Court Finds No Breach Fiduciary Duty Where Director Has Conflict of Interest

In Kim v. Grover C. Coors Trust the Colorado Court of Appeals upheld a conflicting interest transaction by a corporate director who was also a controlling shareholder. 2007 Colo. App. LEXIS 394.

Jeffrey H. Coors was CEO and the controlling shareholder for Graphic Packaging International Corp., Inc. (GPK). GPK sought to acquire the assets of Fort James Corporation. GPK entered into a credit agreement which required it to pay back $ 525 million of its debt in one year or less.

GPK planned on using the proceeds from the sale of a mill that it also owned to satisfy this obligation; however, the mill sale fell through. GPK then decided to raise revenue to comply with the credit agreement by selling 1,000,000 shares of convertible preferred stock to the Grover C. Coors Trust for $ 100 million. Jeffrey Coors was a trustee of the Trust.

Kim, owner of GPK common shares, filed suit to rescind the sale due to the directors breaching their fiduciary duties in approving the transaction.

The court noted that the “Colorado's corporation code provides that a conflicting interest transaction will not be void or voidable or be enjoined, set aside, or give rise to an award of damages or other sanctions in a shareholder proceeding if the transaction is fair as to the corporation.”

The court balanced the facts and determined that the conflicting interest transaction was fair to the corporation.