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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Jerue v. Millett (3/28/2003) sp-5676

Jerue v. Millett (3/28/2003) sp-5676

     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


CARL J. JERUE, JR. and ERNIE  )
DEMOSKI, SR., as individual        )    Supreme Court No. S-9076
shareholders and on behalf of      )
INGALIK, INCORPORATED, and         )    Superior Court No. 4FA-98-
                                   170 CI
INGALIK, INCORPORATED,             )
                                                   )    O P I N I
                                   O N*
               Appellants,         )
                              )    [No. 5676 - March 28, 2003]
     v.                       )
                              )
GLORIA MILLETT, THEODORE           )
KRUGER, JR., KENNETH               )
W. CHASE, SHANNON F. CHASE,   )
CARL JERUE, SR., TERRENCE     )
WHARTON, JR., and JOHN        )
DOES 1-5,                                         )
                              )
               Appellees.          )
________________________________)


          Appeal  from the Superior Court of the  State
          of    Alaska,   Fourth   Judicial   District,
          Fairbanks, Charles R. Pengilly, Judge.

          Appearances:   Peter  J.  Aschenbrenner   and
          Sheila   Doody   Bishop,  Aschenbrenner   Law
          Offices,  Inc.,  Fairbanks,  for  Appellants.
          Robert  K.  Reiman, Law Offices of Robert  K.
          Reiman, Anchorage, for Appellees.
          Before:  Matthews,  Chief Justice,  Eastaugh,
          Fabe, Bryner, and Carpeneti, Justices.

          EASTAUGH, Justice.
          CARPENETI, Justice, dissenting.

I.   INTRODUCTION

          This appeal concerns attorneys fees and indemnification

disputes  arising after the superior court dismissed a derivative

suit   brought  by  shareholders  of  an  Alaska  Native   Claims

Settlement Act (ANCSA) village corporation.  The plaintiffs  sued

without  first  making the pre-suit demand Alaska  law  requires.

After  the  superior court dismissed the complaint for  mootness,

both sides sought attorneys fees and costs.  Concluding that  the

shareholders  did not prove that a pre-suit demand  was  excused,

the superior court held that they were not prevailing parties and

denied  their attorneys fees motion.  Finding that the  defendant

directors were prevailing parties, the court awarded them  Alaska

Civil  Rule 82 attorneys fees against the plaintiff shareholders,

and   ordered  the  corporation  to  indemnify  them   under   AS

10.06.490(c).  Because the superior court did not err in  holding

that the shareholders did not prove that a demand was excused, we

affirm  the  denial of the plaintiffs fees request.  But  because

the directors did not establish that they were Rule 82 prevailing

parties, we vacate their attorneys fees award.  And because  they

did  not  establish that they were successful litigants, we  hold

that   they  were  not  entitled  to  indemnification  under   AS

10.06.490(c).

II.  FACTS AND PROCEEDINGS

          Carl  J.  Jerue, Jr. and Ernie Demoski, Sr.  (plaintiff

shareholders)  are  shareholders of  Ingalik,  Incorporated,  the

ANCSA  village  corporation  for the  Native  village  of  Anvik.

Gloria Millett, Kenneth Chase, Shannon Chase, and Ted Kruger, Jr.

(defendant directors) were members of Ingaliks board of directors

as  of January 1998. On January 12, 1998 the Alaska Department of

Commerce  and  Economic  Development  issued  the  corporation  a

Certificate  of Involuntary Dissolution, citing the  corporations

failure to file a biennial report or pay taxes.

          On January 22, 1998 the plaintiff shareholders filed  a

derivative  complaint against the defendant  directors,  alleging

financial mismanagement and other wrongdoing. The complaint asked

the  court  to compel the defendant directors to hold  an  annual

shareholders  meeting  to  elect a new  board  of  directors;  to

appoint  Jerue  as  an interim director with  authority  to  take

whatever  action was necessary to reinstate the corporation;  and

to  issue a temporary restraining order prohibiting the defendant

directors   from   winding  up  the  corporations   affairs   and

distributing any corporate assets.  Summonses were issued for the

individual defendants on January 22, 1998.

          In  January  Ingalik  made  reinstatement  efforts;  it

returned  to  good standing with the state and was reinstated  on

February 6, 1998.

          On April 6 the directors moved to dismiss.  They argued

that  the plaintiff shareholders had not demonstrated that  their

failure  to  make a demand on the board was excused.   They  also

argued  that  the complaint was moot because the corporation  had

been  reinstated,  it had scheduled an annual  meeting,  and  its

reinstatement meant its assets would not be distributed.

          Ingalik  held an annual shareholders meeting  on  April

25.   The  shareholders  reorganized the board  by  electing  new

directors,  including  both  plaintiff  shareholders;  only   one

incumbent,  defendant Kruger, was reelected.  The new  board  met

the  next  day and passed resolutions authorizing the corporation

to   join   the   lawsuit  as  a  party  plaintiff  and   denying

indemnification to the defendant directors.

          The  plaintiff  shareholders then  asked  the  superior

court  to join Ingalik as a party plaintiff; the court did so  on

June 8.  But on the same day, it also entered an order dismissing

the derivative suit with prejudice.  It retained jurisdiction for

the  purpose of determining prevailing party status and  awarding

costs and attorneys fees.

          The  defendant directors moved for a Civil Rule 82 fees

award against the plaintiff shareholders individually; they  also

sought  an  order requiring Ingalik to indemnify their litigation

costs  under  AS  10.06.490(c).  The plaintiff  shareholders  and

Ingalik  (the  plaintiffs) opposed these requests  and,  claiming

that  they  were  the  prevailing parties because  the  requested

relief was achieved, cross-moved for an award of fees against the

defendant  directors under Civil Rules 23.1(j) and  82(a).   Both

sides   relied  on  numerous  documents  in  addition  to   their

pleadings.

          Following  oral argument, the superior court ruled  for

the  defendant  directors  on the fees  and  costs  motions.   It

reasoned  that  the  plaintiff shareholders  had  the  burden  of

proving  that  they were excused from making the formal  pre-suit

demand  Civil  Rule 23.1(c) requires; it also reasoned  that  the

directors   alleged  practices  gave  rise  to  any   number   of

conflicting  inferences  and  by no  means  demonstrated  that  a

majority  of  the directors were implicated in an injury  to  the

corporation.   It  therefore concluded  that  a  demand  was  not

excused,  that the defendant directors were entitled to dismissal

under  Civil Rule 23.1(d), and that the defendant directors  were

the  prevailing  parties under Civil Rule 82. It  also  concluded

that  the  defendant directors prevailing party  status  entitled

them  to  full  indemnification from  the  corporation  under  AS

10.06.490(c).

          The judgment awarded the defendant directors $26,656.96

against   Ingalik  under  AS  10.06.490(c)  to  indemnify   their

attorneys fees and costs, and $3,804.16 against Jerue and Demoski

individually  as  costs and Rule 82 attorneys  fees.   The  award

against   Ingalik  included  the  amount  awarded   against   the

individual plaintiff shareholders, and the judgment prevented the

directors  from  recovering more than the  total  amount  awarded

against Ingalik.

          Ingalik and the plaintiff shareholders argue on  appeal

that  the superior court erred by (1) failing to award them costs

and  fees  under Civil Rules 82 and 23.1(j) and AS  10.06.435(j);

(2)  granting  costs  and Civil Rule 82  attorneys  fees  to  the

defendant directors against the plaintiff shareholders;  and  (3)

requiring  the  corporation to indemnify the defendant  directors

under AS 10.06.490(c).

III. DISCUSSION

     A.   Standard of Review

          We  apply  our  independent judgment  to  questions  of

statutory interpretation1 and must adopt the rule of law that  is

most persuasive in light of precedent, reason, and policy.2

          For  reasons we discuss in Part III.B.2, we review  for

abuse  of discretion the superior courts fact-based determination

that  the  plaintiff shareholders did not prove that  a  pre-suit

demand  was  excused.3  The legal effect of that finding  on  the

plaintiffs motion for an award of litigation expenses presents  a

question  of  law  which  we review by applying  our  independent

judgment.

          Because  it  presents questions of law,  we  apply  our

independent  judgment in reviewing the ruling that,  because  the

plaintiff shareholders failed to prove that a demand was excused,

the  defendant directors were the prevailing parties  under  Rule

82(a).4   A  determination of prevailing party status under  Rule

82(a)   will   not   be  overturned  unless  it   is   manifestly

unreasonable.5   We apply our independent judgment  in  reviewing

the  ruling that the defendant directors prevailing party  status

entitled  them to AS 10.06.490(c) indemnification,  because  this

ruling presents a question of law.

