I. Fact: (1) Plaintiff and defendant incorporated Berlinair, Inc. as a closely held Oregon corporation. Plaintiff was a vice-president and director, and the defendant was the president and a director. (2) They met with representatives of the Berliner Flug Ring (BFR), a consortium of travel agents in 1977. After initial meeting, all subsequent contracts with BFR were made by Lundgren or other Berlinair employees acting under his direction. (3) Lundgred learned that there was a good chance that the BFR contract might be available. Lundgred incorporated Air Berlin Charter Company (ABC) and was its sole owner. ABC presented BFR with a contract proposal and was awarded the contract in 1978. Lundgren concealed from plaintiff his negotiation and diversion of the contract to ABC with BFR even though he used Berlinair working time, staff, money and facilities. (4) Plaintiff brought a derivative action against ABC for usurping a corporate opportunity of Berlinair. Plaintiff also claimed punitive damage based on breach of fiduciary duty. The trial court entered judgement in favor of Lundgren.
II. Issue: Whether it is usurping and breach of fiduciary duty when the president incorporated his own corporation and was awarded a contract.
III. Reasoning:
a) Rules
i) To avoid liability for usurping a corporate opportunity on the basis that the corporation was insolvent, the fiduciary must prove insolvency." 67 Or. App. at 165, 678 P.2d at 1254. The threshold question to be answered is whether a business opportunity presented is also a `corporate' opportunity, and whether the business opportunity is of sufficient importance and is so closely related to the existing or prospective activity of the corporation as to warrant judicial sanctions against its personal acquisition by a managing officer or director of the corporation. Miller v. Miller, 301 Minn. 207, 222 N.W.2d 71, 77 A.L.R.3d 941 (1974)
b) Application
i) The court first went over the decision by the court of appeal, holding that ABC is liable for usurping a corporate opportunity because Berlinair was not insolvent at the time of the contract between BFR and ABC. Then, the court decided to apply the American Law Institute’s Principles of Corporate Governance. According to the principles, a director who wishes to take personal advantage of a corporate opportunity must promptly offer the opportunity and disclose all material facts known regarding the opportunity to the disinterested directors or shareholders. The director may take advantage of the corporate opportunity only after full disclosure and only if the opportunity is rejected by a majority of the disinterested directors or shareholders. The court found that Lundgren owed a fiduciary duty to Berlinair as director, and the BFR contract was a corporate opportunity. Yet, Lundgren did not offer Berlinair the contract and did not attempt to obtain the consent to his taking of the BFR corporate opportunity. Thus the court concluded that the defendant may not contend that Berlinair did not have the financial ability to successfully pursue the BFR contract. Regarding the punitive damages, the court found that the plaintiff was unable to rpove actual dollar damages against Lundgren and the only equitable relief granted in the plaintiff’s favor was for an accounting and an injunction against transferring assets. Thus, the court concluded that the punitive damages claim was properly stricken by the court.
IV. Holdings: Affirmed.