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Leisnoi, Inc. v. Stratman, Rice, Burton, & Burton (6/26/92), 835 P 2d 1202
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Notice: This is subject to formal correction
before publication in the Pacific Reporter.
Readers are requested to bring typographical
or other formal errors to the attention of
the Clerk of the Appellate Courts, 303 K
Street, Anchorage, Alaska 99501, in order
that corrections may be made prior to
permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
LEISNOI, INC., )
) Supreme Court File Nos.
Appellant, ) S-3774/3775/3776/3781
)
v. ) Superior Court File No.
) 3AN-85-16520 Civil
OMAR N. STRATMAN; MABEL MARIE )
RICE; ANTOINETTE BURTON and ) O P I N I O N
JAMES BURTON, )
)
Appellees. ) [No. 3858 - June 26, 1992]
)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage,
Karen L. Hunt, Judge.
Appearances: Edward A. Merdes, Law
Offices of Merdes & Merdes, P.C., Fairbanks,
for Appellant. Roger E. Henderson, Houston &
Henderson, Anchorage, for Appellee Omar N.
Stratman. William Grant Stewart, McCarrey &
McCarrey, Inc., Anchorage, for Appellee Mabel
Marie Rice. Alan L. Scmitt, Jamin, Ebell,
Bolger & Gentry, Kodiak, for Appellees
Antoinette Burton and James Burton.
Before: Rabinowitz, Chief Justice,
Burke, Matthews, Compton and Moore, Justices.
COMPTON, Justice.
MOORE, Justice, dissenting.
In late 1985 and early 1986, Kodiak Island residents
Omar Stratman, Mabel Marie Rice, Antoinette Burton and
James Burton (Plaintiffs) instituted separate actions
against Leisnoi, Inc. (Leisnoi) and Koniag, Inc.
(Koniag) seeking specific performance of a settlement
agreement which they had negotiated with Koniag. At
the time of negotiation and signing of the settlement,
Leisnoi had merged with Koniag and did not exist as a
separate corporate entity. Later, the merger was set
aside. Leisnoi claimed it was not bound by Koniag's
settlement agreement with the Plaintiffs. The superior
court ruled summarily that Leisnoi was bound by the
settlement as a matter of law. After a trial on the
merits, it awarded the Plaintiffs specific performance
of the agreement. Leisnoi appeals. We conclude that
the settlement agreement cannot be enforced against
Leisnoi, and therefore reverse.
I. FACTS AND PROCEEDINGS1
Omar Stratman,2 Antoinette Burton and James Burton were
cattle ranchers on Kodiak Island. Stratman held
federal grazing leases encompassing roughly 45,400
acres. The Burtons were 50% shareholders in the Kodiak
Cattle Co., which held a federal grazing lease to
21,005 acres.3 Pursuant to the Alaska Statehood Act
the State of Alaska selected the lands subject to the
leases. Administration of the three leases was
eventually transferred to the state. Later, Congress
passed the Alaska Native Claims Settlement Act (Act or
ANCSA), 43 U.S.C.A. 1601-42 (West 1986 & Supp.
1992).
In 1974 Leisnoi was certified under ANSCA as a village
corporation for the village of Woody Island. Leisnoi
was eligible to select over 115,000 acres of public
land as its entitlement under the Act. See 43 U.S.C.A.
1613(a), (f) (West 1986). Under ANCSA, however,
title to the surface estate would be severed from the
subsurface estate. Leisnoi would receive title to the
surface estate it selected; Koniag, the ANCSA regional
corporation for the Kodiak Island region, would receive
title to the subsurface estate as long as the lands
were not part of a National Wildlife Refuge.4 43
U.S.C.A. 1613(f) (West 1986).
Pursuant to its ANCSA entitlement, Leisnoi selected
some land which partly overlapped the land subject to
Stratman's and the Burtons' grazing leases.5
The Decertification Litigation
In 1975 Antoinette Burton and others, in an association
which eventually became known as the Citizens Action
Group, met to discuss native land selections in the
Kodiak area. The group learned that Woody Island and
several other villages which were not originally named
in ANCSA had claimed ANCSA village status. The group
also learned that, upon certification, these villages
could claim up to 800,000 acres of land on Kodiak
Island.
In 1976 Omar Stratman, Antoinette Burton and others in
the Citizens Action Group filed suit in federal
district court against the Secretary of the United
States Department of the Interior, seeking a permanent
injunction preventing the transfer of any land patents
from the United States to Leisnoi and several other
ANCSA village corporations. The group alleged that
injury to its recreational use of public lands would
result from any such transfer. Stratman and Burton
also alleged that they would incur a direct economic
injury from any transfer as federal grazing
leaseholders. The Plaintiffs amended their complaint
in 1977 and joined as defendants Koniag, Leisnoi and
other corporations which had claimed ANCSA village
status. Although the Plaintiffs did not specifically
request decertification of Leisnoi as an ANCSA-
recognized corporation, this litigation became known as
the decertification litigation.
In 1978 the federal district court dismissed for
failure to exhaust administrative remedies claims based
on injury to recreational use of public lands.
Stratman's and the Burtons' remaining claims based on
economic injury to their leaseholds were later
dismissed for lack of a "case or controversy" after
Leisnoi relinquished its ANCSA claims to the lands
overlapping the grazing leases.
In 1981, however, the United States Court of Appeals
for the Ninth Circuit ruled that allegations of
potential injury to recreational uses were sufficient
to satisfy constitutional requirements for standing to
protest the land transfers. It therefore reinstated
the decertification litigation as to Stratman and the
Burtons.6 Stratman v. Watt, 656 F.2d 1321 (9th Cir.