     B.   Denial of Costs and Attorneys Fees to the Plaintiffs

          Jerue,  Demoski, and Ingalik first argue  that  it  was

error  not  to  award them costs and attorneys fees  against  the

defendant  directors.6  They reason that they secured the  relief

their complaint sought, rendering the derivative suit successful;

this  made  them,  not  the  directors, the  prevailing  parties,

entitling  them  to  recover costs and fees  from  the  defendant

directors   under   Civil  Rules  82(a)  and   23.1(j)   and   AS

10.06.435(j).7

          Alaska  Statute  10.06.435(j)  and  Alaska  Civil  Rule

          23.1(j) permit awards of expenses, including attorneys fees, to

derivative  suit  plaintiffs.   The  statute  and  the  rule  are

identical.   They  provide  in  pertinent  part  that  [i]f   the

derivative  action  is successful, in whole or  in  part,  or  if

anything is received as a result of the judgment, compromise,  or

settlement  of that action, the court may award to the  plaintiff

or  plaintiffs reasonable expenses, including reasonable attorney

fees.8

          Civil  Rule 23.1(j) is a fee-sharing rule.  It requires

the  corporation  benefitted by a derivative suit  to  share  the

expense  incurred by the plaintiff shareholders in achieving  the

benefit  for  the  corporation.9   It  reaches  this  result   by

requiring    the   corporation   to   reimburse   the   plaintiff

shareholders.   Because it is a fee-sharing  rule,  Rule  23.1(j)

does  not give the corporation itself a claim for fees or provide

for  an  award  against individual defendants.10  Moreover,  here

Ingaliks successor board adopted a resolution authorizing Ingalik

to reimburse all legal fees and costs incurred in behalf of Jerue

and  Demoski.  Because the corporation has voluntarily agreed  to

share any litigation expense incurred by or for Jerue and Demoski

individually,  Rule 23.1(j) has no further direct application  to

this  case:  Its fee-sharing purpose was achieved  without  court

order.

          To  illustrate the true nature of Ingaliks fees  claim,

we  assume  that a Rule 23.1(j) fees award could indirectly  give

rise  to  a  corporate claim against derivative suit  defendants.

Thus,  perhaps  a  corporation  ordered  under  Rule  23.1(j)  to

reimburse   successful  derivative-suit  plaintiffs  could   seek

indemnification,  possibly  on  a subrogation  theory,  from  the

defendant officers or directors whose acts were the basis for the

derivative  suit and the Rule 23.1(j) award.  But the  court  did

not   order  Ingalik  to  pay  those  expenses;  the  corporation

voluntarily agreed to pay them by resolution of April  26,  1998.

And  a  subrogated  claim would give the corporation  no  greater

          rights than the plaintiff shareholders had.  In short, no

plaintiff in this case has a claim against these defendants under

Rule 23.1(j).

          Unlike  Rule  23.1(j),  Rule 82(a)  is  a  fee-shifting

rule.11    Rule 82(a) provides for an award of attorneys fees  to

the  prevailing party. It is the proper framework for considering

whether  the defendant directors should reimburse attorneys  fees

directly  incurred by Ingalik and attorneys fees incurred  by  or

for  Jerue  and  Demoski and potentially recoverable  by  Ingalik

under an assignment or subrogation theory.

          Because  this is a shareholder derivative  action,  the

question  whether  the plaintiffs were prevailing  parties  under

Rule  82(a) ultimately depends at least in part on the principles

that  determine whether a shareholder derivative  suit  has  been

successful.   As we will see, this question turns on whether  the

superior court erred in concluding that the shareholders did  not

establish that their failure to make a demand on the board before

suing was excused.  This is so because, even though the plaintiff

shareholders litigation goals were achieved, there was a  dispute

about why they were achieved.

          The  shareholders  filed  suit  in  late  January  1998

seeking  reinstatement  of  the corporation  and  a  shareholders

meeting  at  which  new  directors could be  elected.  The  state

reinstated   the  corporation  in  early  February  1998.    This

prevented dissolution and distribution of corporate assets.   The

corporation  held  a shareholders meeting to elect  directors  in

April  1998.  The relief the complaint sought was thus  achieved,

and  in  June  the  superior court dismissed the  complaint  with

prejudice,  apparently because the complaint was  mooted  by  the

corporations reinstatement and the annual meeting.12





          We  assume  that  derivative suit  plaintiffs  may  not

necessarily  be  ineligible to recover litigation expenses  under

          Rule 23.1(j) even though a court dismisses their lawsuit after

the  boards remedial actions moot their derivative suit claims.13

Filing  suit  may force a recalcitrant board to act,  securing  a

valuable benefit to the corporation.  This may also be sufficient

to  make plaintiff shareholders (and a plaintiff corporation  for

whom they acted) prevailing parties for Rule 82(a) purposes.

          We   think  that  whether  plaintiff  shareholders  are

prevailing parties in a shareholder derivative action should turn

on whether their lawsuit is successful in whole or in part.14  If

a  corporate  benefit is achieved, the focus  is  on  the  causal

relationship between the lawsuit and the benefit.15

          We  assume  here  that  the individual  plaintiffs  and

Ingalik  were benefitted by actions  reinstating the  corporation

and  holding  the  annual  meeting   taken  after  the  plaintiff

shareholders  sued.  But were these actions  the  result  of  the

suit?  Or would they have been taken if the shareholders had made

a  formal demand before suing?  Or, indeed, would they have  been

taken even absent either a pre-suit demand or any suit at all?

          As  we will see, the superior courts rejection of Jerue

and  Demoskis assertion that a demand was excused resolves  these

questions  for  purposes of the plaintiffs motion for  costs  and

attorneys fees.

          1.   The requirement of a pre-suit formal demand

          Before   filing  a  shareholder  derivative   suit,   a

plaintiff  is required by AS 10.06.435(c) and Civil Rule  23.1(c)

to  make  a  formal demand on the board to secure the action  the

plaintiff desires, unless that demand is excused.16  The  statute

and  the rule excuse the demand requirement if a majority of  the

directors  is  implicated  in or under  the  direct  or  indirect

control  of  a  person who is implicated in  the  injury  to  the

corporation.17

          The  statute  and  the rule require a  shareholder  who

fails  to  make  a formal demand to plead with particularity  the

facts  establishing  excuse.18  The statute  and  the  rule  also

          impose on a shareholder opposing a motion to dismiss the burden

of  establishing excuse: In a motion to dismiss  for  failure  to

make demand on the board the shareholder shall have the burden to

establish excuse.19

          Jerue  and  Demoski  argue that  they  satisfied  these

requirements,  despite their failure to make any pre-suit  demand

on the board; they assert that a demand would have been futile.

          The  demand  requirement  is  an  important  aspect  of

corporate   democracy.   Among  other  things,   it   gives   the

corporation  a fair opportunity to decide whether to take  action

directly and to receive the proceeds of any recovery.20   And  it

gives   the   corporation  an  opportunity  to  remedy   problems

internally,   without   exposing  it  to   avoidable   litigation

expense.21    The  Fletcher  Cyclopedia  discusses   the   demand

requirement:

               The particularized pleading requirements
          are  designed to strike a balance  between  a
          shareholders  claim  of  right  to  assert  a
          derivative  claim and a board of  director[s]
          duty to decide whether to invest resources of
          the    corporation   in   pursuit   of    the
          shareholders claim of corporate  wrong.   But
          the   requirements  of  demand  futility  and
          refusal  of  demand are predicated  upon  and
          inextricably  bound  to  issues  of  business
          judgment  and  standards  of  that  doctrines
          applicability.   The  demand  requirement  in
          derivative proceedings serves as  a  form  of
          notice to the corporation.  It is designed to
          assure  that  the  shareholder  affords   the
          corporation  the opportunity to  address  the
          alleged  wrong  without  litigation  and   to
          control any litigation which does occur.   It
          also  provides a safeguard against abuse that
          could   undermine  the  basic  principle   of
          corporate governance that the decisions of  a
          corporation,   including  the   decision   to
          initiate  litigation, should be made  by  the
          board  of  directors.  A determination  on  a
          motion  to  dismiss, whether based on  demand
          refused    or   demand   excused,    involves
          essentially  a  discretionary  ruling  on   a
          predominantly factual issue.
          
               The  demand should provide the directors
          with  sufficient  information  regarding  the
               standing of the plaintiff, the relief sought,
          and  the grounds for relief.  In some states,
          the  demand  must  be in written  form.   The
          directors have a reasonable time within which
          to  investigate  the  claim  and  to  make  a
          decision,  although some state  statutes  set
          forth   a  final  time  period.   The  demand
          inquiry  and  authority  to  respond  may  be
          delegated    to    a    special    litigation
          committee.[22]
          
          2.   Applicable standard of review
               
          We  have  never before addressed the demand requirement

of  AS 10.06.435(c) and Civil Rule 23.1(c), and have consequently

never  adopted  a  standard  for  reviewing  a  conclusion   that

shareholders did not meet their burden of establishing excuse.

