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Article Title

THE VACUITY OF WILKES

Abstract

The venerable Wilkes v. Springside Nursing Home, Inc. decision is ideally suited to serve as a focal point for evaluation of shareholder oppression law. Wilkes defines the Massachusetts approach to shareholder oppression, and Massachusetts has had an indelible influence on the development of a robust, fiduciary-based response to shareholder oppression nationwide. Just as the study of public corporations often begins with Delaware corporate law, Massachusetts law frames the analysis of shareholder oppression in closely held corporations. Even jurisdictions that reject the fiduciary approach to shareholder oppression must engage with it, and Wilkes represents the most prominent and most complete statement of the fiduciary approach.

Given the constraints of the judicial role, Wilkes deserves credit for resisting the temptation to simplify shareholder oppression disputes, even if its time-honored legal response—the deployment of a balancing metaphor—leaves too many issues underexplored. This Article contends that a more developed theory of reasonable expectations would help clarify the Wilkes approach by offering an appropriate threshold inquiry. To decide whether a minority shareholder’s expectation is reasonable, courts should ask whether there exists a shared understanding among shareholders (even if unwritten and unspoken) that the majority has violated. A contractual approach to shareholder oppression, building on Wilkes’s acknowledgment of the importance of reasonable shareholder expectations, would advance the task Wilkes set for itself: the articulation of a powerful but fair standard for protecting minority shareholders that does not prevent controlling shareholders from pursuing legitimate business purposes.

This Article proceeds in five parts. Part I argues that Wilkes v. Springside Nursing Home, Inc. fails to provide a clear standard for assessing claims of shareholder oppression. Part II uses the facts of Donahue to illustrate Wilkes’s indeterminacy. Part III contends that the Massachusetts courts, even with the benefit of more than three decades of experience, have not satisfactorily answered the questions that Wilkes left open. Part IV contends that reasonable expectations analysis could give the Wilkes test more specific content by encouraging the courts to evaluate the legitimacy of the controlling shareholders’ purpose in the context of the parties’ actual bargain. Part V concludes, however, that not all values at stake in a shareholder oppression claim are contractual. Wilkes’s engagement with complexity is a signal contribution.

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