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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Holmes v. Wolf (12/10/2010) sp-6529

Holmes v. Wolf (12/10/2010) sp-6529

        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,   email 
        corrections@appellate.courts.state.ak.us. 

                 THE SUPREME COURT OF THE STATE OF ALASKA 

JOANN HOLMES and MITCH                         ) 
GREGOROFF,                                     )       Supreme Court No. S-13321/13341 
                                               ) 
                Appellants and                 )       Superior Court No. 3AN-04-13743 CI 
                Cross-Appellees,               ) 
                                               )       O P I N I O N 
        v.                                     ) 
                                               )       No. 6529 - December 10, 2010 
KANE WOLF, CAROLE PAGANO,                      )
 
and FRANK GRANT,                               )
 
                                               )
 
                Appellees and                  )
 
                Cross-Appellants.              )
 

                Appeal from the Superior Court of the State of Alaska, Third 
                Judicial District, Anchorage, Sen K. Tan, Judge. 

                Appearances: Michael J. Walleri, Law Offices of Michael J. 
                Walleri,      Fairbanks,      for   Appellants/Cross-Appellees. 
                David D. Clark, Law Office of David Clark, Anchorage, for 
                Appellees/Cross-Appellants. 

                Before:    Fabe,   Winfree,    Christen,    and  Stowers,    Justices. 
                [Carpeneti, Chief Justice, not participating.] 

                FABE, Justice. 

I.      INTRODUCTION 

                Joann Holmes and Mitch Gregoroff appeal decisions by the superior court 

in connection with a shareholders' lawsuit against two current members and one former 

----------------------- Page 2-----------------------

member of the Board of Directors of Leisnoi, Inc. ("Leisnoi") for failure to hold annual 

shareholder meetings, failure to prepare and distribute annual shareholder reports, failure 

to obtain and send out annual audited financial reports, and failure to reasonably inquire 

into a mediated settlement agreement.  On appeal, Holmes and Gregoroff argue that the 

superior court should have ordered the defendant directors to hold annual shareholder 

meetings, to prepare and send annual shareholder reports, and to obtain and distribute 

annual audited financial reports.  They also appeal the superior court's dismissal of the 

plaintiff   shareholders'   derivative   claims,  failure   to   award   the   plaintiff   shareholders 

nominal damages, failure to bar Leisnoi from indemnifying the defendant directors, and 

award   of   enhanced   attorney's   fees   against   the   plaintiff   shareholders.    Because   we 

conclude that none of the superior court's decisions was in error, we affirm the superior 

court in all respects. 

II.     FACTS AND PROCEEDINGS 

                Leisnoi,   Inc.   ("Leisnoi")   is   certified   under   the   Alaska   Native   Claims 

Settlement Act (ANCSA) as an Alaska Native Corporation for Kodiak's Woody Island. 

In   October   2004   Robert   Erickson,   one   of   Leisnoi's   shareholders,   filed   a   complaint 

against Kane Wolf, Carole Pagano, and Frank Grant, three of Leisnoi's five directors, for 

failure to hold an annual meeting within thirteen months in violation of Alaska law and 

failure to provide an annual shareholder report in violation of Alaska law. The complaint 

also alleged that the defendants had breached their fiduciary duties to the corporation and 

had been improperly installed as directors. 

                In January 2005 the defendants filed a motion to require Erickson to file a 

security   for   reasonable   attorney's   fees  and   costs   pursuant   to   the   requirements   for 

derivative     shareholder     lawsuits   set  forth   in  AS    10.06.435(h)     and   Alaska    Civil 

Rule 23.1(h).      The superior court granted the motion and ordered Erickson to file a 

                                                  -2-                                            6529
 

----------------------- Page 3-----------------------

security   of   $5,000.     In   April   2005   Erickson   filed   an   amended   complaint   adding 

17 shareholders, including Holmes and Gregoroff, as plaintiffs. In addition to the earlier 

allegations, this complaint alleged that the defendants failed to obtain an annual audit in 

violation of federal law.      The plaintiffs requested money damages and orders directing 

the defendant directors to hold a shareholder meeting and new election for all directors, 

to obtain an audit and send all financial statements to the shareholders, and to enter into 
a settlement with Omar Stratman.1 

                In November 2005 the plaintiffs filed a motion to vacate the order requiring 

a security on the ground that the 18 plaintiffs listed in the third amended complaint held 

more than five percent of Leisnoi's outstanding shares.              The superior court declined to 

vacate   its   order   because   the   complaint   had  not   been   verified   by   all   of   the   named 

plaintiffs. 

                The plaintiff shareholders filed two motions for partial summary judgment, 

one relating to the Board's failure to issue annual reports and the other relating to the 

Board's failure to enter into a settlement with  Stratman.               At oral argument on these 

motions in May 2006, the parties stipulated to dismiss the prayer for relief seeking a 

court order that the defendant directors enter into a settlement with Stratman, but they 

agreed that the dismissal would have no effect on the plaintiffs' claims for breach of 

fiduciary duties.      In June the superior court denied the summary judgment motions, 

concluding   that   because   issuing   annual   reports   is   a   duty   owed   by   all   members   of 

Leisnoi's Board of Directors, the plaintiff shareholders could only obtain relief by suing 

all five of Leisnoi's directors and/or Leisnoi, not just three individual directors.  In light 

        1       Leisnoi has been engaged in litigation with Stratman since 1976 when 

Stratman and others filed a lawsuit in federal court to prevent transfer of land to Leisnoi 
and other ANCSA corporations.             See Leisnoi, Inc. v. Stratman, 835 P.2d 1202, 1204 
(Alaska 1992). 

                                                   -3-                                                6529 

----------------------- Page 4-----------------------

of the superior court's ruling, the plaintiffs informed the court that they would add Frank 

Pagano and Shannon Johnson, the other two directors, as defendants, but it does not 

appear that they ever did so. 

                In December 2006 the superior court granted a motion by the defendants 

to require the plaintiffs to file an increased security, and in February 2007 it denied a 

request by plaintiffs to stay that order.  At that point, the court had dismissed two of the 
                                                             2 In March 2007 the court dismissed 
18 plaintiffs listed on the third amended complaint. 
five more plaintiffs.3     One month later, in April 2007, the defendants filed a motion to 

dismiss the plaintiffs' claims for their failure to file the court-ordered increased security. 

The   superior   court   granted   the   defendants'   motion   to   dismiss   as   to   the   plaintiffs' 

derivative claims.  In late July the case went to trial. 

                In March 2008 the superior court issued its findings of fact and conclusions 

of law.   It again concluded that it could not order the defendants, only three of the five 

directors, to hold annual shareholder meetings, prepare and send annual shareholder 

reports, or obtain and distribute annual audited financial reports. It further concluded that 

the defendant directors did not breach their duties regarding annual meetings or annual 

reports but did breach their duties by failing to inform themselves about the federal 

requirement to conduct annual financial audits and by failing to bring the requirement to 

the attention of the Board.       Finally, the superior court concluded that the then-current 

Board of Directors was properly elected or appointed.              The superior court ordered the 

defendants to raise with the entire Board of Directors the necessity of conducting an 

        2       In March and April 2006 the superior court dismissed plaintiffs Rosebel 

Baldwin and Augustine Yovino from the lawsuit. 

        3       The superior court dismissed Hazel Ardinger, Cecile T. Hiner, Sherringa 

Holmstrom, Elizabeth Olsen, and Starr Ward from the lawsuit. 

                                                   -4-                                               6529 

----------------------- Page 5-----------------------

annual audit and to provide the Board's decision to the plaintiffs. 

                The plaintiffs filed motions requesting that the superior court reconsider its 

order dismissing their derivative claims as to breach of fiduciary duty, bar the defendants 

from   indemnification   by   Leisnoi,   and   hold   a post-trial   hearing   to   determine   money 

damages.  All three motions were denied.  The superior court also denied a cross-motion 
from the defendants to amend its findings.4 

                Joann Holmes and Mitch Gregoroff, two of the eleven plaintiff shareholders 

who were part of this lawsuit when it concluded at the superior court level, appeal.  The 

defendant directors cross-appeal. 

III.    STANDARD OF REVIEW 

                "We apply our independent judgment to any questions of law, adopting the 
rule of law that is most persuasive in light of precedent, reason, and policy."5         We review 

a trial court's findings of fact under the clearly erroneous standard6 and review awards 

for nominal damages and enhanced attorney's fees for abuse of discretion.7 

IV.     DISCUSSION 

                Holmes and Gregoroff appeal several decisions by the superior court.  We 

first address the arguments that it was error to require the plaintiff shareholders to file a 

security, to increase the amount of the security, and then to dismiss their derivative 

        4       In October 2008 the defendants filed a motion for enhanced attorney's fees 

of 75%, which the plaintiffs opposed. The superior court ordered enhanced fees of 50% 
in December 2008 but did not enter a specific award of attorney's fees until July 2009. 
That award is the subject of a separate appeal. 

