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Hanson v. Kake Tribal Corporation (5/23/97), 939 P 2d 1320
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Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage, Alaska
99501, phone (907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
ARLENE BELL HANSON, VICTOR )
CARL DAVIS, JR., and ) Supreme Court Nos. S-6189/6239
CLIFFORD WILLIAM TAGABAN, )
For Themselves And All Others )
Who Are Similarly Situated, )
) Superior Court No.
Appellants and ) 1PE-90-72 CI
Cross-Appellees, )
)
v. )
)
KAKE TRIBAL CORPORATION, ) O P I N I O N
)
Appellee and ) [No. 4822 - May 23, 1997]
Cross-Appellant. )
______________________________)
Appeal from the Superior Court of the State of
Alaska, First Judicial District, Petersburg,
Walter L. Carpeneti and Thomas M. Jahnke, Judges.
Appearances: Douglas M. Branson, Tacoma,
Washington, Fred W. Triem, Petersburg, for
Appellants and Cross-Appellees. R. Collin
Middleton, Glenn E. Cravez, Jacquelyn R. Luke,
Middleton & Timme, Anchorage, for Appellee and
Cross-Appellant.
Before: Rabinowitz, Matthews, Eastaugh, and
Fabe, Justices. [Compton, Chief Justice, not
participating.]
MATTHEWS, Justice.
FABE, Justice, dissenting.
This is a class action in which shareholders claim that
a corporation paid discriminatory dividends. The shareholders
prevailed in the superior court. They appeal, claiming that the
damage award was too low, that the class was too narrowly defined,
and that the court's award of attorney's fees under Civil Rule 82
was too low. The corporation cross-appeals, asserting numerous
defenses relating both to liability and damages. We affirm the
superior court's liability ruling, vacate the damage award, and
remand for recalculation of damages and for consideration of
whether an immediate lump sum payment of the judgment is
appropriate.
I. FACTS AND PROCEEDINGS
Kake Tribal Corporation (Kake) is a village corporation
organized under the Alaska Native Claims Settlement Act (ANCSA).
Kake adopted a "Financial Security Plan"which was intended to
confer financial benefits on some of Kake's shareholders. The plan
was open only to original Kake shareholders who retained the one
hundred shares they were issued when the corporation was organized.
The plan consisted of two programs. Original share-
holders of Kake who retained all one hundred of their original
shares and were between twenty-one and sixty-nine years of age were
entitled to participate in the basic program. Individuals who were
seventy years of age or older, and met the same shareholding
requirements, were entitled to enroll in the senior program.
Under the basic program, Kake purchased a life insurance
policy for each program participant. Kake retained control of the
policies, was named as the beneficiary, and retained the cash
surrender values. Upon the death of a participant, the life
insurance proceeds were placed in an account with an investment
management firm. The funds in this account were used to pay
program benefits, and for other corporate purposes.
Participants who enrolled in the basic program had the
option of choosing either a living benefits program or a death
benefits program. The death benefits program provided for an
immediate payment upon the death of the participant of $1,800 in
funeral expenses and monthly payments of $225 for sixteen years to
beneficiaries designated by the participant. If a participant
chose the living benefits option, the participant could elect to
receive $100 per month for fifteen years beginning at age sixty-
five, plus a $1,000 payment to the participant's beneficiaries at
the time of the participant's death. Alternatively, the living
benefits participant could elect to receive $4,000 per year,
starting at age sixty-eight, for three years, plus a $1,000 payment
to the participant's beneficiaries at death.
The senior program promised to pay each participant $100
per month for up to 180 months, plus $1,000 in funeral expenses at
death. This program was devised because the shareholders who were
seventy years of age or older were generally uninsurable.
Kake began to experience financial difficulty. After
making twenty-three monthly payments to the elders -- as the
parties describe the participants in the senior program -- the
payments were suspended in 1982 due to lack of funds. On January
12, 1989, Kake paid each surviving elder $100 per month retroactive
to October 1982 and each elder's estate $100 for each month from
October of 1982 until the time of the elder's death. The
corporation then discontinued the senior program.
Meanwhile, in 1985, Kake switched the insurers which were
underwriting the basic program. This required that new insurance
forms be filled out by program participants. Many shareholders
failed to re-enroll with the new insurer.
The basic program was modified in 1989. Kake's liability
to pay death benefits from the account with the investment
management firm was limited, and the living benefits program was
terminated. On March 1, 1992, the basic program was terminated.
The plaintiffs filed suit on August 31, 1990, alleging
that the plan unfairly discriminated against them. Arlene Hanson
and Victor Davis, Jr., are the widow and minor son of an original
shareholder of Kake. When he died, fifty of his shares were
transferred to Arlene and fifty passed to Victor. These shares
were no longer considered to be original shares and, as a result,
Arlene and Victor were not entitled to participate in the plan.
Clifford Tagaban inherited twenty-five shares from his grandmother.
He was also ineligible to participate in the plan.
In 1992 the plaintiffs amended their complaint, asserting
class action claims. Kake moved for summary judgment on statute of
limitations grounds. Superior Court Judge Thomas M. Jahnke ruled
that each payment to favored shareholders gave rise to a separate
cause of action, subject to a separate limitations analysis; that
the six-year statute expressed in AS 09.10.050 governed this case;
that the statute barred claims accruing more than six years before
the case was filed, that is claims accruing before August 31, 1984;
and that claims held by minors were tolled pursuant to the tolling
provisions of AS 09.10.140.
In the spring of 1993, the parties filed cross-motions
for summary judgment on remaining liability issues. At roughly the
same time, by stipulation, the plaintiffs filed a second amended
complaint which they claim expanded the class to include all
shareholders who had been discriminated against, whether or not
they participated in the plan.
The case was set for trial on June 28, 1993. Just before
trial, the trial judge, Walter L. Carpeneti, ruled in the
plaintiffs' favor on the summary judgment motions, holding "as a
matter of law payments both to beneficiaries of shareholders and to
shareholders directly under the challenged plan are distributions
under state law, that the payments violate the rule of uniformity
and that the defendant is therefore liable to plaintiffs."
On June 25, 1993, plaintiffs filed a motion to amend the
class certification order to include all shares against which the
plan had discriminated, not just those whose owners had been termed
ineligible to participate in the plan. On the third day of trial
Judge Carpeneti ruled on this motion, indicating that he would
grant it, but only on the condition that the summary judgment order
on liability be vacated, and that plaintiffs pay defendant's
attorney fees for lost trial and trial preparation time.
The plaintiffs declined to accept these conditions and
trial proceeded on the issue of damages. Following trial, the
plaintiffs moved for reconsideration of the class certification
order. The court again indicated that it would expand the class,
but only on the condition that its order granting partial summary
judgment on liability be set aside. A new trial would then be
necessary. The class declined this condition and withdrew the
motion for reconsideration.
