Brief Fact Summary.
Shlensky (Plaintiff), a minority shareholder of the Chicago Cubs, filed a derivative suit against Wrigley (Defendant), the majority shareholder, to compel them to install lights at Wrigley Field in order to hold night games after their refusal to do so.
Synopsis of Rule of Law.
A derivative suit by a shareholder can only be based on directors’ conduct that borders on fraud, illegality, or conflict of interest.
Under this rule, 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.View Full Point of Law
Wrigley (Defendant) was the majority shareholder and a director of the Chicago Cubs baseball team.Â Shlensky (Plaintiff) was a minority shareholder who sought to bring a shareholders’ derivative action to compel the directors to equip Wrigley Field (the home field of the Cubs) with lights to enable night games and increase revenues.Â The trial court sustained Defendant’s motion to dismiss over Plaintiff’s contention that the refusal to install lights was a personal decision of Defendant and not in the best interest of the shareholders.
Can a derivative suit by a shareholder be based only on directors’ conduct that borders on fraud, illegality, or conflict of interest?
(Sullivan, J.)Â Yes.Â A derivative suit by a shareholder can only be based on directors’ conduct that borders on fraud, illegality, or conflict of interest.Â Schlensky’s (Plaintiff) attempt to use the derivative suit to force a business judgment on the board of directors of the Chicago Cubs was improper as there was no showing of fraud, illegality, or conflict of interest.Â Valid reasons exist for refusal to install lights in the stadium.Â Plaintiff claims that night games have not been considered due to Defendant’s personal feelings about the sport. Defendant, however, contends that night games in the Wrigley Field area would be detrimental to the neighborhood.Â In addition, no evidence is shown that night games would increase revenues by a significant measure or that additional expenses would not be required to enable night games.Â Affirmed.
The â€œbusiness judgment ruleâ€ is typically stated as relating to the functions of directors, however, the rule applies equally to officers of the corporation while acting in their official capacities.Â It may also apply to controlling shareholders if these persons assert their more extraordinary management functions, e.g., mergers or sale of their complete interest.