Leisnoi, Inc. v. Stratman

835 P.2d 1202, 1992 Alas. LEXIS 72, 1992 WL 145171

• Court: Alaska Supreme Court
• Decided: June 26, 1992
• Docket: 5-3774 to 5-3776, 5-3781
• Status: Published

Opinions

OPINION

COMPTON, Justice.

In late 1985 and early 1986, Kodiak Island residents Omar Stratman, Mabel Marie Rice, Antoinette Burton and James Burton (Plaintiffs) instituted separate actions against Leisnoi, Inc. (Leisnoi) and Koniag, Inc. (Koniag) seeking specific performance of a settlement agreement which they had negotiated with Koniag. At the time of negotiation and signing of the settlement, Leisnoi had merged with Koniag and did not exist as a separate corporate entity. Later, the merger was set aside. Leisnoi claimed it was not bound by Koniag’s settlement agreement with the Plaintiffs. The superior court ruled summarily that Leisnoi was bound by the settlement as a matter of law. After a trial on the merits, it awarded the Plaintiffs specific performance of the agreement. Leisnoi appeals. We conclude that the settlement agreement cannot be enforced against Leisnoi, and therefore reverse.

I. FACTS AND PROCEEDINGS ¹

Omar Stratman,² Antoinette Burton and James Burton were cattle ranchers on Kodiak Island. Stratman held federal grazing leases encompassing roughly 45,400 acres. The Burtons were 50% shareholders in the Kodiak Cattle Co., which held a federal grazing lease to 21,005 acres.³ Pursuant to the Alaska Statehood Act the State of Alaska selected the lands subject to the leases. Administration of the three leases was eventually transferred to the state. Later, Congress passed the Alaska Native Claims Settlement Act (Act or ANCSA), 43 U.S.C.A. §§ 1601-42 (West 1986 & Supp. 1992).

In 1974 Leisnoi was certified under ANS-CA as a village corporation for the village of Woody Island. Leisnoi was eligible to select over 115,000 acres of public land as its entitlement under the Act. See 43 U.S.C.A. § 1613(a), (f) (West 1986). Under ANCSA, however, title to the surface estate would be severed from the subsurface estate. Leisnoi would receive title to the surface estate it selected; Koniag, the ANCSA regional corporation for the Kodiak Island region, would receive title to the subsurface estate as long as the lands were not part of a National Wildlife Refuge.⁴ 43 U.S.C.A. § 1613(f) (West 1986).

Pursuant to its ANCSA entitlement, Leisnoi selected some land which partly overlapped the land subject to Stratman’s and the Burtons’ grazing leases.⁵

The Decertification Litigation

In 1975 Antoinette Burton and others, in an association which eventually became known as the Citizens Action Group, met to discuss native land selections in the Kodiak area. The group learned that Woody Island and several other villages which were not originally named in ANCSA had claimed ANCSA village status. The group also learned that, upon certification, these villages could claim up to 800,000 acres of land on Kodiak Island.

In 1976 Omar Stratman, Antoinette Burton and others in the Citizens Action Group filed suit in federal district court against the Secretary of the United States Department of the Interior, seeking a permanent injunction preventing the transfer of any land patents from the United States to Leisnoi and several other ANCSA village corporations. The group alleged that injury to its recreational use of public lands would result from any such transfer. Stratman and Burton also alleged that they would incur a direct economic injury from any transfer as federal grazing leaseholders. The Plaintiffs amended their complaint in 1977 and joined as defendants Koniag, Leisnoi and other corporations which had claimed ANCSA village status. Although the Plaintiffs did not specifically request decertification of Leisnoi as an ANCSA-recognized corporation, this litigation became known as the decertification litigation.

In 1978 the federal district court dismissed for failure to exhaust administrative remedies claims based on injury to recreational use of public lands. Strat-man’s and the Burtons’ remaining claims based on economic injury to their leaseholds were later dismissed for lack of a “case or controversy” after Leisnoi relinquished its ANCSA claims to the lands overlapping the grazing leases.

In 1981, however, the United States Court of Appeals for the Ninth Circuit ruled that allegations of potential injury to recreational uses were sufficient to satisfy constitutional requirements for standing to protest the land transfers. It therefore reinstated the decertification litigation as to Stratman and the Burtons.⁶ Stratman v. Watt, 656 F.2d 1321 (9th Cir.1981).

