Thought Leadership

“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.}