          Most appellate courts review for an abuse of discretion

a  trial courts determination that the demand requirement was not

excused.23    They   typically  apply   that   standard   because

determining  the  necessity of a demand is a fact-based  inquiry.

For  example,  in  Lewis v. Graves, the United  States  Court  of

Appeals  for the Second Circuit, applying the federal  analog  to

Alaska Civil Rule 23.1,24 held that the decision as to whether  a

plaintiffs  allegations  of futility  are  sufficient  to  excuse

demand  depends  on the particular facts of each  case  and  lies

within the discretion of the district court.25

          Until  recently,  the mother court of corporate  law,26

the Delaware Supreme Court, followed the same approach.27  But in

Brehm v. Eisner, that court, applying the Delaware counterpart to

Alaska  Civil  Rule 23.1, held that this issue is subject  to  de

novo   review.28   The  court  stated  that  [i]n  a  Rule   23.1

determination  of  pleading sufficiency . .  .  this  Court[]  is

merely reading the English language of a pleading and applying to

that pleading statutes, case law and Rule 23.1 requirements.   To

that extent, our scope of review is analogous to that accorded  a

ruling under Rule 12(b)(6).29

          In  comparison, the United States Court of Appeals  for

the  Third Circuit applies a mixed standard of review.  In Garber

v. Lego it stated:

          To  the  extent  that we  are  reviewing  the
          district   courts  determination  of   demand
          futility  based upon the facts of this  case,
          the  scope  of  our review is  for  abuse  of
          discretion.  Our review of the legal precepts
          employed  by the district court  and  of  its
          interpretation  of  those legal  precepts  is
          plenary.[30]
          
          We  choose  to follow the Third Circuit, and  therefore

adopt  a  mixed standard of review.  We agree with  the  Delaware

Supreme  Court  that  it is a question of law  whether  pleadings

satisfy  a  legal standard, such as the demand requirement.   But

the  question  of demand excuse potentially also  involves  fact-

based  analysis  which  is better reviewed  under  the  abuse  of

discretion  standard.  This case demonstrates the factual  nature

of  these  disputes.  A mixed standard of review recognizes  that

the  superior  court  made both legal and factual  determinations

when  it ruled, after considering materials beyond the pleadings,

that the shareholders did not prove that demand was excused.

          3.   Excusing the failure to make a pre-suit demand

          The  pre-suit  demand required by AS  10.06.435(c)  and

Alaska  Civil  Rule  23.1(c) is excused  if  a  majority  of  the

directors  is  implicated  in or under  the  direct  or  indirect

control  of  a  person who is implicated in  the  injury  to  the

corporation.31

          Delaware and the federal courts frame the exception  to

the  demand requirement in terms of futility.32  In those courts,

making  a  demand  is  considered futile and thus  excused  where

corporate officers and directors are under an influence rendering

them incapable of making decisions for the corporation.33  Courts

following the futility-of-demand principle apply procedural rules

that differ from Alaska Civil Rule 23.1.  Federal Civil Rule 23.1

and  Delaware Chancery Court Rule 23.1 are very similar  to  each

other34  and  with  regard to the demand requirement  are  nearly

identical.    Their  pleading  requirements  implicitly   address

futility, but do not specify criteria for deciding when  futility

excuses a failure to make a demand:

          The   complaint   shall  also   allege   with
          particularity the efforts, if  any,  made  by
          the   plaintiff  to  obtain  the  action  the
          plaintiff  desires  from  the  directors   or
          comparable  authority . . . and  the  reasons
          for  the  plaintiffs failure  to  obtain  the
          action or for not making the effort.[35]
          
          It  is  not  necessary in this case to  decide  whether

excuse in Alaska is the same as excuse elsewhere.  Alaska Statute

10.06.435(c) and Alaska Civil Rule 23.1(c) were not modeled after

a  specific  state  provision  or  model  code.36   Although  our

standard  is  similar to that applied in some other jurisdictions

to  discern when demand would be futile,37 the plain text of  our

rule  provides a specific test for excuse:  establishing  that  a

majority  of  the directors are implicated in the injury  to  the

corporation.38   The  Alaska Code Revision Commissions  study  of

Alaskas  proposed revised Corporations Code before it was enacted

in 1988 supports this interpretation:

          Section   .435c  requires  that  a  qualified
          shareholder make a demand upon the  board  to
          secure  such action as the plaintiff desires,
          unless  the  shareholder can show  that  such
          demand   would  be  futile.   Under   Section
          .435(d),  the burden to establish  excuse  is
          upon  the plaintiff-shareholder.  If a demand
          on  the board is not excused, Section .435(e)
          provides  that  a  decision  by  the   board,
          consonant  with  its  duties  of   care   and
          loyalty,  that in its business judgment  such
          litigation would not be in the best  interest
          of  the  corporation,  terminates  the  right
          created by Section .435(a).  A shareholder is
          thereafter  precluded from offering  evidence
          that  any  or all of the directors  who  have
          decided  that the litigation not  go  forward
          are   implicated  in  the  wrong   complained
          of.[39]
          
          4.   Demand in this case

          Because  the superior court did not base its denial  of

the   shareholders  fees  motion  on  the  sufficiency  of  their

complaint,  it  is unnecessary to decide whether their  complaint

satisfied  the  requirement that it state with particularity  the

facts  establishing  excuse . . . .40  The  court  instead  ruled

          after it reviewed the documents the parties submitted or

discussed  when they briefed the excuse issue in their  competing

motions  for  attorneys fees.  The superior court held  that  the

practices  complained of give rise to any number  of  conflicting

inferences   but by no means demonstrate that a majority  of  the

directors  [were]  .  .  .  implicated  in  [an]  injury  to  the

corporation.

          Moreover,   because  there  was  no   injury   to   the

corporation,  the superior court did not abuse its discretion  by

so   holding.   The  plaintiff  shareholders  submitted  numerous

documents  to  support their request for attorneys  fees  and  to

oppose  the defendant directors requests for attorneys  fees  and

indemnification.   But these materials and the remainder  of  the

undisputed  record did not establish that the  board  would  have

rejected  a  demand  to reinstate the corporation  and  hold  the

annual meeting.  Nor did they establish that the lawsuit achieved

these benefits.  Instead, the record contains evidence that would

have permitted a finding that the board would have reinstated the

corporation  and  held the meeting whether or  not  there  was  a

demand  or  a lawsuit.  This included evidence (attached  to  the

plaintiffs complaint or found in affidavits they submitted to the

superior  court)  that the defendant directors had  attempted  to

hold  the annual meeting as recently as the prior fall; that they

had  met  only thirty-six days before the plaintiffs filed  suit;

that even before the plaintiffs sued, the defendant directors had

written  the corporations shareholders to encourage them to  fill

vacancies  on  the  board  until  the  next  annual  meeting  and

election;  that they had already scheduled a shareholders meeting

for  June;  and that when the corporation had failed to  pay  its

taxes  in  the past, on each occasion it was reinstated  and  its

assets were not liquidated.  Moreover, plaintiffs exhibits listed

corporate checking account transactions; one is for a January  7,

1998  check  payable  to the State of Alaska  for  biennal  [sic]

filing  fee,  suggesting that the directors had  taken  steps  to

reinstate the corporation weeks before plaintiffs filed suit.41

          5.   How  the  unexcused failure to make demand affects
               plaintiffs attorneys fees motion.
               
          The  plaintiff  shareholders cannot recover  litigation

expenses  because  their case was dismissed for  mootness  before

they  either  made  a demand or proved that demand  was  excused.

Failure  to prove that demand was excused necessarily means  that

they  did  not  show  that the corporation would  not  have  been

reinstated and that the annual meeting would not have  been  held

if  they had not sued.  Because the court dismissed their  action

for   mootness,  the  plaintiffs  could  not  recover  litigation

expenses unless they showed that their suit was successful, i.e.,

that it conferred some measurable benefit on the corporation even

though  the  court dismissed their complaint.  But by failing  to

prove  that  a  demand  was excused, they necessarily  failed  to

establish   that   the  board  would  not  have  reinstated   the

corporation and held the annual meeting but for the lawsuit.

          In  the narrow context of derivative suits, failure  to

make  a  demand or prove that demand was excused is fatal  to  an

award of attorneys fees and costs because a pre-suit demand might

have  prompted remedial action without need for litigation.   The

policy  rationale of the demand requirement dictates this result.