The Demerger Litigation 7

Following the federal district court's dismissal of the decertification litigation, but prior to the federal circuit court’s decision, the shareholders of Leisnoi and five other ANCSA villages in the region voted to merge their village corporations with Ko-niag, the regional corporation. On December 2,1980, prior to the mergers, a member of the Afognak Native Corporation (Afog-nak) filed a derivative suit on behalf of himself and Afognak shareholders to set aside the proposed merger between Afog-nak and Koniag. He moved for a temporary restraining order the next day. The superior court stayed and later enjoined the merger of Afognak with Koniag. It found that the injunction was justified by serious and substantial issues of possible material misrepresentation in proxy solicitations submitted to Afognak shareholders.

Leisnoi and the four remaining village corporations accomplished the merger on December 10, 1980. The state issued a certificate of merger on that date. Thereafter Leisnoi ceased to exist as an independent corporation, and Koniag took over Leisnoi’s defense in the federal district court decertification litigation. Koniag settled that litigation in March 1982 by entering into an agreement (Stratman Agreement) with Stratman and the Burtons.

On December 2, 1981, while Koniag was negotiating to settle the decertification litigation, a former Leisnoi shareholder named Nicholas Shuravloff filed a derivative suit on behalf of himself and other Leisnoi shareholders to set aside the merger of Leisnoi and Koniag. The parties have referred to Shuravloff s action as the demer-ger litigation. Stratman and the Burtons were not parties to this litigation.

On January 26, 1983, the superior court ruled on a motion for partial summary judgment that the joint proxy statement, which proposed the merger of Leisnoi and other village corporations with Koniag, was misleading. This court denied a petition for review of this decision and, on October 10, 1983, Koniag entered into a settlement agreement with all plaintiffs in the demer-ger litigation.⁸ In the Stipulation for Settlement, the parties included language stating that the merger of Leisnoi with Koniag was void ab initio. The superior court reiterated this language on January 27, 1984, in its order approving the settlement.⁹

As a result of the demerger settlement, the federal government transferred the surface estate for lands Leisnoi selected under ANCSA to Leisnoi rather than to Koniag. Koniag received the subsurface rights to those lands, including sand and gravel rights.

The Stratman Agreement

After the federal circuit court reinstated Stratman’s and Antoinette Burton’s claims in the decertification litigation, and while Leisnoi was merged with Koniag, the Ko-niag board of directors authorized Koniag’s Chief Executive Officer, J.F. Morse, to negotiate a settlement of the decertification suit.¹⁰ The ensuing negotiations, which occurred between November 1981 and March 1982, eventually led to the Stratman Agreement.

Mr. Morse and Koniag’s land manager, Gene Sundberg, negotiated directly with Stratman and the Burtons to arrive at the terms of the settlement. Attorneys Roger Henderson, representing Stratman and the Burtons, and Dan Hensley, representing Koniag, were used primarily to reduce the parties' agreement to writing. Stratman and the Burtons were in contact with Henderson during the settlement negotiations. He was their attorney and agent at all times during the negotiations. During negotiations, Henderson and Hensley specifically discussed Koniag’s desire to use a quitclaim deed to convey certain real property to Stratman and the Burtons. The Stratman Agreement went through several drafts. The final document, which was reviewed and approved by the attorneys for both parties, was the result of arms length negotiations. Stratman and the Burtons were aware through Henderson of the pending demerger litigation between Leis-noi and Koniag.

Before the Stratman Agreement was signed and while the demerger litigation was still pending, Nicholas Shuravloff filed a motion for a temporary restraining order to enjoin Koniag from settling the decertifi-cation litigation with Stratman and the Burtons. The TRO also sought to prohibit Koniag from selling or encumbering any land “to which Leisnoi, Inc. would have been entitled, except for merger, because of its status as a village corporation under [ANCSA].” Henderson was present at the hearing on the TRO as counsel for Strat-man and testified at the hearing on the subject of the Stratman Agreement.