Following the trial, the court found that any share-
holders who had participated in the plan, no matter how briefly,
were excluded from any remedy. The court ruled that the remedy of
shareholders holding less than one hundred shares would be
calculated on a per share basis, while the remedy of shareholders
who held more than one hundred shares would be limited to one
hundred shares. It found the plan to have cost Kake $1,996,000 or
$47.30 for each participating share. The court awarded damages of
$47.30 per share to the 11,152 shares which qualified for the
remedy. Judgment for the class in the principal amount of
$527,489.60 was entered. Subsequently, Judge Jahnke awarded pre-
judgment interest of $438,178.38 and attorneys' fees of $125,000.
Plaintiffs and Kake have appealed. Their claims on
appeal will be identified in the discussion that follows.
II. DISCUSSION
A. Payments under the Plan Were Illegal
Kake claims that payments under the plan were not
dividends. Instead, it argues that the plan was a social welfare
program which is permissible under ANCSA. Kake, however, points to
no provision which may be read as authorizing the plan.
It is true that a corporation may engage in charitable
giving. AS 10.06.010(13) (a corporation has the power to "donate
for the public welfare or charitable, scientific or educational
purposes . . . "). The plan, however, was merely a method of
distributing corporate assets to certain shareholders. No
reasonable argument can be made that the plan was instead a series
of charitable gifts. Indeed, the stated purpose of the plan was to
provide financial security to the original shareholders of Kake.
Distributions were to be made regardless of the need or financial
status of the distributees.
Kake also argues that the senior program was authorized
under amendments to ANCSA passed in 1988. These amendments did
authorize the issuance, without consideration, of a special class
of stock for shareholders who had attained the age of sixty-five.
43 U.S.C.A. sec. 1606(g)(2) (West Supp. 1996). However, creation
of such stock requires a shareholder vote or an amendment to the
articles of incorporation. 43 U.S.C.A. sec. 1629(b) (West Supp.
1996). Kake never took these steps. Thus the senior program
cannot be considered a valid exercise of the power granted by the
1988 ANCSA amendments.
Because no provision of ANCSA authorizes the plan, the
payments in this case were illegal. Subject to certain limited
exceptions not relevant for present purposes, holders of village
corporation stock have "all rights of a stockholder in a business
corporation organized under the laws of the State." The quoted
language is drawn from section 6(h) of ANCSA (43 U.S.C.A. sec.
1606(h)(l) (West Supp. 1996)), which pertains to the stock of
regional corporations. Section 7 of ANCSA (43 U.S.C.A. sec. 1607)
makes section 6(h) applicable to village corporations. One of the
rights of a shareholder of a business corporation is the right to
enjoy equal rights, preferences, and privileges on his or her
shares. Alaska Statute 10.06.305 provides that "[a]ll shares of a
class shall have the same voting, conversion, and redemption rights
and other rights, preferences, privileges, and restrictions." The
statute thus commands that every share shall have the right to "the
same rights, preferences, and privileges"of whatever sort.
Whether or not the payments at issue were "dividends"as the
plaintiffs maintain, they unquestionably may be characterized as
"preferences"or "privileges"based on stock ownership. It is
evident, therefore, that the payments violated the rights of the
excluded shareholders.
B. Statute of Limitations Issues
1. The Six-Year Statute Governs this Case
Kake claims that this suit is an action "upon a liability
created by statute"and is therefore governed by the two-year
statute of limitations expressed in AS 09.10.070. Plaintiffs argue
that the six-year statute set forth in AS 09.10.050 controls
because this action is contractual in nature and is one that was
recognized at common law.
We agree with the plaintiffs. The relationship between
a corporation and its shareholders is primarily contractual. See
Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat) 518,
656, 4 L. Ed. 629, 664 (1819); State ex rel. Swanson v. Perham, 191
P.2d 689, 693 (Wash. 1948). This court has previously held that
actions against corporate directors for breach of fiduciary duty
sound in contract and are governed by the six-year statute. Bibo
v. Jeffrey's Restaurant, 770 P.2d 290, 295-96 (Alaska 1989). It is
our view that the holding in Bibo applies by analogy to this case.
2. A Separate Cause of Action Accrued with Each Payment
Kake argues that the cause of action accrued on the
effective date of the plan not, as Judge Jahnke ruled, that a
separate cause of action accrued with each discriminatory payment.
Citing Howarth v. First National Bank of Anchorage, 540 P.2d 486,
490-91 (Alaska 1975), Kake argues that it is not necessary for an
injury to occur in order for a cause of action in contract to
accrue. It contends that a cause of action accrues at the time
when the plaintiffs could have first maintained the action to a
successful conclusion. Plaintiffs, on the other hand, contend that
each discriminatory distribution gave rise to a new cause of action
because each payment was a new wrong. They rely on, among other
cases, Bibo, 770 P.2d at 294.
One of the claims in Bibo was that controlling
shareholders of a corporation made excessive compensation payments
to a bookkeeping service in which the controlling shareholders had
a majority interest. Id. at 292. Bibo, the minority shareholder,
claimed that these excessive payments were, in essence, discrimina-
tory dividends. Id. We held that a separate cause of action
accrued with each payment to the bookkeeping service. "Each
excessive payment is a separate wrongful act." Id. at 294.
It is our view that the Bibo precedent is applicable
here. Acceptance of the rule advocated by Kake would permit a
corporation to escape liability for a plan to pay illegal
distributions by announcing the program and then awaiting the
expiration of the period of limitations before actually paying the
distributions. We see nothing to commend such a result. (EN1)
3. Payments Made before August 31, 1984 Are Time
Barred
In calculating damages, Judge Carpeneti did not distin-
guish between payments made more than six years before this suit
was filed and payments made within the six-year period. Given our
acceptance of Judge Jahnke's ruling that each discriminatory
payment was a separate wrongful act, it follows that no compensa-
tion may be awarded for payments which were made more than six
years before the suit was filed. While continuing payments prevent
the running of the statute of limitations, there can be no redress
for the time-barred payments. See Oaksmith v. Brusich, 774 P.2d
191, 200 n.10 (Alaska 1989).
4. The Minor Tolling Statute Was Applied Properly
The trial court ruled that the statute of limitations for
the claims of minor stockholders was tolled by AS 09.10.140. This
statute provides in relevant part:
(a) If a person entitled to bring an
action . . . is at the time the cause of
action accrues . . . under the age of majority
. . . the time of . . . disability . . . is
not a part of the time limit for the commence-
ment of the action. . . . [T]he period within
which the action may be brought is not
extended in any case longer than two years
after the disability ceases.
Stock of ANCSA village corporations "that a minor is
entitled to receive . . . shall be held by a custodian." AS
13.46.085(a). The custodianship is governed by the provisions of
the Alaska Uniform Transfers to Minors Act, AS 13.46. See AS
13.46.085(d). Judge Jahnke ruled that the minor tolling statute
applies, even though shares of stocks are controlled by a custodian
because legal title to the shares is held by the minor rather than
the custodian.
Kake takes no issue with Judge Jahnke's conclusion that
legal title to ANCSA stock held for a minor is in the minor rather
than in the custodian. Kake argues, however, that since a
custodian has the power to sue and a minor does not, AS 09.10.140
does not apply. Kake argues:
[Alaska Statute] 09.10.140 tolls the statute
of limitations "if a person who is entitled to
bring an action . . . is, at the time the
cause of action accrues . . . under the age of
majority." In this case the person who is
entitled to bring the action at the time it
arose is the custodian, who is not under the
age of majority. Consequently, AS 09.10.140
does not, by its terms, toll the statute of
limitations for stock held by custodians.
