Where shareholders filed derivative suit without making a pre-suit demand and without excuse for making a pre-suit demand, and corporation took remedial steps so suit became moot, suit can be dismissed and shareholders may be prohibited from recovering litigation expenses.
This appeal concerns attorney’s fees and indemnification disputes arising after the superior court dismissed a derivative suit brought by shareholders of an Alaska Native Claims Settlement Act (ANCSA) village corporation. The plaintiffs sued without first making the pre-suit demand Alaska law requires. After the superior court dismissed the complaint for mootness, both sides sought attorney’s fees and costs. Concluding that the shareholders did not prove that a pre-suit demand was excused, the superior court held that they were not prevailing parties and denied their attorney’s fees motion. Finding that the defendant directors were prevailing parties, the court awarded them Alaska Civil Rule 82 attorney’s fees against the plaintiff shareholders, and ordered the corporation to indemnify them under AS 10.06.490(c). Because the superior court did not err in holding that the shareholders did not prove that a demand was excused, we affirm the denial of the plaintiffs’ fees request. But because the directors did not establish that they were Rule 82 prevailing parties, we vacate their attorney’s fees award. And because they did not establish that they were “successful” litigants, we hold that they were not entitled to indemnification under AS 10.06.490(c).Carl J. Jerue, Jr. and Ernie Demoski, Sr. (“plaintiff shareholders”) are shareholders of Ingalik, Incorporated, the ANCSA village corporation for the Native village of Anvik. Gloria Millett, Kenneth Chase, Shannon Chase, and Ted Kruger, Jr. (“defendant directors”) were members of Ingalik’s board of directors as of January 1998. On January 12, 1998 the Alaska Department of Commerce and Economic Development issued the corporation a Certificate of Involuntary Dissolution, citing the corporation’s failure to file a biennial report or pay taxes.On January 22, 1998 the plaintiff shareholders filed a derivative complaint against the defendant directors, alleging financial mismanagement and other wrongdoing. The complaint asked the court to compel the defendant directors to hold an annual shareholders’ meeting to elect a new board of directors; to appoint Jerue as an interim director with authority to take whatever action was necessary to reinstate the corporation; and to issue a temporary restraining order prohibiting the defendant directors from “winding up” the corporation’s affairs and distributing any corporate assets. Summonses were issued for the individual defendants on January 22, 1998.
Adds precedent that influences how ANCSA corporations, regulators, and shareholders interpret governance rights and remedies.