The superior court denied Shuravloff’s motion. It ruled that Koniag could not be adequately protected if an injunction was erroneously issued and the Stratman Agreement was not finalized. The court reasoned that the potential harm to both Koniag and Leisnoi posed by the decertifi-cation litigation was immeasurable, since that litigation could result in the extinction of Leisnoi’s corporate existence and the elimination of its land and cash entitlement under ANCSA. Although the court recognized that Leisnoi was irreparably harmed by the Stratman Agreement’s provision that certain land be conveyed to Stratman and the Burtons, it considered the preservation of Leisnoi’s ANCSA status an overriding concern. The court therefore refused to enjoin Koniag from entering into the Stratman Agreement. The Stratman Agreement, which had been signed by Stratman and Antoinette Burton on March 3, 1982, and had been approved by the Koniag board of directors on March 5, 1982, thus became final.

Under the terms of the Stratman Agreement, Koniag agreed to quitclaim to Omar Stratman its interest in 17,637 acres of land which had been selected by Leisnoi pursuant to ANCSA and which substantially coincided with Stratman’s grazing leases. Stratman agreed to pay Koniag $233,099.50 for the land. Similarly, the Burtons agreed to pay $34,133.50 for a quitclaim deed to roughly 1,100 acres of land surrounding the 35 acre tract on which they reside. Stratman and Antoinette Burton also agreed to dismiss the pending decertification litigation with prejudice.

After the execution of the Stratman Agreement, Stratman and the Burtons dismissed with prejudice the decertification litigation. Almost three years later, after the demerger of Leisnoi from Koniag, Stratman and the Burtons began to inquire about and demand conveyance of lands addressed in the Stratman Agreement. After Leisnoi received the surface rights to the lands in question in late 1985, it refused to honor the terms of the Stratman Agreement. Koniag tendered quitclaim deeds to its subsurface interest in the lands, but Stratman and the Burtons refused to accept this offer unless Leisnoi’s surface estate was also conveyed to them. Stratman, Mabel Marie Rice and the Burtons then commenced separate litigation against Leis-noi and Koniag, each demanding specific performance from Leisnoi. The cases were eventually consolidated into this action.

Procedural History

After argument on cross-motions for summary judgment, the superior court ruled that the Stratman Agreement was binding on Leisnoi as a matter of law because, as to Stratman and the Burtons, Leisnoi was lawfully merged with Koniag at the time Koniag entered into the Strat-man Agreement. The court also found that there existed genuine issues of material fact regarding whether specific performance of the agreement was appropriate and it denied summary judgment for specific performance.

Following a trial on the issue of specific performance in late 1988, the court reaffirmed its conclusion that the Stratman Agreement was a valid contract which was binding on Leisnoi. It determined that the language of the demerger settlement, which stated that the merger was void ab initio, did not bind Stratman and the Bur-tons since they were not parties to the demerger litigation, nor were they in privity with parties to that litigation. It then granted specific performance of the Strat-man Agreement, ordering that Koniag and Leisnoi convey by quitclaim deed the subsurface sand and gravel rights and the surface estate rights to the designated lands. Stratman was ordered to pay Leis-noi a total of $233,099.50 for the surface estate and an additional $1.00 per acre to Koniag for its subsurface sand and gravel rights. The Burtons were similarly ordered to pay Leisnoi $34,133.50 as agreed in the settlement and an additional $1.00 per acre to Koniag for the sand and gravel rights.¹¹

The court also concluded that “Leisnoi, Inc. did not act unreasonably in resisting performance of the settlement agreement.” It awarded the Burtons 25% of the attorney’s fees they requested, and it awarded Stratman and Rice 25% of their averaged attorney’s fees. Lastly, the court ruled that no damages for Leisnoi’s breach of the Stratman Agreement could be claimed for the period prior to the court’s summary judgment that Leisnoi was bound by that Agreement.

Leisnoi appeals the superior court’s rulings that it is bound by the Stratman Agreement and that specific performance is an appropriate remedy. Rice appeals the order to pay Koniag an additional $1.00 per acre for sand and gravel rights to the land. Rice and the Burtons appeal the trial court’s conclusion that Leisnoi did not act unreasonably in resisting performance of the Stratman Agreement. Stratman, Rice and the Burtons appeal the court’s award of attorney’s fees. The Burtons appeal the court’s denial of their motion to modify the clerk’s taxation of costs, and all three parties appeal the ruling that no damages could be claimed for the period prior to the court’s entry of summary judgment.

