-8; Doc. # 164, Ex. 1 at 1; Ex. 12

at ¶ (a)).

Finally, the Supreme Court has acknowledged that, “even in the absence of a factual

dispute, a district court has the power to ‘deny summary judgment in a case where there is

reason to believe that the better course would be to proceed to a full trial.” Anderson, 477

U.S. at 255. See also United States v. Certain Real and Personal Prop. Belonging to Hayes,

943 F.2d 1292 (11 Cir. 1991) (“A trial court is permitted, in its discretion, to deny even a th

well-supported motion for summary judgment, if it believes the case would benefit from a

full hearing.”). Because this case is going to trial, the court concludes “that it is better to

leave open for trial facts and issues that may be better illuminated by the trial of related facts

that must be tried in any event.” FED.R.CIV.P. 56(g), Advisory Committee Notes, 2010

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Amendments. Thus, at this juncture, NSG’s motion for partial summary judgment is due to

be denied.

IV. CONCLUSION

For the reasons as stated, and for good cause, it is the RECOMMENDATION of the

Magistrate Judge that the Bagley Family Trust’s motion for summary judgment (doc. # 164)

on counts two, three and four of NSG’s amended intervenor complaint be GRANTED, and

that NSG’s motion for partial summary judgment (doc. # 166) be DENIED. It is also

ORDERED that the plaintiffs’ motion to strike (doc. # 190) be and is hereby

GRANTED in part in that NSG’s arguments that Bagley Family Trust claims are derivative

to MA and its evidentiary submission be and are hereby STRICKEN. In all other respects,

the motion to strike is DENIED. Finally, it is 

ORDERED that the parties shall file any objections to the said Recommendation on

or before June 4, 2012. Any objections filed must specifically identify the findings in the

Magistrate Judge’s Recommendation to which the party objects. Frivolous, conclusive or

general objections will not be considered by the District Court. The parties are advised that

this Recommendation is not a final order of the court and, therefore, it is not appealable.

Failure to file written objections to the proposed findings and recommendations in the

Magistrate Judge's report shall bar the party from a de novo determination by the District

Court of issues covered in the report and shall bar the party from attacking on appeal factual

findings in the report accepted or adopted by the District Court except upon grounds of plain

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error or manifest injustice. Nettles v. Wainwright, 677 F.2d 404 (5 Cir. 1982). See Stein th

v. Reynolds Securities, Inc., 667 F.2d 33 (11 Cir. 1982). See also Bonner v. City of th

Prichard, 661 F.2d 1206 (11 Cir. 1981, en banc), adopting as binding precedent all of the th

decisions of the former Fifth Circuit handed down prior to the close of business on

September 30, 1981.

Done this 21 day of May, 2012. st

 /s/Charles S. Coody 

CHARLES S. COODY

UNITED STATES MAGISTRATE JUDGE

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