Topic: Corporate

I. INTRODUCTION

A shareholder of Arctic Slope Regional Corporation sought to exercise his statutory right to inspect books and records of account and minutes of board and committee meetings relating to executive compensation and an alleged transfer of equity in corporate subsidiaries to executives. The Corporation claimed that the materials were confidential and sought to negotiate a confidentiality agreement prior to release of any documents. When the shareholder ultimately rejected the proffered confidentiality agreement, the Corporation released to the shareholder only the annual reports and proxy statements of the Corporation and the minutes describing the subjects discussed and actions taken at the meetings. The shareholder did not receive the detailed, individualized compensation information he sought.

The shareholder brought suit, claiming that the Corporation withheld information that it was required to release under AS 10.06.430 and that the Corporation improperly insisted on a confidentiality agreement prior to releasing any of the requested documents. The superior court ruled that electronically maintained accounting records are not within the statutory category of “books and records of account”; that the Corporation satisfied the requirement to disclose “books and records of account” when it disclosed only annual reports and proxy statements; and that the Corporation satisfied the requirement to disclose meeting minutes. It further concluded that the Corporation could demand a confidentiality agreement prior to release of any information, and that the terms of the particular confidentiality agreement offered in this case were reasonable. The shareholder appeals, arguing that the statutory right of inspection encompasses more than what the Corporation provided and that the Corporation had no right to demand the confidentiality agreement in this case.

This appeal presents several issues of first impression in Alaska. We hold that (1) the statutory phrase “books and records of account” includes electronically maintained books and records of account; (2) the statutory phrase also goes beyond mere annual reports and proxy statements; and (3) the statutory phrase at least encompasses monthly financial statements, records of receipts, disbursements and payments, accounting ledgers, and other financial accounting documents, including records of individual executive compensation and transfers of corporate assets or interests to executives. We further hold that (4) the statutory category “minutes” does not encompass all presentations or reports made to the board but rather merely requires a record of the items addressed and actions taken at the meetings, as have been faithfully recorded after the meeting. Finally, we hold that (5) a corporation may request a confidentiality agreement as a prerequisite to distributing otherwise-inspectable documents provided that the agreement reasonably defines the scope of confidential information subject to the agreement and contains confidentiality provisions that are not unreasonably restrictive in light of the shareholder’s proper purpose and the corporation’s legitimate confidentiality concerns. We conclude that the Corporation’s proffered confidentiality agreement in this case was not sufficiently tailored or limited in scope and thus Pederson’s refusal to sign it could not serve as a legal basis for avoiding liability for denying his inspection claims.

II. FACTS AND PROCEEDINGS

A. The Parties

Arctic Slope Regional Corporation is an Alaska Native Regional Corporation organized under the Alaska Native Claims Settlement Act[1] and AS 10.06.960 and incorporated under the Alaska Corporations Code, AS 10.06. At the time of trial, the Corporation took in about $2.5 billion in revenue each year, employed about 10,000 people, and had operations across the country and around the world. The Corporation had about 11,000 shareholders in 2012,[2] about 6,000 of whom were adults holding voting shares.

Rodney Peterson is an original shareholder of the Corporation, holding 100 Class A shares. An attorney and a member of the Alaska bar, Pederson worked as assistant corporate counsel to the Corporation and later as an executive for one of the Corporation’s subsidiaries. The employment relationship soured. Since then Pederson has unsuccessfully sought election to the Corporation’s board and at the time of trial in this case had filed three lawsuits against the Corporation, as well as a counterclaim in a suit brought by the Corporation against Pederson.

B. Pederson’s Request for Detailed, Individual Compensation Information for Executives And Board Members Contained Within “Books And Records Of Account” And “Minutes” Under AS 10.06.430’s Shareholder Inspection Right

On June 17, 2009, Pederson sent three letters to the Corporation seeking to exercise his shareholder inspection right under AS 10.06.430(b).[3] He sought “to inspect and copy the books, records of account and minutes of proceedings of the [Corporation’s] Board of Directors and Committees of the [Corporation’s] Board of Directors” that were “in any way related to, discussing, considering, making recommendations in regard to, funding, and approv[ing]” four different actions related to compensation of and transfer of Corporate interests to executives, board members, and Corporate officers.[4]

Pederson’s demand letters stated that the purpose of his request for inspection was “[t]o obtain true and accurate information and records regarding” the four Corporate actions listed above. The letters went on to clarify that the information he obtained would be used only to persuade his fellow shareholders to adopt two specific changes to the Corporation’s governing documents.[5]

C. The Corporation Demands A Confidentiality Agreement Prior To Release Of Any Documents; Pederson Negotiates But Then Rejects Any Confidentiality Agreement.

Mary Ellen Ahmaogak, the Corporation’s Corporate Secretary, replied to Pederson’s initial demand letters on July 28, 2009, proposing to give Pederson the records he had requested “to the extent they consist of copies of the relevant portions of the minutes of [the Corporation’s] board and committee meetings and copies of the relevant portions of [the Corporation’s] regularly maintained accounting records.” The Corporation notified Pederson of its view that “[t]he bulk of the records responsive to your request consist of annual reports and proxy statements for [the Corporation] and reports made to [the Corporation’s] Compensation Committee by the Hay Group,” an independent executive-compensation consultancy. The Corporation also asserted that “[t]he books and records you have requested contain trade secrets and confidential information” and insisted that prior to its release of the records, Pederson must “sign a confidentiality agreement regarding these books and records to ensure they will not be disclosed other than to people entitled to see them.”

The Corporation’s first proffered confidentiality agreement stated that “[a]ll”[6] of the information released was “Confidential Information” subject to the terms of the agreement despite being inspectable “pursuant to AS 10.06.430.”[7] The agreement would permit disclosure “to other shareholders” and their agents but would make Pederson liable to the Corporation for unauthorized disclosure by those third parties.

Pederson responded on August 6, 2009, suggesting specific additions and subtractions to the Corporation’s first proffered confidentiality agreement. But Pederson soon changed his mind and rejected the notion that he had to sign a confidentiality agreement as a prerequisite to obtaining the materials he had requested pursuant to AS 10.06.430. He stated in a letter dated August 12, 2009, that nothing in the statute would require him to sign such an agreement, and he pledged in lieu of an agreement “to do [his] best to ensure that any information [he] prepare[d] for [his] fellow Shareholders based on any actual confidential information contained in the records [he] ha[d] requested [would] not [be] available to the public.” He proposed to “prepar[e] the information in a manner that minimizes the disclosure of actual confidential information, while still allowing [Pederson] to provide enough information to Shareholders to make persuasive arguments for updating [the Corporation’s] corporate governance documents.”

After receiving Pederson’s suggested edits to the confidentiality agreement, the Corporation sent him a responsive letter dated August 21, 2009, agreeing “to almost all of the modifications [Pederson] proposed.” But the Corporation made one significant addition to the newest draft of the agreement: After accepting Pederson’s request to omit language subjecting him to personal liability for disclosures of confidential information by third parties with whom he would be permitted to share confidential information, the Corporation inserted a new requirement that Pederson “obtain…a confidentiality agreement…that subjects [the person to whom Pederson seeks to disclose confidential information] to the same restrictions imposed on [Pederson] in this Agreement.”

In a letter dated August 24, 2009, after receiving the Corporation’s second proffered confidentiality agreement, Pederson rejected the new draft and reiterated his rejection of any confidentiality agreement. He stated his view that he was “already legally entitled” to the documents he requested, regardless of the existence of a confidentiality agreement. He further objected to the scope of the definition of “Confidential Information” in the draft agreement, to the potential liability to which it subjected him, and to the “extremely onerous requirement that [he] obtain signed agreements from every shareholder with whom [he] share[d] the information.” He reiterated his offer to “take reasonable measures to limit access by the public to certain information that is actually confidential or a trade secret, but management must point out what that information is.”

D. The Corporation Releases Some Information.

The Corporation’s in-house and outside counsel attempted to determine the scope of the information that the Corporation had to release under AS 10.06.430. It appeared that the Corporation had never had any shareholder requests to inspect corporate books and records of account and minutes until Pederson’s initial demand letters of June 17, 2009, and that the Corporation had no established procedure for responding to such requests. Similarly, no cases from this court defined the scope of “minutes” or “books and records of account.” The Corporation eventually determined that “books and records of account” included only the Corporation’s annual reports and proxy statements and that the Corporation possessed no other “books and records of account” within the meaning of the statute. It also concluded that “minutes,” as used in the statute, included the concise descriptions of what happens in board meetings that are prepared after the meetings but did not include presentations made to the board, handouts provided to the board, or other sensitive confidential or proprietary information that may have been omitted from the typed minutes for various reasons. The Corporation went on to identify other materials such as reports and presentations to the board that it concluded were not part of the minutes or books and records of account, and thus not covered by the statute, but were relevant for Pederson’s stated purposes.

On August 27, 2009, three days after the date of Pederson’s second letter rejecting any confidentiality agreement, the Corporation informed Pederson that it was delivering to him “all of the material that you requested that can be made available, in the absence of protections safeguarding confidentiality.” Later, the Corporation explained that it redacted “specific salary and benefits information of individual employees.” The Corporation’s assistant corporate counsel testified at trial that he had reviewed all of the corporate minutes as well as the books and records of account, as he had defined these terms, compiled all information in those sources related to Pederson’s stated interests, and transmitted all of those required documents without redaction of relevant information to Pederson’s attorney. The assistant corporate counsel also testified that he identified a number of reports to the board that were relevant to Pederson’s interest but not part of the “minutes” or “books and records of account” as he had defined those terms; he produced those reports for Pederson “[a]s an accommodation” after redacting information that the Corporation was not willing to share voluntarily without the sort of confidentiality agreement that Pederson had rejected.

