Alaska Supreme Court Opinions made Available byTouch N' Go Systems and Bright Solutions


Touch N' Go
, the DeskTop In-and-Out Board makes your office run smoother.

 

You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Brown v. Knowles (8/16/2013) sp-6811

Brown v. Knowles (8/16/2013) sp-6811

          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  



EDWARD BROWN and HEIDI                                       )  

BROWN,                                                       )          Supreme Court Nos. S-13613/13643  

                                                             )  

                               Appellants and                )          Superior Court No. 3AN-05-04449 CI  

                               Cross Appellees,              )  

                                                             )          O P I N I O N  

          v.                                                 )  

                                                             )          No. 6811 - August 16, 2013  

LEON KNOWLES and E. BROWN                                    )  

INC.  d/b/a INTERNATIONAL                                    )  

STEEL,                                                       )  

                                                             )  

                               Appellees and                 )  

                               Cross Appellants.             )  

                                                             )  



                    Appeal from the Superior Court of the State of Alaska, Third  

                                  

                    Judicial District, Anchorage, William F. Morse, Judge.  



                    Appearances:  William H. Ingaldson, Ingaldson, Maassen &  

                                                                               

                    Fitzgerald, P.C., Anchorage, for Appellants/Cross Appellees.  

                    Kim Dunn, Landye Bennett Blumstein LLP, Anchorage, for  

                                                                                          

                    Appellee/Cross Appellant Leon Knowles.  



                    Before:      Carpeneti,   Chief   Justice,   Fabe,   Winfree,   and  

                                                                                          

                     Stowers, Justices.  



                     CARPENETI, Chief Justice.
  

                    FABE, Justice, dissenting.
  



I.        INTRODUCTION  



                     The unpaid employee of a closely-held corporation sued the corporation  

                                                               



and its president for back wages in superior court.  The day after the employee filed suit,  

                                                                    


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

                                                                                   

the corporation filed for Chapter 11 bankruptcy.  The bankruptcy court discharged the  



corporation’s debts, and the superior court dismissed the corporation, but the superior  



                                                                                     

court allowed trial to proceed against the president on a veil-piercing theory.  A jury  



                                                                                          

found that the corporation was a mere instrumentality of the  president, and that the  



president owed the former employee wages under a bonus agreement.  The president  



appeals the superior court’s decision on multiple grounds.  



                    When a corporation files for bankruptcy, the corporation’s legal claims  



                                                                                                       

become property of the bankruptcy estate. Here, the president claims that the corporation  



                                                                                                      

theoretically could have brought the plaintiff’s veil-piercing claim against him prior to  



                                                    

bankruptcy.  Thus, the president reasons, the employee’s veil-piercing claim became  



                                          

property of the bankruptcy estate.  But in this case, the plaintiff did not allege injury to  



                                                                                    

the corporation, and therefore the corporation could not have brought the plaintiff’s legal  



                      

claim against its president.  For this reason, the plaintiff’s veil-piercing claim did not  



                                                                                                          

become property of the estate.  And the discharge of the corporation’s personal liability  



on  the  debt  did  not  prevent  the  superior  court  from  establishing  the  corporation’s  



                                                                                                   

indebtedness for the sole purpose of holding the president liable.  Thus, the court could  



pierce the corporate veil to hold the president liable.   



                                                                                                         

                    Additionally, the mere-instrumentality test is a sufficient basis to pierce the  



                                                                                         

corporate veil.  The superior court did not err in piercing the veil based on the jury’s  



finding  that  the  mere-instrumentality  test  was  met.    The  superior  court  correctly  



answered the jury’s questions on the mere-instrumentality test and properly determined  



the statute of limitations on the employee’s claims under the Alaska Wage and Hour Act  



                                     

(AWHA).  The superior court’s calculation of the overtime and derivative AWHA claims  



was also proper, and the superior court did not err in awarding attorney’s fees.  The  



                                                                         

superior  court  did  not  err  in  declining  to  find  that  a  dismissed  party  who  was  only  



minimally involved in the litigation was a prevailing party.  We therefore affirm.  



                                                               -2-                                                          6811
  


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

II.       FACTS AND PROCEEDINGS  



          A.        Facts  



                    In 1999, Edward Brown and Leon Knowles entered into a bonus agreement.  



At the time, Brown was the president, chief operating officer, managing officer, and  



either the sole owner or half-owner of a closely-held   Anchorage-based construction  



                

company  incorporated  as  E.  Brown,  Inc.,  but  doing  business  as  International  Steel.  



Brown stated that his wife Heidi owned 50% of International Steel’s stock, but Brown   



could not explain how or when Heidi obtained the stock, and his account of how she  



                                                                                                      

obtained the stock conflicted with International Steel’s financial reports.  In a 2004  



financial statement, Brown stated that he owned 100% of the issued stock.  



                    Brown  admitted  that  he  was  not  aware  of  the  legal  requirement  that  



                                                               

International Steel hold annual meetings. The only minutes found in the corporate record  



                                                                                                

document a meeting between Brown and Heidi held on Grand Cayman Island, British  



                                                      

West Indies, in 1988, shortly after Brown’s marriage to Heidi.  That meeting occurred  



                                     

in November 1988 after International Steel had been involuntarily dissolved by the State  



of Alaska for failure to pay its taxes.  International Steel came back into good standing  



                                                                                                     

in 1989, but the corporate record contains no account of any annual meetings after 1988.  



                    In 1994, Brown recruited Knowles to work for International Steel as an  



“expediter,”  but  as  International  Steel’s  volume  of  work  increased,  Knowles  began  



                                                         

receiving project management work, taking on his first official project management job  



                                                                                       

in 1997.  In the fall of 1999, Knowles requested a raise.  Knowles testified that Brown  



suggested using a bonus plan instead of a wage raise to compensate him.  The two parties  



                                        

reached an agreement on a bonus plan, which Knowles drafted and the parties never  



signed.  



                                                                            

                    On the basis of the bonus agreement, Knowles received a bonus of $27,455  



                                                                                                          

in 2000, but in 2001 International Steel began to experience financial troubles and was  



                                                               -3-                                                          6811
  


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

unable to pay a bonus.  The next year, after International Steel received a $968,000  



settlement  on  an  old  project,  Brown  paid  Knowles  a  bonus  of  $100,000  for  work  



performed under the bonus agreement.  Knowles claimed at trial that, according to his  



calculations, he was owed an additional $72,666 for that work.  Knowles testified that  



                                                                                

Brown assured him that International Steel would pay him the rest when the company  



                   

could afford it.  Brown testified that he did not believe he owed Knowles any more  



bonus, but that he could not remember telling Knowles this, because he did not know  



“how that would come up.”  



                  At no time did International Steel pay Knowles overtime on his bonus  



payments.  Knowles testified that when he and Brown negotiated the bonus agreement,  



Knowles was unaware of the provisions in the Alaska Wage and Hour Act that require  

overtime payments on non-discretionary bonuses.1  



                  International   Steel’s   finances          continually   deteriorated   until   it   had  

                                                              



completely drawn down its credit line.  Knowles, who testified he had “some serious  



medical  issues,”  discovered  that  his  health  insurance  had  been  cancelled  due  to  



nonpayment by International Steel on October 6, 2004.  He resigned the same day.  



                                                                                                 

Knowles testified that Brown continued to communicate with him about an outstanding  



                       

claim on one of Knowles’s projects, the Bassett claim, which seemed potentially to be  



worth millions of dollars to International Steel.  Knowles also purchased his company  



                                                                                                              

truck from International Steel, receiving a bill of sale in return, signed by Brown.  The  



bill of sale, dated November 2004, refers to “wages and/or bonus payments which are  



outstanding and currently owed by International Steel to Knowles,” and according to  



which “the parties will determine at a later time the total amount which Knowles is  



owed.”  



         1        See AS 23.10.060.  



                                                        -4-                                                    6811  


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

          B.        Proceedings  



                                        

                    On  January  19,  2005,  Knowles  filed  suit  in  superior  court  against  



                     

International Steel and Brown.  His original complaint included: (1) a breach of contract  



                                                 

claim against International Steel based on the bonus agreement; (2) a breach of contract  



claim  against  the  company  based  on  failure  to  pay  the  agreed-upon  bonus;  (3)  



accompanying AWHA claims against the company based on failure to pay overtime on  



                                                                                                                    

the  bonus  and  pay  raise;  (4)  assorted  common  law  claims  directed  against  both  the  



                                  

company and Brown; and (5) a claim under AS 23.05.140 based on International Steel’s  



                                                                                                    

failure  to  pay  Knowles  all  of  his  wages  within  three  days  of  termination  of  the  



employment contract.  



                    The next day, on January 20, 2005, International Steel filed a petition for  



Chapter  11  bankruptcy  protection  in  the  U.S.  Bankruptcy  Court  for  the  District  of  



Alaska.  



                                                                                                            

                    After Brown filed his answer to Knowles’s complaint, the superior court  



                                                                               

noted that Knowles’s case against International Steel had been stayed by the bankruptcy  



                                                                                                                  

proceedings and asked the parties whether they intended the bankruptcy stay to apply to  



                          

Brown as well.   The parties stipulated to a six-month stay.  In November 2005, they  



renewed the stay to apply until March 10, 2006.  



                                                                           

                    Meanwhile, Knowles filed a proof of claim with the bankruptcy court dated  



                                                              

May 18, 2005, for unpaid compensation from International Steel in the years 2002 to  



                                 

2005, estimating that he was owed $365,000 in unsecured debts and $5,000 in secured  



debts from International Steel, but noting in an attachment that he was still gathering  



                    

information  regarding  the  amounts  due.    On  April  14,  2006,  the  bankruptcy  court  



confirmed International Steel’s Amended Plan of Reorganization (the Plan).  Knowles,  



                                            

along  with  other  unsecured  nonpriority  claimants,  received  nothing  under  the  Plan.  



                                                              -5-                                                         6811
  


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

Nonetheless, he filed a notice withdrawing his claim against International Steel in the  



bankruptcy court.  



                                                                                                     

                    The  superior  court  reported  in  a  later  order  that  at  a  status  hearing  on  



                                                                                                                    

 September 5, 2006, “in anticipation of the approval of the reorganization plan, the parties  



                                                                                    

agreed the complaint against [Brown] could proceed.”  Later that month, Knowles filed  



                                                                                                  

an amended complaint, still directed toward both International Steel and Brown, but  



                  

adding for the first time a veil-piercing claim against Brown.  The claim alleged that  



International Steel “was a mere instrumentality or alter ego of Brown.”  Brown’s answer  



asserted “collateral estoppel or res judicata” as an affirmative defense.  



                                                                                                                       

                    In early 2007, the parties stipulated to dismiss International Steel from the  



                                 

state  court  litigation  without  prejudice.    After  Knowles  moved  for  partial  summary  



judgment  against  Brown,  Brown  opposed  and  cross-moved  for  partial  summary  



                                                                          

judgment, asserting as a defense that Knowles’s wage and overtime claims were barred  



by AWHA’s two-year statute of limitations.  



                                   

                    In  early  2008,  Knowles  was  granted  leave  to  file  a  second  amended  



                                                                                                                  

complaint, seeking to add a spoliation claim and to add Heidi as a defendant.  His motion  



        

was supported by affidavits from himself and his attorney.  These affidavits asserted that  



                                    

Brown  had  destroyed  files  and  had  been  unable  to  produce  International  Steel’s  



                                                    

corporate book, “which includes corporate resolutions, minutes of annual shareholder  



                                                                                                                         

meetings, and minutes of board meetings.”  Knowles’s affidavit also indicated that he  



had  recently  discovered  Heidi  was  a  shareholder  of  International  Steel,  contrary  to  



Brown’s representations throughout Knowles’s relationship with him that Brown was  



International Steel’s sole shareholder.  



                    In  March  2008,  the  superior  court  issued  an  order  that  made  several  



                                                    

preliminary legal determinations regarding AWHA’s overtime provisions, but it also  



found genuine issues of material fact surrounding the bonus agreement and its effects.  



                                                               -6-                                                          6811
  


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

                                                                                             

The  next  month,  International  Steel  moved  for  dismissal  or  summary  judgment  of  



                                                                                             

Knowles’s spoliation claim, arguing that the claim violated the company’s discharge in  



bankruptcy, and noting in any case that the corporate book had now been found and  



produced to Knowles.  International Steel, Brown, and Heidi also filed counterclaims  



alleging that Knowles breached the covenant of good faith and fair dealing in various  



ways  and  that  Knowles’s  claims  against  International  Steel  violated  the  bankruptcy  



discharge.  



                    In May 2008, the U.S. Bankruptcy Trustee moved to dismiss or convert  



International Steel’s bankruptcy case for cause, based on International Steel’s “failure  



                                                                                        

to file post-confirmation reports and to pay quarterly fees.”  The IRS joined the motion,  



based on late payments by International Steel.  The company opposed the Trustee’s  



                                                                                              

motion on May 28, arguing that it had “performed its obligations to provide post-petition  



reports and is current on its quarterly fees.”  



                                                                            

                    In July 2008, Knowles moved to file a third amended complaint, to add  



parallel claims under the federal Fair Labor Standards Act (FLSA) to his wage claims  



under AWHA, and to drop unnecessary claims.  The motion was granted.  



                                                   

                    In an October 2008 order granting in part and denying in part Brown’s  



cross-motion for partial summary judgment, the superior court concluded that the accrual  



                                                                       

of both Knowles’s AWHA and contract claims “cannot be decided as a matter of law,  



but is for the jury as a matter of fact.”  



                                                                                                        

                    The  case  went to trial.   On  the first day, November 3, 2008,  Knowles  



                                                                                                           

moved to dismiss Heidi and International Steel.  Brown asserted, without prior briefing,  



                                                                                             

that because of International Steel’s bankruptcy discharge, the superior court could not  



                                           

proceed against Brown on a veil-piercing theory.  The superior court ordered a stay of  



                                                                                                        

claims against International Steel, allowed the veil-piercing claim to proceed against  



                                                             -7-                                                        6811
  


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

Brown, and ordered the dismissal with prejudice of the claims involving Heidi, while       



reserving the matter of attorney’s fees for later resolution.  



                                                                                          

                    Before the jury began deliberations, the parties agreed that the court would  



                                                                                                                      

address the matter of overtime after the verdict was returned.  On November 19, the jury  



delivered a verdict.  It found “it to be more likely true than not true that [International  



Steel] owes [Knowles] additional bonus compensation” in the amount of $62,311.  It  



found  that  Knowles  was  entitled  to  keep  the  $100,000  bonus  compensation  as  of  



September  25,  2002.    The  jury  did  not  find  “it  more  likely  true  than  not  true  that  



[International Steel] owes [Knowles] additional hourly pay.”  Finally, the jury did not  



                                                                                                       

find  that  “the  corporate  form  of  [International  Steel]  was  used  to  defeat  public  



convenience,  justify  wrong,  commit  fraud,  or  defend  crime,”  but  it  did  find  that  



International Steel “was a mere instrumentality or alter ego of Ed Brown.”  



