author: EASTAUGH, Justice. CARPENETI, Justice,

text:
    Carl J. JERUE, Jr. and Ernie Demoski, Sr., as individual shareholders and on behalf of Ingalik, Incorporated, and Ingalik, Incorporated, Appellants, v. Gloria MILLETT, Theodore Kruger, Jr., Kenneth W. Chase, Shannon F. Chase, Carl Jerue, Sr., Terrence Wharton, Jr., and John Does 1-5, Appellees.
    No. S-9076.
    Supreme Court of Alaska.
    March 28, 2003.

      Peter J. Aschenbrenner and Sheila Doody Bishop, Aschenbrenner Law Offices, Inc., Fairbanks, for Appellants.
    Robert K. Reiman, Law Offices of Robert K. Reiman, Anchorage, for Appellees.
    Before: MATTHEWS, Chief Justice, EASTAUGH, FABE, BRYNER, and CARPENETI, Justices.
   OPINION

EASTAUGH, Justice.

I. INTRODUCTION

This appeal concerns attorney's fees and indemnification disputes arising after the superior court dismissed a derivative suit brought by shareholders of an Alaska Native Claims Settlement Act (ANCSA) village corporation. The plaintiffs sued without first making the pre-suit demand Alaska law requires. After the superior court dismissed the complaint for mootness, both sides sought attorney's fees and costs. Concluding that the shareholders did not prove that a pre-suit demand was excused, the superior court held that they were not prevailing parties and denied their attorney's fees motion. Finding that the defendant directors were prevailing parties, the court awarded them Alaska Civil Rule 82 attorney's fees against the plaintiff shareholders, and ordered the corporation to indemnify them under AS 10.06.490(c). Because the superior court did not err in holding that the shareholders did not prove that a demand was excused, we affirm the denial of the plaintiffs' fees request. But because the directors did not establish that they were Rule 82 prevailing parties, we vacate their attorney's fees award. And because they did not establish that they were "successful" litigants, we hold that they were not entitled to indemnification under AS 10.06.490(c).

II. FACTS AND PROCEEDINGS

Carl J. Jerue, Jr. and Ernie Demoski, Sr. ("plaintiff shareholders") are shareholders of Ingalik, Incorporated, the ANCSA village corporation for the Native village of Anvik. Gloria Millett, Kenneth Chase, Shannon Chase, and Ted Kruger, Jr. ("defendant directors") were members of Ingalik's board of directors as of January 1998. On January 12, 1998 the Alaska Department of Commerce and Economic Development issued the corporation a Certificate of Involuntary Dissolution, citing the corporation's failure to file a biennial report or pay taxes.

On January 22, 1998 the plaintiff shareholders filed a derivative complaint against the defendant directors, alleging financial mismanagement and other wrongdoing. The complaint asked the court to compel the defendant directors to hold an annual shareholders' meeting to elect a new board of directors; to appoint Jerue as an interim director with authority to take whatever action was necessary to reinstate the corporation; and to issue a temporary restraining order prohibiting the defendant directors from "winding up" the corporation's affairs and distributing any corporate assets. Summonses were issued for the individual defendants on January 22, 1998.

In January Ingalik made reinstatement efforts; it returned to good standing with the state and was reinstated on February 6, 1998.

On April 6 the directors moved to dismiss. They argued that the plaintiff shareholders had not demonstrated that their failure to make a demand on the board was excused. They also argued that the complaint was moot because the corporation had been reinstated, it had scheduled an annual meeting, and its reinstatement meant its assets would not be distributed.

Ingalik held an annual shareholders' meeting on April 25. The shareholders reorganized the board by electing new directors, including both plaintiff shareholders; only one incumbent, defendant Kruger, was reelected. The new board met the next day and passed resolutions authorizing the corporation to join the lawsuit as a party plaintiff and denying indemnification to the defendant directors.

The plaintiff shareholders then asked the superior court to join Ingalik as a party plaintiff; the court did so on June 8. But on the same day, it also entered an order dismissing the derivative suit with prejudice. It retained jurisdiction for the purpose of determining prevailing party status and awarding costs and attorney's fees.

The defendant directors moved for a Civil Rule 82 fees award against the plaintiff shareholders individually; they also sought an order requiring Ingalik to indemnify their litigation costs under AS 10.06.490(c). The plaintiff shareholders and Ingalik (the "plaintiffs") opposed these requests and, claiming that they were the prevailing parties because the requested relief was achieved, cross-moved for an award of fees against the defendant directors under Civil Rules 23.1(j) and 82(a). Both sides relied on numerous documents in addition to their pleadings.

Following oral argument, the superior court ruled for the defendant directors on the fees and costs motions. It reasoned that the plaintiff shareholders had the burden of proving that they were excused from making the formal pre-suit demand Civil Rule 28.1(c) requires; it also reasoned that the directors' alleged practices gave rise to "any number of conflicting inferences" and "by no means" demonstrated that a majority of the directors were implicated in an injury to the corporation. It therefore concluded that a demand was not excused, that the defendant directors were entitled to dismissal under Civil Rule 28.1(d), and that the defendant directors were the prevailing parties under Civil Rule 82. It also concluded that the defendant directors' prevailing party status entitled them to full indemnification from the corporation under AS 10.06.490(c).

The judgment awarded the defendant directors $26,656.96 against Ingalik under AS 10.06.490(c) to indemnify their attorney's fees and costs, and $3,804.16 against Jerue and Demoski individually as costs and Rule 82 attorney's fees. The award against Ingalik included the amount awarded against the individual plaintiff shareholders, and the judgment prevented the directors from recovering more than the total amount awarded against Ingalik.

Ingalik and the plaintiff shareholders argue on appeal that the superior court erred by (1) failing to award them costs and fees under Civil Rules 82 and 28.1() and AS 10.06.485(j); (2) granting costs and Civil Rule 82 attorney's fees to the defendant directors against the plaintiff shareholders; and (8) requiring the corporation to indemnify the defendant directors under AS 10.06.490(c).

III. DISCUSSION

A. - Standard of Review

We apply our independent judgment to questions of statutory interpretation and must "adopt the rule of law that is most persuasive in light of precedent, reason, and policy."

For reasons we discuss in Part III. B.2, we review for abuse of discretion the superior court's fact-based determination that the plaintiff shareholders did not prove that a pre-suit demand was excused. The legal effect of that finding on the plaintiffs' motion for an award of litigation expenses presents a question of law which we review by applying our independent judgment.

Because it presents questions of law, we apply our independent judgment in reviewing the ruling that, because the plaintiff shareholders failed to prove that a demand was excused, the defendant directors were the prevailing parties under Rule 82(a). A determination of prevailing party status under Rule 82(a) will not be overturned unless it is manifestly unreasonable. We apply our independent judgment in reviewing the ruling that the defendant directors' prevailing party status entitled them to AS 10.06.490(c) indemnification, because this ruling presents a question of law.

B. Denial of Costs and Attorney's Fees to the Plaintiffs

Jerue, Demoski, and Ingalik first argue that it was error not to award them costs and attorney's fees against the defendant directors. They reason that they secured the relief their complaint sought, rendering the derivative suit "successful"; this made them, not the directors, the prevailing parties, entitling them to recover costs and fees from the defendant directors under Civil Rules 82(3) and 28.1(j) and AS 10.06.485(J).

Alaska Statute 10.06.4835(J) and Alaska Civil Rule 28.1(J) permit awards of expenses, including attorney's fees, to derivative suit plaintiffs, The statute and the rule are identical, They provide in pertinent part that "lf the derivative action is successful, in whole or in part, or if anything is received as a result of the judgment, compromise, or settlement of that action, the court may award to the plaintiff or plaintiffs reasonable expenses, including reasonable attorney fees."

Civil Rule 28.1(j) is a fee-sharing rule. It requires the corporation benefitted by a derivative suit to share the expense incurred by the plaintiff shareholders in achieving the benefit for the corporation. It reaches this result by requiring the corporation to reimburse the plaintiff shareholders. Because it is a fee-sharing rule, Rule 28.1(j) does not give the corporation itself a claim for fees or provide for an award against individual defendants. Moreover, here In-galik's successor board adopted a resolution authorizing Ingalik to reimburse "all legal fees and costs" incurred in behalf of Jerue and Demoski. Because the corporation has voluntarily agreed to share any litigation expense incurred by or for Jerue and Demoski individually, Rule 28.1(j) has no further direct application to this case: Its fee-sharing purpose was achieved without court order.

To illustrate the true nature of Ingalik's fees claim, we assume that a Rule 28.1(j) fees award could indirectly give rise to a corporate claim against derivative suit defendants. Thus, perhaps a corporation ordered under Rule 23.1(j) to reimburse successful derivative-suit plaintiffs could seek indemnification, possibly on a subrogation theory, from the defendant officers or directors whose acts were the basis for the derivative suit and the Rule 23.1(j) award. But the court did not order Ingalik to pay those expenses; the corporation voluntarily agreed to pay them by resolution of April 26, 1998. And a subro-gated claim would give the corporation no greater rights than the plaintiff shareholders had. In short, no plaintiff in this case has a claim against these defendants under Rule 28.1).

Unlike Rule 23.1(j), Rule 82(a) is a fee-shifting rule. Rule 82(a) provides for an award of attorney's fees to "the prevailing party." - It is the proper framework for considering whether the defendant directors should reimburse attorney's fees directly incurred by Ingalik and attorney's fees incurred by or for Jerue and Demoski and potentially recoverable by Ingalik under an assignment or subrogation theory.

Because this is a shareholder derivative action, the question whether the plaintiffs were "prevailing parties" under Rule 82(a) ultimately depends at least in part on the principles that determine whether a shareholder derivative suit has been "successful." As we will see, this question turns on whether the superior court erred in concluding that the shareholders did not establish that their failure to make a demand on the board before suing was excused. This is so because, even though the plaintiff shareholders' litigation goals were achieved, there was a dispute about why they were achieved.