1981). The Demerger Litigation7
Following the federal district court's dismissal of the
decertification litigation, but prior to the federal
circuit court's decision, the shareholders of Leisnoi
and five other ANCSA villages in the region voted to
merge their village corporations with Koniag, the
regional corporation. On December 2, 1980, prior to
the mergers, a member of the Afognak Native Corporation
(Afognak) filed a derivative suit on behalf of himself
and Afognak shareholders to set aside the proposed
merger between Afognak and Koniag. He moved for a
temporary restraining order the next day. The superior
court stayed and later enjoined the merger of Afognak
with Koniag. It found that the injunction was
justified by serious and substantial issues of possible
material misrepresentation in proxy solicitations
submitted to Afognak shareholders.
Leisnoi and the four remaining village corporations
accomplished the merger on December 10, 1980. The
state issued a certificate of merger on that date.
Thereafter Leisnoi ceased to exist as an independent
corporation, and Koniag took over Leisnoi's defense in
the federal district court decertification litigation.
Koniag settled that litigation in March 1982 by
entering into an agreement (Stratman Agreement) with
Stratman and the Burtons. On December 2, 1981,
while Koniag was negotiating to settle the
decertification litigation, a former Leisnoi
shareholder named Nicholas Shuravloff filed a
derivative suit on behalf of himself and other Leisnoi
shareholders to set aside the merger of Leisnoi and
Koniag. The parties have referred to Shuravloff's
action as the demerger litigation. Stratman and the
Burtons were not parties to this litigation.
On January 26, 1983, the superior court ruled on a
motion for partial summary judgment that the joint
proxy statement, which proposed the merger of Leisnoi
and other village corporations with Koniag, was
misleading. This court denied a petition for review of
this decision and, on October 10, 1983, Koniag entered
into a settlement agreement with all plaintiffs in the
demerger litigation.8 In the Stipulation for
Settlement, the parties included language stating that
the merger of Leisnoi with Koniag was void ab initio.
The superior court reiterated this language on January
27, 1984, in its order approving the settlement.9
As a result of the demerger settlement, the federal
government transferred the surface estate for lands
Leisnoi selected under ANCSA to Leisnoi rather than to
Koniag. Koniag received the subsurface rights to those
lands, including sand and gravel rights.
The Stratman Agreement
After the federal circuit court reinstated Stratman's
and Antoinette Burton's claims in the decertification
litigation, and while Leisnoi was merged with Koniag,
the Koniag board of directors authorized Koniag's Chief
Executive Officer, J. F. Morse, to negotiate a
settlement of the decertification suit.10 The ensuing
negotiations, which occurred between November 1981 and
March 1982, eventually led to the Stratman Agreement.
Mr. Morse and Koniag's land manager, Gene Sundberg,
negotiated directly with Stratman and the Burtons to
arrive at the terms of the settlement. Attorneys Roger
Henderson, representing Stratman and the Burtons, and
Dan Hensley, representing Koniag, were used primarily
to reduce the parties' agreement to writing. Stratman
and the Burtons were in contact with Henderson during
the settlement negotiations. He was their attorney and
agent at all times during the negotiations. During
negotiations, Henderson and Hensley specifically
discussed Koniag's desire to use a quitclaim deed to
convey certain real property to Stratman and the
Burtons. The Stratman Agreement went through several
drafts. The final document, which was reviewed and
approved by the attorneys for both parties, was the
result of arms length negotiations. Stratman and the
Burtons were aware through Henderson of the pending
demerger litigation between Leisnoi and Koniag.
Before the Stratman Agreement was signed and while the
demerger litigation was still pending, Nicholas
Shuravloff filed a motion for a temporary restraining
order to enjoin Koniag from settling the
decertification litigation with Stratman and the
Burtons. The TRO also sought to prohibit Koniag from
selling or encumbering any land "to which Leisnoi, Inc.
would have been entitled, except for merger, because of
its status as a village corporation under [ANCSA]."
Henderson was present at the hearing on the TRO as
counsel for Stratman and testified at the hearing on
the subject of the Stratman Agreement.
The superior court denied Shuravloff's motion. It
ruled that Koniag could not be adequately protected if
an injunction was erroneously issued and the Stratman
Agreement was not finalized. The court reasoned that
the potential harm to both Koniag and Leisnoi posed by
the decertification litigation was immeasurable, since
that litigation could result in the extinction of
Leisnoi's corporate existence and the elimination of
its land and cash entitlement under ANCSA. Although
the court recognized that Leisnoi was irreparably
harmed by the Stratman Agreement's provision that
certain land be conveyed to Stratman and the Burtons,
it considered the preservation of Leisnoi's ANCSA
status an overriding concern. The court therefore
refused to enjoin Koniag from entering into the
Stratman Agreement. The Stratman Agreement, which had
been signed by Stratman and Antoinette Burton on March
3, 1982, and had been approved by the Koniag board of
directors on March 5, 1982, thus became final.
Under the terms of the Stratman Agreement, Koniag
agreed to quitclaim to Omar Stratman its interest in
17,637 acres of land which had been selected by Leisnoi
pursuant to ANCSA and which substantially coincided
with Stratman's grazing leases. Stratman agreed to pay
Koniag $233,099.50 for the land. Similarly, the
Burtons agreed to pay $34,133.50 for a quitclaim deed
to roughly 1,100 acres of land surrounding the 35 acre
tract on which they reside. Stratman and Antoinette
Burton also agreed to dismiss the pending
decertification litigation with prejudice.
After the execution of the Stratman Agreement, Stratman
and the Burtons dismissed with prejudice the
decertification litigation. Almost three years later,
after the demerger of Leisnoi from Koniag, Stratman and
the Burtons began to inquire about and demand
conveyance of lands addressed in the Stratman
Agreement. After Leisnoi received the surface rights
to the lands in question in late 1985, it refused to
honor the terms of the Stratman Agreement. Koniag
tendered quitclaim deeds to its subsurface interest in
the lands, but Stratman and the Burtons refused to
accept this offer unless Leisnoi's surface estate was
also conveyed to them. Stratman, Mabel Marie Rice and
the Burtons then commenced separate litigation against
Leisnoi and Koniag, each demanding specific performance
from Leisnoi. The cases were eventually consolidated
into this action.