        5       McCormick v. Reliance Ins. Co., 46 P.3d 1009, 1011-12 (Alaska 2002). 

        6       Martens v. Metzgar, 591 P.2d 541, 544 (Alaska 1979). 

        7       State v. Jacob, 214 P.3d 353, 362 (Alaska 2009) (enhanced attorney's fees); 

Brown v. Dick, 107 P.3d 260, 267 (Alaska 2005) (nominal damages). 

                                                 -5-                                            6529
 

----------------------- Page 6-----------------------

shareholder claims for failure to file the increased security.  Under AS 10.06.435(h) and 

Civil Rule 23.1(h), where a derivative action is brought by holders of less than five 

percent of a corporation's outstanding shares, "the corporation in whose right the action 

is brought or the defendants may at any time before final judgment move the court to 

require the plaintiff to give security for the reasonable expense, including attorney fees, 

that may be incurred by the moving party."                As the statute and rule continue, "[t]he 

amount of the security may be increased or decreased from time to time in the discretion 

of the court upon a showing that the security has become inadequate or excessive." 

                 Holmes   and   Gregoroff   argue   that  the   superior   court   should   not   have 

required the plaintiffs to post a security because they held more than five percent of 

Leisnoi's outstanding shares.          They also argue that the superior court should not have 

required a security "because the [plaintiffs'] claims clearly had substantial merit."  We 

conclude that the superior court's finding that the plaintiffs held less than five percent of 

Leisnoi's outstanding shares was not clearly erroneous.  Thus, the superior court did not 

err   in   requiring   the   plaintiffs   to   post   a   security,   in   increasing   that   security,   or   in 

dismissing the plaintiffs' claims for failure to file the increased security.                Holmes and 

Gregoroff's   arguments   were   addressed  by   the   superior   court's   order   denying   the 

plaintiffs' motion to stay the order requiring an increased security, and we adopt that 
order below as Appendix A.8 

                 In affirming the superior court's dismissal of all the plaintiffs' derivative 

claims, we also affirm its dismissal of the plaintiffs' breach of fiduciary duty claim for 

failure   to   reasonably   inquire   into   the   proposed   mediated   settlement   with   Stratman 

because, as the plaintiffs acknowledged in one of their post-trial motions, this claim is 

        8        We have edited all of the appended orders of the superior court to conform 

with our technical requirements. 

                                                    -6-                                                 6529 

----------------------- Page 7-----------------------

a derivative claim.9   Although the plaintiffs had filed a motion for summary judgment on 

this claim in March 2006, the claim was live until July 2007 when it was dismissed with 
the plaintiffs' other derivative claims.10 

                We   next   address   the   parties'   arguments   regarding   annual   shareholder 

meetings, annual shareholder reports, and annual audited financial reports. The plaintiffs 

argued below that the superior court should order the defendants - who represented a 

        9       One treatise explains: 

                When      the  corporation    is  injured   and   the  injury   to  its 
                shareholders derives from that injury, any damages suffered 
                are owed to the corporation, and only the corporation may 
                bring suit. . . .    Where the cause of action belongs to the 
                corporation, a shareholder may, however, sue derivatively, 
                seeking in effect to require the corporation to pursue a lawsuit 
                to compensate for the injury to the corporation, and thereby 
                ultimately redress the injury to the shareholders. The general 
                rule that a shareholder may bring an action for injuries to a 
                corporation     only   derivatively    prevents   a  multiplicity   of 
                lawsuits   by   shareholders;   protects   corporate   creditors   by 
                putting the proceeds of the recovery back in the corporation; 
                protects the interests of all shareholders by increasing the 
                value of their shares, instead of allowing a recovery by one 
                shareholder to prejudice the rights of others not a party to the 
                suit; and adequately compensates the injured shareholder by 
                increasing the value of his or her shares. 

 18 C.J.S. Corporations  484 (2009) (footnotes omitted). 

        10      At   oral   argument   in   May   2006   for   the   several   motions   for   summary 

judgment the plaintiffs had filed, the parties stipulated to dismiss the prayer for relief 
requesting     the   court  to  order   the   defendants    to  settle  with   Stratman     with   the 
understanding that this would not affect their claims for breach of fiduciary duty.  In its 
June 2006 order, the superior court noted this stipulation but did not rule on the breach 
of fiduciary duty claim.  Following this order, no party requested that the superior court 
rule on the plaintiffs' motion for summary judgment as to their claim regarding the duty 
to inquire into the proposed mediated settlement. 

                                                 -7-                                            6529
 

----------------------- Page 8-----------------------

majority of the Board of Directors - to hold annual shareholder meetings, prepare and 

distribute annual shareholder reports, and obtain and distribute annual audited financial 

reports.   In denying the plaintiffs' motions for partial summary judgment and in making 

its final rulings after trial, the superior court concluded that because these statutory 

obligations rest not with individual directors but with Leisnoi itself and with its Board 

of Directors as a whole, it could not order three out of the five directors to fulfill them. 

The superior court also concluded that the defendants had not breached their fiduciary 

duties with respect to holding annual shareholder meetings or providing shareholders 

with annual reports.        However, the superior court concluded that the defendants had 

breached   their   fiduciary   duties   by   failing   to   inform   themselves   about   the   federal 

requirement to conduct annual financial audits and by failing to bring the requirement to 

the attention of the Board.        For that reason, the superior court ordered the defendant 

directors   to   raise   the   issue   of   the   federal   audit   requirement   with   the   full   Board   of 

Directors.      On   appeal,   Holmes   and   Gregoroff  maintain   that   the   superior   court   "had 

sufficient parts - a majority of the board - before it to fashion a remedy."                      In their 

cross-appeal, Wolf, Pagano, and Grant argue that it was error to conclude that they 

violated their fiduciary duties because the plaintiffs did not prove damages. We conclude 

that the superior court did not err in declining to order the plaintiffs to hold annual 

shareholder meetings, prepare and distribute annual shareholder reports, or obtain and 

distribute annual audited financial reports.  We also conclude that the superior court did 

not err in determining that the defendant directors did not act with reasonable care by 

failing to inform themselves about the federal requirement to conduct annual financial 

audits and by failing to bring the requirement to the attention of the Board.  The superior 

court addressed these arguments in three orders - one denying the plaintiffs' motions 

for summary judgment, one setting out its findings of fact and conclusions of law, and 

                                                    -8-                                              6529
 

----------------------- Page 9-----------------------

one denying post-trial motions filed by the plaintiffs and the defendants. We adopt these 

orders, which we attach as Appendix B, Appendix C, and, to the extent that it addresses 

the defendants' cross-appeal, Appendix D. 

                Holmes and Gregoroff also argue that it was error not to award nominal 

damages to the plaintiff shareholders after finding that the defendants breached their 

fiduciary duties.     We conclude that declining to award the plaintiffs nominal damages 

under the circumstances of this case was not an abuse of discretion.  The superior court 

addressed this issue in the order we attach as Appendix D, and we adopt that order to the 

extent that it addresses plaintiffs' argument and does not conflict with this opinion.                 In 

Brown   v.   Dick,   we   held   that   the   superior   court   was   not   required   to   award   nominal 

damages against individual directors and officers of a corporation for proxy disclosure 
violations   in   shareholder   election  contests.11      As   in  Brown,   we   do   not   define   "the 

permissible   outer   limits   for   awarding   nominal   damages"   in   situations   involving   a 
director's breach of fiduciary duty.12         In this case, the superior court found that "the 

directors . . . acted in good faith and in the best interests of Leisnoi" and were not 

"engaged in self-dealing" but were "serving on apro bono basis for the benefit of Leisnoi 

and its shareholders." After reviewing applicable case law, the superior court determined 

that Alaska has no per se rule requiring an award of nominal damages where there is a 

breach of fiduciary duties under these circumstances.  We agree and hold that failing to 

award nominal damages against the directors in this case was not an abuse of discretion. 

        11       107 P.3d 260, 266-67 (Alaska 2005).              We also noted that several cases 

decided by the Delaware Supreme Court "only approve nominal damages when actual 
economic harm is proved or apparent."  Id. at 266 (citing Malone v. Brincat, 722 A.2d 
5, 12 (Del. 1998), andLoudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 142 & nn. 
26-27 (Del. 1998)). 

        12      Id. at 266. 

                                                   -9-                                             6529
 

----------------------- Page 10-----------------------

               Finally, Holmes and Gregoroff argue that the superior court should have 

barred Leisnoi from indemnifying the defendant directors after it concluded that the 

defendant directors breached their fiduciary duties with respect to the audited financial 

reports.   Under AS 10.06.490(a), a corporation may indemnify its directors for expenses 

"reasonably incurred" in connection with litigation "if the person acted in good faith and 

in a manner the person reasonably believed to be in or not opposed to the best interests 

of the corporation."    Under AS 10.06.490(c), a corporation must indemnify a director 

who "has been successful on the merits or otherwise" in defense of certain lawsuits.  It 

is not clear that the relief sought by plaintiffs, barring indemnification of directors, is 
available in a lawsuit against three of five individual directors.13  But it is clear that the 

superior court did not err in declining to bar Leisnoi from indemnifying the defendant 

directors because, under AS 10.06.490(c), the defendants' success on the merits of this 

case entitled them to indemnification.      We therefore adopt the superior court's order 

declining    to  bar  Leisnoi  from   indemnifying    the  defendants,   which   we   attach  as 

Appendix E. 

