Topic: Corporate

MEMORANDUM OPINION AND JUDGMENT[*]

I. Introduction

Three sisters disputed various aspects of their parents’ probate proceedings, including the disposition of their parents’ stock in regional and village corporations.[1] The sisters entered into a settlement agreement in the probate proceedings resolving all pending disputes, including the dispute about their parents’ stock, but one sister — appointed personal representative of the probate estates under the settlement agreement — later unsuccessfully attempted to set aside the settlement agreement and filed a separate lawsuit alleging conversion of the parents’ stock. The superior court concluded that [*2]  the probate settlement agreement should not be set aside and separately concluded that the lawsuit should be dismissed for failure to state a claim for relief. The dissident sister appeals, but we affirm the superior court’s rulings.

II. Facts and Proceedings

A. Facts

Warren and Dorcas Neakok were Iñupiaq residents of Alaska’s North Slope and shareholders in their village and regional corporations. They had three daughters, Nancy Leavitt, Lily Anniskett, and Marie Tracey.

In 1996 Warren and Dorcas both made wills disposing of their ANCSA corporation stock in the Arctic Slope Regional Corporation (ASRC) and in Cully Corporation. In 2004 they completed testamentary disposition forms changing the distribution of their stock. Dorcas died in 2006 and Warren died in 2010.

B. Proceedings

1. Initial probate proceedings

Lily applied to be appointed personal representative of her parents’ estates. Marie did not consent to Lily’s appointment and raised several objections, including that Lily had mishandled their parents’ assets. Marie also asserted that she had been given ASRC and Cully Corporation shares by her parents before their respective deaths, and the stock was therefore not included in the [*3]  estates.

The sisters reached an agreement on the record at a hearing a year later. Lily and Nancy agreed that the corporation shares were “taken care of outside th[e] probate matter” and to let each corporation decide how its stocks would be distributed. Marie would receive the ASRC shares from Dorcas and Marie’s lawyer explained that Cully Corporation had informed her it would “honor whatever ASRC did with regards to stock transfers” and transfer stock to Marie. All of the sisters also agreed that Lily would be the personal representative. Marie’s lawyer asked that Lily “affirm on the record . . . that she’s comfortable with this agreement,” which she did.

Later that year, in November 2012, Marie filed a letter with the court from American General Life Company. In the letter the insurance company requested reimbursement for $114,000 for an annuity it had continued to pay to Dorcas for five years after her death.

At a hearing in July 2013, Marie’s lawyer asked the court to sign the order she had lodged the previous October memorializing the sisters’ agreement from the March 2012 hearing. Both lawyers assured the court that the agreement was accurate, but Lily interjected to ask about [*4]  “the 150 shares [she was] supposed to get from [her] parents in this order.” She asserted that she did not understand “what we’re trying to do” and questioned whether “they [were] trying to take all of our shares from Cully Corporation and ASRC from my mom and dad.”

After the court read the agreement into the record, Lily asked again about the ASRC shares because “the will . . . says all three of us get the ASRC shares.” Marie’s lawyer clarified that because Dorcas and Warren had “deeded the shares over to [Marie] prior to their deaths . . . their deeding . . . took precedence over the will.” Marie confirmed that she had received the ASRC shares but not her father’s Cully Corporation shares.

The court explained that it was “being asked simply to sign off on . . . what the family agreed to back in March of 2012.” Lily, who was participating by telephone, told the court that although she was “very disappointed of what [was] happening . . . [she was] willing to sign [the agreement].” She reiterated that she was going to “go ahead and sign it and have [Marie] live happily ever after” and hung up. The court signed the order accepting the agreement nunc pro tunc to October 15, 2012 to enable [*5]  the personal representative to address the “development of a creditor’s claim.”

Marie later filed a notice disclaiming the funds in her parents’ bank accounts because of the creditor’s demand by American General Life Company.