Procedural History
After argument on cross-motions for summary judgment,
the superior court ruled that the Stratman Agreement
was binding on Leisnoi as a matter of law because, as
to Stratman and the Burtons, Leisnoi was lawfully
merged with Koniag at the time Koniag entered into the
Stratman Agreement. The court also found that there
existed genuine issues of material fact regarding
whether specific performance of the agreement was
appropriate and it denied summary judgment for specific
performance.
Following a trial on the issue of specific performance
in late 1988, the court reaffirmed its conclusion that
the Stratman Agreement was a valid contract which was
binding on Leisnoi. It determined that the language of
the demerger settlement, which stated that the merger
was void ab initio, did not bind Stratman and the
Burtons since they were not parties to the demerger
litigation, nor were they in privity with parties to
that litigation. It then granted specific performance
of the Stratman Agreement, ordering that Koniag and
Leisnoi convey by quitclaim deed the subsurface sand
and gravel rights and the surface estate rights to the
designated lands. Stratman was ordered to pay Leisnoi
a total of $233,099.50 for the surface estate and an
additional $1.00 per acre to Koniag for its subsurface
sand and gravel rights. The Burtons were similarly
ordered to pay Leisnoi $34,133.50 as agreed in the
settlement and an additional $1.00 per acre to Koniag
for the sand and gravel rights.11
The court also concluded that "Leisnoi, Inc. did not
act unreasonably in resisting performance of the
settlement agreement." It awarded the Burtons 25% of
the attorney's fees they requested, and it awarded
Stratman and Rice 25% of their averaged attorney's
fees. Lastly, the court ruled that no damages for
Leisnoi's breach of the Stratman Agreement could be
claimed for the period prior to the court's summary
judgment that Leisnoi was bound by that Agreement.
Leisnoi appeals the superior court's rulings that it is
bound by the Stratman Agreement and that specific
performance is an appropriate remedy. Rice appeals the
order to pay Koniag an additional $1.00 per acre for
sand and gravel rights to the land. Rice and the
Burtons appeal the trial court's conclusion that
Leisnoi did not act unreasonably in resisting
performance of the Stratman Agreement. Stratman, Rice
and the Burtons appeal the court's award of attorney's
fees. The Burtons appeal the court's denial of their
motion to modify the clerk's taxation of costs, and all
three parties appeal the ruling that no damages could
be claimed for the period prior to the court's entry of
summary judgment.
II. STANDARD OF REVIEW
We have held that a "decision to specifically enforce a
contract is within the discretion of the trial court
and will be reversed on appeal only where it is against
the clear weight of the evidence." Hausam v. Wodrich,
574 P.2d 805, 809 (Alaska 1978). However, while we
will generally defer to the trial court's balancing of
equitable principles, we will review de novo the legal
foundations of the trial court's decision. See Hall v.
Add-Ventures, 695 P.2d 1081, 1087 (Alaska 1985)(grant
of specific performance presumes existence of valid
contract).
III. DISCUSSION
Under Alaska corporations law, when the state issued
the Koniag/Leisnoi certificate of merger, Koniag
received all of the rights, powers, interests and
obligations of Leisnoi.12 As the only surviving entity
of the merger, Koniag had actual authority to convey
rights to land and settle claims. Koniag took
precisely these actions when it entered into the
Stratman Agreement. Were these the only facts, the
likely result would be that Stratman and the Burtons
became entitled to receive the surface rights to the
disputed land that Leisnoi had selected before the
merger.
Leisnoi argues that Stratman's and the Burtons'
knowledge of the Shuravloff demerger litigation must
change this result. Leisnoi argues that the trial
court's conclusion that Leisnoi is bound by the
Stratman Agreement is not compatible with the court's
Finding of Fact No. 127. According to Leisnoi,
Stratman and the Burtons are not "innocent third
parties" because of their knowledge of the demerger
litigation and its potential effects. Leisnoi contends
that because Stratman and the Burton's are not
"innocent third parties,"Leisnoi ought not be bound by
the Stratman Agreement.
We agree that Stratman and the Burtons are not
"innocent" because of their knowledge of the demerger
litigation. Moreover, we conclude that as successors
in interest to Koniag, the interests of Stratman and
the Burtons were fundamentally altered by the results
of the Shuravloff litigation. Therefore, we conclude
that the superior court erred when it determined that
Leisnoi was legally bound by the Stratman Agreement.
The trial court, in Finding of Fact No. 127, made
specific findings regarding knowledge Stratman and the
Burtons directly and indirectly obtained:
The court finds accordingly that
prior to the time Omar Stratman and
Antoinette and James Burton signed the
Stratman agreement, they had indirectly
through their agent Roger Henderson, actual
knowledge of the demerger litigation. They,
through Henderson, had knowledge that the
relief sought in the demerger litigation was
demerger, and that the claims raised in the
Shuravloff suit were identical to the claims
raised in the Olsen [Afognak demerger class
action] suit. Finally, through Henderson,
they had knowledge that if demerger were
granted, Leisnoi would be reconstituted as a
separate corporation; and its land selection
rights would return to it.13
(Emphasis added).
We believe that in ordering specific performance of the
Stratman Agreement the trial court failed to understand
the logical and legal consequences of this finding.
Under the ancient doctrine of lis pendens, "[p]ersons
acquiring an interest in property that is a subject of
litigation are bound by, or entitled to the benefit of,
a subsequent judgment." Golden State Bottling Co. v.