                                                                                                               

                    On February 3, 2009, the bankruptcy court issued an order granting the  



                                                  

U.S. Trustee’s motion to dismiss International Steel’s bankruptcy case, a motion which  



                                                       

International Steel non-opposed on the day of the bankruptcy court’s decision.  The  



bankruptcy court stated, at the company’s request, that “International Steel shall continue  



to  have  the  right  and  ability  to  operate  its  business,  including  any  outstanding  



construction projects, as if it had not filed for bankruptcy.”  



                    After  the  jury  delivered  its  verdict,  the  superior  court  issued  an  order  



                                           

denying Heidi’s motion for attorney’s fees, on the ground that there was no prevailing  



party as between Heidi and Knowles.  The court also concluded that Knowles’s AWHA  



                                                

claim to overtime on the unpaid bonus was not barred by AWHA’s statute of limitations.  



                                                                                    

                    On September 28, 2009, the superior court issued an order granting in part  



                             

Knowles’s motion for attorney’s fees under AWHA.  The court declared that Knowles  



                                                                                                       

was the prevailing party.  The  court then granted Knowles 60% of his actual fees, taking  



                                                                                          

into account: (1) the amount of work Knowles’s attorneys dedicated to non-AWHA­ 



                                                              -8-                                                         6811
  


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

                                                                                                                             

related  claims; (2)  the  Rule  82  fees  Knowles  would  receive; and  (3)  the  overlap  in  



                                                                                                   

Knowles’s attorneys’ work when Knowles changed  counsel.  On the same day, the  



                                                                                                  

superior  court  issued  its  final  judgment,  awarding  Knowles  $216,894.83  based  on  



                                                        

Knowles’s unpaid bonus; his unpaid overtime on that bonus; the liquidated damages,  



                                                                                           

attorney’s fees, and costs Knowles received under AWHA for non-payment of overtime;  



and interest.  



                        Brown and Heidi appeal.  



III.        STANDARD OF REVIEW  

                                                                                         2  We also review “questions regarding  

                        We review questions of law de novo.    



personal  and  subject  matter  jurisdiction  de  novo  because  jurisdictional  issues  are  

                                                                                                                       3   Where a party has  

questions of law subject to this court’s independent judgment.”    



objected to a jury instruction in accordance with Rule 51(a),“[t]he correctness of jury  



                                                               4  

instructions is reviewed de novo.”   



                                                                                                       5 

                                                                                   

                        We review findings of fact for clear error,  and we find clear error only  



    

“ ‘when we are left with a definite and firm conviction based on the entire record that a  



            2           Jacob v. State, Dep’t of Health & Soc. Servs.                                   , 177 P.3d 1181, 1184 (Alaska   



2008) (“We apply our independent judgment to questions of law, adopting ‘the rule of       

law most persuasive in light of precedent, reason, and policy.’ ” (quoting                                                        Guin v. Ha, 591  

P.2d 1281, 1284 n.6 (Alaska 1979))).  



            3  

                                                                                                                  

                        In re Estate of Fields , 219 P.3d 995, 1003 (Alaska 2009) (internal quotation  

marks omitted).  



            4  

                                                                                                                              

                        Ayuluk v. Red Oaks Assisted Living, Inc. , 201 P.3d 1183, 1197 n.30 (Alaska  

2009).  



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



                                                                            -9-                                                                       6811
  


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

                                       6  

mistake has been made.’ ”                 With regard to mixed questions of law and fact, we “review[]         

the superior court’s factual findings for clear error, and the legal issues de novo.”7  

                                                                                                                                 



                                                                                                                              8 

                     Finally, we review awards of attorney’s fees for abuse of discretion,  and  

                                  



we  will  identify  an  abuse  of  discretion  only  “if  an  award  is  arbitrary,  capricious,  



                                                                                    9  

manifestly  unreasonable,  or  improperly  motivated.”     Insofar  as  the  trial  court’s  



calculation of attorney’s fees consists purely of the interpretation of law, however, we  

review the interpretation de novo.10  



IV.	      DISCUSSION  



          A.	        Knowles’s  Veil-Piercing   Claim   Was  Not  The  Property   Of   The  

                                                                                                       

                     Corporation’s  Bankruptcy  Estate  Because  The  Claim  Alleged  No  

                                                                                               

                     Injury To The Corporation.  



                     Once a bankruptcy case has been initiated by the filing of a bankruptcy  



             11	                                                                 12 

petition,       section 362(a)(3) of the Bankruptcy Code                            operates as an automatic stay of  

                                                                                                       



“any act to obtain possession of property of the estate or of property from the estate or  

               



          6         Id .  (quoting Casey v. Semco Energy, Inc., 92 P.3d 379, 382 (Alaska 2004)).        



          7         Dashiell R. v. State, Dep’t of Health & Soc. Servs., Office of Children’s  



Servs., 222 P.3d 841, 849 (Alaska 2009).  



          8          Okagawa v. Yaple, 234 P.3d 1278, 1280 (Alaska 2010).  



          9         Id . (quoting Cook Schuhmann & Groseclose, Inc. v. Brown & Root, Inc.,  

                           

116 P.3d 592, 597 (Alaska 2005)) (internal quotation marks omitted).  



          10        Id.
  



          11
        “The  filing  of  a  .  .  .  bankruptcy  petition  commences  a  case  in  the  



bankruptcy court.” In re Transcolor Corp., 296 B.R. 343, 354 (Bankr. D. Md. 2003)  

(referring to 11 U.S.C. §§ 301, 303).  



          12         11 U.S.C. §§ 101-1330 (“the Bankruptcy Code”).  



                                                                -10-	                                                         6811
  


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

                                                                         13  

                                       

to exercise control over property of the estate.”                             “Property of the estate” includes “all  



                                                                                                    

legal or equitable interests of the debtor in property as of the commencement of the  



          14  

case.”        “Property of the estate” is construed broadly and includes any cause of action  



                                         15  

                                                                                                

that belongs to the debtor.                  A cause of action belongs to the debtor if the debtor could  



                                                                                 16  

                                                                                      Only the trustee has standing to  

have brought it as of the commencement of the case. 



                                               17  

                                                               

bring the estate’s legal claims,                  and the bankruptcy court is the proper forum to resolve  



                                                          18  

disputes about property of the estate.                         



                     A corporation can bring a veil-piercing claim against its own corporate  



insider only if the veil-piercing claim alleges that the corporate insider’s conduct caused  



                                                              19  

                                                                                                       

an actionable injury to the corporation.                          If a corporation could have brought a veil­ 



           13        11 U.S.C. § 362(a)(3); see also Seymour Roberts, Jr.,                             Alter-Ego Claims in  



Bankruptcy , 2005 NORTON   ANN .   SURV .   BANKR .   L. Part I § 18 at Part V (“The Stay”)   

(2006); In re S.I. Acquisition, Inc. , 817 F.2d 1142, 1150 (5th Cir. 1987).  



           14        11 U.S.C. § 541(a)(1).  



           15  

                                                                                                     

                     See, e.g., Transcolor, 296 B.R. at 359 (noting that § 541(a) “casts a wide  

net”); Koch Ref. v. Farmers Union Cent. Exch., Inc. , 831 F.2d 1339, 1343 (7th Cir. 1987)  

(noting that § 541 “offers an expansive definition of property comprising the estate”).  



           16  

                                                                                                  

                     See S.I. Acquisition, 817 F.2d at 1150 (“a section 362(a)(3) stay applies to  

                                                             

a cause of action that under state (or federal) law belongs to the debtor”); In re JNS  

                                                                  

Aviation, LLC , 350 B.R. 283, 291 (Bankr. N.D. Tex. 2006) (concluding “that a cause of  

            

action belongs to the bankruptcy estate if, under applicable state law, the debtor could  

have raised the claim as of the commencement of the case”).  



           17  

                                                                  

                     In re E.F. Hutton Sw. Props. II, Ltd. , 103 B.R. 808, 812 (Bankr. N.D. Tex.  

 1989).  



           18        Transcolor, 296 B.R. at 359.  



           19  

                                                                            

                     In re E.F. Hutton , 103 B.R. at 812 (“The injury characterization analysis  

                                                                                                                              

should be considered as an inseparable component of whether an action belongs to the  

                                                                                                                 (continued...)  



                                                                -11-                                                           6811
  


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

                                                                             

piercing  claim  against  its  own  corporate  insider  prior  to  bankruptcy,  then  the  veil- 



                                                                      20  

piercing claim becomes property of the estate.                            



                                                                                    

                    1.	       If a veil-piercing claim alleges no injury to the corporation, then  

                              the claim belongs to the creditor.  



                                                             

                    Did the corporation in this case have a legal claim against Brown as of the  



                                                                                                                 21 

                                                                                                                    explained  

commencement of its bankruptcy case?  In re Educators Group Health Trust 



the  proper  framework  for  determining  whether  a  claim  belongs  to  a  creditor  of  the  



corporation or to the corporation’s bankruptcy estate, holding that claims alleging “direct  



          19        (...continued)  



corporation or individual [creditor].”); In re Teknek, LLC , 563 F.3d 639, 647 (7th Cir.  

2009) (“To determine whether an action accrues individually to a claimant or generally  

                                                              

to a corporation, then, we must look to the injury for which relief is sought.”).  If the  

                           

claim alleges no actionable injury to the corporation, then the corporation has no legal  

                                                                                  

claim against its insider.  Stodd v. Goldberger, 73 Cal. App. 3d 827, 833 (Cal. App.  

 1977) (“[T]rustee in bankruptcy of a bankrupt corporation, could not maintain an action  

                                                                      

against defendants to disregard the corporate entity absent some allegation of injury to  

                                                                                                   

the corporation giving rise to a right of action in it against defendants.”).  



                    Of course, for such a claim to be viable, applicable state law must allow a  

                                                      

corporation to pierce its own veil.  States are split on this issue.   Compare In re S.I.  

                                                                                                                     

Acquisition , 817 F.2d at 1152-53 (determining that Texas law would allow a corporation  

                                     

to pierce its own veil), with In re Ozark Rest. Equip. Co., 816 F.2d 1222, 1225-26 (8th  

                                                   

Cir. 1987) (determining that Arkansas law would not allow a corporation to pierce its  

                                                                   

own  veil).        See  In  re  Icarus  Holding,  LLC,  391  F.3d  1315,  1321  (11th  Cir.  2004)  

                                               

certified question answered sub nom. Baillie Lumber Co. v. Thompson, 612 S.E.2d 296  

(Ga. 2005) (“Like many courts that have addressed this issue, we hold that in order to  

                                                                

bring an exclusive alter ego action under section 541, a bankruptcy trustee’s claim should  

                                                                                  

(1) be a general claim that is common to all creditors and (2) be allowed by state law.”).  

                         



                    But it is not necessary to reach this issue here, because the veil-piercing  

claim was not property of the bankruptcy estate, as shown below.  



          20        In re E.F. Hutton , 103 B.R. at 811-12.  



          21        25 F.3d 1281 (5th Cir. 1994).  



                                                              -12-	                                                         6811
  


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

                                                                                     

injury” to creditors belonged to creditors, but claims alleging injury to the corporation  



                                                                                                                   22  

                                                                                                                        And this is  

and only derivative injury to creditors belonged to the bankruptcy estate. 



                                                                                                 

the correct analysis under Alaska law: In Alaska if a plaintiff fails to assert a legal injury  



entitling  the  plaintiff  to  relief,  the  plaintiff  has  no  legal  claim  and  the  suit  must  be  

dismissed.23  



                                                                                                                  

                     If a claim alleges indirect harm to a creditor (i.e. harm that derives from an  



                                                                                                                        24  

                                                                                                                             A claim  

injury to the corporation), then the claim belongs to the corporation’s estate. 



                                                                                                   25 

                                                                                                       Conversely, if a claim  

that a director defrauded the corporation would be such a claim. 



                                                                                    

does not “explicitly or implicitly allege harm” to the corporation — such as the present  



           22        Id. at 1284.  The dissent analyzes whether “the estate in this case did have     



standing to bring an  alter ego claim against Brown.” (Emphasis added.)  But that is the              

wrong question.  The correct question is whether the estate had standing to bring this  

claim.  Because this claim (one for wages) alleged no injury to the corporation, the estate  

                                                                                                        

lacked standing.  



           23        See  Alaska  R.  Civ.  Pro.  12(b)(6)  (providing  that  a  complaint  may  be  



                                                                  

dismissed for failure to state a claim upon which relief can be granted); Keller v. French ,  

205 P.3d 299, 305 (Alaska 2009) (“Because the Keller plaintiffs allege  no plausible  

injury  to  their  own  interests,  they  lack  interest-injury  standing.”)  (emphasis  added);  

Brause v. State, Dep’t of Health & Soc. Servs. , 21 P.3d 357, 359 (Alaska 2001) (“The  

                                                                                                         

ripeness doctrine requires a plaintiff to claim that either a legal injury has been suffered  

               

or that one will be suffered in the future.”) (emphasis added).  See also Neese v. Lithia  

                                                                                      

Chrysler  Jeep  of  Anchorage,  Inc.,  210  P.3d  1213,1219  (Alaska  2009)  (affirming  

summary judgment in favor of certain defendants because the plaintiffs “failed to allege  

                                                                                                                 

any actual injury caused by” those defendants) (emphasis added).  



           24  

                               

                     In re Educators Group Health Trust , 25 F.3d at 1284.  



           25  

                                                                                            

                     See Ahcom, Ltd. v. Smeding, 623 F.3d 1248, 1252 (9th Cir. 2010) (quoting  

                                                             

Stodd v. Goldberger, 73 Cal. App. 3d 827, 833 (Cal. App. 1977)) (collecting examples  

of conduct that injures the corporate debtor).  



                                                                 -13-                                                             6811
  


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

                                   

claim that wages were unpaid to the claimant — then the corporation has no legal claim,  

and the claim does not become part of the corporation’s estate.26  



                                                   

                    In  Smith v. Arthur Andersen LLP , the Ninth Circuit explained that this  



distinction may at times be difficult:  



                    Although the line between “claims of the debtor,” which a  

                                                                                              

                    trustee  has  statutory  authority  to  assert,  and  “claims  of  

                    creditors,” which Caplin [v. Marine Midland Grace Trust Co.  

