Brief Fact Summary. Plaintiffs, Howard Kamin et al., filed a shareholder derivative suit against Defendant corporation, American Express, and their officers after Defendants allegedly negligently decided to issue a dividend.
Synopsis of Rule of Law. A court will not interfere with the decision of a company’s directors unless there is evidence of fraud or dishonest practice.
Mere errors of judgment are not sufficient as grounds for equity interference; for the powers of those entrusted with corporate management are largely discretionary.View Full Point of Law
Issue. The issue is whether Plaintiffs can bring a derivative action challenging the business decision of the directors of the corporation.
Held. The court will not overrule a business decision of the directors of a company unless there is evidence of fraud or some other dishonest dealing. The decision to declare a dividend may be an unwise judgment, but it is a judgment that is outside the scrutiny of the court. The only accusation of dishonest dealing was a general assertion that four of the twenty directors had a financial interest in the outcome.
Discussion. This decision is a restatement of the business judgment rule. The courts do not want to invest significant resources into second-guessing business judgments of corporate directors. Going to court for corporate decisions is expensive and can often be avoided through other avenues.