The shareholders filed suit in late January 1998 seeking reinstatement of the corporation and a shareholders' meeting at which new directors could be elected. The state reinstated the corporation in early February 1998. This prevented dissolution and distribution of corporate assets. The corporation held a shareholders' meeting to elect directors in April 1998. The relief the complaint sought was thus achieved, and in June the superior court dismissed the complaint with prejudice, apparently because the complaint was mooted by the corporation's reinstatement and the annual meeting.

We assume that derivative suit plaintiffs may not necessarily be ineligible to recover litigation expenses under Rule 28.1(J) even though a court dismisses their lawsuit after the board's remedial actions moot their derivative suit claims. Filing suit may force a recalcitrant board to act, securing a valuable benefit to the corporation. This may also be sufficient to make plaintiff shareholders (and a plaintiff corporation for whom they acted) "prevailing parties" for Rule 82(a) purposes.

We think that whether plaintiff shareholders are "prevailing parties" in a shareholder derivative action should turn on whether their lawsuit is "successful in whole or in part." If a corporate benefit is achieved, the focus is on the causal relationship between the lawsuit and the benefit.

We assume here that the individual plaintiffs and Ingalik were benefitted by actions-reinstating the corporation and holding the annual meeting-taken after the plaintiff shareholders sued. But were these actions the result of the suit? Or would they have been taken if the shareholders had made a formal demand before suing? Or, indeed, would they have been taken even absent either a pre-suit demand or any suit at all?

As we will see, the superior court's rejection of Jerue and Demoski's assertion that a demand was excused resolves these questions for purposes of the plaintiffs' motion for costs and attorney's fees. *

1. The requirement of a pre-guit formal demand

Before filing a shareholder derivative suit, a plaintiff is required by AS 10.06.485(c) and Civil Rule 28.1(c) to make a formal demand on the board "to secure the action the plaintiff desires," unless that demand is "excused." The statute and the rule excuse the demand requirement if "a majority of the directors is implicated in or under the direct or indirect control of a person who is implicated in the injury to the corporation."

The statute and the rule require a shareholder who fails to make a formal demand to plead "with particularity" the facts establishing exeuse. The statute and the rule also impose on a shareholder opposing a motion to dismiss the burden of establishing excuse: "In a motion to dismiss for failure to make demand on the board the shareholder shall have the burden to establish exeuse.

Jerue and Demoski argue that they satisfied these requirements, despite their failure to make any pre-suit demand on the board; they assert that a demand would have been "futile."

The demand requirement is an important aspect of corporate democracy. Among other things, it gives the corporation a fair opportunity to decide whether to take action directly and to receive the proceeds of any recovery. And it gives the corporation an opportunity to remedy problems internally, without exposing it to avoidable litigation expense. The FuEetouEr CycLoPEDIA discusses the demand requirement:

The particularized pleading requirements are designed to strike a balance between a shareholder's claim of right to assert a derivative claim and a board of director[s'] duty to decide whether to invest resources of the corporation in pursuit of the shareholder's claim of corporate wrong. But the requirements of demand futility and refusal of demand are predicated upon and inextricably bound to issues of business judgment and standards of that doctrine's applicability. The demand requirement in derivative proceedings serves as a form of notice to the corporation. It is designed to assure that the shareholder affords the corporation the opportunity to address the alleged wrong without litigation and to control any litigation which does occur. It also provides a safeguard against abuse that could undermine the basic principle of corporate governance that the decisions of a corporation, including the decision to initiate litigation, should be made by the board of directors. A determination on a motion to dismiss, whether based on demand refused or demand excused, involves essentially a discretionary ruling on a predominantly factual issue.
The demand should provide the directors with sufficient information regarding the standing of the plaintiff, the relief sought, and the grounds for relief. In some states, the demand must be in written form. The directors have a reasonable time within which to investigate the claim and to make a decision, although some state statutes set forth a final time period. The demand inquiry and authority to respond may be delegated to a special litigation committee.[]

2. - Applicable standard of review

We have never before addressed the demand requirement of AS 10.06.485(c) and Civil Rule 28.1(c), and have consequently never adopted a standard for reviewing a conclusion that shareholders did not meet their burden of establishing excuse.

Most appellate courts review for an abuse of discretion a trial court's determination that the demand requirement was not excused. They typically apply that standard because determining the necessity of a demand is a fact-based inquiry. For example, in Lewis v. Graves, the United States Court of Appeals for the Second Circuit, applying the federal analog to Alaska Civil Rule 28.1, held that "the decision as to whether a plaintiff's allegations of futility are sufficient to exeuse demand depends on the particular facts of each case and lies within the discretion of the district court.

Until recently, the mother court of corporate law, the Delaware Supreme Court, followed the same approach. But in Brehm v. Eisner, that court, applying the Delaware counterpart to Alaska Civil Rule 28.1, held that this issue is subject to de novo review. The court stated that a Rule 28.1 determination of pleading sufficiency this Court[ ] is merely reading the English language of a pleading and applying to that pleading statutes, case law and Rule 28.1 requirements. To that extent, our scope of review is analogous to that accorded a ruling under Rule 12(b)(6).

In comparison, the United States Court of Appeals for the Third Circuit applies a mixed standard of review. In Garber v. Lego it stated:

To the extent that we are reviewing the district court's determination of demand futility based upon the facts of this case, the scope of our review is for abuse of discretion. Our review of the legal precepts employed by the district court and of its interpretation of those legal precepts is plenary.[]

We choose to follow the Third Cireuit, and therefore adopt a mixed standard of review. We agree with the Delaware Supreme Court that it is a question of law whether pleadings satisfy a legal standard, such as the demand requirement. But the question of demand excuse potentially also involves fact-based analysis which is better reviewed under the abuse of discretion standard. This case demonstrates the factual nature of these disputes. A mixed standard of review recognizes that the superior court made both legal and factual determinations when it ruled, after considering materials beyond the pleadings, that the shareholders did not prove that demand was excused.

3. Excusing the failure to make a pre-suit demand

The pre-suit demand required by AS 10.06.485(c) and Alaska Civil Rule 28.1(c) is excused if "a majority of the directors is implicated in or under the direct or indirect control of a person who is implicated in the injury to the corporation."

Delaware and the federal courts frame the exception to the demand requirement in terms of futility. In those courts, making a demand is considered futile and thus excused where corporate officers and directors are under an influence rendering them incapable of making decisions for the corporation. Courts following the futility-of-demand principle apply procedural rules that differ from Alaska Civil Rule 28.1. Federal Civil Rule 28.1 and Delaware Chancery Court Rule 28.1 are very similar to each other and with regard to the demand requirement are nearly identical, Their pleading requirements implicitly address futility, but do not specify criteria for deciding when futility excuses a failure to make a demand:

The complaint shall also allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and the reasons for the plaintiff's failure to obtain the action or for not making the effort.[]

It is not necessary in this case to decide whether excuse in Alaska is the same as excuse elsewhere. Alaska Statute 10.06.485(c) and Alaska Civil Rule 28.1(c) were not modeled after a specific state provision or model code. Although our standard is similar to that applied in some other jurisdictions to discern when demand would be futile, the plain text of our rule provides a specific test for exeuse: establishing that a majority of the directors are "implicated in the injury to the corporation." The Alaska Code Revision Commission's study of Alaska's proposed revised Corporations Code before it was enacted in 1988 supports this interpretation:

Section 485¢ requires that a qualified shareholder make a demand upon the board to secure such action as the plaintiff desires, unless the shareholder can show that such demand would be futile. Under Section 4385(d), the burden to establish excuse is upon the plaintiff-shareholder. If a demand on the board is not exeused, Section .485(e) provides that a decision by the board, consonant with its duties of care and loyalty, that in its business judgment such litigation would not be in the best interest of the corporation, terminates the right created by Section .485(a). A shareholder is thereafter precluded from offering evidence that any or all of the directors who have decided that the litigation not go forward are implicated in the wrong complained of.[]

4, Demand in this case

Because the superior court did not base its denial of the shareholders' fees motion on the sufficiency of their complaint, it is unnecessary to decide whether their complaint sat-isfled the requirement that it "state with particularity the facts establishing excuse. ..." The court instead ruled after it reviewed the documents the parties submitted or discussed when they briefed the excuse issue in their competing motions for attorney's fees. The superior court held that "the practices complained of give rise to any number of conflicting inferences-but by no means demonstrate that 'a majority of the directors [were] ... implicated in [an] injury to the corporation. "

Moreover, because there was no injury to the corporation, the superior court did not abuse its discretion by so holding. The plaintiff shareholders submitted numerous documents to support their request for attorney's fees and to oppose the defendant directors' requests for attorney's fees and indemnification. But these materials and the remainder of the undisputed record did not establish that the board would have rejected a demand to reinstate the corporation and hold the annual meeting. Nor did they establish that the lawsuit achieved these benefits. Instead, the record contains evidence that would have permitted a finding that the board would have reinstated the corporation and held the meeting whether or not there was a demand or a lawsuit. This included evidence (attached to the plaintiffs' complaint or found in affidavits they submitted to the superior court) that the defendant directors had attempted to hold the annual meeting as recently as the prior fall; that they had met only thirty-six days before the plaintiffs filed suit; that even before the plaintiffs sued, the defendant directors had written the corporation's shareholders to encourage them to fill vacancies on the board until the next annual meeting and election; that they had already scheduled a shareholders' meeting for June; and that when the corporation had failed to pay its taxes in the past, on each occasion it was reinstated and its assets were not liquidated. Moreover, plaintiffs' exhibits listed corporate checking account transactions; one is for a January 7, 1998 check payable to the State of Alaska for "biennal [sic] filing fee," suggesting that the directors had taken steps to reinstate the corporation weeks before plaintiffs filed suit.

5. How the unexcused failure to make demand affects plaintiffs' attorney's fees motion.

The plaintiff shareholders cannot recover litigation expenses because their case was dismissed for mootness before they either made a demand or proved that demand was excused. Failure to prove that demand was excused necessarily means that they did not show that the corporation would not have been reinstated and that the annual meeting would not have been held if they had not sued. Because the court dismissed their action for mootness, the plaintiffs could not recover litigation expenses unless they showed that their suit was "successful," ie., that it conferred some measurable benefit on the corporation even though the court dismissed their complaint. But by failing to prove that a demand was excused, they nee-essarily failed to establish that the board would not have reinstated the corporation and held the annual meeting but for the lawsuit.

