The Grand Compromise: the Ancsa Section 7(i) Settlement Agreement

• Publication year: 2017

§ 34 Alaska L. Rev. 201. THE GRAND COMPROMISE: THE ANCSA SECTION 7(I) SETTLEMENT AGREEMENT

Alaska Law Review
Volume 34, No. 1, June 2017
Cited: 34 Alaska L. Rev. 201

THE GRAND COMPROMISE: THE ANCSA SECTION 7(I) SETTLEMENT AGREEMENT

ETHAN G. Schutt ^[*]
Aaron M. Schutt ^[**]

ABSTRACT

In 1982, Alaska's twelve regional Native corporations finalized and executed a settlement agreement ending a decade of litigation involving Section 7(i) of the Alaska Native Claims Settlement Act. The 121-page Settlement Agreement is complex and covers a number of issues. The Agreement annually governs the distribution of tens of millions in revenue shared between the regional corporations pursuant to Section 7(i). This Article reviews the history of the Settlement Agreement, with emphasis on the negotiations that led to it, as well as the legal challenges regarding the Agreement since its execution. This Article also reviews the Agreement, section-by-section, and provides insight from court cases, arbitration decisions, and other analysis of sections in the Agreement. Finally, this Article recommends that the twelve regions consider amending the Agreement to modernize it and address issues that have arisen since 1982 that were not anticipated by the drafters of the Agreement. This Article is a follow-on to ANCSA Section 7(I): $40 Million Per Word and Counting, which reviewed the history of Section 7(i).

INTRODUCTION

In 1982, twelve regional corporations, created pursuant to the Alaska Native Claims Settlement Act ^[1] (ANCSA or the "Act"), entered into a settlement agreement that ended a cycle of litigation, which had persisted for almost a decade over the simple concept contained in Section 7(i) of the Act. ^[2] Section 7(i), a key component of the Act, requires ANCSA regional corporations to share 70% of revenue derived from timber or subsurface resources with the other eleven regional corporations. Specifically, Section 7(i) provides:

Except as provided by subparagraph (B), 70 percent of all revenues received by each Regional Corporation from the timber resources and subsurface estate patented to it pursuant to this chapter shall be divided annually by the Regional Corporation among all twelve Regional Corporations organized pursuant to this section according to the number of Natives enrolled in each region pursuant to section 1604 of this title. The provisions of this subsection shall not apply to the thirteenth Regional Corporation if organized pursuant to subsection (c) hereof. ^[3]

The Section 7(i) Settlement Agreement (the "Settlement Agreement" or the "Agreement") is an important and complicated document that has governed the distribution of $2.5 billion in revenue shared since 1982. ^[4] In Volume 33:2 of Alaska Law Review, tied to the journal's 2016 symposium reflecting on the forty-five years of ANCSA's existence, we described the challenges of Section 7(i) revenue-sharing and how the Settlement Agreement had resolved contentious litigation among Native Corporations. This Article provides a more detailed description of the Settlement Agreement itself by providing a section-by-section analysis of the Agreement. After describing the Settlement Agreement's history, ^[5] the Article then reviews the two amendments to the Settlement Agreement since 1982. Next, the Article conducts a complete sectional analysis of the Agreement and reviews several legal challenges made against the Agreement since its execution. The Article concludes with an analysis of the possible amendments to the current version of the Settlement Agreement.

I. HISTORY OF THE SETTLEMENT AGREEMENT

The simplicity of the original language of Section 7(i), and the lack of implementing regulations, led to a decade of litigation between the regional corporations. ^[6] Aided by the Special Master appointed by court order in Aleut Corp. v. Arctic Slope Regional Corp. (Aleut II) ^[7] to assist in managing the complex, multi-party litigation, the leaders of the ANCSA regional corporations recognized the futility and extraordinary cost of constant and ongoing litigation. ^[8] Complications were exacerbated by Sealaska Corporation, which was at the time the largest of the 7(i) payor regional corporations, due to its abundant timber resources, along with several other regional corporations, failing to distribute "potential § 7(i) revenues, citing the substantial uncertainties . . . in attempting to account for such revenues with the small amount of guidance presently available." ^[9]