Demand  is  required  to give a corporation  the  opportunity  to

rectify  an  alleged wrong without litigation and to control  any

litigation  which  does  arise.42  Awarding  litigation  expenses

without  a  demand or proof of demand excuse would undermine  the

demand  requirement and these policy objectives.   Moreover,  the

modern  reality of large corporations requires this  result.   At

any  given  moment a large corporation may be the  subject  of  a

number  of  derivative  suits filed  by  shareholders.   In  this

context,  almost  any  action taken by a  corporate  board  could

arguably satisfy some plaintiffs lawsuit.  Awarding fees  without

requiring   demand   or  proof  of  demand  excuse   would   open

corporations  to unwarranted fees claims predicated on  unrelated

corporate actions.

          In  this  case,  without proof of  demand  excuse,  and

particularly given Ingaliks past course of corporate events,  the

trial  court  permissibly might have found that this  corporation

would  have been reinstated and the meeting held even  without  a

demand  or  a  lawsuit.  Therefore, the shareholders  failure  to

prove that demand was excused meant that they did not prove  that

the  derivative suit was successful.43  This meant that Jerue and

Demoski  were  not  entitled to an award of  attorneys  fees  and

costs.

          An   inverse   hypothetical   helps   demonstrate   the

significance of failing to make a demand or prove demand  excuse.

Consider  a dissenting shareholder whose attorney makes a  timely

demand  upon directors before filing a derivative suit.   If  the

directors  promptly  take  curative  action  that  satisfies  the

shareholders  concerns, there would be no  suit  and  clearly  no

attorneys fees awarded to the shareholder.  This illustrates  the

importance  of the demand requirement and explains  why  we  must

affirm the denial of fees to Jerue and Demoski.  The reasoning is

twofold:   First, if the hypothetical  shareholder who  satisfies

the  demand  procedure is not entitled to attorneys fees,  it  is

inequitable to award fees to shareholders who failed  to  make  a

demand  or prove that it was excused.  Second, awarding  fees  to

Jerue  and  Demoski would undermine successful operation  of  the

demand  requirement as illustrated above, and encourage  wasteful

litigation  that could have been avoided if demand were  properly

made.

          Ingalik  has  not clearly explained on what  theory  it

should be awarded fees. It must demonstrate its prevailing  party

status  to  recover fees under Rule 82(a).  But if the  plaintiff

shareholders who asserted claims in the corporations  behalf  are

not prevailing parties, we do not see how the corporation can  be

a  prevailing  party as to those claims, either.   Any  attorneys

fees  claim  Ingalik could pursue under subrogation or assignment

theories  to recover its voluntary payment of Jerue and  Demoskis

          fees would be subject to the considerations that bar Jerue and

Demoskis fees motion.  Ingalik apparently also seeks an award for

the  post-joinder fees it incurred directly.  But because Ingalik

did  not become a party plaintiff until after the events occurred

that mooted the derivative suit, it is not a prevailing party for

purposes of recovering those fees, either.

          We  therefore conclude that the superior court did  not

err in denying the plaintiffs attorneys fees motion.

     C.   The Defendant Directors Rule 82 Attorneys Fees Award

          A.   The superior court awarded the defendant directors Rule 82

prevailing  party attorneys fees against Jerue and  Demoski.   In

arguing  that this was error, Jerue and Demoski contend  in  part

that they, not the directors, were the prevailing parties because

their  complaint  was  dismissed for mootness  and  because  they

accomplished  what they had hoped to with this litigation.   They

assert that the burden was on the former management to argue  and

show  that  the annual meeting . . . would have happened  without

the suit.

          A  litigant  seeking Rule 82 attorneys fees  must  show

that it is the prevailing party.

          We  first reject the directors assertion that,  because

the   superior  court  granted  their  motion  to  dismiss   with

prejudice, they were the prevailing parties.44  Because the court

dismissed  the complaint for mootness, it is no more likely  that

the   directors   achieved  their  litigation  goals   than   the

plaintiffs.

          The   court  apparently  based  its  finding  that  the

directors  were the prevailing parties on its October  conclusion

that  the  shareholders had not proved that demand  was  excused.

This  conclusion did not alter the reason for the June  dismissal

or  turn  the  dismissal  order into  a  ruling  on  the  merits.

Dismissing for mootness did not explicitly or implicitly  resolve

the  issue of who prevailed, and indeed, the court stated it  was

retaining  jurisdiction to decide prevailing party status.   That

          question turned on an issue  whether demand was excused  the

court had not resolved in June.

          We  assume  for discussions sake that if a  shareholder

derivative  lawsuit were the only reason directors took  remedial

actions benefitting a corporation and mooting the complaint,  the

directors would not be the prevailing parties.45  And as we noted

in Part III.B, under some circumstances plaintiffs may be able to

recover  attorneys fees in at least some types of cases dismissed

for  mootness.46   But the ruling that these plaintiffs  did  not

bear  their burden of proving excuse did not amount to a  finding

that  the  board would have heeded a pre-suit demand or that  its

remedial actions were unrelated to the lawsuit.

          In general, we are reluctant to encourage parties in  a

lawsuit  dismissed for mootness to litigate the  merits  only  to

establish  for  Rule  82  purposes  who  would  have   been   the

hypothetical  prevailing party.  Rule  82  is  only  intended  to

partially  compensate  prevailing  parties,  not  to  provide  an

incentive  for  merits litigation that would not  otherwise  take

place.47

          Evidence,   discussed  in  Part  III.B.4,  would   have

permitted  a  finding  that the directors would  have  cured  the

corporate  deficiencies absent the lawsuit.  But  the  memorandum

opinion awarding fees did not refer to this evidence.  And it did

not find  that the directors would have remedied the deficiencies

either  spontaneously or in response to a pre-suit  demand.   Nor

did  it  find  that  the actions that mooted  the  complaint  and

benefitted the corporation were not attributable to the  lawsuit.

The  evidence  would  not  have  compelled  such  findings.   The

directors  provided  no direct evidence why they  acted,  and  no

director offered an affidavit explaining why the old board acted.

The  superior  court recognized when it denied  the  shareholders

Rule  23.1(j)  attorneys fees motion that there were  conflicting

inferences  about  whether  a  majority  of  the  directors  were

implicated  in  an injury to the corporation.  These  conflicting

          inferences were also relevant to the reasons the board acted.

          In summary, the plaintiffs failure to meet their burden

of  proving  that a formal demand was excused did not necessarily

mean that the directors were the prevailing parties.  Because the

complaint  was dismissed as moot shortly after its  filing  as  a

result of the defendants apparently responsive actions, it  would

be  unrealistic  to  treat the directors  as  prevailing  parties

unless they demonstrated why the suit became moot, i.e., why  the

corporation   was   reinstated  and  the   annual   meeting   was

accelerated.     Notwithstanding   other   evidence    permitting

conflicting factual inferences, the directors offered  no  direct

evidence why things were done that gave the plaintiffs the relief

they requested.  Because we conclude as a matter of law that  the

directors  did  not meet their burden of proof on  the  issue  of

prevailing  party status, we vacate their Rule 82 attorneys  fees

award and remand for entry of a corrected judgment.48

     D.   The Directors Statutory Indemnification Award

          The  superior court ruled that the directors prevailing

party  status  also entitled them under AS 10.06.490(c)  to  full

indemnification  from Ingalik.49  The plaintiff shareholders  and

Ingalik  argue that because the court did not find  the  election

and  all  subsequent  board action to be  invalid,  the  business

judgment  rule  required  the court to  enforce  the  new  boards

resolution   that   denied  indemnification  to   the   defendant

directors.50   The  defendant  directors  respond  that   because

indemnification  under AS 10.06.490(c) was mandatory,  the  board

had   no   authority   to   adopt  a  resolution   denying   them

indemnification.51

          This  issue  turns  on whether the defendant  directors

satisfied  their burden of demonstrating that they were  entitled

to  indemnification under AS 10.06.490(c).  We conclude that they

did  not.   We  therefore  vacate the indemnification  award  and

remand for entry of a corrected judgment.

          It  appears  that indemnification is mandatory  if  the

          conditions of AS 10.06.490(c) are met, because that subsection

provides that a corporate director who has been successful on the

merits  or  otherwise in defense of certain  lawsuits   including

derivative  suits  shall be indemnified.52   We  assume  that  if

this subsection applies, mandating indemnification, the board has

no discretion to adopt a resolution denying indemnification.

          But  to be eligible for mandatory indemnification under

AS  10.06.490(c),  these defendant directors  had  to  have  been

successful on the merits or otherwise in defense of an action . .