II. STANDARD OF REVIEW

We have held that a “decision to specifically enforce a contract is within the discretion of the trial court and will be reversed on appeal only where it is against the clear weight of the evidence.” Hausam v. Wodrich, 574 P.2d 805, 809 (Alaska 1978). However, while we will generally defer to the trial court’s balancing of equitable principles, we will review de novo the legal foundations of the trial court’s decision. See Hall v. Add-Ventures, 695 P.2d 1081, 1087 (Alaska 1985) (grant of specific performance presumes existence of valid contract).

III. DISCUSSION

Under Alaska corporations law, when the state issued the Koniag/Leisnoi certificate of merger, Koniag received all of the rights, powers, interests and obligations of Leisnoi.¹² As the only surviving entity of the merger, Koniag had actual authority to convey rights to land and settle claims. Koniag took precisely these actions when it entered into the Stratman Agreement. Were these the only facts, the likely result would be that Stratman and the Burtons became entitled to receive the surface rights to the disputed land that Leisnoi had selected before the merger.

Leisnoi argues that Stratman’s and the Burtons’ knowledge of the Shuravloff de-merger litigation must change this result. Leisnoi argues that the trial court's conclusion that Leisnoi is bound by the Stratman Agreement is not compatible with the court’s Finding of Fact No. 127. According to Leisnoi, Stratman and the Burtons are not “innocent third parties” because of their knowledge of the demerger litigation and its potential effects. Leisnoi contends that because Stratman and the Burton’s are not “innocent third parties,” Leisnoi ought not be bound by the Stratman Agreement.

We agree that Stratman and the Burtons are not “innocent” because of their knowledge of the demerger litigation. Moreover, we conclude that as successors in interest to Koniag, the interests of Strat-man and the Burtons were fundamentally altered by the results of the Shuravloff litigation. Therefore, we conclude that the superior court erred when it determined that Leisnoi was legally bound by the Stratman Agreement.

The trial court, in Finding of Fact No. 127, made specific findings regarding knowledge Stratman and the Burtons directly and indirectly obtained:

The court finds accordingly that prior to the time Omar Stratman and Antoinette and James Burton signed the Strat-man agreement, they had indirectly through their agent Roger Henderson, actual knowledge of the demerger litigation. They, through Henderson, had knowledge that the relief sought in the demerger litigation was demerger, and that the claims raised in the Shuravloff suit were identical to the claims raised in the Olsen [Afognak demerger class action] suit. Finally, through Henderson, they had knowledge that if demerger were granted, Leisnoi would be reconstituted as a separate corporation; and its land selection rights would return to it.13

(Emphasis added).

We believe that in ordering specific performance of the Stratman Agreement the trial court failed to understand the logical and legal consequences of this finding.

Under the ancient doctrine of lis pendens, “[p]ersons acquiring an interest in property that is a subject of litigation are bound by, or entitled to the benefit of, a subsequent judgment.” Golden State Bottling Co. v. N.L.R.B., 414 U.S. 168, 179, 94 S.Ct. 414, 423, 38 L.Ed.2d 388 (1973); see Farwest Steel Corp. v. Barge Sea-Span 241, 828 F.2d 522, 524 (9th Cir.1987); First National Bank of Anchorage v. Dent, 683 P.2d 722, 724 (Alaska 1984). This doctrine is well established and is articulated today in the Restatement (Second) of Judgments (1982). In general, “[a] successor in interest of property that is the subject of a pending action to which his transferor is a party is bound by and entitled to the benefits of the rules of res judicata to the same extent as his transferor....” Restatement (Second) of Judgments § 44 (1982).

The rationale for this rule is as follows: If property is transferred when an action is pending concerning it, the successor in interest may be aware of the litigation and seasonably join as a party, by intervention or by substitution in place of his transferor. In that circumstance, the successor then becomes bound because he is a party. If he is aware of the litigation but does not join as a party, he acquiesces in the transferor’s continuing, for purposes of the litigation, to be the apparent owner of the interest in the property. His doing so is in effect treating the transferor as his representative in the action.

Restatement (Second) of Judgments § 44 cmt. a (1982).

The traditional statement of the doctrine of lis pendens burdened even purchasers who were unaware of the pending litigation.¹⁴ See Golden State Bottling Co., 414 U.S. at 179, 94 S.Ct. at 422-23. This result was supported by considerations that:

the successor usually has an express or implied right of indemnity against the transferor for loss resulting from the judgment; the successor changed the status quo regarding ownership and may justly be burdened with losses which might be expected possibly to result; and, if the rule were otherwise, the stabilizing effect of a judgment concerning the property could indefinitely be postponed by successive transfers.

