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Struggle for survival

Bankruptcy, lawsuits and plant closures create uncertainty for Kake's residents and tribal corporation's shareholders

Posted: Sunday, October 03, 2004

The people of Kake are scattering to cities such as Juneau and to the Lower 48 in search of work as the village's tribal corporation spirals into financial uncertainty.

"The young people have had to leave for jobs," said Mayor Paul Reese, noting that about 20 percent of the population has left within the last year.

The trouble for Kake Tribal Corp. started with a shareholder lawsuit and thickened as the corporation paid out almost $37.5 million in dividends in the 1990s to about 600 shareholders. Along the way Kake Tribal has been buffeted by the same boom-and-bust realities that have hit all of Southeast Alaska's resource industries, and some fear the corporation is heading for a second bankruptcy.

Approximately half of Kake Tribal's 704 shareholders live in Kake, a Tlingit village of about 550 people on Kupreanof Island, 98 air miles southwest of Juneau. Kake Tribal is one of 10 village and urban Native organizations in Southeast Alaska.

Situk Adams, 35, a Kake Tribal shareholder and Kake High School teacher, has a wife and three children in town. He said he plans to move to somewhere in the Lower 48 within the next couple of weeks.

"People are really worried," he said. "Family members - whole families have left. It's where we have almost no alternative but to leave. It's just a terrible feeling to be here and try to make a living in Kake."

He said the fishing and logging industries have "dried up" and shareholders are getting few answers about Kake Tribal's business plans for the future.

"The communication link has been gone for awhile," he said. "We're kind of in the dark ourselves. There doesn't seem to be a business plan in place. If a five-year business plan were in order, we could strive to get going with life, but there doesn't seem to be anything in place."

Meanwhile, Kake Tribal is working to pay off millions in debt.

The corporation faces the struggles of dealing with the debt remaining from its bankruptcy in the late 1990s and the decline of the timber and fishing industries of Southeast Alaska. Some are speculating that it could soon be out of money and resources again.

Kake Tribal officials said the corporation is trying to diversify, reinvent itself and get away from the vagaries of the resources industries, but they won't say whether the corporation's facing a second bankruptcy.

The corporation was created in 1971 under the Alaska Native Claims Settlement Act, at which time about 550 shareholders in Kake were given 100 shares, according to Gordon Jackson, chairman of the board for Kake Tribal. ANCSA created village, urban and regional Native corporations across the state giving them title to 44 million acres of land and $1 billion to create corporations to manage their holdings.

This summer the corporation closed its fish processing plant, Kake Foods, and operated its other plant, Pelican Seafoods, on a skeleton crew, resulting in a drop in population in Pelican of about 10 people in a community of just 100. Kake Tribal also is selling off all its logging equipment to pay off debts.

Kake Tribal Chief Operating Officer Duff Mitchell says the corporation is working to reorganize and diversify its businesses to move away from fishing and timber.

"We cannot keep Kake Tribal Corp. a corporation in the future by solely staying in the timber and the seafood processing business," he said. "It's too risky."

Meanwhile, Kake Tribal is working to obtain $4 million owed by the federal government for a land transfer in the Kake area.

Shareholder lawsuits

Many shareholders point to Juneau resident Cliff Tagaban Sr., a Kake Tribal shareholder, and others like him for the corporation's first bankruptcy. Tagaban was one of several shareholders who filed one of two multi-million dollar class-action lawsuits in 1992 against Kake Tribal over a life insurance program that was offered to shareholders with 100 shares or more. Those like Tagaban, who inherited and held fewer than 100 shares and shareholders living outside Kake, were excluded.

Tagaban said that with the status of the two fish plants, many are wondering about the future.

"The rumor I've heard is that they are headed toward a second bankruptcy but they can't afford it," Tagaban said. "In small Native communities it's well-known that the rumors just start flying."

Tagaban's lawyer, Fred Triem of Petersburg, said the lawsuit isn't what pushed Kake Tribal into bankruptcy in the mid-1990s. It was huge dividend payments approved by Kake Tribal shareholders, he said. About $37.5 million was paid out between 1993 and 1997.

Shareholders received thousands of dollars in dividends in the 1990s, with payouts totaling as much as $30,500 per average shareholder in 1994 and $24,250 per shareholder in 1995.

Triem said Kake Tribal decided to make the payments because of the shareholder lawsuits and other debts it faced. He said the shareholders knew the corporation would have to cover millions in debt, so they approved the huge payouts.