.  .53   The  defendant directors did not demonstrate  that  they

successfully defended the litigation on its merits or  otherwise;

they  simply  obtained dismissal of the complaint, apparently  by

providing the relief the complaint sought.  As discussed in  Part

III.C,  above, the defendant directors did not establish why  the

remedial  actions  were taken.  The conflicting inferences  about

how  the  lawsuit  came to be mooted also pertain  to  the  issue

whether  the  directors  successfully  defended  the  litigation.

Because the defendant directors did not establish why action  was

taken  that mooted the complaint, they did not meet their  burden

of  establishing  a right to mandatory indemnification  under  AS

10.06.490(c).  The plaintiffs failure to prove that a demand  was

excused does not mean that the defendant directors must have been

successful  in  defending the suit.  The complaint was  dismissed

for mootness, not on a theory demand was unexcused.

          Few   cases  discuss  equivalent  situations.    Courts

requiring mandatory indemnification under substantially identical

statutes do so when the defendant achieves success on the  merits

or  otherwise,  including  termination  of  claims  by  agreement

without  any  payment or assumption of liability.54   Courts  are

reluctant  to  ask why the result was achieved.55  But  in  those

cases, it appears that the defendants did nothing to achieve  the

dismissal; they certainly paid no consideration, and they took no

corrective action that mooted the lawsuits.

          Because  the superior court did not apply the statutory

          standard for determining whether the defendant directors were

entitled to indemnification under AS 10.06.490(c), we must vacate

the  indemnification  award.  And because  the  directors  simply

asserted below that the dismissal with prejudice entitled them to

indemnification, they failed to establish that the dismissal  was

not  attributable  at least in part to a desire  to  resolve  the

lawsuit.   We therefore remand for entry of a corrected  judgment

that deletes the indemnification award.

IV.  CONCLUSION

          The  plaintiff shareholders are not prevailing  parties

because  the court found that their failure to make a demand  was

not excused.  In the absence of a demand, it is uncertain whether

the  defendant directors would have responded to a demand as they

responded  to  the lawsuit, affording the plaintiffs  the  relief

they  sought.   Although  the suit might factually  have  brought

about the relief, this is not enough.  Plaintiffs must show  that

a  demand  would  not have resulted in the same relief.   Because

this  is  difficult to show and the difficulty is  a  product  of

their  failure  to  make a demand, they can not  be  regarded  as

prevailing parties.

          The  defendant  directors are  not  prevailing  parties

because  they did not prove that the lawsuit was not a  cause  of

the  remedial action they took, or that if a demand had been made

they would have taken the remedial action.

          For  these  reasons, we (1) AFFIRM the superior  courts

holding  that  the  plaintiff shareholders  were  not  prevailing

parties  and  were  consequently not entitled to  attorneys  fees

under Civil Rules 23.1 and 82; (2) VACATE the award of costs  and

Civil  Rule 82 attorneys fees to the defendant directors  against

the  plaintiff  shareholders; (3) VACATE the defendant  directors

award  of  indemnification under AS 10.06.490(c); and (4)  REMAND

for entry of a corrected judgment reflecting that all parties are

to bear their own costs and attorneys fees.56

CARPENETI, Justice, dissenting.

          I  agree with the courts conclusion that the plaintiffs

were not excused from the requirement that they make a demand  on

the  corporation  before filing suit, and that their  failure  to

make  a  demand precludes their recovery of attorneys fees.   But

because  a  review  of the record shows that the  superior  court

dismissed  the complaint precisely because the plaintiffs  failed

to  carry  their burden of showing that their failure to  make  a

demand  was  excused, I dissent from Parts III.C.  and  III.D  of

todays ruling.

          In vacating the superior courts award of attorneys fees

to  the  defendant  directors, todays opinion  assumes  that  the

superior  court dismissed the complaint for mootness:  [I]n  June

the  superior  court  dismissed  the  complaint  with  prejudice,

apparently  because the complaint was mooted by the  corporations

reinstatement  and  the annual meeting.1   It  concludes  that  a

dismissal  for  mootness  did not establish  that  the  defendant

directors  were  the prevailing parties.  The  courts  assumption

that the complaint was dismissed for mootness is incorrect.

          A review of the record shows that, at the time the case

was  dismissed, the superior court did not specify a  reason  for

its  action.  Under our well-established case law, when  a  trial

court  does not specify a reason for its decision, we may  review

the  record  and  affirm if any basis for the  courts  action  is

supported  by  the record.2  Moreover, by the time of  its  final

ruling,3  the superior court unmistakably based its  decision  on

the  plaintiffs  unexcused  failure  to  make  a  demand  on  the

corporation.

          Although  unspoken, the courts opinion  today  suggests

that,  once  a  superior  court announces  a  rationale  for  its

decision,  it may not change it.  But this is not  the  law.   We

have  consistently upheld the proposition that one superior court

judge  who inherits a case from another superior court  judge  is

free to reexamine and reverse an earlier decision in that case if

          convinced that it is erroneous: [I]t [is] entirely reasonable for

a  judge  whose responsibility it is to try a case to  reconsider

and  reverse an earlier ruling if convinced that that ruling  was

erroneous.4

          If  one  judge may reconsider and reverse a predecessor

judges  ruling  in  a case, then a fortiori a  single  judge  may

reconsider and modify the basis for his or her own earlier ruling

in  a  case.  That is what happened in this case, as a review  of

the record shows.

          The   record   establishes:  (1)  that  the  defendants

proposed three reasons to dismiss the case; (2) that the superior

court  dismissed the case without specifying the reason  for  the

dismissal; (3) that at the same time the court declined to  award

attorneys  fees  to  either side but set  the  matter  on  for  a

hearing;  (4)  that  at the beginning of the  hearing  the  court

suggested  one basis for the dismissal, mootness; but (5)  during

the  hearing  the  court  suggested a  different  basis  for  the

dismissal; and (6) that by the time of its written order  shortly

thereafter  the  superior  court  unambiguously  held   that   it

dismissed  the  case because demand was not excused.   I  examine

each of these events in turn.

          Defendant   directors   offered   three   reasons   for

dismissing the case.  The first, and most extensively argued, was

that  the plaintiffs had not shown that their failure to  make  a

demand  on  the  corporation was excused.   Accordingly,  we  can

uphold  the  dismissal on this ground.  Indeed, the  court  today

rests  its  affirmance of the superior courts denial of attorneys

fees to plaintiffs on this very ground.5

          It is true that, at the time the superior court granted

the  motion  for  dismissal, it did not state a  reason  for  its

decision;  it  even  modified the defendants  proposed  order  by

striking  language awarding fees to the defendants.   Rather,  in

what  can only be described as a cautious approach to a difficult

issue,  the court retain[ed] jurisdiction to determine prevailing

          party status and to award costs and fees as may be appropriate.

          At  the  commencement  of the hearing  to  address  the

question  of  attorneys fees, it is also true that  the  superior

court  suggested  that  mootness might be  the  grounds  for  its

action.6   But  during  the course of the  hearing  the  superior

court, through its probing of counsel for both sides, made  quite

clear that it considered the plaintiffs failure to make a demand,

and  the lack of excuse for that failure, to be critical  to  its

earlier decision to dismiss.  For example, the court stated, Rule

23.1  says [the plaintiffs] bear the burden of proving  that  the

demand was excused.  Later, the court noted that [t]he demand  is

the  part of this case thats giving me the biggest problem  right

now.   What have you done to bear the burden of proving that  the

demand was excused in this case?  Finally, the court observed, if

the  plaintiffs  were  alleging  inaction  on  the  part  of  the

directors, isnt it just commonsensical that you would  first  ask

them to take the action you want?

          All  of these statements call into question this courts

conclusion that the superior court dismissed the case on mootness

grounds.  And, by the end of the hearing and the filing six  days

later  of the superior courts written decision, it is quite clear

that  the  court  had  dismissed the case on  the  basis  of  the

plaintiffs failure to show that their lack of demand was excused:

          Under   Alaska   R.  Civ.   P.   23.1(d),   a
          shareholder  who  files suit  without  having
          made  the formal demand contemplated by  Rule
          23.1(c)  bears  the burden  of  proving  that
          demand  was  excused. . . .  Demand  was  not
          excused and defendants were thus entitled  to
          dismissal  pursuant  to  Alaska  R.  Civ.  P.
          23.1(d).    Consequently,   they   must    be
          recognized  as the prevailing party  entitled
          to recover attorneys fees.
          
