Topic: Corporate

I. INTRODUCTION

This litigation has been festering now for over thirty years. It involves a challenge under the Administrative Procedure Act (“APA”) to the 1974 certification of a Native village under the Alaska Native Claims Settlement Act (“ANCSA”). Plaintiff essentially argues that Woody Island did not qualify and should not have been certified as a Native village under ANCSA. Plaintiff seeks to have Leisnoi, Inc., the village corporation for Woody Island, stripped of the status and benefits conferred upon it under ANCSA.[1] Over ten years ago, this Court remanded this dispute to the Interior Board of Land Appeals (“IBLA”) for a belated exhaustion of administrative remedies. The agency review has finally matured from the seed of remand to a final decision by the Secretary of the Interior concluding that Stratman’s challenge was rendered moot by congressional action recognizing the village.

Stratman disagrees with the final disposition of his administrative sojourn and has returned to the Court seeking summary judgment setting aside the Secretary’s original 1974 decision to certify Leisnoi.[2] Defendants meanwhile have been very busy filing seven separate motions to dismiss.[3] Leisnoi has requested oral argument on these motions to dismiss.[4] Koniag has filed a counterclaim alleging violations of a previous settlement agreement.[5] Finally, there are a handful of miscellaneous motions which the Court must address to clean up the docket.[6]

II. BACKGROUND

The facts of this case have been set out on several occasions and are well known to the parties. See, e.g. Stratman v. Watt, 656 F.2d 1321 (9th Cir. 1981); Leisnoi, Inc. v. Stratman, 835 P.2d 1202 (Alaska 1992). The following facts, upon which the Secretary relied, are sufficient for purposes of this Order:

In 1974, the Secretary, on the basis of a determination by the BIA, certified Leisnoi as a Native village under ANCSA in the Koniag region of Alaska and then subsequently conveyed to Leisnoi the surface estate of approximately 160,000 acres of public lands that Leisnoi had selected in satisfaction of its aboriginal land claims. In accordance with the requirements of ANCSA, the subsurface estate of that acreage was conveyed to Koniag Regional Corporation (Koniag)…

In 1976, Omar Stratman (Stratman), a rancher with grazing leases in the area from which Leisnoi was entitled to select its land, sued in Federal court challenging Leisnoi’s status as a Native village eligible for ANCSA benefits. Stratman had not pursued his administrative remedies. The district court dismissed his action, concluding he lacked standing. In 1981, the Court of Appeals for the Ninth Circuit reversed the district court, finding that Stratman had standing based on his recreational interest, and reinstated Stratman’s claim. The court also excused Stratman’s failure to exhaust his administrative remedies because, as a lessor, he was entitled to, but did not, receive actual notice of Leisnoi’s entitlement to the land.

In 1982, Stratman entered an agreement with Koniag, with which Leisnoi had merged, to drop his litigation challenging Leisnoi’s eligibility. The agreement failed, however, after Leisnoi’s merger with Koniag was voided and Leisnoi repudiated the agreement in 1985. In 1994, the Ninth Circuit ordered Stratman’s challenge to Leisnoi’s eligibility reinstated.

In 1995, the district court stayed the litigation. Noting that this appears to be the perfect case to read ripeness and primary jurisdiction together to require that Stratman litigate his challenge to Leisnoi before the agency before he brings it here, the court sent the case to IBLA for consideration of Stratman’s challenge to Leisnoi. The court explained that [remand would] permit the exhaustion of administrative remedies, albeit belated, and give the Court the benefit of the agency’s expertise…

The IBLA rendered its decision on October 29, 2002, three years after the recommended decision by the Administrative Law Judge. The IBLA concluded that it lacked subject matter jurisdiction of the cases, but nonetheless reviewed and endorsed the Administrative Law Judge’s recommended decision and prepared a written “analysis of the legal issues” for the benefit of the district court in obedience to its mandate.

Docket No. 96, Attach. 2 at 2-3 (internal quotation marks and citations omitted).

Although the IBLA decided it lacked jurisdiction, it adopted the Administrative Law Judge’s findings, concluding that Leisnoi did not qualify as a Native village under ANCSA. See Stratman v. Leisnoi, Inc., 157 IBLA 302, 319-20 (2002). Stratman filed this current case in 2002 seeking to have the IBLA decision translated into an order stripping Leisnoi of its status and benefits under ANCSA. See Docket No. 4. The Department of the Interior (“DOI”) however was not finished with the dispute and the Court stayed proceedings pending a final decision by the Secretary of the Interior. Docket No. 34.

On December 20, 2006, the Secretary found the agency had jurisdiction and disapproved the decision of the IBLA, adopting as his final decision the reasoning, analysis and conclusions of a memorandum written by Solicitor Bernhardt. Docket No. 96, Attach. 1. The Secretary’s decision concluded: (1) that the IBLA had jurisdiction over the case; (2) that 43 C.F.R. § 2651.2(a)(5) required the Secretary to review the IBLA decision; and (3) that section 1427 of ANILCA ratified the DOI’s 1974 eligibility determination, thus mooting this case. Docket No. 96, Attach. 2 at 2-4. The Secretary’s decision brought Stratman’s belated administrative appeal to an end and marked the exhaustion of administrative remedies and the resumption of proceedings before this Court.

Plaintiff filed his Third Amended Complaint in February of 2007, essentially renewing his APA challenge to the Secretary’s original 1974 decision to certify Leisnoi as an eligible ANCSA Native village. Docket No. 105. Plaintiff contends that the IBLA decision has superseded the Secretary’s original 1974 decision and is now the final decision binding the parties and the Court. Id. at 11. Accordingly, Plaintiff seeks a judgment affirming the IBLA’s decision and stripping Leisnoi of the status and benefits conferred upon it under ANCSA. Id.

Defendants Leisnoi and Koniag have filed motions to dismiss arguing that congressional ratification of Leisnoi’s status has mooted this controversy. Docket No. 120 (Leisnoi mot.); 121 (Leisnoi mem.); 143 (Koniag mot.); 145 (Koniag mem.); 171 (Stratman opp’n); 198 (Leisnoi reply); 210 (Koniag reply). The Government has filed a memorandum and a reply discussing the merits of the issues. See Docket Nos. 149 (Govt. mem.); 209 (Govt. reply). The Court reviews both motions to dismiss for lack of subject matter jurisdiction under rule 12(b)(1) of the Federal Rules of Civil Procedure.

III. STANDARD OF REVIEW

Under Rule 12(b)(1) of the Federal Rules of Civil Procedure, a defendant may seek to dismiss a complaint for “lack of jurisdiction over the subject matter.” Fed. R. Cov. P. 12(b)(1). When considering a Rule 12(b)(1) motion, the Court is not restricted to the face of the pleadings, but may review any evidence, such as declarations and testimony, to resolve any factual disputes concerning the existence of jurisdiction. See McCarthy v. United States, 850 F.2d 558, 560 (9th cir. 1988). The burden of proof on a Rule 12(b)(1) motion is on the party asserting jurisdiction. See Sopcak v. N. Mountain Helicopter Serv., 52 F.3d 817, 818 (9th Cir. 1995). A reviewing court must presume a lack of jurisdiction until the plaintiff establishes otherwise. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). A complaint will be dismissed for lack of subject matter jurisdiction (1) if the case does not “arise under” any federal law or the United States Constitution, (2) if there is no controversy within the meaning of that constitutional term, or (3) if the cause is not one described by any jurisdictional statute. See Baker v. Carr, 369 U.S. 186, 198 (1962).

Federal courts lack subject matter jurisdiction to adjudicate moot issues: “no justiciable controversy is presented… when the question sought to be adjudicated has been mooted by subsequent development.” Flast v. Cohen, 392 U.S. 83, 95 (1968). The Ninth Circuit has found that “to avoid mootness, the court must determine that the issues in a case remain live and that the parties continue to have a legally cognizable interest in the outcome throughout the proceeding.” So. Oregon Barter Fair v. Jackson County, 372 F.3d 1128, 1133 (9th Cir. 2004) (citing City of Erie v. Pap’s A.M., 529 U.S. 277, 287 (2000)). Congressional ratification can render moot a live controversy. See Equal Employ. Opport. Commission v. First Citizens Bank of Billings, 758 F.2d 397, 399-400 (9th Cir. 1985).

IV. DISCUSSION

Section 1427 of ANILCA instructs the Secretary of the Interior to “convey… the surface estate of all of the public lands on Afognak Island” to a joint venture comprised of the “Koniag Deficiency Village Corporations.” Alaska National Interest Lands Conservation Act, Pub. L. No. 96-487, § 1427(b)(1), (c), 94 Stat. 2371, 2519-23 (1980). Leisnoi is specifically enumerated as one of the Koniag deficiency village corporations. Id. at § 1427(a)(4). The conveyance was to be made “in full satisfaction” of, among other things, “the right of each Koniag Deficiency Village Corporation to conveyance under [ANCSA] of the surface estate of deficiency village acreage on the Alaska Peninsula.” Id. at § 1427(b)(1).

Defendants argue that section 1427 of ANILCA ratified the Secretary’s 1974 certification of Leisnoi as a Native village eligible for benefits under ANCSA, consequently rendering moot Stratman’s claim that the 1974 certification was arbitrary and capricious. See Docket Nos. 121 at 8; 145 at 4-9; 149 at 1. They further argue that the Secretary’s interpretation supporting their contention is due deference under Chevron, or Skidmore in the alternative. Stratman argues that no deference is due, and that section 1427 cannot be read as ratifying Leisnoi’s eligibility, or as exempting Leisnoi from the threshold requirements for certification as a Native village. See Docket No. 171 at 6-51.

A. The Secretary’s Interpretation of Section 1427 is Entitled to Deference.

In this case, the question of mootness turns on interpretation of section 1427 of ANILCA. Defendants argue that the Secretary’s interpretation of section 1427 of ANILCA is due deference under Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837 (1984) or alternatively Skidmore v. Swift & Co., 323 U.S. 134 (1944).

In reviewing an agency’s interpretation of a statute the agency administers, a court first looks to see whether “Congress has directly spoken on the precise question.” Chevron U.S.A., 467 U.S. at 843. If Congress has not addressed the specific issue, or if the statute is ambiguous, the question is whether the agency’s interpretation is permissible. Id. Courts accord great deference to the interpretation of a statute by the agency or agencies entrusted with its implementation, and will uphold the agency interpretation so long as it is reasonable. Kunaknana v. Clark, 742 F.2d 1145, 1150 (9th Cir. 1984). To satisfy the reasonableness standard it is not necessary for the court to find that the agency’s construction of the statute is the only reasonable interpretation, or even the reading the court would have reached if the question initially had arisen in a judicial proceeding. Id. Rather, the agency interpretation must merely be within the range of reasonable meanings which the words of the statute permit. See Id. at 1152.

In determining whether to apply Chevron deference, this Court looks to United States v. Mead Corp. 533 U.S. 218 (2001). In Mead, the Supreme Court wrote that such deference is appropriate when circumstances imply that Congress expects the “agency to be able to speak with the force of law when it addresses ambiguity in the statute or fills a space in the enacted law.” Id. at 229. The authority to engage in formal rulemaking or adjudication is a solid indicator of when the authority to speak with the force of law exists. Id.

The Ninth Circuit has repeatedly accorded great deference to the Department of the Interior’s interpretation of ANCSA. See Chugach Alaska Corp. v. Lujan, 915 F.2d 454, 457 (9th Cir. 1990) (according deference to agency’s interpretation of ANCSA eligibility requirements); Seldovia Native Ass’n, Inc., v. Lujan, 904 F.2d 1335, 1342 (9th Cir. 1990); Haynes v. United States, 891 F.2d 235, 238-39 (9th Cir. 1989). Similarly, courts have found that the DOI deserves Chevron deference in its interpretation of ANILCA. See Ninilchik Traditional Council v. United States, 227 F.3d 1186, 1191 (9th Cir. 2000); Alaska v. Babbitt, 72 F.3d 698 (9th Cir. 1995); Native Village of Quinhagak v. United States, 35 F.3d 388, 392 (9th Cir. 1994).

Here, the Secretary of the Interior has interpreted the intersection of section 1427 of ANILCA with the village eligibility requirements of ANCSA. ANILCA makes the relationship clear, placing section 1427 under Title XIV of ANILCA which is entitled “Amendments to the Alaska Native Claims Settlement Act and Related Provisions.” See ANILCA Title XIV, 94 Stat. 2491. Further, section 1427 specifically names the Secretary of the Interior as the government actor who must implement the provisions of the section. ANILCA § 1427(b)(1). The Court is satisfied that Congress expected the DOI to speak with the force of law in resolving ambiguities contained within ANILCA generally, and section 1427 specifically.

Under the first prong of Chevron, the provision interpreted by the agency must be ambiguous. Chevron U.S.A., 467 U.S. at 843. Stratman argues that the Secretary’s interpretation is simply not ambiguous after applying canons of construction. Docket No. 171 at 51-52. As this Court has stated in the past, the question of whether ANILCA ratified Leisnoi’s eligibility is a difficult question. The Secretary demonstrates in his opinion that because Leisnoi’s status was under judicial review at the time ANILCA was passed, it is unclear whether Congress intended section 1427(b)(1) as ratification of Leisnoi’s eligibility, or simply as an acknowledgment that Leisnoi had an entitlement to certain acreage if Stratman’s challenge were unsuccessful. See Docket No. 96, Attach. 2 at 10. Subsection (a)(2) posed a similar ambiguity because Congress appeared to be stating that Leisnoi was entitled to benefits under ANCSA section 14(a), but the eligibility determination was still under review. Id. The differences in opinion on this issue between the IBLA and the Secretary further highlight the ambiguity involved. See Docket No. 96, Attach. 2 at 5-13. The Court is satisfied that it was not clear on the face of the section 1427 whether Congress intended to ratify Leisnoi’s eligibility under ANCSA.

Under the second prong of Chevron, the Secretary’s conclusion that section 1427 ratified the original 1974 eligibility decision must be reasonable. See Chevron U.S.A., 467 U.S. at 843. The Court finds the Secretary’s interpretation of section 1427 not only reasonable, but persuasive.

First, the Secretary based his interpretation on the time-honored canon of reading a statute as a whole. See Docket No. 96, Attach. 2 at 10; Washington State Dep’t of Soc. and Health Servs. v. Keffeler, 537 U.S. 371, 384 n.7 (2003). Read as a whole, the Court agrees that certainty about the status of Leisnoi was a necessary predicate to achieving the finality sought broadly by ANILCA across Alaska, and narrowly by section 1427 in the Koniag region. See Docket No. 96, Attach. 2 at 6-10.

Second, the Secretary applied the canon of statutory construction that “remedial legislation should be construed broadly to effectuate its purposes.” Id. at 11 (quoting Tcherepnin v. Knight, 389 U.S. 332, 336 (1967)). Keeping in mind the background of ANCSA and the specific problems of land selection in the Koniag region, it is more than reasonable to conclude that settling Leisnoi’s eligibility was a necessary predicate to effectuating Congress’ purpose of settling Koniag’s land entitlement quickly and permanently. See Docket No. 96, Attach. 2 at 6-11.

Third, the Secretary looked to the legislative history and demonstrated that Congress was aware of the doubts as to Leisnoi’s eligibility at the time it passed section 1427. Id. at 11-12. The Secretary’s conclusion that awareness implies ratification is bolstered by the fact that Congress dealt separately in section 1427 with other villages whose eligibility was less certain by offering them diminished benefits in settlement of their claims. See ANILCA § 1427(e). If Congress went to all the trouble to settle the status of these other villages, why would Congress leave Leisnoi’s status up to the courts when bringing finality to the land selection process was one of Congress’ chief aims in ANILCA?

The Court concludes that the Secretary’s interpretation was not only permissible, but persuasive. Although the Court finds that the Secretary’s interpretation must be upheld under Chevron deference, the Court notes that it would have come to the same conclusion had it been interpreting the statute in the first instance, or under the persuasive deference standard found in Skidmore.

B. Ratification Moots Stratman’s Claim

Stratman’s challenge is to the Secretary’s 1974 certification of Leisnoi’s eligibility for ANCSA benefits. The Court has concluded that Congress ratified the Secretary’s decision when it enacted section 1427 of ANILCA. It therefore no longer matters whether the Secretary’s original decision was flawless or arbitrary and capricious. With section 1427, Congress effectively decided to overlook any doubts as to Leisnoi’s eligibility or shortcomings in the Secretary’s 1974 determination in order to settle the land selection process in the Koniag region with finality. Stratman’s challenge to the original determination is therefore moot. Regardless of the merits of his central contention, the political branches are now his only recourse.

IT IS THEREFORE ORDERED:

Stratman’s challenge to Leisnoi’s eligibility is moot. As this Court lacks subject matter jurisdiction, the Motion to dismiss at Docket No. 120 is GRANTED. The Motion for extension of time at Docket No. 202 is GRANTED. The Motion for leave to file excess pages at Docket No. 169 is GRANTED. The Motion for oral argument at Docket No. 211 is DENIED as noted supra. The Motions at Docket Nos. 107; 109; 111; 118; 143; 177; 178; 189; 193; 205; and 207 are DENIED as they are now moot. Koniag’s Counterclaim at Docket No. 200 is also DISMISSED as it is now moot.

Dated this 26th day of September 2007.

James Singleton, Jr.
United States District Judge

Opinion

I. INTRODUCTION

Joann Holmes and Mitch Gregoroff appeal decisions by the superior court in connection with a shareholders’ lawsuit against two current members and one former member of the Board of Directors of Leisnoi, Inc. (“Leisnoi”) for failure to hold annual shareholder meetings, failure to prepare and distribute annual shareholder reports, failure to obtain and send out annual audited financial reports, and failure to reasonably inquire into a mediated settlement agreement. On appeal, Holmes and Gregoroff argue that the superior court should have ordered the defendant directors to hold annual shareholder meetings, to prepare and send annual shareholder reports, and to obtain and distribute annual audited financial reports. They also appeal the superior court’s dismissal of the plaintiff shareholders’ derivative claims, failure to award the plaintiff shareholders nominal damages, failure to bar Leisnoi from indemnifying the defendant directors, and award of enhanced attorney’s fees against the plaintiff shareholders. Because we conclude that none of the superior court’s decisions was in error, we affirm the superior court in all respects.

II. FACTS AND PROCEEDINGS

Leisnoi, Inc. (“Leisnoi”) is certified under the Alaska Native Claims Settlement Act (ANCSA) as an Alaska Native Corporation for Kodiak’s Woody Island. In October 2004 Robert Erickson, one of Leisnoi’s shareholders, filed a complaint against Kane Wolf, Carole Pagano, and Frank Grant, three of Leisnoi’s five directors, for failure to hold an annual meeting within thirteen months in violation of Alaska law and failure to provide an annual shareholder report in violation of Alaska law. The complaint also alleged that the defendants had breached their fiduciary duties to the corporation and had been improperly installed as directors.

In January 2005 the defendants filed a motion to require Erickson to file a security for reasonable attorney’s fees and costs pursuant to the requirements for derivative shareholder lawsuits set forth in AS 10.06.435(h) and Alaska Civil Rule 23.1(h). The superior court granted the motion and ordered Erickson to file a security of $5,000. In April 2005 Erickson filed an amended complaint adding 17 shareholders, including Holmes and Gregoroff, as plaintiffs. In addition to the earlier allegations, this complaint alleged that the defendants failed to obtain an annual audit in violation of federal law. The plaintiffs requested money damages and orders directing the defendant directors to hold a shareholder meeting and new election for all directors, to obtain an audit and send all financial statements to the shareholders, and to enter into a settlement with Omar Stratman.[1]

In November 2005 the plaintiffs filed a motion to vacate the order requiring a security on the ground that the 18 plaintiffs listed in the third amended complaint held more than five percent of Leisnoi’s outstanding shares. The superior court declined to vacate its order because the complaint had not been verified by all of the named plaintiffs.

The plaintiff shareholders filed two motions for partial summary judgment, one relating to the Board’s failure to issue annual reports and the other relating to the Board’s failure to enter into a settlement with Stratman. At oral argument on these motions in May 2006, the parties stipulated to dismiss the prayer for relief seeking a court order that the defendant directors enter into a settlement with Stratman, but they agreed that the dismissal would have no effect on the plaintiffs’ claims for breach of fiduciary duties. In June the superior court denied the summary judgment motions, concluding that because issuing annual reports is a duty owed by all members of Leisnoi’s Board of Directors, the plaintiff shareholders could only obtain relief by suing all five of Leisnoi’s directors and/or Leisnoi, not just three individual directors. In light of the superior court’s ruling, the plaintiffs informed the court that they would add Frank Pagano and Shannon Johnson, the other two directors, as defendants, but it does not appear that they ever did so.

