American Express Co. purchased a substantial block of common stock of Donaldson, Lufkin & Jenrette, Inc. (DLJ) at a cost far exceeding its later market value. When the stock's market price declined significantly below AmEx's cost basis, the board faced alternatives: sell the DLJ shares and realize a large capital loss that would generate a meaningful tax benefit, or avoid realizing that loss and instead distribute the DLJ shares directly to AmEx shareholders as a special dividend in kind. In mid-1975, the board chose the latter course and declared a dividend of the DLJ shares to shareholders of record at then-prevailing market values. A shareholder, Kamin, brought a derivative action alleging that the directors were negligent and had committed corporate waste by foregoing the tax savings that would have accompanied a sale at a loss. The complaint did not allege self-dealing, personal benefit, fraud, or any conflict of interest by the directors. The directors' minutes and submissions reflected business reasons for the dividend in kind, including concerns about the effect of a realized loss on reported earnings and market perception, as well as the desirability of distributing the asset without the transactional and market risks associated with a large block sale. Defendants moved to dismiss, invoking the business judgment rule and the statutory discretion afforded to boards over dividends under New York law.
Whether, absent fraud, self-dealing, or bad faith, a court may hold directors liable for negligence or corporate waste for choosing to distribute depreciated securities as a dividend in kind rather than selling them to realize a tax loss and corresponding tax benefit.
Under the New York business judgment rule, courts will not second-guess the merits of directors' business decisions made in good faith, with due care, and in the honest belief that the action is in the corporation's best interests. Directors have broad statutory discretion in declaring dividends (N.Y. Bus. Corp. Law § 510). A claim of corporate waste requires showing an exchange so one-sided that no person of ordinary, sound business judgment could conclude that the corporation received adequate consideration or benefit. Absent allegations of fraud, bad faith, self-dealing, or conduct amounting to waste, judicial intervention is unwarranted.
The court dismissed the derivative complaint, holding that the directors' decision to distribute the DLJ shares as a dividend in kind, rather than sell them to realize a tax loss, was protected by the business judgment rule and did not constitute corporate waste.
The court emphasized that dividend policy and the choice among alternative, facially rational methods of disposing of a corporate asset fall squarely within the board's statutory and fiduciary discretion. Plaintiffs' theory boiled down to a contention that selling the DLJ shares would have produced a quantifiable tax benefit, making it a better decision than an in-kind distribution. But the business judgment rule forbids courts from substituting their assessment of economic advantage for that of a duly constituted board acting in good faith. The record reflected that the board considered the financial, accounting, and market implications of recognizing a substantial loss on the income statement, as well as transactional and market risks associated with selling a large block. That the board could have chosen differently, and that plaintiffs could calculate foregone tax savings, did not transform a discretionary business choice into actionable negligence. Nor did the decision amount to corporate waste. A waste claim requires a showing of an exchange so irrational or one-sided that no person of ordinary business judgment could view it as beneficial to the corporation. Here, the corporation parted with an asset by distributing value to its shareholders—a recognized corporate purpose—and did so for articulated business reasons. There were no allegations of fraud, self-dealing, or bad faith to displace the business judgment rule. Accordingly, the court declined to second-guess the board's determination and dismissed the suit.
Kamin is a leading example of judicial deference under the business judgment rule. It clarifies that even where a plaintiff can point to a seemingly quantifiable, foregone financial benefit (like tax savings), courts will not police business strategy so long as the board acted in good faith, without conflicts, and with some rational basis. The case simultaneously illustrates the very high bar for pleading corporate waste and confirms that boards enjoy wide latitude in setting dividend policy. For students, it frames the boundaries of judicial review and highlights the kind of allegations—fraud, self-dealing, bad faith, or truly egregious waste—needed to survive dismissal.
Kamin v. American Express underscores that courts will not function as super-directors. The case teaches that even when plaintiffs can point to a concrete, seemingly superior alternative—here, selling securities to capture a tax loss—directors remain free to weigh other factors and choose a different path without incurring liability, so long as they act in good faith, are unconflicted, and have some rational basis.