Adams v. Kake Tribal Corp

Order RE Motion to Dismiss First Amended Complaint and Motion to Determine Rule of Law

Before the Court at Docket 36 is Kake Tribal Corporation, Jeffrey W. Hills, and Robert D. Mills’s (collectively, “Defendants”) Motion to Dismiss Plaintiff’s First Amended Complaint. Plaintiff Peter Adams, Sr. did not file a response. Also before the court at Docket 37 is Plaintiff’s Motion to Determine Rule of Law in the Case, which addresses many of the same topics raised in Defendants’ motion to dismiss. Defendants responded in opposition at Docket 39, to which Plaintiff replied at Docket 40. Given the overlap, the Court will treat Plaintiff’s motion and reply as an opposition to Defendants’ motion to dismiss. Oral argument was not requested for either motion and was not necessary to the Court’s decision.

Factual & Legal Background

The factual allegations and legal background of this case are set forth in detail in the Court’s June 30, 2021 order at Docket 22 (“June 30 Order”). In short, Plaintiff, a shareholder of Kake Tribal Corporation [*2] (“KTC”), alleges that Defendants violated Section 7 of the Alaska Native Claims Settlement Act (“ANCSA” or “the Act”) and the Alaska Corporations Code by failing to conduct and timely disclose financial audits, not holding annual shareholders meetings, failing to distribute dividends, and violating other fiduciary rights and privileges of KTC shareholders, among other claims.

In the June 30 Order, the Court dismissed without prejudice Plaintiff’s original complaint but granted leave to file an amended complaint consistent with terms of the Court’s order.[1] Plaintiff filed an Amended Complaint for Corporate Governance (“First Amended Complaint” or “FAC”) on August 26, 2021, adding an additional claim under the Small Business Act regulations.[2] The Court now considers Defendants’ motion to dismiss the

Legal Standards

The Court’s June 30 Order sets forth the legal standard for motions to dismiss.[3]

Discussion

I. ANCSA Claims

Plaintiff’s FAC asserts that Defendants violated several provisions of ANCSA. With respect to Plaintiff’s ANCSA claims, the FAC contains limited new factual allegations that largely mirror those in the original complaint and are discussed below. Defendants assert that the FAC still fails to [*3] state viable ANCSA claims in federal court.[4]

A. Subsection 7(h)(1)(A)

As with the original complaint, Plaintiff’s FAC alleges violations of three provisions of ANCSA subsection 7(h)(1)(A), each of which is addressed in turn.

i. Subsection 7(h)(1)(A)(i)

Subsection 7(h)(1)(A)(i) provides that “Settlement Common Stock of a [Village] Corporation shall . . . carry a right to vote in elections for the board of directors and on such other questions as properly may be presented to shareholders.”[5]

In the June 30 Order, the Court held that Plaintiff failed to state a claim under ANCSA subsection 7(h)(1)(A)(i) because the complaint neither alleged that “the common stock issued by KTC does not confer the right to stockholders to vote in corporate elections” nor that Plaintiff “has been denied the right to vote in any KTC election.”[6]

Plaintiff’s FAC alleges that in 2021 and in other years KTC “has not conducted an annual meeting within a reasonable time after the distribution of the annual financial report, the consequence of which is to impair [his] voting rights by preventing [him] from knowing the current state of the corporation’s financial affairs and health at the very time when [he] need[s] this information to cast an informed vote.”[7] Plaintiff also realleges that, in some [*4]  years, “KTC did not conduct an annual meeting within the time allowed by its corporate bylaws,” thereby denying him his right to vote in corporate elections.[8]

While Plaintiff’s FAC contains new factual allegations, specifically with regard to the alleged failure to hold an annual meeting “within a reasonable time” in 2021, the FAC still does not allege that KTC shares do not confer a right to vote in elections. Additionally, Plaintiff’s FAC does not state a viable claim under subsection 7(h)(1)(A)(i) on the basis that he was denied a “meaningful, informed” vote simply because annual shareholding meetings were not held at his preferred time; this subsection does not impose any requirement on KTC for when or if annual shareholder meetings must be held in relation to the release of financial reports. Similarly, Plaintiff cannot state a viable claim under this subsection alleging that he was denied a right to vote when no annual meetings were held because the statute only provides the right to vote when elections are held.

