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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Henrichs v. Chugach Alaska Corporation (4/22/2011) sp-6553

Henrichs v. Chugach Alaska Corporation (4/22/2011) sp-6553, 250 P3d 531

        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 

ROBERT J. HENRICHS,                                ) 
                                                   )    Supreme Court No. S-13094 
                        Appellant,                 ) 
                                                   )    Superior Court No. 3AN-05-10182 CI 
        v.                                         ) 
                                                   )    O P I N I O N 
CHUGACH ALASKA                                     ) 
CORPORATION,                                       )   No. 6553 - April 22, 2011 
                                                   ) 
                        Appellee.                  ) 
                                                   ) 

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

                Appearances:       Fred   W.   Triem,   Petersburg,   for   Appellant. 
                Elizabeth     P.  Hodes    and  Joseph    L.  Reece,   Davis    Wright 
                Tremaine LLP, Anchorage, for Appellee. 

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

                CHRISTEN, Justice. 
                WINFREE, Justice, concurring. 

I.      INTRODUCTION 

                A   former   director,   accused   of   misconduct   while   serving   as   chair   of   a 

corporate board, appeals a jury verdict finding him liable for breach of fiduciary duty. 

He also appeals a superior court order banning him from serving on the corporation's 

board   of   directors   for   five   years. The   director   argues   the   superior   court   erred   by: 

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(1) refusing to instruct the jury on what he refers to as a statutory "safe harbor" defense; 

(2) instructing the jury that he could be found liable for ordinary negligence; (3) refusing 

to instruct the jury on his equitable defenses; and (4) barring him from serving on the 

board of directors for five years.       Because we find no reversible error in the superior 

court's jury instructions, and because the superior court did not abuse its discretion by 

banning the director from serving on the corporation's board for five years, we affirm 

the superior court's rulings. 

II.     FACTS AND PROCEEDINGS 

                In 2004 the board of directors of Chugach Alaska Corporation (CAC) was 

divided into two factions, one led by incumbent chairwoman Sheri Buretta, who had 

chaired the board for several years, and the other by board member Robert Henrichs.  In 

March 2004 a coalition of board members voted to remove Buretta as chair and install 

Henrichs in her stead.      Henrichs served as chairman for approximately six months, but 

the   board   remained   divided   during   that   time.  Following   the   October   2004   annual 

meeting, a new board majority voted to reinstate Buretta. 

                After the 2004 annual meeting, CAC brought this lawsuit alleging that 

Henrichs had engaged in a pattern of misconduct during his chairmanship that violated 

his duties to the corporation.       CAC's complaint alleged that Henrichs had:             (1) used 

corporate funds for personal expenses; (2) refused to return corporate proxy records 

owned by CAC; (3) breached his fiduciary duty by taking corporate actions beyond his 

discretionary powers without the approval of the full board of directors; (4) breached his 

fiduciary    duty   by  interfering   with   the  rights  of  shareholders     and   other  directors; 

(5) harassed   other   board   members   by   orchestrating   a   series   of   meritless   complaints 

against    them    with   the  Division    of   Banking,    Securities,    and   Corporations;     and 

(6) authorized a false and misleading proxy solicitation letter to encourage the election 

                                                 -2-                                            6553
 

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of directors who would protect his position as board chair.1               CAC's complaint framed 

these    allegations   as  claims   for   conversion,   misrepresentation,   a      general   breach    of 

fiduciary   duty,   and   a   specific   breach   of   fiduciary   duty   for   authorizing   a   false   and 

misleading proxy solicitation letter. 

                Henrichs filed an answer denying liability, asserting several affirmative 

defenses, and stating counterclaims for malicious prosecution and abuse of process.  The 

superior court dismissed the malicious prosecution counterclaim before trial and entered 

a directed verdict rejecting the abuse of process counterclaim. 

        A.      The Jury Verdict 

                The case was tried to a jury in June 2007.  The             jury found that Henrichs 

had committed conversion and misrepresentation by refusing to return proxy records in 

his possession.   The jury also found that he had committed a general breach of fiduciary 

duty and a specific breach of fiduciary duty for authorizing a false or misleading letter 

soliciting proxies for the annual shareholder meeting.  The jury awarded no damages for 

conversion, misrepresentation, or general breach of fiduciary duty, but it awarded CAC 

$34,500   for   specific   breach   of   fiduciary   duty   based   on   the   proxy   solicitation   letter. 

Because       Henrichs     did   not   appeal    the   jury's    findings    on   the   conversion      or 

misrepresentation claims, we discuss those claims only to the extent they serve as a basis 

for the claims he does appeal. 

