Law School Resources

Kamin v. American Express, (1976)

1. Kamin v. American Express, (1976); pg. 267, briefed 2/24/97

2. Facts: 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.

4. Issue: Whether the declaration of the stock dividend in this case amounts to abuse of discretion.

5. Holding: No.

6. Reasoning: 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.