In the narrow context of derivative suits, failure to make a demand or prove that demand was excused is fatal to an award of attorney's fees and costs because a pre-suit demand might have prompted remedial action without need for litigation. The policy rationale of the demand requirement dictates this result. Demand is required to give a corporation the opportunity to rectify an alleged wrong without litigation and to control any litigation which does arise. Awarding litigation expenses without a demand or proof of demand excuse would undermine the demand requirement and these policy objectives. Moreover, the modern reality of large corporations requires this result. At any given moment a large corporation may be the subject of a number of derivative suits filed by shareholders. In this context, almost any action taken by a corporate board could arguably satisfy some - plaintiffs - lawsuit. Awarding fees without requiring demand or proof of demand excuse would open corporations to unwarranted fees claims predicated on unrelated corporate actions.

In this case, without proof of demand excuse, and particularly given Ingalik's past course of corporate events, the trial court permissibly might have found that this corporation would have been reinstated and the meeting held even without a demand or a lawsuit. Therefore, the shareholders' failure to prove that demand was excused meant that they did not prove that the derivative suit was "successful." This meant that Jerue and Demoski were not entitled to an award of attorney's fees and costs.

An inverse hypothetical helps demonstrate the significance of failing to make a demand or prove demand excuse. Consider a dissenting shareholder whose attorney makes a timely demand upon directors before filing a derivative suit. If the directors promptly take curative action that satisfies the shareholder's concerns, there would be no suit and clearly no attorney's fees awarded to the shareholder. This illustrates the importance of the demand requirement and explains why we must affirm the denial of fees to Jerue and Demoski. The reasoning is twofold: First, if the hypothetical shareholder who satisfies the demand procedure is not entitled to attorney's fees, it is inequitable to award fees to shareholders who failed to make a demand or prove that it was excused. Second, awarding fees to Jerue and Demoski would undermine successful operation of the demand requirement as illustrated above, and encourage wasteful litigation that could have been avoided if demand were properly made.

Ingalik has not clearly explained on what theory it should be awarded fees. It must demonstrate its prevailing party status to recover fees under Rule 82(a). But if the plaintiff shareholders who asserted claims in the corporation's behalf are not prevailing parties, we do not see how the corporation can be a prevailing party as to those claims, either. Any attorney's fees claim Ingalik could pursue under subrogation or assignment theories to recover its voluntary payment of Jerue and Demoski's fees would be subject to the considerations that bar Jerue and Demoski's fees motion. Ingalik apparently also seeks an award for the post-Jjoin-der fees it incurred directly. But because Ingalik did not become a party plaintiff until after the events occurred that mooted the derivative suit, it is not a prevailing party for purposes of recovering those fees, either.

We therefore conclude that the superior court did not err in denying the plaintiffs' attorney's fees motion.

C. The Defendant Directors' Rule 82 Attorney's Fees Award

The superior court awarded the defendant directors Rule 82 prevailing party attorney's fees against Jerue and Demoski. In arguing that this was error, Jerue and Demoski contend in part that they, not the directors, were the prevailing parties because their complaint was dismissed for mootness and because they "accomplished what they had hoped to with this litigation." They assert that the "burden was on the former management to argue and show that the annual meeting ... would have happened without the suit."

A litigant seeking Rule 82 attorney's fees must show that it is the prevailing party.

We first reject the directors' assertion that, because the superior court granted their motion to dismiss with prejudice, they were the prevailing parties. Because the court dismissed the complaint for mootness, it is no more likely that the directors achieved their litigation goals than the plaintiffs.

The court apparently based its finding that the directors were the prevailing parties on its October conclusion that the shareholders had not proved that demand was excused. This conclusion did not alter the reason for the June dismissal or turn the dismissal order into a ruling on the merits. Dismissing for mootness did not explicitly or implicitly resolve the issue of who prevailed, and indeed, the court stated it was retaining jurisdiction to decide "prevailing party status." That question turned on an issue-whether demand was excused-the court had not resolved in June.

We assume for discussion's sake that if a shareholder derivative lawsuit were the only reason directors took remedial actions bene-fitting a corporation and mooting the complaint, the directors would not be the prevailing parties. And as we noted in Part IILB, under some circumstances plaintiffs may be able to recover attorney's fees in at least some types of cases dismissed for mootness. But the ruling that these plaintiffs did not bear their burden of proving excuse did not amount to a finding that the board would have heeded a pre-suit demand or that its remedial actions were unrelated to the lawsuit.

In general, we are reluctant to encourage parties in a lawsuit dismissed for mootness to litigate the merits only to establish for Rule 82 purposes who would have been the hypothetical prevailing party. Rule 82 is only intended to partially compensate prevailing parties, not to provide an incentive for merits litigation that would not otherwise take place.

Evidence, discussed in Part III.B.4, would have permitted a finding that the directors would have cured the corporate deficiencies absent the lawsuit. But the memorandum opinion awarding fees did not refer to this evidence. And it did not find that the directors would have remedied the deficiencies either spontaneously or in response to a pre-suit demand. Nor did it find that the actions that mooted the complaint and benefitted the corporation were not attributable to the lawsuit. The evidence would not have compelled such findings. The directors provided no direct evidence why they acted, and no director offered an affidavit explaining why the old board acted. The superior court recognized when it denied the shareholders' Rule 28.1(J) attorney's fees motion that there were conflicting inferences about whether a majority of the directors were implicated in an injury to the corporation. These conflicting inferences were also relevant to the reasons the board acted.

In summary, the plaintiffs' failure to meet their burden of proving that a formal demand was excused did not necessarily mean that the directors were the prevailing parties. Because the complaint was dismissed as moot shortly after its filing as a result of the defendants' apparently responsive actions, it would be unrealistic to treat the directors as prevailing parties unless they demonstrated why the suit became moot, ie., why the corporation was reinstated and the annual meeting was accelerated. Notwithstanding other evidence permitting conflicting factual inferences, the directors offered no direct evidence why things were done that gave the plaintiffs the relief they requested. Because we conclude as a matter of law that the directors did not meet their burden of proof on the issue of prevailing party status, we vacate their Rule 82 attorney's fees award and remand for entry of a corrected judgment.

D. The Directors' Statutory Indemnification Award

The superior court ruled that the directors' "prevailing party status also" entitled them under AS 10.06.490(c) to full indemnification from Ingalik. The plaintiff shareholders and Ingalik argue that because the court did not find the election and all subsequent board action to be invalid, the business judgment rule required the court to enforce the new board's resolution that denied indemnification to the defendant directors. The defendant directors respond that because indemnification under AS 10.06.490(c) was mandatory, the board had no authority to adopt a resolution denying them indemnification.

This issue turns on whether the defendant directors satisfied their burden of demonstrating that they were entitled to indemnification under AS 10.06.490(c). We conclude that they did not. We therefore vacate the indemnification award and remand for entry of a corrected judgment.

It appears that indemnification is mandatory if the conditions of AS 10.06.490(c) are met, because that subsection provides that a corporate director who "has been successful on the merits or otherwise" in defense of certain lawsuits-including derivative suits-"shall be indemnified." We assume that if this subsection applies, mandating indemnification, the board has no discretion to adopt a resolution denying indemnification.

But to be eligible for mandatory indemnification under AS 10.06.490(c), these defendant directors had to have "been successful on the merits or otherwise in defense of an action...." The defendant directors did not demonstrate that they successfully defended the litigation on its "merits or otherwise"; they simply obtained dismissal of the complaint, apparently by providing the relief the complaint sought. As discussed in Part IIIC, above, the defendant directors did not establish why the remedial actions were taken. The conflicting inferences about how the lawsuit came to be mooted also pertain to the issue whether the directors successfully defended the litigation. Because the defendant directors did not establish why action was taken that mooted the complaint, they did not meet their burden of establishing a right to mandatory indemnification under AS 10.06.490(c). The plaintiffs' failure to prove that a demand was excused does not mean that the defendant directors must have been "successful" in defending the suit. The complaint was dismissed for mootness, not on a theory demand was unexcused.

Few cases discuss equivalent situations. Courts requiring mandatory indemnification under substantially identical statutes do so when the defendant achieves success on the merits or otherwise, including termination of claims by agreement without any payment or assumption of liability. Courts are relue-tant to ask why the result was achieved. But in those cases, it appears that the defendants did nothing to achieve the dismissal; they certainly paid no consideration, and they took no corrective action that mooted the lawsuits.

Because the superior court did not apply the statutory standard for determining whether the defendant directors were entitled to indemnification under AS 10.06.490(c), we must vacate the indemnification award. And because the directors simply asserted below that the dismissal with prejudice entitled them to indemnification, they failed to establish that the dismissal was not attributable at least in part to a desire to resolve the lawsuit. We therefore remand for entry of a corrected judgment that deletes the indemnification award.

IV. CONCLUSION

The plaintiff shareholders are not prevailing parties because the court found that their failure to make a demand was not excused. In the absence of a demand, it is uncertain whether the defendant directors would have responded to a demand as they responded to the lawsuit, affording the plaintiffs the relief they sought. Although the suit might factually have brought about the relief, this is not enough. Plaintiffs must show that a demand would not have resulted in the same relief. Because this is difficult to show and the difficulty is a product of their failure to make a demand, they can not be regarded as prevailing parties.

The defendant directors are not prevailing parties because they did not prove that the lawsuit was not a cause of the remedial action they took, or that if a demand had been made they would have taken the remedial action.

For these reasons, we (1) AFFIRM the superior court's holding that the plaintiff shareholders were not prevailing parties and were consequently not entitled to attorney's fees under Civil Rules 28.1 and 82; (2) VACATE the award of costs and Civil Rule 82 attorney's fees to the defendant directors against the plaintiff shareholders; (8) VACATE the defendant directors' award of indemnification under AS 10.06.490(c); and (4) REMAND for entry of a corrected judgment reflecting that all parties are to bear their own costs and attorney's fees.