E. Pre-Trial Proceedings

Pederson brought suit against the Corporation and Mary Ellen Ahmaogak, in her capacity as Corporate Secretary (collectively, “the Corporation”). He claimed that he had submitted a written demand stating with particularity a proper purpose for inspecting minutes and books and records of account, as required under AS 10.06.430(b), and that the Corporation had sought to impose unreasonable conditions on release of the information he sought and later improperly denied his request by releasing less than what was required under the statute. He sought a money judgment as permitted under AS 10.06.430(c), including punitive damages, and a court order as permitted under AS 10.06.430(d) compelling production of all minutes and books and records of account relevant to the proper purpose stated in his demand letters but not produced by the Corporation.

Pederson and the Corporation both moved for summary judgment. The Corporation stipulated “[f]or purposes of the summary judgment cross-motions” that it “does not dispute that, in his correspondence, Pederson stated legally proper purposes for his requests.” Thus, in the view of the parties, the only issues remaining in the case were the legal issues of the scope of the inspection right under AS 10.06.430 and the Corporation’s ability to demand a confidentiality agreement prior to its release of any information.

The superior court initially denied summary judgment to both parties because of three remaining factual disputes: (1) whether the omitted portions of the disclosed documents were truly unrelated to Pederson’s requests; (2) whether additional responsive documents were never disclosed at all; and (3) whether the Corporation produced required documents within a “reasonable time.”

The Corporation moved for reconsideration, arguing that the only factual disputes as to which documents had been disclosed and whether the redactions included inspectable information could be resolved through in camera review of the disclosed documents and the originals. Pederson did not oppose the Corporation’s motion for reconsideration. He reasoned that the in camera review process would dispose of all remaining factual disputes and that the other remaining issues relating to the confidentiality agreement were legal issues. And in Pederson’s view, the factual questions would be relevant only if the superior court were to address the initial legal question whether a corporation can demand a confidentiality agreement prior to disclosing statutorily required information.

The superior court granted the motion for reconsideration, and the Corporation provided the superior court with copies of the documents provided to Pederson as well as unredacted copies of the original documents. In order to confirm the authenticity of the documents provided to the superior court, Pederson was permitted to compare the redacted documents provided to the court with the documents he already possessed. Due to the allegedly sensitive nature of their contents, the unredacted original documents were provided to the court ex parte; Pederson was not permitted to view them. After comparing the documents in his possession to the redacted copies to be submitted to the court, Pederson filed an affidavit stating that there were documents in the pile to be submitted to the court that he had not received in the Corporation’s prior disclosure, including the 2008 Annual Report, a board resolution, and several pages of committee minutes corresponding to missing pages.

On February 4, 2011, the superior court ruled on reconsideration that the Corporation was entitled to partial summary judgment. The superior court concluded that the statutory requirement that a corporation allow inspection of “books and records of account” was satisfied in this case by the release of annual reports and proxy statements, which “contain independent accounting audits of [the Corporation], including overall and averaged information about executive compensation” but not “detailed accounts of compensation for individual executives.” Similarly, the superior court implicitly ruled that the Corporation satisfied the statutory requirement to allow inspection of “minutes” by providing the typed post-meeting notes and by withholding more-detailed reports presented at the meetings.

Pederson moved for reconsideration of the partial grant of summary judgment. He argued that the superior court had overlooked a regulation applicable to Alaska Native Regional Corporations which states that the corporations’ proxy solicitations must include “a statement of all current remuneration distributed or accrued and of all future remuneration contributed during the corporation’s last fiscal year on behalf of…each of the five most highly compensated directors or officers for his service in all capacities to the corporation and its subsidiaries, naming each such person.”[8] Pederson maintained that regardless of the superior court’s holding in the partial grant of summary judgment, the statutory inspection right extends to classes of documents beyond what the Corporation gave him in this case. The superior court denied Pederson’s motion for reconsideration, stating that it would deal with this issue at trial since full summary judgment had been denied.

F. Trial Proceedings

On September 18, 2012, the superior court held a one-day bench trial. Although the pre-trial orders purported to resolve many questions of fact and law, the superior court ultimately allowed[9] Pederson to argue de novo that “books and records of account,” as used in the statute, “should clearly include the detail, the electronic records of accounts, monthly financial statements, budget documents, ledgers, and even check registers that form the basis of the financial records of the corporation.” He also maintained that “just because [the records were] in electronic form shouldn’t be an excuse for excluding them from inspection.” Pederson also testified that in his experience working for the Corporation, the company maintained an electronic record-keeping system that makes all detailed financial transaction information “easily and quickly” accessible and available at corporate headquarters. The Corporation’s counsel stipulated to the fact that “obviously there are financial records, and it is possible for someone to query the system” with little effort to determine, for example, “how much did we spend on paper clips in June.” Pederson maintained that he has never been provided the “actual books and records of account of the company,” as defined above, but rather just the annual financial reports contained within the annual reports and proxy statements, which had “no detail in them.” (Emphasis added.) Pederson also argued that “minutes,” as used in the statute, included reports and presentations made to the board and its committees even if not typed up in the post-meeting descriptions.

Regarding the confidentiality agreement, Pederson argued that he was entitled to access “[a]ll the books and records directly connected to [his] demands,” without redaction, even if he refused to sign a confidentiality agreement. He further argued that even if a corporation may request a confidentiality agreement, the confidentiality agreement in this case was initially overbroad because it encompassed more than what was strictly confidential and was overly restrictive in its requirement that he obtain confidentiality agreements from all potential recipients of information. He specifically argued that because of the proxy disclosure regulations, 3 AAC 08.345, the Corporation can claim no confidentiality with respect to compensation information for at least the top five most highly compensated executives and possibly others who could potentially be on that list if the existing disclosures were incorrect.

The Corporation maintained its position that it possessed no “books and records of account” because it maintained electronic accounting records and that the annual reports and proxy statements were adequate substitutes to satisfy Pederson’s requests. The Corporation also argued that “minutes” include the concise descriptions of what happens in board and committee meetings that are prepared after the meetings but do not include presentations and reports made in those meetings. The Corporation asserted that the confidentiality agreement was “a bit of a sideshow” because it had released everything required under its interpretation of the statute and the proffered confidentiality agreement was to apply only to any additional, voluntarily supplied information.

G. The Superior Court’s Findings Of Fact And Conclusions Of Law

After trial concluded, the superior court issued written findings of fact and conclusions of law and entered final judgment for the Corporation.

On the legal issues related to the scope of inspection under AS 10.06.430, the superior court “adhere[d]” to its determination at summary judgment that the statutory requirement to disclose ” ‘books and records of account’…does not require a corporation to disclose to a shareholder on request all of its financial statements, including monthly financial statements, budget documents, records of disbursement, check registers, payments to executives and employees, and electronic records of account.” (Emphasis in original). Rather, “providing the annual certified financial statements satisfied the statutory obligation…particularly where a corporation establishes that it has no traditional accounting ledger and its electronic records are extraordinarily voluminous.” The superior court concluded that the Corporation established that factual predicate and that release of annual reports thus satisfied the requirements of the statute in this case.

The superior court rejected Pederson’s argument that 3 AAC 08.345’s proxy-disclosure rules broadened the scope of the inspection right under AS 10.06.430 in order to verify the truth of the disclosures. “[Alaska Statute] 10.06.430 [does not] require[] an Alaska Native Corporation to provide its shareholders, upon request, different documents than any other corporation covered by AS 10.06.430.”

On the specific factual dispute whether Pederson had received all the materials that the Corporation claimed it had delivered to him, the superior court found that Pederson had received the disputed documents, reasoning that “Pederson’s testimony [is] not credible” and accepting instead the testimony of a paralegal who prepared the documents. The superior court thus stood by its finding at partial summary judgment that Pederson had received all relevant information, without omission or redaction, within the “minutes” and “books and records of account” as the superior court defined those terms.

The superior court further concluded that a corporation could demand a reasonable confidentiality agreement before releasing inspectable documents and determined that the confidentiality agreement requested by the Corporation was “reasonable” because it “agreed to all of Mr. Pederson’s requests except that one that would essentially vitiate the confidentiality agreement and reduce it to a nullity” by permitting Pederson to disclose information to other shareholders without first obtaining a confidentiality agreement from those other shareholders. The superior court never addressed whether it was permissible for the Corporation to label all information requested in Pederson’s demand letters “Confidential Information” subject to the terms of the agreement.

Finally, the superior court determined that “there was no delay” and that “the time it took to produce the documents was reasonable” because “[m]ost of the time was taken up with negotiations of a confidentiality agreement between the parties that failed.” The superior court also found that after negotiations over the confidentiality agreement “collapsed,” the Corporation’s assistant corporate counsel “moved as quickly as he could to assemble and provide to Pederson in August 2009 all the documents that he understood the corporation was statutorily obligated to provide,” plus additional documents provided gratuitously.

Pederson appeals.

III. STANDARD OF REVIEW

“We review a trial court’s legal analysis de novo.”[10] Under the de novo standard of review, we use our independent judgment,[11] and our “duty is to adopt the rule of law that is most persuasive in light of precedent, reason, and policy.”[12] When interpreting a statute, we have frequently elaborated that “we must consider its language, its purpose, and its legislative history, in an attempt to give effect to the legislature’s intent, with due regard for the meaning the statutory language conveys to others.”[13]

IV. DISCUSSION

The right of shareholder inspection is an important method for monitoring agent performance and enhancing principal control over corporate agents. According to a leading treatise, “the basis for the shareholder’s right to inspection is found in the ownership of shares in the corporation and the necessity of self-protection.”[14] Not only does a shareholder have “a fundamental right to be intelligently informed about corporate affairs,”[15] but the shareholder also must have a tool to ensure that the management and board of directors are “discharging their duties” in “good faith” rather than “deliberately keep[ing] the shareholders in ignorance or under misapprehension as to the true condition of affairs.”[16] Thus, the shareholder inspection right regulates the agency relationship between corporate shareholders and those whose job it is to represent shareholders’ interests at the helm of the corporation.

