Opinion ID: 2638757
Heading Depth: 3
Heading Rank: 2

Heading: Summary Judgment on Issue Preclusion

Text: Our opinion in Alaska Foods directed the superior court to determine on remand whether Alaska Foods'[s] involvement in the two [1975 Adak] cases constituted active participation for purposes of [Restatement] section 59(3)(a) and whether Alaska Foods'[s] interests and those of [Adak] [were] so different that Alaska Foods lacked adequate incentive to pursue [Adak]'s claims and thus should have the opportunity to relitigate the issues. [22] The superior court concluded on remand that Alaska Foods had actively participated in the prior Adak litigation by developing a list of claims against Nichiro, monitoring the litigation, and eventually agreeing with the other Adak shareholders to abandon Adak's claims against Nichiro. The court also found that, assuming Adak had a meritorious claim against Nichiro, Alaska Foods, as an Adak shareholder, had adequate incentive to pursue Adak's breach-of-contract claim against Nichiro. Hikita insists that Alaska Foods's involvement in the Adak litigation was limited to writ[ing] telegrams and letters and giv[ing] words of encouragement ... because we were interested in trying to see if we could not perhaps shame [Nichiro] into doing what was right. But Nichiro established that Hikita actively participated in initially planning and deciding to file Adak's suit. Also, Hikita asked Adak's attorney to keep him informed as the litigation progressed. Most significantly, Hikita testified in a deposition that he reached an agreement with the other stakeholders to abandon Adak's claims and allow the default judgment to be entered against it. These facts all tend to show that Hikita played an active role in the Adak litigation. [23] Yet Nichiro offered no evidence indicating that Hikita participated in the fall 1975 decisions to file counter- and cross-claims against Nichiro. Such evidence might have demonstrated Alaska Foods's affirmative interest in pursuing the claims that ultimately led to the default judgment upon which preclusion in the present case depends. [24] But in our view, without evidence that Alaska Foods joined in Adak's decision to file these claims, the record fails to establish that Alaska Foods's incentive to pursue Adak's claims was sufficient to trigger preclusion under Restatement § 59. In defending the superior court's order on preclusion, Nichiro contends that [t]he crux of [Alaska Foods's] argument is that [it] was entitled to recover items of damage that would not have been recoverable by [Adak], and notes that Alaska Foods's ability to recover damages that it would not have realized through a recovery by [Adak] is the sine qua non of [its] argument. Having attributed this argument to Alaska Foods, Nichiro goes to great lengths to defeat it by demonstrating that the contractual claims Alaska Foods asserts in the present case could yield no award of damages that Adak might not have obtained on behalf of its shareholders in its 1975 counter-and cross-claims. Thus, asserting that the focus of the incentive inquiry must be on the recoverability by [Alaska Foods] of damages that would not be redressed through a corporate recovery by [Adak], Nichiro insists that such damages are illusory. But Nichiro's argument begs the crucial question. If Alaska Foods could recover nothing in the current litigation that Adak could not have recovered in its 1976 corporate claims against Nichiro, then what more could it have recovered vicariously through Adak's claims? In other words, what incentive did Alaska Foods have to press an action in Adak's name that it could pursue directly? The record provides no convincing answer. In fact, uncontradicted evidence of Adak's insolvency and of its $3.5 million in amassed debt [25] establishes that Alaska Foods had every reason not to press Adak's corporate claim against Nichiro. Nichiro nevertheless offers the theory that Alaska Foods should have been motivated by the incentive of avoiding issue preclusion: [S]uccessful pursuit by [Adak] of its litigation against Nichiro would have inured directly to the benefit of [Alaska Foods] ... since, by operation of [collateral estoppel], it would have conclusively established Nichiro's liability with respect to [Alaska Foods's] ... damages arising out of [its] mismanagement and contractual breach claims. Alaska Foods, 768 P.2d at 120[,] 123[] n. 6. But Nichiro's reasoning is circular and would nullify the second requirement of Restatement § 59(3)(a). As we explained in Alaska Foods, issue preclusion will apply under Restatement § 59(3)(a) if: (1) a stockholder was an active participant in the corporation's litigation; and (2) if the stockholder had adequate incentive to pursue the corporation's claims. [26] If the risk of preclusion were itself a sufficient incentive to bind a close corporation's shareholders to actions they participated in on their corporation's behalf, then their active participation would always trigger issue preclusion. Thus, Nichiro's approach is inherently inconsistent with § 59(3)(a)'s requirement that a stockholder be an active participant and have adequate incentive. Indeed, we suggested as much in our prior decision: Due to [the $3.5 million in] unsatisfied judgments, Alaska Foods'[s] stock in [Adak] probably had little value. In the instant litigation, however, Alaska Foods may seek damages not only for the lost value of the stock, but also for all proximate damages that can be proved with reasonable certainty. Alaska Foods alleges that Nichiro's actions caused Bank of California to foreclose on property pledged by Alaska Foods, which, in turn led to the closing and virtual destruction of [Alaska Foods]. If this is true, Alaska Foods may have suffered damages substantially exceeding the lost value of its stock in [Adak]. [27] We thus concluded that if Alaska Foods's assertions held true, a case of inadequate incentive to litigate would be made out. [28] On remand, Nichiro did not refute these assertions. Instead, it merely insisted that Alaska Foods had an adequate incentive to litigate because its interests aligned perfectly with Adak's. But in our prior decision we found that the record demonstrated that Alaska Foods's interests did not align with Adak's; Alaska Foods's claim as a party to the shareholders agreement was much stronger than any claim it could bring vicariously through Adak. [29] This situation contrasts with the usual scenario where the interests of a closely held corporation and its stockholders are so similar that the corporation's actions effectively represent the interests of the stockholder. [30] Because Alaska Foods's interests did not align with Adak's in this sense, we conclude that it is not barred from bringing its own claim against Nichiro.