In addition to the weight of the above considerations, Stratman and the Burtons, as successors, had actual knowledge of Shuravloffs claims against Koniag and the potential effects of these claims. Therefore, Stratman and the Burton’s interests under the Stratman Agreement were subject to Shuravloffs claims and the risk that Koniag’s authority over the disputed land would be compromised in the resolution of the demerger litigation. See Dent, 683 P.2d at 724.

Shuravloff owned shares of stock in Leis-noi. He sued Koniag and others, on his own behalf and on behalf of other prior Leisnoi shareholders,¹⁵ alleging that the merger resulted from “a joint proxy statement which constituted a scheme to defraud and included untrue statements of material fact.” In his complaint, Shurav-loff sought a declaration that Leisnoi’s merger with Koniag was null and void. He also asked the court to “[ojrder an accounting ... of Leisnoi’s current assets now held in a constructive trust by Koniag and that those assets, when accounted for, be returned to Leisnoi.” The findings of the trial court and principles of inquiry notice indicate Stratman and the Burtons knew or should have known of all these claims.

Shuravloffs claims were ultimately resolved by order of Superior Court Judge Douglas J. Serdahely. The order approved and incorporated a Stipulation for Settlement (demerger settlement) between Ko-niag, Shuravloff and others. In addition to rendering void the merger between Koniag and Leisnoi, the intent of the demerger settlement was “insofar as possible to return the property which belongs to [Leis-noi].” ¹⁶

We conclude that the trial court erred when it determined that Leisnoi was legally bound by the Stratman Agreement and erred when it ordered Leisnoi to convey the surface rights to the land in dispute to Stratman and the Burtons. The trial court found that Stratman and the Burtons had knowledge of the demerger litigation and that they were aware that “if demerger were granted, Leisnoi would be reconstituted as a separate corporation; and its land selection rights would return to it.” Under the doctrine of lis pendens and in accordance with Restatement (Second) of Judgments § 44 (1982), the rights of Stratman and the Burtons under the Stratman Agreement were subject to the claims of Shuravloff.¹⁷ Stratman and the Burtons were bound by the demerger settlement which resolved Shuravloffs claims, rendered the merger of Koniag and Leisnoi void and returned the surface rights to the disputed land to Leisnoi. As to Stratman and the Burtons, who had knowledge of the demerger litigation, Koniag had no authority to agree to a future conveyance of Leis-noi’s assets. Therefore, Leisnoi is not legally bound by the Stratman Agreement.¹⁸

Rice, claiming through Stratman, argues that demerger is a disfavored remedy. Therefore, at the time of the Stratman Agreement, Stratman and the Burtons could not reasonably expect the Shuravloff litigation to result in demerger or invalidation of rights under the Stratman Agreement.¹⁹ We are not persuaded.

The equitable power of a court to set aside a merger is well established. 18A Am.Jur.2d Corporations § 1111 (1985). Moreover, a party’s erroneous forecast of the future result of litigation does not affect the operation of the lis pendens doctrine.²⁰ A purchaser of land who has notice of litigation affecting the land and notice of the relief claimed in the litigation, is bound by the result of the litigation irrespective of the “likelihood” of the result. See Golden State Bottling Co., 414 U.S. at 179, 94 S.Ct. at 422; Farwest Steel Corp., 828 F.2d at 524; Dent, 683 P.2d at 724. The trial court specifically found that Stratman and the Burtons were aware that a potential result of the Shuravloff litigation was demerger and restoration of Leis-noi’s rights to land. They are bound by that result.

Rice contends that there has never been a judicial determination that the proxy statements at issue in the demerger litigation were fraudulent. We do not consider the lack of such a finding to be determinative. The trial court had adequate grounds to set aside the merger. It found that the proxy statements were “false and misleading, and material, as a matter of law.” We need not explore the distinctions between fraudulent and materially misleading proxy statements. Proper relief for a materially misleading solicitation which results in corporate merger may include setting aside the merger. Mills v. Electric Auto-Lite Co., 396 U.S. 375, 386, 90 S.Ct. 616, 622, 24 L.Ed.2d 593 (1970). Further, Stratman and the Burtons would be bound by the judgment under the doctrine of lis pendens even if it were strictly a stipulated judgment, as reflected in the Restatement (Second) of Judgments § 44 (1982).