                1.       General breach of fiduciary duty 

                CAC   argued   at   trial   that   Henrichs   committed   a   general   breach   of   his 

fiduciary duties. Specifically, the superior court's post-trial findings observed that CAC 

presented evidence that Henrichs breached his duty by: 

        1       Henrichs also served as chair of the board's proxy committee during the 

relevant time period. 

                                                   -3-                                                6553 

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                 [H]olding mini-board meetings and making decisions with 
                 only    his   Board   faction   present;   refusing    to  comply    with 
                 corporate   bylaws   requiring   that   a   special   meeting      of   the 
                 shareholders be held in response to a shareholder petition; 
                 taking action without any Board discussion or approval and 
                 ignoring rules to which the Board had long adhered in the 
                 conduct   of   Board   meetings;   personally   mistreating   Board 
                 members,       shareholders,      and   employees       of   CAC,     and 
                 retaliating    against     other   directors     who    challenged      or 
                 disagreed     with    his   decisions    by   excluding     them     from 
                participation on the Board and expending corporate funds to 
                 file meritless complaints against them with the Division of 
                 Banking and Securities. 

The jury found Henrichs breached his general fiduciary duty but awarded no damages 

for this claim. 

                 2.      Specific breach of fiduciary duty:            the "late-bird" letter 

                 The election campaign for three positions on CAC's board of directors 

began in the summer of 2004 and continued through October.   That year, CAC's board 

nominated   one   candidate   for   each   open   position   on   the   board,   thereby   presenting   a 

"board slate" to the shareholders for the annual election.  Other candidates not endorsed 

by the board conducted independent campaigns for positions on the board.  CAC and at 

least some of the independent candidates mailed campaign materials to shareholders, 

encouraging   them   to   vote   by   proxy   if   they   would   not   be   able   to   attend   the   annual 

meeting.  In early October, Henrichs authorized a "late-bird" proxy solicitation letter to 
be   mailed   to   CAC's   shareholders.2      The   late-bird   letter   encouraged   shareholders   to 

        2        Corporate boards often send letters to their shareholders encouraging them 

to   vote   in   corporate   elections   via   proxy   if   they   do   not   plan  to  attend   the   annual 
shareholder   meeting.   MICHAEL  D. WATERS, PROXY                 REGULATION        1   (Practising   Law 
Institute 1992) ("Management routinely solicits proxies for annual and special meetings 
of shareholders.").  The jury heard testimony explaining that these letters  are sometimes 
                                                                                           (continued...) 

                                                    -4-                                              6553
 

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participate in the October election by returning signed proxies.                It offered shareholders 

who returned "valid" proxies to the inspector of elections by 5:00 p.m. on October 20th 

entry into a drawing for $17,500 in prize money.                The late-bird letter also stated that 

"[t]he   corporation   has   filed   a   formal   complaint   with   the   State   Division   of   Banking, 

Securities and Corporations concerning a non-board [proxy] solicitation" and that "the 

validity of proxies provided in response to that solicitation may be in question." 

                 Shortly   after   the   late-bird   letter   was   mailed,   several   shareholders   filed 

complaints      with   the  Division    of   Banking,   Securities,   and     Corporations     (Division) 

alleging that the late-bird letter contained materially false and misleading statements. 

The Division was concerned that   "a sentence within the letter could inappropriately 

influence the shareholder's choice of proxy," and it eventually determined the late-bird 

letter contained a "materially misleading statement."               At the Division's request, CAC 

mailed another letter to shareholders clarifying the late-bird letter's allegedly false and 

misleading statement.  Specifically, the corrective letter explained that "all shareholders 

whose shares are voted either in person or by way of a proxy that is valid at the time 

voted will be eligible for prizes." 

                 After the 2004 election, a new board majority reinstated Buretta as chair, 

but Henrichs continued to serve as a member of the board until he lost reelection in 2005. 

In April 2005 the Division and CAC entered into a consent agreement requiring CAC 

        2(...continued) 

referred to as "early-bird letters" and may be accompanied by a prize offer for those who 
vote.   Ms. Buretta testified:   "[N]ormally the corporation will send out an . . . early bird 
letter to the shareholders with a proxy with the intent to get them to file their . . . proxies 
early so that a quorum could be established to make sure that we can conduct business." 
Here,   the   challenged   proxy   solicitation   letter   offering   prize   money   was   sent   shortly 
before the annual meeting, and the parties referred to it as a "late-bird" letter. 

                                                    -5-                                              6553
 

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to pay the Division $10,000 towards the expenses it incurred investigating shareholders' 

complaints that the late-bird letter contained a false or misleading statement. 

