Shlensky Vs Wrigley Summary
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 …show more content…
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 …show more content…
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, in his mind, was sufficient enough to go through the appeal and try someway to find the board of directors for a cause of action that would be able to grant him his wish of getting lights installed. The plaintiff attorney used Dodge v. Ford Motor Co., 204 Mich 459, 170 NW 668 to defend his client. The case talked about a minority stockholder like him who thought the corporation was cheating him out and not doing business in the interest of the corporation, only for himself because the majority was keeping the surplus of profits and not using it to benefit the corporation. The court finds, "when a corporation has a surplus and refuses to help benefit the corporation, it constitutes a fraud or breach that good faith which they are bound to exercise toward the stockholders." The plaintiff had a horrible lawyer! Wrigley field was losing money and couldn't commit fraud. However, the court did agree, in part, that the motive of Mr. Wrigley and his directors are contrary to the best interests of the corporation. For instance, the directors argued about the surrounding neighborhood. Well, this could be a legitimate argue but the neighborhood isn't in a poor area, the property value of Wrigley Field might demand a lot of attention that will or could keep the neighborhood from decreasing its value. The courts went on to say that they are not trying to agree or approve of the decision made by the directors, rather, it is beyond their jurisdiction and ability. Also, the decision is made before the directors and their motives do not constitute any signs of fraud, illegality or a conflict of interest in their decision making process nor are there any "close calls", meaning there isn't a gray area or something in question. The appellate court states the trial court made the right decision in not interfering with the corporation. The appellate goes on to say, "The plaintiff's complaint was defective as it failed to allege damage to the corporation. The well pleaded facts must be taken as true for the purpose of judging the sufficiency of complaint .There is no allegation that the night games played by the other teams enhanced their financial position or that the profits, if any, were directly related to the number of night games. Also, there is no allegation that the installation of lights and schedule of night games at Wrigley Field would have resulted in large amounts of additional revenue and income from increased attendance and related sources of income. Further, the cost if installation of lights, which were readily available, would be more than recaptured by increased revenues. This statement wasn't even in question by the plaintiff. The plaintiff stated before that the losses and poor attendance were from the lights. Major League Baseball as a whole saw a decrease in attendance all across the board. The only thing the plaintiff was concerned about was the installation of lights. There was no mention about operation and maintenance of the lights or other increases in operating costs of night games and the court couldn't speculate as to what factors might influence an increase or decrease of profits. The damage done by a wrongful conduct of directors is merely a conclusion, not facts. Also, the plaintiff made no allegation that the other teams that had installed lights and schedule night games were more profitable. Just because some team has something the other teams don't, means that the unlucky teams should "follow the leader or envy them." Finally, the directors that are elected are elected for their business capabilities and judgment. Courts can not require directors to forego their judgment because of the decision of directors of other companies. Because the plaintiff filed on these grounds and having no clear showing of failure or fraud. Appellate court affirmed the lower court decision. The following three questions were from the book and this is our explanation of them.
Question 1: What was the issue in this case? The issue in this case was whether or not the board of directors violated its fiduciary duties. The issue is whether the board should have installed lights, and whether or not Shlensky is entitled to damages.
Question 2: The Cubs added lights in 1988. How could the board be meeting its duty of due care both in the 1960s by not erecting lights and in the 1980s by doing so? In 1981 The Chicago Tribune acquired the Cubs, and in 1988 the MLB threatened that the Cubs would not be able to hold post season games if they did not add lights. This would cause major revenue loss. Not adding lights would not have been in the best interest of the shareholders. In the 1960s it was not a violation because it was the business decision of the Board and it was affirmed by the majority of the shareholders "Wrigley."
Question 3: Charles Pritchard Sr., was CEO of a corporation. He, his wife Lillian, and his sons Charles, Jr., and William were the board. The sons began running the company in the 1960s. Charles Sr. died in 1973. The sons extracted $12 million from the corporation as "loans" that were never repaid. The corporation went bankrupt. Lillian died in 1978. Corporate creditors sued Lillian's estate for$10 million claiming that she had been negligent as a director. Lillian was never involved in corporate oversight. The defense argued that: Lillian was a "simple housewife who served as a director as an accommodation to her" family. Who should win? The creditors should win. She should have had knowledge of all the financial things going on in the company. She had a fiduciary duty to the shareholders. The duty was violated when she saw fraud being committed by the sons and she failed to do anything about it.
