FACTS: Defendants are the directors of the American Express Company. The complaint was brought derivatively by 2 minority stockholders asking for a declaration that a certain dividend in kind is a waste of corporate assets, directing the defendants not to proceed w/ the distribution, or, in the alternative for monetary damages.
1972 American Express (AE) acquired 1,954,418 shares of common stock of DLJ a publicly traded corporation, at a cost of $29.9 million. Current market value for those shares is $4 million.
1975 Board of Directors of AE declared a special dividend to all stockholders of record pursuant to which the shares of DLJ would be distributed in kind. Kamin (Plaintiff) claims that if they would sell the shares on the market, AE would sustain a capital loss of $25 million, which could be offset against taxable capital gains on other investments. Such a sale, they allege would result in tax savings to the company of approx. $8 million, which would not be available in the case of the distribution of DLJ shares to stockholders. On 2 occasions, Kamin demanded that the directors rescind the dividend in DLJ shares and take steps to preserve the capital loss which would result from selling the shares. This demand was rejected by the board.
ISSUE: Will the courts interfere w/a board of directors’ good faith business judgment as to whether or not to declare a dividend or make a distribution?
HOLDING: No. A complaint which alleges merely that some course of action other than that pursued by the board of directors would have been more advantageous gives rise to no cognizable cause of action. The directors’ room rather than the courtroom is the appropriate forum for thrashing out purely business questions which will have an impact on profits, market prices, competitive situations, or tax advantages.
- Whether or not to declare a dividend or make a distribution is exclusively a matter of business judgment for the board of directors, and thus the courts will not interfere with their decision as long as it is made in good faith.
- It is not enough to charge, as Kamin has in this case, that the directors made an imprudent decision or that some other course of action would have been more advantageous.