                The jury heard considerable evidence clarifying the concerns about the late- 

bird letter.   Buretta testified that she thought the late-bird letter was meant to imply that 

"our [non-board slate] proxies were invalid and that [shareholders] needed to send in 

new proxies because [the board slate was] . . . behind."              CAC also introduced a letter 

CAC's Investigation Committee sent to Henrichs pointing out questionable aspects of 

the   late-bird   letter. First,   though   the   late-bird   letter   stated   that   its   purpose   was   to 

encourage      shareholder     participation    in  the   election   and   "ensure    a  quorum,"      the 

Investigation   Committee   observed   that   a   quorum   had   already   been   established   by 

October 5, 2004, before the late-bird letter was mailed.   Second, the late-bird letter was 

signed "Sincerely - The Chugach Corporation Board of Directors"  even though four of 

the board's nine members did not know the letter existed until after it had been sent to 

shareholders. The Investigation Committee concluded that the "clear implication" of the 

late-bird letter was that "those who return proxies for the non-board [slate] solicitation 

may not be eligible for the prizes, and if a shareholder wants to be sure to be eligible for 

the late-bird prize, the only way to do that is to turn in a Board [slate] proxy." 

                The jury decided that Henrichs breached his fiduciary duty by authorizing 

the allegedly false and misleading late-bird letter and awarded CAC $34,500 in damages. 

        B.      CAC's Equitable Remedy:              The Ban From Board Service 

                CAC's complaint also sought an order "permanently barring Henrichs from 

reelection to the Board of Directors of [CAC]" because of his conduct while serving as 

chairman of the board.        Relying on the jury's findings and on its own review of the 

evidence presented at trial, the superior court entered findings of fact, conclusions of law, 

and a post-trial order banning Henrichs from serving on CAC's board of directors for 

five years. The order described the actions Henrichs took during his term as "serious and 

                                                   -6-                                             6553
 

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

egregious" and as the type of misconduct "sufficient to impose   a   bar   against future 

service." 

                Henrichs appeals both the jury's finding that he breached his fiduciary 

duties and the superior court's order banning him from serving on CAC's board for five 

years.   He claims that:     (1) the superior court erroneously failed to instruct the jury on 

what he refers to as the statutory "safe harbor" defense in AS 10.06.450(b); (2) his 

decision to issue the late-bird proxy solicitation letter was protected by the business 

judgment rule and   therefore he could only be held liable if found grossly negligent; 

(3) the superior court should have instructed the   jury on his equitable defenses and 

considered what actions CAC took toward him; and (4) the superior court erred when it 

barred him from serving on CAC's board for five years by (a) relying on an erroneous 

jury verdict, (b) failing to apply the statutory "safe harbor" provisions, (c) applying an 

ordinary   negligence   standard   to   review   his   business   decisions,   and   (d)   declining   to 

consider his equitable defenses. 

III.    STANDARD OF REVIEW 
                We review a superior court's determinations on questions of law de novo3 

and   on   questions   of   fact   for   clear   error.4 "Because   there   is   a   range   of   reasonable 

decisions a trial judge might make in determining how long a bar from corporate board 

service    to  impose    upon    a  defendant,   this  determination     is  reviewed    for  abuse    of 
discretion."5 

                "In reviewing the superior court's rulings on jury instructions, we apply our 

independent judgment to determine whether the challenged or refused instruction states 

        3       Dugan v. Atlanta Cas. Cos., 113 P.3d 652, 654 (Alaska 2005). 

        4       In re Protective Proceedings of W.A., 193 P.3d 743, 748 (Alaska 2008). 

        5       Martinez v. Cape Fox Corp., 113 P.3d 1226, 1229 (Alaska 2005). 

                                                  -7-                                               6553 

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the law correctly."6     "Errors in jury instructions are not grounds for reversal unless the 

errors are prejudicial."7      We "evaluate whether any error was prejudicial by putting 

ourselves   in   the   position   of   the   jurors   and   determining   whether   the   error   probably 
affected their judgment."8  "The appellant bears the burden of proving prejudicial error."9 

IV.	    DISCUSSION 

        A.	     Even If Refusing To Repeat The Statutory "Reliance On Counsel" 
                Language        In   Successive     Jury     Instructions     Was     Error,    It  Was 
                Harmless. 

                Henrichs argues that it was error to fail to instruct the jury on the statutory 
"safe   harbor"   defense10	   in   AS   10.06.450(b).11    This   argument   focuses   on   two   jury 

        6	      City of Kodiak v. Samaniego, 83 P.3d 1077, 1082 (Alaska 2004). 

        7	      State v. Carpenter, 171 P.3d 41, 54 (Alaska 2007). 

        8	      City of Kodiak, 83 P.3d at 1082 (internal quotation marks omitted). 

        9	      Id. 

        10	     Henrichs refers to the statutory defense as a "safe harbor" defense.                  We 

refer to it as the "reliance on counsel" defense because this more closely tracks the 
language used in AS 10.06.450(b). 

