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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Demmert v. Kootznoowoo, Inc. (04/05/2002) sp-5555

Demmert v. Kootznoowoo, Inc. (04/05/2002) sp-5555

     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,
     e-mail corrections@appellate.courts.state.ak.us.


            THE SUPREME COURT OF THE STATE OF ALASKA

GERTRUDE A. DEMMERT and  )
JESSIE N. JIM, for themselves      )    Supreme Court No. S-9348
and for all other who are similarly     )
situated,                     )
               Appellants,         )    Superior Court No.
                              )    1JU-95-1688 CI
     v.                       )
                              )
KOOTZNOOWOO, INC.,       )    O P I N I O N
                              )
               Appellee.      )    [No. 5555 - April 5, 2002]
                              )


          Appeal  from the Superior Court of the  State
          of  Alaska, First Judicial District,  Juneau,
          Larry R. Weeks, Judge.

          Appearances:  Fred W. Triem, Petersburg; John
          W.  Widell, Spencer Hall, Hall Zanzig Widell,
          Seattle;  Douglas M. Branson, Pittsburg,  for
          Appellants.  Clark Reed Nichols, Perkins Coie
          LLP, Anchorage, for Appellee.

          Before:    Fabe,  Chief  Justice,   Matthews,
          Eastaugh, Bryner, and Carpeneti, Justices.

          MATTHEWS, Justice.
          FABE, Chief Justice, concurring.

I.   INTRODUCTION

          I.   Gertrude Demmert and Jessie Jim appeal the superior

court's   denial   of   their  claims  that  Kootznoowoo,   Inc.,

distributed  corporate wealth and benefits  in  a  discriminatory

manner,   that   the  corporation  attempted   to   conceal   its

discriminatory practices from its shareholders, and that director

conflicts  of  interest invalidated certain  corporate  programs.

Because the superior court made findings of fact supported by the

evidence  that  resolve these issues in favor of Kootznoowoo,  we

affirm the superior court's denial of appellants' claims.

II.  FACTS AND PROCEEDINGS

          Kootznoowoo is the Native village corporation  for  the

village   of   Angoon.    Its  primary   business   is   managing

approximately  21,440 acres of timberlands selected  pursuant  to

Section  506  of the Alaska National Interest Lands  Conservation

Act.  Appellants are shareholders of the corporation.

          One  of  Kootznoowoo's major activities respecting  its

lands  is  cutting  timber.   This activity  presented  a  unique

challenge,  as  the corporation was unable to  select  the  lands

surrounding  Angoon  for resource development.   Kootznoowoo  was

forced  to  exchange  its rights to land surrounding  Angoon,  on

Admiralty  Island, for lands on distant Prince of  Wales  Island.

For  some  time,  this  meant that Kootznoowoo  hired  others  to

transport,  process,  and load its logs.   Southeast  Stevedoring

Corporation  provided  the longshoring and  stevedoring  services

necessary to load Kootznoowoo's logs.

          In  the  summer  of  1988 the management  of  Southeast

Stevedoring approached Pat Joensuu of Kootznoowoo with a proposal

for loading logs at a site in Dora Bay located near Kootznoowoo's

timberlands.    Southeast   Stevedoring   recognized   that    if

Kootznoowoo  could  establish a mooring system  and  log  loading

facility near its timberlands, it could avoid the costs and risks

involved  in  towing log rafts to remote locations.   Eventually,

the  two parties agreed to establish such a log loading facility,

with Kootznoowoo providing the camp facilities and work force and

Southeast Stevedoring providing management expertise and  mooring

buoys for the ships.

          Kootznoowoo established a shareholder hiring preference

for  the  longshoring work, and in order to gather the  necessary

labor   force,   the   corporation   helped   to   pay   workers'

transportation costs.  While Kootznoowoo understood  the  payment

of  travel  costs  for laborers working at  remote  sites  to  be

standard industry practice,1 the corporation could not afford  to

          pay the entirety of the costs.  Thus, Kootznoowoo paid for about

half of the longshore workers' transportation costs.2  While  the

longshoring  positions were open to all Kootznoowoo shareholders,

Kootznoowoo   would  only  pay  travel  costs  for  group   trips

originating  in  Angoon.   The  corporation  believed  that  this

ensured a more fully available, flexible, and coordinated crew of

workers.