All corporations suffer from inherent principal-agent tensions, and shareholders need adequate tools to obtain information in order to protect their interests against predation by wayward agents.[17] On the other side of the balance, shareholders have countervailing interest in permitting the efficient operation of the corporation free from improper meddling and forced disclosure of information that might harm the shareholders.[18] Corporate law governing shareholder access to information balances both interests.[19]

Several mechanisms have been developed for providing shareholders access to corporate information, including unilateral reporting requirements[20] and the common law of statutory rights of shareholders to inspect certain corporate documents. Today, shareholders in every state have the right to inspect certain corporate documents, whether under statute, the common law, or both.[21]

This appeal raises three important groups of issues of first impression in Alaska regarding the scope of the statutory[22] inspection right created by AS 10.06.430: (1) What is the scope of the statutory right for shareholders to inspect “books and records of account”? Does that right extend beyond annual reports and proxy statements already submitted to the shareholders each year, and does it include electronically maintained books and records of account? And does the right extend to individual compensation information for corporate executives and board members? (2) What is the scope of the statutory right for shareholders to inspect “minutes”? Does that right extend beyond concise descriptions of the topics discussed and actions taken and include presentations and reports made during the meeting? (3) Under what circumstances, if any, may a corporation condition release of documents on receipt of a confidentiality agreement? What scope and confidentiality protections are reasonable in such a confidentiality agreement?

The superior court erred in its treatment of the first and third issues but correctly decided the second question.

A. The Superior Court Interpreted The Scope Of “Books and Records Of Account” In AS 10.06.430 Too Narrowly.

Alaska Statute 10.06.430(a) requires a corporation to “keep correct and complete books and records of account…in written form or in any other form capable of being converted into written form within a reasonable time.” Alaska Statute 10.06.430(b) directs a corporation to make those “books and records of account…reasonably available for inspection and copying at the registered office or principal place of business…by a shareholder of the corporation…at a reasonable time and for a proper purpose,” upon “written demand stating with reasonable particularity the purpose of the inspection.” Alaska Statute 10.06.430(b) further clarifies that “[o]nly books and records of account [and] minutes…directly connected to the stated purpose of the inspection may be inspected or copied.”

The superior court ruled that the statutory requirement to disclose books and records of account “does not require a corporation to disclose to a shareholder on request all of its financial statements [relevant to the inspection request], including monthly financial statements, budget documents, records of disbursement, check registers, payments to executives and employees, and electronic records of account.” (Emphasis in original.) Rather, the superior court reasoned that “providing the annual certified financial statements satisfied the statutory obligation…, particularly where a corporation establishes that it has no traditional accounting ledger and its electronic records are extraordinarily voluminous.”

On appeal, Pederson argues that the Corporation violated the statute by failing to disclose financial records encompassed within the statutory definition of “book and records of account” and instead substituting less-detailed annual financial reports. Pederson defines “books and records of account” as encompassing “all corporate financial books and records,” including electronically maintained financial records, and he argues that it was error for the superior court to substitute “annual reports in lieu of an actual inspection of [the Corporation’s] books and records of account.”

The Corporation responds that “books and records of account” should be defined “narrowly” because of the Corporation’s “interest in being protected against harassment,” its interest in guarding against the dissemination of confidential information, and the need to distinguish the shareholder inspection right from the broader inspection right of directors.[23] The Corporation justifies the superior court’s ruling that annual reports and proxy solicitation statements satisfied the production requirement for “books and records of account” because the Corporation “maintains no literal ‘books and records of account’; all of its financial records are maintained electronically.” Because the inspection statute “cannot possibly intend to require corporations to provide shareholders access to a computer so that they may browse the corporation’s electronic financial records,” the Corporation asks this court to conclude that the Corporation “reasonably used [annual and proxy solicitation statements] that were readily available.”[24]

Pederson replies that the Corporation’s primary argument for affirmance that electronic accounting records are voluminous and do not fall within the meaning of “books and records of account” is “a ludicrous proposition” because “[v]irtually every corporation maintains records electronically,” and such a rule would “leave shareholders with virtually no right of inspection of financial information of the Corporation that they own.” He also notes that “the inspection statute contemplates that records will be kept in other than written form and requires that they be easily convertible into written form for inspection.” Pederson reasons that if the inspection statute allows management “to simply ‘re-give’ annual reports,” then it is a nullity.

1. “Books and records of account” includes electronic records.

We reject the Corporation’s argument that it “maintains no literal ‘books and records of account'” within the meaning of AS 10.06.430 because “all of its financial records are maintained electronically.” Alaska Statute 10.06.430(a) specifically contemplates electronic storage of inspectable records, requiring a corporation to “keep correct and complete books and records of account…in written form or in any other form capable of being converted into written form within a reasonable time.” It is manifest that electronic records are included within the statutory definition of “books and records of account.”

The Corporation argues that we should avoid this holding for fear that “the statute [would] require corporations to provide shareholders access to a computer so that they may browse the corporation’s electronic financial records.” But Pederson never asked to use a computer to browse the Corporation’s accounting software. Rather, he asked for copies of documents containing specific information, copies that could be (and, under the statute, must be capable of being) printed in writing.

The Corporation also argues that the scope of “books and records of account” should be narrowly construed to protect corporate interests in confidentiality. But we decline to override clear statutory text, which includes electronic documents in “books and records of account,” on such policy grounds, especially when other avenues exist for protecting legitimate confidentiality interests.[25] Finally, the Corporation argues that electronic financial records are somehow less accessible than printed ledgers and that this alleged fact is legally relevant to the issue of what is included in “books and records of account.” But the Corporation stipulated at trial to the fact that its electronic system of financial recordkeeping “obviously [contains]…financial records, and it is possible for someone to query the system” with little effort to determine, for example, “how much did we spend on paper clips in June.” And even if electronic accounting records were somehow less accessible than traditional printed ledgers, the inaccessibility of documents is not relevant to the legal determination of what documents fall within “books and records of account,” because, as a leading treatise notes, “the corporation cannot fail to keep books and thus avoid the statutory penalty.”[26]

Alaska Statute 10.06.430(a) directs that corporations “shall keep correct and complete books and records of account.” The Corporation does so, electronically. We conclude that the electronic nature of the Corporation’s books has no bearing on the legal issue in this case: the scope of “books and records of account” under AS 10.06.430. If the Corporation is correct that Pederson was entitled to only annual and proxy reports along with the minutes, then it must find support on alternative grounds.

2. “Books and records of account” goes beyond the information contained in annual reports and proxy solicitation statements.

The phrase “books and records of account” used in AS 10.06.430 must extend beyond mere annual reports in order to give meaning to the statutory language and avoid statutory surplusage. A separate provision in the corporation code, AS 10.06.433(a), already requires that corporations send shareholders an “annual report” that “must contain a balance sheet as of the end of the fiscal year and an income statement and statement of changes in financial position for the fiscal year, accompanied by a report on the fiscal year by independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation.” To interpret AS 10.06.430(b) to require no more than what is already required by AS 10.06.433(a) would be to violate the presumption” ‘that the legislature intended every word, sentence, or provision of a statute to have some purpose, force, and effect, and that no words or provisions are superfluous.'”[27] It is especially clear that the legislature intended for the shareholder inspection requirement of AS 10.06.430(b) because both requirements were part of the same statutory section in the original 1957 statute.[28]

If the provision of annual reports could satisfy a demand to inspect “books and records of account,” several statutory limitations on the scope of shareholder’s inspection demand would make little sense, including the statutory requirements that the shareholder’s request state a “proper purpose” and that only documents “directly connected to [that] purpose” will be inspectable.[29] Those limitations make sense only if the scope of inspectable documents within “books and records of account” goes beyond mere annual reports and proxy statements, which are released to all shareholders each year.

For these reasons, at least two other jurisdictions have recognized that the shareholder right to inspect “books and records of account” extends well beyond the distinct statutory right to receive annual reports.[30] Similarly, we conclude that Pederson’s statutory right of inspection of “books and records of account” extended beyond the annual reports and proxy statements provided by the Corporation in this case. And Pederson’s statutory right of inspection was not satisfied by offering annual reports and proxy statements as substitute documents when his right reached beyond those documents.[31] “Where the right of inspection exists, refusal of it cannot be justified by proffering the shareholders a substitute…”[32]

The superior court, in holding that the annual reports and proxy statements sufficed under AS 10.06.430(b), relied entirely on the fact that the Corporation “has no traditional accounting ledger and its electronic records are extraordinarily voluminous,” concluding that it therefore should be excused from actually producing its accounting records. But as we conclude above, the electronic nature of the documents is entirely irrelevant to whether documents are inspectable “books and records of account.” Accordingly, we conclude that provision of annual reports and proxy statements did not provide an adequate substitute to furnishing the actual books and records of account inspectable pursuant to Pederson’s demand letters.

3. “Books and records of account” includes detailed accounting documents, including individual executive compensation information.

The statutory phrase “books and records of account” encompasses monthly financial statements, records of receipts, disbursements and payments, accounting ledgers, and other financial accounting documents, including records of individual executive compensation and transfers of corporate assets or interests to executives. Such information is crucial to the shareholders’ ability to monitor the performance of their corporate agents and protect their interests as shareholders.[33]

At least five of our sister states have interpreted their inspection rights to run to individual executive compensation information.[34] The Corporation identifies no cases from other jurisdictions holding that individual compensation information is not inspectable as “books and records of account.” The Corporation attempts to undermine the persuasive value of the cases holding compensation information to be inspectable by complaining that “[f]ew [of these cases] are modern” and observing that some “date from the 1930s.” But no modern cases seem to cut in the other direction. And these seminal cases interpret statutes in other states that closely resemble Alaska’s current statute. Indeed, we find it particularly persuasive that the Illinois courts have held that individual executive compensation information is inspectable pursuant to its statute[35] because Illinois’s inspection statute and the case law interpreting it formed the basis for the Model Business Corporations Act that Alaska adopted in 1957.[36]

Accordingly, we reverse the superior court’s contrary conclusions regarding the scope of “books and records of account” and remand for further proceedings in accordance with this opinion. We note that our holding does not depend on the Corporation’s status as an Alaska Native corporation or Pederson’s status as a shareholder of an Alaska Native corporation. Pederson may be correct that regulations promulgated by the State and applying to Alaska Native corporations, 3 AAC 08.345(b)(2)(A),[37] provide him with an additional proper purpose for inspection not available in the same way to shareholders of other corporations. But the Corporation does not dispute Pederson’s proper purpose on appeal. The scope of “books and records of account” relies on nothing unique to the factual circumstances of this case.

