## Facts

- F.R. Klinicki and Kim S. Lundgren formed Berlinair, Inc., a closely held Oregon corporation, to operate an air transportation business in and around Berlin, including potential charter operations.
- Ownership was divided among Klinicki, Lundgren, and Lundgren’s family corporation (Lelco, Inc.), with a small interest held by corporate counsel; Klinicki served as vice-president/director and Lundgren as president/director.
- Lundgren handled business development; Klinicki handled operations and maintenance.
- Berlinair pursued licenses, acquired an aircraft, and began passenger service in 1977.
- Berlinair representatives met with Berliner Flug Ring (BFR), a consortium of travel agents contracting for charter flights; a BFR charter contract was viewed as a profitable prospect contemplated when Berlinair was formed.
- Lundgren later learned the BFR contract might be available but did not disclose this to Berlinair or Klinicki.
- Lundgren formed Air Berlin Charter Company (ABC), a separate corporation he owned and controlled, and obtained the BFR contract through ABC.
- Klinicki brought (1) a derivative claim on Berlinair’s behalf alleging usurpation of a corporate opportunity and (2) an individual claim against Lundgren for breach of fiduciary duty.
- The trial court found the BFR contract was Berlinair’s corporate opportunity, imposed a constructive trust and accounting in favor of Berlinair, and dismissed punitive damages; the Court of Appeals affirmed.

## Issues

1. Whether a corporate officer/director usurps a corporate opportunity by secretly taking for a controlled entity a business prospect within the corporation’s line of business that came to him through his corporate role.
2. Whether the corporation’s alleged financial inability to pursue the opportunity negates the existence of a corporate opportunity or excuses a fiduciary’s appropriation without disclosure and consent.
3. Whether punitive damages may be awarded to a minority shareholder personally when the actionable harm is to the corporation and the relief is principally equitable and derivative.

## Decision

- The Oregon Supreme Court affirmed the judgment.
- The court held Lundgren breached his duty of loyalty by diverting the BFR contract to ABC and that the contract was a corporate opportunity of Berlinair.
- The court rejected financial inability as a unilateral justification for appropriation; a fiduciary must disclose and allow the corporation to decide whether to pursue or reject the opportunity.
- The court upheld the constructive trust and accounting remedies in favor of Berlinair.
- The court affirmed denial of punitive damages because Klinicki showed no distinct personal harm separate from injury to the corporation.

## Legal Principles

- Corporate officers and directors owe the corporation a duty of undivided loyalty and must avoid conflicts between personal interests and corporate interests.
- A business prospect may be a corporate opportunity when it is within the corporation’s line of business, was contemplated as part of the enterprise, and arises through the fiduciary’s corporate position or corporate contacts.
- A fiduciary may not secretly appropriate a corporate opportunity; the fiduciary must fully disclose the opportunity and obtain informed corporate rejection or consent from appropriate decision-makers before pursuing it personally or through an affiliate.
- The corporation’s lack of readily available funds does not, by itself, permit a fiduciary to take the opportunity; financial ability is relevant but not dispositive and cannot replace disclosure and consent.
- For usurpation of corporate opportunity, equity may impose a constructive trust and require an accounting to transfer the benefits and profits of the diverted opportunity to the corporation.
- Punitive damages generally are unavailable to an individual shareholder where the wrong and resulting injury are to the corporation and the claim is derivative absent proof of separate, individualized harm.

## Conclusion

The court held that a corporate president and director breached his fiduciary duty by secretly taking a charter-flight contract for a corporation he controlled, and that alleged corporate financial inability did not excuse nondisclosure or appropriation; equitable remedies were affirmed, and punitive damages were denied because the injury was to the corporation rather than to the minority shareholder personally.


Klinicki v. Lundgren, 695 P.2d 906 (Or. 1985)