On May 20, 2025, the Court of Appeals issued a decision in Ezrasons, Inc. v. Rudd, 2025 NY Slip Op. 03008, holding that amendments to the BCL did not change the common law internal affairs doctrine, explaining:
Few principles are more firmly entrenched in corporate law than the internal affairs doctrine, a choice-of-law rule providing that, with rare exception, the substantive law of the place of incorporation governs disputes relating to the rights and relationships of corporate shareholders and managers. On this appeal, plaintiff argues that the New York legislature partially overrode this doctrine more than 60 years ago by granting all beneficial owners of shares in foreign corporations standing to litigate derivatively on behalf of their companies in New York, irrespective of conflicting foreign substantive law.
We disagree. The statutory provisions on which plaintiff relies do not clearly manifest legislative intent to displace the long-settled internal affairs doctrine, and thus do not preclude a defense that plaintiff lacks standing under English substantive law to maintain this derivative action.
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In Eccles v Shamrock Capital Advisors, LLC, we recently reaffirmed that New York applies the internal affairs doctrine in litigation implicating internal corporate rights and relationships. As we explained, the doctrine operates as a choice-of-law rule and mandates that, with rare exception, the substantive law of the place of incorporation applies to disputes involving the internal affairs of a corporation. . . .
New York jurisprudence is replete with evidence of our longstanding adherence to the internal affairs doctrine. The roots of the doctrine extend back at least to the mid-nineteenth century, when industrialization and the enactment of general incorporation statutes increased the number of firms with interstate operations. References to the choice-of-law rule appear in decisions of this Court like Marshall v Sherman, in which we stated that a stockholder’s relation to the corporation is governed by the laws of the state of its creation, and Merrick v Van Santvoord, in which we observed that a corporation’s existence, its franchises, powers, capacities, duties and liabilities, are created, fixed, limited and qualified, both in action and time, by the law of the State granting the charter. The same or similar principles are also referenced in Appellate Division decisions of the period.
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Over time, courts developed exceptions to the jurisdictional rule articulated in the cases above. As relevant here, shareholder derivative actions brought on behalf of foreign corporations were entertained in at least some instances. Nonetheless, throughout this period courts frequently reconfirmed the deference owed to the substantive law of the place of incorporation on internal affairs matters. . . .
Following the United States Supreme Court’s decisions in Williams v Green Bay & Western R. Co. (326 US 549 [1946]) and Koster v (American) Lubermens Mut. Casualty Co. (330 US 518 [1947]), courts stopped treating the doctrine as a determinative basis to decline jurisdiction, but the internal affairs choice-of-law rule remained well established and generally followed throughout this country. Among other issues, the doctrine was used to determine the substantive law governing the rights of shareholders to act on behalf of a foreign corporation or to challenge managerial decisions. A similar principle was codified in the Restatement (see Restatement Conflict of Laws § 183, comment b [1934] [“The right of a shareholder to object to conduct occurring in the operation of the corporate enterprise is determined by the law of the state of incorporation”].
Although various rationales have been offered for the doctrine, courts today cite predictability and respect for stakeholders’ choices as justifications. This Court and the United States Supreme Court have each described the doctrine as ensuring that only one state should have the authority to regulate a corporation’s internal affairs because otherwise a corporation could be faced with conflicting demands. In other words, the doctrine ‘serves the vital need for a single, constant, and equal law to avoid the fragmentation of continuing, interdependent internal relationships. In addition to providing consistency to legal obligations, the internal affairs doctrine also protects the interests and expectations of shareholders by giving effect to their choice as to what jurisdiction’s laws will govern the corporation’s affairs.
With this historical context in mind, we turn to the question presented by this appeal: Did the legislature, in enacting sections 626 (a) and 1319 (a) (2) of the BCL, intend to displace the internal affairs doctrine as it applies to shareholder derivative standing? We agree with the lower courts that the statutory provisions do not manifest intent to displace the doctrine in this context.
Like any judicially created rule, New York’s internal affairs doctrine is susceptible to override by statute. However, we have emphasized that a clear and specific legislative intent is required to override the common law and that such a prerogative must be unambiguous. In undertaking this inquiry, as always, the clearest indicator of legislative intent is the statutory text. We presume that a radical change in the common law by statute will be expressed with the clearness which the importance of the subject demands, or so that its meaning is unmistakable. For that reason, the intention to change a long-established common-law rule or principle is not to be imputed to the legislature in the absence of a clear manifestation or from doubtful statutory provisions.
The reasoning underlying this presumption applies with full force to statutes alleged to displace the internal affairs doctrine. Courts should not conclude that the legislature intended to supersede such a long-observed choice-of-law rule absent a clear manifestation in the statutory language. Applying that rule, we disagree with plaintiff that sections 626 (a) and 1319 (a) (2) of the BCL implicitly displace the doctrine as it applies to shareholder derivative standing.
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The text of section 626 (a) does not clearly indicate that it was intended to serve as both a New York standing rule and a choice-of-law directive. The fact that it authorizes actions to be brought on behalf of either a domestic or foreign corporation may set the stage for a conflict between New York and foreign standing law, but it does not suggest that New York law should prevail in the event of such conflict. Instead, we read that language as simply confirming New York courts’ jurisdiction to entertain derivative actions brought on behalf of foreign corporations—an issue that was unsettled in this state until shortly before the BCL was enacted. . . .
Recognizing this problem, plaintiff argues that section 1319 (a) (2) supplies the missing manifestation of legislative intent to displace the doctrine. But section 1319 is not a choice-of-law provision either. Titled “Applicability of other provisions,” section 1319 merely sets forth a list of various BCL articles and sections, including section 626, and provides that each, to the extent provided therein, shall apply to a foreign corporation doing business in this state, its directors, officers and shareholders. Contrary to plaintiff’s contention, this language instructs that the referenced provisions have only limited applicability to foreign corporations. First, it states that those provisions apply to foreign corporations only to the extent provided therein. Second, it clarifies that when those provisions refer to foreign corporations, they mean only foreign corporations doing business in New York. Nowhere in the text of section 1319 is there a directive that section 626 (a) controls in the event of conflict with foreign substantive law.
Had the legislature intended for sections 626 and 1319 to override the internal affairs doctrine as it applies to shareholder derivative standing, the drafters could have said so expressly.
(Internal quotations and citations omitted).