In December 2006 the superior court granted a motion by the defendants to require the plaintiffs to file an increased security, and in February 2007 it denied a request by plaintiffs to stay that order. At that point, the court had dismissed two of the 18 plaintiffs listed on the third amended complaint.[2] In March 2007 the court dismissed five more plaintiffs.[3] One month later, in April 2007, the defendants filed a motion to dismiss the plaintiffs’ claims for their failure to file the court-ordered increased security. The superior court granted the defendants’ motion to dismiss as to the plaintiffs’ derivative claims. In late July the case went to trial.

In March 2008 the superior court issued its findings of fact and conclusions of law. It again concluded that it could not order the defendants, only three of the five directors, to hold annual shareholder meetings, prepare and send annual shareholder reports, or obtain and distribute annual audited financial reports. It further concluded that the defendant directors did not breach their duties regarding annual meetings or annual reports but did breach their duties by failing to inform themselves about the federal requirement to conduct annual financial audits and by failing to bring the requirement to the attention of the Board. Finally, the superior court concluded that the then-current Board of Directors was properly elected or appointed. The superior court ordered the defendants to raise with the entire Board of Directors the necessity of conducting an annual audit and to provide the Board’s decision to the plaintiffs.

The plaintiffs filed motions requesting that the superior court reconsider its order dismissing their derivative claims as to breach of fiduciary duty, bar the defendants from indemnification by Leisnoi, and hold a post-trial hearing to determine money damages. All three motions were denied. The superior court also denied a cross-motion from the defendants to amend its findings.[4]

Joann Holmes and Mitch Gregoroff, two of the eleven plaintiff shareholders who were part of this lawsuit when it concluded at the superior court level, appeal. The defendant directors cross-appeal.

III. STANDARD OF REVIEW

“We apply our independent judgment to any questions of law, adopting the rule of law that is most persuasive in light of precedent, reason, and policy.”[5] We review a trial court’s findings of fact under the clearly erroneous standard[6] and review awards for nominal damages and enhanced attorney’s fees for abuse of discretion.[7]

IV. DISCUSSION

Holmes and Gregoroff appeal several decisions by the superior court. We first address the arguments that it was error to require the plaintiff shareholders to file a security, to increase the amount of the security, and then to dismiss their derivative shareholder claims for failure to file the increased security. Under AS 10.06.435(h) and Civil Rule 23.1(h), where a derivative action is brought by holders of less than five percent of a corporation’s outstanding shares, “the corporation in whose right the action is brought or the defendants may at any time before final judgment move the court to require the plaintiff to give security for the reasonable expense, including attorney fees, that may be incurred by the moving party.” As the statute and rule continue, “[t]he amount of the security may be increased or decreased from time to time in the discretion of the court upon a showing that the security has become inadequate or excessive.”

Holmes and Gregoroff argue that the superior court should not have required the plaintiffs to post a security because they held more than five percent of Leisnoi’s outstanding shares. They also argue that the superior court should not have required a security “because the [plaintiffs’] claims clearly had substantial merit.” We conclude that the superior court’s finding that the plaintiffs held less than five percent of Leisnoi’s outstanding shares was not clearly erroneous. Thus, the superior court did not err in requiring the plaintiffs to post a security, in increasing that security, or in dismissing the plaintiffs’ claims for failure to file the increased security. Holmes and Gregoroff’s arguments were addressed by the superior court’s order denying the plaintiffs’ motion to stay the order requiring an increased security, and we adopt that order below as Appendix A.[8]

In affirming the superior court’s dismissal of all the plaintiffs’ derivative claims, we also affirm its dismissal of the plaintiffs’ breach of fiduciary duty claim for failure to reasonably inquire into the proposed mediated settlement with Stratman because, as the plaintiffs acknowledged in one of their post-trial motions, this claim is a derivative claim.[9] Although the plaintiffs had filed a motion for summary judgment on this claim in March 2006, the claim was live until July 2007 when it was dismissed with the plaintiffs’ other derivative claims.[10]

We next address the parties’ arguments regarding annual shareholder meetings, annual shareholder reports, and annual audited financial reports. The plaintiffs argued below that the superior court should order the defendants—who represented a majority of the Board of Directors—to hold annual shareholder meetings, prepare and distribute annual shareholder reports, and obtain and distribute annual audited financial reports. In denying the plaintiffs’ motions for partial summary judgment and in making its final rulings after trial, the superior court concluded that because these statutory obligations rest not with individual directors but with Leisnoi itself and with its Board of Directors as a whole, it could not order three out of the five directors to fulfill them. The superior court also concluded that the defendants had not breached their fiduciary duties with respect to holding annual shareholder meetings or providing shareholders with annual reports. However, the superior court concluded that the defendants had breached their fiduciary duties by failing to inform themselves about the federal requirement to conduct annual financial audits and by failing to bring the requirement to the attention of the Board. For that reason, the superior court ordered the defendant directors to raise the issue of the federal audit requirement with the full Board of Directors. On appeal, Holmes and Gregoroff maintain that the superior court “had sufficient parts—a majority of the board—before it to fashion a remedy.” In their cross-appeal, Wolf, Pagano, and Grant argue that it was error to conclude that they violated their fiduciary duties because the plaintiffs did not prove damages. We conclude that the superior court did not err in declining to order the plaintiffs to hold annual shareholder meetings, prepare and distribute annual shareholder reports, or obtain and distribute annual audited financial reports. We also conclude that the superior court did not err in determining that the defendant directors did not act with reasonable care by failing to inform themselves about the federal requirement to conduct annual financial audits and by failing to bring the requirement to the attention of the Board. The superior court addressed these arguments in three orders—one denying the plaintiffs’ motions for summary judgment, one setting out its findings of fact and conclusions of law, and one denying post-trial motions filed by the plaintiffs and the defendants. We adopt these orders, which we attach as Appendix B, Appendix C, and, to the extent that it addresses the defendants’ cross-appeal, Appendix D.

Holmes and Gregoroff also argue that it was error not to award nominal damages to the plaintiff shareholders after finding that the defendants breached their fiduciary duties. We conclude that declining to award the plaintiffs nominal damages under the circumstances of this case was not an abuse of discretion. The superior court addressed this issue in the order we attach as Appendix D, and we adopt that order to the extent that it addresses plaintiffs’ argument and does not conflict with this opinion. In Brown v. Dick, we held that the superior court was not required to award nominal damages against individual directors and officers of a corporation for proxy disclosure violations in shareholder election contests.[11] As in Brown, we do not define “the permissible outer limits for awarding nominal damages” in situations involving a director’s breach of fiduciary duty.[12] In this case, the superior court found that “the directors … acted in good faith and in the best interests of Leisnoi” and were not “engaged in self-dealing” but were “serving on a pro bono basis for the benefit of Leisnoi and its shareholders.” After reviewing applicable case law, the superior court determined that Alaska has no per se rule requiring an award of nominal damages where there is a breach of fiduciary duties under these circumstances. We agree and hold that failing to award nominal damages against the directors in this case was not an abuse of discretion.

Finally, Holmes and Gregoroff argue that the superior court should have barred Leisnoi from indemnifying the defendant directors after it concluded that the defendant directors breached their fiduciary duties with respect to the audited financial reports. Under AS 10.06.490(a), a corporation may indemnify its directors for expenses “reasonably incurred” in connection with litigation “if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation.” Under AS 10.06.490(c), a corporation must indemnify a director who “has been successful on the merits or otherwise” in defense of certain lawsuits. It is not clear that the relief sought by plaintiffs, barring indemnification of directors, is available in a lawsuit against three of five individual directors.[13] But it is clear that the superior court did not err in declining to bar Leisnoi from indemnifying the defendant directors because, under AS 10.06.490(c), the defendants’ success on the merits of this case entitled them to indemnification. We therefore adopt the superior court’s order declining to bar Leisnoi from indemnifying the defendants, which we attach as Appendix E.

V. CONCLUSION

For these reasons and the reasons discussed in the superior court’s attached orders, we AFFIRM the superior court in all respects.

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Appendix A ↑

IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE

ROBERT ERICKSON, et al., Plaintiffs,

v.

KANE WOLF, CAROLE PAGANO and FRANK GRANT, Defendants.

Case No. 3AN–04–13743CI

ORDER[1]

This matter is before the court on a Motion to Stay Order Requiring the Plaintiffs to Increase the Amount of the Bond.

In increasing the security, this court considered whether the 5% threshold had been met. Plaintiffs assert that there are 17 plaintiffs owning 166.31 shares, and with 2,639 outstanding shares, this is 6.2%. The plaintiffs are wrong to the extent that the number of total shares in the corporation is 2,971.801.[2] After adding up all of the shares of the plaintiffs named in the Third Amended Complaint, all named plaintiffs hold 166.313 outstanding shares. However this includes the 10 shares of Rosebel Baldwin, dismissed on March 17, 2006, and the 12 shares of Augustine Yovina, dismissed on April 25, 2006. Subtracting their 22 shares from the 166.313 leaves the remaining plaintiffs with 144.313 shares. Using 2,971.801 as the correct number of outstanding shares leaves the remaining plaintiffs with only 4.8561 percent, short of the 5% required under Civil Rule 23.1(h). Further, the remaining plaintiffs have not verified the complaint. There is an issue whether Hazel Ardinger, who holds 10 shares, has agreed to proceed as a plaintiff.

The standard for issuing a stay on appeal is the same three-part test for deciding whether an injunction should issue. This involves whether exigent circumstances require that relief be granted before a full adjudication on the merits. In deciding whether to grant or deny a preliminary injunction, Alaska courts apply the “balance of hardships” test.[3] Immediate injunctive relief is warranted when the following three factors are present: “(1) the plaintiff must be faced with irreparable harm; (2) the opposing party must be adequately protected; and (3) the plaintiff must raise ‘serious’ and substantial questions going to the merits of the case.”[4] Where the harm is not irreparable, or where the other party cannot be adequately protected, then the moving party must show probable success on the merits.

Applying this standard for granting the stay, this court concludes that the balance of hardship tests does not warrant a stay here. Plaintiffs have not shown irreparable harm, and further have not raised serious and substantial questions going to the merits of the issue, much less probable success on the merits of the case.

Accordingly, the Motion for a stay is denied.

Dated Feb. 22/07 at Anchorage, Alaska.

/s/ Sen K. Tan

Superior Court Judge ↑

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Appendix B ↑

IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE

ROBERT ERICKSON, et al., Plaintiffs,

v.

KANE WOLF, CAROLE PAGANO and FRANK GRANT, Defendants.

Case No. 3AN–04–13743CI

ORDER

Before the court are two motions for summary judgment. The first, defendants’ motion filed in April of 2005 with a late-filed opposition in May of 2006 related to plaintiffs’ prayer for relief to order the defendants to enter into a settlement agreement with Omar Stratman, and the second, plaintiffs’ motion with respect to claims for failure to provide annual reports. The court heard oral argument on May 24, 2006 on both of these motions and will address each in this order.

(1) Defendants’ Motion for Summary Judgment Re: Prayer for Relief Five (5) Seeking To Order Defendants To Enter into a Settlement Agreement with Omar Stratman.

Defendants moved for summary judgment on plaintiffs’ claim that seeks an order that the defendants enter into a settlement with Omar Stratman. At oral argument the parties stipulated that prayer for relief five (5) in the third amended complaint should be dismissed. The parties further agreed that the dismissal of this prayer for relief shall not have any effect on the plaintiffs’ claims for breach of fiduciary duties. This court accordingly granted the dismissal of the claim on the record.

(2) Plaintiffs’ Motion for Summary Judgment Re: Counts II and III

Plaintiffs have moved for summary judgment on counts II and III of their complaint. These two counts allege that the defendants failed to prepare and distribute annual reports. Plaintiffs rely on AS 10.06.433 for their proposition that they should be awarded penalties for the corporation’s failure to provide annual reports for certain years between 1999 and 2004. Alaska Statute 10.06.433(f) provides that “[a] corporation that neglects, fails, or refuses to prepare or submit” an annual report is subject to a penalty of $25 per day with a maximum penalty of $1500. (Emphasis added.)

The lead plaintiff in this case, Erickson, made a demand on the corporation for missing annual reports in August of 2004, and in October of 2004 filed suit against three of the corporation’s directors. Subsequently, numerous other shareholders have joined the suit as plaintiffs. The plaintiffs now seek penalties from the named directors for failing to send out annual reports. Plaintiffs argue that the defendant directors should be liable for penalties for failing to prepare and provide annual reports essentially based on the status of a corporation as a legal fiction. They argue that the corporation cannot act without some action by the board and therefore the board and its directors are liable for the corporation’s actions or inactions.

The defendants oppose the motion, arguing that any penalties for such a failure to provide annual reports are the obligation of the corporation and not the individual directors.

While the plaintiffs are correct that a corporation does not act without involvement of the board of directors or other agents, AS 10.06.433(f) is clear. The statute provides that a corporation that neglects, fails, or refuses to provide annual reports is subject to a penalty. The statute does not state, nor is there any implication, that the directors of a corporation are personally liable for the corporation’s failure to provide annual reports.

In this case the plaintiffs have made the decision to sue only three of the members of the board of directors. They did not sue all of the members who sat on the board during the times that they claim they did not receive annual reports. Nor have the plaintiffs chosen to sue the corporation directly in order to force the corporation to prepare and provide legally sufficient annual reports.

The court hereby finds that AS 10.06.433(f) imposes penalties on a corporation that does not provide its shareholders with annual reports. Alaska Statute 10.06.433(f) does not create personal liability for the limited and select few directors whom the plaintiffs in this case have sued.

Alternatively, the plaintiffs argue that the court should order the three named directors to prepare and distribute the missing annual reports. They rely on AS 10.06.433(a) for the proposition that although the corporation is liable for penalties, it is the directors’ duty to prepare and distribute the corporation’s annual reports. For this reason, plaintiffs argue that even without imposing penalties on the directors, the court may still order them to prepare and distribute annual reports as well as order them to be prepared expeditiously.

Alaska Statute 10.06.433(a) provides that “[t]he board shall send an annual report to the shareholders….” This annual report must be sent within 180 days of the end of the previous fiscal year to which the report pertains.[1] Likewise, the report must contain certain statutorily required information.[2]

To order the board to send out an annual report, the board must be a party to this litigation. It is undisputed that only three of the five board members who were on the board at the time of the demand in August of 2004 were named as parties. Plaintiffs argue that three of five directors, constituting a majority, are all that is required in a suit against the board of directors for their failure to provide annual reports. Plaintiffs argue that naming a simple majority in a case constitutes filing suit against the board of directors because any action by the board only requires a majority vote in order to be approved.

Defendants argue that where a statute creates an obligation for “the board” that obligation is one for the entire board and not just a majority of the members. They argue that if the plaintiffs sought to sue the board of directors to force them to take some action, they should have sued all five members of the board at the time the initial plaintiff made his demand for annual reports. They argue that it was a tactical decision to only sue three directors in this case instead of all of the directors.

The question for the court is: Can it order three out of five of the directors of a corporation to take some action? Specifically, can the court order those three directors to produce annual reports? Alaska Statute 10.06.433(a) is clear that the obligation to send annual reports falls on “the board.” The term “board” is not defined. Plaintiffs suggest that “board” should mean any majority of the members, while the defendants argue that “board” must be read to mean all the members of the board.

The Alaska Supreme Court has stated that when common terms are used within statutory language, without definition, the words should be given their common meaning.[3] The Alaska Supreme Court also stated in Alaskans for Efficient Government that dictionaries are a “useful starting point for determining what statutory terms mean, as they provide the common and ordinary meaning of words.”[4] The term “board” is defined in Black’s Law Dictionary as “[a] committee of persons organized under authority of law in order to exercise certain authorities, have oversight or control of certain matters, or discharge certain functions of a magisterial, representative, or fiduciary character. Thus, ‘board of aldermen,’ ‘board of health,’ ‘board of directors,’ ‘board of works.’”[5] Further, Black’s Law Dictionary defines “directors” as “[p]ersons appointed or elected according to law, authorized to manage and direct the affairs of a corporation or company. The whole of the directors collectively form the board of directors.”[6]

This court hereby finds that the term “board” as used in AS 10.06.433(a) refers to the collective total of the board, i.e., all members of the board. All members of the board have a duty to provide shareholders with annual reports that comport with the requirements of that section. It is not a duty of a simple majority of the board, nor is it an action that requires a vote by a majority of the board to take place.

Accordingly, this court does not have the authority or jurisdiction to order non-named members of a board of directors to take action. In this case, because only three of the members at the time the demand was placed on the board are named, the court cannot therefore order those three directors to prepare and send annual reports to shareholders without the inclusion of all the directors that were sitting on the board at the time the demand was made. For all the aforementioned reasons, plaintiffs’ motion for summary judgment is hereby denied.

DATED this 2 day of June 2006 at Anchorage, Alaska.

/s/ Sen K. Tan

Superior Court Judge ↑

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Appendix C ↑

IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE

ROBERT ERICKSON, et al., Plaintiffs,

v.

KANE WOLF, CAROLE PAGANO and FRANK GRANT, Defendants.

Case No. 3AN–04–13743CI

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Introduction and Parties

1. This matter came before the court for trial on the week of July 23, 2007. After trial, the parties filed written closing arguments and proposed Findings of Fact and Conclusions of Law.

2. There are numerous plaintiffs in this case. Only one plaintiff, Joann Holmes, appeared at trial. All other plaintiffs appeared by verified consent over the objections of the defendants to proceed in their absence, with the exception of Nick Pavoloff. Michael J. Walleri, counsel for plaintiffs, represented to the court that Mr. Pavoloff wished the trial to proceed in his absence. The only plaintiff who testified at trial was Joann Holmes. All plaintiffs are shareholders of Leisnoi, Inc. (“Leisnoi”).

3. The defendants are Kane Wolf, Carole Pagano and Frank Grant. They are also members of Leisnoi, and are directors of the corporation.

4. Kane Wolf has been a director of Leisnoi continually since November 11, 1995.

5. Frank Grant has been a director of Leisnoi continually since November 11, 1995.

6. Carole Pagano has been a director of Leisnoi from May 30, 1998 until August 4, 2002, and from August 2004 until the present.

7. Leisnoi has not been sued by the plaintiffs and is not a party to this litigation.

Leisnoi, Inc. and Board of Directors and Annual Meetings

8. Leisnoi is an Alaska Native Corporation, established as part of the Alaska Native Claims Settlement Act.

9. Leisnoi’s history as a viable corporation is one fraught with litigation, particularly with regard to Mr. Omar Stratman, with whom Leisnoi has had ongoing legal disputes for many years. Leisnoi has not really engaged in any real business enterprises since 1998.

10. As initially constituted, Leisnoi had a seven-member Board of Directors. Leisnoi’s Board of Directors was reduced to five by a resolution of the Board of Directors in August 2001. The Board reduced the number of directors from seven to five as a cost-saving measure. This decision to reduce the number of directors was ratified by the Board of Directors at the 2002 annual meeting by unanimous consent and further ratified by a unanimous vote of the majority of shareholders at the 2002 meeting. The March 3, 2002 minutes indicate that “Shareholder Jana Turvey gain[ed] the floor and … move[d] that the shareholders … endorse and ratify the August 8, 2001 cost savings decision by the Board of Directors … to reduce the number of Directors from seven (7) to five (5) members….”

11. There was a quorum at the 2002 annual shareholders meeting, certified by the election judge. At the 2002 meeting five directors were elected for staggered terms: two directors for a three-year term, two directors for a two-year term, and one director for a one-year term. The directors elected were Bruce Robertson, Frankie Grant, Christina Hoen, Carole Pagano, and Kane Wolf. Robert Erickson and Frank Pagano ran as directors but were not elected.

12. Carole Pagano resigned from the Board in August 2002. She did not agree with the policy to grant Roy Jones’s law firm a security interest in the sales proceeds to its Joint Venture properties in Bellingham and to its 7(i) distributions. Leisnoi was billed over $700,000 by Roy Jones’s law firm. Jones was hired to address the legal issues arising from the Stratman litigation.

13. Leisnoi held the annual meeting of shareholders in 2003 after several attempts to get a quorum. Robert Erickson ran for the election against Kelly Simeonoff. Robert Erickson lost the 2003 election, and Kelly Simeonoff was elected to the Board.

14. 2004 was a tumultuous year for Leisnoi. No elections were held in 2004. The corporation’s finances were in turmoil and Bruce Robertson, the long-time president of Leisnoi, was replaced as president by Kelly Simeonoff. Frank Feichtinger, the general manager of Leisnoi, was asked to leave in May of 2004, and Kelly Simeonoff resigned as president for health reasons in May of 2004. The corporate offices were closed, and all files and records were moved into a private storage facility. When Carole Pagano became a director in the summer of 2004, Leisnoi’s office was in cardboard boxes. The records were a mess. There was consideration in 2004 to dissolve Leisnoi as a corporation.

15. Bruce Robertson resigned from the Board in the first half of 2004. The reason for the resignation was a threat by Robert Erickson to sue Bruce Robertson. Carole Pagano was appointed to fill Bruce Robertson’s position.