N.L.R.B., 414 U.S. 168, 179 (1973); see Farwest Steel
Corp. v. Barge Sea-Span 241, 828 F.2d 522, 524 (9th
Cir. 1987); First National Bank of Anchorage v. Dent,
683 P.2d 722, 724 (Alaska 1988). This doctrine is well
established and is articulated today in the Restatement
(Second) of Judgments (1982). In general, "[a]
successor in interest of property that is the subject
of a pending action to which his transferor is a party
is bound by and entitled to the benefits of the rules
of res judicata to the same extent as his transferor .
. . ." Restatement (Second) of Judgments 44 (1982).
The rationale for this rule is as follows:
If property is transferred when an
action is pending concerning it, the
successor in interest may be aware of the
litigation and seasonably join as a party, by
intervention or by substitution in place of
his transferor. In that circumstance, the
successor then becomes bound because he is a
party. If he is aware of the litigation but
does not join as a party, he acquiesces in
the transferor's continuing, for purposes of
the litigation, to be the apparent owner of
the interest in the property. His doing so
is in effect treating the transferor as his
representative in the action.
Restatement (Second) of Judgments 44 cmt. a (1982).
The traditional statement of the doctrine of lis
pendens burdened even purchasers who were unaware of
the pending litigation.14 See Golden State Bottling
Co., 414 U.S. at 179. This result was supported by
considerations that:
the successor usually has an express or
implied right of indemnity against the
transferor for loss resulting from the
judgment; the successor changed the status
quo regarding ownership and may justly be
burdened with losses which might be expected
possibly to result; and, if the rule were
otherwise, the stabilizing effect of a
judgment concerning the property could
indefinitely be postponed by successive
transfers.
Restatement (Second) of Judgments 44 cmt. a (1982).
In addition to the weight of the above considerations,
Stratman and the Burtons, as successors, had actual
knowledge of Shuravloff's claims against Koniag and the
potential effects of these claims. Therefore, Stratman
and the Burton's interests under the Stratman Agreement
were subject to Shuravloff's claims and the risk that
Koniag's authority over the disputed land would be
compromised in the resolution of the demerger
litigation. See Dent, 683 P.2d at 724.
Shuravloff owned shares of stock in Leisnoi. He sued
Koniag and others, on his own behalf and on behalf of
other prior Leisnoi shareholders,15 alleging that the
merger resulted from "a joint proxy statement which
constituted a scheme to defraud and included untrue
statements of material fact." In his complaint,
Shuravloff sought a declaration that Leisnoi's merger
with Koniag was null and void. He also asked the court
to "[o]rder an accounting . . . of Leisnoi's current
assets now held in a constructive trust by Koniag and
that those assets, when accounted for, be returned to
Leisnoi." The findings of the trial court and
principles of inquiry notice indicate Stratman and the
Burtons knew or should have known of all these claims.
Shuravloff's claims were ultimately resolved by order
of Superior Court Judge Douglas J. Serdahely. The
order approved and incorporated a Stipulation for
Settlement (demerger settlement) between Koniag,
Shuravloff and others. In addition to rendering void
the merger between Koniag and Leisnoi, the intent of
the demerger settlement was "insofar as possible to
return the property which belongs to [Leisnoi]."16
We conclude that the trial court erred when it
determined that Leisnoi was legally bound by the
Stratman Agreement and erred when it ordered Leisnoi to
convey the surface rights to the land in dispute to
Stratman and the Burtons. The trial court found that
Stratman and the Burtons had knowledge of the demerger
litigation and that they were aware that "if demerger
were granted, Leisnoi would be reconstituted as a
separate corporation; and its land selection rights
would return to it." Under the doctrine of lis pendens
and in accordance with Restatement (Second) of
Judgments 44 (1982), the rights of Stratman and the
Burtons under the Stratman Agreement were subject to
the claims of Shuravloff.17 Stratman and the Burtons
were bound by the demerger settlement which resolved
Shuravloff's claims, rendered the merger of Koniag and
Leisnoi void and returned the surface rights to the
disputed land to Leisnoi. As to Stratman and the
Burtons, who had knowledge of the demerger litigation,
Koniag had no authority to agree to a future conveyance
of Leisnoi's assets. Therefore, Leisnoi is not legally
bound by the Stratman Agreement.18
Rice, claiming through Stratman, argues that demerger
is a disfavored remedy. Therefore, at the time of the
Stratman Agreement, Stratman and the Burtons could not
reasonably expect the Shuravloff litigation to result
in demerger or invalidation of rights under the
Stratman Agreement.19 We are not persuaded.
The equitable power of a court to set aside a merger is
well established. 18A Am. Jur. 2d Corporations 1111
(1985). Moreover, a party's erroneous forecast of the
future result of litigation does not affect the
operation of the lis pendens doctrine.20 A purchaser of
land who has notice of litigation affecting the land
and notice of the relief claimed in the litigation, is
bound by the result of the litigation irrespective of
the "likelihood" of the result. See Golden State
Bottling Co., 414 U.S. at 179; Farwest Steel Corp., 828
F.2d at 524; Dent, 683 P.2d at 724. The trial court
specifically found that Stratman and the Burtons were
aware that a potential result of the Shuravloff
litigation was demerger and restoration of Leisnoi's
rights to land. They are bound by that result.
Rice contends that there has never been a judicial
determination that the proxy statements at issue in the
demerger litigation were fraudulent. We do not
consider the lack of such a finding to be
determinative. The trial court had adequate grounds to
set aside the merger. It found that the proxy
statements were "false and misleading, and material, as
a matter of law." We need not explore the distinctions
between fraudulent and materially misleading proxy
statements. Proper relief for a materially misleading
solicitation which results in corporate merger may
include setting aside the merger. Mills v. Electric
Auto-Lite Co., 396 U.S. 375, 386 (1970). Further,
Stratman and the Burtons would be bound by the judgment
under the doctrine of lis pendens even if it were
strictly a stipulated judgment, as reflected in the
Restatement (Second) of Judgments 44 (1982).
