Summary of Shlensky v. Wrigley
Citation: 95 Ill. App.2d 173 (1968), 237 N.E.2d 776
Relevant Facts: Plaintiff William Shlensky was a minority stockholder in the Chicago Cubs major league baseball team, and brought this stockholder derivative suit against other owners and the corporation for negligence and mismanagement. Defendant Phillip K. Wrigley was a major stakeholder in the Cubs organization, owning approximately eighty percent of shares and serving as President of the organization. Plaintiff Shlensky sought to have the Cubs install lights at Wrigley field, the venue for their home games, so that games could be scheduled at night. According to his complaint, every other major league team had installed lights and a majority of games were now played at night. Shlensky also complained about operating losses at the Cubs organization, where a significant portion of the revenue came from ticket sales and the experience of other teams allegedly demonstrated that the instillation of lights and playing of night games increased attendance. According to the complaint, the only reason that the Cubs failed to install lights was defendant Wrigley’s insistence that baseball was a daytime sport, and the other board members had acquiesced to his demand to keep Wrigley field free of lights notwithstanding the economic impact.
Issue: Does a plaintiff state a cause of action in a stockholder derivative suit where his only allegation is that the behavior complained of is contrary to the best interests of the corporation?
Holding: No, directors and majority shareholders are entitled to the protections of the business judgment rule, and courts will not second-guess business decisions absent fraud, illegality, or conflicts of interest. Accordingly, the plaintiff failed to state a cause of action.
Reasoning: The Court here explained the basics of corporate governance, to wit, that the affairs of the corporation would be directed by a majority of the stockholders therein. Furthermore, the Court pointed out that individuals purchasing stock in corporations acquiesce to this well-known understanding. The Court also pointed out that judges are loathe to second-guess corporate decision-making, traditionally limiting stockholder derivative suits to instances of fraud, illegality, or conflict of interest. The Court here was not convinced, as was suggested in the complaint, that the directors lead by Wrigley were acting contrary to the interests of the organization, and that in any event judges were ill-equipped to second guess the decision-making process. In addressing the key issue of whether the complaint stated a cause of action, the Court was unconvinced that the allegations contained in the complaint demonstrated either that corporate decisions had led to a loss of revenue or that instillation of lights would remedy the problem. Rather, the justices explained that the complaint merely stated a conclusion bolstered by mere recitation of figures from other teams. They also admitted that scheduling of games was only one factor potentially affecting attendance, just as game attendance was only one factor affecting revenue. Finally, the Court concluded that corporate directors are not derelict in their duties merely because they fail to adopt the procedures of the counterparts, and that absent a more substantial demonstration of clearly inappropriate behavior, the Court would not substitute its judgment for that of the directors.
Conclusion: While a state court decision, Shlensky is an oft-cited example of judicial reluctance to second-guess corporate decision-making in accordance with the business judgment rule. The Court concluded that a shareholder derivative suit was inappropriate under the circumstances, as the only possible aim could be imposition of judicial decisions different than those adopted by corporate directors.