ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Tuesday, March 10, 2009

Business Associations Limerick of the Week: Wilkes v. Springside Nursing Home, Inc.

I am heading off for a conference this week and am behind in preparations, so this will be a short post and probably the last for the week from me.

Wilkes sets out the standard for fiduciaries in the context of a close corporation in Massachusetts. In doing so, it departs from an earlier Massachusetts precedent, Donahue v. Rodd Electrotype. While Donahue treated close corporations like partnerships and thus treated shareholders with all the rigor demanded by Cardozo's punctilio, Wilkes held that standard too demanding. Rather, when challenged by a minority shareholder, the remaining shareholders must show that their actions were inspired by a legitimate business purpose and that the actions taken were narrowly tailored to minimize the harm to the minority shareholder. In short, the court recognized the legitimacy of shareholders looking out for their "selfish ownership interest" in the company.

In this case, the defendants breached their fiduciary duty to Wilkes by freezing him out and depriving him of the benefits of his status as a shareholder

Wilkes v. Springside Nursing Home, Inc.

A freeze may be allowed
Where a proper purpose 's avowed.
But minority rights
May be extinguished like lights
'Neath a selfish ownership shroud.

[Jeremy Telman]

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