Accordingly, Plaintiff’s FAC fails to state a claim that Defendants violated ANCSA subsection 7(h)(1)(A)(i).

ii. Subsection 7(h)(1)(A)(ii)

Subsection 7(h)(1)(A)(ii) provides that “Settlement Common Stock of a [Village] Corporation shall. . [*5] . permit the holder to receive dividends or other distributions from the corporation.”[9]

In the June 30 Order, the Court found that Plaintiff failed to state a claim under this subsection because the original complaint did “not allege that his shares of common stock do not entitle him to receive dividends or other distributions.”[10] The Court also found that Plaintiff’s claim that “he is entitled to receive dividends that have not been distributed by KTC in recent years” was unfounded because “subsection 7(h)(1)(A)(ii) only requires that common stock carry the right to a dividend when distributed.”[11]

Plaintiff’s FAC still does not allege that his shares of common stock do not entitle him to receive dividends or other distributions. Rather, the FAC merely again states Plaintiff’s claims that he is not receiving regular dividends that he is allegedly entitled to because KTC officers and directors are purportedly looting the company.[12] But, as discussed previously, subsection 7(h)(1)(A)(ii) “plainly does not confer the right, as Plaintiff appears to allege, on a shareholder to automatically or routinely receive dividends.”[13]

Accordingly, for the reasons discussed in the June 30 Order, Plaintiff’s FAC fails to [*6] state a claim that Defendants violated subsection 7(h)(1)(A)(ii).

iii. Subsection 7(h)(1)(A)(iii)

Subsection 7(h)(1)(A)(iii) provides that “Settlement Common Stock of a [Village] Corporation shall . . . vest in the holder all rights of a shareholder in a business corporation organized under the laws of the State [of Alaska].”[14] Plaintiff appears to allege both a direct violation of subsection 7(h)(1)(A)(iii) and various violations of the Alaska Corporations Code as allegedly embedded into that federal provision.

1. Direct Violation of Subsection 7(h)(1)(A)(iii)

In the June 30 Order, the Court found that Plaintiff’s original complaint failed to state a claim for a direct violation of subsection 7(h)(1)(A)(iii) because it did “not allege that his shares of KTC common stock do not confer upon him the same rights that the stock in an Alaska business corporation confers upon its stockholders under Alaska law.”[15]

Plaintiff’s FAC still suffers from this same defect. Accordingly, for the reasons in the June 30 Order, to the extent that Plaintiff is alleging that KTC directly violated this subsection by issuing common stock that does not confer upon him the same rights conferred upon Alaskan corporation shareholders, the FAC fails to state a claim that Defendants violated subsection 7(h)(1)(A)(iii).

2. State Violations as Embedded [*7] into Subsection 7(h)(1)(A)(iii)

Plaintiff also appears to assert that the reference in subsection 7(h)(1)(A)(iii) to “the laws of the State” confers upon him the right to assert violations of Alaska corporate law in federal court against Defendants.

In the June 30 Order, relying on Cook Inlet Region, Inc. v. Rude, the Court found that “where . . . ‘state law is embedded in a federal-law claim,’ this Court has jurisdiction to hear” such claims in federal court.[16] Nonetheless, the Court found that Plaintiff’s “complaint fail[ed] to adequately plead violations of the Alaska Corporations Code.”[17]

Asserting that Rude is distinguishable, Defendants now ask the Court to reconsider the June 30 holding that ANCSA subsection 7(h)(1)(A)(iii) incorporates the Alaska Corporations Code and thereby confers federal question jurisdiction on this Court to hear Plaintiff’s claims of alleged violations of that code, despite a lack of diversity jurisdiction.[18]

Rude involved a suit by Cook Inlet Region, Inc. (“CIRI”), an ANCSA corporation, against certain of its shareholders who had distributed petitions seeking to lift ANCSA’s alienability restrictions on the sale of ANCSA stock. The corporation alleged that the shareholders had violated a provision of ANCSA that expressly [*8] incorporates state law by providing that the solicitation of signatures for ANCSA shareholder petitions is governed by a provision of Alaska law prohibiting false and misleading statements in proxy solicitations.[19]

The shareholders asserted that there was no federal question jurisdiction over CIRI’s claim. The Ninth Circuit disagreed, reasoning that CIRI had brought the claim under a provision of ANCSA that incorporated state law by expressly providing that the state law regarding proxy solicitations would apply to ANCSA shareholder petitions. It further reasoned that the plaintiff “could not have brought [the] claim directly under Alaska law because the relevant provision of Alaska law governs proxy solicitations rather than shareholder petitions.”[20]

Here, unlike ANCSA’s alienability restriction provision, subsection 7(h)(1)(A)(iii) does not expressly incorporate a specific state law to apply to an issue unique to ANCSA stock. Additionally, unlike Rude, Plaintiff is asserting garden-variety state law claims and does not contend that he cannot bring those claims in state court. As such, Rude is distinguishable.

