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Bridges v. Bore-Flex Industries, Inc.

Court of Appeals of Missouri, Southern District, Second Division

August 24, 2017

BERT BRIDGES, et al., Plaintiffs-Appellants,
v.
BORE-FLEX INDUSTRIES, INC., et al., Defendants-Respondents.

         APPEAL FROM THE CIRCUIT COURT OF GREENE COUNTY Honorable Michael O. Hendrickson, Special Judge

          Before Lynch, P.J., Rahmeyer, J., and Scott, J.

          PER CURIAM.

         Plaintiffs Bert Bridges ("Bridges") and James Massengale, Jr. ("Massengale") filed a nine-count petition ("the Petition") against Defendants Bore-Flex Industries, Inc. ("Bore-Flex"); Deborah M. Hamilton, personal representative of the Estate of Carl D. Jungers, Sr. ("Carl Jungers"), Michael R. Morgan, Carl D. Jungers, Jr. ("Doug Jungers"), Daniel Jungers, David Jungers, and Sharon Morgan (collectively, "Individual Defendants"); and Carnahan, Evans, Cantwell & Brown, P.C., ("Carnahan Evans"), C. Bradford Cantwell ("Cantwell"), John M. Carnahan, III ("John Carnahan"), and Frank C. Carnahan ("Frank Carnahan") (collectively, "Attorney Defendants"). Defendants filed multiple motions for summary judgment, and the trial court entered judgments in favor of all Defendants on all counts in the Petition. The trial court also granted Bore-Flex's motion for a protective order and the return of certain documents claimed to be protected by the attorney-client privilege and work product doctrine. Plaintiffs timely appeal these judgments, raising four points. None of the points have merit. The judgment is affirmed.

         Bore-Flex is a Missouri corporation. At all relevant times, Plaintiffs Bridges and Massengale and Defendants Carl Jungers, Michael Morgan, Daniel Jungers, David Jungers and Sharon Morgan were Class B nonvoting shareholders of Bore-Flex. Michael Morgan and Carl Jungers were also Class A voting shareholders and directors of Bore-Flex. Doug Jungers was elected to the board of directors of Bore-Flex on January 17, 2011. Attorney Defendants began representing Bore-Flex in July 2006.

         On January 1, 2006, Bore-Flex (then known as Lifetime Lumber, Inc.) was recapitalized and restructured as part of a written agreement approved by its shareholders (the "Recapitalization Agreement"). As part of the Recapitalization Agreement, Bore-Flex executed five unsecured promissory notes ("Founder Loan Notes") in favor of Carl Jungers, Michael Morgan, Daniel Jungers, David Jungers, and Sharon Morgan (collectively, "Holders"), who had made previous "Founder Loans" to Bore-Flex. The outstanding balances in favor of the Holders (as of April 2006) were, respectively, $2, 097, 126.73; $1, 201, 105.30; $515, 139.40; $542, 066.00; and $49, 367.94.

         Following the execution of the Recapitalization Agreement, Bore-Flex never sold, and thus never profited from, Permitted Lumber Product.[1] Holders nonetheless received interest payments on the Founder Loan Notes monthly at an interest rate of 6% per year. These payments, from January 2006 to May 2011, totaled $709, 683.83 to Carl Jungers; $365, 061.81 to Michael Morgan; $120, 829.37 to Daniel Jungers; $130, 997.89 to David Jungers; and $14, 469.89 to Sharon Morgan.

         On April 7, 2010, Bore-Flex's directors, Carl Jungers, Todd Volker ("Volker"), and Michael Morgan, unanimously adopted a resolution to amend the Founder Loan Notes to provide for a 6% interest on the principal owed as of June 30, 2006 (the "April 2010 Resolution"). The Founder Loan Notes were subsequently amended to reflect the April 2010 Resolution.

         In the fall of 2010, Bore-Flex and its shareholders decided to explore the sale of the business. Thereafter, at a shareholder meeting on January 17, 2011, Carl Jungers and Michael Morgan voted to adopt (with Volker dissenting) a resolution to amend the Founder Loan Notes to provide for payment on parity with unsecured creditors of Bore-Flex (the "January 2011 Resolution"). A board of directors meeting followed, at which Carl Jungers, Michael Morgan, and Volker unanimously elected Doug Jungers to an open fourth director position. Carl Jungers, Michael Morgan, Doug Jungers (collectively, "Director Defendants"), and Todd Volker then unanimously adopted the January 2011 Resolution.

         During March 10-18, 2011, Bore-Flex executed amendments to the Founder Loan Notes in favor of Holders with effective dates of January 17, 2011. Upon the sale of Bore-Flex to Bore-Flex, LLC, Bore-Flex paid Holders pursuant to the Founder Loan Notes, as amended, on parity with unsecured creditors. These payments totaled $570, 137 to Carl Jungers; $311, 095 to Michael Morgan; $242, 242 to Daniel Jungers; and $270, 015 to David Jungers. The monies that Bore-Flex received for the sale of its assets was insufficient to pay off the entire balances of the amended Founder Loan Notes and as a result nothing remained for the Bore-Flex shareholders as an ultimate distribution. Bore-Flex assigned to Michael Morgan and Carl Jungers two promissory notes that the company held from related entities: a $1.5 million promissory note from HHA Holding Company and a $200, 000 promissory note from H&H Aero.

         Plaintiffs brought nine claims against the various parties, as follows:

• Count 1 for breach of contract alleges that Holders violated the Recapitalization Agreement and Founder Loan Notes by approving and receiving payments on the Founder Loan Notes that were (1) not from sales of Permitted Lumber Product, (2) at a 6% interest rate, and (3) on a monthly basis.
• Count 2 for money had and received alleges that Holders' receipt of payments on the Founder Loan Notes was unjust.
• Count 3 for breach of fiduciary duty alleges that Carl Jungers and Michael Morgan, by facilitating payments on the Founder Loan Notes, breached their fiduciary duties to Bore-Flex.
• Count 4 for breach of fiduciary duty alleges that some or all of Attorney Defendants breached their fiduciary duty of undivided trust and loyalty to Bore-Flex by assisting with the April 2010 Resolution and the January 2011 Resolution and by meeting with Director Defendants about the Founder Loan Notes without Todd Volker in attendance.
• Count 5 for professional negligence alleges that some or all of Attorney Defendants were negligent in the exercise of their duty of care to Bore-Flex by failing to advise all of Bore-Flex's directors about Carl Jungers' and Michael Morgan's plan to amend the Founder Loan Notes, by failing to advise that the amendments violated the Recapitalization Agreement, and by failing to protect Bore-Flex from the amendments.
• Count 6 for civil conspiracy alleges that Director Defendants and Attorney Defendants conspired to improperly amend the Founder Loan Notes so that Holders would receive all of the sale proceeds from the Bore-Flex sale to Boreflex, LLC.
• Count 7 for rescission against Holders, and as an alternative to the cause of action in Count 1, alleges that the amendments to the Founder Loan Notes and assignments of the HHA Holding Company and H&H Aero notes from Bore-Flex to Carl Jungers and Michael Morgan should be rescinded because the amendments to the Founder Loan Notes was not supported by consideration, was not fair to Bore-Flex, was not approved in writing by all shareholders as required by the Recapitalization Agreement, and was ultra vires and the product of Carl Jungers' and Michael Morgan's breaches of fiduciary duty.
• Count 8 for breach of fiduciary duty alleges that Carl Jungers and Michael Morgan breached their fiduciary duty to Bore-Flex by receiving indemnification from Bore-Flex for ...

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