B. The Superior Court Correctly Interpreted The Meaning of “Minutes” In AS 10.06.430.

Alaska Statute 10.06.430(a) also requires a corporation to keep “correct and complete…minutes of proceedings of its shareholders, board, and committees of the board.” Alaska Statute 10.06.430(b) conveys to shareholders the right to inspect those minutes under the same conditions as it grants the right to inspect “books and records of account.”

The superior court implicitly concluded that the Corporation’s duty to disclose “minutes” was satisfied in this case when the Corporation provided Pederson with the post hoc descriptions of what was discussed and decided in board meetings but withheld presentations and reports made to the board. On appeal in this court, Pederson and the Corporation primarily focus on the meaning of “books and records of account,” addressing the meaning of “minutes” only briefly. Pederson argues that “minutes” must include “all of the documents contained in the minute books of the Corporation,” which must include “any contracts or agreements approved, or documents or reports used to reach a decision.” Specifically, Pederson claims that the actual terms of a deal transferring “millions of dollars worth of stock to two executives” must be part of the minutes in this case and that the Corporation cannot provide merely “a brief reference to the Board discussing [the deal].” The Corporation responds that the term “minutes” “is commonly understood to mean ‘the written record of an official proceeding’ ” and that minutes “generally do not encompass documents distributed to committee members before or at the meeting or copies of presentations made at meetings.”

We find no support for Pederson’s expansive definition of “minutes” in the relevant authorities. Black’s Law Dictionary defines “minutes” and “minutes book” as including notes of the proceedings of a meeting and actions taken therein.[38] A prominent treatise states that 

[t]he minutes should clearly and certainly record the transactions and proceedings as they actually occurred and should definitely and positively show what action was taken by the corporation in the matters that they purport to memorialize. As a general rule, they should show the date when the meetings were held and those present. It is not necessary to show the vote by which a matter was adopted; a recital that the matter was adopted is sufficient. It is ordinarily not essential for contracts entered into pursuant to a resolution duly adopted and recorded as such in the minutes to also be copied into the minutes. A secretary is not obligated to include everything that is said in the minutes as long as the secretary accurately transcribes what has taken place.[39]

We therefore hold that the statutory category “minutes” does not ordinarily encompass presentations or reports made to the board but rather merely requires a record of the subjects discussed and actions taken at the meeting, which must be faithfully recorded.[40] Accordingly, we affirm the superior court’s implicit definition of the meaning of “minutes” in AS 10.06.430.

C. A Corporation May Not Demand A Confidentiality Agreement That Is Unreasonably Broad In Defining The Scope Of What Is Confidential Or Contains Unreasonably Restrictive Confidentiality Provisions.

Some books and records of account and other categories of inspectable documents directly relevant to a shareholder’s demand stating a proper purpose could, if released to the general public, harm the interests of the shareholders. Several tools exist in the law to protect sensitive information within the bounds of the inspection statute. But shareholders who have established a right to inspect corporate information ordinarily may not be denied that right merely because “the information sought is of a confidential nature.”[41] And here, the Corporation demanded that Pederson accede to an unreasonable confidentiality agreement. It therefore constructively denied his inspection right to any information that he would have otherwise been entitled to receive under the statute.

Two tools for protecting against the detrimental distribution of sensitive information are particularly well established in the law. First, a corporation can challenge the inspectability of the information in the first place, such as by challenging the shareholder’s proper purpose, challenging the assertion that the information is directly connected to the proper purpose, or challenging the inclusion of the information within the category of inspectable books or records of account. In particular, the statutory requirement that a shareholder have a “proper purpose” for inspecting the requested documents[42] functions as a confidentiality protection.

Confidential information is subject to inspection only insofar as it directly relates to the shareholder’s proper purpose as a shareholder. A respected treatise notes that shareholders “are not entitled to possession of trade secrets and confidential communications unless that information affects the financial status or value of their stock in some way.”[43] Thus, “analyses or tentative studies in the nature of confidential interoffice communications” are generally not within the scope of a shareholder’s inspection right because a shareholder would generally have no proper purpose in inspecting them related to the shareholder’s interests as a shareholder.[44] This proper-purpose protection for confidential information helps to ensure that “the information will not be used to the detriment of the corporation or to give a competitor an unfair advantage.”[45] For example, we find it hard to imagine the proper purpose that a shareholder would have, as a shareholder, to inspect the secret formula for Coca-Cola. Where a corporation has a good cause to doubt a shareholder’s proper purpose,[46] the corporation may refuse to honor the shareholder’s inspection request on that ground and may raise the lack of a proper purpose as a defense to a shareholder’s claim under the statute. Or the corporation may seek declaratory relief as to the shareholder’s improper purpose and lack of entitlement to inspection.

A second well-established tool for protecting against the adverse dissemination of sensitive information is the ability of a court to condition the remedy of compelled disclosure of documents on reasonable confidentiality provisions. In the course of resolving a lawsuit about what information is subject to inspection, a court, exercising its discretion in granting the remedy of mandamus and compelling the production of records, may include reasonable protective orders safeguarding the use and dissemination of sensitive information to ensure that the information to which a shareholder has a right is used only for the shareholder’s proper purpose as a shareholder and does not do damage to the company.[47] For example, a court considering whether to issue a writ of mandamus might order that a neutral third party conduct the inspection of sensitive information,[48] include in the order terms “necessary to prevent a disclosure of the corporation’s trade or business secrets to its competitors,”[49] or provide that the parties “shall enter into such reasonable confidentiality agreement as [the corporation] may request.”[50] In some states, such as Delaware, there is even a presumption that a court will as a matter of course condition its order mandating production of confidential information on reasonable confidentiality protections.[51] But some courts, including the Delaware Court of Chancery, recognize that shareholders must be able to publicly disclose confidential information in at least some circumstances in order to effectuate their proper purposes, such as suing the corporation or its directors or officers for mismanagement, violation of disclosure rules, or for breach of a fiduciary duty.[52]

This case does not involve either of these two confidentiality protections.[53] Rather, it presents the questions when and whether a corporation may make use of a third tool: unilaterally demanding that the shareholder accede to a confidentiality agreement before the corporation releases information. The Corporation in this case demanded, as a precondition to release of any documents, that Pederson accede to confidentiality agreements that would (1) cover all of the information to be released, and (2) either hold Pederson liable for improper disclosures made by other shareholders with whom he might share the information or require Pederson to obtain confidentiality agreements with each shareholder with whom he intended to share the information. The Corporation argues that it is entitled to require such a confidentiality agreement before producing otherwise-inspectable documents. Pederson argues that the proper-purpose requirement and court-imposed remedial conditions are the only ways in which a corporation may protect sensitive information from inspection and that a corporation my not sua sponte demand a confidentiality agreement ex ante and wield refusal to accede as a shield to liability. The superior court held that the Corporation “could request a confidentiality agreement if sensitive materials were requested” so long as the term thereof were “reasonable” and that “the requested confidentiality agreement [was] reasonable.”

It may be appropriate for a corporation to demand a confidentiality agreement provided that it (1) reasonably defines the scope of what is confidential information subject to the agreement and (2) contains confidentiality provisions that are not unreasonably restrictive in light of the shareholder’s proper purpose and the corporation’s legitimate confidentiality concerns.[54] If the shareholder refuses to sign such a confidentiality agreement, the corporation may then refuse to release confidential information and either institute a declaratory action seeking a court order containing reasonable confidentiality protections.[55] or await the shareholder’s exercise of legal options. And if, as in this case, the shareholder believes that the corporation’s proffered confidentiality agreement is not reasonable, the shareholder may refuse to sign and may bring an action against the corporation alleging that the imposition of an unreasonable confidentiality agreement was a constructive denial of an otherwise-proper shareholder inspection demand.[56]

We conclude that the Corporation’s proffered agreements were not reasonable as to the scope of application and the breadth of confidentiality protections.

First, the proffered confidentiality agreements purported to subject “[a]ll” of the information to be released to the terms of the confidentiality agreement, without any attempt to differentiate between confidential and non-confidential information. We conclude that it is unreasonable to designate as confidential all information subject to an inspection request without differentiating between confidential and non-confidential portions of the requested information or explaining why the corporation has good cause to believe that all of the information sought is confidential. There are many cases interpreting the meaning of “confidential information” in the context of a court’s remedial orders pursuant to a shareholder’s inspection demand. In those cases, “confidential information” may include those documents that are “candid” in the sense of being prepared by the corporation with a reasonable expectation of confidentiality;[57] documents that reveal preliminary deliberations, assessments, or speculation rather than final action, decisions, or outcomes;[58] and documents whose confidentiality has actually been maintained.[59] “Confidential information” may exclude at least that information that the shareholder already knew, developed independently, acquired from a third party not under an obligation not to disclose the information, or acquired from the public domain.[60] Because the Corporation’s proffered confidentiality agreements in this case made no attempt to differentiate confidential from non-confidential information on a reasonable basis, we hold that the scope of the agreements was unreasonably broad. In particular, it would be difficult for the Corporation to argue that it has a confidentiality interest in the compensation it pays to its five most highly compensated officials in light of the mandatory disclosure requirements of the pertinent state regulation.[61]

Second, the proffered confidentiality agreements contained unreasonably restrictive confidentiality protections. The first proposed agreement would have permitted disclosure “to other shareholders” and their agents but would have made Pederson liable to the Corporation for unauthorized disclosure by those third parties. The second proposed agreement would have been permitted disclosure to proper third parties but would have required Pederson to “obtain…a confidentiality agreement…that subjects [the person to whom Pederson seeks to disclose confidential information] to the same restrictions imposed on [Pederson] in this Agreement.” The superior court concluded that it was reasonable for the Corporation’s final draft confidentiality agreement to require Pederson to obtain a confidentiality agreement form each shareholder before disseminating confidential information to that shareholder, reasoning that without such protections, the confidentiality agreement would be “a nullity.” But Pederson maintains that the confidentiality restrictions in both drafts were unreasonably restrictive of his proper purpose of organizing this fellow shareholders to alter corporate governance to restrict the transactions that he alleges have occurred.