V.     CONCLUSION 

               For these reasons and the reasons discussed in the superior court's attached 

orders, we AFFIRM the superior court in all respects. 

       13      Under AS 10.06.490, the option and sometimes obligation to indemnify 

belongs    to  the  corporation,  and   the  decision  to  indemnify   may   be  made    by  the 
corporation's    Board    of  Directors,  independent    legal  counsel,  or  approval   of  the 
outstanding shares.   It is therefore possible that the relief sought by plaintiffs may only 
be granted in a lawsuit against Leisnoi itself or the Board of Directors as a whole. 

                                             -10-                                         6529
 

----------------------- Page 11-----------------------

                                        APPENDIX A
 

             IN THE SUPERIOR COURT FOR THE STATE OF ALASKA
 
                    THIRD JUDICIAL DISTRICT AT ANCHORAGE
 

ROBERT ERICKSON, et al., 

               Plaintiffs, 

        v. 

KANE WOLF, CAROLE PAGANO and FRANK GRANT, 

               Defendants.
 

                                 Case No. 3AN-04-13743CI
 
                                           ORDER[1] 

               This matter is before the court on a Motion to Stay Order Requiring the 

Plaintiffs to Increase the Amount of the Bond. 

               In increasing the security, this court considered whether the 5% threshold 

had been met. Plaintiffs assert that there are 17 plaintiffs owning 166.31 shares, and with 

2,639 outstanding shares, this is 6.2%.        The plaintiffs are wrong to the extent that the 
number of total shares in the corporation is 2,971.801.2      After adding up all of the shares 

of   the   plaintiffs   named   in   the   Third   Amended   Complaint,   all   named   plaintiffs   hold 

166.313 outstanding shares.       However this includes the 10 shares of Rosebel Baldwin, 

dismissed on March 17, 2006, and the 12 shares of Augustine Yovina, dismissed on April 

25, 2006.    Subtracting their 22 shares from the 166.313 leaves the remaining plaintiffs 

with 144.313 shares. Using 2,971.801 as the correct number of outstanding shares leaves 

        1      This order and the orders that follow have been edited to conform with the 

technical rules of the Alaska Supreme Court, and some internal citations have been 
omitted. 

        2      This court actually added up all of the shares in Exhibit 1 by creating a 

spreadsheet. 

                                     Appendix A -  page 1                                     6529 

----------------------- Page 12-----------------------

the remaining plaintiffs with only 4.8561 percent, short of the 5% required under Civil 

Rule 23.1(h).      Further, the remaining plaintiffs have not verified the complaint.             There 

is an issue whether Hazel Ardinger, who holds 10 shares, has agreed to proceed as a 

plaintiff. 

                The standard for issuing a stay on appeal is the same three-part test for 

deciding      whether    an   injunction     should    issue.     This   involves    whether     exigent 

circumstances require that relief be granted before a full adjudication on the merits.                In 

deciding whether to grant or deny a preliminary injunction, Alaska courts apply the 
"balance of hardships" test.3  Immediate injunctive relief is warranted when the following 

three factors are present: "(1) the plaintiff must be faced with irreparable harm; (2) the 

opposing party must be adequately protected; and (3) the plaintiff must raise 'serious' 
and substantial questions going to the merits of the case."4                Where the harm is not 

irreparable, or where the other party cannot be adequately protected, then the moving 

party must show probable success on the merits. 

                Applying this standard for granting the stay, this court concludes that the 

balance   of   hardship   tests   does   not   warrant   a   stay   here.  Plaintiffs   have   not   shown 

irreparable harm, and further have not raised serious and substantial questions going to 

the merits of the issue, much less probable success on the merits of the case. 

        3       See   A.J.   Indus.,   Inc.   v.   Alaska   Pub.   Serv.   Comm'n,   470   P.2d   537,   540 

(Alaska 1970). 

        4       Messerli v. Dep't of Natural Res., State of Alaska, 768 P.2d 1112, 1122 

(Alaska 1989) (quotingAlaska Pub. Util. Comm'n v. Greater Anchorage Area Borough, 
534 P.2d 549, 554 (Alaska 1975)), abrogated on other grounds by Olson v. State, Dep't 
of Natural Res., 799 P.2d 289, 292-93 (Alaska 1990). 

                                       Appendix A -  page 2                                          6529 

----------------------- Page 13-----------------------

Accordingly, the Motion for a stay is denied. 

Dated Feb 22/07 at Anchorage, Alaska. 

                                   /s/   Sen K. Tan 
                                    Superior Court Judge 

                    Appendix A -  page 3                                  6529 

----------------------- Page 14-----------------------

                                       APPENDIX B 

             IN THE SUPERIOR COURT FOR THE STATE OF ALASKA
 
                   THIRD JUDICIAL DISTRICT AT ANCHORAGE
 

ROBERT ERICKSON, et al., 

               Plaintiffs, 

       v. 

KANE WOLF, CAROLE PAGANO, and FRANK GRANT, 

               Defendants.
 

                                 Case No. 3AN-04-13743CI
 

                                           ORDER 

               Before   the   court   are   two   motions   for   summary   judgment. The   first, 

defendants' motion filed in April of 2005 with a late-filed opposition in May of 2006 

related to plaintiffs' prayer for relief to order the defendants to enter into a settlement 

agreement with Omar Stratman, and the second, plaintiffs' motion with respect to claims 

for failure to provide annual reports.  The court heard oral argument on May 24, 2006 on 

both of these motions and will address each in this order. 

       (1)     Defendants' Motion for Summary Judgment Re: Prayer for Relief Five 
               (5)   Seeking    To   Order    Defendants     To   Enter    into  a  Settlement 
               Agreement with Omar Stratman. 

               Defendants moved for summary judgment on plaintiffs' claim that seeks an 

order that the defendants enter into a settlement with Omar Stratman.  At oral argument 

the parties stipulated that prayer for relief five (5) in the third amended complaint should 

be dismissed.  The parties further agreed that the dismissal of this prayer for relief shall 

not have any effect on the plaintiffs' claims for breach of fiduciary duties.       This court 

accordingly granted the dismissal of the claim on the record. 

                                    Appendix B -  page 1                                    6529 

----------------------- Page 15-----------------------

        (2)      Plaintiffs' Motion for Summary Judgment Re: Counts II and III 

                 Plaintiffs have moved for summary judgment on counts II and III of their 

complaint.  These two counts allege that the defendants failed to prepare and distribute 

annual reports.   Plaintiffs rely on AS 10.06.433 for their proposition that they should be 

awarded penalties for the corporation's failure to provide annual reports for certain years 

between 1999 and 2004. Alaska Statute 10.06.433(f) provides that "[a] corporation that 

neglects, fails, or refuses to prepare or submit" an annual report is subject to a penalty 

of $25 per day with a maximum penalty of $1500.  (Emphasis added.) 

                 The lead plaintiff in this case, Erickson, made a demand on the corporation 

for missing annual reports in August of 2004, and in October of 2004 filed suit against 

three of the corporation's directors.         Subsequently, numerous other shareholders have 

joined the suit as plaintiffs.  The plaintiffs now seek penalties from the named directors 

for failing to send out annual reports. Plaintiffs argue that the defendant directors should 

be liable for penalties for failing to prepare and provide annual reports essentially based 

on the status of a corporation as a legal fiction.  They argue that the corporation cannot 

act without some action by the board and therefore the board and its directors are liable 

for the corporation's actions or inactions. 

                 The defendants oppose the motion, arguing that any penalties for such a 

failure   to   provide   annual   reports   are   the   obligation   of   the   corporation   and   not   the 

individual directors. 

                 While the plaintiffs are correct that a corporation does not act without 

involvement of the board of directors or other agents, AS 10.06.433(f) is clear.                     The 

statute provides that a corporation that neglects, fails, or refuses to provide annual reports 

is subject to a penalty.      The statute does not state, nor is there any implication, that the 

                                        Appendix B -  page 2                                          6529 

----------------------- Page 16-----------------------

directors of a corporation are personally liable for the corporation's failure to provide 

annual reports. 

                 In this case the plaintiffs have made the decision to sue only three of the 

members of the board of directors.  They did not sue all of the members who sat on the 

board during the times that they claim they did not receive annual reports.  Nor have the 

plaintiffs chosen to sue the corporation directly in order to force the corporation to 

prepare and provide legally sufficient annual reports. 

