On June 1, 2023, the First Department issued a decision in Ezrasons, Inc. v. Rudd, 2023 NY Slip Op. 02938, holding that the internal affairs doctrine applies to the choice of law governing standing in derivative actions, explaining:
The court correctly dismissed the complaint based on plaintiff’s lack of standing to bring this shareholder derivative action. The internal affairs doctrine is a conflict of laws principle that provides that claims concerning the relationship between the corporation, its directors, and a shareholder are governed by the substantive law of the state or country of incorporation. It has been consistently invoked by this Court in derivative actions to apply foreign law on substantive issues, including those affecting a party’s right to sue.
We adopt the rationale in City of Aventura Police Officers’ Retirement Fund v Arison (70 Misc 3d 234 [Sup Ct, NY County 2020]), which ruled that Business Corporation Law § 1319 merely confers jurisdiction upon New York courts over derivative suits on behalf of a foreign corporation. The court reasoned that this jurisdictional provision does not require application of New York law in such suits, and does not override the internal affairs doctrine. Accordingly, in applying the internal affairs doctrine to the rule of derivative standing under the English Companies Act (ECA), the court held that the ECA’s requirement that suit be brought by a member of the company is an applicable substantive rule in a New York derivative suit.
Similarly, here, the court correctly ruled that defendants made the showing necessary for dismissal for lack of standing under the ECA. Despite the complaint’s verified allegations of plaintiff’s stock ownership and membership, the record on the motion to dismiss included an unrebutted affirmation from Barclays stating that inquiries with its registrar showed that plaintiff’s name did not appear as a registered, legal owner of Barclays PLC shares as of April 30, 2021. It also included plaintiff’s counsel’s clear acknowledgement in its opposition brief to defendants’ dismissal motion that plaintiff was not a member, which is an informal judicial admission entitled to some evidentiary weight.
We reject plaintiff’s argument that Culligan Soft Water Co. v Clayton Dubilier & Rice LLC (118 AD3d 422 [1st Dept 2014]) silently overruled the longstanding principle regarding the applicability of the internal affairs doctrine in derivative actions. As we have demonstrated in many decisions since, the internal affairs doctrine continues to apply to derivative actions.
Rather, Culligan addressed only the rare situation in which a foreign entity nevertheless had such presence in our State as would, irrespective of other considerations, call for the application of New York law.
(Internal quotations and citations omitted).