                                                                   

                    of New York] bars the trustee from pursuing, is not always  

                                                                             

                    clear, the focus of the inquiry is on whether the Trustee is  

                    seeking to redress injuries to the debtor itself caused by the  

                                                                [27] 

                    defendants’ alleged conduct.                      



                                                                                           

In re Transcolor illuminates the distinction between claims that belong to the estate and  



claims that belong to creditors:  



                              Confusion results when courts mistakenly apply the  

                    term  “piercing  the  corporate  veil”  to  distinctly  different  

                                                                                

                    causes of action against the individuals who stand behind the  

                                                                                                     

                    corporation. The true action to “pierce the corporate veil” is  



          26        See In re Educators Group Health Trust, 25 F.3d at 1284 (“[I]f the cause         



of action does not explicitly or implicitly allege harm to the debtor, then the cause of  

action could not have been asserted by the debtor as of the commencement of the case,  

                                                                                     

and  thus  is  not  property  of  the  estate.”);  see   also  Metro.  Creditors’  Trust  v.  

                                                                                       

Pricewaterhousecoopers,  LLP , 463 F. Supp. 2d 1193, 1200 (E.D. Wash. 2006) (“In  

                                         

determining whether the trustee has standing to bring a particular claim, courts should  

                                       

focus on ‘whether the Trustee is seeking to redress injuries to the debtor itself caused by  

the defendants’ alleged conduct.’ ”) (quoting Smith v. Arthur Andersen LLP, 421 F.3d  

                         

989, 1002 (9th Cir. 2005)); In re E.F. Hutton , 103 B.R. at 812 (explaining that the trustee  

lacks standing to bring a creditor’s personal claims because such claims are not “property  

                                                                                                                 

of the estate”).  



          27  

                                        

                    421 F.3d at 1002.  In Caplin v. Marine Midland Grace Trust Co. of New  

                                                                            

York, 406 U.S. 416, 434 (1972), the United States Supreme Court held that a Chapter 10  

                                                                                         

trustee did not have standing to sue on behalf of individual creditors.  Chapter 10 was the  

                                                                                                                

reorganization chapter before Congress enacted the Bankruptcy Code in 1978.  See In  

re Ozark Rest. Equip. Co., 816 F.2d 1222, 1227 (8th Cir. 1987).  



                                                               -14-                                                          6811
  


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

                                                                                           

                   brought by parties injured by the corporation to hold liable  

                                                        

                   those corporate officers, directors and/or stockholders whose  

                    [conduct]  caused  the  injury  to  the  plaintiffs.  Liability  for  

                   harm   caused   by   the   corporation   is   imposed   upon   the  

                   corporation’s alter egos by disregarding the corporate form.  

                                                        



                             A completely different cause of action is one brought  

                   directly by the corporation (or derivatively by shareholders)  

                   against corporate alter egos for damage  to the corporation  

                                                                             [28] 

                   itself through mismanagement or fraud.  



The critical distinction is between (1) claims that allege injury to the corporation (and  



                                       

thus, indirect injury to all creditors generally) and (2) claims that allege direct injury to  



                                                                                                    

creditors personally.  If a corporation files for bankruptcy, the former constitute property  



of the estate, but the latter do not.  



                                                 

                   “The Ninth Circuit [has] held that misuse of a company’s assets qualifies  



                                                       29  

                                                                   

as an injury to the [corporation] . . . .”                 And the Ninth Circuit has collected examples  



of claims where the corporation was injured, including an action to set aside fraudulent  



                                                                                                            

transfers made from the corporation to the alter-ego, an action against an alter-ego for  



conversion  of  the  corporation’s  assets,  and  an  action  “on  an  alter  ego  theory  upon  



allegations that . . . defendants deposited corporation funds into their personal bank  



                                                                                                                    30  

accounts or that corporation funds were received by the defendants personally.”                                         



                   Stated simply, if no injury to the corporation is alleged in the creditor’s  



                                                                                                               

alter-ego claim, then the alter-ego claim belongs to the creditor personally, and it does  



          28       In  re  Transcolor ,  296  B.R.  343,  362  (Bankr.  D.  Md.  2003)  (emphasis  



added).  



          29       Metro. Creditors’ Trust , 463 F. Supp. 2d at 1200 (quoting Smith, 421 F.3d  



at 1003) (internal quotation marks omitted).  



          30       Ahcom, Ltd. v. Smeding              , 623 F.3d 1248, 1252 (9th Cir. 2010) (internal  



quotation marks and citation omitted).   



                                                            -15-                                                       6811
  


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

                                                                  31  

                    

not  become  part  of  the  bankruptcy  estate.                         When  a  claim  belongs  to  the  creditor  



                                                                                                                32  

personally,  the  creditor  may  bring  it  outside  of  the  bankruptcy  case.                                       Because  



Knowles’s  claim  involved  no  injury  to  the  corporation  and  belonged  to  Knowles  



                                                             

personally, the superior court properly allowed him to bring the claim outside of the  



bankruptcy case.   



                    2.        Knowles’s claim alleged no injury to International Steel.  



                                                                                                                  

                    To  identify  the  nature  of  the  injury  asserted  we  look  to  the  “facial  

                                                33  Knowles’s Third Amended Complaint alleged that  

                                                                                                                 

allegations in [the] complaint.”  



Brown’s conduct directly injured  Knowles in several ways, including failure to pay  

                                                     



wages,  bonuses,  and  overtime.    The  complaint  does  not  allege  that  Brown  misused  



                                            

corporate assets, converted corporate funds to his own use, or otherwise injured the  

                   34  Because Knowles alleged no injury to the corporation, International Steel  

corporation.                                                                                            



          31        In  re   Seven  Seas   Petroleum,  Inc. ,  522  F.3d  575,  583  (5th  Cir.  2008)  



(“Whether a specific cause of action belongs to a bankruptcy estate is likewise a matter       

of law that we decide by reference to the facial allegations in the complaint.”); see also  

In re Glo-Tex Intel, Inc. , No. 07-06449-JW, 2010 WL 4916574, *6 (Bankr. D.S.C. Nov.  

                                                                   

30, 2010) (holding that because the plaintiffs alleged that their injury derived from harm  

to the debtor, the claims became “property of the estate”).  



          32        See Steinberg v. Buczynski, 40 F.3d 890, 893 (7th Cir. 1994) (explaining  



that the trustee may only enforce the entitlements of a corporation, not the entitlements  

                        

of a creditor).  



          33  

                                                                        

                    In re Seven Seas Petroleum, Inc. , 522 F.3d at 583 (citing In re Educators  

Group Health Trust, 25 F.3d 1281, 1285 (5th Cir. 1994)).  



          34        None of Knowles’s earlier complaints alleged that Brown’s conduct injured  



the corporation.  



                                                              -16-                                                          6811
  


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

                                                           

could not have asserted Knowles’s claim prior to its bankruptcy filing.  Thus, Knowles’s  

veil-piercing claim did not become property of the estate.35  



           B.	        In The Ninth Circuit A Trustee May Not Sue On Behalf Of Creditors  

                      Whose Claims Are Not Property Of The Estate.  



                                                                   

                      The court today considers two legal questions: (1) which legal claims are  



                                                                                                               

property of the estate (a matter of state law) and (2) whether the trustee has power to  



                             

bring a claim on behalf of a creditor of the estate absent a legal claim held by the estate  



                                                                                                                        

(a matter of federal law that has been decided by the Ninth Circuit in the negative).  The  



                                                                                                                   

Ninth Circuit has rejected the notion that a trustee may sue on behalf of creditors whose  



                          

claims are  not property of the estate:  “In the Ninth Circuit, ‘it is well settled that a  



                                                                                                                           

bankruptcy trustee has no standing generally to sue third parties on behalf of the estate’s  



                                                                                                                     36  

                                                                                                                            Thus,  under  

creditors,  but  may  only  assert  claims  held  by  the  [debtor]  itself.’  ” 



           35         Our conclusion is bolstered by Brown’s own arguments throughout the  



litigation.  In his memorandum in support of his motion for entry of judgment, Brown  

                              

stated, “There was simply no evidence that Edward Brown used corporate assets for his  

                                                                  

own personal benefit.”    Brown also asserted, “[T]here was simply no evidence that  

Edward Brown made decisions that were in his personal interests and against the best  

                                                                                                                                    

interests of the corporation.”  



                      The dissent suggests that “an alter-ego’s control of a corporation constitutes  

a legal injury entitling the corporation to relief.”  But “[a] claim based on the alter ego  

                                                                                                                                  

theory is not in itself a claim for substantive relief, but rather is procedural.  A finding  

of fact of alter ego, standing alone, creates no cause of action. . . .  An attempt to pierce  

                                                                             

the corporate veil is a means of imposing liability on an underlying cause of action such  

as a tort or breach of contract.”  1 F 

                                                           LETCHER ,  CYCLOPEDIA OF PRIVATE CORPORATIONS  



                           

§ 41.10 (2006) (citations omitted).  



           36         Smith v. Arthur Andersen LLP                        , 421 F.3d 989, 1002 (9th Cir. 2005). This  



rule is consistent with the only United States Supreme   Court opinion on point.   See  

Caplin v. Marine Midland Grace Trust Co. of New York                                          , 406 U.S. 416, 428-34 (1972)       

(holding  that  the  bankruptcy  trustee  is  not  empowered  to  bring  claims  on  behalf  of  

creditors or to collect money not owed to the estate).  



                                                                     -17-	                                                               6811
  


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

                                                                             

applicable Ninth Circuit precedent, the trustee in this case would have standing to bring  



                                                                                                  37 

                                                                                                       Under well-settled Ninth  

claims only if those claims were “held by the [debtor] itself.” 



Circuit law, the trustee could not have asserted Knowles’s claim because he alleged  



                                                                                    38  

injury only to himself — not to International Steel.                                     



           C.	        International  Steel,  Not  Brown,  Was  The  Bankruptcy  Debtor  And  

                                                                                                                        

                      Thus   Only   International   Steel,   Not   Brown,   Was   Entitled   To  

                      Bankruptcy Protection.  



                                                      

                      Brown claims that allowing Knowles’s alter-ego claim to proceed outside  



                                                                                                                     

of bankruptcy would undermine the Bankruptcy Code because:   (1) Knowles would  



                                                   

collect from an undiluted pool of assets rather than being limited “to no more than a pro­ 



                                           

rata distribution”; and (2) a multi-jurisdictional rush to potentially conflicting judgments  



                                                                                      39 

                                                                                         protects only the debtor and its  

would  ensue.  But the Bankruptcy Code generally 



           37	        Smith, 421 F.3d at 1002.  



           38         Id. ; In  re  Lucas  Dallas ,  185  B.R.  801,   804–05  (B.A.P.  9th  Cir.  1995)  



(holding that bankruptcy trustees lack standing to assert actions against parties                                               on behalf  

of creditors);  Metro. Creditors’ Trust v. Pricewaterhousecoopers, LLP , 463 F. Supp. 2d  

 1193, 1200 (E.D. Wash. 2006) (“The Ninth Circuit held that misuse of a company’s   

assets ‘qualifies as an injury to the firm which is sufficient to confer standing upon the           

trustee.’ ”); cf.  In re Folks , 211 B.R. 378, 387 (B.A.P. 9th Cir. 1997) (trustee could bring   

alter-ego  claim  because  alter  ego  “used  [debtor’s]  bank  accounts  and  funds  .  .  .  for  

personal and family expenditures . . . .”); In re Davey Roofing, Inc. , 167 B.R. 604, 608  

                                                                                                                                 

(Bankr.  C.D.  Cal.  1994)  (noting  that  “the  factual  basis  alleged  by  [the  creditor]  for  

                                                                 

piercing Debtor’s corporate veil is that Debtor’s principal diverted corporate assets for  

                                                                                 

his personal use, thus injuring the corporation itself . . . .”); Carr Am. Realty Corp. v.  

Nvidia Corp. , 302 F. App’x 514, 516 (9th Cir. 2008) (“While the Creditors were harmed  

                                                                            

by  the alleged  diminution  of [debtor’s] estate, depleting  the assets available  for  the  

                                                                                                                   

bankruptcy  estate  constitutes  an  injury  to  the  bankrupt  corporation  itself,  not  an  

individual creditor of that corporation.”).  



           39         See Morris v. Rowallen Alaska, Inc., 121 P.3d 159, 162 (Alaska 2005)
  



(explaining that the automatic stay provision of § 362(a)(1) generally applies only to the
  

                                                                                                                         (continued...)
  



                                                                    -18-	                                                              6811
  


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

              40                                                                                                          41 

property.         In the instant case, International Steel was the debtor — Brown was not.  



          39       (...continued)  



debtor,      not     to    third-party       defendants         or    co-defendants,          including        “debtor’s  

principals  .  .  .  partners,  officers,  directors,  [or]  shareholders”  except  in  unusual  

circumstances not present here) (quoting 9B Am.Jur.2d Bankruptcy §1583 (1999)).  



          40       Neither  the  automatic  stay  provision  of  §  362(a)(1)  nor  the  discharge  



injunction provision of § 354 prevent a creditor’s personal alter-ego suit from proceeding  

                                                                                   

outside of bankruptcy.  



                   For cases allowing the action to proceed during the stay, see Ahcom, Ltd.  

v. Smeding, 623 F.3d 1248, 1252 (9th Cir. 2010) (holding that because creditor’s claims  

                                                                                          

were personal, creditor could pursue claims despite corporation’s bankruptcy filing);  

                                    

Harman v. Harper , Nos. 86-2916, 87-1531, 1990 WL 121073, at *1 & n.1 (9th Cir. Aug.  

                                                                                                     

21,  1990)  (holding  that  district  court’s  entry  of  judgment  against  alter  egos  did  not  

violate automatic stay because judgment did not run against the debtor corporation);  

Hamilton v. Am. Corrective Counseling Servs., Inc. , No. 3:05-CV-434-RM, 2009 WL  

973447, at *4 (N.D. Ind. Apr. 8, 2009) (holding that when the injury is directly against  

                                                                                      

the  creditor,  “the  injured  creditor  must  sue  the  corporation’s  alter  ego  outside  of  

                                                                                                              

bankruptcy”) (citations omitted); Konczyk v. Fillmyer , Civ. A. Nos. 84–2912, 84–5039,  

                                                                                          

85–0911, 1986 WL 3078, at *2 (E.D. Pa. Mar. 5, 1986) (“The fact that plaintiffs’ claim  

against a defendant who is in bankruptcy proceedings  is  stayed should not frustrate  

                                                                                      

plaintiffs’ [veil-piercing] claims against principals of the bankrupt.”); see also 8A C.J.S.  

                

Bankruptcy § 477 (“Where estate property is not involved, the automatic stay generally  

does not protect persons other than the debtor or their property.”) (footnotes omitted).  