2. Motion to compel stock transfer and amended agreement

In May 2014 Marie filed a motion to compel the transfer of the Cully Corporation stocks. Cully Corporation entered a limited appearance disputing the court’s jurisdiction to enforce the agreement and contesting the validity of the 2004 stock wills. After several hearings the parties revised their settlement agreement to recognize Cully Corporation’s authority to direct the distribution of its stock and to authorize it to distribute the shares equally between the sisters according to the 1996 wills. In January 2015, the court signed an amended order incorporating the revised agreement, ordering Lily to give her Cully Corporation shares to Marie, and providing that Lily would continue to serve as personal representative.

3. Motion to set aside global resolution

In April 2018 — more than three years after the agreement was amended — Lily filed a motion based upon Alaska Civil Rule 60(b) to set aside the global resolution. Lily claimed [*6]  that Marie and her lawyer Alicia Porter “pressured,” “badger[ed,] and threaten[ed]” her to convey her ASRC stock to Marie and that Porter had wrongfully asserted that Marie had an interest in assets she had earlier disclaimed. Lily also claimed that she had been “ineffectively represented, [or] not represented at all” by her previous lawyers. Lily argued that the ASRC stock had never been part of any agreement and that she had conveyed the Cully Corporation stock based on an invalid stock will produced by undue influence.

Lily asserted that the court should set aside the global resolution under Rule 60(b)(5) and (6)[2] because of “extraordinary circumstances of oppressive conduct coupled with fraud by opposing counsel along with gross negligence of the attorneys who[] had previously represented [her].” She attached an affidavit detailing why she believed neither of her previous lawyers had provided her with adequate representation. And she asserted that she had been “in very bad physical condition.”

Marie opposed Lily’s motion. She argued that the sisters had settled in order to avoid trial on other issues including Lily’s actions as Warren’s guardian after Dorcas’s death, and that opening the case would [*7]  expose Lily to liability for wasting Warren’s resources and for elder abuse. And she pointed out that if Lily was dissatisfied with her lawyers’ representation, the appropriate remedy would be a malpractice action. Marie argued that Lily had voluntarily agreed to settle all these matters and could not undo the agreement because “she now dislikes her attorney’s recommendations.”

Marie also argued that the motion was untimely.[3] She argued that Lily’s current lawyer had been involved for two years and that his delay in filing the motion to set aside the agreement would prejudice Marie. Marie then advised the court that because she was “tired of continuing to battle,” Lily could “keep her Cully Corporation shares” which she noted the Cully Corporation board had never transferred to Marie.

Lily replied, reiterating her previous claims and argued for the first time that the court had a “duty to protect” the interests of her children, who “object strongly to the conversion of the ASRC stocks.” She argued that the lack of notice to them about the stock conveyance violated her children’s due process rights.[4]

On May 25 Marie conveyed 50 ASRC shares back to Lily.

At a July evidentiary hearing on [*8]  the motion to set aside the agreement Lily reiterated the arguments she made in her motions. Her lawyer called Marie as a witness and asked whether the reason she reconveyed ASRC shares to Lily was “because [she] knew those stocks didn’t come under any of [their] agreements.” Porter objected that Lily’s lawyer was “functionally asking [Marie] to admit fraud” and the court sustained her objection on Fifth Amendment grounds. After additional testimony the court ended the hearing.

After the court requested additional briefing on Lily’s motion to set aside, Marie, represented by new counsel, filed a brief arguing that the Rule 60(b) motion was untimely, and that even if it were timely it should be dismissed because it would be “an inappropriate remedy for [Lily’s] imagined problems with the global resolution.” Marie argued that Rule 60(b)(1) or (3) required any motion to be brought within one year of the judgment or order at issue; the original settlement in 2012 and its amendment in 2013 were years earlier. And she argued that a motion brought under subsection (b)(5) was “limited to final judgments and thus does not encompass interim orders, such as the Order for Global Resolution of Case.[5]

Lily argued that the court should set aside the settlement [*9]  because res judicata was “merely a rule of discretionary authority . . . that should never be a bar in cases involving a settlement in which a party was ineffectively represented.” She claimed that Porter pressured her to convey stock with “specious threats about suing over a false claim of undue influence” and that the court had a duty to protect her children’s interests and to provide them notice because they objected to the conveyance of the ASRC stocks. And she argued that Marie had “engaged in bad faith conduct vitiating any agreement” and that the court should “order the stock to be reconveyed.” Lily also claimed without elaboration that the case “involve[d] circumstances of fraud on the court” and that she was entitled to relief from the judgment under Rule 60(b)(6).