        11	     AS 10.06.450(b) states in relevant part: 

                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 
                                                                                         (continued...) 

                                                   -8-	                                            6553
 

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instructions, #13 and #14. Instruction #13 was entitled, "Breach of Fiduciary Duty," and 

it was patterned on AS 10.06.450(b).            It included the statement "[a]n officer 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 officer reasonably believes to 

be within the person's professional or expert competence."   Instruction #14 was entitled 

"Breach of Fiduciary Duty - Misleading Proxy."                 Instruction #14 focused on the late- 

bird   proxy   solicitation   letter   and   explained   that   "Chugach   claims   that   one   way   that 

Henrichs breached his fiduciary duty was by authorizing a false and misleading proxy 

solicitation." 

                 At trial, Henrichs presented evidence that the late-bird letter may have been 

reviewed by attorneys before it was mailed but he did not present evidence that the late- 

bird letter was actually approved by counsel or that he relied on the advice of counsel 

when he authorized the letter.   Henrichs nevertheless urged the superior court to include 

the "reliance on counsel" language from AS 10.06.450(b) in both Instruction #13 and 

Instruction #14.  The superior court included the language in Instruction #13 but did not 

repeat it in Instruction #14.  On appeal, Henrichs contends the superior court's decision 

not to repeat the "safe harbor" language in Instruction #14 caused the jury to fail to 

consider     "whether     Mr.   Henrichs     was    relying   on   the  advice    of  counsel    when    he 

authorized the distribution of the late-bird proxy statement to shareholders." 

        11(...continued) 

                 . . . (2) counsel, public accountants, or other persons as to 
                 matters that the director reasonably believes to be within the 
                person's professional or expert competence . . . . 

(Emphasis added.) AS 10.06.483(e) has similar language regarding a corporate officer's 
ability to rely on advice of counsel. 

                                                    -9-                                              6553
 

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                We do not find this argument persuasive.             We have consistently held that 

"[j]ury instructions are to be analyzed as a whole, rather than in isolation" and "[i]n 

reviewing jury instructions, the relevant inquiry is whether the instructions inform the 
jury of the applicable law." 12        But we need not decide whether in this case the two 

instructions,   analyzed   as   a   whole,   informed   the   jury   of   the   applicable   law   because 

Henrichs did not provide evidence at trial to support that the letter was approved by 

counsel,   or   that   he   relied   on   counsel's   advice   when   he   authorized   it. As   such,   the 

evidence did not show that Henrichs could avoid liability because he relied on the advice 

of counsel.     Moreover, Henrichs failed to demonstrate that any error in the superior 

court's refusal to repeat the "reliance on counsel" language "probably affected"   the 
judgment of the jury and was therefore prejudicial. 13 

        B.	     The     Superior     Court    Did   Not   Err    By   Refusing     To   Give   A   Gross 
                Negligence Instruction. 

                The jury found that Henrichs breached his general fiduciary duty and that 

his authorization of the late-bird proxy solicitation letter breached a specific fiduciary 

duty.  Henrichs argues that it was error to instruct the jury that he could be found liable 

for breaching his fiduciary duties based on the ordinary negligence standard of care, 

rather than gross negligence.  His contention is that the business judgment rule insulates 

directors from liability unless their conduct is shown to be grossly negligent on review. 

We agree with CAC that the business judgment rule does not protect the type of conduct 

        12      Lynden Inc. v. Walker, 30 P.3d 609, 617 (Alaska 2001) (internal citations 

omitted). 

        13      See City of Kodiak, 83 P.3d at 1082 (we "evaluate whether any error was 

prejudicial by putting ourselves in the position of the jurors and determining whether the 
error probably affected their judgment.") 

                                                  -10-	                                            6553
 

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at issue in this case, and that CAC was not required to show that Henrichs was grossly 
negligent.14 

                 1.      The business judgment rule in Alaska common law 

                Alaska's common law business judgment rule is more than thirty years old. 
Beginning   with Alaska   Plastics,   Inc.   v.   Coppock,15      the   seminal   Alaska   case   on   the 

business judgment rule, our case law has embodied a high degree of judicial deference 

to good faith corporate decision making.  Our case law supports the proposition that for 

a director to be personally liable for good faith decisions made in the supervision and 

management   of   a   corporation's   business   affairs,   a   claimant   must   show   conduct   that 

amounts      to  something     more    than  ordinary    negligence.     In  Alaska    Plastics,   a  fire 
destroyed      a  corporation's    small   factory.16   The    corporation's     shareholders     filed  a 

derivative lawsuit alleging that the directors breached their duty of care by failing to 

insure   the   factory,   keeping   large   reserves   of   cash   in   non-interest   bearing   checking 
accounts,   and   loaning   an   employee   money   at   a   below-market   interest   rate.17       We 

        14      CAC initially proposed a jury instruction describing the business judgment 

rule but that instruction was not given and Henrichs does not expressly argue on appeal 
that it should have been.   The record does not disclose the reason the proposed business 
judgment rule instruction was not given, perhaps because the court and parties held at 
least one discussion about jury instructions off record.              In  City of Nome v. Ailak, we 
cautioned against off-the-record discussions between the court and counsel concerning 
jury instructions.     570 P.2d 162, 166 n.4 (Alaska 1977).             We reiterate here that trial 
courts    should    use   care   to  create   a  complete    record    of  decisions    regarding    jury 
instructions. 