16. Kelly Simeonoff and Cristina Hoen resigned from the Board of Directors after Robert Erickson wrote a letter threatening to sue them in August 2004.

17. To fill the vacancies on the Board, Frank Pagano was appointed to replace Kelly Simeonoff. Frankie Grant voted against appointing Frank Pagano. Robert Erickson was offered Christina Hoen’s board seat but he refused. Instead, Shannon Johnson was appointed to the board in April of 2005.

18. Frank Feichtinger was the general manager of Leisnoi between September 2000 and May 31, 2004.[1]

19. Kane Wolf was elected President in May 2004. The Leisnoi offices were reopened shortly after Carole Pagano was hired to be the office administrator for $3,000 per month. She was paid irregularly, and she was paid only when Leisnoi had money.

20. After the departure of Frank Feichtinger, Leisnoi did not have any staff until Carole Pagano was hired with the following duties: make sure the files were in order; handle and maintain shareholder records, estates, and fundraising; obtain grants to meet the corporation’s obligations to the State of Alaska; interface with the different governmental entities which affect Leisnoi; respond to shareholder inquiries; notice annual meetings; work with Leisnoi’s attorneys; pay bills; and do accounting journal entries.

21. Leisnoi held an annual meeting in 2005 after two continuances to obtain a quorum. A quorum was obtained in October 2005.

22. In 2005 Leisnoi sent to its shareholders the notice of the election and call for nominations. Frankie Grant, Carole Pagano, Kane Wolf, and Shannon Johnson were elected directors at this annual meeting.

23. In 2006 Leisnoi sent to its shareholders the notice of the election, annual report, and call for nominations. Leisnoi held a meeting in December 2006 but did not have a quorum, and the meeting was continued. After payment of taxes and ongoing business and litigation expenses, it did not have sufficient funds to hold the continued meeting, and one was not held.

24. Leisnoi did not have sufficient funds to hold a meeting during the first half of 2007, as it had to borrow money from Koniag to pay its taxes due in the first half of 2007. Leisnoi may have held a meeting during the second half of 2007.

25. None of the defendants except Thelma Johnson have voted in any recent election.

26. The one plaintiff who attended trial, Joann Holmes, has not voted in any recent election. She alleged she has not received any mail from the corporation but never made inquiries of the corporation to let them know she was not receiving mail. None of Joann Holmes’s mailings were ever returned to the corporation as undeliverable. The corporation had Ms. Holmes’s correct mailing address. Carole Pagano testified that in 2004 and in 2005 annual shareholder reports were mailed to Joann Holmes.

27. Before trial, Frank Pagano met with plaintiff Robert Erickson, who told Mr. Pagano that he did not want to testify, did not want this case to go forward, and wanted the case to be dismissed. He had earlier made similar statements to Mr. Wolf. Mr. Erickson told Mr. Pagano that the case was out of his hands.

28. Mr. Erickson wanted to serve on the Board of Directors and ran for election in 2002. At that time, he and Mr. Pagano were friends. Neither of them succeeded in getting elected. There is credible evidence that Mr. Erickson met with Mr. Stratman in 2004. After meeting with Mr. Stratman, he sent letters threatening the seated board of directors with this lawsuit. As a result, three of the directors, Mr. Robertson, Mr. Simeonoff, and Ms. Hoen resigned. Mr. Erickson was offered one of the Board seats, but turned down the opportunity to serve on the Board. Instead, he proceeded with the lawsuit against the two remaining directors, and added Ms. Pagano to the list.

29. There is no doubt in this court’s mind that Mr. Erickson was the moving force behind this lawsuit. It is peculiar that Mr. Erickson chose not to even attend trial, or explain to the court why he sought to take the actions that he did. This only lends credence to the plaintiffs’ contention that Mr. Erickson and the faction he led wanted to force the Leisnoi board to either accept the settlement or negotiate a settlement with Mr. Stratman. This is clear when the court considers the Complaint in this case.

30. The proxies used for the annual meetings were admitted into evidence. The 2002, 2003, and 2005 management proxy solicitations all have the language that the proxy must be tendered 60 days before the annual meeting. The proxies used in 2005 were used within 11 months from the date they were granted. This court finds that the proxies used in the 2005 election were valid.

Leisnoi’s Financial Situation

31. In the early years of its existence, Leisnoi was a solvent enterprise. Leisnoi had a logging business and bought a building in Kodiak. Leisnoi paid a few dividends during the late nineties.

32. The last audit of the corporation was performed in 1998. Since then, no audited financial statements have been provided to the shareholders.

33. There was a lis pendens filed by Mr. Stratman against all real property assets of Leisnoi.[2] As a result, Leisnoi has had a difficult time sustaining any business activity since logging activities ended in 1998. Since the Trillium Joint Venture Bellingham assets were sold in 2002 to pay most of Roy Jones’s bill, Leisnoi has not had any money-making assets. Because of the lis pendens, Leisnoi has no active business, cannot sell its land, cannot use its property productively, and cannot use the property to finance any activities.

34. The lis pendens filed by Mr. Stratman covers the Cliff Point development. Leisnoi is a 50–50 joint venture partner with Trillium Corporation in the Cliff Point Subdivision in Kodiak. There are 40 10–acre lots in the subdivision. Leisnoi is responsible for paying half of the property taxes due to the Kodiak Island Borough on the Cliff Point property.

35. Leisnoi has a limited source of income from Koniag Corporation. Leisnoi also had some significant debts. In an effort to deal with the Stratman litigation, Leisnoi hired Roy Jones. The effort resulted in a judgment against Leisnoi in excess of $600,000.

36. Eileen Zaiser is a certified public accountant. She started working for Leisnoi around 1999. Except for an absence starting sometime in 2003 and in December 2004, she has basically kept the books for Leisnoi.

37. Leisnoi’s financial books are kept on an accrual basis. A profit shown in any given year is not reflective of cash flow. Exhibit 2001 shows that Leisnoi had a $387,634.00 loss in 2001 and a $250,879.00 gain in 2002. For that two-year period there was a net loss of $136,755.00.

38. The corporation had a net loss of $282,410.47 in 2003. In FY 2004, after the payment of legal and other operational expenses, the corporation had a net income of $71,126.16. The two years combined showed a net loss of $211,284.47. For the period 2001 through 2004 Leisnoi’s net losses were $348,039.47.

39. In FY 2005, after the payment of legal and other operational expenses, the corporation realized a net income of $34,412, however the corporation was still paying outstanding obligations from previous years. Accrual statements do not show that prior years’ costs are still being paid by the corporation.

40. At each annual meeting in 2002, 2003, 2005, and 2006, financial statements were provided to the shareholders. None of the financial statements were audited. An audit of the corporation’s books would cost between $15,000 and $25,000 for any given year.

41. All defendants testified that Leisnoi had insufficient money to obtain an audit in 2003, 2004, 2005, and 2006. The costs are not yet in for 2007.

42. None of the defendants receive any compensation for being a director. None of the current directors of Leisnoi receive any money for being a director. None of the directors have received any money since 2002. Kane Wolf received $1,000 in 2004, but that was a reimbursement for moving costs when the corporation closed down in 2004. Carole Pagano and Kane Wolf testified that they advance money to Leisnoi and wait until 7(i) money is available to be paid back. In addition, Kane Wolf testified that he takes his vacation time every year to do corporation business. The current board of directors is serving on a pro bono basis.

Shareholder Database

43. Ms. Pagano was in charge of the shareholder database and corporate records for a period of time until 1999. When Frank Feichtinger was hired as the general manager, he took over the job of keeping up the database.

44. Carole Pagano took the recordkeeping job back in 2004, and the shareholder database and records of Leisnoi were not in good shape. Former General Manager Frank Feichtinger had failed to update addresses and other information. The shareholder database had bad addresses and several estates were not complete; the database was basically a mess.

45. Ms. Pagano, as the only administrative officer of Leisnoi, performs many functions.

Conclusions of Law

This court has previously dismissed all derivative claims. The plaintiffs in this lawsuit are individual shareholders of Leisnoi. What remains are the shareholder direct claims against three individual directors. Leisnoi has not been sued or joined in this lawsuit and is not a party to this litigation. The lawsuit has not named the Board of Directors of Leisnoi as a party to this lawsuit.

This court concludes after review of the facts that Leisnoi has a Board of Directors of five members. Initially, the Board of Directors consisted of seven members. In 2001, the Board of Directors reduced the size of the Board to five members, and that decision was ratified at the shareholder meeting in 2002. Further, Bylaw 3.10 provides that “the majority of the remaining directors may elect a successor to hold office for the unexpired term….” In 2004 Carole Pagano, Frank Pagano, and Shannon Johnson were properly appointed to the Board of Directors.

Regarding the issue of what constitutes the Board of Directors, this court concludes that the three directors did not act as a block or a control group. There is no evidence that there was any understanding or agreement between Mr. Wolf, Mr. Grant, and Carole Pagano that they would vote as a block on the matters that are at issue in this trial. There is evidence that they each voted independently. For example, Frankie Grant disagreed that Frank Pagano should be appointed to the Board of Directors. Thus this court concludes that the Board of Directors of Leisnoi includes all members of the Board and not just the defendant directors.

This court will now go through each of the remaining counts.

Count I—Failure To Hold Annual Meeting of Shareholders Within 13 Months, AS 10.06.405

Alaska Statute 10.06.405(b) provides that “[i]f the annual meeting is not held within any 13–month period, the superior court may on the application of a shareholder summarily order a meeting to be held.”

At the outset, this court previously concluded that an individual shareholder may bring this cause of action. However, it appears that the plaintiffs have sued the wrong party. Under Leisnoi Bylaws, Article 2.2, “[t]he Annual Meeting shall be held on a Saturday or such other day as shall be fixed by resolution of the Board of Directors within 180 days after fiscal year end.”

The statutory obligation to conduct the annual meeting is placed on the Board of Directors. As the Board of Directors has not been sued, (nor has the corporation) even if an annual meeting has not been held within a 13–month period, no individual director may schedule a meeting.

Leisnoi held a meeting in October 2005. In 2005 Leisnoi sent to its shareholders the notice of the election and call for nominations. Frankie Grant, Carole Pagano, Kane Wolf, and Shannon Johnson were elected directors at this annual meeting. In 2006 Leisnoi sent to its shareholders the notice of the election, annual report, and call for nominations. Leisnoi held a meeting in December 2006 but did not have a quorum, and the meeting was continued. After payment of taxes and ongoing business and litigation expenses, it did not have sufficient funds to hold the continued meeting, and one was not held.

Leisnoi did not have sufficient funds to hold a meeting during the first half of 2007, as it had to borrow money from Koniag to pay its taxes due in the first half of 2007. Leisnoi may have held a meeting during the second half of 2007.

Count II and Count III—Failure To Provide Annual Shareholder Report

The state statutory provision provides that the corporation’s “board shall send an annual report to the shareholders not later than 180 days after the close of the fiscal year….”[3] If the corporation fails to do so, it will be liable for a penalty of $25 per day starting 30 days after receipt of a written request, up to a maximum of $1,500.[4] This statutory requirement creates a corporate obligation to individual shareholders and an associated penalty for non-compliance. Again, although the statute creates an individual cause of action, the obligation to provide an annual report rests with the corporation and the Board of Directors, not the individual directors.

Under ANCSA 43 U.S.C. § 1606(o),[5] the corporation’s accounts shall be audited annually in accordance with generally accepted auditing standards and transmitted to each stockholder. 43 U.S.C. § 1607(c) provides that 43 U.S.C. § 1606(o) applies to village corporations. However, the statute does not create an individual cause of action or provide for statutory remedies.

Again, although the statute creates an individual cause of action, the obligation to provide an annual audit rests with the corporation and the board of directors, not the individual directors.

Count IV—Breach of Fiduciary Duties

The duties of an individual director are set forth in AS 10.06.450(b).[6] There is a similar duty imposed on officers of the corporation set out in AS 10.06.483(e).[7] A director’s or officer’s fiduciary duty requires him or her to act in good faith, and to act in a manner he or she reasonably believes to be in the best interests of the corporation, and to act with the care, including reasonable inquiry, that an ordinarily prudent person would use under similar circumstances.

Under the statute, a director is entitled to rely on information, opinions, reports, or statements prepared or presented by counsel, public accountants, or other persons as to matters that the director reasonably believes to be within the person’s professional or expert competence. An officer is not acting in good faith if the officer relies on others despite having knowledge concerning the matter in question that makes reliance on others unwarranted.

Here plaintiffs allege that the defendant directors “failed to insure that the Corporation complied with state and federal law respecting annual reporting, and the conduct of annual meetings.”

With respect to each of the plaintiffs’ theories this court must decide

(1) Did the individual directors act in bad faith; or

(2) Did the individual directors not act in a manner that they reasonably believed to be in the best interests of Leisnoi; or

(3) Did the individual directors not act with the care, including reasonable inquiry, which an ordinarily prudent person in a like position would use under similar circumstances?

This court finds in general that the directors and officers in this lawsuit acted in good faith and in the best interests of Leisnoi. There is no evidence that the directors sued in this lawsuit and in their capacity as officers were acting in bad faith, for their self interest, or engaged in self-dealing. Indeed the opposite is true. The parties who have been sued are serving on a pro bono basis for the benefit of Leisnoi and its shareholders. They have not been paid for their services and have contributed their time to the furtherance of keeping Leisnoi alive for the shareholders. Carole Pagano is the only person in this lawsuit who is in a paid position. She is paid a very reasonable wage, and at times has to wait for payment when Leisnoi is short on funds.

There is no self-dealing, personal enrichment, or lack of good faith on the part of the directors.

Although they are somewhat irrelevant, this court questions the motives and good faith of the plaintiffs, especially Mr. Erickson. It appears that he was a moving force in bringing about the lawsuit, but did not appear for trial. Indeed, most of the plaintiffs did not appear for trial. Mr. Erickson’s actions suggest a personal agenda. He threatened to sue certain previous directors and succeeded in getting two members to resign. He was then offered a seat on the board, which he refused. It appears that Mr. Erickson is more interested in being a gadfly, remaining outside and casting stones.

Joann Holmes, the only plaintiff who appeared for trial, has not voted in any recent election and alleged she has not received any mail, but never informed the corporation that she was not receiving mail. None of Joann Holmes’s mailings were ever returned to the corporation as undeliverable. The corporation had Ms. Holmes’s correct mailing address. Carole Pagano testified that in 2004 and in 2005 annual shareholder reports were mailed to Joann Holmes. This court finds that Ms. Holmes is not a credible witness.

With regard to the holding of the annual meetings, Leisnoi held a meeting in October 2005. In 2005 Leisnoi sent to its shareholders the notice of the election and call for nominations. Frankie Grant, Carole Pagano, Kane Wolf, and Shannon Johnson were elected directors at this annual meeting.

In 2006 Leisnoi sent to its shareholders the notice of the election, annual report, and call for nominations. Leisnoi held a meeting in December 2006 but did not have a quorum, and the meeting was continued. After payment of taxes and ongoing business and litigation expenses, Leisnoi did not have sufficient funds to hold the continued meeting, and one was not held.

Leisnoi did not have sufficient funds to hold a meeting during the first half of 2007, as it had to borrow money from Koniag to pay its taxes due in the first half of 2007. This court does not know whether Leisnoi held any annual meetings in 2007.

Given the circumstances of the difficulty of getting a quorum, as well as the additional expense of continuing a meeting, this court finds that the three directors did not breach their fiduciary duty regarding calling annual meetings. Leisnoi held an annual meeting in December 2006, and thus had until January 2008 to hold the next meeting.

The next issue is with regard to the annual reports and the audited financial reports. At each annual meeting in 2002, 2003, 2005, and 2006 shareholder reports and financial statements were provided to the shareholders. No shareholder report or financial statement was provided to shareholders in 2004. This court finds that although no report was sent out, the individual directors/officers did not breach their fiduciary duty. 2004 was a terrible year for Leisnoi; it was on the brink of disaster. Manager Frank Feichtinger was fired, two board members resigned, and Leisnoi had closed its offices and its records were in boxes. Financially, Leisnoi had more debts than assets. Given the circumstances, this court finds that the directors did not breach their fiduciary duty in failing to prepare and send out an annual report that year.

Lastly, there is the issue of audited financial reports. Leisnoi did not send out an audited financial report in the years 2002–2006. It would have cost $15,000–$25,000 for an audit to be performed. At trial, the individual directors testified that to a large extent they did not know that there was a statutory requirement that the corporation provide audited financial statements. In Doyle v. Union Insurance Co., the court explained that “a violation by a trustee of a duty required by law, whether willful, fraudulent, or neglect, is a breach of trust and the trustee is liable for any damages proximately caused by the breach.”[8]

It is axiomatic that ignorance of the law is no excuse, except in very limited circumstances.[9] A director has to act with the care, including reasonable inquiry, which an ordinarily prudent person in a like position would use under similar circumstances. Although a director is entitled to rely on information, opinions, reports or statements, prepared or presented by counsel, public accountants, or other persons as to matters that the director reasonably believes to be within the person’s professional or expert competence, such reliance is not reasonable in light of an explicit federal statute. Because this court previously ruled that the attorney-client privilege belonged to the corporation and the Board of Directors, and not the individual directors, that privilege could not be waived by the individual defendants. Regardless of advice, where there is a clear statute and there is little ambiguity that an annual audit is required, the individual directors did not act with reasonable care and to that extent breached their fiduciary duties.

Count V—Appointment of Interim Director

Alaska Statute 10.06.663 provides that if “the right of a director to hold office is in doubt, … an interested person may petition the superior court to determine the identity of the director, or if there are no directors, to appoint directors to wind up the affairs of the corporation….” Based on the clear language of AS 10.06.663, this court may appoint directors only if the pre-condition that there are no directors is met, and this court’s authority to appoint directors is only to wind up the corporation.

Absent the existence of those circumstances, this court may upon petition identify the directors.

Alaska Statute 10.06.418(b) provides that “[a] proxy is not valid after the expiration of 11 months from the date of the proxy….” The 2002, 2003, and 2005 proxies introduced into evidence have the language that the proxy must be tendered 60 days before the annual meeting. A reasonable construction of the language is that they must bear a date no more than 60 days before the annual meeting and the proxies are valid if the annual meeting is continued for a lack of quorum, as long as the continuation does not exceed a period of 11 months from the date of the proxy. Every proxy used in the 2005 election was used within 11 months and was valid.

The facts show that the current Board of Directors of Leisnoi comprises Frankie Grant, Carole Pagano, Frank Pagano, Kane Wolf, and Shannon Johnson.[10] They were properly elected or appointed to the Board.

Count VI—Declaratory Relief

Of the declaratory relief sought by plaintiffs, this court grants the request that the individual directors shall bring to the Board of Directors the necessity of conducting an annual audit. The directors shall raise this issue with the Board of Directors within 30 days. The decision of the Board of Directors shall be provided to the plaintiffs.

The remainder of the declaratory relief sought by plaintiffs has been addressed in the specific sections above.

DATED this 11 day of March 2008 at Anchorage, Alaska.

/s/ Sen K. Tan

Superior Court Judge ↑

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Appendix D ↑

IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE

ROBERT ERICKSON, et al., Plaintiffs,

v.

KANE WOLF, CAROLE PAGANO and FRANK GRANT, Defendants.

Case No. 3AN–04–13743CI

ORDER RE: MOTION FOR POST-TRIAL HEARING TO DETERMINE DAMAGES/MANDAMUS AND CROSS-MOTION TO AMEND FINDINGS

At the outset, this court notes that the “writ of mandamus is abolished” in Alaska.[1] Thus the relief sought is really for this court to impose nominal damages and to hold a further hearing on damages after the Board meets to make decisions regarding ANCSA reporting requirements.

In the opposition to the motion, defendants have cross-motioned the court to amend its findings regarding fiduciary breach under Civil Rule 52(b), to state that defendants did not breach their fiduciary duties.

In their motion, plaintiffs argue there is a per se rule that where there is a breach of fiduciary duties, there must be an award of damages.[2] As explained in Loudon, the per se rule has a very narrow application only to circumstances “where directors have breached their disclosure duties in a corporate transaction that has in turn caused impairment to the economic or voting rights of stockholders.”[3] Ludon discussed the case of In Re Tri–Star Pictures, Inc. Litigation, where the plaintiffs suffered a proportionate loss of voting power from the issuance of 75 million shares as a result of the breach of fiduciary duty.[4] Thus, it does not appear that the per se rule applies here.

More importantly, in Brown v. Dick, the Alaska Supreme Court specifically rejected or further limited the rule set out in Loudon.[5]

This court concludes that nominal damages shall not be awarded. In addition to nominal damages, it appears that plaintiffs are seeking a hearing to prove actual damages. Plaintiffs did not make such a claim at trial. The legal theory behind the claim for damages was in the Third Amended Complaint, but plaintiffs chose not to put on any evidence of actual damages at trial. A review of plaintiffs’ Proposed Findings of Fact and Conclusions of Law supports this point, as plaintiffs ask for declaratory and injunctive relief.