          Thus,  while  the  superior courts  original  order  of

dismissal  did not specify the grounds for dismissal,  the  court

plainly  stated in its final order after the hearing to determine

the prevailing party that the plaintiffs failure to make a demand

was  not  excused and defendants were thus entitled to  dismissal

          pursuant to Alaska R. Civ. P. 23.1(d).

          In  sum, the whole record establishes that the superior

court dismissed the case due to the plaintiffs failure to make  a

formal  demand.  Because the superior courts ruling on the merits

was   that  the  plaintiffs  failed  to  show  that  the   demand

requirement was excused, the director defendants were  successful

on  the merits and were the prevailing party.  Also, because  the

director  defendants  were successful on  the  merits,  they  are

entitled  to  mandatory indemnification.    I  would,  therefore,

affirm  the  judgment of the superior court in its entirety.   At

the very least, given our demonstrated uncertainty concerning the

basis for the superior courts decision, we ought, in fairness  to

the  superior  court, to remand the case and allow  the  superior

court to make clear the basis upon which it dismissed the case.

_______________________________
     *     This opinion replaces Opinion No. 5650 issued December
13,  2002.  In response to appellees petition for rehearing,  the
court adds footnote 56.

1     Brandon  v.  State,  Dept of Corr.,  938  P.2d  1029,  1031
(Alaska 1997) (citation omitted).

     2    Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979).

     3    Garber v. Lego, 11 F.3d 1197, 1200 (3d Cir. 1993).

     4     Mathis  v.  Sauser, 942 P.2d 1117, 1120 (Alaska  1997)
(citation omitted).

     5     Ashley  v.  Baker,  867 P.2d 792,  796  (Alaska  1994)
(citation omitted).

     6     We  initially reject defendant directors argument that
because  plaintiffs  are appealing the October  1998  prevailing-
party ruling and not the merits of the June 1998 order dismissing
their  complaint, they have waived their right to  challenge  the
ruling that they did not prove that demand was excused.  The June
8,  1998  dismissal  order  retained  jurisdiction  to  determine
prevailing  party status and to award costs and fees.  Plaintiffs
correctly  argue  that they could wait and  appeal  the  superior
courts  final  judgment, which was first entered  on  October  7,
1998. Plaintiffs did not appeal (and had no reason to appeal) the
underlying dismissal because the goals of their lawsuit had  been
achieved.

     7     The  minutes  of  the  April 26,  1998  board  meeting
indicate  that  the Anvik Tribal Council, a non-party,  initially
paid  some  or  all  of  plaintiff shareholders  attorneys  fees.
Defendant  directors  have  not  argued  that  this  circumstance
precludes plaintiff shareholders Rule 82 claim.

          But  circumstances bearing on how legal fees and  costs
were  to  be  paid may be relevant for other reasons  we  discuss
below.   Plaintiffs counsel submitted affidavits and  attachments
demonstrating that legal fees totaling $26,073 had been  incurred
by the plaintiffs as of June 30, 1998.  Of that, the Anvik Tribal
Council  had paid fees totaling $15,000, plaintiffs counsels  law
firm  had  advanced  an  additional $7,670.70  in  services,  and
Ingalik  had  agreed to pay for services, worth $4,341,  the  law
firm  provided after Ingalik sought to became a party  plaintiff.
The  fees incurred by or for Jerue and Demoski individually  thus
totaled $22,670.70.  By resolution, Ingaliks new board agreed  to
reimburse the Anvik Tribal Council and the law firm for the legal
services provided to Jerue and Demoski.

8    Alaska Civil Rule 23.1(j) provides:

          If  the  derivative action is successful,  in
          whole  or in part, or if anything is received
          as  a result of the judgment, compromise,  or
          settlement  of  that action,  the  court  may
          award   to   the   plaintiff  or   plaintiffs
          reasonable   expenses,  including  reasonable
          attorney fees, and shall direct an accounting
          to  the corporation for the remainder of  the
          proceeds.  This subsection does not apply  to
          a  judgment rendered only for the benefit  of
          injured   shareholders  and  limited   to   a
          recovery  of the loss or damage sustained  by
          them.
          
          The text of AS 10.06.435(j) is identical.

     9     It  appears that Alaska Civil Rule 23.1(j) is  modeled
after New York Business Corporation Law  626(e), which provides:

          If  the  action on behalf of the  corporation
          was  successful, in whole or in part,  or  if
          anything  was  received by the  plaintiff  or
          plaintiffs or a claimant or claimants as  the
          result   of   a   judgment,   compromise   or
          settlement of an action or claim,  the  court
          may   award   the  plaintiff  or  plaintiffs,
          claimant  or claimants, reasonable  expenses,
          including  reasonable  attorneys  fees,   and
          shall  direct him or them to account  to  the
          corporation for the remainder of the proceeds
          so  received by him or them.  This  paragraph
          shall not apply to any judgment rendered  for
          the  benefit of injured shareholders only and
          limited  to a recovery of the loss or  damage
          sustained by them.
          
          The New York courts have interpreted this provision  to
provide for fee-sharing, but not fee-shifting.  See, e.g.,  Glenn
v.  Hoteltron Sys., Inc., 547 N.E.2d 71, 75 (N.Y. 1989)  (holding
that  New York provision with language nearly identical to  Civil
Rule 23.1(j) was what we would call fee-sharing, not fee-shifting
provision  i.e., that litigation expenses awarded under provision
are to be borne by corporation, not losing party).  Citing Glenn,
the  Fletcher  Cyclopedia  states, The  obligation  to  reimburse
expenses  to  a  shareholder who brings a  successful  derivative
action  should be the obligation of the corporation, and not  the
obligation  of  the  defendants.  13  Timothy  P.  Bjur  &  James
Solheim,  Fletcher Cyclopedia of the Law of Private  Corporations
6044,  at 357 (1995 rev.)  While the semantic distinction between
fee  sharing  and  fee  shifting does not seem  to  be  similarly
observed  by the Delaware Supreme Court, it is worth noting  that
under Delaware corporate law, what we call fee sharing (but which
the  Delaware Supreme Court considers fee shifting  even in cases
where the litigation creates, and the fees are collected from,  a
common  fund) can, provided that a three-part test is met, remain
available  to plaintiffs even in the event a derivative  suit  is
dismissed  as moot.  See Waterside Partners v. C. Brewer  &  Co.,
739  A.2d  768,  769-70  (Del. 1999)  (holding  first,  that  fee
shifting  [what  this  court  would call  fee  sharing]  was  not
appropriate  where  common benefit was conferred  on  corporation
through  successful proxy contest parallel to but outside context
of  derivative litigation, and second, that policy embracing  fee
shifting  in  cases in which benefit to corporation  was  created
outside  litigation  context would have no  limiting  principle).
Despite  the semantic complications between fee sharing  and  fee
shifting,  and  Delawares willingness to consider what  we  would
call fee sharing in cases where derivative suits are dismissed as
moot,  Delaware  appears to have no rule like Alaska  Civil  Rule
23.1(j)  or  statute like AS 10.06.435(j) or N.Y. Bus.  Corp.  L.
626(e).  Given the apparent derivation of the Alaska statute  and
rule, we read Rule 23.1(j) to provide only for fee-sharing.   Our
existing  fee-shifting  rule, Rule 82(a), adequately  deals  with
attempts  to  recover  litigation  expenses  from  defendants  in
derivative suits.

     10   See, e.g., Glenn, 547 N.E.2d at 71.

11    See  Municipality of Anchorage v. Gallion,  944  P.2d  436,
445-48 (Alaska 1997) (differentiating between fee-sharing and fee-
shifting rules); Edwards v. Alaska Pulp Corp., 920 P.2d 751,  755
(Alaska 1996).

     12   The June dismissal order did not specify the ground for
dismissal.  But during the October oral argument on the attorneys
fees motions, the superior court announced:

          We should certainly proceed on the assumption
          that  the  dismissal was on mootness grounds,
          and the reason I say that is because it would
          have made no sense at all to reserve decision
          on  prevailing party status had the case been
          otherwise,  would  it?  .  .  .   For  todays
          purposes, lets . . . assume mootness  is  the
          basis for the dismissal.
          
          Those  words  and  the other relevant  record  passages
demonstrate  that the superior court dismissed the complaint  for
mootness, not on a theory the plaintiff shareholders did not make
a  formal  demand.   See Dissent at 34-35.   The  superior  court
thought  at the October hearing that the demand excuse issue  was
critical  to  the  competing fees motions, and  it  proceeded  to
consider  the  parties  arguments on that  issue.   It  told  the
plaintiffs  lawyer, demand is the part of this case thats  giving
me  the  biggest problem right now, and asked him directly,  What
have  you  done  to bear the burden of proving  that  demand  was
excused  in  this  case?   These comments are  inconsistent  with
concluding that the court had already resolved the issue when  it
dismissed the complaint. If the court had decided that  issue  in
June,  there  would have been no reason to consider it  again  in
October.  The court was clearly attempting to decide whether  the
plaintiffs had satisfied their burden of proving that demand  was
excused, and was thus necessarily resolving an issue it  had  not
previously decided.