                   For cases allowing the action to proceed following the discharge injunction,  

see E. Minerals & Chem. Co. v. Mahan , 225 F.3d 330, 332-34 (3d Cir. 2000) (holding  

                                            

that  creditor’s  alter-ego  claim  was  not  barred  by  the  chapter  11   discharge  of  

                                                                                                         

corporation’s debts and remanding for creditor’s alter-ego claim to proceed in the district  

court); Plastipak Packaging, Inc. v. DePasquale , 75 F. App’x 86, 87-88, 94 (3d Cir.  

2003)  (affirming  the  district  court’s  decision  to  pierce  the  corporate  veil  after  the  

corporation’s debts were discharged in the corporation’s chapter 11 bankruptcy case);  

                                                                                                    

Steinberg v. Buczynski, 40 F.3d 890, 893 (7th Cir. 1994) (holding that where the claim  

                                                                                                                

belonged to the creditors personally, the creditors “can sue [the alter-egos] directly,  

outside of bankruptcy”) (citations omitted);  Urbanco, Inc. v. Urban Sys. Streetscape,  

Inc. ,  111  B.R.  134,  135-37  (W.D.  Mich.  1990)  (refusing  to  reopen  corporation’s  

                                                                                                         (continued...)  



                                                           -19-                                                       6811
  


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

                                                                                                     

Nothing in the bankruptcy court’s confirmation order purported to discharge Brown’s  



debts.    Brown  in  effect  asks  us  to  extend  the  Bankruptcy  Code’s  protections  to  a  



nondebtor — Brown himself.  



                    Contrary to Brown’s assertion that Knowles attempted to “undercut the  



general[] bankruptcy policy of ensuring that all similarly-situated creditors are treated  



                               

fairly,” it is Brown who attempts to make an end run around the Bankruptcy Code by  

achieving its protections without ever filing for bankruptcy.42  



          40        (...continued)  



bankruptcy case and allowing creditor’s veil-piercing claim to proceed in state court);  

Tactical Aerospace Corp. v. Reiner, No. B172367, 2005 WL 479029, at *1-2 (Cal. App.  

                                                                                                       

Mar. 2, 2005) (corporation’s debts were discharged in its chapter 11 bankruptcy case on  

                                                            

May 14, 1999, and state court pierced corporate veil on January 18, 2001); see also  

                        

Reiner v. Rowen , No. B148774, 2003 WL 1880150, at *1-3, 6 (Cal. App. Apr. 16, 2003)  

                                                                                          

(affirming trial court’s imposition of alter-ego liability after the corporation’s debts were  

                                                                                        

discharged in the corporation’s chapter 11 bankruptcy case); Seminole Boatyard, Inc. v.  

                                                                                                                         

Christoph, 715 So. 2d 987, 990 (Fla. Dist. App. 1998) (holding that creditor could pierce  

corporate veil after the close of the corporation’s bankruptcy case because the alter-ego  

claim belonged to the creditor personally, and the defendant’s purchase of the estate’s  

claims against him did not preclude the creditor from bringing its personal claim against  

                                                                                             

him).  



          41        The bankruptcy court’s confirmation order named “E. Brown, Inc. d/b/a  



International Steel” as the “Debtor.”   



          42  

                                              

                    And contrary to the dissent’s suggestion that this decision would “deny  

                                                                                        

relief . . . based on a merely formal objection to the notion of a corporation piercing its  

                                                                                          

own veil,” neither Brown nor International Steel ever sought any relief through piercing  

                                                                                   

the corporate veil (nor would Brown ever have sought such “relief” by suing himself).  

                                        

It  was  the  only  wronged  entity  in  this  case,  Leon  Knowles,  who  sought  the  relief  

afforded by the procedural device of piercing the corporate veil.  Moreover, today’s  

              

opinion poses no bar to the notion of a corporation piercing its own veil.  We do not  

                                                                                                              

reach the question because it is unnecessary to do so.  See supra note 19.  



                                                             -20-                                                         6811
  


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

                                                                                                                  

                       Veil-piercing is an equitable doctrine, premised on the court’s ability to  



                                                                       43  

                                                                                                                        

look past the “legal fiction” to do equity.                                 In this regard, it must be remembered that  



                                   

Brown alone chose to put International Steel into bankruptcy.  In Brannon v. Continental  



                        44 

                                                                                                                  

Casualty Co.,   we refused to extend the discharge injunction to a non-debtor insurance  



                                                                                     45  

company that forced the insured into bankruptcy.                                          We explained:  



                                                                                                        

                       Holding that the bankruptcy court’s discharge removed [the  

                                                      

                       debtor’s]  ability  to  confess  judgment  on  the  [creditors’]  

                       claims would allow [the non-debtor insurance company] to  

                       benefit from forcing its insured into bankruptcy. Our reading  

                                                                                                           

                       of  the  bankruptcy  court’s  orders  avoids  this  inequitable  

                                  [46] 

                       result.  



Similarly, allowing Brown to benefit because of his misuse of the corporate form would  



                                                                                                 

be an inequitable result.  Courts and commentators have noted the inequity in extending  



                                                                     47  

the discharge injunction to non-debtors.                                   Extending the discharge injunction to non­ 



            43         Bangor Punta Operations, Inc. v. Bangor & A. R. Co. , 417 U.S. 703, 713  



(1974) (“[T]he corporate form may be disregarded in the interests of justice where it is  

                                                                                                                                                

used to defeat an overriding public policy . . . .”) (citation omitted); Schultz v. Gen. Elec.  

                                                                                   

Healthcare Fin. Servs. Inc. , 360 S.W.3d 171, 176 (Ky. 2012) (citation omitted).  



            44          137 P.3d 280, 288 (Alaska 2006).  



            45         Id. at 288.  



            46         Id .  



            47  

                                        

                       See, e.g., Ralph Brubaker, Bankruptcy Injunctions and Complex Litigation:  

                                                                                  

A Critical Reappraisal of Non-Debtor Releases in Chapter 11 Reorganizations , 1997 U.  

ILL .  L.  REV . 959, 995 n.126 (1997) (“It has been a cardinal principle of bankruptcy law           

from the beginning that its effects do not normally benefit those who have not themselves   

 ‘come into’ the bankruptcy court with their liabilities                                     and all their assets.” (quoting In  

re Venture Props., Inc., 37 B.R. 175, 177 (Bankr. D.N.H. 1984))) (emphasis added).  



                                                                       -21-                                                                  6811
  


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

                                                                                                      

debtors gives the non-debtors “the benefit of a bankruptcy discharge without having to  

file a bankruptcy petition.”48  



                                                              

                   D.	       The Superior Court Did Not Err In Its Application Of Alaska’s  

                             Veil-Piercing Doctrine.  



                   Brown  presents  a  variety  of  additional  arguments  against  the  superior  



court’s use of Alaska’s veil-piercing doctrine.  First, Brown questions whether the “alter­ 



                                                                                          

ego” or “mere instrumentality” test for shareholder liability actually exists in Alaska.  



Second,  if  the  test  does  exist,  he  argues  that  the  superior  court  instructed  the  jury  



                                                                                      

incorrectly on the nature of the test.  Third, he argues that the superior court responded  



incorrectly to a question from the jury about the test.  Fourth, he argues that the facts do  



not support piercing the corporate veil.  



                   We reject Brown’s arguments.  In a recent decision addressing the doctrine  



of piercing the corporate veil, we summarized the central principles as follows:  



                   In   general,   courts   seek   to   recognize   and   uphold   “the  

                                               

                   principles that the corporation exists as a separate legal entity  

                    and that owner liability for the debts of the corporation is  

                                             

                    limited.” . . . The corporate veil, however, may be pierced “if  

                   the  corporate  form  is  used  to  defeat  public  convenience,  

                   justify   wrong,   commit   fraud,   or   defend   crime”   —   a  

                                                         

                   misconduct   standard.                In   addition,   in        Uchitel   Co.   v.  

                    Telephone Co., we also recognized that the corporate veil  

                                

                   may be pierced when a corporation is nothing more than a  

                                                         

                    “mere  instrument”  of  a  shareholder,  and  we  laid  out  six  

                                                                                        

                   primary  factors  to  evaluate  the  rationality  of  imposing  

                                                                         [49] 

                   personal liability on the shareholder.  



          48       Id. at 995.  



          49       L.D.G.,  Inc.  v.  Brown ,  211  P.3d  1110,  1125  (Alaska  2009)  (citations  



omitted) (quoting Pyramid Printing Co. v. Alaska State Comm’n for Human Rights , 153  

                                                                         

P.3d 994, 1000 (Alaska 2007); Dole Food Co. v. Patrickson , 538 U.S. 468, 475 (2003))  

                                                      

                                                                                                           (continued...)  



                                                            -22-	                                                       6811
  


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

It is therefore clear that the corporate form may be disregarded in Alaska under either of                                            

two alternate theories. The relation between the theories is disjunctive, not conjunctive.                                                                   50  



Accordingly,  there  is  no  merit  to  Brown’s  argument  that  the  “  ‘alter-ego’  theory  is  



murky, at best.”  Reviewing de novo the superior court’s determinations of law, we  



affirm its conclusion that there are two alternate tests for piercing the corporate veil in  



Alaska, one dealing with mere instrumentality and the other with misconduct.  



                                                                                                                                  

                         Also contrary to Brown’s assertion, the superior court’s jury instructions  



                                                                                                                                   

correctly  defined  the  “mere  instrumentality”  test.    The  pertinent  portion  of  the  



instructions is as follows:  



                                                               

                         There are two ways in which a shareholder of a corporation  

                         may   be   liable   for   any   damages   assessed   against   the  

                                                           

                         corporation: one, if the shareholder has used the corporate  

                                                      

                         form  to  defeat  public  convenience,  justify  wrong,  commit  

                                                                         

                         fraud or defend crime . . . or two, if the corporation is the  

                         mere instrumentality or alter ego of the shareholder.  



The superior court then proceeded, correctly, to recite the Uchitel factors.  We conclude  



that the superior court properly instructed the jury on the applicable law.  



                         Next, Brown argues that the superior court offered an incorrect answer  



                                                                                                                                     

when the jury asked: “please define ‘mere instrumentality or alter ego’; does this mean  



occasional or continuous activities?”  The superior court responded:  



             49          (...continued)  



(citing  Uchitel Co. v. Tel. Co., 646 P.2d 229 (Alaska 1982)); see also Casciola v. F.S.  

                                                                                    

Air Serv., Inc. , 120 P.3d 1059, 1063 n.12 (Alaska 2005) (“[A]buse of the corporate form  

                                                                            

ma   justify   piercing   the   corporate   veil   even   in   the   absence   of   a   showing   of  

                                         

instrumentality.”).  



             50  

                                                                                                                       

                         See  L.D.G.,  211  P.3d  at  1126  n.46  (citing  with  approval  Philip  Reed  

                                                                     

Strauss, Control and/or Misconduct: Clarifying the Test for Piercing the Corporate Veil  

in Alaska, 9 ALASKA  L.  REV . 65 (1992)).  



                                                                            -23-                                                                        6811
  


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

                  The conduct need not be continuous.  It may be occasional  

                  conduct, but that conduct must be significant enough to meet  

                  the test described in Instruction No. 13A-B.  The term “mere  

                              

                  instrumentality or alter ego” is the conclusory label applied  

                  to the corporation if the test has been met.  



In other words, the superior court referred the jury back to its original instructions.  We  

                                                                                     



affirm the superior court’s instruction to the jury in response to the jury’s question.  



                  Finally, Brown argues that the facts do not support piercing the corporate  

                                                              



veil.  Brown made this argument to the superior court in his “Memorandum In Support  



Of Motion For Entry Of Judgment In Favor Of Edward Brown.”  We construe that  



motion as a motion for judgment notwithstanding the verdict, and we construe Brown’s  

argument on appeal as a challenge to the denial of his motion.  In Roderer v. Dash ,51 we 

                                 



explained that we will not consider a court’s refusal to grant judgment notwithstanding  

                                                                         

the verdict if the party failed to move for directed verdict at the close of evidence.52  



Brown did not move for directed verdict at the close of evidence, and thus, we will not  



consider the court’s refusal to grant judgment notwithstanding the verdict.  



         E.	      The  Superior  Court  Did  Not  Err  In  Awarding  Knowles  Overtime  

                  Compensation And Penalties Under AWHA.  



                                                             

                  After the jury determined that Brown owed Knowles an additional bonus  



of $62,311, the superior court accepted Knowles’s argument that he was entitled to  

overtime compensation for the additional bonus, based on AWHA.53  AWHA also grants  



                                                                                           

penalties,  including  liquidated  damages  in  an  amount  equal  to  the  unpaid  overtime  



         51       233 P.3d 1101 (Alaska 2010).  



         52       Id. at 1108.  



         53       AS 23.10.110(c), (e).  



                                                         -24­                                                      6811  


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

                    54  

compensation,            and  the  superior  court  awarded  those  as  well.    Brown  offers  two  



arguments on appeal against the superior court’s granting of Knowles’s overtime and  



derivative AWHA claims.  We address each argument in turn.  



                   1.	      The superior court did not err in failing to dismiss Knowles’s  

                            overtime and derivative AWHA claims as time-barred.  



                   On September 25, 2002, Knowles received a bonus of $100,000.  Knowles  



maintained that his bonus agreement with International Steel entitled him to a greater  



sum.    The  jury  found  that  Brown  did  in  fact  owe  Knowles  an  additional  bonus  of  



                                                                                                       

$62,311.    Based  on  AWHA’s  requirement  that  overtime  be  paid  on  bonuses  like  



                                                                                       

Knowles’s, the superior court awarded Knowles overtime on the increase in his bonus.  



Also  pursuant  to  AWHA,  the  superior  court  awarded  Knowles  an  equal  amount  in  



liquidated damages.  Finally, AWHA grants Knowles additional penalties in the form of  

attorney’s fees and costs,55 and the superior court granted those to Knowles as well, at  



                 56  

least in part.       



                   Brown argues that Knowles’s overtime and derivative claims were barred  

                                                              



by AWHA’s two-year statute of limitations.  The superior court addressed this issue in  

                                                                                   



detail and correctly determined that Knowles’s claims were not time-barred.  



                              

                   As  an  initial  matter,  neither  party  disputes  that  under  AWHA,  “[a]n  



employee is entitled to overtime compensation for hours worked in excess of eight hours  



         54	       Id.  



         55	       Id.  



         56        In  a  later  order  specifying  the  precise  amount   of  attorney’s  fees  to  be  



awarded,   the  superior  court  based  its  calculation  in  part  on  the  statutory  penalty  in  

AS 23.10.110(e).  



