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In a purely business corporation the authority of the directors in the conduct of the business of the corporation must be regarded as absolute when they act within the law, and the court is without authority to substitute its judgment for that of the directors.
Plaintiff, William Shlensky, a minority stockholder of defendant corporation, Chicago National League Ball Club (Inc.). The defendant corporation owned and operated the major league professional baseball team known as the Chicago Cubs. The individual defendants were directors of the Cubs and have served for varying periods of years. Defendant Philip K. Wrigley was also president of the corporation and owner of approximately 80% of the stock therein. Shlensky alleged that every member of the major leagues, other than the Cubs, scheduled substantially all of its home games in 1966 at night, exclusive of opening days, Saturdays, Sundays, holidays and days prohibited by league rules. Allegedly this has been done for the specific purpose of maximizing attendance and thereby maximizing revenue and income. According to Shlensky, in the years 1961-1965, Chicago National League Ball Club sustained operating losses from its direct baseball operations. Shlensky attributed those losses to inadequate attendance at Cubs' home games. He concluded that if the directors continue to refuse to install lights at Wrigley Field and schedule night baseball games, the Cubs will continue to sustain comparable losses and its financial condition will continue to deteriorate. Shlensky further alleged that defendant Wrigley has refused to install lights, not because of interest in the welfare of the corporation but because of his personal opinions that baseball was a daytime sport and that the installation of lights and night baseball games will have a deteriorating effect upon the surrounding neighborhood. Plaintiff further alleged that the other defendant directors, with full knowledge of the foregoing matters, have acquiesced in the policy laid down by Wrigley and have permitted him to dominate the board of directors in matters involving the installation of lights and scheduling of night games, even though they knew he was not motivated by a good faith concern as to the best interests of defendant corporation, but solely by his personal views. Because of these concerns, Shlensky filed a stockholders' derivative suit against the directors for negligence and mismanagement. According to Shlensky, fraud, illegality and conflict of interest were not the only bases for a stockholder's derivative action against the directors. On the other hand, defendants argued that the courts will not step in and interfere with honest business judgment of the directors unless there is a showing of fraud, illegality or conflict of interest. The lower court ruled in favor of the defendants and held that Shlensky’s complaint did not state a cause of action. Shlensky thereafter appealed the judgment.
Did Shlensky’s complaint state a cause of action?
The Court held that Shlensky’s complaint did not state a cause of action. The Court maintainied that courts should not interfere in a corporation's management unless fraud or a breach of faith existed. In the case at bar, the decision at issue was one properly before the corporation's directors, and the motives alleged in the complaint showed no fraud, illegality, or conflict of interest in their making of that decision. According to the Court, the allegations in Shlensky’s complaint were mere conclusions, which were insufficient to except the directors from the business judgment rule.