          Dismissal in June for failure to prove that demand  was
excused  is  also  contextually improbable.  There  was  no  real
dispute  in  June that the relief the complaint sought  had  been
achieved, i.e., that the complaint was moot.  In comparison,  the
demand  excuse issue was in substantial dispute.  It is  unlikely
that  the  dismissal would have been with prejudice if the  court
had  thought  the complaint was deficient.  It is  also  unlikely
that  the  parties submissions as of June would have allowed  the
court to resolve the demand excuse issue on its merits.  (But  if
that  had  been the basis for the dismissal, it is  probable  the
dismissal  order would have said so.)  Before the  court  decided
the  demand  excuse  issue  in  October,  the  parties  submitted
extensive  filings  not before the court when  it  dismissed  the
complaint in June.

          In context, we read the order deciding the fees motions
to  mean that the directors would have been entitled to dismissal
(were thus entitled to dismissal) on the demand excuse issue  had
that  issue been fully litigated or decided in June.  We  do  not
read  it  to mean that the court actually dismissed the complaint
for failure to prove demand excuse, rather than for mootness.

13     Compare  Buckhannon  Bd.  &  Care  Home,  Inc.   v.   West
Virginia Dept of Health & Human Res., 532 U.S. 598, 605-10 (2001)
(discussing   and   rejecting  catalyst  rule   for   determining
prevailing party status) with DeSalvo v. Bryant, 42 P.3d 525, 530
(Alaska  2002)  (discussing  catalyst  theory);  State,  Dept  of
Natural  Res. v. Tongass Conservation Socy, 931 P.2d  1016,  1031
(Alaska   1997)   (discussing  catalyst   theory   and   possible
differences  between purposive federal fee-shifting statutes  and
Alaska Civil Rule 82).

          We   do  not  need  to  decide  here  whether  policies
potentially  justifying a catalyst approach to encourage  certain
types  of  claims would apply to shareholder derivative  actions.
See Matthew D. Slater, Civil Rights Attorneys Fees Awards in Moot
Cases, 49 U. Chi. L. Rev. 819 (1982).

     14    AS  10.06.435(j);  Civil Rule  23.1(j);  see  also  13
Timothy  P. Bjur & James Solheim, Fletcher Cyclopedia of the  Law
of  Private  Corporations  6045.01, at 366 (1995 rev.) (footnotes
omitted).

     15   E.g., In re Oracle Sec. Litig., 852 F. Supp. 1437, 1447
(N.D.  Cal. 1994) (citing Chrysler Corp. v. Dann, 223  A.2d  384,
389  (Del.  1966),  as  holding that lack  of  causal  connection
between  alleged  corporate  benefit  and  the  derivative   suit
justified denial of fee award).

     16   AS 10.06.435(c) provides:

          Unless excused on grounds that a majority  of
          the  directors is implicated in or under  the
          direct or indirect control of a person who is
          implicated  in the injury to the corporation,
          before  an action in the right of a  domestic
          or   foreign  corporation  is  instituted   a
          plaintiff who has standing under (b) of  this
          section  shall make a formal demand upon  the
          board  to  secure  the action  the  plaintiff
          desires.
          
          Alaska Civil Rule 23.1(c) is identical.

     17   AS 10.06.435(c); Alaska R. Civ. P. 23.1(c).

     18   AS 10.06.435(d); Alaska R. Civ. P. 23.1(d).

19     AS   10.06.435(d);  Alaska  R.  Civ.   P.   23.1(d).    AS
10.06.435(d) provides:

          If  a  shareholder  fails to  make  a  formal
          demand   under  (c)  of  this   section   the
          complaint shall state with particularity  the
          facts  establishing excuse under (c) of  this
          section.  In a motion to dismiss for  failure
          to  make  demand on the board the shareholder
          shall have the burden to establish excuse.
          
          Alaska Civil Rule 23.1(d) is identical.

     20    E.g., Aronson v. Lewis, 473 A.2d 805, 809 (Del.  1984)
(acknowledging that  demand requirement is a rule of  substantive
right  designed to give a corporation the opportunity to  rectify
the   alleged  wrong  without  litigation,  and  to  control  any
litigation  which  does arise) (citation omitted),  overruled  on
other  grounds by Brehm v. Eisner, 746 A.2d 244, 255 (Del. 2000);
Werbowsky  v.  Collomb, 766 A.2d 123, 144 (Md. 2001)  (discussing
futility exception, and noting that demand requirement gives  the
directors    even  interested,  non-independent   directors    an
opportunity to consider, or reconsider, the issue in dispute .  .
.  [which]  may  be  their first knowledge  that  a  decision  or
transaction they made or approved is being questioned).

     21    E.g., Gaubert v. Fed. Home Loan Bank Bd., 863 F.2d 59,
65  (D.C. Cir. 1988) (The demand requirement also serves the goal
of judicial economy, by giving the corporation a full opportunity
to put its house in order before it is prematurely hauled into  a
court to account for its actions.) (citation omitted); Brehm, 746
A.2d   at   255  ([B]y  requiring  exhaustion  of  intracorporate
remedies, the demand requirement invokes a species of alternative
dispute   resolution  procedure  which  might  avoid   litigation
altogether.); see generally BJUR & SOLHEIM, supra note 9,   5963,
at  127 ([D]emand requirement in derivative proceedings serves as
a  form  of notice to the corporation.  It is designed to  assure
that  the shareholder affords the corporation the opportunity  to
address  the alleged wrong without litigation and to control  any
litigation which does occur.) (footnote omitted).

     22    BJUR & SOLHEIM, supra note 9,  5963, at 127 (footnotes
omitted).

     23    E.g.,  Lewis  v. Graves, 701 F.2d 245,  248  (2d  Cir.
1983);  Greenspun v. Del E. Webb Corp., 634 F.2d 1204, 1208  (9th
Cir. 1980); Shelton v. Thompson, 544 So. 2d 845, 850 (Ala. 1989).

     24   Fed. R. Civ. P. 23.1.

     25   Graves, 701 F.2d at 248 (citation omitted).

     26    Kamen v. Kemper Fin. Servs., Inc., 908 F.2d 1338, 1343
(7th  Cir. 1990) (acknowledging Delaware Supreme Court as  mother
court of corporate law), overruled on other grounds, 500 U.S.  90
(1991).

     27   Brehm v. Eisner, 746 A.2d 244, 253 (Del. 2000).

     28   Id. at 253 (applying Del. Ch. Ct. R. 23.1).

     29   Id. at 254.

     30   11 F.3d 1197, 1200 (3d Cir. 1993) (citations omitted).

     31   AS 10.06.435(c); Alaska R. Civ. P. 23.1(c).

     32    Lewis v. Curtis, 671 F.2d 779, 784-85 (3d Cir.  1982),
superseded on other grounds by Garber v. Lego, 11 F.3d 1197, 1206-
07 (3d Cir. 1993); Coyer v. Hemmer, 901 F. Supp. 872, 886 (D.N.J.
1995); Brehm, 746 A.2d at 253.

     33    Aronson  v.  Lewis,  473 A.2d 805,  814  (Del.  1984),
overruled on other grounds by Brehm, 746 A.2d 244.

     34   Aronson, 473 A.2d at 808 n.1.

35   Fed. R. Civ. P. 23.1; Del. Ch. Ct. R. 23.1.

     36    Civil  Rule 23.1 was adopted in 1988 as  part  of  the
legislatures  comprehensive revision of the  Alaska  Corporations
Code.   Ch. 166,  1, 17, SLA 1988; see generally The Alaska  Code
Revision  Commission, A Comparative Study of the Proposed  Alaska
Corporations Code (ACC) with the Final 1984 Draft of the  Revised
Model Business Corporation Act (RMBCA) (Apr. 1985) (Code Revision
Report).   That  report  indicates  that  Rule  23.1(c)s   demand
requirement, as enacted in AS 10.06.435(c), was original work  by
the code revision commission.  Id. at 42.