                 The   court   hereby   finds   that   AS   10.06.433(f)   imposes   penalties   on   a 

corporation that does not provide its shareholders with annual reports.                   Alaska Statute 

10.06.433(f) does not create personal liability for the limited and select few directors 

whom the plaintiffs in this case have sued. 

                 Alternatively,   the   plaintiffs   argue  that   the   court   should   order   the   three 

named   directors   to   prepare   and   distribute   the   missing   annual   reports.   They   rely   on 

AS 10.06.433(a) for the proposition that although the corporation is liable for penalties, 

it is the directors' duty to prepare and distribute the corporation's annual reports. For this 

reason, plaintiffs argue that even without imposing penalties on the directors, the court 

may still order them to prepare and distribute annual reports as well as order them to be 

prepared expeditiously. 

                 Alaska Statute 10.06.433(a) provides that "[t]he board shall send an annual 

report to the shareholders . . . ."   This annual report must be sent within 180 days of the 
end of the previous fiscal year to which the report pertains.1              Likewise, the report must 

contain certain statutorily required information.2 

        1        AS 10.06.433(a). 

        2        AS 10.06.433(a)-(b). 

                                         Appendix B -  page 3                                           6529 

----------------------- Page 17-----------------------

                 To order the board to send out an annual report, the board must be a party 

to this litigation. It is undisputed that only three of the five board members who were on 

the board at the time of the demand in August of 2004 were named as parties.  Plaintiffs 

argue that three of five directors, constituting a majority, are all that is required in a suit 

against the board of directors for their failure to provide annual reports.  Plaintiffs argue 

that   naming   a   simple   majority   in   a   case  constitutes   filing   suit   against   the   board   of 

directors because any action by the board only requires a majority vote in order to be 

approved. 

                 Defendants argue that where a statute creates an obligation for "the board" 

that obligation is one for the entire board and not just a majority of the members.  They 

argue that if the plaintiffs sought to sue the board of directors to force them to take some 

action, they should have sued all five members of the board at the time the initial plaintiff 

made his demand for annual reports.            They argue that it was a tactical decision to only 

sue three directors in this case instead of all of the directors. 

                 The question for the court is: Can it order three out of five of the directors 

of  a   corporation   to   take   some   action?   Specifically,   can   the   court   order   those   three 

directors   to   produce   annual   reports?       Alaska   Statute   10.06.433(a)   is   clear   that   the 

obligation to send annual reports falls on "the board."  The term "board" is not defined. 

Plaintiffs suggest that "board" should mean any majority of the members, while the 

defendants argue that "board" must be read to mean all the members of the board. 

                 The Alaska Supreme Court has stated that when common terms are used 

within statutory language, without definition, the words should be given their common 
meaning.3     The Alaska Supreme Court also stated in Alaskans for Efficient Government 

        3        See Alaskans for Efficient Government, Inc. v. Knowles, 91 P.3d 273, 276 

                                                                                           (continued...) 

                                         Appendix B -  page 4                                           6529 

----------------------- Page 18-----------------------

that dictionaries are a "useful starting point for determining what statutory terms mean, 
as they provide the common and ordinary meaning of words."4                     The term "board" is 

defined   in   Black's   Law   Dictionary   as   "[a]   committee   of   persons   organized   under 

authority of law in order to exercise certain authorities, have oversight or control of 

certain   matters,   or   discharge   certain   functions   of   a   magisterial,   representative,   or 

fiduciary character.     Thus, 'board of aldermen,' 'board of health,' 'board of directors,' 
'board of works.' "5     Further, Black's Law Dictionary defines "directors" as "[p]ersons 

appointed or elected according to law, authorized to manage and direct the affairs of a 

corporation or company.          The whole of the directors collectively form the board of 
directors."6 

                This court hereby finds that the term "board" as used in AS 10.06.433(a) 

refers to the collective total of the board, i.e., all members of the board.  All members of 

the board have a duty to provide shareholders with annual reports that comport with the 

requirements of that section.  It is not a duty of a simple majority of the board, nor is it 

an action that requires a vote by a majority of the board to take place. 

                Accordingly, this court does not have the authority or jurisdiction to order 

non-named members of a board of directors to take action.                 In this case, because only 

three of the members at the time the demand was placed on the board are named, the 

court cannot therefore order those three directors to prepare and send annual reports to 

shareholders without the inclusion of all the directors that were sitting on the board at the 

        3       (...continued) 

n.4 (Alaska 2004). 

        4       Id.
 

        5       BLACK'S LAW DICTIONARY 157-158 (5th ed. 1979).
 

        6       Id. at 414 (emphasis added).
 

                                       Appendix B -  page 5                                          6529 

----------------------- Page 19-----------------------

time the demand was made.    For all the aforementioned reasons, plaintiffs' motion for 

summary judgment is hereby denied. 

             DATED this 2 day of June 2006 at Anchorage, Alaska. 

                                              /s/ Sen K. Tan 
                                              Superior Court Judge 

                                Appendix B -  page 6                             6529 

----------------------- Page 20-----------------------

                                       APPENDIX C 

             IN THE SUPERIOR COURT FOR THE STATE OF ALASKA
 
                   THIRD JUDICIAL DISTRICT AT ANCHORAGE
 

ROBERT ERICKSON, et al., 

               Plaintiffs, 

       v. 

KANE WOLF, CAROLE PAGANO and FRANK GRANT, 

               Defendants.
 

                                 Case No. 3AN-04-13743CI
 

               FINDINGS OF FACT AND CONCLUSIONS OF LAW 

Introduction and Parties 

        1.     This matter came before the court for trial on the week of July 23, 2007. 

After trial, the parties filed written closing arguments and proposed Findings of Fact and 

Conclusions of Law. 

       2.      There   are   numerous   plaintiffs   in   this   case. Only   one   plaintiff,   Joann 

Holmes, appeared at trial. All other plaintiffs appeared by verified consent over the 

objections of the defendants to proceed in their absence, with the exception of Nick 

Pavoloff.    Michael J. Walleri, counsel for plaintiffs, represented to the court that Mr. 

Pavoloff wished the trial to proceed in his absence.      The only plaintiff who testified at 

trial was Joann Holmes.  All plaintiffs are shareholders of Leisnoi, Inc. ("Leisnoi"). 

       3.      The defendants are Kane Wolf, Carole Pagano and Frank Grant.  They are 

also members of Leisnoi, and are directors of the corporation. 

       4.      Kane Wolf has been a director of Leisnoi continually since November 11, 

1995. 

                                    Appendix C - page 1                                     6529 

----------------------- Page 21-----------------------

        5.      Frank Grant has been a director of Leisnoi continually since November 11, 

1995. 

        6.      Carole Pagano has been a director of Leisnoi from May 30, 1998 until 

August 4, 2002, and from August 2004 until the present. 

        7.      Leisnoi   has   not   been   sued   by   the   plaintiffs   and   is   not   a   party   to   this 

litigation. 

Leisnoi, Inc. and Board of Directors and Annual Meetings 

        8.      Leisnoi is an Alaska Native Corporation, established as part of the Alaska 

Native Claims Settlement Act. 

        9.      Leisnoi's history as a viable corporation is one fraught with litigation, 

particularly with regard to Mr. Omar Stratman, with whom Leisnoi has had ongoing legal 

disputes for many years. Leisnoi has not really engaged in any real business enterprises 

since 1998. 

        10.     As initially constituted, Leisnoi had a seven-member Board of Directors. 

Leisnoi's   Board   of   Directors   was   reduced   to   five   by   a   resolution   of   the   Board   of 

Directors in August 2001. The Board reduced the number of directors from seven to five 

as a cost-saving measure.        This decision to reduce the number of directors was ratified 

by the Board of Directors at the 2002 annual meeting by unanimous consent and further 

ratified by a unanimous vote of the majority of shareholders at the 2002 meeting.                   The 

March 3, 2002 minutes indicate that "Shareholder Jana Turvey gain[ed] the floor and . . . 

move[d] that the shareholders . . . endorse and ratify the August 8, 2001 cost savings 

decision by the Board of Directors . . . to reduce the number of Directors from seven (7) 

to five (5) members . . . ." 

        11.     There was a quorum at the 2002 annual shareholders meeting, certified by 

the election judge.   At the 2002 meeting five directors were elected for staggered terms: 

                                        Appendix C - page 2                                          6529 

----------------------- Page 22-----------------------

two directors for a three-year term, two directors for a two-year term, and one director 

for   a   one-year   term.  The   directors   elected   were   Bruce   Robertson,   Frankie   Grant, 

Christina Hoen, Carole Pagano, and Kane Wolf.  Robert Erickson and Frank Pagano ran 

as directors but were not elected. 