CARPENETI, Justice,

dissenting.

I agree with the court's conclusion that the plaintiffs were not exeused from the requirement that they make a demand on the corporation before filing suit, and that their failure to make a demand precludes their recovery of attorney's fees. But because a review of the record shows that the superior court dismissed the complaint precisely because the plaintiffs failed to carry their burden of showing that their failure to make a demand was excused, I dissent from Parts III.C. and IILD of today's ruling.

In vacating the superior court's award of attorney's fees to the defendant directors, today's opinion assumes that the superior court dismissed the complaint for mootness: "[In June the superior court dismissed the complaint with prejudice, apparently because the complaint was mooted by the corporation's reinstatement and the annual meeting." It concludes that a dismissal for mootness did not establish that the defendant directors were the prevailing parties The court's assumption that the complaint was dismissed for mootness is incorrect.

A review of the record shows that, at the time the case was dismissed, the superior court did not specify a reason for its action. Under our well-established case law, when a trial court does not specify a reason for its decision, we may review the record and affirm if any basis for the court's action is supported by the record. Moreover, by the time of its final ruling, the superior court unmistakably based its decision on the plaintiffs' unexcused failure to make a demand on the corporation.

Although unspoken, the court's opinion today suggests that, onee a superior court announces a rationale for its decision, it may not change it. But this is not the law. We have consistently upheld the proposition that one superior court judge who inherits a case from another superior court judge is free to reexamine and reverse an earlier decision in that case if convinced that it is erroneous: "[Ilt [is] entirely reasonable for a judge whose responsibility it is to try a case to reconsider and reverse an earlier ruling if convinced that that ruling was erroneous."

If one judge may reconsider and reverse a predecessor judge's ruling in a case, then a fortiori a single judge may reconsider and modify the basis for his or her own earlier ruling in a case. That is what happened in this case, as a review of the record shows.

The record establishes: (1) that the defendants proposed three reasons to dismiss the case; (2) that the superior court dismissed the case without specifying the reason for the dismissal; (8) that at the same time the court declined to award attorney's fees to either side but set the matter on for a hearing; (4) that at the beginning of the hearing the court suggested one basis for the dismissal, mootness; but (5) during the hearing the court suggested a different basis for the dismissal; and (6) that by the time of its written order shortly thereafter the superior court unambiguously held that it dismissed the case because demand was not excused. I examine each of these events in turn.

Defendant directors offered three reasons for dismissing the case. The first, and most extensively argued, was that the plaintiffs had not shown that their failure to make a demand on the corporation was excused. Accordingly, we can uphold the dismissal on this ground. Indeed, the court today rests its affirmance of the superior court's denial of attorney's fees to plaintiffs on this very ground.

It is true that, at the time the superior court granted the motion for dismissal, it did not state a reason for its decision; it even modified the defendant's proposed order by striking language awarding fees to the defendants. Rather, in what can only be de-seribed as a cautious approach to a difficult issue, the court "retainfed] jurisdiction to determine prevailing party status and to award costs and fees as may be appropriate."

At the commencement of the hearing to address the question of attorney's fees, it is also true that the superior court suggested that mootness might be the grounds for its action. But during the course of the hearing the superior court, through its probing of counsel for both sides, made quite clear that it considered the plaintiffs' failure to make a demand, and the lack of excuse for that failure, to be critical to its earlier decision to dismiss. For example, the court stated, "Rule 28.1 says [the plaintiffs] bear the burden of proving that the demand was excused." Later, the court noted that "[the demand is the part of this case that's giving me the biggest problem right now. What have you done to bear the burden of proving that the demand was excused in this case?" Finally, the court observed, if the plaintiffs were alleging inaction "on the part of the directors, isn't it just commonsensical that you would first ask them to take the action you want?"

All of these statements call into question this court's conclusion that the superior court dismissed the case on mootness grounds. And, by the end of the hearing and the filing six days later of the superior court's written decision, it is quite clear that the court had dismissed the case on the basis of the plaintiffs failure to show that their lack of demand was excused:

Under Alaska R. Civ. P. 28.1(d), a shareholder who files suit without having made the formal demand contemplated by Rule 23.1(c) bears the burden of proving that demand was excused.... Demand was not exeused and defendants were thus entitled to dismissal pursuant to Alaska R. Civ. P. 28.1(d). Consequently, they must be recognized as the "prevailing party" entitled to recover attorney's fees.

Thus, while the superior court's original order of dismissal did not specify the grounds for dismissal, the court plainly stated in its final order after the hearing to determine the prevailing party that the plaintiffs failure to make a demand "was not exeused and defendants were thus entitled to dismissal pursuant to Alaska R. Civ. P. 28.1(d)."

In sium, the whole record establishes that the superior court dismissed the case due to the plaintiffs failure to make a formal demand. Because the superior court's ruling on the merits was that the plaintiffs failed to show that the demand requirement was excused, the director defendants were successful on the merits and were the prevailing party. Also, because the director defendants were successful on the merits, they are entitled to mandatory indemnification. I would, therefore, affirm the judgment of the superi- or court in its entirety. At the very least, given our demonstrated uncertainty concerning the basis for the superior court's decision, we ought, in fairness to the superior court, to remand the case and allow the superior court to make clear the basis upon which it dismissed the case.

      This opinion replaces Opinion No. 5650 issued December 13, 2002. In response to appellees' petition for rehearing, the court adds footnote 56.

      . - Brandon v. State, Dep't of Corr., 938 P.2d 1029, 1031 (Alaska 1997) (citation omitted).

      . Guin v. Ha, 591 P.2d 1281, 1284 n. 6 (Alaska 1979).

      . Garber v. Lego, 11 F.3d 1197, 1200 (3d Cir.1993).

      . Mathis v. Sauser, 942 P.2d 1117, 1120 (Alaska 1997) (citation omitted).

      . Ashley v. Baker, 867 P.2d 792, 796 (Alaska 1994) (citation omitted).

      . We initially reject defendant directors' argument that because plaintiffs are appealing the October 1998 prevailing-party ruling and not the merits of the June 1998 order dismissing their complaint, they have waived their right to challenge the ruling that they did not prove that demand was excused. The June 8, 1998 dismissal order retained jurisdiction to determine prevailing party status and to award costs and fees. Plaintiffs correctly argue that they could wait and appeal the superior court's final judgment, which was first entered on October 7, 1998. Plaintiffs did not appeal (and had no reason to appeal) the underlying dismissal because the goals of their lawsuit had been achieved.

      . The minutes of the April 26, 1998 board meeting indicate that the Anvik Tribal Council, a non-party, initially paid some or all of plaintiff shareholders' attorney's fees. Defendant directors have not argued that this circumstance precludes plaintiff shareholders' Rule 82 claim.
      But circumstances bearing on how legal fees and costs were to be paid may be relevant for other reasons we discuss below. Plaintiffs' counsel submitted affidavits and attachments demonstrating that legal fees totaling $26,073 had been incurred by the "plaintiffs" as of June 30, 1998. Of that, the Anvik Tribal Council had paid fees totaling $15,000, plaintiffs' counsel's law firm had advanced an additional $7,670.70 in services, and Ingalik had agreed to pay for services, worth $4,341, the law firm provided after Ingalik sought to became a party plaintiff The fees incurred by or for Jerue and Demoski individually thus totaled $22,670.70. By resolution, Inga-lik's new board agreed to reimburse the Anvik Tribal Council and the law firm for the legal services provided to Jerue and Demoski.

      . - Alaska Civil Rule 23.1(j) provides:
      If the derivative action is successful, in whole or in part, or if anything is received as a result of the judgment, compromise, or settlement of that action, the court may award to the plaintiff or plaintiffs reasonable expenses, including reasonable attorney fees, and shall direct an accounting to the corporation for the remainder of the proceeds. This subsection does not apply to a judgment rendered only for the benefit of injured shareholders and limited to a recovery of the loss or damage sustained by them.
      The text of AS 10.06.435(j) is identical.

      . It appears that Alaska Civil Rule 23.1(j) is modeled after New York Business Corporation Law § 626(e), which provides:
      If the action on behalf of the corporation was successful, in whole or in part, or if anything was received by the plaintiff or plaintiffs or a claimant or claimants as the result of a judgment, compromise or settlement of an action or claim, the court may award the plaintiff or plaintiffs, claimant or claimants, reasonable expenses, including reasonable attorney's fees, and shall direct him or them to account to the corporation for the remainder of the proceeds so received by him or them. This paragraph shall not apply to any judgment rendered for the benefit of injured shareholders only and limited to a recovery of the loss or damage sustained by them.
      The New York courts have interpreted this provision to provide for fee-sharing, but not fee-shifting. See, eg., Glenn v. Hoteltron Sys., Inc., 74 N.Y.2d 386, 547 N.Y.S.2d 816, 547 N.E.2d 71, 75 (1989) (holding that New York provision with language nearly identical to Civil Rule 23.1(}) was what we would call "fee-sharing," not "fee-shifting" provision-i.e., that litigation expenses awarded under provision are to be borne by corporation, not "losing party"). Citing Glenn, the Cyctorron states, "The obligation to reimburse expenses to a shareholder who brings a successful derivative action should be the obligation of the corporation, and not the obligation of the defendants." 13 Tmotay P. Biur & James Sormem, Frerener or tHE Law or Private Corporations § 6044, at 357 (1995 rev.) While the semantic distinction between "fee sharing" and "fee shifting" does not seem to be similarly observed by the Delaware Supreme Court, it is worth noting that under Delaware corporate law, what we call fee sharing (but which the Delaware Supreme Court considers fee shifting-even in cases where the litigation creates, and the fees are collected from, a common fund) can, provided that a three-part test is met, remain available to plaintiffs even in the event a derivative suit is dismissed as moot. See Waterside Partners v. C. Brewer & Co., 739 A.2d 768, 769-70 (Del.1999) (holding first, that "fee shifting" [what this court would call fee sharing] was not appropriate where common benefit was conferred on corporation through successful proxy contest parallel to but outside context of derivative litigation, and second, that policy embracing fee shifting in cases in which benefit to corporation was created outside litigation context would have "no limiting principle"). Despite the semantic complications between fee sharing and fee shifting, and Delaware's willingness to consider what we would call fee sharing in cases where derivative suits are dismissed as moot, Delaware appears to have no rule like Alaska Civil Rule 23.1(j) or statute like AS 10.06.435(j) or N.Y. Bus. Corp. L. § 626(e). Given the apparent derivation of the Alaska statute and rule, we read Rule 23.1(j) to provide only for fee-sharing. Our existing fee-shifting rule, Rule 82(a), adequately deals with attempts to recover litigation expenses from defendants in derivative suits.