We conclude that the confidentiality provisions in both the first and second proffered confidentiality agreements were unreasonably restrictive, at least as they related to executive compensation and stock interests, and they would have placed a great burden on Pederson’s exercise of his proper purpose of making use of disclosed information to organize his fellow shareholders to restrict those types of transactions. The marginal benefits of the confidentiality restrictions to the Corporation’s interests in maintaining confidentiality regarding executive compensation did not outweigh those harms.[62] Again, this is particularly true given the state regulation that requires the corporation to disclose the compensation of its five most highly compensated executives.[63]

Accordingly, we reverse the superior court’s contrary findings of fact and conclusions of law regarding the reasonableness of the confidentiality agreements in this case and remand for further proceedings in accordance with this opinion.

V. CONCLUSION

For these reasons, we REVERSE the superior court’s judgment, VACATE the superior court’s findings of fact and conclusions of law, and REMAND for further proceedings consistent with this opinion.

ORDER ON MOTION TO DISMISS

On September 12, 2014 the deceased, Darrell J. Totemoff, executed a Chugach Alaska Corporation (“Chugach Alaska”) stock will. In the will, Mr. Totem off identified himself, identified his beneficiaries, and identified the number of shares each beneficiary was to receive. In addition, Mr. Totemoff identified the location at which he executed the will. However, Mr. Totemoff did not have the will notarized. Because the will was not notarized, Chugach Alaska Corporation has refused to honor it.

Petitioners now seek to admit the stock will to probate as a holographic will under AS 13.12.502(b). But under a different statute, AS 13.16.705, the Chugach Alaska Corporation, not a probate court, must determine who receives Mr. Totemoff’s Chugach Alaska stock in the first instance. The stock is not part of the estate and therefore “not subject to probate.” AS 13.16.705(a). If Petitioners disagree with Chugach Alaska’s decision, they may file an independent action with the superior court. Id. Accordingly, Chugach Alaska’s Motion to Dismiss is GRANTED.

Alaska courts interpret the law “according to reason, practicality, and common sense, taking into account the plain meaning and purpose of the law as well as the intent of the drafters.” Native Village of Elim v. State, 990 P.2d 1, 5 (Alaska 1999). “In general, if two statutes conflict, then the later in time controls over the earlier, and the specific controls over the general.”[1] Allen v. Alaska Oil & Gas Conservation Comm’n, 147 P.3d 664, 668 (Alaska 2006). However, the court must interpret potentially conflicting statutes “with a view toward reconciling conflict and producing a harmonious whole.” Id.

Here, AS 13.06.065 establishes the probate jurisdiction of the superior court, while AS 13.16.705 specifically addresses testamentary transfers of Native corporation stock. Under AS 13.06.065, the court has jurisdiction over “estates of decedents, including construction of wills and determination of heirs and successors.” Petitioners claim this provision authorizes the court to admit Mr. Totemoff’s stock will to probate. But AS 13.16.705 provides that the “common stock or other alienable stock” of a Native Corporation is not “subject to probate” and may not be considered “in determining the value of an estate or allowance.” Thus, the statutory language suggests that Mr. Totemoff’s Chugach Alaska stock is not part of the estate. If the stock is not part of the estate, it does not fall within the Court’s probate jurisdiction, which extends only to “estates of decedents.”[2]

The legislative history of AS 13.16.705 supports this interpretation. The Legislature enacted AS 13.16.705 to implement the Alaska Native Claims Settlement Act (ANCSA). ANCSA, which settled various claims by Native Alaskans on aboriginal territory, aimed to ensure the economic well-being of Native communities and preserve the Native Alaskan way of life. See 43 U.S.C. §§ 1601-07. To that end, ANCSA restricted transfers of Native Corporation stock. Id. § 1606. However, ANCSA left the State free to determine how stock would pass upon the death of a shareholder. Id. § 1606(h)(2)(A) (providing that stock in a Native Corporation shall pass “in accordance with the lawful will of [the shareholder] or pursuant to the applicable laws of intestate succession”).

In direct response to the latter aspect of ANSCA, AS 13.16.705(a) unambiguously declares that Native Corporation stock is “not subject to probate” and may not be included in the estate. Instead, the stock should pass by either a testamentary form on the back of the stock certificate, or a separate form that “substantially satisfies” the requirements of the statute and is “distributed to the same extent as the [stock] certificate.” Id. If the stock does not pass by either the stock certificate or an equivalent form, the Native corporation that issued the stock-in this case, Chugach Alaska-must determine who is entitled to the stock based on an affidavit, furnished to the Native corporation or its agent, “showing the right of the person entitled to the stock to receive it.” Id. If the Native corporation accepts the affidavit and transfers the stock, it is “discharged and released to the same extent as if [it] dealt with a personal representative of the decedent.” AS 13.16.685. If the Native corporation refuses to transfer the stock as requested in the affidavit, the party requesting the transfer may file “an independent action in the superior court.” AS 13.16.705(a).

AS 13.16.705 establishes the exclusive procedure for distributing Native Corporation stock upon the death of a shareholder. Contrary to Petitioners’ assertions, AS 13.06.065 – which broadly declares that the court has jurisdiction over “estates of decedents” – does nothing to alter this statutory scheme. As discussed above, Native corporation stock may not be considered “in determining the value of an estate or allowance.” The Native Corporation must decide, in the first instance, who inherits the stock. Because Chugach Alaska has refused to honor Mr. Totemoff’s stock will, it must now dispose of the stock on the basis of an affidavit from the party entitled to receive it. AS 13.16.705(a). In other words, Petitioners must submit an affidavit to Chugach Alaska showing that they are entitled to inherit Mr. Totemoff’s stock. If Petitioners disagree with Chugach Alaska’s subsequent decision, they may tile an action with the Superior Court. Id.

Petitioners argue that the court, not Chugach Alaska, must determine the “validity or lawfulness” of Mr. Totemoff’s stock will. Memorandum in Support of Response to Motion to Dismiss at 6. But there is no need, at this juncture, for a probate court to determine the validity of the will. The Legislature enacted AS 13.16.705, to ensure that the Native community, and not the State, retained primary authority over inheritance of Native corporation stock. See, e.g., Alaska House Judiciary Committee Minutes of the Meeting, Thursday, April 6, 1972, Statements of Rep. Jackson at 162. Thus, the legislature chose to prioritize the legitimacy of inheritance decisions among Native communities over the legal sufficiency of testamentary documents. The Legislature anticipated that many documents purporting to transfer Native Corporation stock after death would not satisfy the requirements for a legally valid will. Id. Nonetheless, AS 13.16.705 demonstrates a clear legislative intent to give effect to such documents. Petitioners’ interpretation of the statutes would render AS 13.16.705 meaningless because disposition of Native Corporation stock would not differ in any significant way from an ordinary probate proceeding.

Because Mr. Totemoff’s Chugach Alaska stock is separate from the estate, Chugach Alaska, and not the court sitting in probate, must decide whether Petitioners are entitled to Mr. Totemoff’s stock. If Petitioners disagree with Chugach Alaska’s decision, they may file and independent action with this court. Chugach Alaska’s Motion to Dismiss is GRANTED.

ORDERED this 26th day of April, 2016, at Anchorage, Alaska.

Andrew Guidi
Superior Court Judge

The Director of the Department of Commerce, Community, and Economic Development, Division of Banking and Securities (“Administrator”), has conducted an investigation into certain activities of Sitnasuak Native Corporation (“Respondent”), and has determined that Respondent violated certain provisions of the Alaska Securities Act, Alaska Statute (AS) 45.55.

The Administrator had jurisdiction over Respondent and these matters pursuant to the Alaska Securities Act.

Respondent wishes to resolve and settle this matter with the Administrator. As evidenced by the authorized signature on this Order, Respondent consents to the entry of this Order assessing civil penalties based on the Conclusions of Law and Order. Respondent waives its right of appeal under AS 45.55.920(d).

I. Findings of Fact

1. Respondent is a corporation organized pursuant to the Alaska Native Claims Settlement Act (“ANCSA”), 43 U.S.C. 1601 et seq., and maintains an address at 400 Bering St., Nome, Alaska, 99762.
2. Pursuant to AS 45.55.139, ANCSA corporations with 500 or more shareholders and total assets exceeding $1,000,000 must file with the Administrator all annual reports, proxies, consents or authorizations, proxy statements, or other proxy solicitations distributed and made available by any person to 30 or more Alaska resident shareholders concurrently with distribution of those materials to shareholders.
3. Respondent has certified to the Administrator that it has more than 500 shareholders and total assets exceeding $1,000,000.
4. Pursuant to 3 AAC 08.345(b)(1)(F), Respondent’s board of director proxy solicitations must be preceded or accompanied by a dated, written proxy statement that includes, if action is to be taken on the election of directors, a description of each nominee of the board who has consented to act if elected and of each director whose term of office will continue after the shareholders’ meeting, including a description of the nominee and/or director’s business experience during the last five years, including principal employment or occupation and employer.
5. On February 28, 2014, Trudy Sobocienski submitted a candidate questionnaire for Respondent’s 2014 board of directors election. In her questionnaire, Ms. Sobocienski disclosed that she had been the Chief Executive Officer of Deloycheet, Inc. from 2010-2012. However, Respondent did not disclose Ms. Sobocienski’s employment with Deloycheet in its 2014 Notice of Annual Meeting & Proxy Statement. Ms. Sobocienski was subsequently elected to the board of directors.
6. On February 17, 2015, Ms. Sobocienski submitted a current board member questionnaire for Respondent’s 2015 board of directors election. In her questionnaire, Ms. Sobocienski again disclosed that she had been the Chief Executive Officer of Deloycheet, Inc. from 2010-2012. However, Respondent again did not disclose Ms. Sobocienski’s employment with Deloycheet in its 2015 Notice of Annual Meeting & Statement.
7. Respondent has fully cooperated with the Administrator in its investigation into this matter.