Kake also argues that the policy reasons underlying statutes of
limitations, the encouragement of prompt prosecution of claims and
avoiding injustices which may result as a consequence of delay,
favor not applying the tolling statute where there is a competent
custodian.
Kake's argument focusing on the text of AS 09.10.140(a)
lacks merit in our view. The "person"referred to in subsection
(a) is the minor or other person under disability. The concept of
entitlement to bring an action is most sensibly construed to mean
entitlement, but for the person's disability. So understood, the
act applies to minors, even those with guardians. While it is true
that a custodian may sue on behalf of a minor, who is in turn not
legally able to sue, a similar state of affairs exists for injured
minor children. Their parents may sue for them, and they are
legally disabled from suing on their own behalf. (EN2) Yet, in
such cases, the tolling rule plainly applies. E.g., Fields v.
Fairbanks North Star Borough, 818 P.2d 658 (Alaska 1991).
There is weight to Kake's policy argument. However,
there are countervailing policy considerations. Custodians are
ordinarily not professional representatives and they may not be
alert to the need to take action on a minor's behalf. It can be
regarded as fundamentally unfair to a minor to saddle the minor
with the consequences of a custodian's neglect. We stated in
Haakanson v. Wakefield Seafoods, Inc., 600 P.2d 1087, 1090-91
(Alaska 1979):
The legislature has found [by enacting AS
09.10.140] . . . that certain circumstances
outweigh the policies underlying these
statutes of limitation . . . .
This statute expresses the public policy
that favors safeguarding the interests of
minors . . . .
We can think of no good reason why this
expression of legislative policy should not
apply to wrongful death actions.
As in Haakanson, we can think of no persuasive reason why the minor
tolling rule should not apply to cases involving a minor's property
which is controlled by a custodian. (EN3)
C. The Superior Court Was Correct to Permit the Plaintiffs
to Proceed with a Direct Action
1. Permitting a Direct Action in this Case Is the Only
Way to Provide an Adequate Remedy for the Share-
holders Who Were Excluded from the Financial
Security Plan
If a direct action were not permitted in this case, the
possible defendants in a derivative action would be (1) the
shareholders who received payments under the financial security
plan, and (2) the corporation's officers and directors. For the
following reasons, it is unlikely that a derivative suit against
either or both of these groups would be an adequate remedy for the
plaintiffs.
First, the corporation may not be entitled to any damages
from the shareholders who received payments under the financial
security plan. Under AS 10.06.378, liability is imposed on
shareholders who receive unlawful dividends only when they have
accepted payments knowing that the distribution was in violation of
certain legal limits. It is unlikely that the beneficiaries of the
financial security plan knew that the payments violated the law.
This suggests that the beneficiaries of the financial security plan
would not be liable to the corporation.
Second, it is unlikely that any damages collected from
the responsible directors and officers would approximate the sum of
payments made under the plan. (EN4)
2. Courts Have Wide Discretion to Determine Whether a
Complaint States a Derivative or a Primary Claim
Courts generally "have wide discretion in interpreting
whether a complaint states a derivative or primary claim." Charles
R.P. Keating & Jim Perkowitz-Solheim, 12B Fletcher Cyclopedia of
the Law of Private Corporations sec. 5911 (perm. ed. rev. vol.
1993) (hereinafter Fletcher). Indeed, as the United States Supreme
Court has recognized, the same allegations of fact in a complaint
may support either a derivative or an individual cause of action.
See J.I. Case Co. v. Borak, 377 U.S. 426 (1964) (stating with
regard to claim that proxy was false and misleading, "we believe
that a right of action exists as to both derivative and direct
causes.").
It is possible to characterize the allegations in this
case as stating a derivative claim. Courts have held that "when a
wrong has been done to the corporation, the shareholder's right to
sue the directors or wrongdoers for redress is derivative and not
primary." 13 Fletcher, supra, sec. 5928. And, in a metaphysical
sense, the illegal payments in this case can be said to have
"harmed the corporation."
There is also ample support for the proposition that
these allegations state a direct claim against the corporation.
Two points supporting this contention warrant emphasis. First:
A plaintiff alleges a special injury and may
maintain an individual action if the
shareholder complains of an injury distinct
from that suffered by other shareholders, or a
wrong involving one of the shareholder's
contractual rights as a shareholder. Thus,
where there is no question that plaintiffs are
claiming an injury that was not suffered by
all shareholders, but only by minority
shareholders, that action is properly
classified as representative rather than
derivative.
13 Fletcher, supra, sec. 5908. In this case, the plaintiffs do not
allege that the corporation was harmed. Their claim is that the
corporation by paying certain shareholders a discriminatory
distribution harmed them. Another way of expressing this point is
that the rule "that a shareholder cannot sue for injuries to his
corporation . . . [does not apply when] the shareholder suffered an
injury separate and distinct from that suffered by other
shareholders." 13 Fletcher, supra, sec. 5911. In this case, the
excluded shareholders clearly "suffered an injury separate and
distinct from other shareholders." The shareholders who received
payments under the plan suffered no meaningful injury whatsoever.
Although it seems anomalous to say that a shareholder who
has received illegal payments has suffered an injury, it is true
that there are cases in which courts have required a derivative
suit where fiduciaries of a corporation who were also shareholders
received illegal payments. (EN5) Such courts have reasoned that
all the shareholders of the corporation -- even the fiduciaries who
received illegal payments -- were harmed by the diminution in value
of their shares and that the "corporation"therefore was injured.
A holding permitting the plaintiffs here to proceed through a
direct action would not be inconsistent with these cases: In all
such decisions of which we are aware, the defendant shareholders
were also fiduciaries of the corporation. This difference is
significant because, as already suggested, a corporation can
recover from fiduciaries who misappropriate corporate assets. It
may not be able to recover from rank and file shareholders.
Consequently, where the recipients of the misappropriated funds are
fiduciaries, a derivative action will adequately compensate the
plaintiffs; where the recipients of misappropriated funds are rank
and file shareholders, a derivative action will not adequately
compensate the plaintiffs.
The second point supporting the contention that a direct
action is appropriate here is that there are many reported cases
concerning discriminatory distributions which proceeded as direct
actions. See, e.g., Amalgamated Sugar Co. v. NL Industries, Inc.,
644 F. Supp. 1229 (S.D.N.Y. 1986); Asarco, Inc. v. Holmes A. Court,
611 F. Supp. 468 (D.N.J. 1985); Jones v. H.F. Ahmanson & Co., 460
P.2d 464 (Cal. 1969); Donahue v. Rodd Electrotype Co., 328 N.E.2d
505 (Mass. 1975); Erdman v. Yolles, 233 N.W.2d 667 (Mich. App.
1975); Stoddard v. Shetucket Foundry Co., 34 Conn. 542 (1868).