      . See, eg., Glenn, 547 N.Y.S.2d 816, 547 N.E.2d at 71.

      . See Municipality of Anchorage v. Gallion, 944 P.2d 436, 445-48 (Alaska 1997) (differentiating between fee-sharing and fee-shifting rules); Edwards v. Alaska Pulp Corp., 920 P.2d 751, 755 (Alaska 1996).

      . The June dismissal order did not specify the ground for dismissal. But during the October oral argument on the attorney's fees motions, the superior court announced:
      We should certainly proceed on the assumption that the dismissal was on mootness grounds, and the reason I say that is because it would have made no sense at all to reserve decision on prevailing party status had the case been otherwise, would it? ... For today's purposes, let's ... assume mootness is the basis for the dismissal.
      Those words and the other relevant record passages demonstrate that the superior court dismissed the complaint for mootness, not on a theory the plaintiff shareholders did not make a formal demand. See Dissent at 752-753. The superior court thought at the October hearing that the demand excuse issue was critical to the competing fees motions, and it proceeded to consider the parties' arguments on that issue. It told the plaintiffs' lawyer, "demand is the part of this case that's giving me the biggest problem right now," and asked him directly, "What have you done to bear the burden of proving that demand was excused in this case?" These comments are inconsistent with concluding that the court had already resolved the issue when it dismissed the complaint. If the court had decided that issue in June, there would have been no reason to consider it again in October. The court was clearly attempting to decide whether the plaintiffs had satisfied their burden of proving that demand was excused, and was thus necessarily resolving an issue it had not previously decided.
      Dismissal in June for failure to prove that demand was excused is also contextually improbable. There was no real dispute in June that the relief the complaint sought had been achieved, i.e., that the complaint was moot. In comparison, the demand excuse issue was in substantial dispute. It is unlikely that the dismissal would have been with prejudice if the court had thought the complaint was deficient. It is also unlikely that the parties' submissions as of June would have allowed the court to resolve the demand excuse issue on its merits. (But if that had been the basis for the dismissal, it is probable the dismissal order would have said so.) Before the court decided the demand excuse issue in October, the parties submitted extensive filings not before the court when it dismissed the complaint in June.
      In context, we read the order deciding the fees motions to mean that the directors would have been entitled to dismissal ('were thus entitled to dismissal") on the demand excuse issue had that issue been fully litigated or decided in June. We do not read it to mean that the court actually dismissed the complaint for failure to prove demand excuse, rather than for mootness.

      . Compare Buckhannon Bd. & Care Home, Inc. v. West Virginia Dep't of Health & Human Res., 532 U.S. 598, 605-10, 121 S.Ct. 1835, 149 L.Ed.2d 855 (2001) (discussing and rejecting "catalyst" rule for determining "prevailing party" status) with DeSalvo v. Bryant, 42 P.3d 525, 530 (Alaska 2002) (discussing catalyst theory); State, Dep't of Natural Res. v. Tongass Conservation Soc'y, 931 P.2d 1016, 1020 (Alaska 1997) (discussing catalyst theory and possible differences between "purposive" federal fee-shifting statutes and Alaska Civil Rule 82).
      We do not need to decide here whether policies potentially justifying a catalyst approach to encourage certain types of claims would apply to shareholder derivative actions. See Matthew D. Slater, Civil Rights Attorney's Fees Awards in Moot Cases, 49 U. Cat. L.Rev. 819 (1982).

      . AS 10.06.435(j); Civil Rule 23.1(j); see also 13 Tmotay P. Brur & James Somarim, Fretcuer Cycroreon or Hr Law or Private Corporations § 6045.01, at 366 (1995 rev.) (footnotes omitted).

      . E.g., In re Oracle Sec. Litig., 852 F.Supp. 1437, 1447 (N.D.Cal.1994) (citing Chrysler Corp. v. Dann, 223 A.2d 384, 389 (Del.1966), as holding that "lack of causal connection between alleged corporate benefit and the derivative suit justified denial of fee award").

      . AS 10.06.435(c) provides:
      Unless excused on grounds that a majority of the directors is implicated in or under the direct or indirect control of a person who is implicated in the injury to the corporation, before an action in the right of a domestic or foreign corporation is instituted a plaintiff who has standing under (b) of this section shall make a formal demand upon the board to secure the action the plaintiff desires. Alaska Civil Rule 23.1(c) is identical.

      . AS 10.06.435(c); Alaska R. Civ. P. 23.1(c).

      . AS 10.06.435(d); Alaska R. Civ. P. 23.1(d).

      . AS 10.06.435(d); Alaska R. Civ. P. 23.1(d). AS 10.06.435(d) provides: °
      If a shareholder fails to make a formal demand under (c) of this section the complaint shall state with particularity the facts establishing excuse under (c) of this section. In a motion to dismiss for failure to make demand on the board the shareholder shall have the burden to establish excuse.
      Alaska Civil Rule 23.1(d) is identical.

      . Eg., Aronson v. Lewis, 473 A.2d 805, 809 (Del.1984) (acknowledging that demand requirement "is a rule of substantive right designed to give a corporation the opportunity to rectify the alleged wrong without litigation, and to control any litigation which does arise") (citation omitted), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244, 255 (Del.2000); Werbowsky v. Collomb, 362 Md. 581, 766 A.2d 123, 144 (2001) (discussing futility exception, and noting that demand requirement "gives the directors-even interested, non-independent directors-an opportunity to consider, or reconsider, the issue in dispute ... [which] may be their first knowledge that a decision or transaction they made or approved is being questioned").

      . Eg., Gaubert v. Fed. Home Loan Bank Bd., 863 F.2d 59, 65 (D.C.Cir.1988) ('The demand requirement also serves the goal of judicial economy, by giving the corporation a full opportunity to put its house in order before it is prematurely hauled into a court to account for its actions.") (citation omitted); Brehm, 746 A.2d at 255 ("[Bly requiring exhaustion of intracorporate remedies, the demand requirement invokes a species of alternative dispute resolution procedure which might avoid litigation altogether."); see generally Bur & SomuEm, supra note 9, § 5963, at 127 ("[Dlemand requirement in derivative proceedings serves as a form of notice to the corporation. - It is designed to assure that the shareholder affords the corporation the opportunity to address the alleged wrong without litigation and to control any litigation which does occur.")

      . Bur & Sommem, supra note 9, § 5963, at 127 (footnotes omitted).

      . E.g., Lewis v. Graves, 701 F.2d 245, 248 (2d Cir.1983); Greenspun v. Del E. Webb Corp., 634 F.2d 1204, 1208 (9th Cir.1980); Shelton v. Thompson, 544 So.2d 845, 850 (Ala.1989).

      . Fed.R.Civ.P. 23.1.

      . Graves, 701 F.2d at 248 (citation omitted).

      . Kamen v. Kemper Fin. Servs., Inc., 908 F.2d 1338, 1343 (7th Cir.1990) (acknowledging Delaware Supreme Court as mother court of corporate law), overruled on other grounds, 500 U.S. 90, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991).

      . Brehm v. Eisner, 746 A.2d 244, 253 (Del.2000).

      . Id. at 253 (applying Del. Ch. Ct. R. 23.1).

      . Id. at 254.

      . 11 F.3d 1197, 1200 (3d Cir.1993) (citations omitted).

      . AS 10.06.435(c); Alaska R. Civ. P. 23.1(c).

      . Lewis v. Curtis, 671 F.2d 779, 784-85 (3d Cir.1982), superseded on other grounds by Garber v. Lego, 11 F.3d 1197, 1206-07 (3d Cir.1993); Coyer v. Hemmer, 901 F.Supp. 872, 886 (D.N.J.1995); Brehm, 746 A.2d at 253.

      . Aronson v. Lewis, 473 A.2d 805, 814 (Del.1984), overruled on other grounds by Brehm, 746 A.2d 244.

      . Aronson, 473 A.2d at 808 n. 1.

      . Fed.R.Civ.P. 23.1; Del. Ch. Ct. R. 23.1.

      . - Civil Rule 23.1 was adopted in 1988 as part of the legislature's comprehensive revision of the Alaska Corporations Code. Ch. 166, §§ 1, 17, SLA 1988; see generally The Alaska Code Revision Commission, A Comparative Study of the Proposed Alaska Corporations Code (ACC) with the Final 1984 Draft of the Revised Model Business Corporation Act (RMBCA) (Apr.1985) (Cope Revision Report). That report indicates that Rule 23.1(c)'s demand requirement, as enacted in AS 10.06.435(c) was "original work by the code revision commission." Id. at 42.

      . Greenspun v. Del E. Webb Corp., 634 F.2d 1204, 1209-10 (9th Cir.1980) (noting that demand requirement is excused when either majority of board is interested in underlying transaction or underlying transaction was completely unrelated to corporate purpose); In re Kauffman Mut. Fund Actions, 479 F.2d 257, 264-65 (1st Cir.1973) (same); Kaufman v. Kansas Gas & Elec. Co., 634 F.Supp. 1573, 1580-81 (D.Kan.1986) (holding that complaint must allege self-dealing or bias on part of majority of board of directors to establish excuse); Aronson, 473 A.2d at 814 (holding that futility is established when plaintiff raises reasonable doubt that (1) majority of directors are disinterested and independent, and (2) the challenged transaction was otherwise "product of a valid exercise of business judgment"); Marx v. Akers, 88 N.Y.2d 189, 644 N.Y.S.2d 121, 666 N.E.2d 1034, 1040-41 (1996) (holding that demand requirement is excused when (1) majority of board is interested in challenged transaction, (2) board members did not inform themselves about transaction, and (3) challenged transaction is "so egregious on its face that it could not have been the product of sound business judgment").