II. Conclusions of Law

1. Respondent is subject to the filing requirements of AS 45.55.139.
2. Respondent violated 3 AAC 08.345(b)(1)(F) by failing to disclose Ms. Sobocienski’s employment as Chief Executive Office of Deloycheet, Inc. from 2010-2012 in its 2014 and 2015 Notice of Annual Meeting & Proxy Statements.
3. Respondent is subject to a civil penalty pursuant to AS 45.55.920(c) because it violated 3 AAC 08.345(b)(1)(F).

III. Order

Pursuant to AS 45.55.920, and on the basis of the Findings of Fact, Conclusions of Law, the Administrator ORDERS Respondent to:

1. CEASE AND DESIST from omitting mandatory disclosures in its proxy solicitations.
2. Comply with all provisions of the Alaska Securities Act, including associated regulations.
3. Pay a civil penalty in the amount of one thousand dollars ($1,000).[1]

IT IS SO ORDERED.

Chris Hladick, Commissioner
Department of Commerce, Community and Economic Development

Dated February 22, 2016
BY: Kevin Anselm, Director
Divisions of Banking and Securities

Consent to Entry of Order

I, Richard Strutz, state that I am the CEO of Sitnasuak Native Corporation (“Sitnasuak”); that I am authorized to act on its behalf; that I have read the foregoing Order and that I know and fully understand the Order contents; that Sitnasuak has been represented by counsel in this matter; that Sitnasuak has been advised of the right of a hearing; that Sitnasuak voluntarily and without any force or duress, consents to the entry of this Order; that Sitnasuak expressly waives any right to a hearing in this matter; that Sitnasuak understands that the Administrator reserves the right to take further actions to enforce this Order or to take appropriate action upon discovery of other violations of the Alaska Securities Act; that further similar violations may result in a prefiling requirement under AS 45.55.920(a)(1)(B); and that Sitnasuak will fully comply with the terms and conditions stated herein.

Sitnasuak understands that this Order is a publicly disclosable document.

Dated 2-9-16
Richard Strutz
Sitnasuak Native Corporation
CEO

SUBSCRIBED AND SWORN TO before me this 9th day of February, 2016 at Sitnasuak NC.
Rebecca Neagle, Notary Public
My commission expires May 8, 2018

Approved as to form and content:
February 17, 2016
Brian Duffy
Attorney for Sitnasuak Native Corporation

Contact Person:
David Newman
Securities Examiner
(907)269-7678

I. Introduction

Robert J. Heinrichs, Derenty Tabios, and Robert E. Burk are shareholders and former directors of Chugach Alaska Corporation who ran for election to the Chugach board in 2005. These former directors sued Chugach because their names were excluded from the board’s corporate proxy materials and because Chugach did not provide them with shareholder information for their own proxy campaigns within the time frame they demanded. The superior court granted Chugach summary judgment on all claims and the former directors now appeal. We affirm because Chugach was not required to deliver the information the former directors demanded and because Chugach’s conduct did not otherwise violate their rights as board candidates.

II. Facts and Proceedings

Chugach is a corporation organized under Alaska law; its principal place of business is in Anchorage. Chugach’s governing body is a nine-person board of directors whose members serve staggered, three-year terms. The shareholders nominate and elect three directors each October at Chugach’s annual shareholders’ meeting.

For each annual meeting, Chugach uses a proxy system that allows shareholders to vote for board directors without attending the meeting in person. Shareholders send written proxies to Chugach’s Inspector of Elections, giving the proxy committee the authority to vote the shareholders’ shares on their behalf. On the proxy, a shareholder indicates the candidate or candidates for which the shareholder wants to vote.

Prior to each meeting, Chugach’s board of directors solicits proxies from the shareholders. Each shareholder receives from the board a proxy statement explaining the proxy system, a voter’s guide providing information about candidates, and a proxy form. The proxy form gives the shareholder the option to vote for a board-endorsed slate of candidates or to allocate votes among candidates of the shareholder’s choice. Submitting an eligible and timely proxy typically makes a shareholder eligible for cash prizes.

The proxy committee of Chugach’s board, composed of the directors not running for reelection, reviews the applications of candidates who wish to be endorsed by the board and included in the proxy materials. It then recommends candidates to the board, which decides whether to endorse the candidates in the proxy materials.

Henrichs and Tabios were members of Chugach’s board of directors leading up to the October 15, 2005 shareholders’ meeting, at which time their seats were set to expire. Each sought reelection. Burk had previously served as a director for Chugach, and he also ran for election.

All three men applied to be board-endorsed candidates. The board rejected their applications and informed them that their names would not be included in Chugach’s corporate proxy material. The board also informed them that they could run as independent candidates and distribute their own proxy materials.

On August 21, 2005, Heinrichs sent a letter to Chugach requesting a list of shareholder addresses and the number of shares owned by each shareholder. Burk and Tabios also sent letters to Chugach requesting the shareholder list. On September 1, after receiving no reply, Henrichs filed suit in the superior court, claiming AS 10.06.430 and AS 10.06.450(d) required Chugach to provide the shareholder information he sought. Tabios joined the suit as a plaintiff five days later on September 6.

On September 7 Chugach emailed to Henrichs, Tabios, and Burk shareholder lists that included the names, the number of shares held, and the addresses for all shareholders. The emails explained that the record date — the date for determining the shareholders entitled to vote at the 2005 annual meeting — was the previous day, and that the shareholders lists were finalized at that time.

Chugach made its first motion for summary judgment on September 9, claiming it had provided all of the information that Henrichs and Tabios requested.

In the meantime, Chugach proceeded with preparations for the 2005 annual meeting. On September 9 Chugach sent out its proxy materials, which did not include the information for Henrichs, Tabios, or Burk. The three men ran independent campaigns: Henrichs and Burk wrote letters to the election inspector asking to inspect the ballots cast at the annual meeting, but the inspector declined, citing the proxy rules that required board approval to inspect the ballots after the adjournment of the meeting.

In December 2005 the former directors filed an amended complaint adding Burk as a plaintiff and adding various challenges to the 2005 election.

The following year, Burk and Henrichs requested shareholder information for the 2006 annual meeting. Their letters requested that Chugach provide the shareholder lists in an electronic file, including each shareholder’s telephone number and email address. In response, Chugach emailed to Burk and Henrichs an electronic spreadsheet containing the names, mailing addresses, number of shares, and voting status of all shareholders. But Chugach declined to provide the shareholders’ telephone numbers and email addresses.

At an August 2006 hearing, the superior court granted Chugach’s first motion for summary judgment. It ruled that Chugach provided the shareholders lists within a reasonable amount of time and that the former directors had not attempted to inspect the shareholder list at the corporation’s registered office or principal place of business as required. The superior court also accepted the former directors’ amended complaint. The former directors then filed another amended complaint, adding claims relating to Chugach’s refusal to provide the shareholders’ email addresses and phone numbers in 2006.

On November 17, 2006, Chugach filed a motion to dismiss all but two of the former directors’ claims. Chugach attached thirteen exhibits to the memorandum in support of the motion. The superior court granted the former directors three extensions of time to file their response. But eventually, the superior court granted the motion — about two months after the third deadline passed without any response and more than a month after Chugach notified the court that the motion was ripe.

The court’s order dismissed all of the former directors’ claims with the exception of one relating to Chugach’s “early bird prize” for prompt proxy returns and another relating to Chugach’s election rule requiring that proxies be separately returned by mail. The court later clarified that it had treated the motion “as a summary judgment motion” even though the motion was labeled as a motion to dismiss. Three days after the motion was granted, the former directors filed a late opposition, attaching 25 exhibits. They also requested reconsideration of the order dismissing their claims, which the court denied.

The court later granted Chugach summary judgment on the two remaining claims and entered a final judgment against the former directors. The former directors now appeal.

III. Discussion

A. Standard of Review

“We review the grant of a summary judgment motion de novo, affirming if the record presents no genuine issue of material fact and if the movant is entitled to judgment as a matter of law.”[1] This de novo standard applies even when the motion is not opposed in the trial court.[2] “The interpretation of a statute is a question of law to which we apply our independent judgment, interpreting the statute according to reason, practicality, and common sense, considering the meaning of the statute’s language, its legislative history, and its purpose.”[3]

B. The Superior Court Did Not Err When It Granted Summary Judgment To Chugach.

The former directors do not identify any disputed issues of fact that precluded summary judgment; instead, they advance numerous legal theories for why Chugach’s conduct surrounding the 2005 and 2006 elections violated their rights. The former directors also argue that the superior court erred in treating Chugach’s motion to dismiss as a summary judgment motion without giving them notice, and in “taking a default against” them because the motion was unopposed.

1. General principles of corporate law

The former directors argue that by favoring the board candidates, Chugach violated fundamental democratic principles established by public election cases[4] and rules of equity that promote fair shareholders’ meetings.[5] But we conclude that we should refer to the Alaska statutes and regulations, and corporate bylaws that more directly relate to the questions raised in this appeal.

The bylaws of a corporation may contain any provision “not in conflict with law or the articles of incorporation,” including “the time, place, and manner of calling, conducting and giving notice of” shareholders’ meetings and “the manner of execution, revocation, and use of proxies.”[6] Article II of Chugach’s bylaws gives the board of directors the authority to conduct shareholders’ meetings and to adopt rules for shareholder meetings, the election of directors, and “the solicitation, filing, and examination of proxies.”

A director of a corporation such as Chugach generally must exercise corporate 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.”[7]

2. Shareholder list issues

The former directors argue that Chugach failed to provide the shareholder information they sought in 2005 within a reasonable time, violating their right to information as directors under AS 10.06.450(d)[8] and their right to information as shareholders under AS 10.06.430(b).[9] Chugach argues that it provided the information within a reasonable time, two days before it mailed out its own proxy statement and the notice of the annual meeting. The superior court rejected the former directors’ arguments and granted summary judgment to Chugach on two alternative theories: (1) It concluded that Chugach provided the information within reasonable amount of time; and (2) it concluded that the former directors had not “follow[ed] through on their stated intention… to seek to inspect the shareholder list at the place of the registered office or principal place of business.”