        15      621 P.2d 270 (Alaska 1980). 

        16      Id. at 273. 

        17      Id. at 273, 278. 

                                                  -11-                                             6553
 

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concluded that the evidence was "insufficient to establish a breach of duty towards the 

corporation," and explained: 

                Judges are not business experts . . . a fact which has become 
                expressed   in   the   so-called   "business   judgment   rule."   The 
                essence     of  that  doctrine    is  that  courts   are  reluctant   to 
                substitute their judgment for that of the board of directors 
                unless the board's decisions are unreasonable. No proof was 
                presented that the alleged acts were unreasonable in the sense 
                that they would not have been taken by an ordinarily prudent 
                man    .  .  .  in  the  management    of  his  own    affairs  of  like 
                magnitude and importance.[18] 

Although Alaska Plastics suggested that a director could be held liable if the director 

failed to act as an "ordinarily prudent man," many would deem the decisions of the 

Alaska Plastics directors to be commercially unreasonable and negligent.  The outcome 

of the case thus suggests that more than simple negligence must be demonstrated in order 

to hold a director liable for decisions reviewed under the business judgment rule. 

                We revisited the business judgment rule two years after the Alaska Plastics 
decision in Betz v. Chena Hot Springs Group.19          There, two general partners voted a third 

general partner out of a partnership.20        The jilted partner sued to invalidate his forced 

retirement or to dissolve the partnership, arguing that the other partners did not show 
reasonable cause to retire him.21       We refused to imply a reasonable cause requirement 

into the partnership agreement, and explained: 

                As     with    other   business     management        decisions,     the 
                determination      to  retire  a  partner   properly    lies  with   the 

        18      Id. at 278 (internal citations and quotation marks omitted). 

        19      657 P.2d 831 (Alaska 1982). 

        20      Id. at 832. 

        21      Id. 

                                                 -12-                                            6553
 

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

                judgment and control of the general partners.            Necessarily, 
                such     a  decision    is  predicated    upon    the   weighing     and 
                balancing of disparate considerations to which the court does 
                not have access.      Absent bad faith, breach of fiduciary duty, 
                or acts contrary to public policy, we will not interfere with 
                the management decisions of the firm.[22] 

                Six years after Betz, the legislature adopted a revised corporations code 
based     on   the   Model     Business     Corporations      Act   (MBCA).23        One     provision, 

AS 10.06.450(b), requires that in performing their duties, directors must exercise "the 

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

circumstances." 

                2.	     The common law business judgment rule was not modified by 
                        statute. 

                In Shields v. Cape Fox Corp., we stated that "[t]he business judgment rule 
is set out in AS 10.06.450(b)" of the revised corporate code,24 a statement that Henrichs 

urges    us  to  reconsider.    We     take  this  opportunity     to  clarify  that   the  adoption   of 

AS 10.06.450(b) did not replace, redefine, or codify Alaska's common law business 

judgment rule.      We "presume that the legislature is aware of the common law when 

        22      Id. at 835; see also Bennett v. Weimar, 975 P.2d 691, 697 (Alaska 1999) 

(quoting Papalexiou v. Tower West Condo., 401 A.2d 280, 286 (N.J. Super. Ch. Div. 
 1979) ("Courts will not second-guess the actions of directors unless it appears that they 
are the result of fraud, dishonesty[,] or incompetence.")); Wirum & Cash, Architects v. 
Cash,   837   P.2d   692,   702   (Alaska   1992)   ("Generally,   partners   are   not   liable   to   the 
partnership for failure to use ordinary skill and care in the supervision and management 
of business."). 

        23      See AS 10.06, as enacted by Ch. 166, SLA 1988; see also Daniel William 

Fessler,  The   Alaska   Corporations   Code:        The   Forty-Ninth   State   Claims   the   Middle 
Ground, 7 ALASKA L. REV . 1, 65 (1990). 

        24      42 P.3d 1083, 1091 (Alaska 2002). 