The standing master recommended denying the motion to set aside in March 2019. The master noted that Lily’s argument that the agreement was formed by fraud was a claim under subsection (b)(3).[6] Because claims under that subsection needed to be brought within one year, the master concluded that Lily’s motion was untimely because it was brought “more than 40 months” after the amended settlement was entered. And it found that the claim did not fall [*10]  under any of the other subsections. Because Lily’s motion was untimely under (b)(3) and “excluded from the scope of 60(b)(4)-(6),” the master recommended that the superior court deny the motion.

The superior court accepted the master’s recommendation and issued an order denying the motion a month later. After finding that a Rule 60(b)(3) motion was time-barred, the court recognized that an exception could be made to set aside a judgment under subsection (b)(6) if there had been fraud upon the court. But the court found that neither Porter’s alleged threats to sue nor Lily’s lawyer’s alleged failure to properly counsel Lily amounted to “fraud in the inducement of the settlement agreement.”

Lily filed a motion for reconsideration. She argued that the court overlooked evidence from the evidentiary hearing in June, which she claimed violated her right to a meaningful hearing. And she alleged that Marie committed fraud and acted in bad faith and that the stock wills were improperly notarized by Marie’s husband. She also argued that the court had unfairly ended the evidentiary hearing on the motion to set aside and that it should have recognized that her son was an interested party. The court denied Lily’s motion for reconsideration in [*11]  May 2019, finding that Lily had “not raised new relevant issues of law or fact for the court to consider.”

C. Collateral Civil Complaint

After the July evidentiary hearing, Lily and her son Michael filed a civil complaint against Porter; Marie’s husband, William Tracey; and Marie based on their conduct in the probate case. The complaint, filed in September 2018, alleged that Porter had “extorted, coerced and threatened” Lily with “bad faith civil litigation” unless she conveyed Warren and Dorcas’ ASRC and Cully Corporation stock to Marie. It claimed that Lily had been forced to “endure prolonged litigation” with delays, additional transportation and lodging costs, and additional attorney’s fees.

Based on the allegations in the complaint, Lily and Michael asserted that the Traceys and Porter had committed conversion of the stocks and that they were entitled to damages in excess of $10,000. They later amended the complaint to add Lily’s former lawyer Jon Buchholdt as a defendant[7] and to include a second count alleging that the Traceys’ and Porter’s actions breached the covenant of good faith and fair dealing.

Porter argued in her answer that the complaint failed to state a cause of action [*12]  upon which relief could be granted and followed up with a motion to dismiss the case. She argued that the claims in the complaint were an improper attempt to circumvent an ongoing probate case and not legally cognizable. Porter also argued that because she had no contract with Michael and Lily, they had no claim for breach of the implied covenant of good faith and fair dealing, as Alaska law does not recognize any generalized duty to avoid acting in bad faith outside of a contract. Porter also argued that the plaintiffs had not alleged facts that would amount to conversion. And finally she asserted that the superior court did not have subject matter jurisdiction because the claims were based on actions in the probate case.

In their opposition to the motion to dismiss, Lily and Michael argued that the probate court lacked jurisdiction to address the ANCSA corporation stock. They rehashed many of the arguments from Lily’s motion to set aside the global agreement, and asserted that Porter had worked in concert with Marie and her husband to perpetuate a fraudulent conversion of the stock and that Buchholdt was either complicit or had been negligent in his representation of Lily. Porter [*13]  reiterated her position in reply.

The court granted the motion to dismiss. It found that the complaint had failed to allege any facts about “any conduct by Porter relevant to a tort of conversion” and that the only allegation against Marie’s husband was “that he notarized a stock will, which he admits.” And it found that the complaint had not pled any nonconclusory facts that would support a claim of conversion against Marie. The court dismissed the case with prejudice.

