Kamin v. American Express Company
383 N.Y.S.2d 807


PROCEDURE: Defendants filed a motion for summary judgment arising from plaintiffs' stockholder derivative action challenging defendants' distribution of a dividend.

FACTS: American Express (D) acquired 1,954,418 shares of the common stock of Donaldson, Lufken, and Jenrette, Inc. at a cost of $29.9 million in 1972. At the time of the suit, the shares' market value was approximately $4 million. The complaint alleged that on July 28, 1975, the board of directors declared a special dividend in which those acquired shares would be distributed to the stockholders in kind. Howard (P) and Robert (P) Kamin, who were both American Express (D) shareholders, contended that if American Express (D) had sold the shares on the market, the sale would result in a loss of $25 million, which could be used to offset capital gains and result in an $8 million tax saving. On October 8 and again on October 16, thestockholders demanded the directors rescind the distribution and preserve the
capital loss. The board rejected their demand and paid the dividend on October 31.

ISSUE: Should a question of whether or not a dividend should be paid or not be exclusively covered by the business judgment of the Board of Directors?

RULE: Question of whether or not dividend is to be declared or distribution of some kind should be made is exclusively a matter of business judgment for corporation's board of directors

HOLDING: On review, the court held that it would not interfere with decisions of directors of a corporation unless there had been some sort of fraud, dishonest practices, or other grounds that allowed for equitable interference. The court held that questions of policy and business management were better left to the judgment of corporate management. Additionally, to maintain an action for neglect against a director pursuant to N.Y. Bus. Corp. Law plaintiffs must establish that the director neglected his duties. Misjudgment by the director did not amount to neglect. In this case, plaintiffs' claim was based on their disagreement with defendants' decision to distribute a dividend. As a result, the court granted summary judgment and dismissed the claim. The court awarded summary judgment for defendants because questions of policy and business management were better left to discretion of board of directors unless plaintiffs could show acts, such as fraud, that justified judicial interference, and here, plaintiffs' suit was only based on their disagreement with defendants' business decisions.