Although such cases usually involve close corporations, our
research has not revealed a single case in which (1) a publicly-
held corporation made a discriminatory distribution to a group of
its rank and file shareholders, (2) the shareholders attempted to
proceed through a direct action, and (3) the court held that the
plaintiffs had to proceed through a derivative action.
Thus, on the facts at issue here, a court has sufficient
discretion to permit this action to proceed as either a direct or
a derivative suit. The crucial inquiry, therefore, is how the
court should exercise its discretion. (EN6)
3. Although Its Decision to Permit the Plaintiffs to
Proceed with a Direct Action Was Appropriate, the
Superior Court Did Not Adequately Address Two
Policy Concerns Raised by Its Order
The superior court's decision (1) permitting the
plaintiffs to proceed with a direct action, and (2) ordering Kake
to pay damages immediately and in a single payment to the excluded
shareholders, raises two policy concerns which the superior court
did not adequately address. First, it is possible that an
immediate lump sum payment to the excluded shareholders would be
inconsistent with AS 10.06.358. That statute places certain
limitations on the ability of a corporation to pay dividends.
Second, it is conceivable that requiring Kake to pay damages
immediately and in a lump sum would disrupt Kake's operations or
prevent Kake from pursuing a profitable business opportunity. The
result would be that all Kake shareholders would be injured.
Although these concerns should be addressed by the
superior court on remand, neither of the concerns warrants a
conclusion that the superior court erred in permitting a direct
action. As discussed above, where discriminatory payments are made
to a group of rank and file shareholders, barring the excluded
shareholders from proceeding through a direct action likely
forecloses their only effective remedy. Under these circumstances,
relegating the plaintiffs to a derivative suit seems unjustifiable
if the two policy concerns can be adequately addressed in the
context of a direct action.
They can be. On remand, the superior court should
determine whether an immediate lump sum payment of the damages it
orders will deplete Kake's assets below the level which would be
permissible under AS 10.06.358. If a lump sum payment would have
such an effect, the superior court should fashion a payment
schedule which ensures that Kake's assets will not be depleted
below the level permissible under AS 10.06.358. The superior court
should also give Kake the opportunity to make a showing that its
operations or investment opportunities would be impaired if it were
compelled to pay immediately the entire amount of the judgment. If
Kake can make such a showing, the superior court should fashion an
appropriate payment schedule.
Finally, if the superior court concludes that an
immediate lump sum payment of damages would be inappropriate for
either of the reasons discussed above, the court should consider
ordering Kake to suspend the payment of dividends to shareholders
until Kake fully compensates the shareholders in the plaintiff
class.
D. Measure of Damages
The trial court ruled that damages were to be determined
by dividing the cost of the plan by the number of shares that were
included in the plan, to arrive at the cost of the plan per share,
then multiplying that cost by the number of shares held by the
plaintiffs who were excluded from the plan. The court found that
42,200 shares participated in the plan, and the plan cost the
corporation a total of $1,996,000. This resulted in a cost per
share of $47.30. The trial court awarded each member of the
plaintiff class $47.30 times the number of shares each held.
This approach is inconsistent with the nature of this
case. If this were a derivative action, the remedy would be based
upon the harm done to the corporation. However, this is a direct
action to recover damages for a discriminatory distribution and the
measure of damages suffered by plaintiffs should be a payment that
gives them parity with those who received payments under the plan.
See Nichols v. Olympia Veneer Co., 246 P. 941 (Wash. 1926).
Plaintiffs suggest, perhaps rhetorically, that a damage
award could be made that would give plaintiffs parity with the
highest distribution that any share received. This would amount to
$542.16 per share. Plaintiffs arrive at the $542 figure by
dividing the premiums that Kake paid for the shareholders with the
most expensive policies, by the one hundred shares owned by those
shareholders. This suggestion is faulty for two reasons. First,
no shareholder actually received $542 per share. Second, the
appropriate measure of damages is not the cost to the corporation,
but the benefit to the shareholders. Although the premiums for the
life insurance policies for several of the shareholders were in
excess of $500 per share, these shareholders did not actually
receive the policies, nor were their beneficiaries slated to
receive the benefits defined in the policies. The policies were
the method chosen by Kake to fund the payments promised under the
plan. Kake retained control of the policies, retained the cash
surrender value, and was the named beneficiary. Benefits paid upon
the death of a shareholder were pooled into a managed account,
controlled by Kake, and it was from this account that payments were
made to the beneficiaries. No shareholder can actually be said to
have received a life insurance policy under the program. The fact
that some policies were very expensive while others were relatively
cheap is irrelevant to plaintiffs' remedy.
Plaintiffs argue, apart from the suggestion discussed
above, that benefits of $121 per share were paid to a significant
number of Kake shareholders and that plaintiffs' damages should be
calculated based on that benefit level. The $121 per share figure
is based on the amount paid the elders. They received twenty-three
monthly payments of $100 before 1982. They did not receive any
payments for the next seven years, but were then given a lump sum
of $9,800, or $98 per share.
We agree that the payments to the elders furnish an
appropriate measure for the compensatory distribution due
plaintiffs. However, because the twenty-three monthly payments
were all made more than six years before plaintiffs filed this
suit, recovery for discrimination based on these payments is barred
by the statute of limitations, except for shares held by minors.
The $9,800 payments were made within the year before the suit was
filed. Therefore adult plaintiffs are entitled to $98 per share,
and minor plaintiffs are entitled to $121 per share.
E. The Trial Court Did Not Abuse Its Discretion in Denying
the Motion to Expand the Class
On March 10, 1993, the trial court certified the class
consisting of "all those shareholders of Kake Tribal Corporation
(1) who are not presently enrolled in the Kake Financial Security
Plan, or (2) who have not been enrolled in the Plan at any time
since 15 October 1980, or (3) who own [Kake] stock other than
shares designated as '100 shares of original Class A Stock.'" In
April 1993, the plaintiffs filed a second amended complaint which,
they claim, expanded the class. As previously stated, supra p. 5,
immediately before trial plaintiffs filed a motion to amend the
class certification order to "redefine the Class to include
additional [Kake] shareholders who have been excluded from full
participation in [Kake's] corporate distributions." Judge
Carpeneti indicated that he would grant the motion to expand the
class, but only on conditions that plaintiffs would not accept.
Plaintiffs' post-trial motion for reconsideration had a similar
ultimate result. Plaintiffs argue that the trial court should have
unconditionally granted the motion to expand the plaintiff class.
The trial court acted within its discretion in condition-
ing expansion of the class in the manner that it did. The class
proposed by plaintiffs would have broadened the scope of the
lawsuit. Plaintiffs' proposal would have inflated the class from
only those shareholders who had never participated in the program
to all shareholders except those who had received the maximum
amount of benefits under the plan. As a practical matter, this
would have included every shareholder who was not enrolled in the
senior program. (EN7)
New defenses on liability applicable to the new class
members were a possibility. The damages trial would be more
complicated. Delay so that the notice and exclusion procedures
mandated by Civil Rule 23(c) could be followed was inevitable.
