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

The Lewis family controlled two corporations, S.L. & E. (SLE) and Lewis General Tires (LGT); Donald Lewis (plaintiff) owned SLE stock but not LGT stock or any leadership role, while his brothers Richard, Alan, and Leon Jr. (defendants) were directors and shareholders of both companies and also officers of LGT. Under a shareholders' agreement, family members without LGT stock by 1972 had to convey their SLE shares to LGT at book value. SLE's main asset was the property LGT operated on, and after LGT's original lease expired in 1966, LGT kept paying the same $1,200 monthly rent for years afterward. When Donald's SLE shares were about to be sold to LGT under the agreement, he suspected SLE's book value was understated and sought SLE's books, which Richard, then SLE's president, refused to provide. Donald sued Richard, Alan, and Leon derivatively for wasting SLE's assets by accepting below-market rent from LGT; trial testimony showed the brothers largely ignored SLE's separate corporate existence and believed it existed to serve LGT, and expert testimony put fair rental value between $20,000 and $35,000 annually, far above the $14,400 LGT actually paid. The trial court held Donald bore the burden of proving unfairness and hadn't met it, ruling for the brothers and for LGT's demand for specific performance of the shareholder agreement.