Law School Resources
Kamin v. American Express, (1976)
1. Kamin v. American Express, (1976);
pg. 267, briefed 2/24/97
AMEX’s board of directors decided to declare a
dividend. However, rather than distributing cash as
a dividend, they distributed shares of a stock (DLJ)
which had declined in value since they had purchased
it. For tax purposes, Amex would be better of
selling the stock and taking the capital loss.
However, the board knew that selling the stock would
require that they reduce their reported income for
the year (hurting the stock price), whereas
distribution by dividend would only reduce the
retained earnings by the book value of the stock,
and thus not be reportable against income.
3. Procedural Posture:
Two shareholders sued to enjoin the board from
declaring the stock dividend.
Whether the declaration of the stock dividend in
this case amounts to abuse of discretion.
Unless there is fraud or bad faith, the board of
directors has the exclusive discretion to make such
a business judgment. The minority stockholders are
not in a position to question this right of the
directors, unless they act in bad faith. The
director’s board room, rather than the courtroom, is
the appropriate forum for arguing these purely
business (and not legal) questions.