          Meanwhile,  Southeast  Stevedoring  managed  the  labor

force, selected and trained workers for "skilled" positions,  and

negotiated   with  customers  rates  for  loading   logs   "which

recognized that transportation for longshore workers was  a  cost

that should be passed through to the log owner."

          Longshore  workers could perform one of  two  types  of

work  for  the  joint venture:  skilled or unskilled.   Southeast

Stevedoring maintained an "active skilled working list" of people

that  would  be dispatched to fill skilled positions in  upcoming

jobs.   Southeast Stevedoring decided who to place on this  list,

who  to  dispatch for work, and who to consider for  advancement.

For  unskilled  positions, Kootznoowoo kept a  rotation  list  of

shareholders  eighteen years or older who  were  capable  of  and

willing  to  perform  longshoring  work.   Southeast  Stevedoring

informed  Kootznoowoo  of the need for unskilled  workers  as  it

arose,  and Kootznoowoo notified individuals whose names came  up

on the rotation list.

          Appellants brought suit to challenge several aspects of

Kootznoowoo's  longshoring program, as well as the  corporation's

partial payment of longshore workers' travel costs.  The superior

court found for Kootznoowoo, upholding both its participation  in

the  joint venture longshoring program and its practice of paying

longshore workers' travel costs.

III. DISCUSSION

     A.   Neither Kootznoowoo's Distribution of Longshoring Employment
          Opportunities nor the Corporation's Payment of Longshore Workers'
          Travel Costs Constituted Discriminatory Distribution of Corporate
          Wealth or Dividends.
          Appellants   contest  Kootznoowoo's   distribution   of

          longshoring opportunities as well as its payment of "travel

subsidies" for longshore workers.  They argue that by paying  for

longshore  workers'  transportation and lodging,  Kootznoowoo  is

distributing  corporate  wealth in a  manner  that  discriminates

among  its shareholders.  Appellants also argue that because  the

corporation  only  subsidizes  travel  to  and  from  Angoon,  it

excludes  shareholders  outside  of  Angoon  from  its  pool   of

qualified workers.  They claim that the opportunity to work as  a

longshore worker and the payment of travel subsidies constitute a

form  of  wealth  "not  available to the 63.1%  of  Kootznoowoo's

shareholders who reside elsewhere."  Thus Kootznoowoo's operation

of   its  longshoring  program  treats  corporate  shares  in   a

discriminatory manner, violating the corporation's contract  with

its shareholders, as well as the Equal Treatment Rule codified in

AS  10.06.305, -.308, and -.313,3 applicable to the Alaska Native

Village  Corporation through the Alaska Native Claims  Settlement

Act  7(h)(1)(A) and 8(c).4

          Kootznoowoo  responds that its decision to  enter  into

the  joint  venture  with  Southeast Stevedoring,  its  resulting

employment  of Kootznoowoo shareholders in longshoring positions,

and   its   partial   payment   of   those   longshore   workers'

transportation  costs5  were  all  directed  at  maximizing   the

financial and employment opportunities of its general shareholder

population.  Because of the unique placement of its timberlands -

remote   from   Kootznoowoo's  headquarters  in  Angoon   -   the

corporation faced a special challenge in finding a profitable way

to  process and load its logs.  Kootznoowoo thus hoped to  profit

by   processing  its  logs  in  a  location  convenient  to   its

timberlands and by providing the labor for that work.  As  stated

by  the corporation's comptroller:  "If you could provide for the

profit  motive and hire shareholders, why not?  It was a  .  .  .

good practice for the corporation."