                                                          -25-	                                                    6811
  


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

                                                                                       57 

                                                              

a day” and “for hours worked in excess of 40 hours a week.”                                Chapter 15 of the Alaska  



Administrative Code (AAC) makes clear that an employee receiving a bonus may be  



                                                                       58  

                                                                          and neither party disputes on appeal  

entitled to overtime compensation on that bonus, 



                                      

that the bonus agreement between Knowles and International Steel should have entitled  



                                                           

Knowles  to  overtime  compensation.                      But  overtime  claims  under  AWHA,  and  the  



liquidated  damages  that  may  derive  from  them,  are  subject  to  a  two-year  statute  of  



limitations:  



                   An  action  for  unpaid  minimum  wages,  unpaid  overtime  

                    compensation,  or  liquidated  damages  under  [AWHA]  is  

                    forever barred unless it is started within two years after the  

                    cause of action accrues.  For the purposes of this section an  

                    action  is  considered  to  be  started  on  the  date  when  the  

                                              [59] 

                    complaint is filed.  



                                                                                          

The decisive issue is the date upon which Knowles’s cause of action for unpaid overtime  



                                                                                                

accrued.  Because the term “accrue” is not defined in AWHA, and because AWHA calls  



                                      

for undefined terms to be construed in accordance with the federal Fair Labor Standards  



                                                     60  

Act or regulations adopted under it,                      the superior court inferred from an analysis of  



          57       AS 23.10.060(b).  



          58        8  AAC  15.100(a)  (2011)  (“An  employee’s  regular  rate   is  the  basis  for  



computing overtime. . . . An employee need not actually be hired at an hourly rate.”);  

8 AAC  15.100(b) (specifying the federal regulations to be used in calculating overtime  

                                                                                       

“for an employee who receives a bonus”).  We note that the latter regulation apparently  

                                                                             

contains        a    typographical           error,     directing        the     reader       to    the     non-existent  

“28  C.F.R.  778.208  -  778.215”  for  guidance  on  calculating  overtime  on  bonuses.  

8  AAC  15.100(b)(5).    The  relevant  regulations  in  fact  appear  at  29  C.F.R.  §§  

                                                                                                               

778.208-215.  



          59       AS 23.10.130.  



          60  

                                                                                                        

                   AS 23.10.145; Quinn v. State Emps. Ass’n, 944 P.2d 468, 470 n.3 (Alaska  

                                                                                                           (continued...)  



                                                            -26-                                                        6811
  


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

             

federal law that the cause of action for a non-discretionary bonus like the one paid to  



                                                                                

Knowles “does not accrue until the bonus should be paid.”  We agree with the superior  



                                                61  

                                                    The terms of Knowles’s bonus agreement tied the  

court’s analysis of federal law.                                           



amount of his bonus to accounting procedures that might be performed long after the  

                                                                                                                      



completion of Knowles’s work.  Thus, his cause of action for unpaid overtime could not  

                                                                         



have accrued until the accounting procedures had been completed and the bonus had  



been calculated.  



                                                                                          

                    The parties disputed whether the accounting on the projects underlying  



Knowles’s bonus claims had been completed by January 19, 2003, two years prior to the  



                                                                                                  

filing of the complaint on January 19, 2005.  The superior court reviewed the evidence  



                                                                                                     

submitted by the parties, including a November 2004 document, referring to “wages  



                                                                      

and/or bonus payments which are outstanding and currently owed by International Steel  



                                                                                                                

to Knowles,” and according to which “the parties will determine at a later time the total  



                                                                                                                    

amount which Knowles is owed.”  The superior court found that Knowles’s bonus had  



                                                                               

not been determined by  November 2004, and thus, the cause of action had not accrued  



as of January 19, 2003.  The overtime claim was therefore timely filed.  



                                                                    

                    As the superior court observed, had Brown told Knowles that International  



                                                                                                   

Steel owed no bonus, or owed a specific amount in bonus, then “that assertion would  



                                                                                     

have triggered the running of the statutory period.”  But Brown made no such assertion:  



          60        (...continued)  



1997) (interpreting “accrues” in AWHA).  



          61        See ELLEN  C.   KEARNS ,   THE  FAIR  LABOR  STANDARDS  ACT  1211   (1999)  



(“The rule operates to make claims for additional compensation, such as contractual  

                                                                              

bonuses or commissions that are payable at a date later than the regular payday, accrue  

                                                                                                             

on the date those payments should have been made.”) (citing 29 C.F.R. § 790.21 n.132.);  

cf.  Walling v. Harnischfeger Corp., 325 U.S. 427, 432-33 (1945).  

      



                                                              -27-                                                          6811
  


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

                     Brown and [International Steel] cannot be permitted to put  

                                                                         

                     off  an  accounting  on  one  or  more  projects,  all  the  while  

                                                                

                     telling Knowles, for months, if not years, that the amount of  

                                                                   

                     the bonus was uncertain, and then, when Knowles files his  

                                                                     

                     complaint, take the position in litigation that the bonus should  

                     have been paid years ago or that the amount of the bonus was  

                     known  or  should  have  been  known  sooner  and  thus  the  

                     complaint was untimely filed.  



Because the superior court’s factual findings were not clearly erroneous and its legal  

                                               



interpretations  were  not  error,  we  affirm  its  decision  regarding  the  timeliness  of  



Knowles’s claims.  



                     2.	       The court’s calculation of the overtime and derivative AWHA  

                                                                                                         

                               claims did not amend the jury’s findings.  



                     Brown  argues  that  the  superior  court’s  award  was  based  on  improper  



interference.  Brown argues that this was error “because it essentially asked the superior  



court to make new factual findings and engage in additur as to disputed facts.”  Brown  

                                                                                                                            



also suggests that the jury’s $62,311 bonus calculation may already have included “some  

                             



sort of overtime calculation.”  We conclude that the superior court did not modify the  



jury’s findings, and that Brown waived any right to a jury trial on the issues determined  

                                                                                                  



by the superior court post-verdict.  



                     First, Brown’s claims that the superior court’s post-verdict determinations  

                                             



were a form of “additur,” or “disturbed” the jury verdict, or “amend[ed] the jury verdict,”         



are without merit.  Brown asserts that the jury may have incorporated Brown’s overtime     



liability into its calculation of the bonus owed to Knowles, despite the absence of any   



reference to overtime liability in the jury’s instructions, or in the wording on the special   



verdict  form,  which  refers  only  to  “additional  bonus  compensation.”    The  superior  



court’s post-verdict determinations in no way modified or disagreed with the factual  



determinations made by the jury.   



                                                                -28-	                                                          6811
  


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

                    Second,   Brown’s   suggestion   that   the   superior   court’s   post-verdict  



determinations  may  have  violated  his  right  to  a  trial  by  jury  under  the  Alaska  

                                          



Constitution is equally without merit.  Article I, section 16 of the Alaska Constitution  



provides, “In civil cases where the amount in controversy exceeds two hundred fifty  



dollars, the right of trial by a jury of twelve is preserved to the same extent as it existed  

                                                                                                                  



at common law.” But Rule 39(a) of the Alaska Rules of Civil Procedure clarifies that the  

                                                                                                                         



right to a jury trial in general does not preclude a litigant from waiving the right to a jury  

               



trial on a specific issue:  



                                      

                    When trial by jury has been demanded and not waived . . . the  

                                                                                                      

                    trial of all issues so demanded shall be by jury, unless (1) the  

                    parties or their attorneys of record, by written stipulation filed  

                    with the court or by an oral stipulation made in open court,  

                             

                    consent to trial by the court sitting without a jury . . . .  



At trial, Brown’s attorney consented to the trial of certain issues by the court sitting  



without a jury.  The concession arose during a discussion of what questions to include  

                                                                                             



in  the  jury  instructions,  while  the  superior  court  considered  aloud  how  to  calculate  

           



overtime on Knowles’s bonus if the jury determined that he was entitled to one:  



                    THE COURT:  I mean, because otherwise we’re going to — I mean, it  

                    seems to me that if they say it’s — he’s owed $70,000 worth of a bonus  

                                                                                                                       

                    . . . .  



                    [BROWN’S ATTORNEY]:  Be happy to let the parties and/or the Court  

                                                                       

                    decide that after.  



                    THE COURT:  He’s entitled to overtime on that. That’s pretty clear to me,  

                                                                                                         

                    because bonuses get turned in — you know, you add them to your regular  

                                                                                        

                    wage rate.  



                    [KNOWLES’S ATTORNEY]:  I would — I believe that . . . .  



                    [BROWN’S ATTORNEY]:  There’s a potential argument with that, but I  

                                                                              

                    don’t even know if we’ll raise it. We’re not talking about much money. . . .  

                                                                                                                   

                    [W]e’re talking 5- or $6,000. . . . I’d be happy to let the Court make that  

                                              

                    add-on. . . . Even if you . . . have to make a factual determination.  



                                                              -29-                                                          6811
  


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

                                                                                             

                   THE COURT:  All I have to do, then, is say to them is he entitled to bonus,
  

                   what’s the amount.
  



                   [BROWN’S ATTORNEY]: Yes.
  



                   [KNOWLES’S ATTORNEY]: Yes.
  



                   THE COURT: . . . And if it turns out we can’t agree on what happens, it’ll
  

                   be a judge question.
  



                   [BROWN’S ATTORNEY]: I would agree to that.  



                                

Brown’s attorney not only explicitly invited the superior court to make the determination  



                                                      

of how much overtime Knowles was owed on any unpaid bonus compensation found by  



the jury, he also explicitly agreed to submit to the jury, in relation to Knowles’s bonus,  



only  the  two  questions  that  were  in  fact  submitted  to  the  jury  on  that  topic:  Did  



                                                                                              

International Steel owe Knowles additional bonus compensation?  And, if so, how much?  



By limiting the jury’s bonus questions to these two issues, Brown’s attorney conceded that  



the  superior  court,  and  not  the  jury,  would  make  any  factual  determinations  not  



                                                                                                                    

encompassed by these questions and necessary to determine Brown’s liability as a result  



of the bonus, particularly in relation to overtime.   



                   In addition, Brown’s attorney agreed that if the parties could not agree “on  



what happens” as a consequence of the jury’s bonus determination, the disputed issues  



                                                                         

should be resolved by the judge rather than a jury.  As it happened, the parties could not  



                                                       

agree on what happens under AWHA when an employer in International Steel’s situation  



                                                                 

fails to pay part of the bonus of an employee in Knowles’s situation.  The superior court  



                                              

resolved the outstanding issues as “a judge question,” precisely as the parties agreed.  We  



thus affirm the superior court’s calculation of Brown’s overtime-related liabilities.  



                                                                                              

         F.	       The Superior Court Did Not Abuse Its Discretion In Its Attorney’s Fees  

                   Award.  



                   Brown offers several arguments for the reversal of the superior court’s fee  



                                                                                                        

award.  Specifically, Brown argues that: (1) Knowles was not, in fact, the prevailing party  



                                                            -30-	                                                   6811
  


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

                  

in the case; (2) the superior court incorrectly awarded AWHA’s penalty fees for legal work  



on Knowles’s non-AWHA claims; and (3) Heidi should have received attorney’s fees  



under Civil Rule 82.  



                                                                                                              

                    1.	       The superior court did not abuse its discretion  in determining  

                              that Knowles was the “prevailing party.”  



                                                                                                         

                    Despite  his  appeal,  Brown  argues  that  he,  and  not  Knowles,  was  the  



                                                                                                            

prevailing party in the litigation below, or at least that the litigation was a “wash” in which  



neither party prevailed.  



                                                                                                                       

                    We note at the outset that while “prevailing party” is the standard under Rule  



                                                                                                     

82 for awarding attorney’s fees, the superior court made clear that the vast majority of the  



                                                                                                                                    62  

                                                                               

fees it awarded to Knowles derived from AWHA’s penalty provision, AS 23.10.110(e). 



                

The latter provision is triggered “[i]f the plaintiff prevails in an action for unpaid overtime  

compensation.”63  



                                                   

                    Brown emphasizes on appeal the value of the claims on which Knowles did  



                                                               

not prevail.  But “[f]ailure to recover the full measure of relief sought or to prevail on all  



       

the issues raised does not necessarily preclude that party from ‘prevailing party’ status,  



                                                                                                                  64  

                                                                                                                      In order to  

provided that he is successful with regard to the ‘main issue in the action.’ ” 



establish that the superior court did not abuse its discretion in identifying Knowles as the   



          62        As     the     superior       court      noted,      if    Rule      82    “applied        without        any  



enhancements,” Knowles would have received $19,565.42 in                                       attorney’s fees.  Instead,  

the superior court awarded Knowles $102,392.40.                               The superior court factored in Rule  

82  fees  to  its  calculation   as  an   analytically  necessary  but  extremely  minor  and  

unquantified sum.  



          63        AS 23.10.110(e).  



          64        Tobeluk  v.  Lind,  589  P.2d  873,  876  (Alaska  1979)  (quoting  Cooper  v.  



                              

Carlson, 511 P.2d 1305, 1308 (Alaska 1973); Buza v. Columbia Lumber Co. , 395 P.2d  

511, 514 (Alaska 1964)).  



                                                                -31-	                                                        6811
  


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

prevailing party, it is sufficient to note that Knowles emerged with a judgment that Brown   



had failed to pay him $62,311 in bonus compensation.  It was reasonable to conclude that  



                                                                                      

the bonus claim was the main issue in the action below, even if Knowles’s unsuccessful  



claim to a wage raise could in theory have secured an even greater recovery.  



                                                                                                                 

                    2.	       The  superior  court  did  not  abuse  its  discretion  in  awarding  

                              AWHA penalty fees to Knowles.  



                                                                                         

                    Against  the  superior  court’s  calculation  of  attorney’s  fees  for  Knowles,  



                                                                        

Brown argues that the superior court abused its discretion by placing too much weight on  



                                                                                                                  

Knowles’s overtime claim under AWHA.   Brown argues that Knowles’s claim for his  



                                                                                                    

unpaid bonus was primarily a contract claim, and thus should have made Knowles eligible  



                                                                                                         

only for Rule 82 fees.  In addition, Brown defeated Knowles’s most significant AWHA  



claim, which asserted unpaid wages based on a claimed raise.  



                    As the superior court noted, AWHA’s fee award “is intended to provide a  



very significant disincentive to employers who might be pondering short changing an  



employee her wages or not settling a lawsuit making that claim.”  On its face, AWHA  



                                                                                                          65  

simply  awards  “reasonable”  attorney’s  fees  to  prevailing  plaintiffs,                                   without  further  



specification of the term “reasonable,” thus granting substantial discretion to trial courts.  