The court entered final judgment and granted the Traceys’ and Porter’s motions for attorney’s fees. It found that the Traceys and Porter were the prevailing parties and were therefore entitled to attorney’s fees under Civil Rule 82.[8] But the court rejected their argument that they were entitled to full fees because it was “not persuaded that the collateral attack was done with vexation or in bad faith.”

Lily and Michael appeal the dismissal of their lawsuit. And Lily appeals the denial of her motion to set aside the global settlement in the probate case.

III. Standard of Review

“We review orders denying Rule 60(b)(6) relief under the abuse of discretion standard.”[9]

We review the superior court’s grant of a motion to dismiss pursuant to Rule 12(b)(6) de novo, [*14]  “construing the dismissed complaint liberally, and assuming the truth of the facts it alleges.”[10] We view dismissals under Rule 12(b)(6) “with disfavor.”[11] Dismissals under Rule 12(b)(6) “should only be granted on the rare occasion where ‘it appears beyond doubt that the plaintiff can prove no set of facts in support of the claims that would entitle the plaintiff to relief.'”[12]

IV. Discussion

A. The Superior Court Did Not Abuse Its Discretion By Denying Lily’s Motion To Set Aside The Global Agreement.

Lily argues that the superior court should have set aside the global agreement under Civil Rule 60(b)(5)-(6). She claims that Dorcas’s Cully Corporation stock will was “facially fraudulent” and had been found to be fraudulent by the Cully Corporation. Lily argues that the court should have inquired about whether she had knowingly entered into the global agreement with the advice of counsel, because she gave “a confused and ambivalent statement” when the judge asked if she agreed. And she accuses Porter of “deceptive conduct, and trickery, and oppression” for allegedly failing to deliver a letter to a bank holding some of the estates’ assets.[13] Based on these allegations, Lily argues that the stock was obtained improperly and that the global [*15]  resolution should be set aside under Alaska Rule of Civil Procedure 60(b)(5) and (6).

Rule 60(b) has six numbered subsections.[14] Although Lily nominally brings her claims under subsections (5) and (6),[15] she alleges that she was induced to sign the agreement by fraud. Therefore, her claims would arise under subsection (3), which provides for relief from judgment in the case of fraud, misrepresentation, or other misconduct.[16] Motions under Rule 60(b) “shall be made within a reasonable time, and for reasons (1), (2) and (3) not more than one year after the date of notice of the judgment or orders.”[17] Thus, a request for relief from judgment for fraud or misrepresentation must be brought within a year.

The amended order in this case was entered on January 14, 2015, dated nunc pro tunc to November 25, 2014. The motion to set aside the global resolution was filed on April 17, 2018. Even using the date the order was actually signed, Lily filed her set-aside motion more than three years after the order. The motion is therefore time-barred under Rule 60(b)(3). And although Lily also relies on the catch-all provision of subsection (6), “[a] party may only obtain Rule 60(b)(6) relief if no other Rule 60(b) clause applies.”[18] Lily’s argument that the agreement was induced by fraud could have been brought under subsection (3) within one year. Because it was not, the motion was time-barred and the superior court did not abuse its discretion by denying it.

Lily’s argument that her then-lawyer’s failure to provide adequate assistance justifies setting aside the agreement is similarly unavailing. “Relief under 60(b)(6) is inappropriate when a party takes a deliberate action they later regret as a mistake.”[19] Lily stated on the record that she had already told her lawyer that she was “in agreement.” The court then asked her to affirm that she agreed, and she did. Lily argues that at a previous hearing her lawyer “permitted Porter [*17]  to deal directly with” her regarding transferring the Cully Corporation shares. But she does not explain how this affected the final agreement. And if her lawyer did fail to provide adequate representation, “the client’s appropriate remedy is an action for malpractice.”[20] The court did not abuse its discretion by denying Lily’s motion to set aside the agreement based on her lawyer’s conduct.[21]