The judgment of the superior court is REVERSED. The
awards of attorney's fees and costs are VACATED.
MOORE, Justice, dissenting.
In spite of the complex factual setting of this case,
the issues here are simple. First of all, did Koniag
have the legal authority to enter into a binding
agreement with Stratman and Burton? Secondly, if
Koniag had such legal authority, are Stratman and
Burton entitled to specific performance against
Leisnoi, Koniag's successor?
The majority concludes, and I agree, that under Alaska
corporations law, Koniag acquired all of the rights,
powers, interest and obligations of Leisnoi as a result
of the merger, and that, at the time of the Stratman
Agreement, Koniag had the authority to contract to
convey the former assets of Leisnoi and to settle
litigation in which Leisnoi had been a party.
Consequently, at the time the Stratman Agreement was
executed, it was a binding and enforceable contract.
However, in reversing the trial court's award of
specific performance to Burton and Stratman, the
majority not only departs from the standard of review
which it purports to apply, but it fails to provide a
sound legal justification for the result it reaches.
Instead, the majority relies on a strained
interpretation of a doctrine which other courts have
narrowly circumscribed.
In reviewing decisions to specifically enforce
contracts, we defer to the discretion of the trial
court unless the clear weight of the evidence requires
reversal. Stenehjem v. Kyn Jin Cho, 631 P.2d 482
(Alaska 1981). Here, the majority effectively abandons
this standard of review, engages in its own balancing
of the equities, and substitutes its own judgment for
that of the trial court, while claiming it is merely
reviewing "de novo the legal foundations of the trial
court's decision." In Hall v. Add-Ventures, Ltd., 695
P.2d 1081 (Alaska 1985), which the majority cites as
the precedent allowing the broad review it affords
here, we reversed the denial of specific performance
because we disagreed with the trial court's conclusion
that no enforceable contract had been formed. No such
fundamental legal prerequisite to specific performance
is at issue in the present case.
Here, the trial court was within its discretion and
properly exercised its equitable powers in awarding
specific performance to Stratman and the Burtons, and
the clear weight of the evidence does not require
reversal. In entering into the Stratman Agreement,
Koniag conferred a substantial benefit on the former
shareholders of Leisnoi. In exchange for Koniag's
agreement to convey the acreage to them at below market
price, Stratman and Burton agreed to drop the
decertification litigation which, if pursued, almost
certainly would have resulted in the decertification of
Leisnoi and the complete extinction of its entitlement
to land and other corporate assets under ANCSA.21
Leisnoi, the party benefitting from the court's
decision today, was itself not an innocent party, but
rather was a defendant in the demerger litigation
charged with preparing fraudulent joint proxy
statements.22 Furthermore, the principles of res
judicata cannot be a basis for denying specific
performance, as no final judgment containing a finding
of fraud was ever rendered in the demerger litigation.23
Finally, it is inequitable to allow a voluntary
settlement agreement between Leisnoi and Koniag to
defeat the legitimate expectation interests of Stratman
and the Burtons arising from the Stratman Agreement.
It is untenable, either as a matter of law or equity,
that the knowledge of Stratman and Burton of the
demerger litigation or that settlement of that
litigation should preclude them from obtaining specific
performance of an otherwise valid and enforceable
contract. The majority cites no legal authority for
the proposition that such knowledge precludes the
availability of the remedy of specific performance.
To reach its desired result, the majority incorrectly
treats this case as one involving conflicting claims to
title of real property when the real issue is the
enforceability of a contract for the conveyance of real
property. The majority relies on the doctrine of lis
pendens as articulated in 44 of the Restatement
(Second) of Judgments (1982) which states that "[a]
successor in interest of property that is the subject
of a pending action to which his transferor is a party
is bound by . . . the rules of res judicata to the same
extent as his transferor. . . ." (Emphasis added).
The principle has its roots in both common law and
equity jurisprudence. 54 C.J.S Lis Pendens 1 (1948);
51 Am. Jur. 2d Lis Pendens 1 (1970). Under the
doctrine, at both common law and in equity, the mere
pendency of a suit affecting the title to real property
constituted constructive notice to the world of a
disputed claim regarding the title. Kelly v. Perry,
531 P.2d 139, 140-41 (Ariz. 1975).
Under the majority's reading of this principle, the
property which Koniag agreed to convey in the Stratman
Agreement was "the subject"of Shuravloff's shareholder
action. In other words, the majority apparently
believes that a shareholder's suit alleging fraud in
proxy statements is a suit affecting title to real
property. An examination of the law and facts reveals
the transparency of this proposition.
An essential element for the invocation of the doctrine
of lis pendens, and one which the majority ignores, is
that the pleadings in the pending litigation must
contain a description of the real property in question.
Herman v. Goetz, 460 P.2d 554, 559 (Kan. 1969);
Flanagan v. Clark, 11 P.2d 176 (Okla. 1932). Here, the
complaint in the demerger litigation contained no such
description, and that litigation concerns title to real
property only in the remotest sense.
In assessing whether Shuravloff's suit was an action
"affecting title to real property,"it is instructive
that the pendency of the demerger litigation would have
been an insufficient basis for the recordation of a lis
pendens notice under Alaska's statutory lis pendens
procedure.24 This court has previously held that lis
pendens is inappropriate in a shareholder's action
against corporate directors for alleged breach of
fiduciary duty and breach of contract rights because
such an action is not one affecting "the title to or
the right to possession of real property." Blake v.
Gilbert, 702 P.2d 631, 642-43 (Alaska 1985).25
The majority sees the prayer for relief in Shuravloff's
complaint asking the court to order an accounting and
return of Leisnoi's assets as sufficient to make the
demerger suit a case concerning real estate. The mere
request in a complaint for an accounting is not an
appropriate basis for the invocation of the lis pendens
doctrine. See Kelly v. Perry, 531 P.2d 139 (Ariz.
