malfeasance

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In Kamin v. American Express Co. (1976), American Express bought Donaldson, Luken, and Jenrette (DLJ) shares for $30 million. The market value of these shares depreciated to $4 million, and American Express declared a dividend to shareholders instead of selling the shares on the market. Plaintiff brought suit, claiming that the board of directors of American Express should have sold the shares and taken a loss; such an action would have saved the company $8 million in taxes. There was no claim for fraud, self-dealing, or bad faith. The Supreme Court held that American Express’s actions were acceptable. Only actions which amounted to the level of malfeasance, and not mere imprudence, could warrant liability of the directors. Thus, the board of directors of companies had broad discretion to make business judgments so long as those judgments were rational; made in good faith and with due care; made in a manner that the director reasonably believed to be in the corporation’s best interests; and lacking in an actual conflict of interest. Any action that failed to fall within those boundaries would amount to malfeasance and would give rise to director or officer liability.