Having concluded that there is no enforceable contract between Leisnoi on the one hand and Stratman, Rice and the Bur-tons on the other, the judgment of the superior court is REVERSED, the award of attorney’s fees is VACATED, and the case is REMANDED to the superior court with directions to enter judgment dismissing the claims of Stratman, Rice, and the Burtons for legal and equitable relief against Leisnoi.

MOORE, J., dissents.

1 . Because of the factual complexity of this case, a schedule showing the sequence of relevant events has been added as an Appendix.

2 . Mabel Marie Rice is Omar Stratman’s former spouse. Her interest in this litigation derives solely from Stratman’s interest.

3 .In 1979, the Burtons transferred their interest in the Kodiak Cattle Co. They then purchased the 35 acre tract on which they presently reside. Their interest in the present litigation concerns land surrounding the 35 acre tract which falls outside of the grazing leases and which is described by the agreement which became known as the Stratman Agreement.

4 . None of the lands actually selected by Leisnoi were wildlife refuge lands.

5 . Leisnoi’s selections rights, however, were subordinated to the pre-existing grazing leases, and any conveyance of the lands to Leisnoi would be subject to the terms of those leases. Koniag’s right to the subsurface estate was similarly subject to the pre-existing grazing leases. See 43 U.S.C.A. § 1613(g) (West 1986).

6 . After this ruling, the Citizens Action Group met for a last time. The group had achieved most of its goals, and only Stratman and the Burtons were willing to continue the litigation. Stratman and the Burtons personally guaranteed payment of all past and future fees and costs, and the group agreed that Stratman and the Burtons could seek to settle the case on their own if possible.

7 .For convenience, we adopt the convention of the parties in referring to the derivative suit brought by Nicholas Shuravloff against Koniag, Leisnoi and others as the "demerger litigation."

8 . Koniag settled Shuravloff s demerger action in the same Stipulation for Settlement that it settled claims brought by shareholders of three other native village corporations. These claims also arose from the joint proxy statements.

9 . The court’s approval of the settlement was required under Alaska Civil Rule 23.1(i) which directs that "[a] derivative action may not be discontinued, abandoned, compromised or settled without the approval of the court having jurisdiction of the action.”

10 . The record indicates that at the time the settlement of the decertification litigation was being negotiated, Dan Hensley, counsel for Ko-niag believed that there was a 90% chance that Leisnoi would be decertified if the action was heard on the merits. Hensley was also counsel for Leisnoi prior to its merger with Koniag. Koniag would have lost all of Leisnoi’s land selection rights under ANCSA had Leisnoi been decertified.

11 . For purposes of the equity trial, the parties stipulated that the actual market value of the land to be sold to Stratman was approximately $2.4 million. The value of the land to be conveyed to the; Burtons was approximately $1.1 million.

12 . On December 10, 1980, when the state issued the certificate of merger joining Koniag and Leisnoi, former AS 10.05.405 (1957) provided in part:

(b) Merger or consolidation has the following effect....

(2) The separate existence of the corporations, except the surviving or new corporation, ceases....

(4) The surviving or new corporation possesses the rights, privileges, immunities and franchises, public and private, of the merging or consolidating corporations. All real, personal and mixed property, and all debts due, including subscriptions to shares, and all other choses in action, and every other interest of or belonging to or due to each of the corporations are transferred to and vested in the surviving or new corporation. The title to real estate or interest in real estate, vested in the corporations does not revert nor is it in any way impaired because of the merger or consolidation.

13 . The order entered on March 18, 1982, in the Shuravloff litigation denying Shuravloffs motion for a temporary restraining order clearly identified the conveyance from Koniag to the Stratman plaintiffs as part of the subject matter of the litigation. The order stated in part that "the court is aware that the plaintiffs have demonstrated, should the settlement be concluded, that they will be faced with 'irreparable harm’, in the sense that the terms of the settlement agreement include the conveyance of certain Leisnoi property to the Stratman plaintiffs." The parties have stipulated that this order was read to Mr. Henderson by Judge Serdahely over the phone and a copy of the order was sent to him by mail.

14 . In this case we need not and do not decide whether lis pendens binds a successor who lacks even inquiry notice of pending litigation affecting the property.

15 . Our dissenting colleague points out that Leis-noi was a defendant in Shuravloffs derivative suit, apparently suggesting that, because of its status in that litigation, Leisnoi should not benefit from our resolution of this case.