1975) (lis pendens inappropriate in action by joint
venturer to dissolve joint venture, to impose
constructive trust on specific parcel and seeking
accounting). In determining whether lis pendens is
appropriate, courts should look to the gravamen of the
complaint in the pending litigation. Rubinfeld v.
Mappa, 248 N.Y.S.2d 276 (N.Y. App. Div. 1964).26 In the
present case, Shuravloff's suit alleged breach of
fiduciary duty and illegal material omissions and
misstatements in proxy materials seeking approval of
the merger between Koniag and Leisnoi. The complaint
is devoid of any specific allegations relating to any
specific real property, much less the property which
Koniag agreed to convey in the Stratman agreement.
Because real property was not the subject of
Shuravloff's suit, the majority's reliance on the
doctrine of lis pendens and 44 of the Restatement
(Second) of Judgments is misplaced.
Lis pendens is a doctrine based on public policy and
convenience and is predicated on the view that
once a court has taken cognizance of a
controversy, it should be impossible to
interfere with consummation of the judgment
by any ad interim transfer, encumbrance, or
change of possession. In support of this
view, it has been observed that without the
doctrine of lis pendens, litigation could
become interminable as a result of mesne
conveyances and the ensuing necessity of
introducing the transferees as parties, and
that on the termination of one action,
another would be initiated, with the result
that the courts could not effectively
determine litigation involving property.
51 Am. Jur. 2d Lis Pendens 3 (1970) (footnotes omitted).
Contrary to the majority's reasoning, the claims of
Shuravloff are not inconsistent with the claims of
Stratman and Burton arising from the Stratman
Agreement. The existence of the Stratman Agreement in
no way impaired the ability of the court in the
shareholder's action to award relief for the claims
contained therein. The concerns underlying the lis
pendens doctrine are simply not present in this case.
Though the scope of the majority's decision is
uncertain, the rule of law fashioned by the court today
effectively deprives an individual challenging a
corporate merger, who has knowledge of pending
litigation, of the ability to contract with the
corporation without considerable risk that such
agreements may ultimately prove unenforceable. By
invoking the lis pendens doctrine, the result may be to
charge even those unaware of the pending litigation
with constructive notice of the litigation, thus
precluding them from entering into enforceable
agreements involving the transfer of corporate assets.
The majority opinion could even be read to deprive a
corporation involved in demerger litigation of the
authority or capacity to engage in any transaction
resulting in the sale, transfer, or exchange of any
corporate assets. Regardless of its interpretation,
the court's holding today injects uncertainty and peril
into commerce and corporate affairs in contravention of
the important public policy interest in enhancing the
certainty and finality of contracts.
The majority recognizes the authority of Koniag to
enter into binding agreements during the period in
which it was merged with Leisnoi. Nonetheless, it
gropes futilely to find a sound legal basis to justify
its desired result. In my opinion, the clear weight of
the evidence does not require reversal. In light of
the legal and equitable principles outlined above, and
in light of the strong public policy favoring the
enforcement of agreements settling disputed claims, see
Municipality of Anchorage v. Schneider, 685 P.2d 94, 98
(Alaska 1984), I would leave the parties with the
agreement they negotiated for themselves and would
affirm the trial court's balancing of the equities and
award of specific performance.
Accordingly, I DISSENT.
APPENDIX
Timeline of Relevant Facts
Date Event
12/18/71 Alaska Native Claims Settlement Act (ANCSA)
provides for the establishment of native regional and
village corporations. Koniag, Inc. is established as
the regional corporation for the Kodiak archipelago.
1974 Leisnoi, Inc. is certified as the village
corporation for the village of Woody Island.
1976 Stratman, Burton and others file suit in federal
district court against U.S. Department of Interior,
Koniag, Leisnoi and others ("decertification
litigation").
1978 Federal district court dismisses the
decertification litigation.
12/03/80 Alaska superior court stays and later enjoins the
merger of Afognak Native Corporation and Koniag.
12/10/80 Leisnoi merges with Koniag.
09/08/81 United States Court of Appeals for the Ninth
Circuit reinstates the decertification litigation as
to Stratman and the Burtons.
11/11/81 Negotiations begin between Stratman, the Burtons
and Koniag to settle the decertification litigation.
12/02/81 Former Leisnoi shareholder Nicholas Shuravloff
files derivative class action in state court to set
aside merger ("demerger litigation"). Stratman and
the Burtons learn of the pending demerger litigation
through their attorney.
02/22/82 Shuravloff asks the superior court to enjoin
Koniag from settling the decertification litigation
with Stratman and the Burtons.
03/03/82 Stratman and the Burtons sign the "Stratman
Agreement." Agreement provides for dismissal of the
decertification litigation and conveyance of land
to Stratman and the Burtons.
03/05/82 Koniag approves the Stratman Agreement.
03/18/82 Alaska superior court denies Shuravloff's request
for injunction preventing Koniag from entering into
the Stratman Agreement.
01/26/83 Superior court rules that the joint proxy
statements which proposed the merger of Leisnoi and
Koniag are misleading.
10/10/83 Koniag settles the demerger litigation with
Shuravloff. The Stipulation for Settlement states
that merger of Leisnoi with Koniag was void ab
initio.
01/27/84 Superior court approves demerger settlement in an
order incorporating the Stipulation for Settlement.
11/21/85 United States Department of the Interior conveys
the surface estate of the disputed land to Leisnoi and
the subsurface estate to Koniag.
11/25/85 Leisnoi refuses to honor the terms of the Stratman
Agreement regarding conveyance of the disputed land.
_______________________________
1. Because of the factual complexity of this case, a
schedule showing the sequence of relevant events has
been added as an Appendix.
