Kake ruling could have wide-ranging repercussions

Posted: Tuesday, January 11, 2000

A decision on whether all of Kake Tribal Corp.'s settlement land can be used to pay off creditors could affect every Native corporation in Alaska.

Whether land conveyed under the 1971 Alaska Native Claims Settlement Act can be used to secure corporate debt - that is, guarantee that bills will be paid - is a legal issue that has never been resolved in court. However, the issue may come to a head in Kake Tribal's bankruptcy case, because the corporation and dissident shareholders' attorneys interpret federal law differently.

David Bundy, the Kake Tribal bankruptcy attorney, said creditors can't take any of the corporation's 23,000 acres in ANCSA land unless they hold a mortgage, as the result of an amendment to the federal act in 1988.

Petersburg attorney Fred Triem, who represents dissident shareholders, argues ANCSA land can be used to pay off creditors if it has been developed for a commercial purpose.

Triem said if Bundy's legal argument is upheld, the outcome is profound for all ANCSA corporations in their financial dealings with non-Natives, who might view any Native corporate debt as potentially unrecoverable. That could discourage business deals, he said.

``It's a tension that certainly exists,'' Bundy agreed.

The land has more than monetary value, as it was part of the means by which Congress was able to settle aboriginal claims that were tied to traditional subsistence uses.

Natives didn't perceive a risk in ANCSA that land conveyed could some day be lost through corporate activity, Bundy said in an article he co-wrote for the Alaska Law Review in 1989.

``Bankruptcy is the acid test of whether the dominant culture will, in fact, permit the Alaska Native people to maintain the basis for a lifestyle outside the mainstream of the cash economy, while also giving them a chance at the brass ring offered by a capitalistic society.''

Bundy asserts that the issue was settled by the 1988 amendment. But in a subsequent Native corporation bankruptcy case, the issue was negotiated and not ruled on.

In the Chapter 11 case of Chugach Alaska Corp. this decade, the settlement stipulated ANCSA land was exempt from the reorganization and payment plan. Meanwhile, the corporation agreed to pay out a higher percentage of future earnings than it might have otherwise, said Chugach attorney Peter Giannini.

In any case, the status of ANCSA lands did not come to a court ruling, so Chugach is not a precedent for Kake Tribal, Giannini said.

Shareholders' advocate Triem contends that ANCSA lands, if ``used for some commercial purpose,'' become part of the ``stream of commerce'' that makes them like any other asset under Chapter 11. Timber harvesting has taken most of Kake Tribal's land out of the ``undeveloped'' category, he said.

Also, a reorganization plan under Chapter 11 must be considered ``a trial or hypothetical liquidation,'' in that creditors must be assured of getting the ``indubitable equivalent'' of what they would have gotten through a liquidation, he said. So, ANCSA lands are relevant, regardless, he said.

Bundy said, though, that ANCSA land is not permanently altered through commercial use.

Once logging or other activity has ceased, the land becomes exempt again, he argued. ``This is pretty much unchartered waters. This provision is unique in American corporate law.''

But he said that using land to secure debt poses a problem, anyhow, if it's not already commercially accessible. ``It's not like a downtown lot in Juneau'' that could be used for a variety of purposes within a short period of time, he said.

Triem said his clients aren't actually interested in taking title to land conveyed to Kake Tribal under ANCSA. It's more a matter of leverage in the negotiations over a payment plan, he said.

``It's in the shareholders' interests to restore the corporation to good health,'' which means retaining the land for income-making ventures, Triem said. ``We're not trying to take the land away.''

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