Accordingly, this court will not re-open the case for a damages trial.[6]

In response to the Motion for Post–Trial Hearing, the defendants filed a Cross–Motion to Amend the Findings of Fact and Conclusions of Law. Although an extension of time was granted to plaintiffs to file an opposition to the motion, no opposition was filed.

Defendants request that this court add language that “[b]ecause the plaintiffs failed to prove that they suffered any damages, an element of the tort of fiduciary breach, this court cannot hold that the defendants’ duty was breached.” Even without opposition, this court declines to amend the Findings of Fact and Conclusions of Law, as the proposed amendment is an inaccurate statement of the law. There is no dispute that the defendant directors here owed a fiduciary duty to the shareholders, and there was a breach of the duty. There is no evidence of actual damages or causation of those damages. Thus, as discussed above, this court has not awarded any damages to the plaintiffs.

Damages, however, are not the only relief sought in this case. Plaintiffs have sought declaratory and injunctive relief. To that extent, as to the three individual directors, this court has granted a remedy, for the individual directors to raise the issue with Leisnoi’s Board of Directors.

The Motion to Amend is DENIED.

DATED Sept. 26/08.

/s/ Sen K. Tan

Superior Court Judge ↑

---

Appendix E ↑

IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE

ROBERT ERICKSON, et al., Plaintiffs,

v.

KANE WOLF, CAROLE PAGANO and FRANK GRANT, Defendants.

Case No. 3AN–04–13743CI

ORDER RE: MOTION TO BAR DEFENDANTS FROM INDEMNIFICAIONT BY CORPORATION

Plaintiffs have filed a motion to bar defendants from indemnification by the corporation, pursuant to AS 10.06.490. It appears that plaintiffs are seeking only to bar indemnification on the non-prevailing claims.

As with prior rulings in this case, this court starts with the consistent premise that the corporation Leisnoi, Inc. (“Leisnoi”) is not a party to this lawsuit. Thus, the question of whether the corporation failed to abide by AS 10.06.490 is not a question on which this court can grant relief.

This court is asked to determine if there is any statutory bar for the defendants to receive indemnification by the corporation. The answer is no.

Looking at the statute, AS 10.06.490(a) applies to this dispute. Alaska Statute 10.06.490(b) does not apply, as it addresses shareholder derivative actions. Under AS 10.06.490(a), the conduct of the directors must be “in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation.” This court’s findings of fact and conclusions of law specifically found that the defendant directors acted in good faith and in Leisnoi’s best interest. On the breach of fiduciary duty, this court found that the directors were negligent in not knowing about the federal requirement to conduct an audit. This does not bar indemnification.

Further, AS 10.06.490(c) provides that where a director “has been successful on the merits or otherwise in defense of an action or proceeding referred to in (a) or (b) of this section, or in defense of a claim, issue, or matter in the action or proceeding,” the director shall be indemnified. Clearly, from this court’s findings of fact and conclusions of law, the defendant directors were successful in defense of this action. The minor victory of the plaintiffs on one claim pales beside the overwhelming victory of the defendants. Again this is not a bar to indemnification.

Lastly, this court finds that AS 10.06.490 has been satisfied, as there was a resolution by the majority of the directors who were not parties to the action to indemnify the defendant directors.

Accordingly, there is no bar to the defendant directors receiving indemnification provided by Leisnoi. The motion to bar indemnification is DENIED.

Dated Sept. 26/08

/s/ Sen K. Tan

Superior Court Judge ↑

I. MOTIONS BEFORE THE COURT

At docket 39, defendant Cook Inlet Region, Inc. (“CIRI”) moves for summary judgment or, in the alternative, for judgment on the pleadings. The motion was filed February 28, 2001. Plaintiffs Emil Notti, et al. (“Notti”), have never filed an opposition. CIRI’s motion is therefore ripe. At docket 40, Notti seeks leave to file an interlocutory appeal regarding this court’s previous order denying a motion to remand. CIRI opposes Notti’s motion. At docket 41A, Notti seeks to stay proceedings pending resolution of its motion at docket 40. CIRI opposes this motion, too. The motion at docket 41A is technically not yet ripe. However, for reasons which will become clear further below, there is no reason to delay resolving the motion at docket 41A with the motions at dockets 39 and 40. Oral argument has not been requested and would not assist the court.

II. BACKGROUND

CIRI is a corporation organized pursuant to the Alaska Native Claims Settlement Act, 43, U.S.C. §§ 1601 et seq. (“ANCSA”). CIRI instituted an Elders Benefit Program which distributed dividends to shareholders age 65 or older. Notti contends that the Elders Benefit Program violates Alaska state law which prohibits discriminatory dividend distribution among shareholders.[1] CIRI removed to federal court asserting federal question jurisdiction existed because an ANCSA provision, 43 U.S.C. § 1606(r), authorizes the preferential dividend that CIRI granted. Notti sought remand. The Court denied Notti’s Motion. Other facts are noted below.

III. STANDARDS OF REVIEW

A. Motion for Summary Judgment

Rule 56 of the Federal Rules of Civil Procedure provides that summary judgment should be granted if there is no genuine dispute as to material facts and if the moving party is entitled to judgment as a matter of law. The moving party has the burden of showing that there is no genuine dispute as to material fact.[2] The moving party need not present evidence; it need only point out the lack of any genuine dispute as to material fact.[3] Once the moving party has met this burden, the non-moving party must set forth evidence of specific facts showing the existence of a genuine issue for trial.[4] All evidence presented by the non-movant must be believed for purposes summary judgment, and all justifiable inferences must be drawn in favor of the non-movant.[5] However, the non-moving party may not rest upon mere allegations or denials, but must show that there is sufficient evidence supporting the claimed factual dispute to require a fact-finer to resolve the parties’ differing versions of the truth at trial.[6]

B. Interlocutory Appeal

Certification of an interlocutory appeal under 28 U.S.C. § 1292(b) is only appropriate if the issue presents a controlling question of law, there is a substantial ground for difference of opinion, and an immediate appeal “may materially advance the ultimate termination of the litigation.”[7] Interlocutory appeals are rarely granted and sparingly used in deference to the federal policy disfavoring piecemeal review.[8]

IV. DISCUSSION

Notti’s claims allege violation of the Alaska State Corporation Code, AS 10.06 et seq., for discriminatory dividend distribution. However, Title 10 expressly incorporates ANCSA with respect to its application. In relevant part, Title 10 provides:

Nothwithstanding the other provisions of this chapter, a corporation organized under [ANCSA] is governed by [ANCSA] to the extent [ANCSA] is inconsistent with this chapter, and the corporation may take any action, including amendment of its articles, authorized by [ANCSA]….[9]

ANCSA provides, in part:

The authority of a Native Corporation to provide benefits to its shareholders who are Natives or descendants of Natives or to its shareholders’ immediate family members who are Natives or descendants of Natives to promote the health, education, or welfare of such shareholders or family members is expressly authorized and confirmed. Eligibility for such benefits need not be based on share ownership in the Native Corporation and such benefits may be provided on a basis other than pro rata based on share ownership.[10]

Thus, ANCSA permits preferential distributions. In summary, State law authorizes ANCSA corporations to “take any action…authorized by [ANCSA]….[11] ANCSA permits ANCSA corporations to allot shareholder dividends on a preferential basis. It therefore follows that there is no genuine issue of material fact in dispute, and CIRI is entitled to summary judgment as a matter of law. In light of this disposition, Notti’s motions at dockets 40 and 41A are moot, because Notti may now appeal this court’s final judgment.

V. CONCLUSION

          For the foregoing reasons:

          (1) CIRI’s motion for summary judgment at docket 39 is GRANTED;

          (2) Notti’s motion at docket 40 seeking leave to file an interlocutory appeal is DENIED as moot; and

          (3) Notti’s motion at docket 41A seeking leave to stay proceeding is DENIED as moot.

DATED at Anchorage, Alaska this 1st day of May, 2001.

/s/ John Sedwick
United States District Judge

W. Fletcher, Circuit Judge:

Plaintiff–Appellee Cook Inlet Region, Inc. (“CIRI”) is an Alaska Native Regional Corporation formed under the Alaska Native Claims Settlement Act (“ANCSA”). Defendants-Appellants Robert W. Rude and Harold F. Rudolph are shareholders of CIRI and former members of CIRI’s Board of Directors.

In 2009, Plaintiff CIRI filed suit against Defendants, alleging that they had violated ANCSA and Alaska law. The district court held that it had federal question jurisdiction over the ANCSA claims and supplemental jurisdiction over the state-law claims. On appeal, Defendants challenge the court’s holding that it had subject matter jurisdiction over the ANCSA claims. We affirm the district court.

I. Background

Congress enacted ANCSA in 1971, two years after the discovery of oil in Prudhoe Bay. Alaska Native Claims Settlement Act, Pub. Law No. 92–203, 8 Stat. 688 (1971) (codified as amended at 43 U.S.C. §§ 1601–1629h); see also Martha Hirschfield, Note, The Alaska Native Claims Settlement Act: Tribal Sovereignty and the Corporate Form, 101 Yale L.J. 1331, 1335–36 (1992) ( “Oil companies eager to exploit Alaska’s natural resources were unwilling to begin development until title to the land had been quieted.”). Under ANCSA, all Native claims to Alaskan land based on aboriginal use and occupancy were extinguished, and Native Alaskans were granted monetary compensation and title to forty million acres of land. See John F. Walsh, Note, Settling the Alaska Native Claims Settlement Act, 38 Stan. L.Rev. 227, 227 (1985).

ANCSA transferred title of the settlement land to twelve regional corporations and numerous village corporations created by the Act. 43 U.S.C. §§ 1606–07. Under ANCSA, only Native Alaskans could be shareholders in these corporations for the first twenty years of their existence. This restriction on alienation was designed to ensure that Native Alaskan lands would not be sold at low prices as soon as title cleared. § 1606(h)(1) (1982); see also Walsh, 38 Stan. L.Rev. at 232–33 (discussing reasons for alienability restriction).

In 1990 and 1991, as the twenty-year restriction neared its end, Congress amended ANCSA to broaden restrictions on the transfer of corporate stock. See Little Bighorn Battlefield National Monument, Pub.L. No. 102–201, § 301, 105 Stat. 1631, 1633 (1991); Alaska Native Claims Settlement Act, Amendment, Pub.L. No. 101–378, § 301, 104 Stat. 468, 471–72 (1990). Under current law, shareholders in regional corporations established under ANCSA cannot sell or otherwise transfer their stock except under limited circumstances. 43 U.S.C. § 1606(h)(1)(B)-(C).

Lifting ANCSA’s alienability restrictions on stock requires an amendment to the regional corporation’s articles of incorporation. See § 1629c(b). ANCSA provides two mechanisms by which these restrictions can be lifted. One of them is a shareholder vote taken at the request of a shareholder petition. § 1629c(b)(1)(B)(ii).

In 2009, Defendants solicited shareholder signatures for two petitions. The first petition sought a vote to lift the alienability restrictions. The second petition sought to convene a special shareholder meeting to consider six advisory resolutions concerning dividends, elections, financial reporting, voting rights, and compensation of senior management. The petitions suggested that Plaintiff’s board of directors and senior management were mismanaging the corporation. Defendants sent four mailers soliciting signatures for the petitions.Plaintiff filed suit, alleging two claims under ANCSA and two claims under Alaska law. Plaintiff moved for summary judgment on all claims. Defendants did not oppose the motion. The district court granted summary judgment to Plaintiff on all claims. Defendants filed a motion for relief from judgment, arguing that the court lacked federal-question subject matter jurisdiction. They also argued that the court erred in granting summary judgment on the second of Plaintiff’s two ANCSA claims. The district court concluded that it had subject matter jurisdiction. However, it changed its mind on the merits of the second of the two ANCSA claims and ruled against Plaintiff on this claim.

After entry of final judgment, Defendants appealed, challenging only the jurisdictional ruling.

II. Jurisdiction and Standard of Review

We have appellate jurisdiction under 28 U.S.C. § 1291. We review de novo district court determinations of subject matter jurisdiction. Puri v. Gonzales, 464 F.3d 1038, 1040 (9th Cir.2006).

III. Discussion

Plaintiff alleged two claims under ANCSA. The first claim alleged that defendants violated 43 U.S.C. § 1629b(c). This section permits the holders of 25 percent of the voting power of a Native corporation to petition the board of directors to lift alienability restrictions. The section provides that Alaska law governing the solicitation of proxies “shall govern solicitation of signatures for a petition,” with exceptions not applicable here. § 1629b(c)(1)(B). Plaintiff alleged that defendants’ solicitation materials for the petitions contained false and materially misleading statements, in violation of Alaska law that has been incorporated into § 1629b(c). See Alaska Stat. § 45.55.160.

The second claim alleged that defendants violated 43 U.S.C. §§ 1629b(b)(2)(A) and 1629c(b)(2). These sections require that certain information be disclosed in petitions to lift alienability restrictions. These sections do not incorporate any Alaska law.

The general federal question jurisdiction statute, 28 U.S.C. § 1331, grants federal district courts “original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.” “A case arise[es] under federal law within the meaning of § 1331 … if a well-pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal law.” Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 689–90, 126 S.Ct. 2121, 165 L.Ed.2d 131 (2006) (internal quotation marks omitted). We conclude that the district court had federal-question subject matter jurisdiction over Plaintiff’s two ANCSA claims because “federal law creates the cause of action” in both claims. Id. at 690, 126 S.Ct. 2121.

Defendants make four arguments why there is no federal question jurisdiction over Plaintiff’s first claim. First, they argue that Plaintiff’s claim under § 1629b(c)(1)(B) “does not allege any serious dispute over the validity, construction or effect[ ] of the ‘federalized’ state law … that requires the experience and uniformity” of a federal forum. Second, they argue that federal question jurisdiction over the first claim would disrupt the proper federal-state balance. Third, they argue that the claim does not raise a substantial federal question. Fourth, they argue that Congress’ failure to create an explicit cause of action to challenge the solicitation of signatures indicates that it did not intend to grant federal jurisdiction over claims arising under the provision.

Defendants’ first and second arguments conflate the sometimes difficult jurisdictional question posed when federal law is embedded in a state-law claim with the much more straightforward question posed when state law is embedded in a federal-law claim. There is federal question jurisdiction over a state-law claim only if it “necessarily raise[s] a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities.” Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 314, 125 S.Ct. 2363, 162 L.Ed.2d 257 (2005). By contrast, there is federal question jurisdiction over a federal-law claim simply by virtue of its being a claim brought under federal law, whether or not it incorporates state law.

Plaintiff’s first claim required the district court to apply Alaska law governing proxy solicitations to determine the legality of Defendants’ shareholder petitions under ANCSA. But Plaintiff’s claim was not brought as a state-law claim. Rather, Plaintiff brought a federal-law claim under a provision of ANCSA that incorporated state law. Plaintiff did not bring, and indeed could not have brought, a claim directly under Alaska law because the relevant provision of Alaska law governs proxy solicitations rather than shareholder petitions. See Alaska Stat. § 45.55.160 (prohibiting “untrue statement[s] of material fact” in documents filed under proceedings in Chapter 55 of the Alaska Securities Act).

Defendants’ third and fourth arguments are essentially the same as their argument that there is no federal question jurisdiction over Plaintiff’s second claim. That argument is that both ANCSA claims fail on the merits, and that there is therefore no federal question jurisdiction over them.

Defendants’ argument fails because there is subject matter jurisdiction over federal-law claims unless they are “obviously frivolous.” Sea–Land Serv., Inc. v. Lozen Int’l, LLC, 285 F.3d 808, 814 (9th Cir.2002) (internal quotation marks omitted). It is hard to show frivolousness. There is federal question jurisdiction unless the federal claim is “so insubstantial, implausible, foreclosed by prior decisions of [the Supreme] Court, or otherwise completely devoid of merit as not to involve a federal controversy.” Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 98, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (internal quotations omitted). “Any non-frivolous assertion of a federal claim suffices to establish federal question jurisdiction, even if that claim is later dismissed on the merits.” Cement Masons Health & Welfare Trust Fund for N. Cal. v. Stone, 197 F.3d 1003, 1008 (9th Cir.1999).

Neither of Plaintiff’s ANCSA claims was frivolous. Defendants can hardly contend that Plaintiff’s first claim was frivolous, given that the district court found Defendants liable on that claim. The district court eventually concluded that Plaintiff’s second claim failed on the merits, but that claim was not “insubstantial” or “implausible.”

Defendants make a final argument, applicable to both ANCSA claims. They contend that ANCSA itself limits federal jurisdiction over claims brought under it. Section 1601(f) states that “no provision of this chapter shall be construed to constitute a jurisdictional act, to confer jurisdiction to sue, nor grant implied consent to Natives to sue the United States or any of its officers with respect to the claims extinguished by the operation of the chapter.” 43 U.S.C. § 1601(f). Defendants have misread this section. It limits litigation challenging the elimination of Native Alaskan land claims under ANCSA, but it does not limit § 1331 federal question jurisdiction over other claims brought under ANCSA.

Conclusion

We hold that there is federal question jurisdiction under § 1331 over Plaintiff’s ANCSA claims.

AFFIRMED.

Order Granting Plaintiff's Motion for Summary Judgment As to Count I of its First Amended Complaint

Plaintiff Koniag, Inc. (“Koniag”) moves for consolidated summary judgment, arguing that statements in certain documents distributed by Frank Pagano, Charlotte Pagano, and Raymond Swensen (“Defendants”) both prior to, and during, their November 1997 proxy solicitation campaign are false and misleading statements of material fact as a matter of law. Based on the analysis below, I agree with Koniag and grant summary judgment.

I. Background

The documents which are the subject of this motion were sent by Defendants to Koniag shareholders. The documents urged Koniag shareholders, by a proxy vote, to reject a Board proposal to create a permanent trust fund for proceeds from sales of Koniag lands; and to reject the three directors nominated by the Koniag Board. At Koniag’s 1997 Annual Meeting, the permanent trust fund proposal failed, and two of the three nominees of Koniag’s Board were elected. None of the Defendants were elected to the Koniag Board.

There are three documents which are central to this motion. First, an April 1997 letter from Koniag’s former President, Frank Pagano, to Koniag shareholders. Second, Defendants’ November 1997 proxy solicitation, which sought votes for the December 1997 Koniag annual meeting. Third, a document contained in the proxy solicitation materials entitled, “What Every Shareholder Should Know,” which was distributed by Defendants at a Koniag shareholder informational meeting in Anchorage.

Koniag argues that the April 1997 letter was a proxy solicitation statement and that certain statements contained in the April letter are materially false and misleading as a matter of law. It also claims that certain statements in the November proxy solicitation are materially false and misleading as a matter of law. It additionally argues that certain statements in Defendants’ solicitation document, “What Every Shareholder Should Know” are materially false and misleading as a matter of law. Koniag finally argues that Defendants’ proxy solicitation, as a matter of law, fails to comply with Alaska securities law regarding non-board proxy solicitations.

II. Summary Judgment Standard

In order for summary judgment to be granted, the movant must show that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Once the movant meets its burden of establishing the absence of any material facts at issue, the non-movant must produce evidence demonstrating that a material issue of fact exists. (citations omitted).

III. Standard of Law

Koniag is a regional native corporation created under the Alaska Native Claims Settlement Act (“ANCSA”). As such, it is expressly exempted from the Federal Securities Act of 1933 and the Securities Exchange Act of 1934.[1] Therefore, Alaska securities law governs this issue.

IV. Defendants’ April Letter to Koniag Shareholders Was a Proxy Statement

3 AAC 08.365(14) of the Alaska Administrative Code sets forth the definition of a proxy statement:

“proxy statement” means a letter, publication, press release, advertisement, radio/television script or tape, or other communication of any type which is made available to shareholders under circumstances reasonably calculated to result in the procurement, withholding, or revocation of a proxy.

This definition essentially codifies earlier federal court decisions. See SEC v. Okin, 132 F.2d 784, 786 (2nd Cir. 1943) (SEC authority over proxy solicitations extends to "any other writings which are part of a continuous plan ending in solicitation and which prepare the way for its success."); Long Island Lighting Company v. Barbash, 779 F.2d 793, 796 (2nd Cir. 1985) (communication is a proxy solicitation if, seen in the totality of the circumstances, it is reasonably calculated to influence the shareholders' votes.)

Koniag argues that the April 1997 letter was a proxy statement because it was a communication made during the execution of Defendants’ continuous plan, which ended in a proxy vote solicitation.

Defendants argue that the April letter is not a proxy statement. They claim that their letter was sent to only 430 of the 3500 Koniag shareholders, six months prior to the actual solicitation campaign. They also claim that their letter they sent to a portion of the shareholders was a different, later version of the April letter the Koniag Board sent to all 3500 shareholders with its June response.

