Hanson v. Kake Tribal Corp.

• Decision Date: 23 May 1997
• Docket Number: S-6239,Nos. S-6189,s. S-6189
• Citation: 939 P.2d 1320
• Parties: Arlene Bell HANSON, Victor Carl Davis, Jr., and Clifford William Tagaban, For Themselves And All Others Who Are Similarly Situated, Appellants and Cross-Appellees, v. KAKE TRIBAL CORPORATION, Appellee and Cross-Appellant.
• Court: Alaska Supreme Court

Page 1320

939 P.2d 1320

Arlene Bell HANSON, Victor Carl Davis, Jr., and Clifford William Tagaban, For Themselves And All Others Who Are Similarly Situated, Appellants and Cross-Appellees, v. KAKE TRIBAL CORPORATION, Appellee and Cross-Appellant.

Nos. S-6189, S-6239.

Supreme Court of Alaska.

May 23, 1997.

Douglas M. Branson, Tacoma, WA, Fred W. Triem, Petersburg, for Appellants and Cross-Appellees.

R. Collin Middleton, Glenn E. Cravez, Jacquelyn R. Luke, Middleton & Timme, Anchorage, for Appellee and Cross-Appellant.

Before RABINOWITZ, MATTHEWS, EASTAUGH and FABE, JJ.

OPINION

MATTHEWS, Justice.

This is a class action in which shareholders claim that a corporation paid discriminatory dividends. The shareholders prevailed in the superior court. They appeal, claiming that the damage award was too low, that the class was too narrowly defined, and that the court's award of attorney's fees under Civil Rule 82 was too low. The corporation cross-appeals, asserting numerous defenses relating both to liability and damages. We affirm the superior court's liability ruling, vacate the damage award, and remand for recalculation of damages and for consideration of whether an immediate lump sum payment of the judgment is appropriate.

I. FACTS AND PROCEEDINGS

Kake Tribal Corporation (Kake) is a village corporation organized under the Alaska Native Claims Settlement Act (ANCSA). Kake adopted a "Financial Security Plan" which was intended to confer financial benefits on some of Kake's shareholders. The plan was open only to original Kake shareholders who retained the one hundred shares they were issued when the corporation was organized.

The plan consisted of two programs. Original shareholders of Kake who retained all one hundred of their original shares and were between twenty-one and sixty-nine years of age were entitled to participate in the basic program. Individuals who were seventy years of age or older, and met the same shareholding requirements, were entitled to enroll in the senior program.

Under the basic program, Kake purchased a life insurance policy for each program participant. Kake retained control of the policies, was named as the beneficiary, and retained the cash surrender values. Upon the death of a participant, the life insurance proceeds were placed in an account with an investment management firm. The funds in this account were used to pay program benefits, and for other corporate purposes.

Participants who enrolled in the basic program had the option of choosing either a living benefits program or a death benefits program. The death benefits program provided for an immediate payment upon the death of the participant of $1,800 in funeral expenses and monthly payments of $225 for sixteen years to beneficiaries designated by the participant. If a participant chose the living benefits option, the participant could elect to receive $100 per month for fifteen years beginning at age sixty-five, plus a $1,000 payment to the participant's beneficiaries at the time of the participant's death. Alternatively, the living benefits participant could elect to receive $4,000 per year, starting at age sixty-eight, for three years, plus a $1,000 payment to the participant's beneficiaries at death.

The senior program promised to pay each participant $100 per month for up to 180 months, plus $1,000 in funeral expenses at death. This program was devised because the shareholders who were seventy years of age or older were generally uninsurable.

Kake began to experience financial difficulty. After making twenty-three monthly payments to the elders--as the parties describe the participants in the senior program--the payments were suspended in 1982 due to lack of funds. On January 12, 1989, Kake paid each surviving elder $100 per month retroactive to October 1982 and each elder's estate $100 for each month from October of 1982 until the time of the elder's death. The corporation then discontinued the senior program.

Meanwhile, in 1985, Kake switched the insurers which were underwriting the basic program. This required that new insurance forms be filled out by program participants. Many shareholders failed to re-enroll with the new insurer.

The basic program was modified in 1989. Kake's liability to pay death benefits from the account with the investment management firm was limited, and the living benefits program was terminated. On March 1, 1992, the basic program was terminated.