                                                                                



Brown failed to pay Knowles overtime compensation of $22,125.14. There is no evidence  

                                                                                                        



to suggest that Knowles could have obtained the overtime payment due to him by any  

                                                                                                                    



avenue other than something resembling the very costly and protracted litigation that  



ultimately  took  place.    As  Knowles  notes,  “The  effort  required  to  secure  a  judgment  



against Brown was complex and expensive in terms of discovery and trial.”  



                    Under  these  circumstances,  requiring  Brown  to  pay  60%  of  Knowles’s  



                                                  

attorney’s fees was not an abuse of discretion.  Brown unlawfully withheld $22,125.14 in  



          65        AS 23.10.110(c), (e).  



                                                               -32-	                                                        6811  


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

overtime compensation from Knowles over the course of several years, forcing Knowles  



to pursue a costly course of litigation in order to recover.  It was not arbitrary, capricious,  



or manifestly unreasonable to conclude that at least 60% of Knowles’s attorneys’s work  



                                                                     

on the complexly interwoven claims in the case would have been necessary to prevail on  



                                                               66  

Knowles’s successful AWHA claims alone.                            



                   3.	       The superior court did not abuse its discretion in refusing to grant  

                                                                               

                             Rule 82 attorney’s fees to Heidi.  



                   Brown argues that Heidi is entitled to Rule 82 attorney’s fees as a prevailing  

                                                                                 



party against Knowles, based on Knowles joining Heidi as a defendant in his Second  

                                                                           



Amended   Complaint,   deposing   her,   then   dismissing   her   with   prejudice   at   the  



                                                                            

commencement of the trial.  At that time, Heidi then dismissed her counterclaims against  



                                                                                       

Knowles.  Knowles suggests that he tried to dismiss Heidi at the close of discovery, at the  



                                                                                                        

time he filed his Third Amended Complaint, but that she “declined to sign Knowles’s  



proposed stipulations for dismissal, although she did not object to dismissal.”  



                   On February 12, 2009, the superior court declared itself as yet unwilling to  



determine whether Heidi or Knowles was the prevailing party as between themselves, and  



requested further briefing.  After review of the subsequent briefing, the superior court  



                                                                 

found that neither Heidi nor Knowles was a prevailing party as between each other, and  



thus denied Heidi’s motion for attorney’s fees.  



                   Heidi seeks attorney’s fees under Civil Rule 82.  Rule 82(b)(2) states:  “In  



cases in which the prevailing party recovers no money judgment, the court . . . shall award  



                                                                                         

the prevailing party in a case resolved without trial 20 percent of its actual attorney’s fees  



          66       Bliss v. Bobich , 971 P.2d 141 (Alaska 1998), cited by the superior court and  



addressed by both parties, provides  precedent for the validity of discretionary splits in  

attorney’s fees where both Rule 82 and AWHA claims are at issue.  But because of the  

                                                                                         

materially different procedural background in Bliss , which we will not reprise here, Bliss  

provides little further guidance under the facts of the present case.  



                                                            -33-	                                                    6811
  


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

which were necessarily incurred.”  As the superior court recognized, the dispositive issue  

                                                                                                           



is who, if anyone, between Heidi and Knowles, was the prevailing party.   



                                   

                     Though the superior court’s April 27, 2009 order denying Heidi’s motion  

was apparently accompanied by no memorandum laying out the order’s rationale,67 the  



superior court was within its discretion to maintain its initial impression that neither Heidi  



nor Knowles “was a prevailing party since neither really pursued the claim or claims  



against the other.”  



V.        CONCLUSION  



                                                                                          

                     For the foregoing reasons, we AFFIRM the superior court’s decision in all  



respects.  



          67         In Nichols v. State Farm Fire & Cas. Co.                       , 6 P.3d 300, 305 (Alaska 2000),       



we observed that “[i]f the trial court deviates from [the] formula” in Civil Rule 82(b),  

according  to  which  a  trial  court  is  obligated  to  award  the  prevailing  party  in  a  suit  

resolved before trial twenty percent of its actual attorney’s fees, then the court “must  

provide a written explanation for doing so.”  In the present case, however, the superior  

                                                                                                                     

court determined there was no prevailing party between Knowles and Heidi, and no  

further explanation was required.  



                                                                 -34-                                                           6811
  


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

FABE, Justice, dissenting.  



I.        INTRODUCTION  



                   Because I am convinced that allowing Knowles’s claims to proceed outside  



of bankruptcy would subvert the purposes of the Bankruptcy Code by dissipating the  



property of the debtor and giving priority to Knowles’s claim over the claims of other  



                                                                                                   

creditors, I respectfully dissent. In my view, Knowles’s veil-piercing claim against Brown  



                                                                      

was property of the bankruptcy estate. The estate therefore had exclusive standing to bring  



                                                                                                                    

that claim in bankruptcy court.  Knowles’s lack of standing was made permanent after the  



bankruptcy court confirmed the reorganization plan.  I therefore conclude that Knowles  



                                                                                         

did not have standing to assert his claim in state court, and his case should have been  



dismissed.  Moreover, the court’s decision to allow Knowles to bring his veil-piercing  



                                     

claim  against  Brown  in  state  court,  outside  of  bankruptcy,  threatens  to  deprive  small  



                                                                                                               

business owners of the protections of the bankruptcy code, particularly in light of our weak  



test for piercing the corporate veil.  The court’s reaffirmance of the disjunctive test for  



piercing the corporate veil will result in “Mom and Pop” business owners being personally  



liable  for  a  bankrupt  corporation’s  debts  even  when  there  is  no  evidence  of  fraud,  



                                                                                              

misconduct, or abuse of the corporate form.  The court’s decision could result in a rush to  



the state courthouse any time a small business declares bankruptcy.  



                                                            -35-                                                     6811
  


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

II.	       DISCUSSION  

           A.	        A Bankruptcy Trustee1  Has Standing To Bring Claims Belonging To  

                                                                                                                         

                      The Debtor Corporation.  



                      A Chapter 11 bankruptcy trustee is the representative of the bankrupt estate  

                                                                                                              

                                                                     2   The trustee is charged with collecting  and  

and has the capacity to sue and be sued.  

                                                                                                  



                                                                        3  

reducing to money the property of the estate.    Once a bankruptcy proceeding has begun,  

                                                                                          

§ 362(a)(3) of the Bankruptcy Code4 operates as an automatic stay of “any act to obtain  

    



possession of property of the estate or of property from the estate or to exercise control  

                                            



                                              5  

over property of the estate.”   With the exception of exclusions not relevant to this case,  

                                                                                       



the property of the estate includes “all legal or equitable interests of the debtor in property  

                                          

                                                              6  This language is construed broadly and includes  

as of the commencement of the case.”  

                                                                  



                                              7	                                                                                               8 

the debtor’s causes of action,  which should be brought by the trustee in bankruptcy court. 

                     



           1          The current case involves a debtor-in-possession, not a bankruptcy trustee.            



But “[t]he authority granted to a debtor-in-possession supervising a Chapter 11 case is   

virtually identical to that granted to a trustee; what differences there are do not affect this  

case.  Thus, our discussion of a trustee’s powers is applicable to the role of a debtor-in­ 

                                                  

possession.”  Koch Refining v. Farmers Union Cent. Exchange, Inc. , 831 F.2d 1339,  

1342 n.3 (7th Cir. 1987) (citing 11 U.S.C. § 1107) (discussing a bankruptcy trustee’s  

standing to bring a veil-piercing claim in bankruptcy court).  



           2	         11 U.S.C. § 323 (2006).  



           3	         11 U.S.C. § 704(a)(1) (2006).  



           4	         11 U.S.C. §§ 101-1330 (2006) (“the Bankruptcy Code”).  



           5          11 U.S.C. § 362(a)(3) (2006).  



           6          11 U.S.C. § 541(a)(1) (2006).  



           7          United States v. Whiting Pools, Inc., 462 U.S. 198, 205 n.9 (1983) (quoting  



H.R. R 

           EP . NO . 95-595, at 367 (1977), reprinted in  1978 U.S.C.C.A.N. 5963, 6323) (“The                              

                                                                                                                          (continued...)  



                                                                     -36-	                                                            6811
  


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

                            

But “[t]he trustee may assert only claims belonging to the debtor corporation and has no  



                                                                                                            9  

                                                                                                               Thus the trustee  

standing generally to sue third parties on behalf of the estate’s creditors.” 



                                                       

“stands in the shoes of the bankrupt corporation and has standing to bring any suit that the  



                                                                                                                           10  

bankrupt corporation could have instituted had it not petitioned for bankruptcy.”                                               



          B.	       If  The  Trustee  Has  Standing  To  Bring  A  Claim,  That  Standing  Is  

                    Exclusive.  



                                                                                                          

                    “When the trustee does have standing to assert a debtor’s claim, that standing  



                                                                                                       11 

                                                                                                           The trustee retains  

is exclusive and divests all creditors of the power to bring the claim.” 



                                                                                                     

exclusive standing to bring a claim unless the trustee abandons the claim with leave of the  



                                                                                                                         

bankruptcy court, or the bankruptcy court allows a third party to pursue a claim on behalf  



          7         (...continued)  



scope of this paragraph [§ 541(a)(1)] is broad.  It includes all kinds of property, including  

tangible or intangible property, causes of action (see Bankruptcy Act § 70a(6)), and all  

                                                                          

other forms of property currently specified in section 70a of the Bankruptcy Act.”); see  

                                                                                        

also  In  re  Transcolor  Corp.,  296  B.R.  343,  359  (Bankr.  D.  Md.  2003)  (noting  that  

§ 541(a) “casts a wide net”); Koch Refining v. Farmers Union Cent. Exchange, Inc. , 831  

                                                                                              

F.2d 1339, 1343 (7th Cir. 1987) (noting that § 541 “offers an expansive definition of  

                                                                                                 

property comprising the estate”).  



          8	        In re Transcolor Corp. , 296 B.R. at 353-54.  



          9  

                                                                                                      

                    Ahcom, Ltd. v. Smeding , 623 F.3d 1248, 1250 (9th Cir. 2010) (quoting  

Smith v. Arthur Andersen LLP, 421 F.3d 989, 1002 (9th Cir. 2005)) (internal quotation  

marks omitted).  



          10	       Id. (quoting Smith, 421 F.3d at 1002) (internal quotation marks omitted).  



          11  

                                                      

                    Id. ; see also Estate of Spirtos v. One San Bernardino Cnty. Superior Court  

                           

Case  Numbered  SPR  02211,  443  F.3d  1172,  1176  (9th  Cir.  2006)  (“We  therefore  

               

reaffirm  our  previous  reasoning  and  that  of  our  sister  circuits  and  hold  that  the  

                                                                                 

bankruptcy code endows the bankruptcy trustee with the exclusive right to sue on behalf  

of the estate.”).  



                                                                -37-	                                                        6811
  


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

                        12  

                                                               

of the trustee.             If the estate in this case did have standing to bring an alter ego claim  



                                                             

against Brown, then it was error not to dismiss Knowles’s state-court veil-piercing action.  



                                                                

            C.	        State Law Determines Whether A Claim Belongs To The Trustee Or To  

                       A Creditor.  



                       The United States Supreme Court held in Butner v. United States that the  



                                                                                                                            

scope of property rights held by a bankruptcy trustee, like the scope of all property rights,  



is a question of state law:  



                                                                                                   

                       Congress has generally left the determination of property rights  

                                   

                       in  the  assets  of  a  bankrupt’s  estate  to  state  law.    Property  

                                                           

                       interests are created and defined by state law.  Unless some  

                       federal interest requires a different result, there is no reason  

                       why  such  interests  should  be  analyzed  differently  simply  

                       because  an  interested  party  is  involved  in  a  bankruptcy  

                                           [13] 

                       proceeding.  



           12          See  Koch , 831 F.2d at 1346-47 (citing                       In re Consolidated Bancshares, Inc.                         ,  



785 F.2d 1249, 1253-54 (5th Cir. 1986) and Mitchell Excavators by Mitchell v. Mitchell                                                           ,  

734 F.2d 129, 132 (2d Cir. 1984)) (“The trustee may abandon an action to a third party,  

and that party may then pursue it.  However, if the claim is not abandoned by the trustee  

                                                                               

and a third party attempts to prosecute, such law suits have usually been dismissed.”);  

Dallas Cabana, Inc. v. Hyatt Corp. , 441 F.2d 865, 868 (5th Cir. 1971) (“The fact that the  

                                                                                     

trustee has failed to prosecute a claim does not permit a would-be plaintiff to bring suit  

                                                       

without first petitioning the bankruptcy court for an order authorizing abandonment of  

                                                                              

the property.”); see also Mark L. Prager & Jonathan A. Backman, Pursuing Alter-Ego  

                                                     

Liability Against Non-Bankrupt Third Parties: Structuring A Comprehensive Conceptual  

Framework , 35 ST .  LOUIS U.  L.J. 657, 677 (1991) (“In the years since the enactment of                              

the Bankruptcy Code, virtually all courts have held that creditors may not pursue against                                  

third parties claims that vest in the estate.”).  



            13         440 U.S. 48, 54-55 (1979), superseded by statute, United States Bankruptcy  



                                       

Code, Pub. L. 95-598, 92 Stat. 2549 (1978).  Although the Bankruptcy Code superseded  

Butner , the Supreme Court has subsequently reiterated this holding.  See Barnhill v.  

Johnson , 503 U.S. 393, 397-98 (1992).  



                                                                       -38-	                                                               6811
  


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

                                                                                       

Because a cause of action is a type of property within the meaning of the Bankruptcy  



         14  

                                                                                                                       

Code,        whether a veil-piercing claim against Brown belongs to the estate in this case is  



a  matter  of  Alaska  law.    Federal  circuit  courts  have  consistently  acknowledged  that  



                                                                                                                    

whether a bankruptcy trustee has exclusive standing to bring a veil-piercing claim against  



                                                                 15  

                                                                                                               

an alleged alter ego is a matter of state law.                       In Ahcom, Ltd. v. Smeding for example, the  



Ninth  Circuit  Court  of  Appeals,  citing  Butner ,  concluded  that  “state  law  determines  



                                                                                         16  

                                                                                             We should therefore apply  

whether a claim belongs to the trustee or to the creditor.” 



                                                                                              

Alaska law to determine whether the estate had standing — and thus exclusive standing  



— to bring a veil-piercing claim against International Steel.  