I believe that the April letter is a proxy statement under 3 AAC 08.365(14). Defendants’ explicit statement in their November 1997 proxy solicitation “Again . . . ask[ed] and remind[ed]” Koniag shareholders “to refer to the April 2, 1997, correspondence from Frank Pagano to the shareholders . . ..”[2] This reference to the April letter in the November proxy solicitation indicates that it was sent to Koniag shareholders as part of the execution of Defendants’ proxy solicitation campaign and was calculated to influence Koniag shareholders’ proxy votes for the November election.

V. Certain Statements in Defendants’ April Letter Are Materially False and Misleading as a Matter of Law

The Alaska Securities Act prohibits misrepresentations of material fact in proxy solicitations. AS 45.55.160 provides that:

A person may not, in a document filed with the Administrator or in a proceeding under this chapter, make or cause to be made an untrue statement of material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading.

Under this language, a single material statement or omission of fact is sufficient to establish a violation of the statute.

Alaska regulations give broad effect to the prohibitions contained in the statute. 3 AAC 08.315(a) defines a misrepresentation as a statement that, at the time and under the circumstances in which it is made (1) is false or misleading with respect to a material fact; (2) omits a material fact necessary in order to make a statement made in the solicitation not false or misleading; or (3) omits a material fact necessary to correct a statement, in an earlier communication regarding the solicitation of a proxy for the same meeting or subject matter, which has become false or misleading.

In addition, 3 AAC 08.315(a) provides some examples of what might be a misleading statement under Alaska law: “(1) predictions as to future market values; (2) material that directly or indirectly impugns character, integrity, or personal reputation, or directly or indirectly makes charges concerning improper, illegal, or immoral conduct or associations, without factual foundation. . .”

A. Portions of the April Letter Are False and Misleading

Koniag argues that Frank Pagano’s April letter contains several misrepresentations under Alaska securities law. The alleged misrepresentations include the following:

(1) The [Koniag] Board suspended me from my position as President of our corporation after the [rape] charges were filed [against Frank Pagano]. I was not given the benefit of trial when this action was taken. I was given no opportunity to expose the falsity of the allegations in any kind of unbiased forum.[3]

(2) In late 1995 I became aware that I was being misled, lied to and blindsided by our management, counsel, and consultants. I immediately put the board on notice of my concerns and was preparing to closely examine that which I was suspicious of. Before I could put my plan into effect, I was removed from the position to do so and it was made clear I was not wanted back.[4]

(3) [While Pagano was President] I found out that actions were taking place or being planned behind my back by [Gross, Martens, and Timme] which I perceived were not in the best interests of our corporation and its shareholders. The suspicious actions I uncovered by these individuals for all intents and purposes appeared to benefit their own personal agendas more than our Corporations’ [sic].[5]

(4) With the unbridled support of our CEO, Uwe Gross, Cordez [sic] and Lexo [sic] sued Kotsiosis [sic][6] using Koniag’s money and attorney, Bill Timme. Together, they were trying to shakedown Kotsiosis for $42,000 in cash.[7]

With regard to the statement about the circumstances surrounding Mr. Pagano’s departure from the Koniag, Defendants have admitted that the allegations that Mr. Pagano was “suspended” and “removed” by the board are false, as Pagano requested the Koniag Board to put him on administrative leave with pay from his job as President of Koniag.[8] In fact, in light of the charges against him, Mr. Pagano stated that “it would be a distraction to the staff [of Koniag], if by my presence, I bring too much attention on the corporation about my case that it jeopardizes our daily business.[9] Accordingly, the statement in the April letter alleging Mr. Pagano’s suspension is false under 3 AAC 08.315(a) because it omits the fact that Pagano requested leave due to his concerns about the effect of his rape charges on Koniag’s public image.

With regard to the alleged conduct of Gross, Martens, and Timme, these statements are false and misleading under 3 AAC 08.315(a)(2) because they directly impugn these individuals’ character and integrity; and directly allege illegal conduct without factual foundation. The lack of factual foundation is discussed below.

Regarding Mr. Pagano’s allegations that he was misled, lied to, and blindsided, his supporting evidence for this statement is that it “is a true statement. It is also my opinion.” and that he felt “that I was not being given honest information.’[10]

Regarding Mr. Pagano’s allegations that Gross, Martens, and Timme were acting on behalf of their own interests, instead of Koniag’s, Mr. Pagano’s supporting evidence consists of a statement alleging that it “is a true statement . . . [and the] conduct did not appear to be, from what I can tell, in the best interests of Koniag . . . or [the] shareholders.”[11]

Regarding the “shakedown” of Kotsiosis, the only support for this statement is Mr. Pagano’s statement that it is “true.” He states that he is referring to a draft demand letter authored by Timme on behalf of ICRC Energy, Inc. to Katsiotis regarding Katsiotis’ alleged breach of a shareholder agreement and his employment contract. The draft letter states that ICRC Energy would refrain from filing suit against Katsiotis if he agreed to repay $46,000, an amount equivalent to a portion of his salary. Pagano states that he is also referring to a second demand letter seeking the return of certain information in lieu of filing a lawsuit.[12]

The above-mentioned factual support is insufficient to establish a disputed issue of material fact as to the allegations contained in the statements. Assertions that Mr. Pagano believes his statements are “true” and are his “opinion” are insufficient to establish a material issue of disputed fact under Rule 56(e). The Defendants must set forth actual facts, not conclusory statements.[13]

B. The False & Misleading Statements Are Material

3 AAC 08.315 provides that “A misrepresentation is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote . . . Subjective proof that one or more shareholders actually granted a proxy because of a misrepresentation is not required.” The regulation’s language defining materiality is taken from the holding in Brown v. Ward, 593 P.2d 247 (Alaska 1979) (adopting the standard for materiality of facts in proxy solicitations set out in TSC Industries v. Northway, Inc., 426 U.S. 438 (1976) as the Alaska common law standard).[14]

Koniag argues that pursuant to the Alaska Supreme Court opinion in Brown v. Ward, 593 P.2d 247 (Alaska 1979), summary judgment may be granted on issues of materiality.

Defendants argue that given the large number of conflicting factual issues, and the large number of reasonable inferences to be drawn therefrom, the standard for materiality set out by the U.S. Supreme Court in TSC Industries v. Northway, Inc., 426 U.S. 438 (1976), prevents the granting of Koniag’s summary judgment motion and requires an ordinary trial. The TSC court stated, “Only if the established omissions are ‘so obviously important to an investor, that reasonable minds cannot differ on the question of materiality’ is the ultimate issue of materiality appropriately resolved ‘as a matter of law’ by summary judgment.” Id. at 450 (citations omitted).

However, Defendants’ proposition ignores the result in Brown, which adopted the TSC standard for materiality. After the Brown court found that the statements at issue were materially misleading, it went on to state “[s]ince we find Ward’s proxy solicitations to be materially false as a matter of law, no further evidence need be received . . .” Brown at 251. Accordingly, as discussed below, I believe that the statements referenced in this order are so obviously important to Koniag shareholders in deciding how to vote their proxies, that reasonable minds could not differ on this conclusion. Therefore, they are material and summary judgment is appropriate in this case.

Mr. Pagano’s statement regarding the circumstances surrounding his departure is material. Clearly it would be important to a Koniag shareholder, voting for candidates for the Koniag Board, to know whether or not the Board “suspended” and “removed” Mr. Pagano because he discovered their alleged personal agendas and got rid of him in order to cover-up any improprieties on their part.

With regard to the statements about the conduct of Gross, Martens and Timme, it is undeniable that a reasonable shareholder would consider the following facts important when voting their proxies: the officers of the corporation lie, mislead and blindside; they place their personal interests above the interests of the corporation; and they shakedown individuals for tens of thousands of dollars.

Moreover, Defendants themselves seem to think these allegations are material. In the proxy solicitation, Mr. Pagano stated to Koniag shareholders, “Judging from the board’s and management’s performance of our affiliates . . . I for one, do not want them managing what rightfully belongs to me.”[15]

VI. Defendants’ Proxy Solicitation Fails to Comply with Alaska Securities Law Regarding Non-board Proxy Solicitations

3 AAC 08.355(8) requires that a non-board proxy solicitation must be preceded or accompanied by a dated, written proxy statement including . . . a statement of the total amount estimated to be spent and the total amount already expended on the solicitation of proxies.” Furthermore, 3 AAC 08.355(9) requires “a statement indicating who will bear the expense of the solicitation, and the amount each participant in the solicitation has contributed or has agreed to contribute, unless the participant is a contributor of less than $500 in the aggregate.”

An examination of the proxy solicitation[16] reveals that Defendants failed to provide any information regarding the costs and expenses of their proxy solicitation. Moreover, Defendants, and their expert, Lawrence Carroll, admit that Defendants did not comply with these disclosure requirements.[17]

Consequently, Defendants’ proxy solicitation is in violation of Alaska securities law.

VII. Koniag Has Established That Defendants’ Proxy Statements Contained False and Misleading Statements of Material Fact. Therefore, Summary Judgment Is Appropriate as to Count I of Koniag’s Complaint.

Count I of Koniag’s first amended complaint alleges that “[the defendants’] false and misleading statements in proxy solicitations and in the distribution of non-board solicitations and [sic] are in violation of Alaska statutory and regulatory law.[18] Koniag has established 1) false and misleading statements of material fact,[19] 2) failure to comply with Alaska securities law regarding non-board proxy solicitations. Summary judgment is granted, therefore, on Count I of Koniag’s first amended complaint.

DONE this 5th day of February, 1999, at Anchorage, Alaska.
Brian Shortell, Superior Court Judge

I. INTRODUCTION

Robert Rude and Harold Rudolph are shareholders and former directors of Cook Inlet Region, Inc. (CIRI). They distributed a joint proxy solicitation in an attempt to be elected to the CIRI board of directors at CIRI’s 2010 annual meeting. Rude and Rudolph accumulated over one quarter of the total outstanding votes, but CIRI’s Inspector of Election refused to allow them to cumulate their votes. Thus, their votes were split evenly between the two of them and neither was seated. We conclude that the language of this proxy form required the shareholders’ votes to be equally distributed between Rude and Rudolph unless a shareholder indicated otherwise. We therefore affirm the superior court’s decision granting summary judgment in favor of CIRI on this issue.

CIRI cross-appeals, arguing that the superior court should have awarded attorney’s fees under Alaska Civil Rule 68, as well as sanctions against plaintiffs’ counsel under Alaska Civil Rule 11. We conclude that the superior court was not required to order sanctions, but we remand for reconsideration of the attorney’s fee award.

II. FACTS AND PROCEEDINGS

CIRI is an organization created under the Alaska Native Claims Settlement Act (ANCSA). CIRI is governed by a 15-member board of directors, with the directors serving staggered three-year terms; five directors are elected every June at the annual meeting. Since 1997, CIRI has rotated its annual meeting between three locations: Anchorage, Kenai, and Puyallup, Washington. The 2010 annual meeting was held in Puyallup. For each election, the board chooses a slate of five recommended candidates for whom it solicits proxies. Rude and Rudolph are CIRI shareholders and former directors. In 2010, neither Rude nor Rudolph was an incumbent director; they distributed a joint proxy statement calling themselves the “R&R Alliance” (R&R).

CIRI’s 2010 election was coordinated and supervised by an Inspector of Election. On June 3, 2010, two days before the June 5 annual meeting, CIRI sent a letter to the Inspector, urging him to find that the R&R proxy did not give Rude and Rudolph authority to cumulate the votes they received. Rudolph responded by sending his own letter to the Inspector. In it, he withdrew his candidacy and asked that he and Rude be allowed to cumulate all of the R&R proxy votes, which amounted to 27% of the total, in Rude’s favor. The Inspector split the R&R votes evenly between Rude and Rudolph, and as a result neither was elected to the board.

Rude, Rudolph, and Brenda Nicoli, on behalf of herself as well as a putative class of CIRI shareholders,[1] filed claims against CIRI challenging, among other things, the result and fairness of the 2010 board election. They sought monetary damages as well as equitable relief.  CIRI moved for summary judgment on all claims, which the superior court granted. The Shareholders now appeal the grant of summary judgment as to their election claims.

There is also some relevant prior history between these parties. CIRI sued Rude and others in Alaska Superior Court in 2008. There, Rude and his co-defendants raised several counterclaims that were similar to some of the claims they raise in this case. The superior court granted summary judgment to CIRI in the 2008 case and this court affirmed that decision in 2012.[2]

In 2009, Rude and Rudolph sent CIRI shareholders four mailers in an attempt to change certain stock alienability restrictions and to call a special meeting on six resolutions. In December 2009, CIRI sued Rude and Rudolph in federal court for making materially false and misleading statements in the four mailers and for breaching confidentiality obligations. Rude and Rudolph raised some of the same counterclaims that they had raised in the 2008 case, and the federal court found that their arguments were barred by res judicata.

III. STANDARD OF REVIEW

“Summary judgment is proper if there is no genuine factual dispute and the moving party is entitled to judgment as a matter of law.”[3] We review the superior court’s grant of summary judgment de novo.[4] We resolve questions of mootness using our independent judgment.[5] The application of Rule 68 is a question of law that we review de novo.[6]

 The award of attorney’s fees[7] and Rule 11 attorney sanctions[8] are generally reviewed for abuse of discretion.

IV. DISCUSSION

A. Mootness

“We refrain from deciding questions where the facts have rendered the legal issues moot. A claim is moot if it has lost its character as a present, live controversy.”[9]

The Shareholders raise several claims related to the fairness of the 2010 CIRI board election.  CIRI argues that these issues are now moot because the five board members who were elected in 2010 have now finished their terms. The Shareholders respond that these issues are not moot because even though Rude cannot now serve during the 2010­-2013 term, he should still be paid fees as if he had.

Although the Shareholders have not previously raised this argument, it is a proper response to CIRI’s mootness claim. The possibility of this compensation if the Shareholders prevail suggests that the controversy remains unsettled. In addition, there is a reasonable argument that these election fairness claims are capable of repetition and evading appellate review.[10] The policies that the Shareholders dispute, including the counting of proxies and the location of the annual meeting, apply on a recurring basis, and there is a reasonable potential that these claims will continually evade appellate review. In addition, we need to decide these claims in order to decide the issue of attorney’s fees.[11]

B. The Cumulative Voting Issue

The first claim in this appeal is that the election inspector unlawfully refused to allow Rude to cumulate votes under the proxy he held with Rudolph. In Alaska, a shareholder has the right to cumulate his votes unless the articles of incorporation provide otherwise.[12] For ANCSA corporations, there is a special regulation that provides: “If action is to be taken on the election of directors and if the shareholders have cumulative voting rights, a proxy may confer discretionary authority to cumulate votes.”[13] This regulation implies that a proxy must explicitly “confer” the “discretionary authority to cumulate votes.”

This implication is supported by a case from the Third Circuit Court of Appeals: “Whether a shareholder intends to authorize the proxyholder to cumulate votes for fewer than the authorized number of directors should be determined by examining the proxy form itself.”[14] Delaware cases also support the proposition that the shareholder’s intent should be determined from the language of the proxy.[15]

These authorities are consistent with the language of the election rules adopted by the CIRI Board of Directors. The CIRI election rules do not explicitly require a proxy to authorize cumulative voting, but state: “The plain words of the proxy shall control,” and “[i]n general, the Inspector of Election shall not use evidence outside the proxy form itself.” The election rules give examples of the interpretation of a board proxy that suggest that a shareholder’s votes will be distributed equally among the candidates named on the proxy form “unless the shareholder unambiguously directs another allocation.” Finally, the rules specifically provide: “In order to avoid misleading proxy solicitations, a candidate may not voluntarily withdraw his or her candidacy in order to make his or her votes available for another candidate.”

The language of the R&R proxy was fairly clear: “If this proxy is signed and no specific direction is given, it will be voted for Robert W. Rude and Harold F. Rudolph.” The proxy continued: “You may withhold authority to vote for one of [sic] more of the nominees named here by lining through or otherwise striking out the nominee’s name.” The language of the proxy thus suggested that the shareholder’s votes would be equally distributed between the candidates unless otherwise indicated on the face of the proxy. Therefore, the election inspector properly voted the proxies equally for Rude and Rudolph.[16]

C. The Meeting Location Issue

The second claim in this appeal is that the Shareholders’ participation at the 2010 annual meeting was unfairly curtailed because the meeting was held in Washington state. Under Alaska law, “[m]eetings of shareholders shall be held at a place inside or outside this state as provided in the bylaws.”[17] The CIRI bylaws state: “Meetings of the shareholders shall be held at the principal office . . . or at such other place, either within or without the State of Alaska, as the Board of Directors may designate.” This claim is thus controlled by the general rule that corporate directors must exercise their duties “in good faith, in a manner the director reasonably believes to be in the best interests of the corporation, and with the care, including reasonable inquiry, that an ordinarily prudent person in a like position would use under similar circumstances.”[18]

In this case, there was a reasonable basis for the board’s decision to hold its annual meeting in Washington state every third year. Approximately 38.5% of CIRI shareholders reside outside Alaska. The board could reasonably conclude that those shareholders would have greater potential access to a meeting held in Washington than to a meeting held in Alaska. The superior court properly granted summary judgment for CIRI on this issue because the directors made a reasonable decision to hold the 2010 annual meeting in Washington, a decision that was consistent with the corporate bylaws and the relevant statute.

D. The Remaining Election Fairness Claims

The Shareholders raise several additional election fairness claims. They first argue that the board’s proxy statement did not disclose that the election was contested and that CIRI improperly excluded the independent candidates’ names from CIRI’s proxy. But we have previously held that the applicable regulations do not require the board to include independent candidates in the board’s proxy statements.[19]

Rude and Rudolph also argue that CIRI’s proxy did not allow voting on corporate resolutions submitted by independent candidates.[20] In 2010, however, the federal court found that this argument had been rejected on the merits by the superior court in the 2008 case. In the 2008 case, the superior court ruled that “CIRI did not have to include [the independent candidates’] proposed resolution in its proxy.” We thus conclude that this argument is barred by collateral estoppel, which precludes “the relitigation of issues actually determined in earlier proceedings.”[21]

The Shareholders also argue that CIRI’s proxy form did not provide a blank space in its proxy to allow voting for write-in candidates. This claim is factually inaccurate because the board’s proxy statement did have a blank line for write-in candidates. We rejected this argument in the 2008 case,[22] and it was also disposed of previously in the federal case.

Finally, the Shareholders argue that CIRI unfairly required the independent candidates to pay for their own campaigns. We conclude that this claim is waived due to inadequate briefing.[23] It also appears that this claim was previously raised and decided in the 2008 case.[24]

E. Attorney’s Fees

On January 5, 2011, CIRI made timely Alaska Civil Rule 68 offers of judgment to each of the Shareholders in the amount of $1,500, “in resolution of all claims” and “inclusive of all interest, attorney’s fees, and costs.” After judgment was entered in its favor, CIRI moved for attorney’s fees under Civil Rules 68 and 82, and the superior court granted fees under Rule 82. The Shareholders appeal the Rule 82 fee award. CIRI cross-appeals the court’s denial of Rule 68 fees. CIRI also moved for sanctions under Rule 11, but the superior court denied that motion.  CIRI now cross-appeals that decision as well.

When the superior court denied CIRI’s request for attorney’s fees under Rule 68, it reasoned that the offers of judgment that CIRI made to the Shareholders “were too low.” The court’s order appears to be based on Beal v. McGuire[25] and Anderson v. Alyeska Pipeline Service Co.[26] In Beal this court held: “Even though a purpose of Rule 68 is to encourage settlement and avoid protracted litigation, offers of judgment made without any chance or expectation of eliciting acceptance or negotiation do not accomplish the purposes behind the rule.”[27] We concluded that offers of judgment of one dollar each, where there were “potentially substantial damages,” “could not be considered valid” for purposes of Rule 68.[28] Later, in Anderson, we applied the Beal analysis to a ten-dollar offer: “there was no objectively reasonable prospect that Anderson would accept ten dollars to settle her case — or that the offer would even start a dialogue that could lead to settlement — at that stage of the litigation.”[29]

We conclude that the offers in this case of $1,500 for each plaintiff were not too low to satisfy these precedents. In this case, the Shareholders’ claims were particularly weak. Many of the claims were barred by collateral estoppel, and the Shareholders had plenty of time to conduct discovery to assess their claims before the offers were made.