          While appellants contend that Kootznoowoo's payment  of

transportation costs caused the corporation losses and imply that

          this demonstrates an intent to merely distribute benefits to

selected  shareholders,  Kootznoowoo  argues  that  achieving   a

coordinated and productive labor force demanded that it pay  some

of  the  longshore workers' costs.  Otherwise, many  shareholders

could  not  afford  to travel to the remote Dora  Bay  site,  and

Kootznoowoo's  plan to save money by utilizing its  own  worksite

and  labor  force  would fail.  Kootznoowoo additionally  asserts

that  it  chose  to  pay transportation costs only  to  and  from

Angoon,  because efficiency and maximum profit demanded  that  it

have  coordinated teams of workers ready to fly out  together  to

work.   Kootznoowoo thus maintains that its actions were  in  the

best   interests  of  all  of  its  shareholders  and  that   its

contributions   toward  travel  costs  were  not   discriminatory

dividends, but instead necessary and ordinary business expenses.6

          The   superior   court's  findings  of   fact   support

Kootznoowoo's claims.  These findings confirmed the existence  of

the Kootznoowoo/Southeast Stevedoring joint venture and concluded

that  both  parties "believed that the . . . joint venture  could

develop  Dora Bay into a major log port/ship loading facility  to

handle  not  only Kootznoowoo's logs, but also logs for  Sealaska

Corporation,  ITT-Rainier, Reid Brothers Timber,  Klukwan  Forest

Products,  Ketchikan Pulp Company, Cape Fox, etc."  The  superior

court  recognized that Pat Joensuu "projected Kootznoowoo's share

of the potential log loading revenues at over $2 million."  These

findings are based on the testimony of several Kootznoowoo  board

members  as well as internal memoranda and correspondence between

members  of the board and indicate the board's intent to  benefit

Kootznoowoo and its general population of shareholders.

          Regarding Kootznoowoo's payment of travel costs for its

labor  force,  the  superior court found  that  "Kootznoowoo  and

Southeast  Stevedoring  considered  transportation  of  longshore

workers  to and from the remote work site at Dora Bay  to  be  an

ordinary  and  necessary business expense,"  and  that  Southeast

Stevedoring accounted for this expense by negotiating rates  with

          the joint venture's outside customers "which recognized that

transportation  for longshore workers was a cost that  should  be

passed  through to the log owner."  These findings are  based  in

part  on  testimonial evidence.  Both Gerald Engel (Kootznoowoo's

Lands  and  Resources  Manager)  and  James  Taro  (President  of

Southeast Stevedoring) testified that it was common practice  for

log  owners or stevedoring companies to pay transportation  costs

for  longshore  workers.   In fact, one of  the  joint  venture's

competitors,  West  Coast  Stevedoring,  paid  the  entirety   of

transportation and lodging costs when it had employed Kootznoowoo

shareholders  as  longshore workers.  Moreover,  Kootznoowoo  was

able  to deduct its transportation payments as a business expense

on  its  federal income tax returns.  In addition,  the  superior

court  points  out  that  "[t]here was no transfer  of  corporate

assets without consideration.  Kootznoowoo received consideration

for  the  expense  of transportation of longshorepersons  between

Angoon and Dora Bay in the form of work and increased profits."

          Regarding  Kootznoowoo's  decision  to  only  subsidize

charter flights to and from Angoon, the court found credible  the

corporation's  explanation  that it was  attempting  to  maximize

efficiency  and  productivity by maintaining  well-organized  and

prepared teams of workers.  The court decided that "[h]iring from

Angoon  assured an available pool of full complement  longshoring

gangs  to  timely  meet  the  needs of  the  ship  loading  joint

venture."

          On   the  whole,  the  superior  court  concluded  that

"Kootznoowoo's policy of paying a portion of the travel costs  of

shareholders  between Angoon and Dora Bay was not  adopted  as  a

distribution  to  its shareholders, but as a program  that  would

increase   Kootznoowoo's   profits  and   encourage   shareholder

employment."  The court thus affirmed Kootznoowoo's  motives  and

practices  and  rejected appellants' claims that the  corporation

was   distributing   corporate   wealth   and   benefits   in   a

discriminatory manner.  The superior court based its finding upon

a  great deal of documentary and testimonial evidence.  We do not

think  that  its  findings are clearly erroneous,7  and  thus  we

uphold its findings and resulting conclusions.

     B.   Kootznoowoo Did Not Attempt to Hide or Fail to  Provide
          Necessary Information to Its Shareholders.
          Appellants  also  contend that  Kootznoowoo  failed  to

inform  all  of  its  shareholders of the longshoring  employment

opportunities   and  travel  subsidies  available.    Kootznoowoo

responds  that  it  did  indeed inform its  shareholders  of  the

longshoring and travel subsidy programs.  The corporation  claims

to  have  posted  longshoring lists and its Longshore  Assignment

Policy conspicuously around Angoon, as well as publishing general

information   about  the  longshoring  program   in   corporation

newsletters.