2. Mabel Marie Rice is Omar Stratman's former spouse. Her
interest in this litigation derives solely from
Stratman's interest.
3. In 1979, the Burtons transferred their interest in the
Kodiak Cattle Co. They then purchased the 35 acre
tract on which they presently reside. Their interest
in the present litigation concerns land surrounding the
35 acre tract which falls outside of the grazing leases
and which is described by the agreement which became
known as the Stratman Agreement.
4. None of the lands actually selected by Leisnoi were
wildlife refuge lands.
5. Leisnoi's selections rights, however, were subordinated
to the pre-existing grazing leases, and any conveyance
of the lands to Leisnoi would be subject to the terms
of those leases. Koniag's right to the subsurface
estate was similarly subject to the pre-existing
grazing leases. See 43 U.S.C.A. 1613(g) (West 1986).
6. After this ruling, the Citizens Action Group met for a
last time. The group had achieved most of its goals,
and only Stratman and the Burtons were willing to
continue the litigation. Stratman and the Burtons
personally guaranteed payment of all past and future
fees and costs, and the group agreed that Stratman and
the Burtons could seek to settle the case on their own
if possible.
7. For convenience, we adopt the convention of the parties
in referring to the derivative suit brought by Nicholas
Shuravloff against Koniag, Leisnoi and others as the
"demerger litigation."
8. Koniag settled Shuravloff's demerger action in the same
Stipulation for Settlement that it settled claims
brought by shareholders of three other native village
corporations. These claims also arose from the joint
proxy statements.
9. The court's approval of the settlement was required
under Alaska Civil Rule 23.1(i) which directs that "[a]
derivative action may not be discontinued, abandoned,
compromised or settled without the approval of the
court having jurisdiction of the action."
10. The record indicates that at the time the settlement of
the decertification litigation was being negotiated,
Dan Hensley, counsel for Koniag believed that there was
a 90% chance that Leisnoi would be decertified if the
action was heard on the merits. Hensley was also
counsel for Leisnoi prior to its merger with Koniag.
Koniag would have lost all of Leisnoi's land selection
rights under ANCSA had Leisnoi been decertified.
11. For purposes of the equity trial, the parties stipulated
that the actual market value of the land to be sold to
Stratman was approximately $2.4 million. The value of
the land to be conveyed to the Burtons was
approximately $1.1 million.
12. On December 10, 1980, when the state issued the
certificate of merger joining Koniag and Leisnoi,
former AS 10.05.405 (1957) provided in part:
(b) Merger or consolidation has
the following effect . . . .
(2) The separate existence of the
corporations, except the surviving or new
corporation, ceases . . . .
(4) The surviving or new
corporation possesses the rights, privileges,
immunities and franchises, public and
private, of the merging or consolidating
corporations. All real, personal and mixed
property, and all debts due, including
subscriptions to shares, and all other choses
in action, and every other interest of or
belonging to or due to each of the
corporations are transferred to and vested in
the surviving or new corporation. The title
to real estate or interest in real estate,
vested in the corporations does not revert
nor is it in any way impaired because of the
merger or consolidation.
13. The order entered on March 18, 1982, in the Shuravloff
litigation denying Shuravloff's motion for a temporary
restraining order clearly identified the conveyance
from Koniag to the Stratman plaintiffs as part of the
subject matter of the litigation. The order stated in
part that "the court is aware that the plaintiffs have
demonstrated, should the settlement be concluded, that
they will be faced with `irreparable harm', in the
sense that the terms of the settlement agreement
include the conveyance of certain Leisnoi property to
the Stratman plaintiffs." The parties have stipulated
that this order was read to Mr. Henderson by Judge
Serdahely over the phone and a copy of the order was
sent to him by mail.
14. In this case we need not and do not decide whether lis
pendens binds a successor who lacks even inquiry notice
of pending litigation affecting the property.
15. Our dissenting colleague points out that Leisnoi was a
defendant in Shuravloff's derivative suit, apparently
suggesting that, because of its status in that
litigation, Leisnoi should not benefit from our
resolution of this case.
Shuravloff brought his suit on his own behalf and on
behalf of other former Leisnoi shareholders to remedy
alleged misdeeds of Leisnoi's directors and others. We
fail to perceive why Leisnoi's status as a nominal
defendant should preclude the former shareholders from
receiving the benefits of Shuravloff's action.
16. The demerger settlement stated, in pertinent part:
WHEREAS . . .
A Joint Proxy Statement requesting
approval of merger was distributed to the
shareholders of Koniag, Inc. and the village
corporations participating in the proposed
merger; and . . .
The Superior Court for the State of
Alaska has decided that the Joint Proxy
Statement was false and misleading because it
stated that the timber resources involved in
the merger could not be valued, the proxy
statement did not disclose the value of the
timber to the shareholders who were called
upon to decide whether or not to merge, and
because the proxy statement did not make it
clear that the $2,100 being distributed to
the village corporation shareholders were
monies owned by the village corporations
which could have been distributed to the
shareholders without merger; and . . .
The parties think the fair way to
settle their differences is to dissolve the
merger between Koniag . . . and Leisnoi . . .
and insofar as possible to return the
property which belongs to [Leisnoi] . . .
NOW, THEREFORE . . .
Koniag will transfer any and all
land, timber, interest in land and timber,
contract rights, or any other interests of
any kind of which Leisnoi . . . [was]
possessed or to which [it was] entitled . . .
or would have subequently [sic] become
entitled but for [its] merger with Koniag.
17. Our dissenting colleague maintains that the land at
issue in this case was not the subject of Shuravloff's
suit and that application of the lis pendens doctrine
is improper. He suggests that in determining whether
lis pendens is appropriate we look to the "gravamen of
the complaint in the pending litigation."Infra, p. 27
(citing Rubinfeld v. Mappa, 248 N.Y.S.2d 276, 277 (N.Y.