Under AS 10.06.430(a), Chugach was required to keep “a record of its shareholders, containing the names and addresses of all shareholders and the number and class of the shares held by each.” And under AS 10.06.430(b), Chugach was required to make that record “reasonably available for inspection and copying” at the corporate office by a shareholder “upon written demand stating within reasonable particularity that purpose of inspection.” Also, under AS 10.06.450(d), any director of Chugach had “the absolute right at a reasonable time to inspect and copy all books, records, and documents of every kind.” Both AS 10.06.430(b) and 10.06.450(d) allow for inspection “in person or by agent or attorney.”

As the superior court noted, the former directors did not seek to inspect the shareholder information at Chugach’s corporate office.[10] The former directors argue that AS 10.06.430(b) and 10.06.450(d) require the corporation to actively deliver the shareholder records to directors or shareholders who request them.

“[T]he threshold question in ascertaining the correct interpretation of a statute is whether the language of the statute is clear or arguably ambiguous.”[11] The language of these statutes is clearly contrary to the former directors’ position. Under AS 10.06.450(d), directors have only the right to “inspect and copy” books, records, and documents. And AS 10.06.430(b) provides shareholders with a right only to “inspection and copying.” There is no mention in either statute of a right to have books, records, or documents delivered — electronically, by mail, or otherwise. The statutes require only that corporations permit directors and shareholders to inspect and copy the records in question.[12]

We therefore do not need to reach the issue of whether the time frame within which Chugach provided the former directors the shareholder information was reasonable. We hold that summary judgment was appropriate on the claims made under AS 10.06.430(b) and 10.06.450(d) because the former directors did not attempt to inspect and copy the 2005 shareholder records as required by these statutes.

The former directors also argue that these statutes required Chugach to provide the shareholders’ phone numbers and email addresses in 2006. Our holding that these statutes only require corporations to permit inspection of corporate records disposes of this argument. But we also note that none of the former directors was a Chugach director in 2006, and that they therefore had no rights under AS 10.06.450(d) at that time. We also note that AS 10.06.430(a) does not require a corporation to keep phone numbers and email addresses in its shareholder record, so AS 10.06.430(b) does not require corporations to permit shareholder inspection of that information.

3. Conversion of the motion to dismiss into a motion for summary judgment

After the superior court had entered summary judgment on the shareholder list issues, Chugach filed a motion asking the court to dismiss all but two of the remaining claims. The motion was labeled as a motion to dismiss, but it was supported by 13 exhibits. The critical exhibits were duplicates of exhibits that had been filed by the former directors in support of their motion for partial summary judgment the previous January. These exhibits included Chugach’s articles of incorporation, its bylaws, its proxy rules, the notice of the 2005 annual meeting, the 2005 voter’s guide, Chugach’s 2005 proxy form, its 2004 annual report, and the former directors’ requests to inspect the election ballots.[13]

The arguments in the motion to dismiss relied on these apparently uncontested exhibits. The essence of Chugach’s arguments was that the legal rules embodied in these corporate documents authorized the board’s actions with respect to the shareholders’ meetings discussed above. The memorandum attached to the motion noted that Alaska Civil Rule 12(b) permitted the court to treat the motion as one for summary judgment, and stated that summary judgment should be entered in favor of Chugach if there was no genuine issue as to any material fact and if Chugach was entitled to judgment as a matter of law.

Several months passed. The former directors submitted three motions for extension of time, but they filed no response to the motion even two months after the deadline they suggested in their final request. On March 27, 2007, the court granted the motion to dismiss on the form provided by Chugach.

Three days after the order of dismissal, the former directors filed an untimely response. Their response referred to the 25 exhibits that they had filed in January 2006, including the main exhibits that Chugach relied on in its motion to dismiss. The former directors also submitted 25 additional exhibits, enclosed with a cover notice that indicated that the exhibits were submitted pursuant to Alaska Civil Rule 56.

In the untimely opposition, the former directors objected to summary judgment and requested additional discovery, but they gave no indication about exactly what discovery they were requesting, nor did they explain what steps they had already taken to conduct discovery.[14] The text of their argument depended on exhibits — the exhibits attached to Chugach’s motion and those attached to the former directors’ response. The response did not include any indication that the former directors controverted the facts stated in the exhibits attached to Chugach’s motion; in fact, the former directors asked the court to consider the exhibits they had filed in January 2006 because they “provide[d] a factual basis for denying the pending motion to dismiss.”

The former directors now argue that the superior court erred in treating Chugach’s motion to dismiss as a summary judgment motion without giving them prior notice, and in “taking a default against” them because the motion was unopposed. Chugach argues that the former directors had adequate notice that the motion to dismiss would be treated as a summary judgment motion, and that the superior court appropriately considered the motion’s merits rather than granting it simply by default.

Alaska Civil Rule 12(b) provides that, on a motion to dismiss, if “matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided by Rule 56.” It further provides that if a motion to dismiss is treated as a summary judgment motion, “all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.”

In other words, the superior court should give the non-moving party advance notice that a motion to dismiss has been converted to a motion for summary judgment so that the party can file an appropriate response.[15] When the superior court decides a motion under Rule 12(b)(6) without stating whether it is considering attached materials, this court has three options: “[W]e may reverse and remand for proper consideration, or we may review the superior court’s decision as if the motion for dismissal had been granted after exclusion of outside materials, or as if summary judgment had been granted after conversion of the motion to dismiss into one for summary judgment.”[16]

In this case, the superior court did not give the former directors any prior notice that it was converting the motion to dismiss into a motion for summary judgment. We must then determine whether that lack of notice prejudiced the former directors when they responded to the motion to dismiss. The critical issue is whether the former directors, as the non-moving party, “could have availed themselves of the opportunity to present evidence to oppose [the] motion if the superior court had expressly invited them to do so.”[17]

As noted above, the former directors told the court they “ha[d] not yet had their discovery” and argued that the court had to give them “an adequate opportunity… to submit additional proofs.” But the former directors filed their own motion for summary judgment on all of their claims — even those disposed of by the superior court’s March 2007 order — in late July 2007, months after they filed their untimely response. The July 2007 motion relied upon the same exhibits they attached to their untimely response to Chugach’s motion to dismiss, including the exhibits they had filed in January 2006. In other words, they produced no new evidence even after they had a full opportunity to conduct discovery. From this we conclude that the former directors would not have submitted additional evidence, even if they had been given an express opportunity to do so.[18]

In this appeal, the former directors have asked us to review substantively most of the issues that the superior court decided in the converted motion to dismiss. As we determine these issues, we consider all of the exhibits that the former directors submitted, including those filed after the superior court entered its order granting Chugach’s motion to dismiss. None of these exhibits raises any material issues of fact precluding summary judgment. Because we conclude that summary judgment was properly granted, the former directors suffered no prejudice from the conversion.

The former directors also argue that the superior court’s written addendum showed that the court entered summary judgment by default because of their failure to file a timely response to Chugach’s motion. Summary judgment should never be granted by default: A motion for summary judgment may be granted only if it is “otherwise appropriate” under Civil Rule 56(c).[19] But the superior court explained that it did not grant the motion by default; the court was convinced that there were no genuine issues of fact and that Chugach was entitled to judgment as a matter of law. We agree with the superior court’s conclusions.

4. Proxy statement issues

The former directors make a number of arguments about the propriety of Chugach’s 2005 proxy statements. They argue that Chugach failed to disclose that the election was contested and omitted the former directors’ names in its proxy materials, thereby violating Alaska law. Chugach argues that it was not required to include the former directors’ names in its proxy literature.

As a corporation under the Alaska Native Claims Settlement Act (ANCSA),[20] Chugach is subject to Alaska’s proxy regulations for ANCSA corporations[21] but not federal proxy regulations. Under the state regulations a proxy statement may not contain any material misrepresentations.[22] Also, a corporate board’s proxy statement must include “a description of each nominee of the board… and of each director whose term of office will continue after the shareholders’ meeting.“[23]

Chugach was not required to include the former directors in the proxy statement because the board did not nominate them. And although Henrichs and Tabios were incumbent directors, Chugach was not required to include their names because their terms were scheduled to expire and therefore would not “continue after the shareholders’ meeting.”

The former directors also argue that Chugach’s 2005 proxy statement did not disclose the compensation for the chairman and directors and other financial information about the corporation. The proxy regulations do require a statement of the individual compensation for the five most highly compensated officers.[24] But Chugach’s 2005 proxy statement complied with this regulation, listing the compensation for the corporation’s president and chief executive officer, its chief financial officer, its vice president, its controller, and its director of government services.

The proxy regulations also require a statement of remuneration for all officers and directors as a group “without naming them.”[25] Chugach’s 2005 proxy statement complied with this regulation, stating the “total remuneration distributed or accrued to the 27 officers and directors of [Chugach] and its subsidiaries during the fiscal year.”

The former directors also argue that the proxy statement did not state the net value per share of stock. But a statement of value per share is not required by the proxy regulations.[26] Nonetheless, Chugach provided equivalent information: The proxy statement provided the number of shares outstanding, and the annual report stated the total value of the shareholders’ equity. In summary, the proxy statement complied with all of the applicable proxy regulations regarding notice of compensation and other financial data.

The former directors also argue that Chugach acted illegally when it offered eligibility for early-bird prizes to shareholders who returned their proxies for “any proxy holder or candidate” by September 23, 2005.[27] They argue that this incentive is an illegal “distribution” in violation of various sections of the corporations code that discourage discrimination between holders of shares of the same class and series of stock.[28] They also argue that the prizes were “vote buying” and that the deadline for eligibility was unfair.

