Kamin v. American Express Co.
86 Misc.2d 809, 383 N.Y.S.2d 807 (N.Y.Supp. 1976)

  • AmEx bought about $30M worth of stock in DLJ. The stock dropped like a rock and soon it was only worth $4M. AmEx decided to give the stock away as a dividend to AmEx shareholders.
    • If AmEx sold the stock, they would have to take a loss of $30M-$4M=$26M on their income. This would reduce their tax liability, but would make their earnings-per-share look a lot lower and possibly hurt the price of AmEx stock.
    • If AmEx gave away (aka ‘distributed’) the stock as a dividend, they would be allowed to leave their income statement alone, and just reduce retained earnings by $30M. The stock price wouldn’t suffer, but they’d get no tax benefit.
  • Stockholders, led by Kamin, sued.
    • Kamin argued that AmEx could save $8M in taxes by selling the DLJ shares, so giving them out as a dividend was a bad business decision and was only being done to fraudulently prop up the AmEx stock price.
      • Instead of getting $4M of crappy stock as their dividend, the stockholders could have gotten $4M in cash plus $8M in savings = $12M of cash for their dividend.
  • The Trial Court found for AmEx.
    • The Trial Court found that what AmEx did with their DLJ stock was a business judgment and the courts wouldn’t interfere with that because of the business judgment rule.
      • The Court noted that the investors specifically raised this issue at the AmEx board meeting, and the Board considered and rejected their arguments.
      • Taking a $26M loss could have seriously lowered the stock price, and that could have potentially hurt the stockholders more than the loss of a tax break. It wasn’t for the Court to figure out how much the stock price would have dropped.
  • The Appellate Court affirmed.