The Supreme Court has “consistently emphasized that, in exploring the outer reaches of [federal [*9] question jurisdiction], determinations about federal jurisdiction require sensitive judgments about congressional intent, judicial power, and the federal system.”[21] Restraint in the exercise of the Court’s jurisdiction is particularly warranted when the dispute concerns the relation between a tribe and its members.[22] Under Plaintiff’s apparent interpretation, ANCSA subsection 7(h)(1)(A)(iii) would permit a federal court to hear any Alaska Corporations Code claim involving ANCSA stock. The Court does not discern such a broad congressional intent here and, in fact, most indications are to the contrary.[23] Accordingly, the Court finds that subsection 7(h)(1)(A)(iii) does not provide federal subject matter jurisdiction over Alaska Corporations Code claims involving ANCSA stock.

Even assuming that the Court does have jurisdiction of the state law claims pursuant to subsection 7(h)(1)(A)(iii), Plaintiff’s FAC does not substantively address any of the deficiencies the Court identified in the June 30 Order.[24] Accordingly, for the reasons stated in the June 30 Order, Plaintiff’s FAC fails to state a claim that Defendants violated various provisions of the Alaska Corporations Code.[25]

B. Subsection 7(o)

Subsection 7(o) generally provides that the accounts of a village corporation shall [*10]  be audited annually by independent accountants, and that the audit report, or a fair and reasonably detailed summary, shall be transmitted to each stockholder of the corporation.[26]

In the June 30 Order, the Court dismissed Plaintiff’s subsection 7(o) claim because the complaint did “not allege which years KTC purportedly failed to conduct an audit.”[27]

Plaintiff’s FAC again does not allege which years KTC failed to conduct an audit. In fact, Plaintiff admits that he cannot identify which years KTC did not audit its finances.[28] Moreover, Plaintiff has provided the Court with audited financial reports for 2017, 2018, 2019, and 2020, and a newsletter indicating that audits prior to those years have been completed.[29] Accordingly, Plaintiff’s FAC fails to state a claim that Defendants violated subsection 7(o).

C. Plaintiff’s Corporate Looting Claims

In addition to the specific pleading deficiencies of Plaintiff’s FAC with respect to both federal and state law discussed above, the Court also finds the gravamen of Plaintiff’s FAC patently without merit.

Substantially similar to his original complaint, Plaintiff’s FAC alleges that KTC directors and officers are looting the company by directing profits to themselves [*11] in the form of an unofficial “dividend,” all at the expense of regular shareholders. In particular, Plaintiff alleges that

KTC has created an illegal preferred stock that is owned only by a small privileged group of insiders, officers, directors, and their family members — to whom KTC pays dividends that disguised as salaries, directors’ fees, and other forms of preference and privilege. These extra distributions are paid by stealth and violate the right of equal treatment of shares in matters of dividends and distributions.[30]

Plaintiff contends this “illegal preferred stock” violates the Equal Treatment Rule.[31]

In attempted support of this accusation, Plaintiff almost exclusively relies on the fact that KTC has not paid a dividend to its shareholders in more than twenty years. But Plaintiff’s lawyer, Fred Triem, has been involved in litigation against KTC for decades and does not dispute that the Alaska State Superior Court issued an order in the Hanson v. Kake Tribal Corp., 939 P.2d 1320 (Alaska 1997), class litigation that has restricted KTC’s ability to pay dividends since 1999.[32] Moreover, Plaintiff does not plausibly allege facts that, if proven, could establish [*12] that the salaries and fees paid to KTC officers and directors constitute “illegal preferred stock” under Alaska law.[33] Because Plaintiff’s FAC does not state “enough fact to raise a reasonable expectation that discovery will reveal evidence of” any impropriety,[34] the FAC fails to state a claim.

