Opinion
356 &, M-1227 Index No. 656400/20 Case No. 2022-04657
06-01-2023
EZRASONS, INC., etc., Plaintiff-Appellant, v. Sir Nigel RUDD et al., Defendants-Respondents, Barclays PLC, Nominal Defendant-Respondent.
Bottini & Bottini, Inc., New York (Albert Y. Chang of counsel), for appellant. Skadden, Arps, Slate, Meagher, & Flom LLP, New York (Lara A. Flath of counsel), for respondents.
Bottini & Bottini, Inc., New York (Albert Y. Chang of counsel), for appellant.
Skadden, Arps, Slate, Meagher, & Flom LLP, New York (Lara A. Flath of counsel), for respondents.
Kapnick, J.P., Oing, Gesmer, Singh, Shulman, JJ.
Order, Supreme Court, New York County (Robert R. Reed, J.), entered on or about May 5, 2022, which granted defendants’ motion to dismiss the complaint for lack of standing, unanimously affirmed, with costs.
The court correctly dismissed the complaint based on plaintiff's lack of standing to bring this shareholder derivative action. The "internal affairs" doctrine is a "conflict of laws" principle that provides that "claims concerning the relationship between the corporation, its directors, and a shareholder are governed by the substantive law of the state or country of incorporation" ( Davis v. Scottish Re Group Ltd., 138 A.D.3d 230, 233, 28 N.Y.S.3d 18 [1st Dept. 2016], revd on other grounds 30 N.Y.3d 247, 66 N.Y.S.3d 447, 88 N.E.3d 892 [2017] ). It has been consistently invoked by this Court in derivative actions to apply foreign law on substantive issues, including those affecting a party's right to sue (see e.g. Lerner v. Prince, 119 A.D.3d 122, 127–128, 987 N.Y.S.2d 19 [1st Dept. 2014] ; Hart v. General Motors Corp., 129 A.D.2d 179, 183, 517 N.Y.S.2d 490 [1st Dept. 1987], lv denied 70 N.Y.2d 608, 521 N.Y.S.2d 225, 515 N.E.2d 910 [1987] ).
We adopt the rationale in City of Aventura Police Officers’ Retirement Fund v. Arison , 70 Misc.3d 234, 134 N.Y.S.3d 662 (Sup. Ct., N.Y. County 2020), which ruled that Business Corporation Law § 1319 merely confers jurisdiction upon New York courts over derivative suits on behalf of a foreign corporation. The court reasoned that this jurisdictional provision "does not require application of New York law in such suits," and does not "override the internal affairs doctrine" ( id. at 244, 134 N.Y.S.3d 662 [internal quotation marks omitted]). Accordingly, in applying the internal affairs doctrine to the rule of derivative standing under the English "Companies Act" (ECA), the court held that the ECA's requirement that suit be brought by a "member of the company" is an applicable substantive rule in a New York derivative suit ( id. ).
Similarly, here, the court correctly ruled that defendants made the showing necessary for dismissal for lack of standing under the ECA. Despite the complaint's verified allegations of plaintiff's stock ownership and membership, the record on the motion to dismiss included an unrebutted affirmation from Barclays stating that inquiries with its registrar showed that plaintiff's name did not appear as a registered, legal owner of Barclays PLC shares as of April 30, 2021. It also included plaintiff's counsel's clear acknowledgement in its opposition brief to defendants’ dismissal motion that plaintiff was not a member, which is an informal judicial admission entitled to some evidentiary weight (see Matter of Union Indem. Ins. Co. of N.Y., 89 N.Y.2d 94, 103–104, 651 N.Y.S.2d 383, 674 N.E.2d 313 [1996] ).
We reject plaintiff's argument that Culligan Soft Water Co. v. Clayton Dubilier & Rice LLC , 118 A.D.3d 422, 988 N.Y.S.2d 134 (1st Dept. 2014) silently overruled the longstanding principle regarding the applicability of the internal affairs doctrine in derivative actions (see Matter of Orozco v. City of New York, 200 A.D.3d 559, 562, 161 N.Y.S.3d 1 [1st Dept. 2021] ["If we are to depart from settled principle, we should do so explicitly and not on the basis of a one-paragraph memorandum opinion that does not cite or discuss the relevant precedent let alone express an intent to overrule it"], lv granted 39 N.Y.3d 903, 2022 WL 17096820 [2022] ; Arison, 70 Misc.3d at 245 n. 3, 134 N.Y.S.3d 662 [" ‘if the court in Culligan wanted to change the clear precedents about the internal affairs doctrine it most assuredly would have said just that, and why’ "] [internal brackets omitted], quoting Stephen Blau MD Money Purchase Pension Plan Trust v. Dimon, 2015 N.Y. Slip Op. 32909[U],*8 n. 1, 2015 WL 2127119 [Sup. Ct., N.Y. County 2015] ). As we have demonstrated in many decisions since, the internal affairs doctrine continues to apply to derivative actions (see Matter of Renren, Inc., 192 A.D.3d 539, 140 N.Y.S.3d 701 [1st Dept. 2021] [analyzing standing in derivative action under foreign law]; Davis, 138 A.D.3d at 233–234, 28 N.Y.S.3d 18 [applying foreign law under internal affairs doctrine to determine whether claim is derivative or direct]; see also Mason–Mahon v. Flint, 166 A.D.3d 754, 756, 87 N.Y.S.3d 556 [2d Dept. 2018] ["Based upon the internal affairs doctrine, the substantive law of the United Kingdom governs the merits of this action").
Rather, Culligan addressed only the rare situation in which a foreign entity nevertheless had "such ‘presence’ ... in our State as would, irrespective of other considerations, call for the application of New York law" ( Greenspun v. Lindley, 36 N.Y.2d 473, 477, 369 N.Y.S.2d 123, 330 N.E.2d 79 [1975] ).
Motion to strike portion of the record and plaintiff's brief relating to CPLR 327(b) ’s prohibition against dismissal based on forum non conveniens, denied as moot.