     37    Greenspan v. Del E. Webb Corp., 634 F.2d 1204, 1209-10
(9th  Cir. 1980) (noting that demand requirement is excused  when
either  majority of board is interested in underlying transaction
or  underlying transaction was completely unrelated to  corporate
purpose); In re Kauffman Mut. Fund Actions, 479 F.2d 257,  264-65
(1st Cir. 1973) (same); Kaufman v. Kansas Gas & Elec. Co., 634 F.
Supp.  1573, 1580-81 (D. Kan. 1986) (holding that complaint  must
allege  self-dealing  or bias on part of  majority  of  board  of
directors to establish excuse); Aronson, 473 A.2d at 814 (holding
that  futility  is  established when plaintiff raises  reasonable
doubt  that  (1)  majority  of directors  are  disinterested  and
independent,  and  (2) the challenged transaction  was  otherwise
product of a valid exercise of business judgment); Marx v. Akers,
666  N.E.2d  1034,  1040-41  (N.Y.  1996)  (holding  that  demand
requirement  is excused when (1) majority of board is  interested
in  challenged  transaction, (2) board  members  did  not  inform
themselves  about transaction, and (3) challenged transaction  is
so  egregious on its face that it could not have been the product
of sound business judgment).

     38   AS 10.06.435(c); Alaska R. Civ. P. 23.1(c).

     39   Code Revision Report, supra note 36.

     40   Alaska R. Civ. P. 23.1(d).

     41    Although  there  was a factual dispute  regarding  the
question  of  demand excuse (whether a majority of the  directors
were   implicated  in  the  alleged  injury),  the  parties  were
apparently  content to litigate the fees and demand issues  based
on  the extensive memoranda, affidavits, and exhibits they filed.
No  party  sought to introduce live testimony on  this  point  or
requested an evidentiary hearing.  The shareholders do not  claim
on appeal that the superior court erred by resolving these issues
without an evidentiary hearing.

     42   See infra pp. 13-15 and notes 20-21.

43   AS 10.06.435(j); Alaska R. Civ. P. 23.1(j).

44    They  also  argue  that the court  dismissed  the  suit  on
the  grounds  that no formal demand had been made as required  by
Civil  Rule 23.1(c).  This argument is without merit:  the  court
dismissed for mootness, not because demand was unexcused.

45    City  of  Yakutat  v.  Roman, 654  P.2d  785,  793  (Alaska
1982)  (holding  that defendant city was not Rule  82  prevailing
party  where trial court found that complaint was at least partly
responsible  for citys corrective actions resulting in  dismissal
of complaint for mootness).

     46   See supra note 13.

     47   See Alaska R. Civ. P. 82(b)(2).

48    Likewise,  the  judgment should not include  a  prevailing-
party costs award.

     49   AS 10.06.490(c) provides:

          To  the  extent  that  a  director,  officer,
          employee, or agent of a corporation has  been
          successful  on  the merits  or  otherwise  in
          defense  of an action or proceeding  referred
          to  in  (a)  or  (b) of this section,  or  in
          defense of a claim, issue, or matter  in  the
          action  or proceeding, the director, officer,
          employee,   or  agent  shall  be  indemnified
          against  expenses and attorney fees  actually
          and  reasonably  incurred in connection  with
          the defense.
          
(Emphasis added.)

     50   The resolution provided:

          THEREFORE BE IT RESOLVED, that the  Board  of
          Directors  of  Ingalik,  Incorporated  acting
          pursuant  to  AS 10.06.490(a), hereby  denies
          any   indemnification   of   defense   costs,
          including  court costs, litigation  expenses,
          and legal fees to said defendant officers and
          directors,   specifically,   Kenneth   Chase,
          Shannon Chase, Gloria Millett[,] and Theodore
          Kruger,  Jr. for their defense of the  action
          brought  by shareholders Carl Jerue, Jr.  and
          Ernie Demoski, Sr.
          
Soon  after  adopting this resolution, the new  board  agreed  to
indemnify  Theodore Kruger, Jr., the only incumbent reelected  to
the board.

     51    Defendant directors also argue that they were entitled
to  discretionary indemnification and that the boards  resolution
was  contrary to Ingaliks bylaws, which require indemnity to  the
full  extent  permitted by law.  These alternative arguments  are
resolved by our analysis of AS 10.06.490(c).

52    In  comparison,  the  other  subsections  of  AS  10.06.490
appear  to  make  indemnification  permissive  or  discretionary,
regardless  of  the  success  of  the  litigation.    Thus,    AS
10.06.490(a), (b), and (d) provide in pertinent part:

               (a)   A  corporation  may  indemnify   a
          person  who was, is, or is threatened  to  be
          made  a  party  to a completed,  pending,  or
          threatened  action  or  proceeding,   whether
          civil,    criminal,    administrative,     or
          investigative, other than an action by or  in
          the  right  of the corporation, by reason  of
          the  fact  that  the  person  is  or  was   a
          director, officer, employee, or agent of  the
          corporation,  or  is or was  serving  at  the
          request  of  the corporation as  a  director,
          officer,   employee,  or  agent  of   another
          corporation,   partnership,  joint   venture,
          trust, or other enterprise. . . .
               (b)   A  corporation  may  indemnify   a
          person  who was, is, or is threatened  to  be
          made  a  party  to a completed,  pending,  or
          threatened action by or in the right  of  the
          corporation  to  procure a  judgment  in  its
          favor  by reason of the fact that the  person
          is  or was a director, officer, employee,  or
          agent  of  the  corporation,  or  is  or  was
          serving at the request of the corporation  as
          a  director, officer, employee, or  agent  of
          another   corporation,   partnership,   joint
          venture, trust, or other enterprise. . . .
               . . . .
               (d)   Unless  otherwise  ordered  by   a
          court,  indemnification under (a) or  (b)  of
          this   section  may  only  be   made   by   a
          corporation   upon   a   determination   that
          indemnification  of  the  director,  officer,
          employee,   or   agent  is  proper   in   the
          circumstances because the director,  officer,
          employee,  or  agent has met  the  applicable
          standard of conduct set out in (a) and (b) of
          this section. . . .
          
(Emphasis added.)

     53   AS 10.06.490(c).

     54   Waltuch v. Conticommodity Serv. Inc., 88 F.3d 87, 96-97
(2d  Cir.  1996) (holding that Waltuch was entitled to  mandatory
indemnification  because  he walked away  without  liability  and
without making a payment); Wisener v. Air Express Intl Corp., 583
F.2d  579 (2d Cir. 1978) (construing similar Illinois statute  to
same  effect); B & B Inv. Club v. Kleinerts, Inc., 472  F.  Supp.
787  (E.D.  Pa.  1979)  (requiring mandatory indemnification  for
officer who made no monetary payment, but who was dismissed  from
case with prejudice because second officer paid to settle claim).

     55   Waltuch, 88 F.3d at 96.

     56   Reversal of the mandatory indemnification award entered
under  AS 10.06.490(c) does not prevent Ingalik from indemnifying
director  Kruger  as  an exercise of board  discretion  under  AS
10.06.490(a)  or (b).  The boards resolution of  April  26,  1998
seems  to have exercised that discretion in favor of indemnifying
director Krugers litigation expenses.

1     Slip  Op.  at  10  (emphasis added).  In  a  footnote,  the
court  quotes  the superior courts direction to  counsel  at  the
outset  of oral argument on the attorneys fees motions to  assume
mootness  is the basis for the dismissal.  Slip Op. at  11  n.12.
As  shown  below, however, by the end of the hearing and  in  the
order  that  followed, the superior court  made  clear  that  the
dismissal was based on the plaintiffs failure to show that  their
lack of demand was excused.  See infra at 35-36.

     2     See,  e.g., Municipality of Anchorage v. Higgins,  754
P.2d  745,  748 (Alaska 1988) (appellate court may  uphold  lower
courts ruling on any ground that is apparent from the record  and
that supports the decision as a matter of law).

     3    The courts opinion creates a straw man when it observes
that  the  superior  courts comments at the October  hearing  are
inconsistent with concluding that the court had already  resolved
the  issue when it dismissed the complaint. (Opinion at 11, n.12)
This dissent does not contend that the superior court had already
resolved  the  issue  when it dismissed the complaint.   It  does
contend  that a trial court has the right to change its mind  and
to revisit a decision before it is final.  See infra text at note
4 and note 4.

4     Stepanov  v.  Gavrilovich, 594 P.2d 30, 36  (Alaska  1979).
See  also  West  v. Buchanan, 981 P.2d 1065, 1067  (Alaska  1999)
(second   trial   judge  within  her  discretion  to   reconsider
predecessor trial judges ruling).

     5    Slip Op. at 20-22.

6     This  suggestion,  set  out in the  courts  opinion  at  10
n.12,  did  not  amount to a finding or ruling  by  the  superior
court.   At  most,  it  showed  that the  court  was  considering
mootness  as the rationale for its decision to dismiss the  case.
But  even  if  it had formally ruled on that basis, there  is  no
reason why the court could not change its ruling.  See supra text
at note 4.