      . AS 10.06.435(c); Alaska R. Civ. P. 23.1(c).

      . - Cope Revision Report, supra note 36.

      . - Alaska R. Civ. P. 23.1(d).

      . Although there was a factual dispute regarding the question of demand excuse (whether a majority of the directors were implicated in the alleged injury), the parties were apparently content to litigate the fees and demand issues based on the extensive memoranda, affidavits, and exhibits they filed. No party sought to introduce live testimony on this point or requested an evi-dentiary hearing. The shareholders do not claim on appeal that the superior court erred by resolving these issues without an evidentiary hearing.

      . See supra pp. 746-747 and notes 20-21.

      . AS 10.06.435(); Alaska R. Civ. P. 23.1().

      . They also argue that the court dismissed the suit "on the grounds that no formal demand had been made as required by Civil Rule 23.1(c)."
      This argument is without merit: the court dismissed for mootness, not because demand was unexcused.

      . City of Yakutat v. Ryman, 654 P.2d 785, 793 (Alaska 1982) (holding that defendant city was not Rule 82 prevailing party where trial court found that complaint was at least partly responsible for city's corrective actions resulting in dismissal of complaint for mootness).

      . See supra note 13.

      . See Alaska R. Civ. P. 82(b)(2).

      . Likewise, the judgment should not include a prevailing-party costs award.

      . AS 10.06.490(c) provides:
      To the extent that a director, officer, employee, or agent of a corporation has been successful on the merits or otherwise in defense of an action or proceeding referred to in (a) or (b) of this section, or in defense of a claim, issue, or matter in the action or proceeding, the director, officer, employee, or agent shall be indemnified against expenses and attorney fees actually and reasonably incurred in connection with the defense.
      (Emphasis added.)

      . The resolution provided:
      THEREFORE BE IT RESOLVED, that the Board of Directors of Ingalik, Incorporated acting pursuant to AS 10.06.490(a), hereby denies any indemnification of defense costs, including court costs, litigation expenses, and legal fees to said defendant officers and directors, specifically, Kenneth Chase, Shannon Chase, Gloria Millett[,] and Theodore Kruger, Jr. for their defense of the action brought by shareholders Carl Jerue, Jr. and Ernie Demo-ski, Sr.
      Soon after adopting this resolution, the new board agreed to indemnify Theodore Kruger, Jr., the only incumbent reelected to the board.

      . Defendant directors also argue that they were entitled to discretionary indemnification and that the board's resolution was contrary to Ingalik's bylaws, which require indemnity to the "full extent permitted" by law. These alternative arguments are resolved by our analysis of AS 10.06.490(c).

      . In comparison, the other subsections of AS 10.06.490 appear to make indemnification permissive or discretionary, regardless of the success of the litigation. Thus, AS 10.06.490(a), (b), and (d) provide in pertinent part:
      (a) A corporation may indemnify a person who was, is, or is threatened to be made a party to a completed, pending, or threatened action or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation, by reason of the fact that the person is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise...
      (b) A corporation may indemnify a person who was, is, or is threatened to be made a party to a completed, pending, or threatened action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise. ...
      (d) Unless otherwise ordered by a court, indemnification under (a) or (b) of this section may only be made by a corporation upon a determination that indemnification of the director, officer, employee, or agent is proper in the circumstances because the director, officer, employee, or agent has met the applicable standard of conduct set out in (a) and (b) of this section....
      (Emphasis added.)

      . AS 10.06.490(c).

      . - Waltuch v. Conticommodity Serv. Inc., 88 F.3d 87, 96 97 (2d Cir.1996) (holding that Waltuch was entitled to mandatory indemnification because he "walked away without lability and without making a payment"); Wisener v. Air Express Int'l Corp., 583 F.2d 579 (2d Cir.1978) (construing similar Illinois statute to same effect); B & B Inv. Club v. Kleinert's, Inc., 472 F.Supp. 787 (E.D.Pa.1979) (requiring mandatory indemnification for officer who made no monetary payment, but who was dismissed from case with prejudice because second officer paid to settle claim).

      . Waltuch, 88 F.3d at 96.

      . Reversal of the mandatory indemnification award entered under AS 10.06.490(c) does not prevent Ingalik from indemnifying director Kruger as an exercise of board discretion under AS 10.06.490(a) or (b). The board's resolution of April 26, 1998 seems to have exercised that discretion in favor of indemnifying director Kruger's litigation expenses.

      . Op. at 742 (emphasis added). In a footnote, the court quotes the superior court's direction to counsel at the outset of oral argument on the attorney's fees motions to "assume mootness is the basis for the dismissal." Op. at -- n. 12. As shown below, however, by the end of the hearing and in the order that followed, the superior court made clear that the dismissal was based on the plaintiffs' failure to show that their lack of demand was excused. See infra at 752-753.

      . See, eg., Municipality of Anchorage v. Higgins, 754 P.2d 745, 748 (Alaska 1988) (appellate court may uphold lower court's ruling on any ground that is apparent from the record and that supports the decision as a matter of law).

      . The court's opinion creates a straw man when it observes that the superior court's comments at the October hearing "are inconsistent with concluding that the court had already resolved the issue when it dismissed the complaint." (Opinion at ---, n. 12) This dissent does not contend that the superior court had already resolved the issue when it dismissed the complaint. It does contend that a trial court has the right to change its mind and to revisit a decision before it is final. See infra text at note 4 and note 4.

      . Stepanov v. Gavrilovich, 594 P.2d 30, 36 (Alaska 1979). See also West v. Buchanan, 981 P.2d 1065, 1067 (Alaska 1999) (second trial judge within her discretion to reconsider predecessor trial judge's ruling).

      . Op. at 746-747.

      . This suggestion, set out in the court's opinion at -- n. 12, did not amount to a finding or ruling by the superior court. At most, it showed that the court was considering mootness as the rationale for its decision to dismiss the case. But even if it had formally ruled on that basis, there is no reason why the court could not change its ruling. See supra text at note 4.


source: Caselaw Access Project

author: FABE, Chief Justice.

license: Public Domain

text:
    Elizabeth M.S. HIXSON, Appellant/Cross-Appellee, v. Michael S. SARKESIAN, Appellee/Cross-Appellant.
    Nos. S-10316, S-10335.
    Supreme Court of Alaska.
    March 28, 2003.

      Elizabeth M.S. Hixson, pro se.
    Keith B. Levy, Law Office of Keith B. Levy, Juneau, for Appellee/Cross-Appellant.
    Before: FABE, Chief Justice, MATTHEWS, EASTAUGH, and BRYNER, Justices.
   OPINION

FABE, Chief Justice.

I. INTRODUCTION

The superior court granted Michael S. Sarkesian's motion to modify child support. Elizabeth M.S. Hixson argues that the superior court erred in caleulating Michael's income and that the superior court should have enforced an earlier settlement agreement for child support above that required by Alaska Civil Rule 90.3. Michael 8. Sarkesian filed a cross-appeal claiming that his alimony obligations to his former wife terminated when she remarried, that he was not obligated to pay certain of the children's unreimbursed medical expenses, and that he should have been awarded attorney's fees by the superior court. Although we affirm the superior court's decision to modify the child support award, we reverse the superior court's imposition of Rule 90.3's income cap and remand to the superior court to award child support based on Sarkesian's actual reduced income. We affirm the superior court's decision in all other respects.

II FACTS AND PROCEEDINGS

Elizabeth M.S. Hixson and Michael S. Sarkesian divorced on May 283, 1991; they had two children during their marriage. Sarkesian lived in Switzerland at the time of the divorcee and continues to live there. In June 1992 Superior Court Judge Larry C. Zervos, who presided over the divorcee trial, ordered Sarkesian to pay $2,550.80 per month in child support. The superior court also ordered Sarkesian to purchase health insurance for the children, to pay their un-reimbursed medical expenses, and to pay for their transportation costs associated with visitations. - Deducting these expenses from Sarkesian's ordered child support reduced his monthly child support payment to $2,138.80. Sarkesian was allowed to claim the children on his future tax returns. Sarkesian was also ordered to pay rehabilitative alimony of $1,000 per month for thirty months to "allow [Hixson] the time and opportunity to finish her degree and prepare to start work."

Both sides appealed the child support, spousal support, and property distribution awards. In a memorandum opinion and judgment, we remanded for an adjustment of Sarkesian's income, a reduction in the property distribution to Sarkesian, and justification of the imposition of the income cap and the amount of the alimony award. Other minor matters not relevant to the present appeal were also addressed.

Upon remand, the parties reached a settlement agreement rather than pursue another trial. The agreement incorporated most aspects of the prior superior court decision and calculated the existing balances that Sarke-sian owed to Hixson. The settlement document stated that it was "[the expressed intent of both parties ... to end this litigation, to stop the possibility of further appeals and to prevent the expenditure of additional attorney's fees."

On August 3, 2000, Sarkesian filed a motion to modify child support based upon a decline in his income. The principal ground claimed for the decline in income was the assertion that he had changed employers and no longer received bonuses. Sarkesian contended that his income had declined by more than the fifteen percent threshold listed in Civil Rule 90.3(h)(1). Sarkesian further claimed that the law had been amended to allow for a seventy-five percent reduction in child support, as opposed to the fifty percent allowable reduction at the time of the initial divorcee settlement, for visitation longer than twenty-seven consecutive days and that the children's travel expenses should be modified because of the reduction in his income.

The superior court, Judge Zervos again presiding, entered judgment on June 18, 2001. Judge Zervos found there to be a material change in cireumstances for Sarke-sian because the "substantial" decline in the value of the Swiss france as compared to the American dollar "is sufficient to make a pri-ma facie case of a 15 percent decline in income." - Judge Zervos consequently adjusted the exchange rate by averaging the rate in use on the date of the trial and the rate Sarkesian used in his 2000 tax return. This resulted in a decrease of more than fifteen percent in Sarkesian's income. Because this decrease exceeded the requirements of Civil Rule 90.3(h)(1), Judge Zervos concluded that Sarkesian had established the material change in cireumstances necessary for an adjustment in child support payments. Judge Zervos subsequently imposed the $84,000 income cap contained in Civil Rule 90.3(c)(2) to the calculation of Sarkesian's child support obligations.