App. Civ. 1964).
In reaching our conclusion, we do not alter the
doctrine of lis pendens. From our review, we conclude
that the gravamen of Shuravloff's suit was a claim that
the fundamentally flawed merger of Koniag and Leisnoi
should be declared void and that Leisnoi's assets,
comprised largely of interests in real property, should
be returned to it. The findings of the trial court,
including Finding of Fact No. 127, remove any doubt
that Stratman and the Burtons knew that the Shuravloff
complaint involved the property at issue in this case.
The dissent's comments regarding AS 09.45.790 which
permits the recordation of a notice of pending action
are misfocused. The common law doctrine of lis pendens
has not been altered by the enactment of AS 09.45.790.
Through AS 09.45.790, the legislature merely provided a
convenient method for giving constructive notice to
subsequent purchasers and encumbrancers that their
interests may be affected by a pending action. Brooks
v. R & M Consultants, Inc., 613 P.2d 268, 270 (Alaska
1980). In this case, where the trial court found that
Stratman and the Burtons had actual notice of the
demerger litigation, there was no need for it to rely
upon constructive notice. Moreover, had a statutory
notice of lis pendens been filed and been found
wanting, any insufficiency could have been cured
through an amendment to the complaint.
Further, we do not believe that our decision today
fosters uncertainty and peril in corporate affairs. It
does require that those who are on notice of a claim
protect themselves against the possibility that the
claim has merit.
18. Because of our holding that Leisnoi is not bound by the
Stratman Agreement, the arguments of Stratman, the
Burtons and Rice regarding attorney's fees and costs
are moot. Stratman, the Burtons and Rice are not
"prevailing parties" under Alaska Civil Rule 82.
Therefore, the trial court's awards of attorney's fees
and costs must be vacated.
Our holding also renders moot the appeal of the trial
court's conclusion that Leisnoi did not act
unreasonably in resisting performance of the Stratman
Agreement.
We decline to address Rice's appeal regarding the
amount payable to Koniag for subsurface rights. Koniag
was dismissed from these consolidated appeals. In
light of our holding, the issue is not relevant as to
Leisnoi.
19. The Burtons also dispute whether Shuravloff was likely
to prevail in the demerger litigation and seem to argue
that because they did not expect Shuravloff to prevail
on his claims, they should not be bound by the result.
20. We find the argument of Stratman and the Burtons that
they could not reasonably expect the result of the
demerger litigation disingenuous in light of their
knowledge that Shuravloff's claims were identical to
those of Olsen in the Afognak litigation and in light
of the injunction against the merger of the Afognak
Native Corporation and Koniag.
21. During settlement negotiations in the decertification
litigation, a Koniag attorney who had represented
Leisnoi prior to the merger stated his belief that
there was a 90% chance that Leisnoi would be
decertified if the action was heard on the merits. See
footnote 10 of majority opinion.
22. In footnote 17, the majority refers to Leisnoi as a
"nominal defendant"in the demerger litigation. Here,
Leisnoi (including its officers, directors, and
shareholders) was involved in multiple lawsuits and
benefited directly from the final settlements between
all parties, ultimately receiving surface rights to
over 100,000 acres of public land worth millions of
dollars to which they may not have been entitled. It
can be nothing more than fiction to say Leisnoi was
only a "nominal defendant,"and thus excused from
honoring its contractual obligations under the
settlement agreement negotiated by its predecessor
Koniag with Stratman and the Burtons. The result
reached by the majority effectively holds Stratman and
the Burtons, who were not even "nominal parties"to the
demerger litigation, accountable for the misdeeds of
Leisnoi.
23. Although, on motion for partial summary judgment, the
trial court in the demerger litigation found Leisnoi
and Koniag had included material misrepresentations and
omissions in the proxy statements, these findings were
never reduced to a final judgment.
24. Alaska Statute 09.45.790 permits the recordation of a
notice of the pendency of an action "affecting the
title to or the right of possession of real property. .
. ." Such recordation gives constructive notice of
the pendency of such actions.
25. Other courts have similarly concluded that statutory lis
pendens is inappropriate in shareholder suits unless
title to specific real property is the central focus of
the action. See Pacific Lumber Co. v. Superior Court
(Martel), 276 Cal. Rptr. 425 (Cal. App. 1990) (lis
pendens inappropriate in former shareholder's action
challenging merger for alleged fraud); 5303 Realty
Corp. v. O & Y Equity Corp., 476 N.E.2d 276 (N.Y. 1984)
(lis pendens inappropriate in suit for specific
performance of contract for sale of stock representing
beneficial ownership of real estate; doctrine should be
narrowly applied to those suits directly affecting
property); Mohican Valley, Inc. v. MacDonald, 443 So.
2d 479 (Fla. App. 1984) (lis pendens permitted in
shareholder derivative suit to cancel deed to specific
property allegedly transferred fraudulently); Grossfeld
v. Beck, 346 N.Y.S.2d 650 (N.Y. App. Div. 1973) (lis
pendens permitted in shareholder derivative action
seeking to impress constructive trust on specific real
property but not in action for waste of corporate
assets); Cutter v. Cutter Realty Co., 144 S.E.2d 882
(N.C. 1965) (lis pendens inappropriate in shareholder
derivative action to prevent officers and directors
from executing deed conveying title and to rescind
contract of sale of land).
26. In Rubinfeld, the court stated that
[t]he mere fact that the word "realty"
or similar words are used in the complaint or
that one of the prayers for relief seeks a
transfer of title to realty, is not
determinative unless supported by appropriate
allegations. It is not the title of the
action, nor the prayer for judgment, but the
facts set out in the complaint which
determine the kind and character of the
action.
248 N.Y.S.2d at 277.
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