                                                  -13-	                                           6553
 

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

enacting   statutes"25   and   observe   that   neither   the   language   nor   legislative   history   of 

AS 10.06.450(b) suggests that the legislature intended the statute to abrogate or codify 
the common law rule.26       Moreover, the authors of the MBCA, on which Alaska's revised 

corporation      code   was   based,   "expressly    disclaim[ed]"     any   intention   to  codify   the 

business judgment rule "[b]ecause the elements of the business judgment rule and the 
circumstances for its application [were] continuing to be developed" by the courts.27 

Thus, corporate directors in Alaska continue to enjoy the heightened protection of the 
business judgment rule as set forth in Alaska common law.28 

                3.	     The business judgment rule does not protect the type of conduct 
                        at issue in this case. 

                Recognizing       that   the  business   judgment   rule    affords   some    degree    of 

protection when the actions of corporate directors are reviewed, the remaining question 

is whether the rule shelters Henrichs from liability.             Henrichs asserts that it does; he 

argues   that   the   jury   should   have   been   instructed   he   could   not   be   found   liable   for 

breaching his fiduciary duty to the corporation unless he was grossly negligent.  But our 

        25	     Young v. Embley, 143 P.3d 936, 945 (Alaska 2006). 

        26      Cf. Kodiak Island Borough v. Exxon Corp., 991 P.2d 757, 761 (Alaska 

1999) (noting legislature's intent to abrogate otherwise applicable common-law doctrines 
when statute provided for strict liability "[n]otwithstanding any other provision or rule 
of law"). 

        27      MODEL  BUS . CORP. ACT  8.31(4th ed. 2009); MODEL  BUS . CORP. ACT 

 8.30 (3rd ed. Supp. 1989). 

        28      Henrichs   challenges   the   statement   in  Shields  that   "liability   under      the 

business judgment rule does not differ appreciably from negligence liability."                   42 P.3d 
at 1092.  We clarify here that the business judgment rules does afford protection beyond 
a showing of mere negligence, but this case does not require that we define exactly what 
additional measure of protection is afforded by the business judgment rule. 

                                                  -14-	                                            6553
 

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

court has never adopted the gross negligence standard as a measure of the business 
judgment rule's protection, and we decline to do so now.29 

                We have said that "[a]bsent bad faith, breach of a fiduciary duty, or acts 
contrary to public policy, we will not interfere with . . . management decisions."30            Here, 

the jury found that Henrichs had committed both a general breach of fiduciary duty and 

a   specific   breach   of  fiduciary   duty   by  authorizing    a  false  and   misleading    proxy 

solicitation letter.   The superior court's own findings explained that CAC presented 

evidence showing Henrichs committed a "general overall breach of his fiduciary duties" 

by "holding mini-board meetings and making decisions with only his [b]oard faction 

present; refusing to comply with corporate bylaws requiring that a special meeting of the 

shareholders be held in response to a shareholder petition; . . . and retaliating against 

other    directors   who   challenged    or  disagreed    with   [him]   by  excluding    them    from 

participation on the [b]oard."  The court's findings describe volitional conduct, including 

that Henrichs "knew and understood that he was pushing the boundaries of the applicable 

rules and regulations" and that he "wanted to do more than he appropriately could do 

under those rules and regulations."         (Emphasis added.)        Finally, the superior court's 

order banning Henrichs from serving on CAC's board for five years observed that "[t]his 

        29      Shields did not require us to define the degree of protection afforded by the 

business judgment rule because the conduct in that case was egregious and clearly of a 
character not protected under the common law rule.               There, a director was accused of 
conversion, of actively covering up the misconduct of employees, and of retaliating 
against two directors by campaigning to unseat them for inquiring into irregularities and 
potential employee misconduct at the corporation's store.  Shields, 42 P.3d at 1085; see 
also Martinez v. Cape Fox Corp., 113 P.3d 1226, 1228 (Alaska 2005).  We have never 
held that the business judgment rule insulates directors from personal liability for this 
type of volitional and egregious misconduct. 

        30      Betz   v.   Chena   Hot   Springs   Group,   657   P.2d   831,   835   (Alaska   1982). 

                                                 -15-                                           6553
 

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

case is about corporate governance" and "corporate integrity," and it concluded that the 

misconduct was "serious and egregious" and "sufficient to impose a bar against future 

service."     By   finding   that   the   conduct   warranted   a   five-year   bar   from   future   board 

service, the superior court necessarily found "fraudulent or dishonest acts, gross neglect 
of duty, or gross abuse of authority or discretion."31 

                 Given the nature of the conduct found by the superior court in this case, the 

superior court's decision not to give a separate jury instruction on the business judgment 

rule   was   not   error.  And   because   we   have   never   measured   the   degree   of   protection 

afforded by the business judgment rule in terms of gross negligence, the superior court's 

decision not to instruct the jury that Henrichs could not be found liable unless he was 

grossly negligent was correct. 