Judge Zervos also addressed a variety of other issues. Judge Zervos allowed Sarke-sian to deduct 1,500 Swiss frances (CHF) of a 2,000 CHF housing allowance from income because Sarkesian used one-third of the house, which had a monthly rent of 4,500 CHF, as office space. Judge Zervos found that a disputed car lease was no longer relevant to calculating Sarkesian's income. Judge Zervos further ordered that Hixson list her children under her employer's health insurance, though Sarkesian was to pay one-half of the cost of covering the children if this would result in additional costs to Hixson. Sarkesian was ordered to pay four-fifths of the unreimbursed medical expenses of the children. Transportation costs were adjusted due to the children now being able to travel alone. Judge Zervos also ordered that Sarkesian's child support obligations be reduced by seventy-five percent during periods of extended visitation.

On appeal, Hixson challenges the calculation of Sarkesian's income, the constitutionality of the income cap, the re-litigation of child support following a settlement agreement designed to end litigation regarding the divorce, and the alleged requirement that she bear the burden of proving the children had special needs necessitating the waiver of the income cap. On cross-appeal, Sarkesian argues that his alimony obligation to Hixson ceased upon her remarriage, that he should not be required to pay for the children's orthodontia and contact lenses, that he should not have been required to pay four-fifths of the children's unreimbursed medical expenses, and that the trial court should have awarded him attorney's fees and costs as the prevailing party.

III. STANDARD OF REVIEW

Modifications of child support are reviewed under an abuse of discretion standard. An abuse of discretion exists where "based on the record as a whole this court is left with a 'definite and firm conviction that a mistake has been made.' " Questions of law are reviewed de novo. Questions of constitutional law are also reviewed de novo. The interpretation of an agreement between two parties is a question of law to which we apply our independent judgment. Awards of attorney's fees in modification of child support cases are reviewed for an abuse of discretion. Attorney's fees awarded pursuant to Civil Rule 82(b)(1) are presumptively correct.

IV. DISCUSSION

A. The Superior Court Did Not Err in Calculating Sarkesian's Income.

Hixson alleges that the superior court erred in calculating Sarkesian's income because it improperly accounted for the housing and auto allowances provided by his employer. Hixson contends that only one room of the house was used for office space and that even then it was only used for ten days a month. Hixson argues that Sarkesian's employer could have rented an office elsewhere and that thus Sarkesian was receiving a benefit that was not a business expense. Hixson further claims that Sarkesian received his excessive allowances because he is the only board member with sole signatory powers and can therefore manipulate the business affairs of the company to his benefit. Hixson also contends that Sarkesian manipulated an auto lease for a BMW, portraying it as a company car when it was actually for his own personal use.

Hixson in essence is attempting to reargue on appeal her case below. However, Judge Zervos did not abuse his discretion in exelud-ing the car from Sarkesian's income and in allowing Sarkesian to deduct a portion of his housing allowance from his income. Commentary IILB to Civil Rule 90.8 states that "[elxpense reimbursements and in-kind payments such as use of a company car, free housing or reimbursed meals should be included as income if the amount is significant and reduces living expenses." - Sarkesian presented testimony at trial that the disputed reimbursements did not reduce his living expenses. He testified that the automobile lease had been terminated and that the vehicle was not subsequently replaced. Sarke-sian also testified that one of the levels of his house is used exclusively as a business office. The level has its own separate entrance and is equipped with standard business equipment. This testimony supports Judge Zer-vos's conclusion that the auto lease was no longer relevant to calculating Sarkesian's income and that he could deduct one-third of the monthly rent of his house from his housing allowance. While it may be possible to interpret matters as Hixson suggests, it is not clear that Judge Zervos has made a mistake in his factual determinations. His ruling is therefore affirmed.

B. The Superior Court Erred by Reinstating the Income Cap Despite the Settlement Agreement to the Contrary.

In the settlement agreement reached following the remand of their divorce case after the first appeal, the parties agreed that Sarkesian would make monthly child support payments in excess of what would have been required had Rule 90.8's income cap been imposed. The settlement agreement incorporated by reference the superior court's June 1, 1992 findings of fact and conclusions of law, which explicitly waived the cap because of the lifestyle advantages the children would have enjoyed had the family stayed together. In their settlement agreement, the parties further "expressed [their] intent ... to end this litigation, to stop the possibility of further appeals and to prevent the expenditure of additional attorney's fees." Hixson argues that because Sarkesian entered into a settlement of child support, agreeing to an award above that required by Civil Rule 90.3, he has given up his right to seek modification of the child support award.

In Flannery v. Flannery, we held that an agreement to waive the income cap for calculation of child support may later be modified due to a material change in cireum-stances. But the change in cireumstances must not be anticipated at the time the agreement is signed, and the drop in income must appear to be permanent, not temporary. Judge Zervos, after finding more than a fifteen percent reduction in Sarke-sian's income, applied Rule 90.3's $84,000 income cap as the basis of Sarkesian's child support obligation. Judge Zervos found there to be a material change in circumstances due to the decline in Sarkesian's income.

Judge Zervos distinguished the present case from Flonnery, where we warned against allowing obligors to use a motion for modification of child support as a "back door" by which to cireumvent an earlier agreement to waive the income cap. First, Judge Zer-vos concluded that in contrast to Flannery, where waiver of the income cap had been a part of the initial divorcee settlement, Sarke-sian here "acquiesced to the amount of child support only after extensive litigation, after the court had ordered the cap to be waived, and when the only issue remaining was whether the children's needs justified the waiver." Second, Judge Zervos reasoned that the adjustment to Sarkesian's income brought him close to the income cap and that "the amount in issue, if the cap is breached, is de minimus."

We reject the superior court's first line of reasoning and reiterate our holding in Flannery that modifications of child support cannot be used as a means to circumvent an agreement to waive the income cap. Because they are, in essence, contracts, settlement agreements freely entered into do not lose their binding nature because extraneous cireumstances exist at the time. It therefore does not matter that Sarkesian signed the settlement agreement "only after extensive litigation." Sarkesian still signed the agreement with full knowledge of its contents. Sarkesian presumably believed that the agreement, including the waiver of the income eap, was in his best interests and that he was being compensated by not having to face further litigation and its inherent risks.

Moreover, although the superior court recognized that Sarkesian's adjusted annual income of $85,015.41 is quite close to the income cap of $84,000, this does not justify reduction of child support to an award based on the income cap. Our concern in Flannery was that the "15% rule" not be used as a means by which a parent who, because of a settlement agreement, pays child support well above that required by the income cap, could turn around and reduce the child support payments to the amount derived from the income cap even though the parent's ability to pay child support above that required by the income cap remains intact. In other words, in the context of an agreement to waive the income cap and pay child support in excess of Rule 90.3's requirement, the mere fact of a fifteen percent change in income does not necessarily constitute a change of cireumstances entitling the obligor to a reduction in support based on the income cap. As we stated in Flannery,

[wle think that in context of an agreement like the Flannerys', the 15% rule can be used to demonstrate materiality, but the comparison cannot be between the amounts Michael agreed to pay and what the rule minimally requires.

Because Sarkesian's reduction in income, while exceeding fifteen percent, does not reduce his income to the level of the income cap, applying that cap to Sarkesian is inconsistent with our decision in Flannery. As we suggested in Flannery, where an obli-gor's income is significantly reduced but still exceeds the cap, "multiplying the obligor's uncapped changed income by the pertinent percentage yields the support the parties presumptively would have specified had that been the obligor's income when they entered into their agreement." Thus, the child support award should have been based on Sarkesian's actual reduced income of $85,015.41, not the income cap of $84,000. And although the resulting difference in child support is, according to the superior court, only $22.84 a month, we cannot agree that this amount is de minimus or in itself justifies application of Rule 90.8's income cap.

C. Sarkesian's Alimony Obligation Did Not Automatically Terminate When Hixson Remarried.

The trial court ordered Sarkesian to pay $1,000 per month of rehabilitative alimony for a period of thirty months. This order was adopted in the settlement agreement, which required Sarkesian to pay the same $1,000 per month for the remaining thirteen of the original thirty months. When Hix-son remarried in July 1995, Sarkesian ceased paying the remaining nine alimony payments, alleging that Hixson's marriage eliminated his obligation to pay. Sarkesian filed a motion to clarify the status of his alimony obligations on December 18, 2000. Judge Zer-vos reiterated that the alimony "has always been" rehabilitative alimony and accordingly reaffirmed Sarkesian's obligation to make the remaining nine monthly payments despite Hixson's remarriage.

To support his claim that he did not need to pay Hixson alimony when she remarried, Sarkesian points to the holding in Voyles v. Voyles that "by the act of remarriage, the formerly dependent spouse elects to abandon the alimony provision established at the termination of the spouse's preceding marriage." Reorientation alimony, which we have stated is "appropriate to allow the requesting spouse an opportunity to adjust to the changed financial cireumstances accompanying a divorce," can at the discretion of the trial court terminate upon remarriage. However, in Musgrove v. Musgrove, this court held that remarriage does not automatically terminate rehabilitative alimony. Rather, rehabilitative alimony, which "is awarded for a short duration and a specific purpose "limited to job training or other means directly related to entry or advancement within the work force, " can be modified "only when there is a material and substantial change in cireumstances related to its purpose." Sarkesian presented no argument that Hixson ceased upon remarriage to engage in those rehabilitative activities for which alimony was originally granted. Instead, Sarkesian argues that the settlement agreement effectively provides for reorientation alimony instead of rehabilitative alimony because it removes the requirement that Hixson obtain any job training or education.

