Lewis v. S. L. & E., Inc.

The Lewis family controlled two corporations, S. L. & E., Inc. (SLE) and Lewis General Tires, Inc. (LGT). Donald Lewis (plaintiff) owned stock in SLE but not LGT. He held no corporate leadership role. Richard Lewis, Alan Lewis, and Leon Lewis, Jr. (defendants) were stockholders and directors at both companies and were also officers of LGT. In 1962, Donald, Richard, Alan, Leon, and their two sisters entered into a shareholders’ agreement which stated that if any of the six did not own any LGT stock on June 1, 1972, they would convey their SLE shares to LGT at book value. SLE’s only significant asset was the property on which LGT operated its business. Under a 10-year lease agreement which expired in 1966, LGT paid $1,200 per month in rent and covered all expenses except real estate taxes, which SLE paid. After the lease expired, LGT continued to occupy the space and pay the $1,200 monthly rent, which totaled $14,400 annually. Prior to 1972, when his SLE shares were to be sold to LGT, Donald determined that SLE’s book value was lower than it ought to be. He sought SLE’s books and records, but Richard, then SLE’s president, refused. Donald brought a derivative action against Richard, Alan, and Leon Jr. for waste of corporate assets in their capacities as SLE directors. Donald argued that the amount SLE received in rent was too low. LGT intervened in the case and demanded specific performance from Donald on the shareholder agreement. At trial, testimony from Richard, Alan, and Leon indicated that they had generally ignored SLE’s separate existence and believed SLE existed to benefit LGT. Expert testimony suggested that fair rental was between $20,000 and $35,000 annually. The trial court held that Donald had the burden to show that the lease was unfair, and that he had not carried that burden. The court ruled in favor of Richard, Alan, and Leon, and also in favor of LGT in its claim for specific performance of the shareholder agreement. Donald appealed.