        12.     Carole Pagano resigned from the Board in August 2002.  She did not agree 

with the policy to grant Roy Jones's law firm a security interest in the sales proceeds to 

its Joint Venture properties in Bellingham and to its 7(i) distributions. Leisnoi was billed 

over $700,000 by Roy Jones's law firm.             Jones was hired to address the legal issues 

arising from the Stratman litigation. 

        13.     Leisnoi   held   the   annual   meeting   of   shareholders   in   2003   after   several 

attempts to get a quorum.  Robert Erickson ran for the election against Kelly Simeonoff. 

Robert Erickson lost the 2003 election, and Kelly Simeonoff was elected to the Board. 

        14.     2004 was a tumultuous year for Leisnoi.  No elections were held in 2004. 

The corporation's finances were in turmoil and Bruce Robertson, the long-time president 

of   Leisnoi,   was   replaced   as   president   by   Kelly   Simeonoff.     Frank   Feichtinger,   the 

general manager of Leisnoi, was asked to leave in May of 2004, and Kelly Simeonoff 

resigned as president for health reasons in May of 2004.               The corporate offices were 

closed, and all files and records were moved into a private storage facility. When Carole 

Pagano became a director in the summer of 2004, Leisnoi's office was in cardboard 

boxes.   The records were a mess.  There was consideration in 2004 to dissolve Leisnoi 

as a corporation. 

        15.     Bruce Robertson resigned from the Board in the first half of 2004.                 The 

reason for the resignation was a threat by Robert Erickson to sue Bruce Robertson. 

Carole Pagano was appointed to fill Bruce Robertson's position. 

                                       Appendix C - page 3                                          6529 

----------------------- Page 23-----------------------

        16.     Kelly Simeonoff and Cristina Hoen resigned from the Board of Directors 

after Robert Erickson wrote a letter threatening to sue them in August 2004. 

        17.     To fill the vacancies on the Board, Frank Pagano was appointed to replace 

Kelly Simeonoff. Frankie Grant voted against appointing Frank Pagano. Robert Erickson 

was offered Christina Hoen's board seat but he refused.  Instead, Shannon Johnson was 

appointed to the board in April of 2005. 

        18.     Frank Feichtinger was the general manager of Leisnoi between September 
2000 and May 31, 2004.1 

        19.     Kane Wolf was elected President in May 2004.  The Leisnoi offices were 

reopened shortly after Carole Pagano was hired to be the office administrator for $3,000 

per month.     She was paid irregularly, and she was paid only when Leisnoi had money. 

        20.     After the departure of Frank Feichtinger, Leisnoi did not have any staff until 

Carole Pagano was hired with the following duties:  make sure the files were in order; 

handle and maintain shareholder records, estates, and fundraising; obtain grants to meet 

the   corporation's     obligations    to  the  State  of   Alaska;   interface    with  the   different 

governmental entities which affect Leisnoi; respond to shareholder inquiries; notice 

annual meetings; work with Leisnoi's attorneys; pay bills; and do accounting journal 

entries. 

        21.     Leisnoi held an annual meeting in 2005 after two continuances to obtain a 

quorum.  A quorum was obtained in October 2005. 

        22.     In 2005 Leisnoi sent to its shareholders the notice of the election and call 

        1       Frank   Feichtinger,   the   former   general   manager,   filed   a   lawsuit   against 

Leisnoi in the fall of 2004 alleging damages for unpaid "wages."               After trial by jury in 
July   of   2006,   the   jury   found   that   Frank   Feichtinger   had   breached   his   contract   with 
Leisnoi and also breached the duty of good faith and fair dealing. 

                                       Appendix C - page 4                                          6529 

----------------------- Page 24-----------------------

for nominations. Frankie Grant, Carole Pagano, Kane Wolf, and Shannon Johnson were 

elected directors at this annual meeting. 

       23.    In 2006 Leisnoi sent to its shareholders the notice of the election, annual 

report, and call for nominations.  Leisnoi held a meeting in December 2006 but did not 

have a quorum, and the meeting was continued.       After payment of taxes and ongoing 

business and litigation expenses, it did not have sufficient funds to hold the continued 

meeting, and one was not held. 

       24.    Leisnoi did not have sufficient funds to hold a meeting during the first half 

of 2007, as it had to borrow money from Koniag to pay its taxes due in the first half of 

2007.   Leisnoi may have held a meeting during the second half of 2007. 

       25.    None of the defendants except Thelma Johnson have voted in any recent 

election. 

       26.    The one plaintiff who attended trial, Joann Holmes, has not voted in any 

recent election. She alleged she has not received any mail from the corporation but never 

made inquiries of the corporation to let them know she was not receiving mail.  None of 

Joann Holmes's mailings were ever returned to the corporation as undeliverable. The 

corporation had Ms. Holmes's correct mailing address.  Carole Pagano testified that in 

2004 and in 2005 annual shareholder reports were mailed to Joann Holmes. 

       27.    Before trial, Frank Pagano met with plaintiff Robert Erickson, who told Mr. 

Pagano that he did not want to testify, did not want this case to go forward, and wanted 

the case to be dismissed.    He had earlier made similar statements to Mr. Wolf.       Mr. 

Erickson told Mr. Pagano that the case was out of his hands. 

       28.    Mr. Erickson wanted to serve on the Board of Directors and ran for election 

in 2002.   At that time, he and Mr. Pagano were friends.    Neither of them succeeded in 

getting elected. There is credible evidence that Mr. Erickson met with Mr. Stratman in 

                                   Appendix C - page 5                                 6529 

----------------------- Page 25-----------------------

2004.    After meeting with Mr. Stratman, he sent letters threatening the seated board of 

directors   with   this   lawsuit.   As   a   result,   three   of   the   directors,   Mr.   Robertson,   Mr. 

Simeonoff, and Ms. Hoen resigned. Mr. Erickson was offered one of the Board seats, but 

turned down the opportunity to serve on the Board.                Instead, he proceeded with the 

lawsuit against the two remaining directors, and added Ms. Pagano to the list. 

        29.     There is no doubt in this court's mind that Mr. Erickson was the moving 

force behind this lawsuit.  It is peculiar that Mr. Erickson chose not to even attend trial, 

or explain to the court why he sought to take the actions that he did.               This only lends 

credence to the plaintiffs' contention that Mr. Erickson and the faction he led wanted to 

force the Leisnoi board to either accept the settlement or negotiate a settlement with Mr. 

Stratman.  This is clear when the court considers the Complaint in this case. 

        30.      The proxies used for the annual meetings were admitted into evidence. The 

2002, 2003, and 2005 management proxy solicitations all have the language that the 

proxy must be tendered 60 days before the annual meeting.                The proxies used in 2005 

were used within 11 months from the date they were granted.                This court finds that the 

proxies used in the 2005 election were valid. 

Leisnoi's Financial Situation 

        31.     In the early years of its existence, Leisnoi was a solvent enterprise. Leisnoi 

had a logging business and bought a building in Kodiak.  Leisnoi paid a few dividends 

during the late nineties. 

        32.     The last audit of the corporation was performed in 1998.               Since then, no 

audited financial statements have been provided to the shareholders. 

                                       Appendix C - page 6                                          6529 

----------------------- Page 26-----------------------

         33.    There was a lis pendens filed by Mr. Stratman against all real property 
assets of Leisnoi.2    As a result, Leisnoi has had a difficult time sustaining any business 

activity   since   logging   activities   ended   in   1998.   Since   the   Trillium   Joint   Venture 

Bellingham assets were sold in 2002 to pay most of Roy Jones's bill, Leisnoi has not had 

any money-making assets. Because of the lis pendens, Leisnoi has no active business, 

cannot sell its land, cannot use its property productively, and cannot use the property to 

finance any activities. 

         34.    The lis pendens filed by Mr. Stratman covers the Cliff Point development. 

Leisnoi is a 50-50 joint venture partner with Trillium Corporation in the Cliff Point 

Subdivision   in   Kodiak.       There   are   40   10-acre   lots   in   the   subdivision.  Leisnoi   is 

responsible for paying half of the property taxes due to the Kodiak Island Borough on the 

Cliff Point property. 

         35.    Leisnoi has a limited source of income from Koniag Corporation.  Leisnoi 

also had some significant debts.  In an effort to deal with the Stratman litigation, Leisnoi 

hired Roy Jones. The effort resulted in a judgment against Leisnoi in excess of $600,000. 

         36.    Eileen Zaiser is a certified public accountant.            She started working for 

Leisnoi around 1999. Except for an absence starting sometime in 2003 and in December 

2004, she has basically kept the books for Leisnoi. 

         37.    Leisnoi's financial books are kept on an accrual basis.            A profit shown in 

any given year is not reflective of cash flow.           Exhibit 2001 shows that Leisnoi had a 

$387,634.00 loss in 2001 and a $250,879.00 gain in 2002.  For that two-year period there 

was a net loss of $136,755.00. 