          Once  again,  based  upon documentary  and  testimonial

evidence,   the  superior  court's  findings  of   fact   support

Kootznoowoo.   The  court  found  that  "Kootznoowoo's  Longshore

Assignment Policy was conspicuously posted in Angoon and sent  to

all  longshorepersons" and that "Kootznoowoo's management and its

board  of directors made no attempt to hide or conceal any aspect

of  Kootznoowoo's Longshore Assignment Policy, including what has

been referred to as the `travel subsidy.' "  The court also noted

in   its  findings  that  "[t]he  large  number  of  shareholders

participating  in  the  longshoring program  (approximately  155)

creates  the  very  strong inference that  important  aspects  of

Kootznoowoo's  Longshore Assignment Policy,  including  what  has

been  referred  to as the `travel subsidy,' were  known  by  many

shareholders throughout the Native corporation."  As the superior

court's  findings  are  not  clearly  erroneous,  we  uphold  its

conclusion  that Kootznoowoo neither failed to provide  necessary

information  to  its shareholders, nor hid such information  from

them.

     C.   There Was No Conflict of Interest among the Kootznoowoo
          Directors as to the Joint Venture Longshoring Program.
          Finally,    appellants   claim    that    Kootznoowoo's

          participation in the longshoring and "travel subsidy" programs is

improper,  because  this participation was never  approved  by  a

majority of disinterested directors or shareholders.   Appellants

claim  that most of the directors who approved the programs  were

"interested"  in  that  they  used  the  longshoring   employment

opportunities  and  travel subsidies to  benefit  themselves  and

selected shareholders.

          Kootznoowoo   argues   that  it   broadly   distributed

information  about the longshoring and "travel subsidy"  programs

to all - not just selected - shareholders and furthermore that it

had  no  control over who got called to take advantage  of  these

programs.   The  corporation explains that Southeast  Stevedoring

determined  the  number  of  workers  needed  for  joint  venture

projects and selected those qualified to be on the active skilled

workers  list.  Kootznoowoo asserts that it merely  maintained  a

rotation  list  of unskilled workers and notified  those  workers

when their names came up on rotation. Kootznoowoo also notes that

only  one  person  - Frank Jack, Jr., - ever  served  as  both  a

Kootznoowoo director and a longshore worker at the same time, and

that  Mr.  Jack  was a skilled and experienced  longshore  worker

before he ever became a director; he became a director well after

the longshoring and "travel subsidy" programs were instituted.

          The   superior  court  again  made  findings  of   fact

consistent  with  Kootznoowoo's position.   With  regard  to  the

process  of  assigning longshoring work, the  court  agreed  that

Kootznoowoo  had  no control over who qualified for  the  skilled

worker  list or how many workers would be designated for  a  job;

Southeast Stevedoring controlled this.  Thus the court  found  no

systemic   way   in   which  Kootznoowoo  directors   manipulated

longshoring   assignments   to  benefit   themselves   or   other

shareholders.   The court reinforced this point  by  noting  that

Southeast Stevedoring selected individuals for the skilled worker

list  based  on  individual merit, not  share  ownership.   While

appellants   alleged  that  many  members  of  the  Jack   family

especially  benefitted from the programs, the court  stated  that

"the  evidence  supports the finding that  members  of  the  Jack

family  attained  their  `skilled'  positions  on  the  basis  of

individual  merit," and that "[t]he frequency of  their  dispatch

reflects their willingness to accept dispatch assignments."

          Once  again,  these findings, based on the totality  of

the  evidence,  are  not  clearly erroneous.   They  support  the

superior  court's conclusion that Kootznoowoo's  longshoring  and

travel  subsidy programs were not illegally adopted or maintained

by the board based on director conflicts of interest.

IV.  CONCLUSION

          Based  on  the  foregoing  reasons,  the  judgment   is

AFFIRMED.

FABE, Chief Justice, concurring.

          Although   I   continue  to  believe  that  plaintiffs'

allegations should have proceeded as derivative actions,1 I agree

with  the court that Judge Weeks correctly decided this  case  on

the merits.


_______________________________
     1     Prior  to  the  formation of the Kootznoowoo-Southeast
Stevedoring  joint venture, several Kootznoowoo shareholders  had
worked  as longshore workers for West Coast Stevedoring  Company,
and  that  company had paid the costs for transportation  between
Angoon  and remote log loading ports, as well as room  and  board
costs for the longshore workers.

