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Business Assoctiations Keyed to Gabalson, 3rd Ed.
Lewis v. S. L. & E., Inc.
Citation:
629 F.2d 764 (1980)Facts
For many years, Leon Lewis, Sr. was the principal shareholder of both SLE and LGT. SLE’s only significant asset was a property at 260 East Avenue in Rochester, which LGT occupied as a tenant. In 1956, SLE granted LGT a 10-year lease on the property for $1,200 per month ($14,400 annually), with SLE responsible for real estate taxes. In 1962, Leon Lewis, Sr. transferred his 90 SLE shares equally to his six children, including the plaintiff and defendants. At the same time, all six children entered into a shareholders’ agreement with LGT requiring those who were not LGT shareholders by June 1, 1972, to sell their SLE shares to LGT at book value.
When the lease expired in February 1966, no new lease was executed, but LGT continued to occupy the property at the same rental rate. The defendant directors never considered increasing the rent, even as real estate taxes rose from approximately $7,800 to more than $11,000 during 1966-1971. Richard testified that SLE was “only a shell to protect the operating company [LGT].” No formal meetings of SLE shareholders or directors had been held since 1962.
As the June 1972 date approached for the required sale of SLE stock, Donald sought financial information about SLE from Richard, who refused to provide it. Donald then refused to sell his shares and filed this derivative action in 1973, claiming that the defendants had wasted SLE’s assets by “grossly undercharging” LGT for use of the property from 1966 to 1972.
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