Klinicki v. Lundgren

Oregon Court of Appeals · 1984 · Corporations

678 P.2d 1250 (1984)

Updated August 22, 2026

CorporationsCorporate opportunityFiduciary dutyPunitive damagesclosely held corporationusurpationduty of loyaltydisclosure

Facts

Klinicki and Lundgren formed Berlinair, Inc., an Oregon closely held corporation to operate an air transportation business in Berlin, with Lundgren serving as president and responsible in part for developing and promoting business. Berlinair pursued a potentially lucrative charter contract with Berliner Flug Ring (BFR), and Lundgren handled the subsequent contacts on Berlinair's behalf. After learning the contract might be available, Lundgren incorporated his own company, ABC, secretly negotiated for the contract, and diverted it to ABC while using Berlinair's time, staff, money, and facilities. Lundgren concealed these negotiations and the diversion from Klinicki.

Issue

Does a fiduciary avoid liability for diverting an otherwise corporate opportunity by arguing that the corporation lacked the financial ability to undertake it? Also, may punitive damages stand on an individual fiduciary-duty claim when the court made no award of actual damages?

Rule

A corporation's financial ability to undertake a business opportunity is not a factor in determining whether the opportunity is corporate unless the defendant demonstrates that the corporation was technically or de facto insolvent. If a fiduciary seeks to avoid liability on insolvency grounds, the fiduciary bears the burden of proving insolvency, and disclosure of the opportunity to the corporation is the proper course if there is uncertainty. Punitive damages are not proper unless there is also an award of actual damages.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Cedar Basin Tours, a closely held corporation in Portland, had been pursuing a seasonal shuttle contract with a ski resort outside Bend. Dana Morrow, Cedar Basin’s president, believed the company was too cash-strapped to scale up, so she formed Cascade Peak Transit, used Cedar Basin staff to prepare the bid, and secretly obtained the contract for her new company. Cedar Basin had missed profit targets for two years but continued operating and paying its bills.

If Cedar Basin sues derivatively for usurpation of corporate opportunity, which argument is strongest under the governing rule?

Explanation. The majority held that a corporation’s financial ability is not part of determining whether an opportunity is corporate unless the defendant proves technical or de facto insolvency. Mere losses or cash strain are not enough. A fiduciary cannot rely on her own private assessment of the corporation’s finances; disclosure and corporate decision-making are required.