     2     Kootznoowoo paid these costs regardless of whether the
longshore  workers  hired  were  Kootznoowoo  shareholders.   The
percentage  of  transportation costs paid by  Kootznoowoo  varied
depending  on  changes  in group flight  prices.   The  longshore
workers  themselves paid a steady amount of $175 per trip.   This
amount originally constituted half of the cost per trip; however,
as  flight prices increased, the longshore workers' contributions
covered  a  declining  percentage of  the  transportation  costs.
Transactions  were  never directly between  Kootznoowoo  and  its
shareholders;  rather,  Kootznoowoo paid the  transportation  and
lodging  costs  for  the  labor force, and Southeast  Stevedoring
withheld   appropriate  amounts  from  the   longshore   workers'
paychecks to reimburse Kootznoowoo.

          The amount that Kootznoowoo contributed for lodging was
disputed  at  trial.  Longshore workers had $15 per day  withheld
from their paychecks to reimburse Kootznoowoo for their meals and
lodging.  Kootznoowoo claims that this amount covered any lodging
costs  incurred; however, appellants argue that the $15  per  day
did  not  completely cover the cost of feeding  and  housing  the
longshore workers, and that Kootznoowoo was thus losing money  on
food  and  lodging, as well as on transportation.   The  superior
court  resolved this dispute, finding that "Kootznoowoo  did  not
ultimately  bear  the costs for camp services for  the  longshore
workers."  The court noted that "[a]s the operating expenses  for
camp services increased, those increases were passed along to the
longshore workers (e.g., increased to $16.50 per day)," and  that
"[t]he  amount  the  longshore  workers  were  charged  for  camp
services was approximately a `break even' rate."

     3     AS 10.06.305(b) provides that "[a]ll shares of a class
shall have the same voting, conversion, and redemption rights and
other rights, preferences, privileges, and restrictions . . .  ."
AS  10.06.308 provides that "a corporation may issue preferred or
special  classes of shares" only "[i]f authorized by the articles
of  incorporation . . . ."  AS 10.06.313 states that  "shares  of
the same class shall be identical . . . ."

     4     43  U.S.C.   1601-1641.   ANCSA   7(h)(1)(A),  applied
according to the provision of  8(c), vests the shareholder  of  a
Native village corporation with "all rights of a shareholder in a
business corporation organized under the laws of the State."

     5    See supra note 2.  Kootznoowoo argues, and the superior
court  agreed,  that  the  corporation did  not  internalize  the
longshore   workers'  lodging  costs.   While   Kootznoowoo   did
initially  pay  for the lodging facility and food  for  longshore
workers,  Southeast Stevedoring withheld an amount from longshore
workers'   paychecks   adequate  to  reimburse   Kootznoowoo   at
"approximately a `break even' rate."

     6     This  distinguishes Kootznoowoo's longshoring  program
from  the financial security plan struck down in Hanson  v.  Kake
Tribal Corp, 939 P.2d 1320 (Alaska 1997). In Hanson, we held that
the  financial security plan "was merely a method of distributing
corporate  assets to certain shareholders. .  .  .   Indeed,  the
stated  purpose of the plan was to provide financial security  to
the original shareholders of Kake."  Id. at 1324.

     7    See Henash v. Ipalook, 985 P.2d 442, 445 (Alaska 1999);
Gallant  v.  Gallant,  945 P.2d 795, 800 (Alaska  1997)  (quoting
Martens   v.   Metzgar,  591  P.2d  541,   544   (Alaska   1979))
("Determination  of  net  income is a question  of  fact  and  is
reviewed under the clearly erroneous standard.  A factual finding
will  be deemed clearly erroneous if the reviewing court is `left
with  a definite and firm conviction on the entire record that  a
mistake  has been made . . . .' ").  See also Parker v.  Northern
Mixing  Co., 756 P.2d 881, 887-88 (Alaska 1988); State  v.  First
Nat'l Bank of Ketchikan, 629 P.2d 78, 82 n.4 (Alaska 1981).

     1     See  Demmert v. Kootznoowoo, 960 P.2d 606, 613 (Alaska
1998)  (Fabe, J., dissenting); Hanson v. Kake Tribal  Corp.,  939
P.2d 1320, 1334 (Alaska 1997) (Fabe, J., dissenting).