          14        See note 7 above.  



          15        See, e.g., In re Moore            , 608 F.3d 253, 259-60 (5th Cir. 2010) (examining  



whether a veil-piercing cause of action belonged to the bankruptcy estate under Texas  

law); In  re  Icarus  Holding,  LLC ,  391  F.3d  1315,  1318  (11th  Cir.  2004)  (“Because  

                                                                                                   

standing to assert the alter ego claim is a question of state law in this case, we must  

                                                            

review the district court’s decision in accordance with Georgia law.”); St. Paul Fire &  

                                                           

Marine Ins. Co. v. PepsiCo, Inc. , 884 F.2d 688, 700 (2d Cir. 1989) (“We agree with  

                                                                                                 

those courts that have held that the determination of whether a claim may be brought by  

a creditor of a bankrupt corporation outside of the bankruptcy proceedings depends on  

                       

an analysis of state law.”); Steyr-Daimler-Puch of Am. Corp. v. Pappas, 852 F.2d 132,  

 135-36 (4th Cir. 1988) (“The courts that have confronted the issue whether an alter ego  

                                                                                                       

claim can be brought by the trustee have accordingly looked to the nature of that claim  

                     

under state law. . . . [W]e conclude that under Virginia law an alter ego claim is property  

                   

of the estate under § 541(a).”) (emphasis in original); Koch , 831 F.2d at 1344 (“State law  

                                                                                           

determines whether property is an asset of the debtor.”).  But see Steinberg v. Buczynski ,  

                                                                                             

40 F.3d 890 (7th Cir. 1994) (deciding, without citation to a single state law case, that the  

                                                                                          

bankruptcy trustee did not have standing to bring an alter ego claim).  



          16  

                                                                                                               

                     623 F.3d 1248, 1250 (9th Cir. 2010) (citing Butner , 440 U.S. at 54-55)  

(examining California law).  



                                                                -39-                                                          6811
  


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

                   The court today apparently agrees that “which legal claims are property of  



                                                      17  

                                                          Nevertheless, the court repeatedly and almost  

the estate  [is]  a matter of state law.” 



                                                                                          

exclusively cites federal cases to support the contention that a claim cannot belong to the  



                                                                             18  

trustee unless it alleges direct harm to the corporation.                        The court devotes only a single  



                                                                          19  

                                                                                To  the  extent  that  the  court  is  

conclusory  sentence  to  Alaska  standing  doctrine. 



suggesting that federal law is relevant to whether a trustee has standing to bring a claim  



                                                                 

in Alaska, that view is clearly incorrect and conflicts with the holdings of the Supreme  



                       20	                                              21 

Court in Butner           and the Ninth Circuit in Ahcom .                   In my view, International Steel had  



standing  under  Alaska  law  to  pursue  Brown’s  personal  assets  in  satisfaction  of  its  



corporate debts.  



          D.	      The  Estate  Had  Standing  To  Bring  A  Veil-Piercing  Claim  Against  

                   International Steel In Bankruptcy Court.  



                                                                                                   

                   “Standing is a rule of judicial self-restraint based on the principle that courts  



                                                                                                22  

should not resolve abstract questions or issue advisory opinions.”                                  The plaintiff must  



                                                                                                                 

have a “sufficient personal stake” in the outcome of the controversy, but this is not a high  



          17	      Slip Op. at 17.  



          18	      Slip Op. at 12-16.  



          19	      Slip Op. at 13.  



          20       Butner , 440 U.S. at 54-55.  



          21       Ahcom, Ltd. , 623 F.3d at 1250.  



          22       Law Project for Psychiatric Rights, Inc. v. State , 239 P.3d   1252, 1255  



(Alaska 2010) (quoting Keller v. French , 205 P.3d 299, 302 (Alaska 2009)) (internal  

quotation marks omitted).  



                                                            -40-	                                                    6811
  


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

                                                                                                                            

bar:  “[A]n identifiable trifle is sufficient to establish standing to fight out a question of  

principle.”23  



                                                                                                 

                     In a single sentence discussing Alaska standing doctrine, the court concludes  



                                                                         

that International Steel did not have standing to bring a veil-piercing claim in bankruptcy  



                                                                 

court because “[i]n Alaska if a plaintiff fails to assert a legal injury entitling the plaintiff  

to relief, the plaintiff has no legal claim and the suit must be dismissed.”24 But we have  



                                                                         

never before decided whether an alter ego’s control of a corporation constitutes a legal  



injury entitling the corporation to relief.  



                            

                     To support its statement, the court cites three Alaska cases: Neese v. Lithia  



                                                     25  

                                                                               

Chrysler Jeep of Anchorage, Inc.                        (discussing a citizen’s standing to bring a class action  



lawsuit  against  an  automobile  dealership  for  failing  to  disclose  information  about  its  



                                            26  

vehicles); Keller v. French                     (discussing standing of senators to challenge a legislative  



                                                                                                                        27 

                                                                                                                           (discussing  

investigation); and Brause v. State, Department of Health & Social Services 



                                                                                                                      

a same-sex couple’s standing to challenge the denial of certain benefits).  But these cases  



                                                                                          

simply  require  that  a  party  have  sufficient  interest  in  the  case  to  satisfy  the  standing  



                       

requirement. They are clearly distinguishable from the present case and do not answer the  



question whether a debtor-in-possession has an interest in bringing a veil-piercing claim  



against itself to recover the assets of an alleged alter ego.  



           23        Keller , 205 P.3d at 304-05 (internal quotation marks and citations omitted).             



           24         Slip Op. at 13.  



           25        210 P.3d 1213, 1219 (Alaska 2009).  



           26        205 P.3d at 305.  



           27        21 P.3d 357, 359 (Alaska 2001).  



                                                                   -41-                                                            6811
  


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

                    Instead of relying on Alaska law, the court cites federal cases for support,  



                                                         28 

                                                             But although precedent from other jurisdictions  

many of which interpret California law. 



                                                                     

can sometimes be useful when deciding issues of first impression, it is inconclusive in this  



                                                                                                 

case.  Many federal circuit courts have held that the bankruptcy trustee has standing to  



bring a veil-piercing claim if the “claim is a general one, with no particularized injury  



                                                                                                                     29  

                                                                                                                         If the  

arising from it, and if that claim could be brought by any creditor of the debtor.”  



                                                                                                                    30 

                                                                                                                         In this  

claim could only be asserted by a particular creditor, then the claim is not general. 



case, Knowles’s alter ego claim was a general one that could have been brought by any  



creditor.    These  courts  would  conclude  that  the  debtor-in-possession  had  exclusive  



standing to bring a veil-piercing claim in bankruptcy court.  Other courts have held that  



a trustee has standing to bring a veil-piercing claim only if the trustee claims that the  



          28        Slip Op. at 12-16.  



          29       Kalb, Voorhis & Co. v. Am. Fin. Corp.                      , 8 F.3d 130, 132 (2d Cir. 1993)  



(quoting St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 700-01 (2d Cir.  

 1989)); see also In re Moore, 608 F.3d 253, 258-59 (5th Cir. 2010) (reaffirming Matter  

of S.I. Acquisition, Inc., 817 F.2d 1142 (5th Cir. 1987)); In re Seven Seas Petroleum,  

Inc. , 522 F.3d 575, 589 (5th Cir. 2008); In re Icarus Holding, LLC , 391 F.3d 1315, 1321  

                      

(11th Cir. 2004); In re Schimmelpenninck , 183 F.3d 347, 359-60 (5th Cir. 1999); Koch  

Refining v. Farmers Union Cent. Exchange, Inc. , 831 F.2d 1339, 1345 (7th Cir. 1987);  

                                                                          

Matter of S.I. Acquisition, Inc. , 817 F.2d at 1153-54.   



          30        See Ahcom, Ltd. v. Smeding, 623 F.3d 1248, 1252 (9th Cir. 2010) (holding  

                                                              

that, under California law, a veil-piercing claim against the corporation to hold an alleged  

                                                                                                       

alter  ego  liable  for  the  corporation’s  contractual  debts  was  a  claim  particular  to  the  

               

creditor because “California law does not recognize an alter ego claim or cause of action  

                                                                                                                   

that will allow a corporation and its shareholders to be treated as alter egos for purposes  

                                                                                                      

of all the corporation’s debts”).  



                                                              -42-                                                      6811
  


----------------------- Page 43-----------------------

                                                                                   

alleged alter ego has harmed the corporation directly — for example, by looting corporate  



          31  

assets.        There does not appear to be a clear majority position.  



                                                                                                  

                     I would look instead to the equities of the case.  Piercing the corporate veil  



                                                                                                           

is an equitable exercise, and therefore whether a particular party has an interest in making  



                                                           32  

                                                                                                                  

such a claim is an equitable question.                          My analysis is informed by the purposes of the  



                             33  

                                                                                                     

Bankruptcy Code.                 The equities of this case convince me that the debtor-in-possession  



                               

had  an  interest  in  piercing  its  own  veil  to  hold  Brown  accountable  for  the  debts  of  



International Steel.  



                     In  this  case,  Knowles  attempted  to  circumvent  the  protections  of  the  



                                                                                                                           

Bankruptcy  Code  by  trying  to  achieve  in  state  court  what  he  had  been  denied  in  



                                                                 

bankruptcy court.  Particularly troubling is the prospect that each of International Steel’s  



                                                  

creditors could bring a similar state-court veil-piercing claim against Brown.  The facts  



                                                                                                   

that Knowles alleged to justify piercing the corporate veil were not particular to him or his  



                                                                 

injury.  Knowles alleged generally that Brown had taken “actions in disregard of the  



                                                                                 

corporate entity” and that “International Steel was a mere instrumentality or alter ego of  



                                                                        

Edward Brown.”  But those same facts could be alleged to hold Brown personally liable  



           31        See  Smith v. Arthur Andersen LLP, 421 F.3d 989, 1002 (9th Cir. 2005);  



Steinberg v. Buczynski, 40 F.3d 890, 893 (7th Cir. 1994); Matter of Educators Group  

Health Trust , 25 F.3d 1281, 1285 n.4 (5th Cir. 1994).  



           32  

                                                                                                                  

                     See Bangor Punta Operations, Inc. v. Bangor & A.R. Co., 417 U.S. 703,  

713 (1974).  



           33  

                            

                     See  In  re  Schimmelpenninck ,  183  F.3d  at  359  (“[W]hen  considering  

                                                        

whether a creditor’s cause of action ‘belongs to’ the debtor or seeks ‘recovery or control’  

of property of the  debtor, the [Bankruptcy] Code’s general policies of securing and  

preserving  the  debtor’s  property  and  ensuring  equal  distribution  of  that  property  to  

                                                                                                          

similarly situated creditors should remain a paramount concern.”).  



                                                                  -43-                                                          6811
  


----------------------- Page 44-----------------------

                                                                   34  

                                                                         

to every other creditor of International Steel.                        I conclude that if Knowles’s “action based  



                  

upon alter ego may proceed completely outside of bankruptcy, then any creditor . . . may  

do likewise.”35  



                                          

                     I agree with those courts that have found that allowing such claims to be  



                                                                                                                                     36  

                                                                              

brought outside of bankruptcy court would subvert the purposes of the Bankruptcy Code. 



                

Knowles  would  be  allowed  to  collect  his  claim  from  a  pool  of  assets  that  should  be  



                                                                         37  

                                                                                                           

available to all of International Steel’s creditors.                        And satisfaction of this claim would be  



“undiluted by the pro-rata distribution between all creditors that would otherwise occur  



                                 38  

in bankruptcy court.”                The result would be a multi-jurisdictional rush to judgment that  



would  make  the  orderly  distribution  of  assets  envisioned  in  the  Bankruptcy  Code  



          34         See L.D.G., Inc. v. Brown               , 211 P.3d 1110, 1125 (Alaska 2009) (quoting  



 Uchitel Co. v. Telephone Co., 646 P.2d 229, 235 (Alaska 1982)) (recognizing that “the  

corporate  veil  may  be  pierced  when  a  corporation  is  nothing  more  than  a  ‘mere  

instrument’ of a shareholder”).  The disjunctive test for piercing the corporate veil has  

                                                                                  

been  criticized  as  too  permissive.    See,  e.g.,  STEPHEN  B.   PRESSER ,   PIERCING  THE  



                                      

CORPORATE VEIL  § 2.2, at 124-25 n.10 (2012).  



          35        Matter of S.I. Acquisition, Inc. , 817 F.2d 1142, 1154 (5th Cir. 1987);                                     see  



also Koch Refinery v. Farmers Union Cent. Exchange, Inc., 831 F.2d 1339, 1345 (7th  

Cir. 1987) (“[T]he alter ego theory is an equitable, remedial doctrine that may be asserted  

                                                                                                              

by  any  creditor  without  regard  to  the  specific  nature  of  his  relationship  with  the  

corporation and its alleged alter ego.”).  



          36  

                                                                                  

                     See In re Schimmelpenninck, 183 F.3d at 359-60; Kalb, Voorhis & Co. v.  

                                                            

Am. Fin. Corp. , 8 F.3d 130, 133 (2d  Cir. 1993); St. Paul Fire & Marine Ins. Co. v.  

                                                                                                          

PepsiCo, Inc., 884 F.2d 688, 700-01 (2d Cir. 1989); Koch , 831 F.2d at 1346; Matter of  

S.I. Acquisition , 817 F.2d at 1153-54.  



          37         See Kalb, Voorhis & Co., 8 F.3d at 133.  



          38        Matter of S.I. Acquisition, Inc. , 817 F.2d at 1153.  



                                                                 -44-                                                         6811
  


----------------------- Page 45-----------------------

                 39  

impossible.           Such a ruling would also promote conflicting judgments such that “one  



              

creditor may convince a court or jury that [a corporation and its alleged alter ego] are all  



                                                                         

one in the same, while another creditor may not. Problems of collateral estoppel and unfair  



                                                                              40  

                                                                                   I therefore conclude that granting  

distribution of debtor assets would clearly abound.”  



                                                                                       

the bankruptcy trustee exclusive standing to assert alter ego claims is necessary in this  

context to ensure that all similarly situated creditors are treated fairly.41  



                    The court’s decision to allow veil-piercing claims to be brought by individual  



creditors outside of bankruptcy also threatens to deprive small business owners of the  



                                                                         

protections  of  the  bankruptcy  code.                      Today  the  court  reaffirms  its  allegiance  to  a  



                                                           

permissive disjunctive test for piercing the corporate veil.  Under this test, the shareholders  



                                                

of  a  corporation  may  be  held  personally  liable  for  the  corporation’s  debts  without  a  



                                                                 

showing of fraud or misconduct merely for exerting improper control over the corporation.  



                                                                                         

Exposing the owners of small “Mom and Pop” businesses to personal liability outside of  



                                                                                                              

bankruptcy will allow creditors to reach their personal assets to satisfy corporate debts  



without affording the business owners the protections of bankruptcy proceedings.  