Trial time and trial preparation time would be lost. Under these
circumstances the court could have simply denied the motion on
untimeliness grounds. Conditioning the grant of the motion on re-
opening liability issues and paying costs for wasted time was also
an appropriate resolution. (EN8)
F. Prejudgment Interest Must Be Recalculated
Kake argues that prejudgment interest should not reach
back beyond the bar imposed by the six-year statute of limitations.
No effective response is made to this argument, and it is
manifestly correct. The argument does not, however, apply to
shares held by minors whose remedy is not barred by the six-year
statute because of the minor tolling provision of AS 09.10.140.
Kake also argues that AS 09.30.070(b) governs a portion
of this case. That section provides in relevant part:
[P]rejudgment interest accrues from the day
process is served on the defendant or the day
defendant received written notification that
an injury has occurred and that a claim may be
brought against the defendant for that injury,
whichever is earlier.
This provision is applicable to causes of action which accrue after
June 11, 1986. It therefore does not apply to payments made before
that date.
Kake acknowledges that it received written notice from
Mrs. Hanson of her claim and that of her son prior to June 11,
1986, but argues that it did not receive notice of a class claim
until the amended complaint was filed on June 15, 1992. Therefore
one issue is whether notice of an individual claim under subsection
.070(b) will suffice to support the accrual of prejudgment interest
on a class claim.
Plaintiffs argue that subsection .070(b) does not apply
to contract claims, as it was adopted as part of tort reform
legislation and uses the language of tort ("injury") rather than
contract.
The briefing on these questions is inadequate.
Ordinarily, in such circumstances the proponent of the issue is
deemed to have waived the issue. Adamson v. University of Alaska,
819 P.2d 886, 889 n.3 (Alaska 1991) ("[W]here a point is given only
cursory statement in the argument portion of a brief, the point
will not be considered on appeal."). However, in this case we do
not believe that the waiver remedy would be appropriate because
both parties are proponents of inadequately briefed points going to
the award of prejudgment interest. Additionally, prejudgment
interest must be entirely recalculated given our decision on the
other issues in this case. Under these circumstances, we believe
that it is best that the question of the application of AS
09.30.070(b) be reconsidered by the trial court on remand.
G. Attorney's Fees
Plaintiffs argue that the trial court's award of
attorney's fees under Civil Rule 82 was inadequate. As noted, the
court awarded attorney's fees of $125,000 to be paid by Kake to the
class. (EN9) In making the award the court did not follow the
schedule set forth in Civil Rule 82(b)(1). It found that a
variation was warranted because "Kake Tribal conducted a well-
financed, deliberately excessively litigious defense." On the
other hand, the trial court found that plaintiffs' counsel were
inefficient and that the total amount of attorney's fees reasonably
incurred by them had they worked efficiently would have been
$210,000. The court awarded more than half of this sum as a
partial award of attorney's fees in consideration of the factors
listed in Civil Rule 82(b)(3).
Based on our review of the record we think that the
superior court's conclusion concerning the inefficiency of
plaintiffs' counsel is a reasonable one. Based on that conclusion
and given the fact that the court's award of attorney's fees was
greater than the amount that the class would have been entitled to
under the schedule of Civil Rule 82(b)(1), we conclude that the
award was not erroneous. On the other hand, on remand, it may be
appropriate for the court to reconsider the award in light of the
new judgment amount. The court is authorized to do so.
III. CONCLUSION
The judgment of the trial court concerning liability is
affirmed. The award of damages and prejudgment interest is
vacated. The award of attorney's fees is affirmed, but the court
may reconsider the award after damages are recalculated. This case
is remanded for further proceedings in accordance with this
opinion.
AFFIRMED in part, VACATED in part, and REMANDED.FABE, Justice, dissenting.
I. INTRODUCTION
I dissent from the opinion of the court because I
disagree with its decision to allow plaintiffs to bring a direct
rather than a derivative action. The gravamen of the plaintiffs'
complaint is a wrong to the corporation as a whole. Basic
principles of corporation law therefore require the plaintiffs to
bring a derivative shareholder action to remedy that wrong. The
court's failure to adhere to this well-established rule leads it to
adopt a result that rather than remedying the discriminatory plan,
continues it. Under the court's decision, shareholders who are as
innocent of wrongdoing as the plaintiffs will be forced to pay for
a recovery that bears little relationship to any harm the
plaintiffs actually suffered.
II. DISCUSSION
A. As a Native Corporation, Kake Differs Significantly from
Non-Native Corporations in Purpose and History.
The facts of this case cannot be properly understood
without a brief discussion of the history and aims of the Alaska
Native Claims Settlement Act (ANCSA). Although Kake's "financial
security plan"was not permissible under ANCSA, the distributions
under the plan did not arise from greed or bad faith. Rather, they
resulted from the conflicts inherent in the difficult role ANCSA
gave to Native corporations.
In enacting ANCSA, Congress intended to settle Native
land claims in a way that both initiated Natives into the "American
mainstream,"Monroe E. Price, A Moment in History: The Alaska
Native Claims Settlement Act, 8 UCLA-Alaska L. Rev. 89, 95 (1979),
and addressed their "real economic and social needs." 43 U.S.C.
sec. 1601(b) (1994). Under ANCSA, Congress imposed on the myriad
Alaska Native communities a "formidable framework"of corporations
to distribute settlement land and funds and serve as a vehicle for
Native development. Felix S. Cohen's Handbook of Federal Indian
Law 752-53 (Rennard Strickland et al. eds., 1982) (hereinafter
Cohen). These corporations, as the Ninth Circuit recently noted,
"differ markedly from ordinary business corporations"in their
structure and purposes. State v. Native Village of Venetie Tribal
Gov't, 101 F.3d 1286, 1295 (9th Cir. 1996). John Shively, an
expert witness for Kake in the instant case, testified that ANCSA's
use of the corporate model should be understood as a "social
experiment,"unprecedented in Congress's dealings with Native
Americans elsewhere. See Cohen, supra, at 740.
In 1987, Congress amended ANCSA to reconcile the
corporate form and the needs of Native communities. Alaska Native
Claims Settlement Act Amendments of 1987, S. Rep. No. 100-201,
100th Cong., 1st Sess. 19-21 (1987), reprinted in 1987 U.S.C.C.A.N.
3269-72 (hereinafter S. Rep. 100-201). Under these amendments,
Native corporations are allowed to convey assets to a "settlement
trust"to "promote the health, education, and welfare of its
beneficiaries and preserve the heritage and culture of Natives."
43 U.S.C. sec. 1629e(b)(1) (1994). (EN1) The amendments also allow
regional corporations to issue different classes of stock so as to
benefit "Natives who have attained the age of sixty-five"and
"other identifiable groups of Natives." 43 U.S.C. sec.
1606(g)(2)(B)(iii)(I) and (II) (1994). The result, as John Shively
testified, has been to "recognize the nativeness of the settlement,
not the corporateness of the settlement"and to "provide for what
the [N]atives felt met their . . . real economic and social needs."
See S. Rep. 100-201, supra p. 29, at 20-21.
