(Case Analysis) Donald Lewis was a shareholder in S.L. &E., Inc., a corporation

Question

(Case Analysis) Donald Lewis was a shareholder in S.L. &E., Inc., a corporation that owned land and complex of buildings in Rochester, NY. The land and buildings were leased to LGT, a tire manufacturer. Donald’s brother were shareholders and directors of both S.L. &E. and LGT. Donald had no financial or managerial interest in LGT. S.L. & E, leased the land of LGT ar a rate that Donald considered damaging to S.L. &E. He pointed out that S.L. &E, collected only $14,000 per year in rent from LGT while paying out $11,000 in taxes. This rate, he argued, meant that S.L. &E could never be a profit making corporation.

Should the directors of LGT and S.L. &E be judged by the business judement rule or fairness rule? Explain.

Explanation / Answer

Fairness rule should be applied because If the party challenging the board’s decision is able to prove that those involved in the decisionmaking process lack independence , then the business judgment rule’s presumption is overcome and fairness rule would apply

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