B. The Superior Court Did Not Violate Michael’s Due Process Rights.

Lily claims that the court erred by failing to provide Michael notice of the probate proceedings. But Michael is not a party to the probate appeal.[22] “[G]enerally, a litigant lacks standing to assert the constitutional rights of another” unless the litigant can assert third-party standing.[23] Lily did not assert and does not appear to have third-party standing for Michael. Although this court has held that “[p]arents . . . may assert the rights of their minor children,”[24] Michael is not a minor.[25] Because Michael is not a party to this case and Lily does not have third-party standing to raise claims on his behalf, we need not consider whether the superior court violated Michael’s due process rights.

C. The Superior Court Did Not Violate Lily’s [*18]  Due Process Rights By Terminating The July Evidentiary Hearing.

Lily argues that “[t]he trial court’s refusal to allow [her] to be fully heard, and to make fully informed examination of [Marie and Porter] . . . violated [her] right to a meaningful hearing.” Although a court generally must hold an evidentiary hearing on a Rule 60(b) motion if there are facts in dispute, failure to hold a hearing requires reversal only if the party that requested a hearing demonstrates prejudice.[26] Lily’s brief does not describe how her rights were violated, but her motion for reconsideration alleged that Marie was “teetering on the admission of fraud” when the evidentiary portion of the hearing ended. As Marie notes, “it is unclear how any such facts could be relevant to the court’s determination [of the 60(b) motion], given Lily’s failure to bring such motion in a timely period.” Because any motion for relief from judgment under Rule 60(b) based on fraud would have been untimely, ending the hearing did not prejudice Lily and therefore did not violate her due process rights.[27]

D. The Court Did Not Err By Exercising Subject Matter Jurisdiction Over The Agreement.

Lily argues that “the trial court erred when it exercised subject [*19]  matter [jurisdiction] because the case did not involve intestate succession and section 705 acknowledges ANCSA corporations’ exclusive jurisdiction for probate of the stocks.” Lily is correct that stock in ANCSA corporations does not pass through probate.[28] But superior courts do have jurisdiction if there is a dispute over who is entitled to inherit the stock.[29] And in this case, the probate court was not exercising jurisdiction over the transfer of stock; it was ratifying the agreement reached by Dorcas and Warren’s daughters that Lily would transfer stock to Marie, and Marie would agree to Lily’s appointment as personal representative.

E. The Superior Court Did Not Err By Dismissing Lily And Michael’s Collateral Suit.

Lily and Michael argue that the superior court’s dismissal was in error because they “pled facts specific to the conversion of the [N]ative corporation stocks, fraudulent inducement, and violation of the covenant of good faith and fair dealing . . . includ[ing] coercive pressure combined with a nonsensical elder fraud threat that induced [Lily] to capitulate to Porter and Marie Tracey’s demands.”[30] We view dismissals for failure to state a claim under Civil Rule 12(b)(6) “with disfavor,”[31] directing [*20]  that they

"should only be granted on the rare occasion where it appears beyond doubt that the plaintiff can prove no set of facts in support of the claims that would entitle the plaintiff to relief." In other words, "the complaint need only allege a set of facts consistent with and appropriate to some enforceable cause of action."[32]

Even under this lenient pleading standard, Lily and Michael failed to allege facts sufficient to support a claim against Marie or Porter for conversion or breach of the covenant of good faith and fair dealing. In addition, Lily and Michael's claim against Marie fails because of claim preclusion.

