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).
