Tuesday, February 26, 2013

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

Lewis v. S. L. & E., Inc. case brief summary
629 F.2d 764

SYNOPSIS: Plaintiff shareholder appealed a decision for defendants, closely held corporation and its officers and directors, by the United States District Court for the Western District of New York, in a shareholder derivative action.

FACTS:
-Plaintiff shareholder refused to sell his shares under a contract to defendants, closely held corporation and its officers and directors, because of an allegation of waste for the failure to charge a reasonable rent to another closely held corporation with the same officers and directors.
-At trial, plaintiff lost the derivative action for waste and attorneys' fees while defendants won its specific performance action to enforce the contract and for attorneys' fees.

HOLDING:
The court reversed and remanded because under N.Y. Bus. Corp. Law § 713, defendants, as the officers, directors and/or shareholders of the lessee corporation while serving as the directors of defendant closely held corporation, had the burden to prove that there was no waste, which they failed to do.

RULE:
Directors that have a conflict of interest in a corporate transaction have the burden to prove that no waste was committed.

ANALYSIS:
Defendants were not entitled to attorney's fees where there was no statutory allowance, while plaintiff was entitled to attorneys' fees under N.Y. Bus. Corp. Law § 626(e).

OUTCOME: The court reversed and remanded the judgment for defendants, closely held corporation and its officers and directors, and ruled for plaintiff shareholder in a derivative action because defendants failed to prove that there was no waste committed, which burden they carried because they had an interest in the corporate transaction, and because plaintiff was entitled to attorneys' fees.

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