        C.	      The Superior Court Did Not Err By Refusing To Instruct The Jury On 
                 The Unclean Hands Defense. 

                 Henrichs argues that it was error to fail to instruct the jury on his equitable 

defenses, including the "unclean hands" defense. He argues that breach of fiduciary duty 

claims sound in equity and that because the superior court instructed the jury on CAC's 

equitable claims, it should have instructed them on his equitable defenses. CAC counters 

that its breach of fiduciary duty claim was legal, not equitable, and that because the jury 

        31	      AS 10.06.463 provides: 

                 The    superior    court   may,    at  the  suit   of  the  board   or   the 
                 shareholders   holding   at   least   10   percent   of   the   number   of 
                 outstanding shares of any class, remove from office a director 
                 for   fraudulent   or   dishonest   acts,   gross   neglect   of   duty,   or 
                 gross abuse of authority or discretion with reference to the 
                 corporation and may bar from reelection a director removed 
                 in   that   manner   for   a   period   prescribed   by   the   court.  The 
                 corporation shall be made a party to the suit. 

                                                    -16-	                                              6553
 

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

was only asked to provide an advisory opinion, there was no need to instruct the jury on 

the "unclean hands" defense. 

                The   argument   that   breach   of   fiduciary   duty   claims   "sound   in   equity" 

ignores the well-established principle that the nature of a claim - equitable or legal - 
depends on the remedy sought.32  As CAC correctly observes, we have expressly rejected 

the idea that a breach of fiduciary duty claim is purely equitable when money damages 
are sought as part of the recovery.33       Here, CAC sought money damages for conversion, 

misrepresentation, nondisclosure, and breach of fiduciary duty - all of these claims are 

legal, not equitable.      CAC's only claim for equitable relief was its request for an order 

barring Henrichs from reelection to its board of directors. 

                We have adopted the rule that "facts common to legal and equitable claims 

must first be tried to a jury and the primary equitable issues, if any, disposed of in light 
of the jury verdict."34    However, "the trial court has discretion whether or not to use an 

advisory jury" and, if it uses one, the court may "accept or reject, in whole or in part, the 
verdict of the advisory jury" when deciding the equitable issues.35            Because the trial court 

has broad discretion to rely, or to decline to rely, on an advisory jury when deciding 

        32      See   Shields,   42   P.3d   at   1092;  Vinson   v.   Hamilton,   854   P.2d   733,   737 

(Alaska 1993) (money damage claims are legal in nature). 

        33      See Shields, 42 P.3d at 1092 (claims of conversion, negligence, and breach 

of fiduciary duty are not equitable where plaintiff seeks money damages). 

        34      Municipality of Anchorage v. Baugh Const. & Eng'g Co., 722 P.2d 919, 

928 n.7 (Alaska 1986) (adopting rule from Beacon Theatres, Inc. v. Westover, 359 U.S. 
500, 508 (1959)). 

        35      State v. I'Anson, 529 P.2d 188, 190 (Alaska 1974); see also Alaska Civil 

Rule 39(c) ("In all actions not triable of right by a jury the court . . . may try an issue 
with an advisory jury . . . ."); Shields, 42 P.3d at 1092; Baugh Const. & Eng'g Co., 722 
P.2d at 928 n.7. 

                                                  -17-                                             6553
 

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

equitable issues, we find no error in the superior court's refusal to instruct the jury on 

any equitable defenses. 

        D.	     The   Superior   Court   Did   Not   Err   When   It   Banned   Henrichs   From 
                Serving On CAC's Board Of Directors For Five Years. 

                The superior court itself ruled on CAC's claim that Henrichs should be 

banned from serving on   CAC's   board of directors, basing its decision on the jury's 

verdict and its own review of all the evidence presented at trial.                 The court applied 

AS 10.06.463 and the seven factors articulated in Martinez v. Cape Fox Corp. to rule on 
this claim.36   The court concluded that the evidence and jury's findings were "sufficient 

to impose a bar against future [board] service" and entered an order banning Henrichs 

from serving on CAC's board for five years. 

                Henrichs challenges the ban on his corporate board service.  He argues the 

superior court erred by:  (1) relying on an erroneous jury verdict; (2) failing to apply the 

statutory "safe harbor" provisions; (3) applying an ordinary negligence standard to a 

business decision of a corporate officer; and (4) declining to consider the "equitable 

clean hands defense."  Because these arguments are restatements of arguments we have 

already discussed, they can be quickly dispatched. 