It is against this backdrop that Kake's financial
security plan must be understood. The plan began as a means to
assist shareholders in the village corporation who had seen little
direct compensation from the ANCSA settlement. (EN2) Rather than
"merely a method of distributing corporate assets to certain
shareholders," Slip Op. at 7, the plan was an attempt to overcome
the "'limitations of the corporate form of organization as the
means of delivering benefits.'" Martha Hirschfield, Note, The
Alaska Native Claims Settlement Act: Tribal Sovereignty and the
Corporate Form, 101 Yale L.J. 1331, 1338 (quoting U.S. Dep't of the
Interior, ANCSA 1985 Study, at ES-14 (June 29, 1984) (unpublished
draft)).
Kake chose the structure of the plan at the suggestion of
Mutual Life Insurance Company of New York (MONY), which then sold
Kake the insurance to fund it. MONY assured Kake's president that
the plan would "fit into the provision [sic] of the Alaska Native
Claim [sic] Act"and "protect both Kake Tribal Corporation and
Mutual of New York from not only dissatisfied [sic] shareholder
[sic], but eager attornies [sic] and the Internal Revenue Service
as well."
The board of directors adopted the plan and publicized it
"for the welfare of our people who were retired or for the welfare
of those whom they left behind when they died." Clarence Jackson,
the president of Kake and a member of the board of directors when
the plan was adopted, stated that the board "feared that ANCSA
meant that various welfare programs of the United States for Alaska
Natives might be phased out leaving it to the corporations to
provide for the security of these people." Along with the benefits
described by the court, Slip Op. at 2-4, the corporation also paid
the funeral expenses for all deceased shareholders, whether or not
they were plan members. The plan, while untenable for a
traditional business corporation, was in line with ANCSA's purposes
and similar to the programs approved by Congress in the 1988
amendments to ANCSA and recently upheld by the Ninth Circuit. See
43 U.S.C. sec. 1606(g)(2)(B)(iii)(I); Broad v. Sealaska Corp., 85
F.3d 422 (9th Cir. 1996).
However, while the context of this case is unusual, I
agree with the court that the financial security plan was not
permitted under ANCSA or Alaska law. Kake never undertook any of
the procedural steps to establish a settlement trust under 43
U.S.C. sec. 1629e (1994). Therefore, Kake's financial security
plan cannot be approved under the 1988 amendments to ANCSA. The
question remains, however, what legal consequences should flow from
that conclusion.
B. The Superior Court Should Have Required Plaintiffs to
Frame Their Complaint as a Derivative Shareholders'
Action, Not a Direct Action.
Under basic principles of corporation law, when the board
of directors and executives of a corporation make an impermissible
payment of corporate funds, the shareholders' right to redress is
derivative and not direct. Charles R. P. Keating & Jim Perkowitz-
Solheim, 12B Fletcher Cyclopedia of the Law of Private Corporations
sec.sec. 5928, 5929.20 (perm. ed. rev. vol. 1993) (hereinafter
Fletcher). This is the rule even if the illegal payments are made
to other shareholders. See, e.g., Mann-Paller Found. v.
Econometric Research, 644 F. Supp. 92, 93-94, 98 (D.D.C. 1986).
The reasoning behind this rule is that such impermissible payments,
by reducing the corporation's assets and thus the value of each
share of stock, harm all shareholders equally. Id. at 98; see also
12B Fletcher, supra p. 5, sec. 5913. Thus, for the shareholders to
be made "whole,"the misspent assets must be recovered by the
corporation so that they can be used for proper corporate purposes.
Hikita v. Nichiro Gyogyo Kaisha, Ltd., 713 P.2d 1197, 1199 (Alaska
1986).
The court acknowledges the merit of this analysis, Slip
Op. at 15, but avoids its application. Instead, relying on its
conviction that the harm to the plaintiffs consisted in Kake's
failure to make payments to them under the plan, the court
concludes that Kake must pay the plaintiffs the same amount as it
paid the elders. Slip Op. at 17, 22-23. This reasoning can be
summarized as follows: (1) the plaintiffs' only possibility for a
recovery is through a direct action; (2) the trial court has broad
discretion in allowing direct actions; (3) a direct action is
justifiable in this case because the plaintiffs complain of a
"special injury;"and (4) the trial court can modify the remedy to
alleviate the problems created by permitting a direct action. I
address each step of this argument in order.
The court's opinion states that "a direct action . . . is
the only way to provide an adequate remedy"to the plaintiffs.
Slip Op. at 13-14. It reasons first that "the corporation may not
be entitled to any damages from the shareholders who received
payments under the financial security plan." Slip Op. at 14. I
agree. The court also states, however, that "it is unlikely that
any damages collected from the responsible directors and officers
will approximate the sum of payments made under the plan." Slip
Op. at 14. There is no support for this assumption in the record
before us. Furthermore, even if this assertion were supported by
the record, I fail to see its legal relevance. The proper focus in
determining whether a shareholder may bring a direct or a
derivative action is not the likelihood of complete recovery, but
the nature of the harm. 12B Fletcher, supra p. 5, sec. 5908.
The court further argues that "even if the corporation
actually did recover damages equivalent to the total payments under
the financial security plan, any part of the damages paid by the
directors and officers would be a windfall for the shareholders who
received distributions under the plan." Slip Op. at 14 n.4.
However, such a "windfall"would not harm the plaintiffs. The
plaintiffs would receive no more and no less than what they were
entitled to: the full value of their shares in the corporation.
Any extra payment to shareholders who received distributions under
the plan would be funded entirely by those found liable for the
impermissible distributions, not by the plaintiffs or the
corporation. Furthermore, the payments would not reward
wrongdoing, since, as the court notes, the shareholders who were
included in the plan most likely did not know "the payments
violated the law." Slip Op. at 14.
As the next step in its analysis, the court states that
the superior court has "wide discretion in interpreting whether a
complaint states a derivative or primary claim." Slip Op. at 14-
15. The full statement of the rule is as follows:
[C]ourts generally have wide discretion in
interpreting whether a complaint states a
derivative or primary claim. The caption and
prayer may aid in determining which is the
true character of the action, although the
complaint does not make an action individual
or derivative by calling it one or the other,
and the prayer for relief may be disregarded
in determining whether the action is an
individual or a derivative one. The nature of
the action is to be determined from the body
of the complaint rather than from its title.
12B Fletcher, supra p. 32, sec. 5912. This passage means that the
trial court is free to disregard the parties' characterization of
the cause of action, not that the law affords the trial court
latitude in making its determination. This principle, in my view,
is central to a correct understanding of this case. The superior
court erred in this case because it failed to look beyond the
plaintiffs' characterization of their claim.