Shuravloff brought his suit on his own behalf and on behalf of other former Leisnoi shareholders to remedy alleged misdeeds of Leisnoi’s directors and others. We fail to perceive why Leisnoi’s status as a nominal defendant should preclude the former shareholders from receiving the benefits of Shuravloffs action.

16 . The demerger settlement stated, in pertinent part:

WHEREAS ...

A Joint Proxy Statement requesting approval of merger was distributed to the shareholders of Koniag, Inc. and the village corporations participating in the proposed merger; and ...

The Superior Court for the State of Alaska has decided that the Joint Proxy Statement was false and misleading because it stated that the timber resources involved in the merger could not be valued, the proxy statement did not disclose the value of the timber to the shareholders who were called upon to decide whether or not to merge, and because the proxy statement did not make it clear that the $2,100 being distributed to the village corporation shareholders were monies owned by the village corporations which could have been distributed to the shareholders without merger; and ...

The parties think the fair way to settle their differences is to dissolve the merger between Koniag ... and Leisnoi ... and insofar as possible to return the property which belongs to [Leisnoi] ...

NOW, THEREFORE ...

Koniag will transfer any and all land, timber, interest in land and timber, contract rights, or any other interests of any kind of which Leisnoi ... [was] possessed or to which [it was] entitled ... or would have subequently [sic] become entitled but for [its] merger with Koniag.

17 .Our dissenting colleague maintains that the land at issue in this case was not the subject of Shuravloffs suit and that application of the lis pendens doctrine is improper. He suggests that in determining whether lis pendens is appropriate we look to the “gravamen of the complaint in the pending litigation." Infra, p. 1213 (citing Rubinfeld v. Mappa, 42 Misc.2d 464, 248 N.Y.S.2d 276, 277 (N.Y.App.Civ.1964).

In reaching our conclusion, we do not alter the doctrine of lis pendens. From our review, we conclude that the gravamen of Shuravloffs suit was a claim that the fundamentally flawed merger of Koniag and Leisnoi should be declared void and that Leisnoi's assets, comprised largely of interests in real property, should be returned to it. The findings of the trial court, including Finding of Fact No. 127, remove any doubt that Stratman and the Burtons knew that the Shuravloff complaint involved the property at issue in this case.

The dissent’s comments regarding AS 09.45.-790 which permits the recordation of a notice of pending action are misfocused. The common law doctrine of lis pendens has not been altered by the enactment of AS 09.45.790. Through AS 09.45.790, the legislature merely provided a convenient method for giving constructive notice to subsequent purchasers and encumbrancers that their interests may be affected by a pending action. Brooks v. R & M Consultants, Inc., 613 P.2d 268, 270 (Alaska 1980). In this case, where the trial court found that Stratman and the Burtons had actual notice of the demerger litigation, there was no need for it to rely upon constructive notice. Moreover, had a statutory notice of lis pendens been filed and been found wanting, any insufficiency could have been cured through an amendment to the complaint.

Further, we do not believe that our decision today fosters uncertainty and peril in corporate affairs. It does require that those who are on notice of a claim protect themselves against the possibility that the claim has merit.

18 . Because of our holding that Leisnoi is not bound by the Stratman Agreement, the arguments of Stratman, the Burtons and Rice regarding attorney’s fees and costs are moot. Stratman, the Burtons and Rice are not "prevailing parties” under Alaska Civil Rule 82. Therefore, the trial court’s awards of attorney’s fees and costs must be vacated.

Our holding also renders moot the appeal of the trial court’s conclusion that Leisnoi did not act unreasonably in resisting performance of the Stratman Agreement.

We decline to address Rice's appeal regarding the amount payable to Koniag for subsurface rights. Koniag was dismissed from these consolidated appeals. In light of our holding, the issue is not relevant as to Leisnoi.

19 . The Burtons also dispute whether Shuravloff was likely to prevail in the demerger litigation and seem to argue that because they did not expect Shuravloff to prevail on his claims, they should not be bound by the result.

20 . We find the argument of Stratman and the Burtons that they could not reasonably expect the result of the demerger litigation disingenuous in light of their knowledge that Shuravloffs claims were identical to those of Olsen in the Afognak litigation and in light of the injunction against the merger of the Afognak Native Corporation and Koniag.