Kamin v. American Express PDF

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Case Brief and Notes for Business Organizations I...

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KAMIN v. AMERICAN EXPRESS COMPANY 86 Misc.2d 809, 383 N.Y.S.2d 807, affirmed, 54 A.D.2d 654, 387 N.Y.S.2d 993 (1st Dept. 1976) FACTS: Parties: Plaintiff: Kamin Defendant: American Express Procedural History: 

Complaint brought against Δ

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Δ motion for dismissal and alternately summary judgment

Relevant Facts: 

Derivative action brought by minority shareholders to ask for a declaration that a certain dividend is a waste of corporate assets or a declaratory judgment for damages

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1972 Δ acquired for investment 1,954,418 shares of DLJ for $29.9 million

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The current market value of shares is $4 million

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7/28/75 BOD of Δ declared special dividend to all stockholders of record pursuant to which the shares of DLJ would be distributed in kind

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If the shares were sold on the market the company would suffer a taxable loss of $25 million which could offset gains elsewhere

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Sale of the DLJ stock would save $8 million in taxes

ISSUE: 

Whether a declaration of dividends which would waste corporate assets is a sustainable cause of action

PARTIES’ ARGUMENTS: Appellant:  Appellee:  DISPOSITION OF THE COURT:

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Δ’s motions granted

RULE OF LAW: 

The courts will not interfere unless the powers have been illegally or unconscientiously executed; or unless it be made to appear that the acts were fraudulent or collusive, and destructive of the rights of the stockholders. Mere errors of judgment are not sufficient as grounds for equity interference, for the powers of those entrusted with corporate management are largely discretionary

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Courts will not interfere with such discretion unless it be first made to appear that the directors have acted or are about to act in bad faith and for a dishonest purpose

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BCL §720(a)(1)(A) permits an action against directors for the neglect of, or failure to perform, or other violation of his duties in the management and disposition of corporate assets committed to his charge

HOLDING: 

There is no showing of fraud or dishonesty and a decision that is merely disagreed with is not a basis for a cause of action

COURT’S REASONING:     

Πs do not show more than mistaken judgment Director cannot be charged with ordinary negligence for having made an improper decision or having acted imprudently Neglect, referred to in BCL, is a neglect of duties and not misjudgment Whether to issue a dividend or not is a decision that a shareholder can disagree with when no fraud or dishonestly is alleged Δ had a BOD meeting where they expressly rejected Π’s contention citing countervailing concerns...