Shlensky V. Wrigley

Shlensky vs. Wrigley

The case is about a stockholder named Shlensky who is suing the board of directors of Wrigley Field on the grounds of failure to install lights at the stadium. This is a claim of mismanagement and negligence by the directors. At the time of the case, The Chicago Cubs were the only major league team without lights on their stadium. Mr. Wrigley, the principal owner of the team, refused to add lights onto the stadium because he felt that, "baseball is a daytime sport and it would greatly deteriorate the surrounding neighborhood if lights were installed." The plaintiff (Shlensky) was upset that the organization waslosing money. Shlensky argued that the loss amounted to poor attendance and no night games. He further said that this negative effect would continue if the board of directors chose not to add the lights. Also, He noted that the south side rivals, Chicago White Sox, were doing far better than the Cubs in both attendance and revenue, as they have night games. Lastly, the plaintiff wanted the court to put out an order stating the Chicago Cubs install lights, schedule night games, and pay him damages. The issue in question is should the board of directors install lights and award Shlensky damages such as the value of his stock?

The suit filed by Shlensky is a Shareholder derivative suit. This is a lawsuit where action is being taken that harms or defrauds the corporation and neither the senior executives nor the board of directors will take action to protect against the violations. These suits are usually filed by minority shareholders. Any recovery by the plaintiff is harmful to the corporation they are involved in. There are many issues that are involved with this case.

First you have to understand how a corporation works. A corporation is a business organization that is owned by shareholders. These shareholders buy shares of ownership in a company. A shareholder has three main rights: participation of earnings, participation of assets upon liquidation, and the right to participate in control. To participate in control the shareholders have votes, not all things are voted on and who can actually vote and how much each vote is worth differs among corporations. The shareholder has limited liability to the corporation meaning that creditors can not come after shareholders and shareholders are not involved in legal troubles by the firm unless directly involved. The shareholders also have free transferability of interest, meaning that the owners can sell their shares of stock at anytime.

Most shareholders are not involved in any part of the operation of the corporation. The shareholders vote to elect a board of directors. It is the directors' responsibility to act in the best interest of the shareholders. To ensure that this is being upheld the board is made up of inside directors, senior executives and top shareholders, and outside directors, people not employed or involved in the organization. The board monitors the corporation creates policies and makes major decisions for the corporation. The directors create bylaws which detail the policies and the procedures of the corporation. They also appoint officers. This is usually a president, vice president, secretary etc. The officers run the day to day business procedures. The officers are actually agents of the corporation whereas the directors are not.

The officers and the board of directors have fiduciary duties to the corporation and its shareholders. A fiduciary duty is the duty of the fiduciary to act on behalf of the beneficiary. There are two main duties owed the duty of loyalty and the duty of due care. The duty of loyalty is the duty of the fiduciary to act in the best interest of the shareholders at all times. The duty of due care requires that the board and officers act in good faith toward the corporation, and in a manner that any other reasonable person would in their position.

Given these two duties the board or officers can make decisions that were in good faith but still turn out to be bad ones. To protect them from many frivolous lawsuits the judicial system of the U.S. has developed what it calls the business judgment rule. This rule prohibits the courts from second guessing the judgment of the corporate decision makers. The decision makers are professionals at what they do and most judges would not have the proper knowledge to decide if it was right or not, and the fact that the issue would be looked at after a bad decision was made making it easier to pick apart. The courts get involved when a crime or fraud has been committed by a fiduciary.

Shlensky lost in the trial court and appealed the case. The reason he lost the case was that, according to Justice Sullivan, from Wheeler v. The Pullman Iron and Steel Co , 143 ILL 197, 207, 32 NE 420 case " It is... fundamental in the law of corporations that the majority of its stockholders shall control the policy of the corporation. Everyone purchasing stock agrees that he will be bound by the lawful acts of a majority of the shareholders, or of their corporate agents. And courts... will not undertake to control the policy or business methods of a corporation, although it may be seen that a wiser policy might be adopted and the business more successful if other methods were pursued." Shlensky was arguing that the board of directors was indeed acting for other purposes other than the business itself. The plaintiff continued to say that the directors were wasting corporate assets and they were not exercising the right of reasonable care for their fans and allowing Mr. Wrigley to dominate even though they knew he was not motivated by good faith for the best interest of the corporation. Justice Sullivan continued to say that, "the majority stockholder must be permitted to control the business of the corporation in their discretion, when not in violation of its charter or some public law, or corruptly and fraudulently subversive of the rights and interests of the corporation as a shareholder. Mr. Wrigley and the board of directors may not have made the correct or best interest decision, but they did not show fraud or illegality of any kind. Davis v. Louisville Gas and Electric Co., 6NJ Misc 706, 142 A 654 state; "It is not the courts function to resolve for corporation questions of policy and business management. The directors are chosen to pass upon such questions and their judgment unless shown to be tainted with fraud is accepted as final. The judgment of the directors of corporations enjoys the benefit of a presumption that it was formed in good faith and was designed to promote the best interests of the corporation they serve. Toebelman v. Missouri-Kansas Pipe Line Co., 41 F Supp 334, "... the court is without authority to substitute its judgment for that of the directors." Shlensky's complaint,