The Shareholders cite Gold Country Estates Preservation Group, Inc. v. Fairbanks North Star Borough[30] for the proposition that a Rule 68 money offer is not appropriate where the relief being sought is equitable. In that case, we noted “that a citizen litigant’s claim alleging violation of the Open Meetings Act, with no accompanying claim for monetary damages, is unlikely to be an appropriate vehicle for a Rule 68 offer.”[31] We reasoned that where there is no claim for monetary damages, “[a] Rule 68 offer of judgment serves no legitimate purpose.”[32] Likewise, in Fernandes v. Portwine, this court rejected a Rule 68 offer of judgment which by its terms encompassed only the legal, and not the injunctive, claims made by the offeree.[33] We held the “offer of judgment was not comprehensive, definite and unconditional; it did not encompass any of the equitable claims.”[34]

In this case, however, the Shareholders sought both monetary and equitable relief in their complaint. The plaintiffs’ damage claims were substantial — their prayer for relief requested monetary damages for CIRI’s allegedly unfair election practices, punitive damages, unpaid directors’ fees for Rude and Rudolph totaling over $200,000, and a money award to the putative class from a common fund. So the $1,500 offers of judgment did serve the legitimate purpose of addressing the Shareholders’ claim for damages. And CIRI’s offers were clearly worded to end the litigation by covering all the claims, not just the damage claims. Thus, the fact that the Shareholders were also seeking equitable relief does not invalidate CIRI’s offers.

We conclude that we should remand this case to allow the superior court to reconsider CIRI’s motion for Rule 68 attorney’s fees. In addition, the attorney’s fees awarded to CIRI should be apportioned among the individual plaintiffs.[35]

When the superior court denied CIRI’s motion for Rule 68 fees, the court referred to Nicoli’s motion for class certification.[36] Some federal courts have opined that when a defendant makes a Rule 68 offer to a class representative before certification, “the named plaintiff will . . . find his fiduciary obligations to the putative class members pitted against his own self-interest.”[37] That is, the representative’s personal interest in the offer conflicts with his obligation to the putative class, which has no other representative at that stage in the proceedings. Nicoli may renew this argument on remand.[38]

F. Rule 11 Sanctions

The superior court denied CIRI’s motion for Rule 11 sanctions against the shareholders’ attorney, Fred Triem. CIRI argued in its sanctions motion that Triem violated Rule 11 by filing the initial complaint and several postjudgment motions. CIRI’s argument is that the claims therein were clearly barred by collateral estoppel, and thus Triem was in violation of Rule 11’s requirement that legal arguments not be frivolous. But CIRI concedes: “Even where Rule 11 has been violated, entry of sanctions in a particular case is left to the superior court’s discretion.”[39] We conclude the superior court’s decision not to impose sanctions was within its discretion.[40]

V. CONCLUSION

We AFFIRM the superior court’s grant of summary judgment to CIRI as to all claims. We VACATE and REMAND the court’s attorney’s fee determination. We AFFIRM the court’s denial of Rule 11 sanctions.

Opinion

I. INTRODUCTION

In 2008 Robert Rude, then a sitting Cook Inlet Region, Inc. (CIRI) director, and three other candidates ran as an independent “New Alliance” slate for positions on the CIRI board of directors. Shortly before the election, CIRI filed suit, claiming that the New Alliance proxy materials contained materially misleading statements. Rude and his co-defendants counterclaimed, alleging that CIRI’s election procedures were unfairly tilted toward the interests of the current board and that the directors had improperly refused to disclose shareholder and corporate information to Rude and the other New Alliance candidates. The superior court granted summary judgment on all claims and counterclaims in favor of CIRI. As a result, the New Alliance proxies were voided, and Rude was not re-elected to the board. Rude appeals the rulings both on CIRI’s claims and his counterclaims. Although Rude’s claims are now technically moot, we address them insofar as they potentially affect prevailing party status. Because no issue of material fact exists as to the claims at issue and because CIRI is entitled to judgment as a matter of law, we affirm the superior court.

In a separate appeal, Rude challenges four other rulings of the superior court. First, he challenges the award of attorney’s fees to CIRI. Second, he challenges the superior court’s denial of his Rule 60(b) motion for relief from judgment. Third, he challenges the superior court’s exclusion of exhibits filed with that motion. Finally, he challenges the superior court’s dismissal of New Alliance as a party to this suit. Because the superior court did not abuse its discretion in any of these rulings, we affirm the superior court in all respects.

II. FACTS AND PROCEEDINGS[1]

A. Background

Cook Inlet Regional, Inc. (CIRI) is an Alaska Native Claims Settlement Act (ANCSA) corporation organized under Alaska law. It is governed by a 15-member board of directors, serving staggered three-year terms. Each year five director positions are up for election by the shareholders, and each year the board of directors recommends five candidates for the shareholders’ vote and solicits proxies[2] for those five candidates. In addition to the board’s recommended slate, other candidates often run.

B. Board Endorsement And Formation Of New Alliance Slate

For the 2008 elections, Robert Rude, as well as Dorothy J. Anagick, Chris Kiana, and Mike Thomas, ran for seats on the board.[3] Rude was at that time an incumbent director whose term was set to expire at the annual meeting at which elections would be held. The other three candidates were not incumbent directors. All four applied for board endorsement. At a March 2008 board meeting, the board selected five candidates, including Rude and Thomas, to be the board-recommended slate.[4] One week later, the board voted to reconsider its selections and selected a new slate, this time without Rude or Thomas.[5]

Under CIRI’s rules, individuals who wish to run for the board of directors, but who are not included in the board-endorsed slate, may still be included in CIRI’s proxy materials. Such individuals are listed, along with their photographs and background information, in CIRI’s proxy statements;[6] their names are listed on the proxies; and their information and personal statements are included in the CIRI voter guide. In 2008 three “other candidates” opted to be included in CIRI’s proxy materials. Rude, along with Thomas, Kiana, and Anagick, chose not to be included in CIRI’s proxy materials, instead opting to run as a slate under the aegis of the New Alliance for the Future of CIRI, Inc. (New Alliance).

C. Proxy Solicitation

On March 28, 2008, New Alliance began soliciting proxies on behalf of the four candidates and for a New Alliance proposal for a special dividend of $50 per share.[7] Around the same time, Rude sent an email to CIRI President and Chief Executive Officer Margie Brown requesting that CIRI include in its proxies either New Alliance’s proposal for a special dividend or a statement of how the CIRI board would vote its proxies on such a proposal. Brown declined both requests. Brown also declined Rude’s request for the email addresses of each CIRI shareholder.

Shortly after New Alliance sent its first proxy materials, CIRI filed a complaint with the Division of Banking, Securities and Corporations, alleging that New Alliance’s proxy solicitations contained false and misleading statements concerning, most importantly, CIRI’s alleged failure to pay adequate dividends in the past. While CIRI, New Alliance, and the Division communicated back and forth regarding CIRI’s complaint to the Division,[8] New Alliance continued to solicit proxies through three additional mailings and to maintain a website explaining its campaign for the four candidates and for a special dividend.

These additional New Alliance mailings, as well as the New Alliance website, contained a number of statements which CIRI believed to be false or misleading. These statements, described in more detail below, concerned, among other things, management compensation, allegations that CIRI had “liquidated” or sold significant landholdings, shareholders’ rights under Alaska law and ANCSA, CIRI’s election procedures, and CIRI’s dividend policy. In CIRI’s words, the statements as a whole gave the false impression that “[a]lthough CIRI as a corporation has done well in earning a profit over the years, the CIRI Board majority (and management) have refused to share the corporation’s success with the shareholders, instead keeping the vast majority of the net profits for themselves.”

Meanwhile, starting in April 2008, CIRI began soliciting its own proxies. CIRI’s first proxy solicitation included a proxy statement, including biographies of the board-endorsed candidates as well as three “other candidates.” The proxy statement also included information about continuing directors (i.e., those not up for re-election) and corporate information, including information about the current board of directors and election procedures. The enclosed proxy included the names of the five board-recommended candidates, as well as the three “other candidates” and a blank line labeled “Write-In Candidates.” The proxy did not include a space for shareholders to vote on New Alliance’s proposed special dividend.

CIRI’s second proxy mailing, mailed approximately one week after the first, included a voter guide with more in-depth information about the eight candidates on the proxy, along with CIRI’s annual financial report, a flyer in support of the board-endorsed candidates, and another proxy form with the same information as the first. CIRI subsequently sent two more mailings that included proxy forms and information supporting its endorsed candidates. Throughout its proxy mailings, CIRI touted its “Early Bird Prizes” – cash prize drawings for shareholders who returned proxies “for any proxy holder or candidate” before the May 30 deadline.

D. The Lawsuit And The Election

On June 5, two days before the scheduled shareholder meeting, CIRI filed suit against Rude, Anagick, Kiana, Thomas, and New Alliance, alleging that their proxy materials contained numerous false and misleading statements. The suit sought to void the New Alliance proxies.

Before the New Alliance candidates could respond, the shareholder meeting was held, and Rude and Thomas had the most votes to win election to the board. At the meeting, Thomas proposed the special dividend of $50 per share, but it was defeated when CIRI voted its proxies against the measure.

Following the election, the New Alliance candidates answered CIRI’s complaint and filed numerous counterclaims. In its counterclaims, New Alliance[9] alleged generally that CIRI’s election procedures were unfair because CIRI favored its slate of candidates over the New Alliance candidates. New Alliance also counterclaimed that CIRI’s proxy forms were deficient because CIRI mailed the first forms before it distributed its financial report, CIRI failed to put enough slots on the proxies for write-in candidates, CIRI omitted the names of the New Alliance candidates from its proxy forms and materials, and CIRI failed to inform shareholders of the New Alliance special dividend proposal or give shareholders a way to vote on it. Rude also alleged that CIRI omitted his name from proxy materials despite the fact that he was a current director, and that this omission amounted to de facto removal from the board. Finally, New Alliance counterclaimed that CIRI improperly refused the New Alliance candidates’ requests for lists of shareholders’ names and phone numbers.[10]

CIRI moved for summary judgment on its claims against New Alliance. New Alliance moved for partial summary judgment on its counterclaims against CIRI, and CIRI filed a cross-motion for partial summary judgment on the counterclaims. The superior court granted summary judgment in favor of CIRI on both sets of claims.

E. CIRI’s Motion For Summary Judgment

In her ruling on CIRI’s motion for summary judgment on the claims against New Alliance, pro tem Superior Court Judge Morgan Christen found that five sets of statements in New Alliance’s proxy solicitation materials were misleading as a matter of law.

First, the superior court found materially misleading New Alliance’s claims that CIRI’s senior managers’ compensation had increased by 32% between 2006 and 2007 (as opposed to a 9.5% increase in shareholder dividends). The superior court reasoned that these claims were misleading because the New Alliance numbers had counted accruals under a long-term incentive plan that “were not fully vested and may never be paid.” The superior court further found that these statements were material as a matter of law “because a reasonable shareholder would consider it important when deciding how to vote if CIRI management’s pay increased by 32% in one year.”

Second, the superior court found materially misleading New Alliance’s claims that CIRI was being “liquidated” and that CIRI land entitlements had been reduced by 700,000 acres of surface and 1,000,000 acres of subsurface estate. The superior court determined that these statements were misleading because there was no evidence in the record to support New Alliance’s contention that CIRI was being liquidated or selling off such significant landholdings. The superior court further found that New Alliance did not have a good-faith basis for such a belief. The superior court found that these statements were material as a matter of law “because a reasonable shareholder would of course consider it important when deciding how to vote if he/she understood that 700,000 acres of surface estate and 1,000,000 acres of subsurface estate had been liquidated without explanation.”

Third, the superior court found materially misleading New Alliance’s statement that:

Section 2(b) of ANCSA says Natives shall have maximum participation in decisions affecting their rights and property.

We believe shareholder participation is lacking in our corporation…. Shareholders do not get to vote on: the sale of large ANCSA land and natural resource properties; large cash donations; the granting of CIRI owned stock to senior executives; political donations; large payments made to lobbyists and consultants; nor do they get to vote on legislation that would affect the rights or property. We want to change this!

The superior court concluded that these statements were misleading because they suggested that shareholders had a right to participate in CIRI’s management decisions and that “the board [was] improperly denying shareholders’ input into corporate governance.” Instead, the superior court noted, “under Alaska law, the board of directors, not shareholders[,] has the right to make … management and operational decisions.” The superior court found that New Alliance’s statements to the contrary were material because “[t]here is a substantial likelihood that a reasonable shareholder would consider the statement about shareholders’ voting rights important in deciding how to vote.”

Fourth, the superior court found materially misleading New Alliance’s statements that “New Alliance candidates have to pay their own election expenses” and “[i]ndependent candidates … have to pay their own campaign expenses which often cost an independent candidate tens of thousands of dollars and, if elected, they are not reimbursed their campaign expenses.” The superior court concluded that these statements were misleading because the New Alliance candidates could have had some of their campaign expenses paid for if they had chosen to follow CIRI’s procedures for being included in CIRI’s proxy materials as “other candidates” and because CIRI did pay for some of the expenses for Rude to attend an informational meeting for shareholders in Washington. The superior court found that these statements were material as a matter of law because there was “a substantial likelihood that a reasonable shareholder would consider th[ese] statement[s] important in deciding how to vote … [because they] perpetuate[d] the theme that minority board members are being treated unfairly by the majority.”

Fifth, the superior court found materially misleading New Alliance’s statements that “never again will a hardcore minority of 6 directors control our corporation.” Although New Alliance claimed it was referring to one faction’s de facto control of the board, the superior court concluded that this statement was misleading because “[a] minimum of eight of the fifteen directors is required to command a majority.” The superior court found that the statement was material as a matter of law because “there [was] a substantial likelihood that a reasonable shareholder would consider this statement important in deciding how to vote … because it implies that a ‘super minority’ is somehow improperly controlling the corporation.”

The superior court concluded that because the misrepresentations in New Alliance’s proxy materials were sufficiently “egregious,” the proxies given to New Alliance “must be declared void.” Because the New Alliance proxies were declared void, Rude and Thomas, who had previously collected enough proxies to win election to the board of directors, were removed from their seats.

F. New Alliance’s Motion For Summary Judgment And CIRI’s Cross-Motion

On the same day that it granted CIRI’s motion for summary judgment, the superior court also granted CIRI’s cross-motion for partial summary judgment on New Alliance’s counterclaims and denied New Alliance’s motion for partial summary judgment. Based on its understanding of New Alliance’s motion, the superior court identified eight claims in the motions before it, of which only the first five are raised in this appeal. Those claims were whether CIRI violated Alaska securities law and common law proxy rules by:

1. sending out its proxy statement and proxy to the shareholders before sending out its annual report;
2. failing to comply with the proxy requirements under 3 AAC 08.335;
3. failing to disclose material information on its proxy, including the names and information of all the candidates who were running for the board;
4. failing to provide sufficient space on the proxy for the shareholders to write in the names of other candidates; [and]
5. failing to disclose New Alliance’s proposal for a special dividend and to provide a way for shareholders to vote on it; ….

As to the first issue, the superior court noted:

Alaska proxy regulation 3 AAC 08.345 provides:

(a) The solicitation of proxies on behalf of the board for an annual meeting must be preceded or accompanied by the annual report for the corporation’s last fiscal year, unless

1. the solicitation is made on behalf of the board before the annual report is available;
2. solicitation is being made at the time in opposition to the board; and
3. the board’s proxy statement includes an undertaking to furnish the annual report to all shareholders being solicited at least 50 days before the date of the annual meeting. (Emphasis added by superior court.)

The superior court found that all three of these requirements had been met. The superior court noted that CIRI had filed a sworn statement that its financial statement was not yet ready when CIRI sent its first proxy mailing. The superior court found that, although New Alliance asserted that CIRI had the necessary information to publish its annual report before it solicited proxies, there was no evidence to support this, and the superior court therefore determined that CIRI had met the first prong. The superior court then noted that there was no dispute that CIRI had satisfied the second prong. Finally, the superior court noted that CIRI’s initial proxy statement included an undertaking to furnish the annual report to shareholders at least 50 days before the annual meeting. Although New Alliance alleged that voters should not be asked to vote before they have information that a reasonable shareholder would view as significant in deciding how to vote, the superior court found that Alaska law specifically permitted CIRI to solicit proxies in response to New Alliance’s solicitation and thus granted summary judgment to CIRI on this issue.

As to the second and third claims, New Alliance contended that CIRI’s proxies should be voided because the proxy statement and voter guide failed to disclose the names of all candidates running for the board and because they failed to disclose that Rude was a member of the board of directors running for re-election. But the superior court concluded that Alaska proxy regulation 3 AAC 08.345(b),[11] which governs proxy statements, did not require CIRI to do either and that CIRI had in fact provided the New Alliance candidates a way to be included in the proxy materials. Further, in its cross-motion, CIRI argued that its proxy fully met the requirements set out in 3 AAC 08.335,[12] and the superior court agreed. The superior court therefore granted summary judgment to CIRI on this claim.

On the same claim, New Alliance argued that CIRI violated two common law proxy rules – the Equal Prominence Rule and the Buried Facts Rule – by giving Rude less prominence than other directors in CIRI proxy materials. The superior court rejected this argument for two reasons. First, the court noted that “when the legislature enacts a statute to govern a matter previously addressed by the common law, the statute controls,” and therefore the proxy regulations discussed above, not common law rules, controlled. Second, the court found that even if the common law rules were applicable, Rude was given the same treatment as other current directors in those parts of the proxy materials applying equally to all directors. And because he was not a continuing director, a board-endorsed candidate, or an “other candidate,” he was not included in those sections. The superior court therefore concluded that CIRI did not violate the Equal Prominence Rule or the Buried Facts Rule.

As to the fourth claim, New Alliance argued that the write-in section of CIRI’s proxies was insufficient and misleading because it only contained one blank line following the term “Write-In Candidates.” The superior court, though, found no legal authority for New Alliance’s claim that proxies were required to have multiple write-in slots and further found that CIRI’s use of the plural “candidates” would lead a reasonable voter to understand that it was permissible to write in more than one name. The superior court consequently found that CIRI’s write-in section complied with Alaska law.

Finally, the superior court concluded that CIRI’s proxy was not required to disclose New Alliance’s proposal for a special dividend, nor to provide a way for shareholders to vote on it. The superior court concluded that the Alaska Securities Act required CIRI “to include a proposal in its proxy statement when the board intends to introduce a resolution to the shareholders” but that “[t]hird-party proposals which may or may not be introduced at an annual meeting are not required to be in a corporation’s proxy and proxy statement.” Accordingly, the court concluded that CIRI did not have to include New Alliance’s proposal in its proxy materials.

Although granting summary judgment to CIRI on CIRI’s claims and on all of the counterclaims at issue in the cross-motions for partial summary judgment, the superior court issued a further order clarifying that it had dismissed “only those counterclaims that were the subject of the motion practice, not all of the defendants’ counterclaims.” Nevertheless, Anagick, Thomas, and Kiana entered a stipulation and order dismissing with prejudice all counterclaims against CIRI on behalf of themselves and New Alliance. Accordingly, Robert Rude was left as the only defendant and counterclaimant.

G. CIRI’s Final Motions For Dismissal And Summary Judgment

In August 2009, pro tem Superior Court Judge Peter G. Ashman, who had taken the case over from Judge Christen, ordered Rude to file a statement outlining any claims Rude had against CIRI which remained live. When Rude failed to respond, CIRI moved for dismissal, and Rude opposed. The superior court dismissed Rude’s counterclaims for failure to comply with the court’s August 2009 order. The superior court also found that CIRI was entitled to dismissal “on substantive grounds,” noting that Judge Christen’s order on partial summary judgment had decided all of Rude’s claims relating to CIRI’s election procedures and that Rude’s remaining claims concerning his demand for shareholders’ information were now moot because Rude had been removed as a director.

Rude moved for reconsideration of the dismissal, and the superior court, though noting that Rude had offered no explanation for his failure to respond to the August 2009 order, granted the motion, specifying that it would treat CIRI’s motion to dismiss as a motion for summary judgment. The superior court limited briefing to what it found were the only four remaining issues, namely Rude’s claims that (1) CIRI unfairly took sides in elections and improperly used its resources to support its candidates; (2) “CIRI’s policies and practices are improperly intended to entrench incumbents”; (3) CIRI refused to give Rude shareholder addresses and email addresses, information to which he was entitled as a director; and (4) CIRI refused to give Rude other corporate information to which he was entitled as a director. The superior court gave CIRI an opportunity to supplement its motion as appropriate for summary judgment and for Rude to respond.

In January 2010, after hearing oral argument, Superior Court Judge Frank A. Pfiffner, who had taken over the case from Judge Ashman, issued an oral decision granting CIRI’s motion for summary judgment on the remaining counterclaims.

As to the first two issues, that CIRI took sides and their election policies entrench incumbents, the superior court concluded that they had been disposed of by Judge Christen’s earlier order on CIRI’s cross-motion for partial summary judgment. The superior court determined that once summary judgment was granted in favor of CIRI regarding the specific claims of unfair election practices, the more general claims were unsupported and fell away. As to the second two issues, the superior court concluded that they were moot. The superior court noted that AS 10.06.450(d) did grant directors the right to certain corporate information but found that because Rude’s proxies were invalid, he did not win the election and so was not a director.