         38.    The corporation had a net loss of $282,410.47 in 2003.  In FY 2004, after 

the payment of legal and other operational expenses, the corporation had a net income 

        2       See Stratman v. Leisnoi, Inc., 969 P.2d 1139, 1140 (Alaska 1998). 

                                       Appendix C - page 7                                          6529 

----------------------- Page 27-----------------------

of $71,126.16.      The two years combined showed a net loss of $211,284.47.                  For the 

period 2001 through 2004 Leisnoi's net losses were $348,039.47. 

         39.    In FY 2005, after the payment of legal and other operational expenses, the 

corporation realized a net income of $34,412, however the corporation was still paying 

outstanding obligations from previous years.  Accrual statements do not show that prior 

years' costs are still being paid by the corporation. 

         40.    At each annual meeting in 2002, 2003, 2005, and 2006, financial statements 

were provided to the shareholders.          None of the financial statements were audited.         An 

audit of the corporation's books would cost between $15,000 and $25,000 for any given 

year. 

         41.    All defendants testified that Leisnoi had insufficient money to obtain an 

audit in 2003, 2004, 2005, and 2006.   The costs are not yet in for 2007. 

         42.     None of the defendants receive any compensation for being a director. 

None of the current directors of Leisnoi receive any money for being a director.  None 

of the directors have received any money since 2002.               Kane Wolf received $1,000 in 

2004, but that was a reimbursement for moving costs when the corporation closed down 

in 2004. Carole Pagano and Kane Wolf testified that they advance money to Leisnoi and 

wait until 7(i) money is available to be paid back.  In addition, Kane Wolf testified that 

he takes his vacation time every year to do corporation business.             The current board of 

directors is serving on a pro bono basis. 

Shareholder Database 

         43.    Ms. Pagano was in charge of the shareholder database and corporate records 

for   a   period   of   time   until   1999. When   Frank   Feichtinger   was   hired   as   the   general 

manager, he took over the job of keeping up the database. 

         44.    Carole Pagano took the recordkeeping job back in 2004, and the shareholder 

                                       Appendix C - page 8                                         6529 

----------------------- Page 28-----------------------

database and records of Leisnoi were not in good shape. Former General Manager Frank 

Feichtinger   had   failed   to   update   addresses  and   other   information. The   shareholder 

database had bad addresses and several estates were not complete; the database was 

basically a mess. 

        45.    Ms. Pagano, as the only administrative officer of Leisnoi, performs many 

functions. 

                                 CONCLUSIONS OF LAW 

               This court has previously dismissed all derivative claims.  The plaintiffs in 

this lawsuit are individual shareholders of Leisnoi. What remains are the shareholder 

direct claims against three individual directors.  Leisnoi has not been sued or joined in 

this lawsuit and is not a party to this litigation.  The lawsuit has not named the Board of 

Directors of Leisnoi as a party to this lawsuit. 

               This court concludes after review of the facts that Leisnoi has a Board of 

Directors of five members. Initially, the Board of Directors consisted of seven members. 

In 2001, the Board of Directors reduced the size of the Board to five members, and that 

decision was ratified at the shareholder meeting in 2002.  Further,  Bylaw 3.10 provides 

that "the majority of the remaining directors may elect a successor to hold office for the 

unexpired term . . . ." In 2004 Carole Pagano, Frank Pagano, and Shannon Johnson were 

properly appointed to the Board of Directors. 

               Regarding the issue of what constitutes the Board of Directors, this court 

concludes that the three directors did not act as a block or a control group.  There is no 

evidence that there was any understanding or agreement between Mr. Wolf, Mr. Grant, 

and Carole Pagano that they would vote as a block on the matters that are at issue in this 

trial. There is evidence that they each voted independently. For example, Frankie Grant 

disagreed that Frank Pagano should be appointed to the Board of Directors.              Thus this 

                                      Appendix C - page 9                                      6529 

----------------------- Page 29-----------------------

court concludes that the Board of Directors of Leisnoi includes all members of the Board 

and not just the defendant directors. 

                This court will now go through each of the remaining counts. 

Count I - Failure To Hold Annual Meeting of Shareholders Within 13 Months, 

AS 10.06.405 

                Alaska Statute 10.06.405(b) provides that "[i]f the annual meeting is not 

held   within   any   13-month   period,   the   superior   court   may   on   the   application   of   a 

shareholder summarily order a meeting to be held." 

                At the outset, this court previously concluded that an individual shareholder 

may bring this cause of action.         However, it appears that the plaintiffs have sued the 

wrong party. Under Leisnoi Bylaws, Article 2.2, "[t]he Annual Meeting shall be held on 

a Saturday or such other day as shall be fixed by resolution of the Board of Directors 

within 180 days after fiscal year end." 

                The statutory obligation to conduct the annual meeting is placed on the 

Board   of   Directors.     As   the   Board   of   Directors   has   not   been   sued,   (nor   has   the 

corporation) even if an annual meeting has not been held within a 13-month period, no 

individual director may schedule a meeting. 

                Leisnoi   held   a   meeting   in   October   2005.   In   2005   Leisnoi   sent   to   its 

shareholders the notice of the election and call for nominations.  Frankie Grant, Carole 

Pagano, Kane Wolf, and Shannon Johnson were elected directors at this annual meeting. 

                In 2006 Leisnoi sent to its shareholders the notice of the election, annual 

report, and call for nominations.  Leisnoi held a meeting in December 2006 but did not 

have a quorum, and the meeting was continued.               After payment of taxes and ongoing 

business and litigation expenses, it did not have sufficient funds to hold the continued 

meeting, and one was not held. 

                                       Appendix C - page 10                                         6529 

----------------------- Page 30-----------------------

                Leisnoi did not have sufficient funds to hold a meeting during the first half 

of 2007, as it had to borrow money from Koniag to pay its taxes due in the first half of 

2007.   Leisnoi may have held a meeting during the second half of 2007. 

Count II and Count III - Failure To Provide Annual Shareholder Report 

                The state statutory provision provides that the corporation's "board shall 

send an annual report to the shareholders not later than 180 days after the close of the 
fiscal year . . . ."3  If the corporation fails to do so, it will be liable for a penalty of $25 

per day starting 30 days after receipt of a written request, up to a maximum of $1,500.4 

This statutory requirement creates a corporate obligation to individual shareholders and 

an   associated   penalty   for   non-compliance.   Again,   although   the   statute   creates   an 

individual cause of action, the obligation to provide an annual report rests with the 

corporation and the Board of Directors, not the individual directors. 
                Under ANCSA 43 U.S.C.  1606(o),5 the corporation's accounts shall be 

        3       AS 10.06.433(a). 

        4       AS 10.06.433(f). 

        5       43 U.S.C.  1606(o) states: 

                The accounts of the Regional Corporation shall be audited 
                annually   in   accordance   with   generally   accepted   auditing 
                standards   by   independent   certified   public   accountants   or 
                independent licensed public accountants, certified or licensed 
                by a regulatory authority of the State or the United States. 
                The audits shall be conducted at the place or places where the 
                accounts of the Regional Corporation are normally kept. All 
                books, accounts, financial records, reports, files, and other 
                papers,   things,   or   property   belonging   to   or   in   use   by   the 
                Regional Corporation and necessary to facilitate the audits 
                shall be available to the person or persons conducting the 
                audits; and full facilities for verifying transactions with the 
                                                                                         (continued...) 

                                       Appendix C - page 11                                          6529 

----------------------- Page 31-----------------------

audited     annually     in  accordance      with   generally     accepted     auditing    standards    and 

transmitted to each stockholder.  43 U.S.C.  1607(c) provides that 43 U.S.C.  1606(o) 

applies to village corporations. However, the statute does not create an individual cause 

of action or provide for statutory remedies. 

                 Again,   although   the   statute   creates   an   individual   cause   of   action,   the 

obligation   to   provide   an   annual   audit   rests   with   the   corporation   and   the   board   of 

directors, not the individual directors. 

Count IV - Breach of Fiduciary Duties 
                 The duties of an individual director are set forth in AS 10.06.450(b).6  There 

        5	       (...continued) 

                 balances or securities held by depositories, fiscal agent, and 
                 custodians shall be afforded to such person or persons. Each 
                 audit report or a fair and reasonably detailed summary thereof 
                 shall be transmitted to each stockholder. 

        6	       Alaska Statute 10.06.450 provides, in relevant part: 

                 (b) A director shall perform the duties of a director, including 
                 duties as a member of a committee of the board on which the 
                 director may serve, in good faith, in a manner the director 
                 reasonably      believes    to   be  in   the   best   interests   of  the 
                 corporation, and with the care, including reasonable inquiry, 
                 that an ordinarily prudent person in a like position would use 
                 under similar circumstances. Except as provided in (c) of this 
                 section, a director is entitled to rely on information, opinions, 
                 reports or statements, including financial statements and other 
                 financial data, in each case prepared or presented by 

                 (1) one or more officers or employees of the corporation whom 
                 the director reasonably believes to be reliable and competent in 
                 the matters presented; 
                 (2) counsel, public accountants, or other persons as to matters 
                 that the director reasonably believes to be within the person's 
                                                                                           (continued...) 