1. The conversion claim did not sufficiently allege the required element of fraud or duress.

In their complaint to the superior court, Lily and Michael alleged that Marie obtained shares that rightfully belonged to Lily through “trickery, fraud, forgery, undue influence and criminal misuse of . . . [a] notary.” These allegations could begin to state a claim for conversion.[33] But Lily had already argued that the settlement agreement should be set aside based on allegedly fraudulent notarization of wills in the probate matter, so a claim for conversion against the Traceys [*21]  based on that allegation is barred by claim preclusion.[34]

Claim preclusion “provides that a final judgment in a prior action bars a subsequent action if the prior judgment was (1) a final judgment on the merits, (2) from a court of competent jurisdiction, [and] (3) in a dispute between the same parties (or their privies) about the same cause of action.”[35] Lily and Michael’s complaint alleged that William Tracey “executed the notary for Dorcas Neakok’s and Warren Neakok’s signature[s] on their respective stock wills” one year after Dorcas and Warren had signed the documents. Their claim that allegedly fraudulent conduct induced the settlement agreement requiring the transfer of shares from Lily to Marie is the same both in their motion to set aside the settlement in the probate matter and in the conversion suit. Lily was a party to the original lawsuit and brought the complaint against [*22]  Marie Tracey. The issue was resolved by a final judgment on the merits in the probate case when the superior court denied Lily’s motion to set aside the agreement. Therefore, Lily is precluded from relitigating the issue.

Porter, as Marie Tracey’s attorney, was neither party to the previous suit nor was she in privity with the Traceys. Privity serves to ensure that a “non-party has had adequate notice and opportunity to be heard” to protect his or her rights and interests in prior litigation.[36] Privity exists where “the non-party (1) substantially participated in the control of a party’s presentation in the adjudication or had an opportunity to do so; (2) agreed to be bound by the adjudication between the parties; or (3) was represented by a party in a capacity such as trustee, agent, or executor.”[37] None of these criteria applied to Porter, so the claim against her cannot be barred by claim preclusion.

However, Lily and Michael failed to allege non-conclusory facts to make a prima facie case for conversion against Porter under Rule 12(b)(6). They did not provide any specific allegations of fraud or duress to support their claim.[38] We therefore affirm the superior court’s dismissal of the conversion [*23]  claim against Porter. And because Lily and Michael’s complaint similarly contained no specific allegations of fraud or duress besides the claim-precluded notarization allegation, we affirm the dismissal of the conversion claim against the Traceys.

Alaska law requires that

[t]o establish a claim for conversion, the plaintiff must prove (1) that she had a possessory interest in the property; (2) that the defendant interfered with the plaintiff's right to possess the property; (3) that the defendant intended to interfere with plaintiff's possession; and (4) that the defendant's act was the legal cause of the plaintiff's loss of the property.[39]

The Restatement (Second) of Torts § 221 explains that the intentional dispossession may be committed by "obtaining possession of a chattel from another by fraud or duress."[40] Comment d to § 221 further explains that "fraudulent representations [which] induce[] another to surrender the possession of a chattel" can also constitute dispossession.[41]

Civil Rule 9(b) requires that an allegation of fraud be pled with particularity. This particularity standard “is not high”[42] and merely “requires a claim of fraud to specify the time and place where the fraud occurred.”[43] But there must be something [*24]  more than “recit[ing] without specificity that fraud existed.”[44] Lily and Michael’s complaint alleged only that Porter “extorted, coerced and threatened” Lily “with threats of bad faith civil litigation” in November 2014. There were no allegations of misrepresentations of fact or law which could constitute fraud.

Lily and Michael’s complaint against Porter could be interpreted to allege that the settlement agreement was induced by duress. “[D]uress generally requires a threat that arouses such a fear as to preclude a party from exercising free will and judgment . . . .”[45] Lily and Michael alleged that Porter “extorted, coerced, and threatened [Lily] with threats of bad faith civil litigation.” But the mere threat of a lawsuit is insufficient. We have not previously ruled on this issue, but the rulings of courts in other jurisdictions provide persuasive guidance.[46] A party’s statement of intent to file a lawsuit, even if such a suit lacks merit, does not constitute duress unless accompanied by conduct which itself would be illegal or an abuse of the judicial process.[47] Because Lily and Michael’s conversion claim against Porter failed to allege any nonconclusory [*25]  facts that could support an action for conversion or duress, we affirm the superior court’s dismissal under Rule 12(b)(6) for failure to state a claim.[48]