With regard to a fifth issue, that Rude was entitled to certain corporate information as a shareholder, the superior court rejected this argument for a number of reasons. First, because this issue was outside the scope of the prior order outlining the remaining issues, the court found that Rude had abandoned the claim. Second, the superior court found that Rude had not made any requests in his capacity as a shareholder, but instead only in his capacity as a director. Finally, the superior court determined that even if Rude made requests as a shareholder, any requests did not meet the statutory requirement of shareholder requests for information because the requests did not state “with particularity the purpose of the inspection, identifying that it was a proper purpose and that the documents were connected to an otherwise proper purpose” as required under AS 10.06.430(b). Although the superior court noted that Judge Christen had refused to grant summary judgment as to several of CIRI’s claims that statements in the New Alliance proxy materials were misleading, the court, with CIRI’s agreement, concluded that there were no issues remaining and ordered CIRI to draft a final judgment. Rude moved for reconsideration, and it was denied.

H. Post-Judgment Proceedings

The superior court ordered Rude to pay $43,773.80 in attorney’s fees and $5,441.14 in costs, for a total monetary judgment of $49,214.94.

After filing a notice of appeal, Rude filed a motion for relief from judgment. Rude attached to his motion over 30 new exhibits. CIRI opposed the motion and moved to strike the new exhibits. The superior court granted CIRI’s motion to strike the new exhibits, finding that they were irrelevant to the motion, untimely, and unauthenticated. The superior court also denied Rude’s motion for relief from judgment, ruling that Rude’s motion was not based on a mistake of law or newly discovered evidence as required by Alaska Civil Rule 60(b), but was rather a rehash of his earlier arguments and an attempt to introduce evidence that was unauthenticated and that had been available for timely introduction during the litigation.

Rude has filed two appeals. In the first he appeals many of the substantive matters decided in the superior court’s three orders on summary judgment. In the second he challenges four procedural matters: (1) the superior court’s award of costs and attorney’s fees to CIRI; (2) the superior court’s denial of Rude’s Rule 60(b) motion for relief from judgment; (3) the superior court’s order striking exhibits attached to the 60(b) motion; and (4) the superior court’s entry of a stipulation dismissing the New Alliance corporation as a party.

III. STANDARDS OF REVIEW

We review grants of summary judgment de novo.[13] In reviewing a grant of summary judgment, we will “determine whether any genuine issue of material fact exists and whether the moving party is entitled to judgment on the law applicable to the established facts.”[14] “Mere assertions of fact in pleadings and memoranda are insufficient for denial of a motion for summary judgment.”[15] We “may affirm the superior court on any basis supported by the record, even if that basis was not considered by the court below or advanced by any party.”[16]

We apply “the deferential ‘reasonable basis’ standard of review … where a question of law implicates [an] agency’s expertise as to complex matters or as to the formulation of fundamental policy.”[17] “[W]here an agency interprets its own regulation … a deferential standard of review properly recognizes that the agency is best able to discern its intent in promulgating the regulation at issue.”[18]

We will not reverse an award of attorney’s fees,[19] a denial of a Rule 60(b) motion for relief from judgment,[20] a decision regarding the admissibility of evidence,[21] or a superior court’s entry of a voluntary dismissal[22] absent an abuse of discretion. “An abuse of discretion exists when we are left with a definite and firm conviction that an error has been made.”[23]

IV. DISCUSSION

These two appeals encompass a total of 12 primary issues. Rude first brings six claims relating to CIRI’s conduct of the election for the board of directors. The next two claims concern CIRI’s refusal to turn over to Rude information about CIRI shareholders. Rude then argues that the superior court erred in granting summary judgment on CIRI’s claims that the New Alliance proxy materials contained material misrepresentations. In his second appeal, Rude argues that the superior court erred by awarding CIRI attorney’s fees. Finally, Rude brings three procedural claims. We address these arguments in turn.

A. Rude’s Counterclaims

1. Most of Rude’s claims are technically moot and reviewable only for the purpose of determining prevailing party status for an award of attorney’s fees.

CIRI argues that nearly all of Rude’s election claims are moot because, owing to numerous delays in this case, the seats up for election in 2008 have since come up for election again. Consequently, Rude’s requested remedy – that CIRI’s proxies for the 2008 election be voided – can no longer provide him any relief.

“A claim is moot where … it has lost its character as a present, live controversy, that is, where a party bringing the action would not be entitled to any relief even if he or she prevailed.”[24] In O’Callaghan v. State, the appellant sought to overturn the 1990 governor’s election and have the State hold a new election.[25] By the time the appeal reached this court, the terms of office of the candidates elected in the 1990 election had already run, and we therefore held that the appeal was moot.[26]

As we have recognized, though, an exception to the mootness doctrine exists through which technically moot claims can be reviewed if there is a strong public interest reason for doing so. In order to determine whether the public interest exception applies, we ask

(1) whether the disputed issues are capable of repetition, (2) whether the mootness doctrine, if applied, may repeatedly circumvent review of the issues and, (3) whether the issues presented are so important to the public interest as to justify overriding the mootness doctrine.[27]

In Rude’s case, because CIRI holds elections every year, his claims are at least capable of repetition. Further, we may assume without deciding that the public interest in open, fully informed corporate democracy is so great as to justify overriding the mootness doctrine. However, in this case the public interest doctrine does not apply because, like in O’Callaghan, “a timely election challenge [was] possible.”[28]

The superior court granted summary judgment to CIRI on most of Rude’s election counterclaims in May 2009. On July 17, 2009, the superior court held a hearing concerning the issues remaining following Judge Christen’s initial summary judgment orders; Rude did not appear at this hearing, nor did he respond to the superior court’s order compelling him to identify remaining counterclaims. Accordingly, CIRI filed a motion to dismiss in October 2009. Only then did Rude respond, but the superior court dismissed Rude’s remaining claims in November 2009. Rude then filed a motion for reconsideration, and the superior court agreed to convert the motion to dismiss into a motion for summary judgment and give the parties time to brief the matter appropriately. On January 21, 2010, the superior court granted summary judgment on Rude’s remaining counterclaims and a final judgment was entered on February 25. On March 26, 2010 – when the candidates elected at the 2008 shareholder meeting still had more than one full year left in their terms – Rude filed a statement of points on appeal. However, Rude filed repeated motions requesting more time, many of which were filed after due dates had run. He ultimately filed his corrected brief on July 13, 2011, ten months after his brief was initially due and more than a month after the 2011 CIRI shareholders meeting. In short, Rude had ample time to contest the election results, and so the second prong of the public interest exception does not apply.[29]

Nonetheless, we have held that “where the outcome of an otherwise moot claim may ‘change[ ] the status of the prevailing party and thus an award of attorneys’ fees,’ we reach the merits of that claim.”[30] Because in this case there has been an entry of judgment against Rude consisting of attorney’s fees and costs, we are bound to consider the merits of Rude’s claims, though the only relief he seeks (aside from setting aside attorney’s fees in his second appeal) is that CIRI’s proxies be voided, his own counted, and the 2008 election results recounted.[31] We review Rude’s claims, however, only to the extent that they may change the prevailing party determination.[32]

2. CIRI was not required to list the names of the New Alliance candidates in its proxy materials.

Rude first argues that the superior court erred by determining that CIRI was not obligated to include the names of the New Alliance candidates in its proxy materials. Rude points to two federal cases from outside Alaska for the proposition that corporations bear the obligation to use their proxy materials to inform shareholders of non-board-endorsed candidates that the board knows to be running.[33] He argues that by failing to disclose the names of the opposition candidates the board gave the impression that its candidates were unopposed and discouraged shareholders from voting.

CIRI responds that Alaska law does not require CIRI to list non-board-recommended candidates in its proxy materials. CIRI also points out that under its election procedures Rude had the opportunity to appear in CIRI’s proxy materials but that Rude declined the offer and “cannot now complain that his candidacy was not included.”

Rude relies primarily on Chambers v. Briggs & Stratton,[34] a case from the Eastern District of Wisconsin, for his claim that CIRI was obligated to include the names of the New Alliance directors in its proxy materials. In Chambers, a corporation omitted the name of a duly nominated candidate for the board of directors from its proxy materials, and a shareholder sued, claiming the omission of the opposition candidate’s information was a material misrepresentation.[35] The court, interpreting the Federal Securities Exchange Act, agreed, finding that “opposition to the election of directors is a material fact” because “there is a substantial likelihood that a reasonable shareholder would regard the existence of opposition to the board’s nominees for director important in deciding how to vote.”[36] CIRI replies that this case is not binding in Alaska and that “Alaska’s proxy regulations specifically address what must be included in board solicitations” and do not require the inclusion of non-board-nominated candidates. The superior court agreed, granting summary judgment to CIRI.

As CIRI and the superior court point out, 3 AAC 08.345, which governs the contents of proxy materials, provides:

(b) The solicitation of proxies on behalf of the board must be preceded or accompanied by a dated, written proxy statement including, but not limited to, the following:

1. if action is to be taken on the election of directors, a description of each nominee of the board who has consented to act if elected and of each director whose term of office will continue after the shareholders’ meeting.

3 AAC 08.335, which governs the contents of proxies, provides:

(c) The proxy must

1. indicate that the proxy is solicited on behalf of the board or, if solicited other than by the board, indicate the identity of the persons on whose behalf the solicitation is made;
2. provide a specifically designated blank space for dating the proxy; and
3. provide a means for the shareholder to specify by boxes a choice between approval or disapproval of each matter or group of related matters identified in the proxy as intended to be acted upon, other than the election of directors.

….

(e) A proxy that provides for the election of directors must

1. set out the names of the nominees for whom the proxy is solicited; and
2. clearly provide one of the following:

(A) a box opposite the name of each nominee which may be marked to indicate that authority to vote for that nominee is withheld;

(B) an instruction that the shareholder may withhold authority to vote for a nominee by lining through or otherwise striking out the name of that nominee;

(C) a “ballot” type of selection in which the shareholder is permitted to award votes to selected nominees of the shareholder’s choosing.

The superior court is correct that 3 AAC 08.335, the section governing the proxies themselves, does not require CIRI to include non-board-nominated candidates like Rude in its proxies. Subsection (e)(1) specifically requires that the proxy must “set out the names of the nominees for whom the proxy is solicited. “(Emphasis added.) The rule contemplates that each proxy solicitor will only solicit its own proxies, only requiring a solicitor to include its own candidates. Accordingly, CIRI should not be held to an obligation to solicit proxies on behalf of others.

As to 3 AAC 08.345, the section governing the contents of proxy statements, we addressed this exact issue last year and held that corporations are not required to include in their proxy statements the names of non-board-nominated candidates or non-continuing directors.[37]

Further, as both CIRI and the superior court note, CIRI in fact provided Rude and the other New Alliance candidates an opportunity to be included in the proxy statement, but they chose not to be included. Rude now argues that they should have been included despite this previous refusal. But surely CIRI cannot be required to solicit a candidate’s proxies against that candidate’s will. The superior court did not err by granting summary judgment to CIRI on this point.

3. CIRI’s selection of board-recommended candidates was not improper.

Rude next argues that it was improper for the board to hold “a closed primary election” in which a board-endorsed slate was chosen without shareholder participation. To support his argument he cites to cases concluding that shareholders must be allowed to nominate candidates to oppose board-nominated slates.[38] Here Rude and the New Alliance candidates were able to do just that, running as an independent slate opposed to CIRI’s board-nominated candidates. Rude cites no authority for the proposition that it is impermissible for a corporate board to recommend a slate, even while allowing an opportunity for other candidates to be nominated and to run. Indeed, Alaska’s proxy regulations, noting that a proxy may be solicited “on behalf of the board or … solicited other than by the board,”[39] seem to assume that boards will be soliciting proxies for their recommended candidates. CIRI’s selection of a board-recommended slate was not impermissible.

4. CIRI did not improperly remove Rude from the board of directors.

Rude next argues that CIRI improperly removed him as a director by “taking him off the list of its current directors” in its statement. This, he argues, violated CIRI’s duty to disclose the names of its directors, exceeded CIRI’s powers to punish a sitting director, violated common law rules of disclosure and candor, violated common law proxy rules, and amounted to common law fraud.[40]

The superior court correctly granted summary judgment on these claims. The fundamental flaw in Rude’s contention is that his name was not removed from CIRI’s proxy statement. As discussed above, CIRI was not required to list Rude as a candidate in its proxy statement, and so the omission of his name as a candidate cannot be considered removal.[41] The proxy statement did, though, contain numerous sections in which all current directors were listed, and in each of those sections Rude’s name was included with equal prominence as his fellow directors. In the section discussing directors’ compensation, Rude’s name was listed in alphabetical order. In the section discussing committee assignments, Rude is listed as a member of two committees. In short, Rude’s name was not omitted from CIRI’s proxy materials, and so summary judgment was appropriate on this point.

5. CIRI did not impermissibly solicit proxies before distributing its annual report.

Rude next argues that the superior court erred when it concluded that “[u]nder these circumstances, the law permits CIRI to solicit proxies before issuing its 2007 annual [financial] report.” CIRI’s proxy statement and first proxy were mailed approximately April 11, 2008. About one week later, CIRI sent out a second mailer including a proxy and the corporation’s 2007 annual report. According to Rude, CIRI violated both common law disclosure rules and Alaska proxy regulations when it solicited proxies before informing shareholders about the financial health of the corporation under its current directors. To exacerbate the problem, Rude argues, CIRI “seduc[ed]” shareholders to vote before they had the financial report by offering “Early-Bird Prizes” for the prompt return of proxies.

The superior court rejected this argument, relying on 3 AAC 08.345(a). That regulation provides:

(a) The solicitation of proxies on behalf of the board for an annual meeting must be preceded or accompanied by the annual report for the corporation’s last fiscal year, unless

1. the solicitation is made on behalf of the board before the annual report is available;
2. solicitation is being made at the time in opposition to the board; and
3. the board’s proxy statement includes an undertaking to furnish the annual report to all shareholders being solicited at least 50 days before the date of the annual meeting. (Emphasis added.)

The regulation provides an exception to the general rule that a proxy solicitation cannot precede a financial report. Because there was no dispute as to the second and third prongs of the exception, the superior court focused on the first. Rude argued, as he does now, that the first prong was not satisfied because, although it is undisputed that the financial report was not available when CIRI sent out its first proxy mailing, CIRI had all the essential information it needed to compile the report well before its first mailing. The superior court correctly rejected this argument.

CIRI Vice President Barbara Donatelli filed a sworn affidavit stating that the report was not available when CIRI sent out its first mailing. Rude counters that CIRI received its independent auditor’s report on March 21, 2008, and therefore had enough time to produce its final report before mailing its first proxy solicitation on approximately April 11. But Rude’s bare assertion that CIRI could have completed its financial report within approximately 20 days of the completion of the independent auditor’s report does not create a genuine issue of material fact. Summary judgment was therefore properly granted on this point.

6. CIRI was not required to include information about New Alliance’s proposed special dividend in its proxy materials.

Rude next argues that the trial court erred in granting summary judgment on his claim that CIRI was required to disclose the New Alliance proposal for a special dividend and to allow shareholders a way to vote on it. Several interlocking provisions of the Alaska proxy regulations govern whether board proxy materials must provide shareholders with a way to vote on proposals. As a general matter, 3 AAC 08.335(d) provides that proxies can confer authority on proxy holders to vote on proposals only “if the proxy discloses how the shares represented by the proxy will be voted in each case.” In some cases, though, proxies may grant proxy holders discretionary authority to vote on certain matters. 3 AAC 08.335(f) provides two potentially relevant circumstances in which discretionary authority may be granted.

First, 3 AAC 08.335(f)(1) allows for proxies to confer on their holders discretionary authority to vote with respect to “matters which the persons making the solicitation do not know, a reasonable time before the solicitation, are to be presented at the meeting.” CIRI argues, and the superior court agreed, that this exception applies because “although Rude and the New Alliance had expressed their intention to include the proposal, CIRI could not know whether that plan would indeed be carried out, nor could CIRI know the language that would be used.”

Second, 3 AAC 08.335(f)(4) allows for proxies to confer on their holders discretionary authority to vote with respect to “a proposal omitted from the proxy statement and proxy, if solicited for an annual meeting by participants other than the board.” Relatedly, 3 AAC 08.345(b)(15) requires that proxy statements include, “for each matter which is to be submitted to a vote of the shareholders, other than the election of directors, a description of the proposal and a statement of the vote required for its approval.” CIRI argues that 3 AAC 08.345(b)(15) applies “only to those [proposals] the board itself intends to present for a vote.” (Emphasis in original.) Accordingly, argues CIRI, 3 AAC 08.335(f)(4) “expressly permits solicitation of discretionary authority to vote on non-board proposals.”

We will focus on the second exception.[42] Whether the second exception applies hinges on whether 3 AAC 08.345(b)(15) applies only to board proposals or to all proposals. If the clause “for each matter which is to be submitted to a vote of the shareholders” implicitly means “submitted by the board to a vote of the shareholders,” then 3 AAC 08.335(f)(4) excepts CIRI from having to include the proposal in its proxies. If not, then CIRI was not entitled to discretionary authority on the proposal under this exception.

When interpreting an agency regulation for which an agency has provided its own interpretation, we apply “a deferential standard of review [that] properly recognizes that the agency is best able to discern its intent in promulgating the regulation at issue.”[43] In its motion for partial summary judgment, CIRI attached a 2004 letter from a Division of Banking and Securities examiner explaining that the Division’s interpretation of the regulation was the same as CIRI’s. In that letter, written in response to a complaint that CIRI was refusing to include a proposed floor resolution in its proxy materials, Securities Examiner Ellen Buchanan stated that “[t]he regulations do not require a corporation to include a shareholder’s resolutions in its proxy statement and proxy.” She explained:

The proxy regulations at 3 AAC 08.335(f)(4) state that a proxy may confer discretionary authority to vote on proposals omitted from the proxy statement and proxy materials if solicited for an annual meeting by participants other than the board. We do not agree … that the intent of this section is to allow discretion only if the promoters of it refuse to allow the proposal’s inclusion in the management proxy. We do not find that CIRI’s intent to use discretion to vote on [shareholder] proposals is a violation of the regulations.

Rude proposes no alternative interpretation of the regulation except to assert that his interpretation is correct. He makes no argument that the Division’s interpretation of the regulation lacks a rational basis. Because an agency is best able to interpret the intent of its regulations,[44] Rude’s failure to articulate how the agency’s facially defensible interpretation is incorrect means that the agency interpretation controls. CIRI was not required to include the special dividend proposal in its proxy materials, and summary judgment on this point was therefore appropriate.

7. CIRI’s proxy forms did not improperly contain too few slots for write-in candidates.

Finally, in the last of his election-fairness claims, Rude argues the superior court should have invalidated CIRI’s proxies because they “did not contain five … blanks for write-in candidates, but only one.” According to Rude, this implied that a voter could only vote for one write-in candidate. As the superior court correctly noted, however, Rude provides no authority

to support [his] assertion that a proxy must provide space for shareholders to write in the names of other candidates. Nor does the format misrepresent the options available to the shareholder casting a ballot…. [A] reasonable shareholder would understand [CIRI’s use of the term] ‘ write-in candidates’ to mean that a shareholder is permitted to write-in more than one candidate.

Because the regulations governing proxies do not require spaces for write-in candidates, and because even if such a requirement were inferred, CIRI’s use of the plural “candidates” conveys that more than one name may be written in, the superior court correctly granted summary judgment on this point.

8. Rude’s claim that CIRI impermissibly refused to disclose information to which he was entitled as a director is moot.

Rude’s next two claims argue that CIRI improperly denied him access to corporate information to which he was entitled. In the first claim, Rude argues that he was entitled to the information by virtue of his position as a director. In the second, Rude argues that he was entitled to the information by virtue of his position as a shareholder.

Rude argues that he was denied access to two types of corporate information to which he was absolutely entitled as a director. First, he argues that CIRI wrongfully refused to disclose shareholder email addresses and phone numbers. Second, he argues that CIRI wrongfully refused to disclose “information related to the management of the corporation.” Rude argues that as a director he had an absolute right to this information under AS 10.06.450(d).[45]

CIRI argues, and the superior court found, that Rude’s claim as a director is moot because once he lost his seat as a director he was no longer entitled to this information. Therefore, even if CIRI’s denial was improper, Rude no longer has a right to any relief. Rude concedes mootness but argues that the public interest exception applies to his claims. But, in an unpublished decision, we addressed the public interest exception in this context and determined that it does not apply because claims like this would not “continually evade review.”[46]

Unlike the other claims at issue in this appeal that are technically moot though nonetheless justiciable, Rude’s claim that he was denied corporate information has no bearing on his status as a prevailing party and therefore cannot affect an award of attorney’s fees. Rude is seeking to invalidate CIRI’s proxies. Whether Rude prevails on this information claim has no bearing on whether CIRI’s proxies should have been invalidated, but only on whether Rude was entitled to certain information back when he was a director. The appropriate relief for a denial of corporate information is an injunction,[47] to which, again, Rude is no longer entitled. Therefore, we do not address Rude’s moot claim that he was denied corporate information to which he was entitled as a director.

9. Rude abandoned his argument that CIRI impermissibly refused to disclose information to which he was entitled as a shareholder.