There are cases, as the court's opinion points out, in
which a shareholder may bring both a derivative and a direct
action. See, e.g., Hikita, 713 P.2d at 1199. However, in such
cases the shareholder must have an independent basis for the direct
action, usually the corporation's violation of a duty "arising from
contract or otherwise, and owed to the shareholder directly." 12B
Fletcher, supra p. 32, sec. 5921. Such an independent basis is not
present in this case. (EN3)
In the third step of its analysis, the court contends
that the plaintiffs may bring a direct action in this case because
they suffered an injury "separate and distinct from other
shareholders." Slip Op. at 16. As the majority goes on to point
out, however, courts have not adopted this "special injury"
exception in cases like this one where all the shareholders, even
the ones who received the illegal payments, were harmed by the
misspending of corporate assets and the corresponding diminution in
the value of shares. Slip Op. at 17-18. This reasoning also
applies here. All the shareholders of Kake were injured by the
financial security plan, many of them to an extent almost as great
as the plaintiffs. (EN4) The fact that ten of the 575 shareholders
received, through no fault of their own, a payment of $9,800 should
not be allowed to alter the analysis of this case. As the
plaintiffs correctly state, most shareholders "received an
inexpensive distribution, a cheap insurance policy costing only a
fraction of what the Cadillac policies cost."
The court recognizes this crucial point when it states in
the section of the opinion discussing its remedy: "[I]t is
conceivable that requiring Kake to pay damages immediately and in
a lump sum would disrupt Kake's operations or prevent Kake from
pursuing a profitable business opportunity. The result would be
that all Kake shareholders would be injured." Slip Op. at 18
(emphasis supplied). In other words, the court acknowledges that
even though plaintiffs will benefit by receiving a damage award,
they will also be harmed by the impact of that award on the value
of their shares. This statement applies equally to the payments
made under the plan and stands in contradiction to the majority's
statement that the "shareholders who received payments under the
plan suffered no meaningful injury whatsoever." Slip Op. at 16.
As its "second point supporting the contention that a
direct action is appropriate,"the court asserts that "there are
many reported cases concerning discriminatory distributions which
proceeded as direct actions." Slip Op. at 17. The six cases cited
to support this statement, however, are distinguishable. In the
first two, Amalgamated Sugar Co. v. NL Industries, 644 F. Supp.
1229, 1234 (S.D.N.Y. 1986) and Asarco, Inc. v. Holmes A. Court, 611
F. Supp. 468, 479-80 (D.N.J. 1985), the plaintiffs sought
injunctions against ultra vires corporate acts. Such a direct
action to enjoin the plan, rather than to recover monetary damages,
would have been appropriate in this case. (EN5) See 12B Fletcher,
supra p. 32, sec. 5915.10.
The rest of the cited cases deal with closely held
corporations. (EN6) While some courts "recognize the right of a
close corporation shareholder to sue directly . . . on a cause of
action which would normally have to be brought derivatively," 12B
Fletcher, supra p. 32, sec. 5911.50, this court does not. Arctic
Contractors, Inc. v. State, 573 P.2d 1385, 1386 n.2 (Alaska 1978)
(stating that the "rule against individual shareholder suits also
applies where all the stock in the corporation is held by one
person or by a small number of people"). Even if we did recognize
this exception, however, Kake is not a close corporation.
Furthermore, the policy reasons for treating close corporations
differently than other corporations in regard to direct actions do
not support allowing a direct action in this case. (EN7)
Finally, the court attempts to address the "policy
concerns"raised by its decision by instructing the superior court
to make two findings. Slip Op. at 19-20. Rather than alleviate
those concerns, however, the findings required by the majority
highlight them, demonstrating even more clearly why the plaintiffs
should not have been allowed to bring a direct action in this case.
This court stated in Hikita, 713 P.2d at 1199, that one reason
direct actions are not permitted where the harm is to the
corporation is to protect "the prerogative of the board of
directors to determine how the recovered damages should be
utilized." We have recognized that, because "[j]udges are not
business experts, . . . courts are reluctant to substitute their
judgment for that of the board of directors." Alaska Plastics,
Inc. v. Coppock, 621 P.2d 270, 278 (Alaska 1980). The majority
opinion, however, orders the superior court to consider if Kake's
"operations or investment opportunities would be impaired if it
were compelled to pay immediately the entire amount of the
judgment." Slip Op. at 19. This represents exactly the type of
intrusion courts have traditionally avoided.
The court's opinion also requires the superior court, if
it "concludes that an immediate lump sum payment of damages would
be inappropriate,"to "consider ordering Kake to suspend the
payment of dividends to shareholders until Kake fully compensates
the shareholders in the plaintiff class." Slip Op. at 19-20. This
suspension of dividends underlines that the majority of share-
holders, whom the plaintiffs acknowledge suffered considerable
discrimination under the plan, will fund the plaintiffs' recovery.
Thus, for these shareholders, the majority's decision, rather than
remedying the plan, continues it: Kake will now be forced to make
more cash payments to yet another, larger group of select
shareholders.
III. CONCLUSION
Kake erred in adopting its financial security plan. This
mistake injured not only the plaintiffs, but all of those who own
shares in the corporation. These individuals, who became corporate
shareholders by Congressional action rather than through individual
investment decisions, have a tremendous stake in the success of
their corporation. Allowing plaintiffs to recover directly from
the corporation is not only unfair to the rest of the shareholders,
it is inconsistent with the principles of corporation law.
Ironically, this same body of law that has so often been a
stumbling block for Native corporations should, in this case, have
worked in Kake's favor. Therefore, I respectfully dissent.
ENDNOTES:
1. Kake also argues that plaintiffs' claims are barred by laches.
Since, as indicated below, we hold that this is a direct action to
recover damages for discriminatory distributions, the action is one
"at law"and the doctrine of laches is therefore inapplicable. See
Carter v. Hoblit, 755 P.2d 1084, 1088 (Alaska 1988); Gudenau v.
Bang, 781 P.2d 1357, 1363 n.9 (Alaska 1989).
2. AS 09.15.010 provides: "A parent may maintain an action as
plaintiff for the injury or death of a child below the age of
majority. A guardian may maintain an action as plaintiff for the
injury or death of a ward." "The general rule is that an infant
cannot personally bring an action on his behalf . . . but must be
represented . . . by some legally authorized person." 42 Am. Jur.
2d Infants sec.sec. 155, 158 (1969).
3. The trial court's rationale is in accord with the rule
embraced by most jurisdictions. See 51 Am. Jur. 2d Limitation of
Action sec. 183 (1970):
In most jurisdictions, however, it is the rule
that where the legal title or right of action
is in the infant, the statute of limitations
does not run against him during his minority,
and the suit may be instituted by him within
the statutory period after he has reached
majority, even though a general guardian was
appointed, and even though there existed other
persons of legal age who were capable of
suing.
4. Additionally, even if the corporation actually did recover
damages equivalent to the total payments under the financial
security plan, any part of the damages paid by the directors and
officers would be a windfall for the shareholders who received
distributions under the plan.
5. See Jones v. H.F. Ahmanson & Co., 460 P.2d 464, 470-71 (Cal.
1969) ("In Shaw v. Empire Savings & Loan Assn. . . . the court
noted the 'well established general rule that a stockholder of a
corporation has no personal or individual right of action against
third persons'. . . . From this the court reasoned that a minority
shareholder could not maintain an individual action unless he could
demonstrate the injury to him was somehow different from that
suffered by other minority shareholders. . . . In so concluding
the court erred. The individual wrong necessary to support a suit
by a shareholder need not be unique to that plaintiff.") (citations
omitted).
