On May 20, 2025, New York’s highest court affirmed dismissal of a shareholder derivative lawsuit against officers and directors of Barclays PLC—a bank holding company incorporated under the laws of England and Wales and headquartered in London. The 6–1 opinion held that plaintiff lacked standing to pursue derivative claims under English substantive law and rejected plaintiff’s argument that the New York state legislature intended to bestow standing on all shareholders of foreign corporations to file derivative lawsuits in New York. The opinion provides foreign corporations with another arrow in the quiver of defenses available to achieve dismissal of derivative actions at an early stage.
Background
Until recently, shareholder derivative lawsuits—in which a shareholder seeks to stand in the shoes of a company and hold officers and directors liable for harm to the company—were rarely brought in the United States against non-U.S. companies. This stands to reason: under the “internal affairs” doctrine, U.S. courts generally look to the substantive law of the company’s place of incorporation, both to determine whether a shareholder may pursue such a claim and whether a claim is stated. In many jurisdictions outside of the United States, there are high hurdles for such lawsuits, or derivative suits are not recognized at all.
Then, in 2017, the New York Court of Appeals held that a Cayman Islands law requiring a shareholder to seek leave from a Cayman Islands court prior to bringing a shareholder derivative suit was “procedural,” rather than “substantive,” and therefore did not apply to a derivative action brought in New York. Davis v. Scottish Re Grp. Ltd., 30 N.Y.3d 247 (2017). Importantly, the court in Davis limited its holding to the Cayman Islands law in question, which served a “gatekeeping function” to any derivative lawsuit brought in the Cayman Islands. By contrast, the court explained, certain foreign law prerequisites apply to all derivative actions, wherever brought; such laws are “substantive” and therefore wouldapply to derivative suits filed in New York. Nonetheless, sensing an opening following Davis, plaintiffs’ firms filed numerous derivative lawsuits in New York against non‑U.S. companies—including Credit Suisse, Deutsche Bank, Novartis, Carnival, Volkswagen, and others—claiming that they did not need to comply with the legal prerequisites imposed by the companies’ home forums.
Against this backdrop, in 2021, a plaintiff-shareholder brought a derivative lawsuit against more than 40 current and former Barclays directors and officers alleging breach of fiduciary duties owed to Barclays under English law. Defendants moved to dismiss the lawsuit arguing, among other things, that plaintiff was not a “registered member” of Barclays (i.e., a shareholder whose name is recorded on the company’s official register) and therefore lacked standing under the English Companies Act to maintain a derivative lawsuit. The trial court, relying on unrebutted evidence that plaintiff was not a registered member of Barclays, dismissed the lawsuit because plaintiff lacked standing to sue derivatively under English law, and a unanimous panel of the Appellate Division, First Department, affirmed. Plaintiff was then granted leave to appeal to the Court of Appeals.
The Court of Appeals Opinion
The Court of Appeals affirmed. Ezrasons, Inc. v. Rudd, 2025 WL 1436000 (N.Y. May 20, 2025). Writing for the six-judge majority, Judge Anthony Cannataro reaffirmed New York’s “longstanding adherence to the internal affairs doctrine,” which mandates that “the substantive law of the place of incorporation applies to disputes involving the internal affairs of a corporation.” The court rejected plaintiff’s argument that Sections 626 and 1319 of New York’s Business Corporation Law (the “BCL”)—enacted over 60 years earlier—overrode the internal affairs doctrine. Section 626 specifies procedures for bringing a shareholder derivative action in New York but does so “without displacing the internal affairs doctrine or precluding application of foreign substantive limitations on a particular plaintiff’s standing.” And Section 1319 simply “sets forth a list of various BCL articles and sections” that apply to foreign corporations doing business in New York. Neither section “clearly manifest[ed] legislative intent to override the internal affairs doctrine as it applies to shareholder derivative standing.”
Applying English corporate law pursuant to the internal affairs doctrine, the Court of Appeals agreed that plaintiff lacked standing to sue derivatively and affirmed dismissal. Notably, the court “assume[d],” without deciding, that the registered member requirement was “substantive.” Although plaintiff argued at the Court of Appeals that the requirement was “procedural,” the argument had not been made below and therefore was not preserved for appellate review.
Implications
The Ezrasons decision reaffirms New York’s commitment to applying the substantive law of the place of incorporation to litigation impacting internal corporate rights and relationships, including shareholder derivative actions. At the same time, the decision rejects the contention that New York should apply its own laws to all derivative lawsuits involving non-U.S. corporations, which are often subject to more prohibitive prerequisites under the laws of their home countries.
Directors and officers of non-U.S. companies hauled into New York courts to defend shareholder derivative suits thus now have additional support for motions to dismiss where plaintiffs have not satisfied all the prerequisites imposed by the laws of their home country. Directors and officers facing derivative lawsuits should also consider whether additional defenses may be deployed early to secure dismissal, including lack of personal jurisdiction, forum non conveniens, and defenses on the merits. Indeed, on the same day that the Court of Appeals decided Ezrasons, it also issued a one-paragraph order affirming dismissal of a different derivative suit against the German pharmaceutical company, Bayer AG, on forum non conveniens grounds. Haussmann v. Baumann, 2025 WL 1435989 (N.Y. May 20, 2025).
Although the Court of Appeals did not shut the door to derivative lawsuits against non-U.S. companies, the Ezrasons opinion rejects recent efforts to transform New York courts into an open forum for shareholder derivative lawsuits against non-U.S. companies. The Ezrasons opinion, coupled with the short order in Haussmann, reflects an increased skepticism of New York courts to foreign derivative lawsuits filed in the state.
This post comes to us from Paul, Weiss, Rifkind, Wharton & Garrison LLP. It is based on the firm’s memorandum, “New York’s Highest Court Affirms Dismissal of Derivative Action Where Plaintiff Lacked Standing Under Foreign Law,” dated May 30, 2025, and available here.