February 14, 2013 | Volume 43, No. 6

Klukwan, Inc. charts course out of debts

Klukwan, Inc. President Rosemarie Hotch this week said a proposed settlement to a decade-long insurance company lawsuit would get the village Native corporation out of federal bankruptcy court and on the road to recovery.

“I feel like it’s a ship that’s being mended. It might actually refloat. The Travelers’ debt has stymied any growth and hung over Klukwan, Inc.’s head. It’s been a crushing weight on the corporation,” said Hotch.

The corporation sought bankruptcy protection from Travelers Casualty & Surety on Aug. 7. Travelers was the bonding company for South Coast, a construction company and Klukwan, Inc. subsidiary that defaulted on some projects in 2001. Travelers has held a claim against the local corporation since 2002, at an amount initially set at $13 million.

Under papers filed Jan. 31 in federal bankruptcy court, Klukwan, Inc. would agree to pay more than $1 million to settle the claim, using about 70 acres of property at Jones Point – including its local office – as well as an 8-acre, uplands parcel at Portage Cove.

If the sale of land doesn’t cover the $1 million, additional funds would come from about $300,000 the corporation receives annually from regional corporations around the state, called “7-J” payments, Hotch said. The Haines properties and attached structures are assessed by the borough at $927,900.

Attorneys for Klukwan, Inc. and Travelers have agreed to the terms of the settlement, which still must be approved by a federal judge. Hotch said it may take up to two months to move out of bankruptcy status.

After settling with Travelers, Klukwan, Inc. would work to settle unresolved debts of about $600,000 from a plywood mill operation in Port Angeles, Wash. and about $100,000 owed to the Internal Revenue Service, she said.

“We’re organizing the corporation without the oversight of the bankruptcy court. If we stayed in bankruptcy court, it would be an expensive and lengthy process,” she said, including a landmark legal test of whether “7-J” payments could be seized from a Native corporation.

Hotch, an Anchorage businesswoman, was elected to the corporation board in 2010, claiming managers and board members were bleeding the corporation’s trusts in order to keep the business afloat.

She filed suit against the corporation in late 2010, saying a $2 million loan to the Chilkat Indian Village amounted to “looting” corporation trusts, as did “exorbitant” fees the corporation charged to manage the trusts. The village loan involved a deal in which the village would buy the former Chilkat Cruises dock and fast ferry.

Following a settlement of her suit reached in May, the dock and boat remain in the possession of Klukwan, Inc.’s general income trust (GIT). The dock and attached acre of land are assessed at about $800,000.

Although Hotch declined to discuss the details of the settlement of her suit against the corporation, it appears her campaign has brought some significant changes, including separating the corporation’s board from management of trusts.

Under the settlement of her suit, the board of directors for the corporation’s three trusts will reform so that five separate trustees will govern each trust. Further, no director on the corporation board can serve as a trustee of a trust until five years have passed since their term on the corporate board.

In addition, the trusts will pay Hotch $410,000 for her actual costs and attorney fees. Settlement language also stipulates the corporation will repay about $3.6 million to the trusts, including from annual “7-J” payments.

The local Klukwan, Inc. office on Sawmill Road closed in December and its local phone number has been disconnected. The office had been staffed on a part-time basis for several years.

Hotch sounded a note of optimism for the corporation’s future this week. “This is not going to be a quick process. We’re working toward the goal of regrowth. We can’t do that until we become a corporation in good standing. We hope to get it there as quickly as reasonably possible.”

She said Klukwan, Inc. still has support from sister corporations formed under the Alaska Native Claims Settlement Act. “Business opportunities exist. We just have to be in a position to accept them.”

Current board members include Hotch, Vincent Rinehart, Danita Aguilar, Stephanie Dush and Tessie Chilton. Elections to fill four remaining seats on the corporation board could be held at the next shareholder meeting, which is not yet scheduled, Hotch said.

Former corporation board member Dave Berry, a defendant in the suit brought by Hotch, this week said the settlement with Travelers was a “step forward for the corporation.”

He said, however, he disagreed with some of the recent actions by the new board, including closing the local office. “Eliminating access by shareholders in Haines and Klukwan is absolutely wrong.”

Berry said he was “afraid for the corporation right now” because he believes current board members have their own interests, and not the best interests of the corporation, at heart.

Berry said most of the money taken from the corporation trusts were trust expenses.

Hotch has previously said that the cost of operating a local Klukwan, Inc. office exceeded the corporation’s income.