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 …show more content…
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 …show more content…
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, in his mind, was sufficient enough to go through the appeal and try someway to find the board of directors for a cause of action that would be able to grant him his wish of getting lights installed. The plaintiff attorney used Dodge v. Ford Motor Co., 204 Mich 459, 170 NW 668 to defend his client. The case talked about a minority stockholder like him who thought the corporation was cheating him out and not doing business in the interest of the corporation, only for himself because the majority was keeping the surplus of profits and not using it to benefit the corporation. The court finds, "when a corporation has a surplus and refuses to help benefit the corporation, it constitutes a fraud or breach that good faith which they are bound to exercise toward the stockholders." The plaintiff had a horrible lawyer! Wrigley field was losing money and couldn't commit fraud. However, the court did agree, in part, that the motive of Mr. Wrigley and his directors are contrary to the best interests of the corporation. For instance, the directors argued about the surrounding neighborhood. Well, this could be a legitimate argue but the neighborhood isn't in a poor area, the property value of Wrigley Field might demand a lot of attention that will or could keep the neighborhood from decreasing its value. The courts went on to say that they are not trying to agree or approve of the decision made by the directors, rather, it is beyond their jurisdiction and ability. Also, the decision is made before the directors and their motives do not constitute any signs of fraud, illegality or a conflict of interest in their decision making process nor are there any "close calls", meaning there isn't a gray area or something in question. The appellate court states the trial court made the right decision in not interfering with the corporation. The appellate goes on to say, "The plaintiff's complaint was defective as it failed to allege damage to the corporation. The well pleaded facts must be taken as true for the purpose of judging the sufficiency of complaint .There is no allegation that the night games played by the other teams enhanced their financial position or that the profits, if any, were directly related to the number of night games. Also, there is no allegation that the installation of lights and schedule of night games at Wrigley Field would have resulted in large amounts of additional revenue and income from increased attendance and related sources of income. Further, the cost if installation of lights, which were readily available, would be more than recaptured by increased revenues. This statement wasn't even in question by the plaintiff. The plaintiff stated before that the losses and poor attendance were from the lights. Major League Baseball as a whole saw a decrease in attendance all across the board. The only thing the plaintiff was concerned about was the installation of lights. There was no mention about operation and maintenance of the lights or other increases in operating costs of night games and the court couldn't speculate as to what factors might influence an increase or decrease of profits. The damage done by a wrongful conduct of directors is merely a conclusion, not facts. Also, the plaintiff made no allegation that the other teams that had installed lights and schedule night games were more profitable. Just because some team has something the other teams don't, means that the unlucky teams should "follow the leader or envy them." Finally, the directors that are elected are elected for their business capabilities and judgment. Courts can not require directors to forego their judgment because of the decision of directors of other companies. Because the plaintiff filed on these grounds and having no clear showing of failure or fraud. Appellate court affirmed the lower court decision. The following three questions were from the book and this is our explanation of them.
Question 1: What was the issue in this case? The issue in this case was whether or not the board of directors violated its fiduciary duties. The issue is whether the board should have installed lights, and whether or not Shlensky is entitled to damages.
Question 2: The Cubs added lights in 1988. How could the board be meeting its duty of due care both in the 1960s by not erecting lights and in the 1980s by doing so? In 1981 The Chicago Tribune acquired the Cubs, and in 1988 the MLB threatened that the Cubs would not be able to hold post season games if they did not add lights. This would cause major revenue loss. Not adding lights would not have been in the best interest of the shareholders. In the 1960s it was not a violation because it was the business decision of the Board and it was affirmed by the majority of the shareholders "Wrigley."
Question 3: Charles Pritchard Sr., was CEO of a corporation. He, his wife Lillian, and his sons Charles, Jr., and William were the board. The sons began running the company in the 1960s. Charles Sr. died in 1973. The sons extracted $12 million from the corporation as "loans" that were never repaid. The corporation went bankrupt. Lillian died in 1978. Corporate creditors sued Lillian's estate for$10 million claiming that she had been negligent as a director. Lillian was never involved in corporate oversight. The defense argued that: Lillian was a "simple housewife who served as a director as an accommodation to her" family. Who should win? The creditors should win. She should have had knowledge of all the financial things going on in the company. She had a fiduciary duty to the shareholders. The duty was violated when she saw fraud being committed by the sons and she failed to do anything about it.