Kim v. Grover C. Coors Trust

• Citation: 179 P.3d 86
• Decision Date: 08 March 2007
• Docket Number: No. 04CA0583.,No. 04CA1203.,04CA0583.,04CA1203.
• Parties: Chinyun KIM, Plaintiff-Appellant, v. The GROVER C. COORS TRUST; William K. Coors; Jeffrey H. Coors; The Adolph Coors, Jr. Trust; The May Kistler Coors Trust; John H. Mullin; James K. Peterson; John Hoyt Stockey; and John D. Beckett, Defendants-Appellees.
• Court: Court of Appeals of Colorado

179 P.3d 86

Chinyun KIM, Plaintiff-Appellant, v. The GROVER C. COORS TRUST; William K. Coors; Jeffrey H. Coors; The Adolph Coors, Jr. Trust; The May Kistler Coors Trust; John H. Mullin; James K. Peterson; John Hoyt Stockey; and John D. Beckett, Defendants-Appellees.

No. 04CA0583.

No. 04CA1203.

Colorado Court of Appeals, Div. V.

March 8, 2007.

Certiorari Denied September 11, 2007.

Fisher, Sweetbaum & Levin, P.C., Alan D. Sweetbaum, Denver, Colorado; Chitwood Harley Harnes, LLP, John F. Harnes, Great Neck, New York, for Plaintiff-Appellant.

Davis, Graham & Stubbs, LLP, Thomas C. Bell, Janette L. Ferguson, Denver, Colorado, for Defendants-Appellees The Grover C. Coors Trust, William K. Coors, Jeffrey H. Coors, The Adolph Coors, Jr. Trust, and The May Kistler Coors Trust.

Holme Roberts & Owen, LLP, James C. Ruh, Nadia Ann Sarkis, Denver, Colorado, for Defendants-Appellees John H. Mullin, James K. Peterson, John Hoyt Stockey, and John D. Beckett.

Opinion by Judge HAWTHORNE.

In this shareholders' suit, plaintiff, Chinyun Kim, appeals the trial court's judgment finding against Kim and in favor of defendants, the Grover C. Coors Trust, William K. Coors, Jeffrey H. Coors, the Adolph Coors, Jr. Trust, the May Kistler Coors Trust, John H. Mullin, James K. Peterson, John Hoyt Stockey, and John D. Beckett (collectively Coors), and the trial court's order awarding costs and expert witness fees to Coors. We affirm the judgment of the trial court, vacate its order awarding costs and expert witness fees to Coors, and remand this case for further proceedings consistent with this opinion.

I. Background

At the time of the transaction involved in this case, Kim owned shares of common stock in Graphic Packaging International Corp., Inc. (GPK), and Jeffrey H. Coors, William K. Coors, John H. Mullin, James K. Peterson, John Hoyt Stockey, and John D. Beckett were directors of GPK. Mullin, Peterson, Stockey, and Beckett were independent directors. Jeffrey Coors was CEO of GPK, and the Coors family, prior to the transaction involved in this case, owned forty-seven percent of the common stock of GPK and exercised control over GPK.

This case began with GPK's acquisition of Fort James Corporation's folding carton assets in 1999. To acquire the Fort James assets, GPK entered into a credit agreement requiring it to pay back $525 million of its debt in one year or less. Initially, GPK intended to pay a large portion of this short-term debt utilizing funds earned from the sale of a paperboard mill. However, the sale fell through, and GPK, facing a substantial payment, had to look for alternatives.

Eventually, GPK decided to raise revenue by selling 1,000,000 shares of convertible preferred stock to the Grover C. Coors Trust (Trust) for $100 million. Jeffrey Coors and William Coors were both trustees of the Trust in addition to being directors of GPK.

GPK's management formed a special committee made up of the independent directors on GPK's board to evaluate this transaction. Members of the special committee met in 2000 on July 6, July 28, August 2, and August 14. They also obtained a fairness opinion from Solomon Smith Barney indicating that the transaction was fair to the corporation. The special committee approved the transaction during their August 14 meeting, finding that it was fair to GPK and its shareholders.

Following the sale, Kim filed suit individually, and on behalf of similarly situated shareholders, alleging that the directors breached their fiduciary duties in approving the transaction. Kim requested a declaration that GPK's directors breached their fiduciary duties, rescission of the sale, and damages attributable to the GPK directors' breach.

The trial court found that the transaction was fair to GPK and the public shareholders and that GPK's directors did not breach their fiduciary duties. The court also awarded Coors costs in the amount of $328,238.35. This appeal followed.

II. Standing

Coors argues that Kim lacks standing to pursue a claim for damages against the board of GPK. We disagree.

Generally, a shareholder may not assert a personal action against a director who acts in a manner that damages the corporation. Nicholson v. Ash, 800 P.2d 1352, 1357 (Colo.App.1990). However, a shareholder may maintain a personal action if the director's conduct violates a duty to the shareholder and causes him or her injury that is not suffered by other shareholders. Nicholson, supra.