Likewise, other than the claim-precluded allegation of fraudulent notarization, Lily and Michael’s conversion complaint against the Traceys did not describe with particularity acts that could amount to a claim for fraud. The complaint contained the nebulous claim that “from July 2016 until approximately March of 2018, Defendants acted in concert to further the conversion of funds that had been disclaimed by Defendant Marie Tracey in August of 2013,” but it failed to describe what actions were taken. The complaint also included the allegation that Marie lied under oath in a 2018 evidentiary hearing, but did not explain how her “‘material’ false statements” relate to a conversion which would have occurred over ten years earlier. Lily and Michael argue in their brief that the Traceys “include[d] a bad faith claim on . . . previously disclaimed funds and elder fraud litigation,” which could be interpreted as an allegation of fraud (in the sense of misrepresentation) or of duress. However, these unspecific allegations [*26]  do not meet the requirements of Rule 9(b) to plead fraud, and threats of litigation without more do not constitute duress.

2. The complaint does not sufficiently allege a breach of the covenant of good faith and fair dealing to survive dismissal.

The superior court found that Lily and Michael did not sufficiently plead their claim that the Traceys and Porter had breached the covenant of good faith and fair dealing, and that it could not therefore address the claim. The amended complaint states only that “[d]efendants’ conduct constituted a breach of the covenant of good faith and fair dealing.” While it is true that “[t]he covenant of good faith and fair dealing is implied in every contract in order to effectuate the reasonable expectations of the parties to the agreement,”[49] the superior court is correct in pointing out that the covenant can “only be enforced against parties to the contract at issue.” Because Porter was not a party to the settlement agreement, the covenant does not apply to her.

The complaint also does not support an allegation that Marie and William Tracey breached the implied covenant of good faith and fair dealing. The purpose of the covenant is to “effectuate the reasonable [*27]  expectations of the parties to the agreement.”[50] The conduct alleged in the complaint related to the formation of the agreement, not to effectuating the agreement once it was created. And as the superior court noted, the complaint contained no allegations that Marie and William failed to live up to their contractual obligations. The superior court did not err by dismissing the covenant of good faith and fair dealing claim.

3. The court did not violate Lily and Michael’s due process rights.

Lily and Michael argue that not allowing the case to proceed to a jury trial violated their state and federal due process rights. But a party’s due process rights are not violated as long as the court complies with the requirements of Civil Rule 12(b)(6).[51] The superior court analyzed Lily and Michael’s claims and found that the complaint “fail[ed] to allege even a single set of facts consistent with and appropriate to some enforceable cause of action.” The superior court provided Lily and Michael the process they were due by following Rule 12(b)(6) and concluding that their complaint failed to state a claim.[52]

F. The Court Did Not Err By Awarding The Traceys And Porter Attorney’s Fees In The Conversion Suit.

Lily and Michael argue that [*28]  the court erred by awarding attorney’s fees because Marie’s fees were higher than they should have been because of her conduct during the probate litigation. Marie’s conduct during the probate litigation is irrelevant to the conversion suit. And as Porter and the Traceys both argue, Lily and Michael failed to appeal either the superior court’s prevailing party determination or its finding that the fees were reasonable, which are the two relevant variables under Civil Rule 82.[53] Therefore, there is no basis to conclude that the superior court abused its discretion by awarding attorney’s fees under Rule 82.

V. Conclusion

The superior court’s denial of Lily’s motion to set aside the settlement, its dismissal of Lily and Michael’s conversion complaint, and its award of attorney’s fees for the conversion suit are AFFIRMED.

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

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

Factual & Legal Background

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

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

Legal Standards

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

Discussion

I. ANCSA Claims

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

B. Subsection 7(o)

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

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

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

C. Plaintiff’s Corporate Looting Claims

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

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

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

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

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

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

II. Small Business Act Claims

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

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

III. Leave to Amend

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

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

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

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

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

C. Subsection 7(o)

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

D. SBA

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

Conclusion

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

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

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

/s/ Sharon L. Gleason UNITED STATES DISTRICT JUDGE

 

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 ↑

---

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.