On May 20, 2025, the New York Court of Appeals affirmed the dismissal of two shareholder derivative actions brought against directors and officers of large European companies in decisions with critical implications for non-U.S. companies’ exposure to fiduciary litigation in the U.S.  Those actions—against Barclays, Bayer and their boards—were part of a flurry of derivative suits against major non-U.S. firms filed in New York state court over the past few years in an attempt to circumvent the requirements of these companies’ respective home forums.  These two decisions from New York’s highest court may put an end to those efforts.  Sullivan & Cromwell represented the Securities Industry and Financial Markets Association and the Institute of International Bankers as amici supporting the defendants before the Court of Appeals.

NEW YORK COURT OF APPEALS DECISIONS IN SCOTTISH RE AND ECCLES

The recent influx of cases appears to be part of a coordinated effort by plaintiffs to take advantage of the New York Court of Appeals’ 2017 decision in Davis v. Scottish Re Group.[1]  Under the internal affairs doctrine, the substantive laws of a company’s place of incorporation govern corporate disputes, including derivative actions.  In Scottish Re, the Court of Appeals held that a Cayman Islands law requiring that a shareholder seek leave from a Cayman Islands court before bringing a shareholder derivative suit was “procedural,” and thus did not apply to an action brought in New York.  Not long after, a New York appellate court, applying Scottish Re, determined that a similar requirement under U.K. law was also procedural and thus did not apply in U.S. litigation.[2]

Emboldened by these decisions, plaintiffs have sought to make New York an international center for derivative actions, claiming that they need not comply with legal prerequisites imposed by the companies’ home forums.  Between 2020 and 2021, these firms have filed numerous derivative suits in New York state court against the directors and officers of large European corporations, including Credit Suisse, Deutsche Bank, Novartis, Société Générale, Standard Chartered, UBS, and Volkswagen, in addition to Barclays and Bayer.

In May 2024, the Court of Appeals issued an opinion in Eccles v. Shamrock Capital Advisors, LLC[3] reaffirming the importance of the internal affairs doctrine, noting that the doctrine promotes “consistency” and “also protects the interests and expectations of shareholders by giving effect to their choice as to what jurisdication’s laws will govern the corporation’s affairs.”[4]

BARCLAYS DECISION

In Ezrasons v. Rudd, the plaintiff, an alleged shareholder of Barclays PLC, sought to hold directors, officers, and a Barclays subsidiary liable for alleged breaches of fiduciary duties under English law based on a number of unrelated government investigations and civil litigations spanning over 12 years.  The New York trial court dismissed the case, holding that the plaintiff lacked shareholder derivative standing under substantive English law, and the Appellate Division, First Department unanimously affirmed.[5]

On May 20, 2025, the Court of Appeals affirmed the dismissal.  Writing for the majority, Judge Anthony Cannataro reaffirmed New York’s “longstanding adherence to the internal affairs doctrine,” which serves the values of “predictability and respect for stakeholders’ choices.”[6]  Judge Cannataro rejected plaintiff’s argument that “the New York legislature partially overrode this doctrine more than 60 years ago” through the enactment of Business Corporation Law §§ 626 and 1319.[7]  The Court held that Section 626, which specifies the procedures for bringing a shareholder derivative action in New York courts, “simply establishes minimum predicates for a New York court to entertain an action brought derivatively on behalf of a corporation”—i.e., a “baseline New York standing rule”—“without displacing the internal affairs doctrine or precluding application of foreign substantive limitations on a particular plaintiff’s standing.”[8]  The Court further held that Section 1319 is “not a choice-of-law provision either,” but merely “sets forth a list” of provisions, “including § 626,” that “apply to foreign corporations doing business in [New York].”[9]  For that reason, Section 1319 also did not “override the internal affairs doctrine as it applies to shareholder derivative standing.”[10]

Chief Judge Rowan D. Wilson dissented, writing that he would have held that Sections 626 and 1319 “expressly overrode” other jurisdictions’ standing requirements and “clearly apply New York law to the question of which shareholders can bring a derivative action on behalf of a foreign corporation.”[11]

BAYER DECISION

In Haussmann v. Baumann, stockholders of Bayer AG sought to hold directors and officers liable for alleged breaches of fiduciary duties under German law related to Bayer’s 2018 acquisition of Monsanto.  The New York trial court dismissed the case on three independent grounds:  lack of personal jurisdiction, forum non conveniens, and lack of standing under German law.[12]  The Appellate Division, First Department unanimously affirmed on all three grounds, with a focus on the lack of standing under German law.[13]

On May 20, 2025, the Court of Appeals unanimously affirmed the dismissal in a memorandum opinion on forum non conveniensgrounds.[14]  Noting that a decision to dismiss a case for forum non conveniens is reviewed for abuse of discretion, the Court found that the trial court “considered all relevant factors and made no legal error in doing so.”[15]  The Court also rejected plaintiffs’ contention that forum non conveniens was inapplicable because “one plaintiff is a New York resident.”[16]

IMPLICATIONS

These two decisions from New York’s highest court likely will be dispositive precedent in most, if not all, of the remaining pending derivative actions, and could signify the end of plaintiffs’ short-lived efforts to turn New York into a hub for derivative litigation against non-U.S. corporations.  Along with the Court’s 2024 decision in Eccles, they signal that Scottish Re should not be viewed as carte blanche to bring derivative claims against directors and officers of non-U.S. corporations in New York without complying with applicable non-U.S. corporate law.  The decisions are a victory for principles of comity and will provide non-U.S. corporations with much-needed certainty about their exposure to U.S. derivative litigation.

ENDNOTES

[1]           Davis v. Scottish Re Grp., 30 N.Y.3d 247 (2017).

[2]           Mason-Mahon v. Flint, 166 A.D.3d 754 (2d Dep’t 2018).

[3]           Eccles v. Shamrock Cap. Advisors, LLC, 42 N.Y.3d 321 (2024).

[4]           Id. at 336-37.

[5]           Ezrasons, Inc. v. Rudd, 2022 WL 20476314 (Sup. Ct., N.Y. Cnty., May 4, 2022); Ezrasons, Inc. v. Rudd, 217 A.D.3d 406 (1st Dep’t 2023).

[6]           Ezrasons, Inc. v. Rudd, — N.E.3d —, 2025 WL 1436000, at *2, *4 (N.Y. May 20, 2025).

[7]           Id. at *1, *5.

[8]           Id. at *5.

[9]           Id. at *6.

[10]         Id.

[11]         Id. at *10 (Wilson, J., dissenting).

[12]         Haussmann v. Baumann, 157 N.Y.S.3d 355 (tbl.), 2021 WL 6110467 (Sup. Ct., N.Y. Cnty., Dec. 27, 2021).

[13]         Haussmann v. Baumann, 217 A.D.3d 659 (1st Dep’t 2023).

[14]         Haussmann v. Baumann, — N.E.3d —, 2025 WL 1435989 (N.Y. May 20, 2025).

[15]         Id. at *1.

[16]         Id.

This post comes to us from Sullivan & Cromwell LLP. It is based on the firm’s memorandum, “New York’s Highest Court Rejects Efforts to Make New York a Hub for Non-U.S. Derivative Litigation,” dated May 21, 2025, and available here.