The plaintiffs filed suit on August 31, 1990, alleging that the plan unfairly discriminated against them. Arlene Hanson and Victor Davis, Jr., are the widow and minor son of an original shareholder of Kake. When he died, fifty of his shares were transferred to Arlene and fifty passed to Victor. These shares were no longer considered to be original shares and, as a result, Arlene and Victor were not entitled to participate in the plan. Clifford Tagaban inherited twenty-five shares from his grandmother. He was also ineligible to participate in the plan.

In 1992 the plaintiffs amended their complaint, asserting class action claims. Kake moved for summary judgment on statute of limitations grounds. Superior Court Judge Thomas M. Jahnke ruled that each payment to favored shareholders gave rise to a separate cause of action, subject to a separate limitations analysis; that the six-year statute expressed in AS 09.10.050 governed this case; that the statute barred claims accruing more than six years before the case was filed, that is claims accruing before August 31, 1984; and that claims held by minors were tolled pursuant to the tolling provisions of AS 09.10.140.

In the spring of 1993, the parties filed cross-motions for summary judgment on remaining liability issues. At roughly the same time, by stipulation, the plaintiffs filed a second amended complaint which they claim expanded the class to include all shareholders who had been discriminated against, whether or not they participated in the plan.

The case was set for trial on June 28, 1993. Just before trial, the trial judge, Walter L. Carpeneti, ruled in the plaintiffs' favor on the summary judgment motions, holding "as a matter of law payments both to beneficiaries of shareholders and to shareholders directly under the challenged plan are distributions under state law, that the payments violate the rule of uniformity and that the defendant is therefore liable to plaintiffs."

On June 25, 1993, plaintiffs filed a motion to amend the class certification order to include all shares against which the plan had discriminated, not just those whose owners had been termed ineligible to participate in the plan. On the third day of trial Judge Carpeneti ruled on this motion, indicating that he would grant it, but only on the condition that the summary judgment order on liability be vacated, and that plaintiffs pay defendant's attorney fees for lost trial and trial preparation time.

The plaintiffs declined to accept these conditions and trial proceeded on the issue of damages. Following trial, the plaintiffs moved for reconsideration of the class certification order. The court again indicated that it would expand the class, but only on the condition that its order granting partial summary judgment on liability be set aside. A new trial would then be necessary. The class declined this condition and withdrew the motion for reconsideration.

Following the trial, the court found that any shareholders who had participated in the plan, no matter how briefly, were excluded from any remedy. The court ruled that the remedy of shareholders holding less than one hundred shares would be calculated on a per share basis, while the remedy of shareholders who held more than one hundred shares would be limited to one hundred shares. It found the plan to have cost Kake $1,996,000 or $47.30 for each participating share. The court awarded damages of $47.30 per share to the 11,152 shares which qualified for the remedy. Judgment for the class in the principal amount of $527,489.60 was entered. Subsequently, Judge Jahnke awarded pre-judgment interest of $438,178.38 and attorneys' fees of $125,000.

Plaintiffs and Kake have appealed. Their claims on appeal will be identified in the discussion that follows.

II. DISCUSSION

A. Payments under the Plan Were Illegal

Kake claims that payments under the plan were not dividends. Instead, it argues that the plan was a social welfare program which is permissible under ANCSA. Kake, however, points to no provision which may be read as authorizing the plan.

It is true that a corporation may engage in charitable giving. AS 10.06.010(13) (a corporation has the power to "donate for the public welfare or charitable, scientific or educational purposes ... "). The plan, however, was merely a method of distributing corporate assets to certain shareholders. No reasonable argument can be made that the plan was instead a series of charitable gifts. Indeed, the stated purpose of the plan was to provide financial security to the original shareholders of Kake. Distributions were to be made regardless of the need or financial status of the distributees.

Kake also argues that the senior program was authorized under amendments to ANCSA passed in 1988. These amendments did authorize the issuance, without consideration, of a special class of stock for shareholders who had attained the age of sixty-five. 43 U.S.C.A. § 1606(g)(2) (West Supp.1996). However, creation of such stock requires a shareholder vote or an amendment to the articles of incorporation. 43 U.S.C.A. § 1629(b) (West Supp.1996). Kake never took these steps. Thus the senior program cannot be considered a valid exercise of the power granted by the 1988 ANCSA amendments.

Because no provision of ANCSA authorizes the plan, the payments in this case were illegal. Subject to certain limited exceptions not relevant for present purposes, holders of village corporation stock have "all rights of a stockholder in a business corporation...