                                        Appendix C - page 12                                            6529 

----------------------- Page 32-----------------------

is a similar duty imposed on officers of the corporation set out in AS 10.06.483(e).7 A 

director's or officer's fiduciary duty requires him or her to act in good faith, and to act 

in a manner he or she reasonably believes to be in the best interests of the corporation, 

and to act with the care, including reasonable inquiry, that an ordinarily prudent person 

would use under similar circumstances. 

                 Under the statute, a director is entitled to rely on information, opinions, 

reports, or statements prepared or presented by counsel, public accountants, or other 

persons as to matters that the director reasonably believes to be within the person's 

professional or expert competence.           An officer is not acting in good faith if the officer 

        6	       (...continued) 

                 professional or expert competence; or 
                 (3) a committee of the board upon which the director does not 
                 serve, designated in accordance with a provision of the articles 
                 or   the   bylaws,    as  to  matters    within    the  authority    of   the 
                 committee if the director reasonably believes the committee to 
                 merit confidence. 

                 (c) A director is not acting in good faith if the director has 
                 knowledge   concerning   the   matter   in   question   that   makes 
                 reliance     otherwise      permitted     by    (b)   of   this   section 
                 unwarranted. 

        7	       Alaska Statute 10.06.483 provides, in relevant part: 

                 (e) An officer shall perform the duties of the office in good 
                 faith   and   with   that   degree   of   care,   including   reasonable 
                 inquiry, that an ordinarily prudent person in a like position 
                 would use under similar circumstances. Except as provided 
                 in   (f)  of  this  section,    an  officer   is  entitled   to   rely  on 
                 information,      opinions,     reports    or  statements,      including 
                 financial   statements   and   other   financial   data   in   each   case 
                 prepared or presented by legal counsel or public accountants 

                                        Appendix C - page 13                                            6529 

----------------------- Page 33-----------------------

relies on others despite having knowledge concerning the matter in question that makes 

reliance on others unwarranted. 

               Here plaintiffs allege that the defendant directors "failed to insure that the 

Corporation complied with state and federal law respecting annual reporting, and the 

conduct of annual meetings." 

               With respect to each of the plaintiffs' theories this court must decide 

               (1)     Did the individual directors act in bad faith; or 

               (2)     Did the individual directors not act in a manner that they reasonably 

believed to be in the best interests of Leisnoi; or 

               (3)     Did    the  individual   directors  not   act  with  the  care,  including 

reasonable inquiry, which an ordinarily prudent person in a like position would use under 

similar circumstances? 

               This court finds in general that the directors and officers in this lawsuit 

acted in good faith and in the best interests of Leisnoi.        There is no evidence that the 

directors sued in this lawsuit and in their capacity as officers were acting in bad faith, for 

their self interest, or engaged in self-dealing.     Indeed the opposite is true.     The parties 

who have been sued are serving on a pro bono basis for the benefit of Leisnoi and its 

shareholders.   They have not been paid for their services and have contributed their time 

to the furtherance of keeping Leisnoi alive for the shareholders.         Carole Pagano is the 

only person in this lawsuit who is in a paid position.  She is paid a very reasonable wage, 

and at times has to wait for payment when Leisnoi is short on funds. 

               There is no self-dealing, personal enrichment, or lack of good faith on the 

part of the directors. 

               Although they are somewhat irrelevant, this court questions the motives and 

good faith of the plaintiffs, especially Mr. Erickson.       It appears that he was a moving 

                                    Appendix C - page 14                                      6529 

----------------------- Page 34-----------------------

force in bringing about the lawsuit, but did not appear for trial.               Indeed, most of the 

plaintiffs did not appear for trial. Mr. Erickson's actions suggest a personal agenda.  He 

threatened to sue certain previous directors and succeeded in getting two members to 

resign.    He was then offered a seat on the board, which he refused.              It appears that Mr. 

Erickson is more interested in being a gadfly, remaining outside and casting stones. 

                Joann Holmes, the only plaintiff who appeared for trial, has not voted in any 

recent   election   and   alleged   she   has   not  received   any   mail,   but   never   informed   the 

corporation that she was not receiving mail. None of Joann Holmes's mailings were ever 

returned to the corporation as undeliverable.  The corporation had Ms. Holmes's correct 

mailing address.      Carole Pagano testified that in 2004 and in 2005 annual shareholder 

reports were mailed to Joann Holmes.  This court finds that Ms. Holmes is not a credible 

witness. 

                With regard to the holding of the annual meetings, Leisnoi held a meeting 

in October 2005.   In 2005 Leisnoi sent to its shareholders the notice of the election and 

call for nominations.  Frankie Grant, Carole Pagano, Kane Wolf, and Shannon Johnson 

were elected directors at this annual meeting. 

                In 2006 Leisnoi sent to its shareholders the notice of the election, annual 

report, and call for nominations.  Leisnoi held a meeting in December 2006 but did not 

have a quorum, and the meeting was continued.                After payment of taxes and ongoing 

business   and   litigation   expenses,   Leisnoi   did   not   have   sufficient   funds   to   hold   the 

continued meeting, and one was not held. 

                Leisnoi did not have sufficient funds to hold a meeting during the first half 

of 2007, as it had to borrow money from Koniag to pay its taxes due in the first half of 

2007.   This court does not know whether Leisnoi held any annual meetings in 2007. 

                                       Appendix C - page 15                                          6529 

----------------------- Page 35-----------------------

                Given the circumstances of the difficulty of getting a quorum, as well as the 

additional expense of continuing a meeting, this court finds that the three directors did 

not breach their fiduciary duty regarding calling annual meetings. Leisnoi held an annual 

meeting in December 2006, and thus had until January 2008 to hold the next meeting. 

                The next issue is with regard to the annual reports and the audited financial 

reports.   At each annual meeting in 2002, 2003, 2005, and 2006 shareholder reports and 

financial   statements   were   provided   to   the   shareholders.       No   shareholder   report   or 

financial statement was provided to shareholders in 2004.  This court finds that although 

no report was sent out, the individual directors/officers did not breach their fiduciary 

duty.    2004 was a terrible year for Leisnoi; it was on the brink of disaster.                Manager 

Frank Feichtinger was fired, two board members resigned, and Leisnoi had closed its 

offices and its records were in boxes.         Financially, Leisnoi had more debts than assets. 

Given the circumstances, this court finds that the directors did not breach their fiduciary 

duty in failing to prepare and send out an annual report that year. 

                Lastly, there is the issue of audited financial reports.  Leisnoi did not send 

out an audited financial report in the years 2002-2006.                It would have cost $15,000- 

$25,000 for an audit to be performed.           At trial, the individual directors testified that to 

a   large   extent   they   did   not   know   that   there   was   a   statutory   requirement   that   the 

corporation provide audited financial statements.  In Doyle v. Union Insurance Co., the 

court explained that "a violation by a trustee of a duty required by law, whether willful, 

fraudulent, or neglect, is a breach of trust and the trustee is liable for any damages 
proximately caused by the breach."8 

                It is axiomatic that ignorance of the law is no excuse, except in very limited 

        8       277 N.W.2d 36, 41 (Neb. 1979). 

                                       Appendix C - page 16                                           6529 

----------------------- Page 36-----------------------

circumstances.9     A director has to act with the care, including reasonable inquiry, which 

an ordinarily prudent person in a like position would use under similar circumstances. 

Although a director is entitled to rely on information, opinions, reports or statements, 

prepared or presented by counsel, public accountants, or other persons as to matters that 

the   director   reasonably   believes      to  be  within    the  person's   professional   or   expert 

competence,   such   reliance   is   not   reasonable   in   light   of   an   explicit   federal   statute. 

Because this court previously ruled that the attorney-client privilege belonged to the 

corporation and the Board of Directors, and not the individual directors, that privilege 

could not be waived by the individual defendants.  Regardless of advice, where there is 

a clear statute and there is little ambiguity that an annual audit is required, the individual 

directors did not act with reasonable care and to that extent breached their fiduciary 

duties. 

Count V - Appointment of Interim Director 

                Alaska Statute 10.06.663 provides that if "the right of a director to hold 

office is in doubt,  . . .   an interested person may petition the superior court to determine 

the identity of the director, or if there are no directors, to appoint directors to wind up the 

affairs of the corporation . . . ."  Based on the clear language of AS 10.06.663, this court 

may appoint directors only if the pre-condition that there are no directors is met, and this 

court's authority to appoint directors is only to wind up the corporation. 

                Absent the existence of those circumstances, this court may upon petition 

identify the directors. 