"This was a shareholder decision, not unlike other corporations that elected boards and made these kinds of similar decisions," said Chief Operating Officer Mitchell. "This was a financial decision to have either a very large multi-million-dollar corporation or have a corporation which was a smaller corporation."

He said the shareholders chose small.

Debt and bankruptcy

David Bundy, an Anchorage lawyer that represented Kake Tribal in the bankruptcy, said the corporation owed about $12 million to creditors and shareholder litigants when it filed bankruptcy on Oct. 9, 1999.

He said the shareholder creditors still are owed about $4.5 million.

"There is no set schedule for paying that off," Bundy said. "It's just paid as profits and as appropriations become available according to the bankruptcy plan."

Bernd Guetschow, an Anchorage attorney that represented shareholder litigants during Kake Tribal's bankruptcy, said the company is using money paid by the federal government for the land transfer in Kake to pay off shareholder litigants and other debts.

He said the corporation has made its obligated payments to shareholder litigants to date but more is still owed.

Guetschow noted that a second bankruptcy would likely be a last resort for Kake Tribal because its bankruptcy lawyer Bundy still is likely owed money by the corporation from its first bankruptcy. This means that a second bankruptcy, presumably handled by Bundy, would eliminate the corporation's debt to him. Hiring a second bankruptcy lawyer also would cost a significant amount of time and money.

"A bankruptcy would be the last resort for them," he said. "KTC is in a box. It is a very difficult situation."

Bundy did not reveal whether he is one of Kake Tribal's creditors but said a bankruptcy court likely would require that a second attorney be hired by Kake Tribal to avoid conflicts of interest.

Guetschow also questioned whether a second bankruptcy would include a Chapter 11 reorganization of its assets or a Chapter 7 bankruptcy that would liquidate the corporation's assets and result in its insolvency.

"Is this corporation going to survive for the next two years?" Guetschow asked.

The question of survival could lie in whether the organization receives about $4 million from a land transfer approved by Congress in 1999.

Kake Tribal was given the land in the Gunnuk Creek watershed in 1971 as part of the Alaska Native Claims Settlement Act, but logging on the watershed endangered the village's water supply. An injunction filed by the village in 1984 stopped the corporation from logging on the watershed.

Under the Kake Tribal Land Transfer Act, the federal government agreed to pay Kake Tribal $15 million and to trade the rights to the 2,500 acres of land at Gunnuk Creek for 1,430 acres in the upper watershed and 1,389 acres near Jenny Creek, about four miles southeast of Kake.

Mitchell said the corporation has received about $11 million from the government so far and still is waiting for the rest.

"This was the cornerstone of our bankruptcy plan," Mitchell said, noting Kake Tribal originally expected to receive $5 million for the first three years after the 1999 land exchange was approved.

He said the sporadic payments have crippled the corporation's ability to pay off its creditors on time and provide the capital to fuel its businesses.

"In politics nothing is guaranteed," he said. "We also didn't have a federal deficit when we started."

He said the timber at Jenny Creek is economically unharvestable.

Diversifying the economy

Chairman of the Board Jackson said the organization is working to diversify the economy, an effort that started in the mid-1990s.

He said the timber industry was at its heyday in the mid- to late-1980s in Kake, when the corporation was logging about 50 to 60 million board feet of timber a year. Kake ceased its logging operations completely last spring, Jackson said.

"We knew there was a finite amount of logs up there on Kake Tribal land," Jackson said.

In the 1990s the corporation tried its hand in a variety of business ventures, including plans to build a regional trash incinerator and short-lived production of salmon-based fertilizer, salmon jerky and pet treats.

Its most recent product, Totem Soil, is an organic compost made of wood chips and fish carcasses. Mitchell said the compost venture has faced some roadblocks, however, because of the corporation's inability to adequately market the product.

It also is having difficulty selling the product in bulk to the Lower 48. He said it is not efficient to ship a couple of pallets, each of which holds 88 bags of soil, to Lower 48 stores. And containers, which hold 36 pallets, cost too much.

Mitchell said the organization is looking to partner with well-financed businesses in joint ventures.

Kake Tribal also is trying to attract tourism, establish broadband Internet service and to work with other technology companies to obtain military contracts. Corporate officials, however, gave few details about its future business endeavors.

"These are all budding, new - don't got the badges to prove it, because I'm talking the talk now because we don't got them through to walk the walk," Mitchell said.

Mitchell said it is still uncertain when Kake Foods and Pelican Seafoods will resume operations.

• Timothy Inklebarger can be reached at timothy.inklebarger@juneauempire.com.



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