Here, the trial court found:

The gravamen of plaintiff's complaint is individuals and trusts related to or associated with the Coors family manipulated the transactions briefly summarized above in such a manner as to dilute the value and voting rights of minority shareholders while simultaneously increasing the ownership and value of their own shares. The alleged injury, by definition, was not suffered by all or even most other shareholders.

We agree. Kim's complaint alleges injury based upon his status as a noncontrolling shareholder and derived from the actions of members of the Coors family who controlled GPK. His alleged injury is therefore not common to all shareholders, and if he prevailed on the merits of his claim, under his theory, he would be entitled to damages distinct from damages to the corporation itself. See, e.g., Sec. Nat'l Bank v. Peters, Writer & Christensen, Inc., 39 Colo.App. 344, 569 P.2d 875 (1977) (preferred shareholders had standing to challenge actions of common shareholders which accrued exclusive benefit to common shareholders at preferred shareholders' expense).

Therefore, we conclude that the trial court properly found that Kim has standing to pursue a claim for damages against the board of GPK.

III. Burden of Proof

Kim contends that the trial court erred in assigning to him the burden of proving the transaction was unfair. We conclude any error was harmless.

In Colorado, the burden of proof in a civil case generally rests upon the party asserting a claim, and it does not shift. Judkins v. Carpenter, 189 Colo. 95, 537 P.2d 737 (1975); Eads v. Dearing, 874 P.2d 474 (Colo. App.1993). However, in cases involving a director's dealings with the corporation, the burden of proof is on the director to demonstrate that the transaction took place in good faith, was fair to the corporation, and was accompanied by full disclosure. Rosenthal v. Four Corners Oil & Minerals Co., 157 Colo. 136, 143, 403 P.2d 762, 766 (1965); see also Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1939); Laybourn v. Wrape, 72 Colo. 339, 343, 211 P. 367, 369 (1922); Christa K.M. de la Garza, Conflict of Interest Transactions: Fiduciary Duties of Corporate Directors Who Are Also Controlling Shareholders, 57 Den. L.J. 609, 633 (1980) ("the evidential burden of proof, including the burden of coming forward and the burden of persuasion, as to the good faith of the transaction and its inherent fairness to the corporation and the stockholders is also placed upon the director or the majority shareholder").

Here, the trial court utilized the standard burden of proof for Colorado civil cases, finding that Kim had the initial burden of proof to set forth a prima facie case, at which point Coors had the burden of going forward with evidence, though Kim retained the ultimate burden of proof. However, the court also found that even if the burden of proof were placed on Coors to demonstrate fairness, the outcome of the case would not change.

We agree with the trial court that the outcome of the trial would be the same regardless of which side bore the burden of proof. Thus, we conclude that even if the trial court erred in placing the burden of proof on Kim, such error was harmless because it did not "substantially influence[ ] the outcome of the case" or impair "the basic fairness of the trial." Flanders Elec. Motor Serv., Inc. v. Davall Controls & Eng'g, 831 P.2d 492, 496 (Colo.App.1992). Because the error did not affect a substantial right of the parties, we must disregard any error. See C.R.C.P. 61.

Kim's reliance upon Atlantic & Pacific Insurance Co. v. Barnes, 666 P.2d 163 (Colo. App.1983), is misplaced. In that case, improper allocation of the burden of proof was not a harmless error because the evidence weighed equally. Because the burden of proof imposed by the court was a preponderance of the evidence, the misallocation of the burden of proof affected the outcome. See Atl. & Pac. Ins. Co., supra, 666 P.2d at 165-66.

Here, the court found that Coors would prevail whether Kim or Coors had the burden of proof. Thus, the allocation of the burden of proof, even if erroneous, did not determine which party would prevail.

Therefore, we conclude that even if the trial court erred in placing the burden of proof on Kim, that error was harmless.

IV. Fairness of the Transaction

Kim contends that the trial court erred in determining that the transaction was fair to GPK and its shareholders. We disagree.

A. Fairness and Fiduciary Duties

In Colorado, both the directors of a corporation and the shareholders that exercise control over a corporation are considered fiduciaries. See, e.g., Kullgren v. Navy Gas & Supply Co., 110 Colo. 454, 135 P.2d 1007 (1943) (directors); Glengary Consol. Mining Co. v. Boehmer, 28 Colo. 1, 62 P. 839 (1900)(controlling shareholders). Fiduciary duties require directors and controlling shareholders to act with loyalty toward the corporation, and with an "extreme measure of candor, unselfishness, and good faith." Kullgren, supra, 110 Colo. at 461, 135 P.2d at 1010. The fiduciary duties of a director or controlling shareholder are equivalent to the "high standard of duty required of trustees." Kullgren, supra, 110 Colo. at 461, 135 P.2d at 1010. Thus, a contract between corporations that have common directors is voidable if a court finds it to be unfair. Colo. Mgmt. Corp. v. Am. Founders Life Ins. Co., 145 Colo. 413, 359 P.2d 665 (1961); see also River Mgmt. Corp. v. Lodge Props. Inc., 829 P.2d 398 (Colo.App.19...