                Alaska Statute 10.06.418(b) provides that "[a] proxy is not valid after the 

expiration of 11 months from the date of the proxy . . . ." The 2002, 2003, and 2005 

proxies introduced into evidence have the language that the proxy must be tendered 60 

        9       See Cornwall v. State, 915 P.2d 640, 648 (Alaska App. 1996). 

                                       Appendix C - page 17                                           6529 

----------------------- Page 37-----------------------

days before the annual meeting.  A reasonable construction of the language is that they 

must bear a date no more than 60 days before the annual meeting and the proxies are 

valid if the annual meeting is continued for a lack of quorum, as long as the continuation 

does not exceed a period of 11 months from the date of the proxy.  Every proxy used in 

the 2005 election was used within 11 months and was valid. 

                The facts show that the current Board of Directors of Leisnoi comprises 
Frankie Grant, Carole Pagano, Frank Pagano, Kane Wolf, and Shannon Johnson.[10]  They 

were properly elected or appointed to the Board. 

Count VI - Declaratory Relief 

                Of the declaratory relief sought by plaintiffs, this court grants the request 

that   the   individual   directors   shall   bring   to   the  Board   of   Directors   the   necessity   of 

conducting   an   annual   audit.      The   directors  shall   raise   this   issue   with   the   Board   of 

Directors within 30 days. The decision of the Board of Directors shall be provided to the 

plaintiffs. 

                The   remainder   of   the   declaratory   relief   sought   by   plaintiffs   has   been 

addressed in the specific sections above. 

                DATED this 11 day of March 2008 at Anchorage, Alaska. 

                                                          /s/ Sen K. Tan 
                                                          Superior Court Judge 

        10      Editorial note:      In a shareholders' meeting held in January 2008, Frank 

Grant was not reelected as a director.   The superior court subsequently ordered that any 
prospective relief granted to the plaintiffs did not apply to Grant. 

                                       Appendix C - page 18                                           6529 

----------------------- Page 38-----------------------

                                      APPENDIX D
 

            IN THE SUPERIOR COURT FOR THE STATE OF ALASKA
 
                   THIRD JUDICIAL DISTRICT AT ANCHORAGE
 

ROBERT ERICKSON SR., et al., 

              Plaintiffs, 

       v. 

KANE WOLF, et al., 

              Defendants.
 

                                Case No. 3AN-04-13743CI
 

               ORDER RE: MOTION FOR POST-TRIAL HEARING
 
                 TO DETERMINE DAMAGES/MANDAMUS AND
 
                     CROSS-MOTION TO AMEND FINDINGS
 

              At the outset, this court notes that the "writ of mandamus is abolished" in 
Alaska.1  Thus the relief sought is really for this court to impose nominal damages and 

to hold a further hearing on damages after the Board meets to make decisions regarding 

ANCSA reporting requirements. 

              In the opposition to the motion, defendants have cross-motioned the court 

to amend its findings regarding fiduciary breach under Civil Rule 52(b), to state that 

defendants did not breach their fiduciary duties. 

              In their motion, plaintiffs argue there is a per se rule that where there is a 
breach of fiduciary duties, there must be an award of damages.2  As explained in Loudon, 

the per se rule has a very narrow application only to circumstances "where directors have 

       1      Alaska R. Civ. P. 91.
 

       2       Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 141 (Del. 1997).
 

                                   Appendix D - page 1                                   6529 

----------------------- Page 39-----------------------

breached   their   disclosure   duties   in   a   corporate   transaction   that   has   in   turn   caused 
impairment to the economic or voting rights of stockholders."3                  Loudon      discussed the 

case    of  In   Re   Tri-Star    Pictures,   Inc.   Litigation,   where     the   plaintiffs   suffered    a 

proportionate loss of voting power from the issuance of 75 million shares as a result of 
the breach of fiduciary duty.4        Thus, it does not appear that the per se rule applies here. 

                 More importantly, inBrown v. Dick, the Alaska Supreme Court specifically 
rejected or further limited the rule set out in Loudon.5 

                 This   court   concludes   that   nominal   damages   shall   not   be   awarded.        In 

addition to nominal damages, it appears that plaintiffs are seeking a hearing to prove 

actual damages.       Plaintiffs did not make such a claim at trial.          The legal theory behind 

the claim for damages was in the Third Amended Complaint, but plaintiffs chose not to 

put on any evidence of actual damages at trial. A review of plaintiffs' Proposed Findings 

of Fact and Conclusions of Law supports this point, as plaintiffs ask for declaratory and 

injunctive relief. 
                 Accordingly, this court will not re-open the case for a damages trial.6 

                 In response to the Motion for Post-Trial Hearing, the defendants filed a 

Cross-Motion to Amend the Findings of Fact and Conclusions of Law.                          Although an 

extension   of   time   was   granted   to   plaintiffs   to   file   an   opposition   to   the   motion,   no 

opposition was filed. 

                 Defendants request that this court add language that "[b]ecause the plaintiffs 

        3        Id. at 142. 
 

        4        Id. at 141-43 (discussing In re Tri-Star Pictures, Inc. Litig., 634 A.2d 319
 

(Del. 1993)). 

        5        107 P.3d 260, 266 (Alaska 2005). 

        6        The request for a status conference to set on a damages trial is also denied. 

                                         Appendix D - page 2                                            6529 

----------------------- Page 40-----------------------

failed to prove that they suffered any damages, an element of the tort of fiduciary breach, 

this court cannot hold that the defendants' duty was breached." Even without opposition, 

this   court   declines   to   amend   the   Findings   of   Fact   and   Conclusions   of   Law,   as   the 

proposed amendment is an inaccurate statement of the law.  There is no dispute that the 

defendant directors here owed a fiduciary duty to the shareholders, and there was a 

breach   of   the   duty.  There   is   no   evidence   of   actual   damages   or   causation   of   those 

damages.      Thus, as discussed above, this court has not awarded any damages to the 

plaintiffs. 

                Damages, however, are not the only relief sought in this case.                Plaintiffs 

have sought declaratory and injunctive relief.  To that extent, as to the three individual 

directors, this court has granted a remedy, for the individual directors to raise the issue 

with Leisnoi's Board of Directors. 

                The Motion to Amend is DENIED. 

DATED Sept 26/08. 

                                                        /s/ Sen K. Tan 
                                                         Superior Court Judge 

                                        Appendix D - page 3                                          6529 

----------------------- Page 41-----------------------

                                         APPENDIX E
 

             IN THE SUPERIOR COURT FOR THE STATE OF ALASKA
 
                    THIRD JUDICIAL DISTRICT AT ANCHORAGE
 

ROBERT ERICKSON SR., et al., 

               Plaintiffs, 

        v. 

KANE WOLF, et al., 

               Defendants.
 

                                  Case No. 3AN-04-13743CI 
 

                   ORDER RE: MOTION TO BAR DEFENDANTS
 
                  FROM INDEMNIFICATION BY CORPORATION
 

               Plaintiffs have filed a motion to bar defendants from indemnification by the 

corporation, pursuant to AS 10.06.490.   It appears that plaintiffs are seeking only to bar 

indemnification on the non-prevailing claims. 

               As   with   prior   rulings   in   this   case,   this   court   starts   with   the   consistent 

premise that the corporation Leisnoi, Inc. ("Leisnoi") is not a party to this lawsuit. Thus, 

the question of whether the corporation failed to abide by AS 10.06.490 is not a question 

on which this court can grant relief. 

               This   court   is   asked   to  determine   if   there   is   any   statutory   bar   for   the 

defendants to receive indemnification by the corporation.  The answer is no. 

               Looking at the statute, AS 10.06.490(a) applies to this dispute.             Alaska 

Statute   10.06.490(b)   does   not   apply,   as   it addresses   shareholder   derivative   actions. 

Under AS 10.06.490(a), the conduct of the directors must be "in good faith and in a 

manner the person reasonably believed to be in or not opposed to the best interests of the 

corporation." This court's findings of fact and conclusions of law specifically found that 

                                      Appendix E - page 1                                      6529 

----------------------- Page 42-----------------------

the defendant directors acted in good faith and in Leisnoi's best interest.  On the breach 

of fiduciary duty, this court found that the directors were negligent in not knowing about 

the federal requirement to conduct an audit.  This does not bar indemnification. 

                 Further,     AS   10.06.490(c)      provides     that  where     a  director    "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 shall be indemnified.  Clearly, from this court's findings of fact 

and conclusions of law, the defendant directors were successful in defense of this action. 

The minor victory of the plaintiffs on one claim pales beside the overwhelming victory 

of the defendants.  Again this is not a bar to indemnification. 

                 Lastly, this court finds that AS 10.06.490 has been satisfied, as there was 

a   resolution   by   the   majority   of   the   directors   who   were   not   parties   to   the   action   to 

indemnify the defendant directors. 

                 Accordingly,       there    is  no   bar   to   the   defendant     directors    receiving 

indemnification provided by Leisnoi.  The motion to bar indemnification is DENIED. 

Dated Sept 26/08 

                                                           /s/ Sen K. Tan 
                                                           Superior Court Judge 

                                         Appendix E - page 2                                             6529 
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