          39        See id. at 1154.  



          40        Id.  



          41        See Kalb, Voorhis & Co., 8 F.3d at 133; St. Paul Fire & Marine Ins. Co.                                       ,  



884 F.2d at 700-01 (quoting H.R. R 

                                                       EP .   NO . 95-595, at 340 (1977), reprinted in 1978  

U.S.C.C.A.N. 5787, 5963, 6297) (“When considering the automatic stay provision, the  

                                

House  Report  stated  that  the  stay  ‘provides  creditor  protection.    Without  it,  certain  

                                         

creditors would be able to pursue their own remedies against the debtor’s property.  

Those who acted first would obtain payment of the claims in preference to and to the  

                            

detriment of other creditors.’  It is plain from this passage that Congress intended to  

protect all creditors by making the trustee the proper person to assert claims against the  

                                                                                                                   

debtor.  This reasoning extends to common claims against the debtor’s alter ego or others  

who have misused the debtor’s property in some fashion.”).  



                                                               -45-                                                         6811
  


----------------------- Page 46-----------------------

                                                   

                    I note that we have never before held that a corporation may pierce its own  



                                                                     

veil under Alaska law.  In Roberts v. State, Department of Revenue , we held that self- 



piercing  was  impermissible  where  a  corporation’s  majority  shareholder  attempted  to  



                                                                        42  

                                                                            Our decision did not imply, however,  

disavow the corporate form for his own benefit. 



                                                                                   43  

                                                                                                      

that self-piercing is impermissible in all circumstances.                              It is now necessary to consider  



whether self-piercing is permissible in this circumstance.  



                                                      

                    We  have  stated  that  we  are  strongly  disposed  against  disregarding  the  



corporate  form  and  will  only  allow  the  corporate  veil  to  be  pierced  in  exceptional  



                      44  

                                                       

circumstances.             But veil-piercing is an equitable doctrine under which “the corporate  



                                                                                             

form may be disregarded in the interests of justice where it is used to defeat an overriding  



                      45  

                             

public policy.”            I would not deny relief under the doctrine in this case based on a merely  



                            

formal  objection  to  the  notion  of  a  corporation  piercing  its  own  veil.    In  my  view,  



corporations should not be prohibited from piercing their own veils in bankruptcy court  

where equity so demands.46  



          42         162 P.3d 1214, 1220-21 (Alaska 2007).  



          43        See id.  



          44        See L.D.G., Inc. v. Brown, 211 P.3d 1110, 1125 (Alaska 2009) (citing                                   Dole  



Food Co. v. Patrickson , 538 U.S. 468, 475 (2003)).  



          45        Bangor Punta Operations, Inc. v. Bangor & A.R. Co. , 417 U.S. 703, 713  



(1974).  



          46        This view is consistent with the Georgia Supreme Court and numerous  

                                                                                                             

federal courts that have interpreted state law to allow self-piercing in the context of  

bankruptcy.  See, e.g., Baillie Lumber Co. v. Thompson , 612 S.E.2d 296, 300-01 (Ga.  

2005) (permitting self-piercing actions under Georgia law); Rochester Gas & Elec. Corp.  

v. GPU, Inc., 355 F. App’x 547, 550-51 (2d Cir. 2009) (applying New York law); In re  

                                                                                    

Schimmelpenninck, 183 F.3d 347, 355-56 (5th Cir. 1999) (applying Texas law); Phar­ 

                                              

                                                                                                                 (continued...)  



                                                               -46-                                                         6811
  


----------------------- Page 47-----------------------

                    I conclude that the debtor-in-possession had exclusive standing to bring a  



veil-piercing claim against Brown.  In my view, Knowles’s veil-piercing action against  



Brown became property of International Steel’s estate when International Steel filed its  



                                                                                                   

bankruptcy petition on January 20, 2005.  Knowles’s action in the superior court should  



have been stayed on that date under § 362 of the Bankruptcy Code.  



                                                                           

          E.	       Knowles Did Not Regain Standing To Pursue A Veil-Piercing Claim In  

                    State Court After The Bankruptcy Case Was Dismissed.  



                    Having  concluded  that  the  estate  had  exclusive  standing  to  bring  a  veil- 



                                                                                                                          

piercing claim, it is necessary to examine whether the bankruptcy court’s dismissal of the  



                                                                                                           

case revested standing in International Steel’s creditors.  I conclude that dismissal of the  



case  had  no  effect  on  the  debtor-in-possession’s  exclusive  standing  to  bring  claims  



belonging to the debtor.  



                                                                                                       

                    Citing 11 U.S.C. § 349(b)(3), which, upon dismissal of a bankruptcy case,  



                                                                               

revests the property of the estate in the entity  who  owned it immediately prior to the  



commencement  of  the  case,  Knowles  contends  that  upon  dismissal  of  the  case,  “the  



          46        (...continued)  



Mor, Inc. v. Coopers & Lybrand , 22 F.3d 1228, 1240 n.20 (3d Cir. 1994) (applying New  

Jersey law); Kalb, Voorhis & Co. v. Am. Fin. Corp. , 8 F.3d 130, 131-34 (2d Cir. 1993)  

                                                                                               

(applying Texas law); St. Paul Fire & Marine Ins. v. PepsiCo, Inc., 884 F.2d 688, 700-01  

                

(2d Cir. 1989) (applying Ohio law); Steyr-Daimler-Puch of Am. Corp. v. Pappas, 852  

                                                                                                

F.2d 132, 136 (4th Cir. 1988) (applying Virginia law); In re Landmark Fence Co., Inc. ,  

                                                                                                                  

424 B.R. 461, 463-64 (Bankr. C.D. Cal. 2010); In re OODC, LLC , 321 B.R. 128, 136-37  

                                                                                                 

(Bankr. D. Del. 2005); In re Lee Way Holding Co. , 105 B.R. 404, 411-12 (Bankr. S.D.  

Ohio 1989).  Cf. Greater Hammond Cmty. Servs., Inc. v. Mutka, 735 N.E.2d 780, 785  

         

(Ind. 2000) (quoting McQuade v. Draw Tite, Inc. , 659 N.E.2d 1016, 1020 (Ind. 1995))  

                                                                                                      

(“While we have expressed willingness  to use our equitable power to disregard the  

corporate  form  to  prevent  fraud  or  unfairness  to  third  parties,  we  perceive  little  

                         

likelihood that equity will ever require us to pierce the corporate veil to protect the same  

                                                                                                     

party that erected it.”) (italics in original) (quotation marks omitted).  



                                                              -47-	                                                     6811
  


----------------------- Page 48-----------------------

                                                                                                                      47  

                                                                                                                            

Corporation and its creditors returned to their prepetition status.”                                                       Thus, Knowles argues,  



the veil-piercing claim was no longer property of the estate and he was free to assert it  



against Brown in state court.  



                         But  courts  have  generally  concluded  that  §  349  applies  only  where  a  



                                                                                                                                     48  

                                                                                                                                                      

bankruptcy case is dismissed before approval of the reorganization plan.                                                                  Here,  the Plan  



was confirmed before the case was dismissed.  International Steel’s veil-piercing claim  



against Brown vested in International Steel upon confirmation of the Reorganization Plan  



under 11 U.S.C. § 1141(b), which states that “[e]xcept as otherwise provided in the plan  



                                                                                                                         

or the order confirming the plan, the confirmation of a plan vests all of the property of the  



                                      49 

                                                                                                                                         

estate in the debtor.”                     The confirmation order made no attempt to restrict the effect of the  



             47          “Unless the court, for cause, orders otherwise, a dismissal of a [bankruptcy]             



case . . . revests the property of the estate in the entity in which such property was vested     

immediately                  before           the       commencement                       of       the       case         under           this        title.”  

 11 U.S.C. § 349(b)(3) (2006).  



             48  

                                                                                                                                               

                         Matter of Depew , 115 B.R. 965, 972 (Bankr. N.D. Ind. 1989); see also In  

                                                                                                                                             

re Page,118 B.R. 456, 459-60 (Bankr. N.D. Tex. 1990) (“ ‘In a case under Chapter 11,  

                   

the estate continues until confirmation of the plan under § 1129, at which time all of the  

                                                                                                                                                

property of the estate vests in the debtor.  After that time, the estate  is  no  longer in  

existence.’  Therefore, [§ 349(b)] . . . has no impact in this case.” (citations omitted)  

(quoting In re Frank Meador Buick, Inc. , 59 B.R. 787, 791 (Bankr. W.D. Va. 1986)));  

                                                                                                                                

United States v. Standard State Bank, 91 B.R. 874, 879 (W.D. Mo. 1988) (holding that  

                                                                        

only property left in the estate at the time of dismissal revested in the original entity); In  

                                                                              

re Searles, 70 B.R. 266, 270 (D. R.I. 1987) (“The few cases that mention subsection  

349(b)(3) refer to its applicability only in the context of property or property rights that  

                                                                                                         

have not passed out of the bankruptcy estate.”).  



             49          11 U.S.C. § 1141(b) (2006); see also Matter of Depew , 115 B.R. at 972  



(citing 11 U.S.C. § 1141(b), (c)); In re Grinstead , 75 B.R. 2, 3 (Bankr. D. Minn. 1985)  

                                

(“Once a plan of reorganization is confirmed, the bankruptcy estate ceases to exist unless  

the plan specifically provides otherwise, and all estate property revests in the debtor  

                                                                                                                                              

subject to the terms and conditions imposed by the plan.”) (citing 11 U.S.C. § 1141(b)).  



                                                                               -48-                                                                      6811
  


----------------------- Page 49-----------------------

                                                                                                              

confirmation  as  far  as  property  of  the  estate  was  concerned.  Indeed,  it  contained  a  



                                                  

provision  “vest[ing]  all  of  the  property  of  the  estate  in  the  reorganized  Debtor.”  



                      

Accordingly, International Steel’s Chapter 11 estate ceased to exist and the veil-piercing  



claim, along with any remaining property of International Steel’s estate, was transferred  



                                                                        50  

                                                                 

                                                                                                      

out of the estate and vested in International Steel.                         Section 349 had no effect in this case  



                                                                                                              51  

because  there  was  no  more  property  in  the  estate  to  return  to  creditors.                                I  therefore  



                                                                                                        

conclude that Knowles did not have standing to assert his veil-piercing claim in state court.  



          F.	       The  Court’s  Decision  To  Allow  Knowles  To  Proceed  Outside  Of  

                    Bankruptcy Is Particularly Troubling Given Its Decision To Reaffirm  

                    The Disjunctive Test For Piercing The Corporate Veil.  



                                                                                                             

                    In  my  view,  the  court’s  decision  today  undermines  the  policies  of  the  



Bankruptcy  Code  protecting  similarly  situated  creditors  by  allowing  creditors  to  



                                                                                                    

circumvent the bankruptcy process by bringing veil-piercing claims in state court.  But this  



                                                                   

decision  is  made  even  more  troubling  by  the  court’s  reaffirmation  of  a  permissive  

disjunctive test for piercing the corporate veil in Alaska.52  



                                                   

                    The adoption of the disjunctive test makes Alaska a significant outlier from  



                                                53  

                                                                                                 

the overwhelming majority rule.                     And when the court draws a line with  Uchitel on one  



          50        See Matter of Depew,   115 B.R.  at  972 (citing In re Balogun , 56 B.R. 117,  



118 (Bankr.  M.D. Ala. 1985)) (“By virtue of § 1141(b), any remaining property of the  

estate was transferred out of the estate and vested in the debtor.”).  



          51        See In re Page, 118 B.R. at 459-60.  



          52        Slip Op. at 23.  



          53        See  1 WILLIAM MEADE FLETCHER ET AL .,  FLETCHER CYCLOPEDIA OF THE  



LAW  OF    PRIVATE  CORPORATIONS  §  41.30  (perm.   ed.,  rev.  vol.  2006)  (citing  to  38  

different states for  the  proposition that  “[t]here  are  . . . two general elements required by  

most j  urisdictions[:] First, there must be such unity of interest and ownership that the  

separate personalities of  the c   orporation and the individual no longer exist; second, the  

                                                                                                               (continued...)  



                                                               -49-	                                                      6811
  


----------------------- Page 50-----------------------

side and misconduct on the other, it de-emphasizes the role of misconduct in the                                                                       Uchitel  



analysis.  Consequently, small businesses and closely held corporations, which by nature  



are generally going to qualify for some of the Uchitel factors regardless whether they are  



                                                                 

abusing the corporate form, face a great risk that they can lose the benefit of the corporate  

form and the protection of bankruptcy.54  



                                                                                                                    

                         Further, under the disjunctive standard it seems that abuse of the corporate  



                                                                                                          

form alone, without any indicia that the shareholder to be targeted had any control over the  



corporation, would be sufficient to pierce the corporate veil and hold that shareholder  



                                                                                                            

liable.  If this were true, then a small shareholder of a large corporation could theoretically  



                                                                                                                                            

be liable for corporate misconduct that the shareholder had no part in and likely did not  



                                                                                                              

even know about.  I therefore believe Alaska should join its sister states by adopting a  



                                

conjunctive  test  for  piercing  the  corporate  veil  that  would  require  a  showing  of  both  



control and misconduct.  



             53          (...continued)  



circumstances must indicate that adherence to the fiction of separate corporate existence  

                                                                                                              

would sanction a fraud or promote injustice.”).  



             54          See  Stephen  B.  Presser,   The  Bogalusa  Explosion,  “Single  Business  



Enterprise,” “Alter Ego,” and Other Errors: Academics, Economics, Democracy, and  

                                                                                                                                   

Shareholder Limited Liability: Back Towards a Unitary “Abuse” Theory of Piercing the  

                                                                                                        

Corporate Veil, 100 NW . U. L.  REV . 405, 408-09 (2006) (explaining that the reasons for                

the adoption of limited liability were two-fold: (1) to encourage investment in capital-  

scare  early  markets  and  (2)  “to  promote  republican  government”  by  encouraging  

economic investment by smaller investors, thus ensuring that not “only the very wealthy  

could   afford   to   invest   in   corporations”   causing   them   to   become   undemocratic  

plutocracies, and also allowing smaller investors “investment in the community sufficient  

to enable them to exercise independent judgment in the choice of leaders and public  

policy”).  



                                                                               -50-                                                                      6811
  


----------------------- Page 51-----------------------

III.      CONCLUSION  



                    Because I believe Knowles lacked standing to assert his claim in state court,       



I respectfully dissent.  



                                                                  -51-                                                       6811
  

Case Law
Statutes, Regs & Rules
Constitutions
Miscellaneous


IT Advice, Support, Data Recovery & Computer Forensics.
(907) 338-8188

Please help us support these and other worthy organizations:
Law Project for Psychiatraic Rights
Soteria-alaska
Choices
AWAIC