Rude’s second information claim argues that he was denied access to shareholder email addresses to which he was entitled as a shareholder. He argues that AS 10.06.430(b)[48] required CIRI to provide him this information for the “proper purpose” of soliciting proxies. CIRI responds by arguing first that Rude abandoned this argument below, second that no proper shareholder request for information appears in the record, and third that AS 10.06.430(b) does not require a corporation to deliver corporate information to a shareholder. The superior court granted summary judgment on the first two of these bases and also found that Rude never identified a proper purpose for a shareholder inspection.

Rude has abandoned his shareholder claim for information. Once the superior court had granted summary judgment to CIRI on most of Rude’s counterclaims, the superior court gave Rude an opportunity to identify remaining counterclaims. When Rude failed to do so CIRI filed a motion to dismiss the remaining counterclaims. Rude opposed CIRI’s motion and identified four remaining counterclaims, none of which concerned shareholders’ rights to information. The superior court then converted CIRI’s motion to a motion for summary judgment on the four remaining counterclaims exactly as delineated by Rude and gave the parties an opportunity to file briefing. Rude’s failure to identify shareholder information requests as a live issue at this point constitutes an abandonment of his claim.[49] CIRI was therefore entitled to summary judgment on this claim.

For the foregoing reasons, CIRI is entitled to summary judgment on all of Rude’s counterclaims. We now turn to CIRI’s original claims that the New Alliance proxy materials contained material misrepresentations.

B. CIRI’s Claims

The superior court determined that five statements or sets of statements in the New Alliance proxy solicitations were materially misleading as a matter of law. Rude responds that four of these sets of statements are true while the fifth is not misleading because it is aspirational. CIRI urges us to affirm the superior court and further argues that the superior court erred by failing to grant CIRI summary judgment on three other allegedly false statements made by New Alliance.

Alaska law prohibits material misrepresentations in proxy solicitations.[50] Alaska’s proxy regulations define when a statement or series of statements is misleading:

A misrepresentation is a statement that, at the time and under the circumstances in which it is made (1) is false or misleading with respect to a material fact; (2) omits a material fact necessary in order to make a statement made in the solicitation not false or misleading; or (3) omits a material fact necessary to correct a statement, in an earlier communication regarding the solicitation of a proxy for the same meeting or subject matter, which has become false or misleading.[51]

The same regulation provides that a “misrepresentation is material if there is substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.”[52] Additionally, the regulation provides that

[a] series of statements or omissions that are objectively false or misleading, but which might not be material misrepresentations if considered separately, might be material misrepresentations if there is a substantial likelihood that a reasonable shareholder would consider the series important in deciding how to vote.[53]

Alaska applies the “total mix” standard for determining the materiality of omitted facts.[54] Under this standard, “an omitted fact is material if there is ‘a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.’“[55] For affirmative misrepresentations accompanied by accurate information, the question is whether the accurate information neutralizes the misleading information.[56] “‘[N]ot every mixture with the true will neutralize the deceptive. If it would take a financial analyst to spot the tension between the one and the other, whatever is misleading will remain materially so, and liability should follow.’ “[57]

Although the issue of materiality is generally one of fact, we have held that the issue “may be resolved as a matter of law on summary judgment ‘ if the established [misrepresentations] are so obviously important to an investor, that reasonable minds cannot differ on the question of materiality.’“[58]

1. The superior court did not err by granting summary judgment to CIRI on New Alliance’s statements concerning CIRI’s liquidation.

The first set of statements the superior court found materially misleading were found in New Alliance’s third mailer:

Who is liquidating CIRI? The New Alliance believes CIRI is being liquidated by management. As of May 2006: CIRI sold total ANCSA land entitlements of $336,344,180. Included in this amount was the sale of $275,141,211 worth of federal surplus properties.

The CIRI May 1996 newsletter listed CIRI’s original ANCSA land entitlement at 1,301,515 acres of surface and 2,366,685 acres of subsurface estate. CIRI traded 602,399 acres of surface and subsurface estate for our federal surplus properties.

Page 7 of the CIRI 2007 Annual Report lists CIRI’s current ANCSA land entitlement at approximately 600,000 acres of surface and 1,300,000 acres of subsurface estate. Our land entitlements have been reduced by approximately 700,000 acres of surface and 1,000,000 acres of subsurface estate. (Emphases in original.)

The basis for the superior court’s conclusion that these statements, taken together, were misleading was an affidavit filed by CIRI’s Director of Land and Resources Kim Cunningham. That affidavit stated, in part:

Since CIRI’s inception, in no way has CIRI “sold” or “liquidated” anywhere close to 700,000 acres of surface or 1,000,000 acres of subsurface lands that CIRI received as [its] ANCSA entitlement. The original ANCSA lands made available to CIRI for selection within its region were of little value because they consisted largely of “mountain tops and glaciers.” Through a comprehensive settlement with the federal government, followed by a series of land exchanges, CIRI agreed to forego certain of its original entitlement acreage in exchange for potentially more valuable land of a lesser acreage outside of the CIRI region. As stated in the 1996 Annual Report at 21, the land CIRI agreed to accept for its ANCSA entitlement consisted of approximately 699,000 acres of surface estate and 1,764,000 acres of subsurface estate. To date, CIRI has received over 90% of its entitlement, as restructured….

… CIRI’s business records [attached to the affidavit] reflect that as of April 2, 2008, CIRI owned 606,057 acres of surface estate, and had sold only 11,755 acres of surface estate, for a total sales price of $306,139,284…. CIRI owned 1,559,033 acres of subsurface estate, and had sold only 118,763 acres for a total sales price of $31,105,256….

CIRI still owns over 90% of the acreage it received under ANCSA….

In granting summary judgment, the superior court found that asking “who is liquidating CIRI” gave the false impression that its assets were being liquidated or sold off. The superior court rejected the defendants’ argument that they had a good-faith basis for believing that CIRI was liquidating large landholdings.

On appeal, Rude does not argue that he had a good-faith belief that the New Alliance statements were true, but rather that they are true. Rude argues that “[t]he New Alliance’s third mailer did not state or imply that CIRI had sold or liquidated 700,000 acres of surface estate or 1,000,000 acres of subsurface estate, only that CIRI’s entitlement to this acreage had been traded away for government surplus property, much of which was sold between 1997 and the present.” But taken together, the three paragraphs clearly suggest the former. By titling this section of the mailer “Who is liquidating CIRI?” and claiming that CIRI had disposed of vast estates, New Alliance suggested that major assets are being sold as part of a total dismantling of CIRI. This is an affirmative misrepresentation. It is material because, as the superior court noted, “a reasonable shareholder would of course consider it important when deciding how to vote if he/she understood that 700,000 acres of surface estate and 1,000,000 acres of subsurface estate had been liquidated without explanation.”

By mentioning the $336 million in land sales, along with the reductions in CIRI’s entitlement, without mentioning that the former was for the sale of only 12,000 acres of surface estate and 119,000 acres of subsurface estate and that the latter was as a result of swapping less valuable (though larger) acreage for more valuable (though smaller) acreage, the mailer suggests that more than half of CIRI’s original ANCSA entitlement has been sold. The omission of any explanation as to the sales and land swap is material because “there is ‘a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.’“[59] Had a shareholder known that the reductions in landholdings came as part of a swap for more valuable holdings, and that the $366 million came from selling only a small part of CIRI’s estate, this would have significantly altered the total mix of information. CIRI was therefore entitled to summary judgment on its claim that the New Alliance statements concerning CIRI’s “liquidation” are misleading.

2. The superior court did not err by granting summary judgment to CIRI on New Alliance’s statements concerning shareholder rights.

The superior court also found materially misleading the following statements from New Alliance’s third mailer:

Shareholder participation. Section 2(b) of ANCSA says “Natives shall have maximum participation in decisions affecting their rights and property.”

We believe shareholder participation is lacking in our corporation…. Shareholders do not get to vote on: the sale of large ANCSA land and natural resource properties; large cash donations; the granting of CIRI owned stock to senior executives; political donations; large payments made to lobbyists and consultants; nor do they get to vote on legislation that would affect their rights or property. We want to change this! (Emphases in original.)

The superior court concluded that “[t]he overall message communicated by both statements, read together, is that CIRI is depriving shareholders of legal rights and that shareholders are entitled to vote on operational decisions.” The court noted that Section 2(b) of ANCSA was a congressional declaration as to how the settlement of Native claims should be accomplished, not a law concerning the day-to-day operations of ANCSA corporations.[60] Instead, the court noted, paraphrasing AS 10.06.450(a),[61] that “under Alaska law, the board of directors, not shareholders[,] has the right to make both day-to-day and long-term management and operational decisions.” The superior court rejected New Alliance’s argument that the statement only suggested that the law should be changed, saying that it was “not at all clear from the statement … that [New Alliance] was suggesting a change of law.” Finally, the superior court noted that in 1997, Superior Court Judge Peter A. Michalski had ordered Rude to issue a correction to his proxy statement saying, among other things, “Under Alaska law, the Board of Directors, not the shareholders, is responsible for managing the business and affairs of the corporation. Ordinary business decisions, therefore, are not appropriate matters for a shareholder vote.”

Rude argues on appeal that these statements were not misleading because they were “merely aspirational.” “The New Alliance,” he argues, “is stating that if shareholders elect a majority of New Alliance directors, the directors will consult with shareholders and seek advisory votes on certain large transactions.” But the New Alliance materials give the impression that the supposed lack of shareholder participation in CIRI decisions is a violation of Section 2(b) of ANCSA. Rude’s after-the-fact explanation – that New Alliance was merely proposing advisory votes – is unpersuasive because New Alliance could easily have said that in the mailer, but chose not to.[62] Instead, it left shareholders with the impression that their rights were being violated by the CIRI board. Writing proxy materials is not and should not be an exercise in how much can be insinuated about the other side without outright lying. As the superior court correctly found, this misrepresentation was material because a reasonable shareholder would consider the fact that the CIRI board was denying her rights important in considering how to vote. Summary judgment was therefore appropriate as to these statements.

3. The superior court did not err by granting summary judgment to CIRI on New Alliance’s statements that “a hardcore minority of 6 directors” controlled CIRI.

Third, the superior court found that it was a material misrepresentation for New Alliance to say on its website that “never again will a hardcore minority of 6 directors control our corporation.” The superior court rejected New Alliance’s argument that it was referring to the power of six directors to select an executive committee that conducted much of CIRI’s business. New Alliance omitted this explanation from the statement on its website. As a result, the total mix of available information suggested improper corporate governance.[63] The superior court concluded “[a] minimum of eight of the fifteen directors is required to command a majority” and that the New Alliance statement that a six-member minority was controlling the corporation was therefore false. The superior court further found that the statement suggested that a minority of directors is “somehow improperly controlling the corporation,” thus causing a reasonable shareholder to consider the statement important in deciding how to vote. It is significant that this statement dovetails with New Alliance’s misrepresentation that shareholders are being improperly deprived of their rights to participate in corporate governance. Since a reasonable shareholder would consider New Alliance’s series of statements concerning improper corporate governance important in deciding how to vote, we conclude summary judgment was appropriate as to this statement.

4. The superior court did not err by granting summary judgment to CIRI on New Alliance’s statements.

These three misrepresentations permeated New Alliance’s proxy solicitation and together gave the materially misleading impression that the CIRI board was improperly depriving shareholders of the benefits of corporation ownership. Because these three misrepresentations, taken together, are sufficient to justify the superior court’s decision to void the New Alliance proxies, we need go no further. Addressing further alleged misrepresentations can have no bearing on CIRI’s status as the prevailing party.[64] We affirm the superior court’s grant of summary judgment to CIRI and the court’s decision to void the New Alliance proxies.

C. Rude’s Second Appeal

Rude’s second appeal in this case challenges the superior court’s fee award and three procedural matters. First, Rude argues that the attorney’s fee award to CIRI should be reduced to zero based on various alleged forms of misconduct committed by CIRI. Second, Rude argues that the court improperly refused to admit the exhibits that Rude attached to his Rule 60(b) motion. Third, Rude argues that the superior court wrongly denied his Rule 60(b) motion for relief from judgment on procedural grounds and should have reached the substance of his argument. Finally, Rude argues that the court erred in dismissing New Alliance as a party. None of these arguments has merit, and we affirm the superior court on all points.

1. The superior court did not abuse its discretion in awarding attorney’s fees to CIRI.

Following summary judgment on all of CIRI’s claims and Rude’s counterclaims, the superior court ordered Rude to pay CIRI attorney’s fees totaling $43,773.80 and costs totaling $5,441.14.[65] Rude challenges this award on several bases.

Alaska Civil Rule 82(b)(2) provides that in cases without money judgments, the superior court “shall award the prevailing party in a case resolved without trial 20 percent of its actual attorney’s fees which were necessarily incurred.” Here CIRI submitted evidence showing that it had spent $223,530 in litigating the claims and counterclaims against Rude, and the superior court accordingly awarded attorney’s fees of slightly below 20%. Rude does not challenge that this was the proper presumptive amount under Rule 82. Instead, he argues that the superior court abused its discretion [66] in failing to vary the presumptive fee award according to the fee variance factors of Rule 82(b)(3).[67]

First, he argues that CIRI’s fee award should be reduced because CIRI acted in bad faith by: (1) refusing to disclose shareholder email addresses to the New Alliance candidates;[68] (2) failing to include the New Alliance candidates in its proxy materials; (3) soliciting proxies before it sent out its annual report; (4) failing to include the New Alliance dividend proposal in its proxy materials; (5) improperly nominating a slate of board-endorsed candidates; (6) improperly placing only one line for write-in candidates on its proxies; (7) paying the campaign expenses of board-nominated candidates but not the New Alliance candidates; and (8) removing Rude from the board by failing to list his name in its proxy materials. But with the exception of the claim about election expenses, these are just a rehash of Rude’s counterclaims. Rude’s argument is basically that the very conduct for which CIRI is not liable should nonetheless reduce the attorney’s fees he owes. Because CIRI is entitled to judgment on Rude’s election-fairness claims, it is also entitled to attorney’s fees on those claims.[69],[70]

Further, with the exception of the claim that CIRI refused to disclose shareholder email addresses, Rude explicitly stated in his opposition to CIRI’s motion for attorney’s fees that neither party had engaged in vexatious or bad-faith conduct. He has therefore waived this argument.[71]

Rude’s second argument, relying on Rule 82(b)(3)(I),[72] is that “[t]he fee award granted by the trial court is so onerous … that it would deter similarly situated litigants from the voluntary use of the courts to remedy any future misconduct of ANCSA corporations.” CIRI argues that subsection I does not apply to Rude because he did not make “voluntary use of the courts,” but was instead sued by CIRI.[73] As CIRI seems to recognize, though, this rule does apply to Rude’s counterclaims. As to those claims, Rude argues that “rational apathy” discourages shareholders from bringing potentially costly claims against corporations in which they can expect little individual benefit (though systemic benefits may be great). As CIRI points out, though, here “Rude’s counterclaims were motivated by private concerns, particularly his personal desire to seek election to the CIRI board of directors.” Given that Rude had a strong personal stake in the outcome of his counterclaims, the superior court did not abuse its discretion in declining to vary from the Rule 82 fee schedule.

Relying on Rule 82(b)(3)(J), Rude next argues that “[t]his [c]ourt should vacate CIRI’s award of costs and attorney fees because CIRI’s decision to bring this case was influenced by management’s desire to discourage actions by other shareholders to reform CIRI.” As CIRI notes, “[n]o factual or legal basis exists for this assertion,” and Rude cites to no evidence in this portion of his brief. Given the lack of any support for Rude’s assertion, it was not an abuse of discretion for the superior court to decline to vary the fee award.

Finally, Rude argues that the superior court should have applied “the equitable doctrine of common benefit” to “protect[ ] a lone shareholder from bearing the burden of litigation that is intended to benefit many shareholders, to promote corporate suffrage, and to protect the corporate democracy.” As discussed above, though, Rude’s private interest in bringing his counterclaims was substantial. The superior court was therefore acting within its discretion when it declined to vary the fee award.

Because Rude has not shown that the superior court abused its discretion in declining to vary from Rules 82’s presumptive fee awards, we affirm the superior court’s fee award.

2. The superior court did not abuse its discretion by striking from the record exhibits filed with Rude’s Rule 60(b) motion.

Rude next argues that the superior court abused its discretion in refusing to admit 33 exhibits attached to his Rule 60(b) motion. Rude’s motion for relief from judgment, filed after summary judgment had been granted on all of the claims and counterclaims and after Rude had already filed a notice of appeal, contained 33 new exhibits. CIRI then filed a motion to strike the exhibits on the grounds that they were irrelevant to Rude’s Rule 60 motion, that they were filed much too late and were “a blatant attempt to inappropriately supplement the record on appeal,” and that they were not authenticated. The superior court granted CIRI’s motion for the reasons stated therein.

On appeal, Rude argues that the motion was brought as a Rule 12(f) motion to strike and that Rule 12(f) empowers courts to strike material from pleadings only, and not exhibits. He argues that even if Rule 12(f) were applicable, the exhibits in question “were not redundant, immaterial, impertinent, or scandalous” because they were “CIRI’s own business records.” He further argues that the superior court erred in finding that the evidence was not relevant under Alaska Evidence Rules 401 and 403. He finally argues that the superior court erred in finding that the exhibits were not admissible because they were not authenticated.

The superior court did not abuse its discretion in refusing to admit the exhibits. As the superior court found, Rude’s new exhibits were filed after summary judgment had already been granted on all claims and those judgments had already been appealed. At that point, Rude’s delay in filing the exhibits could fairly be called undue, and admitting the exhibits – i.e., giving Rude an opportunity to supplement the appellate record after the case had already terminated – would have unfairly prejudiced CIRI.[74] Notably, Rude did not move for relief from judgment under Civil Rule 60(b)(2). That rule provides for relief in cases of “newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b).” However, even had Rude argued under this rule, there is nothing in the record to suggest that the 33 new exhibits were “newly discovered evidence which by due diligence could not have been discovered” earlier. Even under Rule 60(b)(2), then, it appears the exhibits would have been properly excluded.

3. The superior court did not abuse its discretion by denying Rude’s Rule 60(b) motion.

Rude next argues that the superior court abused its discretion in denying his Rule 60(b) motion for relief from judgment.[75] Rude’s arguments in his motion were essentially identical to those he made in opposing summary judgment. Because the superior court did not err in granting summary judgment to CIRI on all claims and counterclaims, its denial of the Rule 60(b) motion was not a reversible error.[76]

4. The superior court did not abuse its discretion by entering the stipulated order dismissing New Alliance as a party.

Finally, Rude argues that the superior court erred by entering a stipulated order dismissing New Alliance as a party. On July 6, 2009, following the superior court’s two main summary judgment rulings, the superior court entered a stipulation and order dismissing defendants Anagick, Kiana, Thomas, and New Alliance as parties. The stipulation was signed by CIRI’s attorney, Thomas’s attorney, Chris Kiana, and Ella Anagick, who four days before had filed an entry of appearance as attorney on behalf of New Alliance.[77] The stipulation was not signed by Rude’s attorney, Fred Triem, who had filed an entry of appearance on behalf of New Alliance in June 2008.

Rude argues that this stipulation was “not effective” with respect to New Alliance because Triem was the attorney of record for New Alliance, and he “has never withdrawn or been substituted.” Alaska Civil Rule 81(c), on which Rude relies, provides:

1. An attorney who files a pleading or appears in a court proceeding on behalf of a party shall be deemed to have entered an appearance for all purposes in that case unless the attorney has filed and served a limited entry of appearance under (d) of this rule.
2. Except as otherwise ordered by the court, or except as provided in Rule 81(d) and 81(e)(1)(D), a party who has appeared by an attorney may not thereafter appear or act in the party’s own behalf in any action or proceeding, unless order of substitution shall have been made by the court after notice to such attorney.

According to Rude, this rule required a substitution of counsel before Anagick could act on behalf of New Alliance.

CIRI responds that neither Rude nor Triem objected to the dismissal below, nor to Anagick’s entry of appearance as counsel for New Alliance, and that this point is therefore waived. CIRI is correct. “A party may not raise an issue for the first time on appeal.”[78] To be sure, as the court of appeals has recognized in cases in which represented parties try to file pro se pleadings, allowing a party to have multiple representatives who might be working at cross-purposes “could cause considerable confusion.”[79] But in situations such as these, the superior court has “the authority” to require parties to consolidate their representation; there is no basis for requiring the court to do so.[80] Further, even in situations in which a late entry of appearance may undermine the ability of a precedent attorney to pursue her client’s claim effectively, it is up to the party or the aggrieved attorney to raise an objection, at the latest, when the conflict arises. Here, Rude and Triem failed to object and have thus forfeited any objection. The superior court was therefore acting within its discretion to enter the stipulated order to which no one had objected.[81]

V. CONCLUSION

For the foregoing reasons, we AFFIRM the superior court.