For the foregoing reasons, Plaintiff’s FAC fails to state a claim under ANCSA or any state law corporate governance provision that might be embedded in ANCSA.[35]

II. Small Business Act Claims

Plaintiff’s FAC also alleges that Defendants have violated the Small Business Act (“SBA”), 15 U.S.C. § 631 et seq. According to Plaintiff, KTC, as an SBA program participant, “is required to share to the financial rewards with all of its shareholders and it cannot focus these benefits on sub-groups of shareholders or upon insiders.”[36]

The Ninth Circuit has held, however, that the SBA does not provide a private right of action in similar contexts.[37] Other circuit courts have held the same.[38] Additionally, Plaintiff does not even attempt to argue that Congress intended to create a private right of action under the SBA to force an Alaska Native Corporation to pay regular dividends.[39] And Plaintiff does not identify with any specificity the statute [*13] or regulation KTC has allegedly violated. Plaintiff only cites to the SBA statutes at large and the cited regulatory provisions have no relevance to the allegations in Plaintiff’s FAC.[40] Accordingly, Plaintiff’s FAC fails to state a plausible claim under the Small Business Act and its regulations.

III. Leave to Amend

The remaining issue is whether to permit Plaintiff an additional opportunity to file an amended complaint. “The decision of whether to grant leave to amend nevertheless remains within the discretion of the district court, which may deny leave to amend due to ‘undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [and] futility of amendment.'”[41] A district court’s discretion to dismiss a complaint without leave to amend is particularly broad where, as here, a plaintiff has previously been permitted leave to amend.[42] The Court addresses leave to amend with respect to each claim.

A. Subsections 7(h)(1)(A)(i), (ii)

Given that (1) KTC’s bylaws clearly establish that KTC shares carry a right to vote in [*14]  elections and carry a right to dividends when distributed; (2) Plaintiff’s FAC fails to allege otherwise and does not cure the deficiency of the original complaint in this respect; and (3) subsection 7(h)(1)(A)(i) clearly does not impose any requirement on the holding or timing of elections, the Court finds that any further leave to amend with respect to claims under ANCSA subsection 7(h)(1)(A)(i) and (ii) would be futile.[43]

B. Subsection 7(h)(1)(A)(iii)

As the Court lacks federal question jurisdiction over Plaintiff’s state law claims and, in any event, Plaintiff failed to cure the deficiencies of the original complaint and state plausible state law claims,[44] the Court finds that any further leave to amend with respect to claims alleging a direct violation of, or violations of state law as incorporated into, ANCSA subsection 7(h)(1)(A)(iii) would be futile.

C. Subsection 7(o)

ANCSA contains no statute of limitations applicable to claims alleging violations of subsection 7(h)(1)(A) or 7(o). 28 U.S.C. § 1658, which provides a four-year statute of limitations for actions arising under federal statutes enacted after December 1, 1990, does not apply here because ANCSA section 7 was enacted prior to that date. Prior to the enactment of § 1658, federal courts adopted the analogous state statute of limitations for actions arising under [*15]  a federal statute when the federal statute did not provide for its own statute of limitations, if it was not inconsistent with federal policy to do so.[45] The Alaska Supreme Court has held that actions against corporations and their directors are governed by the statute of limitations for actions sounding in contract, Hanson v. Kake Tribal Corp., 939 P.2d 1320, 1324-25 (Alaska 1997), and under Alaska Statute 09.10.053, the statute of limitations for an action arising out of a contract is three years. Because Plaintiff has provided the Court with audited financial reports for the past four years, the statute of limitations has run on any prior years that may have not been audited. Accordingly, the Court finds that any further leave to amend with respect to claims under ANCSA subsection 7(o) would be futile.

D. SBA

Because Plaintiff’s SBA claims are barred by Ninth Circuit precedent, the Court finds that any leave to amend those claims would be futile.[46]

Conclusion

In light of the foregoing, IT IS ORDERED that Plaintiff’s motion at Docket 37 is DENIED. IT IS FURTHER ORDERED that Defendants’ motion to dismiss at Docket 36 is GRANTED.

Plaintiff’s claims are hereby DISMISSED WITH PREJUDICE. The Clerk of the Court is directed to enter a final judgment accordingly.

Dated this 18th day of January, 2022 at [*16] Anchorage, Alaska.

/s/ Sharon L. Gleason UNITED STATES DISTRICT JUDGE