237 N.E.2d 776
Shlensky, a minority stockholder of defendant Chicago National League Ball Club (Inc.), a Delaware corporation with its principal place of business in Chicago, filed a stockholders’ derivative suit against the corporation’s directors.1 The corporation owns and operates the Chicago Cubs major league baseball team, Wrigley Field, concession sales, television and radio broadcasts, and related activities.2 The suit sought damages and an order compelling the directors to install lights at Wrigley Field and schedule night games.3
Defendant Philip K. Wrigley, president and owner of approximately 80% of the stock, and the remaining directors who had served for varying periods were named as defendants along with the corporation.4 The complaint alleged that since night baseball began in 1935, nineteen of the twenty major league teams have scheduled night games.5 In 1966, 932 of 1,620 major league games occurred at night.6
Every other major league team scheduled substantially all of its 1966 home games at night, excluding opening days, weekends, holidays, and league-prohibited dates, to maximize attendance and revenue.7 The Cubs instead played home games during the day.8 Between 1961 and 1965 the Cubs sustained operating losses from direct baseball operations that plaintiff attributed to inadequate home attendance, which was substantially below attendance at road games and at Chicago White Sox weekday night games.9
Plaintiff further alleged that financing for lights was readily available, that installation costs would be more than offset by increased revenues from higher attendance and related sources, and that the Cubs would continue to incur comparable losses without night games.10 Defendant Wrigley refused to install lights because he viewed baseball as a daytime sport and believed night games would deteriorate the surrounding neighborhood.11 He admitted he was not interested in whether the Cubs would benefit financially and stated he would allow night games only if a new stadium were built in Chicago.12
The complaint charged that the other directors, with full knowledge of Wrigley’s personal views, acquiesced in his policy and permitted him to dominate board decisions on lights and night games even though they knew his motives were unrelated to the corporation’s business interests.13 It alleged that these actions constituted negligence, mismanagement, and waste of corporate assets.14 The trial court dismissed the amended complaint on defendants’ motion, and Shlensky appealed the dismissal to the Appellate Court of Illinois.15
Whether the plaintiff's amended complaint states a cause of action?16
Under the business judgment rule, courts will not interfere with the honest business judgment of directors in the conduct of corporate affairs unless there is a showing of fraud, illegality, or conflict of interest, because the majority of stockholders control corporate policy and directors are presumed to act in good faith to promote the corporation's best interests.17
No. The established facts show that Shlensky, a minority stockholder, filed a derivative suit alleging that Wrigley and the other directors refused to install lights at Wrigley Field and schedule night games solely due to Wrigley's personal view that baseball is a daytime sport and his concern that night games would deteriorate the surrounding neighborhood, with the other directors acquiescing despite knowing these motives were unrelated to corporate welfare.18 The complaint further recites that nineteen other major league teams scheduled night games to maximize attendance and revenue.19 The Cubs incurred operating losses from 1961 to 1965 attributed to low home attendance compared with road games and White Sox night games.20 Financing for lights was available with costs offset by increased revenues.21
These allegations, however, do not demonstrate fraud, illegality, or conflict of interest.22 Instead they describe a policy choice regarding neighborhood effects and long-term property values at Wrigley Field that directors may properly consider without judicial second-guessing.23 The trial court's dismissal was therefore correct because the facts pleaded fall within the protected zone of director discretion.24
The amended complaint does not state a cause of action because the directors' refusal to install lights and schedule night games is protected by the business judgment rule.25
Whether the amended complaint sufficiently alleges damage to the corporation?26
No. The established facts recite that the Cubs sustained operating losses from 1961 to 1965 attributed to inadequate home attendance, that installation costs would be offset by increased revenues, and that the corporation would continue to incur losses without night games.29 Yet the complaint contains no allegation that night games would produce a net benefit after accounting for all increased costs such as operation and maintenance of lights.30 The facts further show that in 1962 attendance at both home and road games decreased while corporate losses were considerably less than in 1961, demonstrating that factors other than attendance affect net earnings.31 Because the complaint offers only conclusions that the minority stockholders and corporation were seriously and irreparably damaged without well-pleaded facts establishing that the directors' policy caused recoverable harm, it fails to allege damage sufficiently.32
The amended complaint does not sufficiently allege damage to the corporation because it fails to plead facts showing that night games would yield a net benefit or that the existing policy caused the claimed losses.33