This characterization is not entirely correct. The settlement agreement upon which Sarkesian's argument is based only states that payments to Hixson will be made "without any further argument about, or monitoring of, [Hixson's] schooling by the defendant or his counsel." It does not state that she need not obtain education or job training. The superior court at the time labeled this spousal support as rehabilitative alimony. Furthermore, in response to Sarkesian's motion to clarify his alimony obligations, the superior court determined that the alimony had always been and remained rehabilitative alimony. In reaching this conclusion, the superior court rejected the precise argument that Sarkesian is making now. As we have stated previously: "The superior court has wide discretion in making alimony determinations. We will not interfere with such determinations unless the superior court abused its discretion." There is no abuse of discretion here. Consequently, we affirm Judge Zervog's decision to consider the alimony as rehabilitative and to require that Sarkesian pay it despite Hixson's remarriage.

D. Sarkesian Is Required To Pay Un-reimbursed Medical Costs.

1. Braces and contact lenses

In the initial divorce decree, Sarke-sian was ordered to pay "the entire deductible and all other costs not covered by the [children's health care] policy." This was affirmed by the later settlement agreement, which provided that "[all provisions of [the June 1, 1992 order] relating to child support issues shall remain in full force and effect." Judge Zervos, in the June 18, 2001 superior court opinion from which this appeal originates, examined the medical bills that Hixson provided relating to the children's orthodontic treatment and ordered Sarkesian to reimburse her for the total amount of the bills.

Sarkesian claims that because he was paying child support in excess of the income cap, he should not have been required to pay for unreimbursed medical expenses since those costs should have been included in caleulat-ing the economic needs of the children for which the higher payments were justified. However, shifting these expenses to Sarke-sian was part of the settlement agreed to by Sarkesian. He can and does argue that the cost shifting for future unreimbursed medical expenses should be changed, but it appears clear that absent such a modification, costs such as contact lenses and braces are something Sarkesian agreed not to litigate when he signed the settlement agreement. Sarke-sian is therefore liable to Hixson for these expenses.

2. Future unreimbursed medical expenses

In his June 18, 2001 order, Judge Zervos ordered that Sarkesian pay four-fifths of all future unreimbursed medical expenses, with the other fifth to be paid by Hixson. Sarkesian contends that this disparity is unjustified given Hixson's employment and her recent marriage. Sarkesian argues that at the very least Civil Rule 90.3(d)(2) requires that the first $5,000 of unreimbursed medical expenses be split evenly.

The superior court found that Sarkesian's yearly income is $85,015 41. By Sarkesian's own admission, Hixson can be expected to earn only about $22,000 per year. Sarkesian thus earns almost four times as much as Hixson and could reasonably be expected to contribute four-fifths of the unreimbursed medical costs, as the court found. Sarke-sian's interpretation of Civil Rule 90.3(d)(2) is also incorrect. The first sentence states that health care costs should be shared equally unless the court finds "good cause" to allocate them otherwise. In the present case, the superior court did find reason to allocate these costs disproportionately, namely the "parties' relative incomes." This was not an abuse of discretion. The last sentence of Civil Rule 90.3(d)(2) does not require, as Sarkesian asserts, that only those unreim-bursed medical expenses exceeding $5,000 be allocated according to the financial cireum-stances of the parents. Rather, it requires that the superior court allocate those expenses exceeding $5,000 according to ability to pay regardless of how the court allocated the first $5,000 of expenses. In other words, this sentence does not negate the ability of the superior court to deviate from an equal distribution of unreimbursed medical costs if it finds good cause to do so.

E. The Superior Court Did Not Err In Denying Sarkesian Attorney's Fees.

- Sarkesian argues that the superi- or court should have awarded him attorney's fees because he prevailed on the central issue of the modification of his child support obligation. The standard of review for awards of attorney's fees is abuse of discretion and Judge Zervos did not abuse his discretion. Judge Zervos initially declined to award Sarkesian attorney's fees because both sides had prevailed on significant issues and because Sarkesian's income was greater than Hixson's. Judge Zervos observed that while Sarkesian prevailed on reducing child support, re-imposing the income cap, and reducing his child support obligations during extended visitations, Hixson prevailed on transportation costs, unreimbursed medical costs, and in adjusting Sarkesian's income upward from what he himself asserted. In a subsequent order reconsidering attorney's fees, Judge Zervos recognized that the respective incomes of the parties should not matter, but added that Sarkesian was being denied attorney's fees due to "past dishonesty and sharp litigation practices" which increased the effort that Hixson needed to exert to defend herself. Judge Zervos therefore presented justifiable reasons for declining to award attorney's fees. Because of the difficulties created by Sarkesian during the litigation and because both parties prevailed on significant issues, it was not an abuse of discretion to deny attorney's fees.

v. CONCLUSION

The superior court's decision to impose Rule 90.3's income cap is REVERSED and the case REMANDED to the superior court to award child support based on Sarkesian's reduced income of $85,015.41, an amount that still exceeds the cap. All other decisions of Judge Zervos as they relate to these divorce proceedings are AFFIRMED.

CARPENETI, Justice, not participating.

      . The children are Michael Jr., born September 1985 and Brittany, born May 1987. Both children are still minors.

      . We ordered the superior court to undertake this analysis according to the standards for rehabilitative alimony. If these standards were not met, the superior court was permitted to consider the alimony as reorientation alimony.

      . The rule provides in relevant part "A final child support award may be modified upon a showing of a material change of circumstances as provided by state law. A material change of circumstances will be presumed if support as calculated under this rule is more than 15 percent greater or less than the outstanding support order."

      . See Alaska R. Civ. P. 90.3(a)(3).

      . See Alaska R. Civ. P. 90.3(g).

      . Flannery v. Flannery, 950 P.2d 126, 129 (Alaska 1998).

      . Richmond v. Richmond, 779 P.2d 1211, 1216 (Alaska 1989) (citation omitted).

      . State, Dep't of Revenue, Child Support Enforcement Div., ex rel. Hawthorne v. Rios, 938 P.2d 1013, 1015 (Alaska 1997).

      . Brown v. State, Dep't of Admin., Div. of Motor Vehicles, 20 P.3d 586, 587 (Alaska 2001).

      . Flannery, 950 P.2d at 129.

      . Byars v. Byars, 945 P.2d 792, 795 (Alaska 1997).

      . Id.

      . 950 P.2d at 131.

      . Id. at 132 (citing Curley v. Curley, 588 P.2d 289, 291-92 (Alaska 1979).

      . 950 P.2d at 134.

      . Id. at 128.

      . See 950 P.2d at 134.

      . See Restatement (Seconp) or Contracts, ch. 8, Introductory Note (1981) ("In general, parties may contract as they wish, and courts will enforce their agreements without passing on their substance.... The principle of freedom of contract is itself rooted in the notion that it is in the public interest to recognize that individuals have broad powers to order their own affairs by making legally enforceable promises.").

      . The superior court stated that it would treat the settlement order "the same as if [it were] reached upon agreement of the parties as opposed to rulings rendered by the court."

      . 950 P.2d at 132 ("If the presumption [of the applicability of the "15% rule"] were available in such a case, an obligor who agreed to pay child support more than 15% greater than the support required by Rule 90.3 could seek a modification immediately after signing the agreement.").

      . Id. ("As we stated in Burn, ' "(tlhe 15% rule" is a rule of materiality, not a definition of what constitutes a change of circumstances. There must be a change of circumstances, either factual or legal.' ") (quoting Bunn v. House, 934 P.2d 753, 758 (Alaska 1997)).

      . Id.

      . Id.

      . Because we hold that Sarkesian's child support should be based on his actual reduced income which exceeds the income cap, we need not address Hixson's argument that the income cap is unconstitutional.

      . Of this amount, four months were in arrear-age and the other nine months remained to pass.

      . The superior court on August 7, 1992 had entered an order stating that the alimony award could be considered reorientation alimony as opposed to rehabilitative alimony.

      . 644 P.2d 847, 849 (Alaska 1982).

      . Edelman v. Edelman, 3 P.3d 348, 358 (Alaska 2000).

      . 821 P.2d 1366, 1370 (Alaska 1991).

      . Id. at 1369 (quoting Richmond v. Richmond, 779 P.2d 1211, 1215 (Alaska 1989)).

      . Musgrove, 821 P.2d at 1370.

      . - Edelman, 3 P.3d at 358 (citations omitted).

      . This court has previously held that contact lenses and orthodontia are reasonable medical expenses. Cedergreen v. Cedergreen, 811 P.2d 784, 788-89 (Alaska 1991).

      . - Alaska Civil Rule 90.3(d)(2) provides:
      The court shall allocate equally between the parties the cost of reasonable health care expenses not covered by insurance unless the court orders otherwise for good cause. A party shall reimburse the other party for his or her share of the uncovered expenses within 30 days of receipt of the bill for the health care, payment verification, and, if applicable, a health insurance statement indicating what portion of the cost is uncovered. Reasonable, uncovered expenses exceeding $5,000 in a calendar year will be allocated based on the parties' relative financial circumstances when the expenses occur.

      . Byars v. Byars, 945 P.2d 792, 795 (Alaska 1997).

      . The superior court provided several examples of Sarkesian's questionable litigation tactics:
      In the prior case, Mr. opened an account without Ms. Hixson's knowledge even before the parties[] separated. He diverted marital money into this account. He was paid substantial bonuses but did not disclose those bonuses until well into the discovery stages of the litigation. Even during the trial it was disclosed that he hoarded large sums of cash in his home. Mr. Sarkesian argues that the prior dishonesty cannot be used as a basis to deny attorney's fees because the result wold be to effectively eliminate Civil Rule 82 in all cases. But this is not correct.
      Because of Mr. Sarkesian's past dishonesty and sharp litigation practices, Ms. Hixson has been forced to question every assertion made by Mr. Sarkesian in this child support litigation. Not just because she wanted to defeat Mr. Sarkesian's motion, but to insure that he was not doing what he has done in the past-unfairly hide assets or income and mislead her. She was forced to spend more time and energy and more resources for investigation because she cannot trust Mr. Sarkesian. It is obvious that Ms. Hixson did not treat this motion like most child support modification cases are handled. But based on experience, she could not afford to take Mr. Sarkesian at his word. Even recently, as the court has noted before, Mr. Sarkesian's transaction with the BMW is, at the very least, peculiar and suspicious.