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Case Law Alerts

New York Court Reaffirms Internal Affairs Doctrine, Denies Standing in Derivative Suit Against English Corporation

Ezrasons, Inc. v. Rudd, No. 2, --- N.E.3d ---, 2025 WL 1436000 (May 20, 2025)

July 1, 2025

by Shane Haselbarth

“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.” Thus opened the court’s opinion—but that did not stop the challenge mounted against it in this case.

Ezrasons, the plaintiff, is a New York corporation that is the beneficial owner of shares in Barclays PLC, a bank holding company incorporated under the laws of England and Wales with its principal office in London. Ezrasons filed suit “on behalf of Barclays” against directors and an affiliated company, alleging various breaches of fiduciary duty. Those defendants moved to dismiss for lack of standing because Ezrasons is not “a registered member of Barclays,” a substantive limitation on the right to maintain derivative actions under English law. With seemingly no dispute as to the requirements of English law, Ezrasons argued, instead, that New York’s Business Corporation Law gave it the right to maintain its action in New York.

On appeal, the question was whether the New York statute (BCL) displaced the internal affairs doctrine in New York common law. The answer—spread over 24 pages, and over the 57-page dissent of two dissenting Justices who accuse the majority of working to impress Marty McFly and Doc Brown with their ability to travel back in time—was no.

But while the genesis of the doctrine is the nineteenth century’s corporate boom and expansion of interstate corporate operations, the rationale for upholding the rule is decidedly timeless. Like the U.S. Supreme Court, the Court of Appeals reaffirmed its stance that “only one state should have the authority to regulate a corporation’s internal affairs,” lest a company “be faced with conflicting demands.” Thus, the court held that the Business Corporation Law, which allows suits to be brought in the name of domestic or foreign corporations, does not unequivocally displace the substantive applicability of English law as regards suits in the name of English corporations. Instead, the BCL establishes the minimum predicate for New York courts to entertain the suit, without bestowing standing contrary to the law of the foreign corporation’s home.

Thus, companies with operations in the Empire State can rest assured that their internal operations and “disputes relating to the rights and relationships of corporate shareholders and managers” will remain governed by the substantive law of their state of incorporation. 

 

Case Law Alerts, 3rd Quarter, July 2025 is prepared by Marshall Dennehey to provide information on recent developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2025 Marshall Dennehey, all rights reserved. This article may not be reprinted without the express written permission of our firm.

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In a decision that resolves years of appellate uncertainty and confirms that insurers and insureds alike can rely on the legal framework in place when a policy is issued, the Supreme Court of Florida last week found that Florida Statute §627.70152, which involves an insured’s requirement to provide an insurer with pre-suit notice before filing a suit, cannot be applied retroactively. In Universal Property & Casualty Insurance Company v. Hughes, the Court was presented with the issue of whether the statutory pre-suit notice requirement applied retroactively and whether it would apply to a breach of contract of an insurance policy that was issued before the statute went into effect. Before the Court was an appeal from a homeowner, Ms. Hughes, who sued her insurance carrier, Universal Property & Casualty Insurance Company (Universal) for breach of contract under an insurance policy that was in effect from April 24, 2019 through April 24, 2020. During the policy period, Ms. Hughes suffered a loss and, on May 29, 2019, made a claim for water damage. The carrier investigated the loss and issued payment; Ms. Hughes disputed the payment, finding the amount insufficient for repairs. On July 1, 2021, Florida Statute §627.70152 went into effect, which required insureds to provide notice of intent to initiate litigation against the carrier prior to filing a lawsuit; if an insured filed the lawsuit without complying with §627.70152, a court must dismiss the case without prejudice. On August 4, 2021, Ms. Hughes filed her lawsuit against Universal for breach of contract. Universal moved to dismiss based on her failure to comply with §627.70152. Ms. Hughes contended the notice requirement could not be applied retroactively. The trial court disagreed and dismissed the lawsuit without prejudice, and Ms. Hughes appealed. During the appeal, the Fourth District Court of Appeal, in Cole v. Universal Property & Casualty, 363 So. 3d 1089 (Fla. 4th DCA 2023), ruled that Florida Statute §627.70152 did apply retroactively to policies issued before the effective date of §627.70152. However, the Sixth District Court agreed with Ms. Hughes and overturned the trial court’s ruling, finding the statute could not retroactively apply to policies issued prior to the statute effective date. Thereafter, the other district courts weighed in, with the Third District Court agreeing with the Fourth District Court, and the First, Second and Fifth District Courts agreeing with the Sixth District Court. In resolving the conflict amongst the district courts, the Supreme Court advised “as a general rule, ‘the statute in effect at the time an insurance contract is executed governs substantive issues arising in connection with that contract.’ Hassen v. State Farm Mut. Auto. Ins. Co., 674 So. 2d 106, 108 (Fla. 1996). The Court applied the two-step test when deciding whether a statute has retroactive application: “First, the Court must ascertain whether the Legislature intended for the statute to apply retroactively. Second, if such an intent is clearly expressed, the Court must determine whether retroactive application would violate any constitutional principles.” Menendez v. Progressive Exp. Ins. Co., 35 So. 3d 873, 877 (Fla. 2010). In analyzing the Legislature’s intent, the Court must determine whether the Legislature has manifested a clear command for retroactivity in the statutory text.  In review of the statutory text, the Court found nothing in the language of the statute to indicate that the phrase “all suits” was serving another purpose of expanding its reach to suits based on policies that both predate and postdate the enactment of the statute. Buis v. Universal Prop. & Cas. Ins. Co., 394 So. 3d 738, 741 (Fla. 2d DCA 2024). Further, the Court noted the statute has an effective date, which has long been considered to be evidence against retroactive application of a statute. The Court concluded that, on its face, no provision of §627.70152 speaks to application of the statute to insurance policies issued before the statute’s effective date and therefore, the Legislature did not clearly command retroactivity of the statute to include insurance policies issued prior to the enactment of the statute. The Court briefly reviewed Universal’s argument that the presuit notice requirement was procedural, not substantive, and therefore should be applied retroactively; however, the Court agreed with the Sixth District Court’s finding that, in its entirety, §627.70152 transformed an insured’s ability to sue an insurance company under a property insurance policy and an insurer’s obligations to respond to and pay insurance claims, thus making the requirement a substantive change. The Court thereby upheld the decision of the Sixth District and disapproved the decision of the Fourth District in Cole.

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