6. See Comment, Distinguishing Between Direct and Derivative
Shareholder Suits, 110 U. Pa. L. Rev. 1147, 1157 (1962)
("Distinguishing between direct and derivative shareholder suits is
not made easier by application of such question-begging phrases as
'personal right' and 'corporate cause of action.' Proper
characterization can only be effected by considering the possible
results of each suit: an individual recovery may leave corporate
creditors with unsatisfied claims or deprive shareholders of part
of their investment; a derivative suit may be barred by res
judicata, may be prohibitive by reason of a security for expenses
statute, or may inadequately compensate shareholders for peculiar
individual injuries.").
7. The court found that the equities as to such shareholders were
less strong than those pertaining to class members:
The court finds that shareholders who were
never enrolled were not informed of their
right to enroll.5
____________________
5 The court makes a contrary finding as to
enrollees in the old plan who failed to enroll
in the new plan. As to these shareholders,
the evidence is clear that they were aware of
the existence of the plan generally because
they were enrolled in it and that they had
specific notice of the new plan, given the
substantial efforts of the corporation to
notify old plan members of the need to re-
enroll.
. . . .
____________________
11 The court concludes that persons who
were enrolled in the old plan but who failed
to enroll in the new plan are not entitled to
membership in the class. As to these persons
only, the court has found that they were
notified of the existence of the old plan,
because they applied and were enrolled, and
the court found that they were notified of the
existence of the new plan, given the
substantial efforts to notify old plan members
of the need to re-enroll. . . . Under these
circumstances, it would be inequitable to
calculate damages as if these shareholders
were treated unfairly by their corporation.
8. The same reasoning applies to the denial of plaintiffs' motion
for reconsideration.
9. This award was made under the fee shifting provisions of Civil
Rule 82. The court did not purport to be determining the amount of
attorney's fees which class counsel could charge the class. See
Municipality of Anchorage v. Gentile, 922 P.2d 248 (Alaska 1996).
ENDNOTES (Dissent):
1. The Ninth Circuit recently upheld such a settlement trust
established by Sealaska Corporation to make a one time payment of
$2,000 to each shareholder who reaches 65 years of age. Broad v.
Sealaska Corp., 85 F.3d 422, 425 (9th Cir. 1996). In so holding,
the court determined that ANCSA preempted state law with respect to
the establishment of trusts and the distribution of trust assets.
Id. at 426.
2. ANCSA settlement funds were distributed differently to
Natives who own shares in both a village and a regional corporation
than they were to those who only own shares in a regional
corporation. See 43 U.S.C. sec. 1606(i), (j), (m) (1994). While
those who only owned shares in regional corporations received
direct distribution of settlement funds and revenues from the sale
of timber and subsurface resources, those who owned shares in
village corporations did not; their portion was distributed instead
to the village corporation. Id.
3. The U.S. Supreme Court case cited by the court's opinion, J.I.
Case Co. v. Borak, 377 U.S. 426, 431 (1964), contradicts the
proposition for which it is cited. The Borak Court held that a
derivative action could be brought under the Securities Exchange
Act of 1934 for the injury suffered due to a deceptive proxy
solicitation. Id. at 431-32. In fact, Borak states that
ordinarily a direct action will not be available to a shareholder
as a remedy for the injury caused by deceptive proxy solicitations,
since that injury "flows from the damage done the corporation."
Id. at 432. Based on this reasoning, the Court concludes that
"[t]o hold that derivative actions are not within the sweep of the
section would therefore be tantamount to a denial of private
relief." Id.
4. The court states that "the illegal payments in this case can
be said to have 'harmed the corporation'"in "a metaphysical
sense." Slip Op. at 15. As I see it, the plan's impact on the
assets of the corporation and hence on the value of shares in the
corporation is concrete and easily measured.
5. The court's decision has the consequence of rewarding
plaintiffs, by allowing them to recover directly, for not asserting
their rights earlier.
6. These cases are distinguishable in other key respects as well.
In Jones v. H.F. Ahmanson & Co., 460 P.2d 464, 478 (Cal. 1969), the
plaintiff sought a forced buy-out of her shares, not a
distribution. Donahue v. Rodd Electrotype Co., 328 N.E.2d 505, 511
(Mass. 1975), involved a minority shareholder's "equal opportunity
to sell her shares to the corporation." The court ordered the
corporation either to reverse the purchase of the controlling
shareholder's stock or to purchase the minority shareholder's
stock. Id. at 520-21. In Erdman v. Yolles, 233 N.W.2d 667, 669
(Mich. App. 1975), the court found that the distribution at issue
was a dividend. Such a finding, not warranted by the facts of this
case, establishes a contractual right on the part of the individual
shareholder to sue the corporation directly. Id.; see also 12B
Fletcher, supra p. 32, sec. 5922. Similarly, the court in Stoddard
v. Shetucket Foundry Co., 34 Conn. 542 (1868), held that where a
dividend had been paid to all of the stockholders except plaintiff,
"the company could not set up as against [the plaintiff] that the
dividend had not been earned." 11 Timothy P. Bjur & James Solheim,
Fletcher Cyclopedia of the Law of Private Corporations sec. 5352
n.2 (perm. ed. rev. vol. 1995)(citing Stoddard, 34 Conn. 542
(1868)).
7. Courts make the exception when the close corporation is
similar to a partnership, when "there are no persons not before the
court who can be affected by the litigation,"and when there is "no
danger of a multiplicity of lawsuits." 12B Fletcher, supra p. 32,
sec. 5911.50. None of these reasons applies to this case. Kake is
not like a partnership, the majority of the shareholders affected
by this litigation are not before the court, and there is a danger
of a multiplicity of lawsuits.
 IN THE SUPREME COURT OF THE STATE OF ALASKA
ARLENE BELL HANSON, VICTOR )
CARL DAVIS, JR., and ) Supreme Court Numbers
CLIFFORD WILLIAM TAGABAN, ) S-6189/S-6239
For Themselves And All Others )
Who Are Similarly Situated, )
)
Appellants and )
Cross-Appellees, )
) O R D E R
v. )
)
KAKE TRIBAL CORPORATION, )
)
Appellee and )
Cross-Appellant. )
______________________________)
Superior Court No. 1PE-90-72 Civil
Before: Rabinowitz, Matthews, Eastaugh, and Fabe,
Justices. [Compton, Chief Justice, not parti-
cipating.]
On consideration of the Appellants' Petition for
Rehearing filed on March 3, 1997, and the Cross-Appellant's
Petition for Rehearing filed on March 3, 1997,
IT IS ORDERED:
1. Opinion No. 4784 is WITHDRAWN and Opinion No. 4822
is issued today in its place, modifying footnote 1 on page 10.
2. Except as reflected in paragraph one of this order,
both petitions for rehearing are DENIED.
3. The dissent has been modified sua sponte by the
authoring justice to delete the reference to 43 U.S.C. sec.
1606(g)(2) at page 32, lines 7-9.
Entered by direction of the court at Anchorage, Alaska on
May 23, 1997.
________________________________
JAN HANSEN
Clerk of the Supreme Court
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