## Facts

- American Express Company (Amex) purchased 1,954,418 shares of Donaldson, Lufkin & Jenrette, Inc. (DLJ) in 1972 for approximately $29.9 million.
- By 1975, the DLJ shares had declined to a market value of about $4 million.
- On July 28, 1975, Amex’s board declared a special dividend to distribute the DLJ shares in kind to Amex shareholders.
- Minority shareholders brought a derivative action alleging the in-kind dividend wasted corporate assets because Amex could instead sell the DLJ shares, realize an estimated $25 million capital loss, and obtain approximately $8 million in tax savings by offsetting other capital gains.
- Plaintiffs demanded that the board rescind the dividend declaration and sell the shares to preserve the loss; the board rejected the demand on October 17, 1975.
- Plaintiffs sought to enjoin the distribution or, alternatively, recover damages based on alleged waste and breach of fiduciary duty.

## Issues

1. Whether a derivative complaint states a claim for waste or breach of fiduciary duty by challenging a board’s choice to declare an in-kind dividend rather than sell stock to realize tax benefits, absent well-pleaded allegations of fraud, bad faith, or self-dealing.
2. Whether the business judgment rule bars judicial review of the substance of the board’s dividend decision on a motion to dismiss (and alternative request for summary judgment).

## Decision

- The court granted the directors’ motion to dismiss for failure to state a cause of action.
- The court treated the challenged dividend decision as a matter of business judgment committed to the board’s discretion.
- Because the complaint did not allege particularized facts showing fraud, dishonesty, bad faith, self-dealing, or comparable misconduct, the court declined to second-guess the board’s choice, even if it appeared economically disadvantageous.

## Legal Principles

- Courts generally will not interfere with directors’ business decisions when directors act in good faith and without fraud or self-interest.
- Allegations that directors made an imprudent or negligent decision, without facts supporting fraud, bad faith, or self-dealing, are insufficient to overcome the business judgment rule in a derivative action.
- A claim labeled as “waste” must plead more than disagreement with the board’s economic tradeoffs; foregone tax savings alone does not establish actionable waste where the decision has a rational business basis.

## Conclusion

The court dismissed the derivative action, holding that the board’s decision to distribute DLJ shares as a dividend in kind instead of selling them to capture a tax loss was protected by the business judgment rule because plaintiffs did not plead fraud, bad faith, or self-dealing.


Kamin v. Am. Express Co., 86 Misc. 2d 809, 383 N.Y.S.2d 807 (Sup. Ct. N.Y. Cnty. 1976)