Due to these costs and disagreements, by the late 1970s, the regional corporations began discussing a comprehensive settlement agreement regarding Section 7(i) obligations. After first meeting in 1977, ^[10] several regional corporations began "a series of meetings concerning 7(i). . . to sit down and hammer out the principles of the 7(i) and to come up with a document" that the various regions could ratify. ^[11] Several regional corporations met again in 1979 "to discuss and assess the 7(i) problem and to study the possibility of an out-of-court settlement of the issues." ^[12] An initial sharing agreement, entitled 'A 7(i) Revenue Sharing Agreement,' was drafted by Cook Inlet Region, Inc. and circulated among all the other corporations. ^[13]

After years of intermittent meetings, Sealaska Corportation invited the other regional corporations to meet in Warm Springs, Oregon in 1981. ^[14] Sealaska observed that "[t]he stakes are very high," but "the litigation ought to be resolved by the affected corporations rather than by the court, if at all possible." ^[15] All twelve regions participated and sent their presidents and attorney representatives. ^[16]

In reviewing "the first 'composite draft' Section 7(i) settlement agreement" circulated in June 1981, Doyon's legal counsel noted "three essential requirements to a satisfactory settlement." ^[17] First, the regional corporations were in agreement that the definitions of "revenues" should track, as closely as possible, court decisions that had construed the word to maximize sharing of resource revenues. ^[18] Second, the regional corporations concurred that any agreed-upon deductions should be reasonable, and that the reporting requirements should be clear and further the aim of transparency in revenue sharing and costs. ^[19] Third, the parties agreed that binding arbitration ought to be the exclusive means for Section 7(i) dispute resolution. ^[20]

Following the Warm Springs meeting, the corporations held regular settlement conferences and drafting meetings. ^[21] The Special Master later reported that "the many dozens of Corporation executives, attorneys, financial advisors and other experts attending each meeting openly debated each and every issue connected with 7(i)." ^[22] The result was a draft settlement agreement that, in the Special Master's words, was "something of a chimera: at several critical points it contained alternative approaches which affected the construction of the balance of the proposed agreement." ^[23]

Section 7(i)'s simple drafting as to revenues leaves many possible approaches to what types of costs a regional corporation might fairly incur and should be counted against revenues and recovered by that corporation because such a cost supports and advances the generation of revenue that is required to be shared under Section 7(i). For example, with regard to the deductions side of the equation, Doyon's team noted that "[s]ince there [were] no rules to date on deductions, the whole deductions area [was] very cloudy." ^[24] The difference between the various regions' approaches to these questions was dramatic. ^[25] The Special Master and the team from the twelve regions had the task of reconciling these differing viewpoints from the summer of 1981 until the summer of 1982.

On June 29, 1982, the twelve regions reached a final settlement agreement, subject to the ratification by at least ten of the twelve corporations' respective boards of directors. ^[26] The document was 121 pages long including two appendices. The Settlement Agreement:

Represent[ed] an effort by the twelve Regional Corporations to resolve the cycle of litigation and to bring certainty to the application of § 7(i). In essence, the "Section 7(i) Settlement Agreement" represent[ed] an effort by the Regional Corporations to correct the deficiencies of ANCSA by a detailed agreement in order to render possible commercially viable resource development without litigation; it exhaustively defined terms and concepts, established detailed accounting procedures, and established a consensus among the Regions on policies for development of resources. ^[27]

All twelve regional corporations ratified the Settlement Agreement. ^[28]

A. Amendments to the Agreement

The regional corporation parties to the Settlement Agreement have amended the Agreement twice since 1982. In 1990, following several years of arbitration about the active harvest of Sealaska timber resources, ^[29] the regions unanimously agreed to amend the Agreement. The amendment deleted Article II, section 9-a provision addressing the harvest of timber for a corporation's own account-from the original Agreement and added a dozen new pages. ^[30] This amendment, incorporated into Article III, section 3 of the Agreement, mostly defined allowable active 7(i) costs for timber. ^[31]

The negotiations that led to this amendment began after the Sealaska Board of Directors, in 1989, "directed that...