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Neither the attorney nor the accountant was experienced in
selling yachts. During March 1987, petitioners formed, in order
to protect themselves from liability, a subchapter C corporation
called “Lucid Cruising, Inc.” It was a wholly owned subsidiary
of Dr. Lucid's medical corporation, Morgan L. Lucid, M.D. Inc.,
which was incorporated on September 5, 1974. During October
1988, Lucid Cruising, Inc., was merged into its parent, Morgan L.
Lucid, M.D., Inc.; eventually, the merged corporation was renamed
“Morgan L. Lucid, Inc. Lucid Cruising” (Lucid Cruising), and S
corporation status was elected. Petitioners were the sole
shareholders of Lucid Cruising.
On December 30, 1985, petitioners indicated an interest in
pursuing a contract to be the sole west coast representative of
Kanter Yachts Corp. (Kanter Yachts). Petitioners believed that
steel and aluminum yachts afforded much more protection than
wooden or fiberglass yachts.
In 1986, petitioners became interested in acquiring a metal-
hulled sailboat. After examining and sailing in Lake Superior a
particular type of yacht, an Atlantic 45-foot owned by a Mr.
Donaldson, petitioners decided to lengthen the hull by 5 percent.
With the help of the architect who designed Mr. Donaldson's
yacht, petitioners made other changes to the vessel's design. On
June 6, 1986, petitioners requested that Kanter Yachts build a
yacht based on the detailed plans drawn by the architect.
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