Lakers Family Dispute Offers Great Opportunity for Review of Biz Org Basics

According the L.A. Times this morning, Jim and Johnny Buss tried to take over the Lakers and “oust [Jeannie Buss] as the Lakers’ president and controlling owner.”   Jeannie Buss responded by asking the court to issue a restraining order stopping the effort and that apparently was successful.

According to the article,

Jeanie Buss [had] removed Jim Buss from his role as Lakers vice president of basketball operations and hired Magic Johnson.  Three days later, according to court documents, Johnny Buss notified his sister of a March 7 meeting to elect the team’s board of directors.  He is listed as overseeing corporate development of the Lakers.

The brothers proposed four directors, according to court records, but didn’t include her.  In order to be the controlling owner, she also must be a director.

The family trusts that own 66% of the Lakers can elect three of the board’s five members.  The trusts mandate the co-trustees — Johnny, Jim and Jeanie — take all actions to ensure Jeanie Buss remains controlling owner of the Lakers.  She has occupied the role since their father, Jerry Buss, died in 2013.

Pretty fun.  So let’s put all of this in the terms we talk about in class.   The first thing we need to know is whether this is a corporation.  I went to the business search function of the California Secretary of State and found a corporation “The Los Angeles Lakers, Inc.” formed in 1979.  The form SI indicates that Jeannie Buss is the President and there are five board members:  Jeannie, Joey and Johnny plus two other persons whose names aren’t Buss.  No Jim.

Well, the board of directors is elected by the shareholders.   The BOD then makes all consequential decisions.  Seems to me that a shareholder has a perfect right to call a shareholders meeting (there may be some required amount of shares in the by-laws before a shareholder may call the meeting by himself).  But who are the shareholders here?  A family trust owns 66% of the shares.  IT is the holder of those shares at least.   IT calls the meeting through its authorized representative.  IT votes at the meeting.  Apparently the trust mandates that Jeannie “remain the controlling owner.”  What in the world does that mean?   I had to read several different articles before I figured it out (I think).   The NBA, National Basketball Assn, requires someone from each team to be designated “the controlling owner.”  The NBA owners meet all the time and make decisions as a group.  The owners don’t want to have people showing up, minority owners or co-owners or partners or board members of teams, purporting to speak for the team.  The NBA has said (apparently) each team must pick someone who can speak for the team – one person we can be sure has authority to speak for the team – that’s the controlling owner.  And apparently there is also an NBA rule that says the controlling owner must be on the board of directors.

So apparently Jim and Johnny’s plan was to appoint a new board without Jeannie, she could thereby not be the controlling owner and presumably Jim or someone else would be the controlling owner thereafter and of course, according to the court papers, the world would end that very day, i.e., irreparable injury (a fundamental predicate to getting an injunction).

Now there is a “trial” set for May 15, apparently in probate court.  I assume that means there are some issues about the terms of the trust that Jeannie is asking the court to resolve.

What is left unexplained is who is making the decisions for the corporation that owns the Lakers, i.e., The Los Angeles Lakers, Inc.  The BOD makes all consequential decisions and Jeannie has only one vote of five.  Johnny is apparently voting against her – we don’t know what’s up with Joey nor why Jim is not on the board.    The answer is apparently that the two non-Buss board members support Jeannie and that makes three of the five.   I assume that replacing Jim Buss with Magic Johnson was a consequential decision, made a duly  noticed board meeting – it had to have been.

So there may be a lawsuit in the future by a shareholder (Jim I believe also owns shares himself 10%?) against the three board members saying the three breached their fiduciary duties.  It would be a derivative suit.  Great, so we are going to have some judge looking at whether Jim Buss or Magic Johnson is better for the team?  Of course not.  The business judgment rule says the court must stay out of it unless they did not use care in the process or there was a conflict, illegality, bad faith, waste etc.  Is there a conflict with respect to voting Jim out and Magic in?  Certainly not as to the Magic decision.  As to Jeannie voting to pitch her brother out – is there a conflict there?    Is she benefiting personally from the decision?  I would say not – she was already on the board – she is not getting more money or more power or more anything else from the decision.

I will update this as the story continues to unfold.  Let me know what you think.

2 thoughts on “Lakers Family Dispute Offers Great Opportunity for Review of Biz Org Basics

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