                First, although Henrichs argues that the superior court adopted "any errors 

made by the jury as a result of faulty jury instructions" when it ruled on the request that 

Henrichs   be   banned   from   future   board   service,   we   have   explained   that   we   find   no 

reversible error in the superior court's jury instructions.           Second, because the superior 

        36       113 P.3d 1226, 1233 (Alaska 2005). The factors are: (1) the egregiousness 

of   the   underlying   violation;   (2)   the   defendant's   past   record   of   misconduct;   (3)   the 
defendant's role or position at the time of the violation; (4) the defendant's degree of 
scienter; (5) the defendant's economic stake in the violation; (6) the likelihood that the 
misconduct   will   recur;   and   (7)   whether   there   is   reason   to   suspect   that   shareholder 
democracy will be insufficient to prevent reelection of an unfit director. 

                                                  -18-	                                            6553
 

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

court     instructed    the   jury   on   the   statutory    "reliance    on   counsel"     defense     in 

AS 10.06.450(b), we have no reason to presume the superior court did not also consider 

that defense.    Third, we conclude that the business judgment rule does not protect the 

character of misconduct at issue in this case and find no merit to the argument that 

Henrichs could only be found to have breached his fiduciary duty if he was shown to 

have been grossly negligent.          As for   the contention that the superior court erred by 

declining to consider the equitable "unclean hands" defense, Henrichs argues that if the 

court had "considered th[is] defense[] and rejected [it], the court should have said so in 

its [order]."     But   Civil Rule 52(a) only requires the superior court to make specific 

findings regarding a defense where the party properly asserts the defense and presents 
evidence related to it.37     To successfully raise the unclean hands defense under Alaska 

law, a defendant must show:   (1) "that the plaintiff perpetrated some wrongdoing"; and 
(2) "that the wrongful act related to the action being litigated."38              Every wrongdoing 

Henrichs alleges CAC perpetrated against him pertained to the 2005/2006 CAC annual 

directors election.  Even if CAC took inappropriate actions against Henrichs during the 

2005/2006 election, those actions are not "related to" the subject of this litigation - 

events during the six months in 2004 when Henrichs served as chairman of the board of 

directors.   Because Henrichs presented no relevant evidence in support of his unclean 

hands defense, the superior court was not required to make specific findings addressing 
it.39 

                Finally, Henrichs argues that the court erred by banning him from serving 

on CAC's board because his breaches of duty were not sufficiently serious to warrant a 

        37      Martinez v. Cape Fox Corp., 113 P.3d 1226, 1234 (Alaska 2005). 

        38      Knaebel v. Heiner, 663 P.2d 551, 554 (Alaska 1983). 

        39      See Martinez, 113 P.3d at 1234. 

                                                  -19                                               6553 

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

ban.  This issue is not included in Henrichs's points on appeal or statement of issues 
presented for review.  We agree with CAC that this argument was waived.40     Further, our 

independent review of the record satisfies us that the court did not abuse its discretion 

by banning Henrichs from serving on CAC's board for five years.        The superior court 

applied the correct statutory standard and carefully discussed each of the seven Martinez 

factors in its findings and conclusions. 

V.     CONCLUSION 

              For the reasons set forth above, we AFFIRM the jury's verdict and the 

superior court's order in all respects. 

       40     Alaska R. App. P. 204(e); Laughlin v. Laughlin, 229 P.3d 1002, 1007 n.19 

(Alaska 2010) ("[W]e will not treat issues that were argued in the brief but not set forth 
in the Points [on Appeal]." (quoting Wetzler v. Wetzler, 570 P.2d 741, 742 n.2 (Alaska 
1977))). 

                                           -20-                                        6553 

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

WINFREE, Justice, concurring. 

                I   write   separately   only   to   emphasize   that   AS   10.06.450(b)   sets   out   the 

standard of care for corporate directors and nothing more: 

                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.[1] 

                The   common   law   business   judgment   rule   has   not   been   codified   in   or 

otherwise affected by AS 10.06.450(b).             But the common law business judgment rule 

may   only   be   applied   in   favor   of   directors   meeting   the   standard   of   care   set   out   in 

AS 10.06.450(b).       Professor Melvin A. Eisenberg has provided a meaningful contrast 

between the duty of care and the business judgment rule:  the duty of care is a framework 

for reviewing the reasonableness of the corporate decision-making process, while the 
business judgment rule is a framework for reviewing the quality of a corporate decision.2 

Here Henrichs did not meet the standard of care for his decision-making process, and he 

is   therefore   not   entitled   to   business   judgment   rule   protection   for   the   quality   of   his 

decisions. 

        1       AS 10.06.450(b). 

        2       E.g., Melvin A. Eisenberg, The Divergence of Standards of Conduct and 

Standards of Review in Corporate Law, 62 FORDHAM L. REV . 437, 439-40, 447 (1993); 
Melvin A. Eisenberg, The Duty of Care of Corporate Directors and Officers, 51 U.PITT. 
L. REV . 945, 948, 959 (1990). 

                                                  -21-                                                6553 
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