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

Rule:

A complaint must be dismissed if all that is presented is a decision to pay dividends rather than pursuing some other course of conduct. A complaint which alleges merely that some course of action other than that pursued by the board of directors would have been more advantageous gives rise to no cognizable cause of action. 

Facts:

Plaintiffs minority stockholders filed a derivative action against defendants American Express and its officers, arising from American Express’ decision to issue a dividend. The individual defendant directors filed a motion for summary judgment on the grounds that no viable action had been made. The allegations of the complaint concerned the question of the board of directors' exercise of business judgment in deciding how to deal with certain shares in a 1972 transaction. Paragraph 19 of the complaint alleged that the directors "engaged in or acquiesced in or negligently permitted the declaration and payment of the dividend in violation of the fiduciary duty owed by them to Amex to care for and preserve Amex's assets in the same manner as a man of average prudence would care for his own property."

Issue:

Can plaintiff minority stockholders bring a derivative action challenging the business decision of the individual defendant directors of the corporation?

Answer:

No

Conclusion:

The court held that it would not interfere with decisions of directors of a corporation unless there had been some sort of fraud, dishonest practices, or other grounds that allowed for equitable interference. The court held that questions of policy and business management were better left to the judgment of corporate management. Additionally, to maintain an action for neglect against a director pursuant to N.Y. Bus. Corp. Law § 720(a), plaintiffs must establish that directors neglected their duties. Misjudgment by a director does not amount to neglect. In this case, plaintiff stockholders' claim was based on their disagreement with defendants' decision to distribute a dividend. Examination of the complaint revealed that there was no claim of fraud or self-dealing, and no contention that there was any bad faith or oppressive conduct. It is not enough to allege, as plaintiffs did here, that the directors made an imprudent decision, which did not capitalize on the possibility of using a potential capital loss to offset capital gains. More than imprudence or mistaken judgment must be shown. The court advised that plaintiffs are bound to bear in mind that matters depending on business judgment are not actionable. Further, they are required to set forth something more than vague general charges of wrongdoing; their charges must be supported by factual assertions of specific wrongdoing; conclusory allegations of breaches of fiduciary duty are not enough. Because it clearly appeared that the plaintiffs have failed as a matter of law to make out an actionable claim, the court granted summary judgment in favor of defendant individual directors and dismissed the claim.

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