A shareholder “distribution” is defined as “the transfer of cash or property… without consideration, whether by ways of dividend of otherwise.”[29] The prizes are not “distributions” under this definition because eligibility for the prizes was granted in exchange for consideration: the early return of a valid proxy.[30]

Chugach’s bylaws authorize this type of incentive (and the corresponding deadline) under the board’s authority to adopt rules for the solicitation of proxies, and the incentive did not favor any candidate.

5. Other shareholders’ meeting claims

The former directors also make a number of arguments in connection with the 2005 shareholders’ meeting. They argue that the staggered terms for Chugach board members were illegal. But staggered terms are expressly permitted by AS 10.06.455(a).[31]

The former directors argue that Chugach “delays its annual meetings so far after the close of its fiscal year that shareholders do not have current financial data with which to evaluate the incumbents.” But there is nothing in the record indicating that Chugach violated the requirements for distribution of its annual report.[32] And the law dealing with the scheduling of shareholders’ meetings provides only that meetings “shall be held at the time as provided in the bylaws.”[33] Chugach’s bylaws provide that the annual meeting will be held on the “second Saturday in October of each year,” and that is when the meeting was held in 2005.

The former directors argue that their right to inspect corporate records included a right to review and inspect the ballots from the election held at the 2005 annual meeting, and that Chugach violated that right. But Chugach’s proxy rules provided that “after adjournment of the annual meeting” the inspector was required to maintain the ballots and to prohibit inspection “except upon written authorization from the Corporation in the form [of] a certified board resolution.” This rule falls within the board’s authority to provide for the election of directors.[34] Henrichs and Burk each wrote letters to the election inspector requesting to inspect the ballots cast at the meeting, but neither sought authorization from the board.

The motion to dismiss we discuss in section III.B.3 above included two claims that the former directors did not separately address in their appeal brief — claims related to a one-day change in the proxy deadline and assertions in Chugach’s supplemental proxy statement. We see no prejudice in the conversion of the motion with respect to these issues. The proxy rules expressly permitted the board of directors to change the time by which proxies were due. The former directors suffered no prejudice from the change in the proxy deadline because the new date conformed to the deadline printed on their own proxy statements.

With respect to the supplemental proxy statement, the former directors alleged in their amended complaint that the statement cast their lawsuit in an unfair light. But in their untimely response to the motion to dismiss, they failed to discuss this issue at all. We have independently reviewed the record and find no issue of fact precluding summary judgment on this claim.

The former directors make various other complaints about Chugach’s conduct regarding the annual meeting. But none of these complaints appears to involve misconduct that violated any provision of Alaska law or the corporate bylaws.

IV. Conclusion

For these reasons we AFFIRM the superior court’s orders granting summary judgment and dismissing the former directors’ claims against Chugach Alaska Corporation.

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

I. INTRODUCTION

Plaintiffs seek to enforce a settlement agreement. The superior court determined that the agreement is unenforceable because the agreement’s stock repurchase provision violates the Alaska Native Claims Settlement Act’s (ANCSA) prohibition on the alienation of shares. Because we conclude that transfer of ANCSA stock back to a Native corporation in exchange for stock in a newly created corporation violates ANCSA, we affirm.

II. FACTS AND PROCEEDINGS

The Tetlin Native Corporation (TNC) is a village corporation formed pursuant to ANCSA and organized as an Alaska business corporation. On July 17, 1996, TNC transferred approximately 643,174 acres of its land to the Tetlin Tribal Council.[1] This left TNC with 100,000 acres of land.

Subsequently, the appellants, Shirley Jimerson and Ramona David, conducted a campaign to recall TNC’s board of directors. The campaign was successful, and on January 12, 1999, Jimerson and David were elected to the board.

On March 15, 1999, TNC and Jimerson and David, as directors and individual shareholders (collectively Jimerson),[2] filed a complaint in Alaska Superior Court in Fairbanks against certain shareholders and directors of TNC. The complaint alleged breach of fiduciary duties and wrongful transfer of TNC land, and requested $257,200,000 in damages and declaratory and injunctive relief. On April 20, 1999, the case was removed to the United States District Court for the District of Alaska.

On August 6, 1999, the Jimerson board was recalled. The new board passed a resolution that TNC dismiss all law suits brought by the Jimerson board. On October 6, 1999, TNC moved to dismiss without prejudice all claims it had against the shareholders and former and current directors of TNC. The district court denied TNC’s motion to dismiss and urged the parties to reach a settlement.

The court’s advice bore fruit, and the parties reached a settlement agreement. In August 2001 the district court approved the agreement and entered judgment on it.[3] The settlement agreement acknowledged that TNC shareholders may not have been fully informed regarding dissenters’ rights in the 1996 land transfer and provided for

[a] transfer of a portion of Tetlin Native Corporation’s remaining lands . . . to a new corporation to be formed by dissenting shareholders . . . who elect to transfer their shares of Tetlin Native Corporation ANCSA stock back to the corporation in exchange for shares in the new corporation.

In May 2003 Jimerson filed a motion in district court to enforce the settlement agreement. TNC opposed the motion and moved for relief from the judgment, contending that the district court lacked subject-matter jurisdiction. The district court concluded that the case presented no substantial federal question and declared the judgment based on the settlement agreement void for lack of jurisdiction. The case was then remanded to the superior court.

On February 23, 2004, Jimerson filed a motion in the superior court to enforce the settlement agreement. TNC opposed the motion, arguing that the settlement agreement was unenforceable as against public policy for three reasons: (1) the agreement provided for an exchange of shares in violation of ANCSA ‘s prohibition on alienation, (2) the agreement violated the Alaska Corporations Code, and (3) the attorney for plaintiffs had a conflict of interest.

On June 18, 2004, the superior court denied Jimerson’s motion to enforce the settlement agreement on the grounds that the agreement was unenforceable because it violated ANCSA ‘s prohibition on alienation.[4]

Jimerson appeals this denial.

III. DISCUSSION

We have adopted the Restatement principle that “[a] promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable . . . .”[5] This court has “no power, either in law or in equity, to enforce an agreement which directly contravenes a legislative enactment.”[6]

The issue before this court is whether the transaction contemplated by the settlement agreement is prohibited by ANCSA . The settlement agreement transferred a portion of TNC’s remaining land to a new corporation and then allowed “dissenting shareholders” to “transfer their shares of Tetlin Native Corporation ANCSA stock back to the corporation in exchange for shares in the new corporation.”

Issues of statutory interpretation are questions of law which we review de novo.[7]

ANCSA section 7(h)(1)(B) prohibits ANCSA stock from being sold, pledged, assigned, or otherwise alienated, subject to exceptions set out in section 7(h)(1)(C).[8] ANCSA does not define the term “alienated,” and this court has not had occasion to interpret the term. “[U]nless words have acquired a peculiar meaning, by virtue of statutory definition or judicial construction, they are to be construed in accordance with their common usage.”[9] Black’s Law Dictionary defines “alienate”: “To transfer or convey (property or a property right) to another.”[10] Webster’s defines “alienate”: “to convey or transfer (as property or a right) [usually] by a specific act rather than the due course of law.”[11] The settlement agreement contemplates that dissenting shareholders “transfer” their ANCSA shares to TNC. Dissenting shareholders do not retain any right or interest in their ANCSA shares. The language of the statute suggests that the term “alienate” includes transfer of ANCSA stock back to a village corporation in exchange for stock in a newly created corporation.

Jimerson argues that the specific prohibitions listed in subsection 7(h)(1)(B)(i)-(v) do not apply to organic changes such as the share exchange contemplated in the settlement agreement. Jimerson argues that under the principle of ejusdem generis the general term “otherwise alienate” refers only to the same kinds of transactions specifically listed in subsection 7(h)(1)(B)(i)-(v), and therefore does not refer to a share exchange made during an organic change.

We do not find Jimerson’s argument persuasive for two reasons. First, Jimerson points to no authority for the proposition that subsection 7(h)(1)(B)(i)-(v) does not apply to organic changes. As we discussed above, the language of the statute suggests that an individual shareholder alienates her stock by transferring it back to a village corporation in exchange for stock in another corporation.[12] We see no reason why the same principle would not apply to situations where many or all shareholders act at once. Whether shares are alienated by a single shareholder or by many shareholders pursuant to a formal plan for organic change, there is no indication that Congress intended to eliminate statutory protections by allowing ANCSA shareholders to exchange their shares for those of another corporation. Second, ANCSA provides specific exceptions to the section 7(h)(1)(B) restrictions. When Congress enumerates exceptions to a rule, we can infer that no other exceptions apply. Section 7(h)(1)(C) lists three exceptions that allow stock to be transferred to a Native or a descendent of a Native: (1) pursuant to a court decree of separation, divorce, or child support, (2) if the stock limits the holder’s ability to practice his or her profession, or (3) as an inter vivos gift to certain relatives.[13] Section 7(h)(2) permits shares to escheat to the corporation if the holder has no heirs, and permits a corporation to repurchase shares transferred by the laws of intestate succession to a person who is not a Native or descendant of a Native.[14] The transaction contemplated by the settlement agreement does not fall within any of these exceptions. We therefore infer that no exception applies for transfer of ANCSA stock back to a Native corporation in exchange for stock in a newly created corporation.

Jimerson argues that the legislative history of the 1987 ANCSA amendments shows that section 7(h)(1)(B) does not prevent holders from transferring shares back to a Native corporation is not necessarily inconsistent with the legislative history, she has not shown a contrary legislative purpose to a plain language interpretation of the statute.[15] The legislative history available is sparse and equivocal.[16] In fact, portions of the legislative history suggest that a Native corporation does not have the power to repurchase its own shares.[17]

The language of section 7(h)(1)(B) indicates that the transaction contemplated by the settlement agreement violates ANCSA . That the transaction does not fall within ANCSA enumerated exceptions confirms this interpretation. Jimerson has failed to demonstrate through the use of legislative history a contrary legislative purpose. We therefore hold that the settlement agreement is unenforceable because it directly contravenes the section 7(h)(1)(B) restrictions on ANCSA stock.

IV. CONCLUSION

We AFFIRM the superior court’s denial of Jimerson’s motion for enforcement of the settlement agreement.