New York Limits Derivative Suits against Non-U.S. Companies

Stockholders of non-U.S. companies often must satisfy pre-suit requirements before filing a derivative action. New York law does not supersede those requirements. An appropriate forum clause may also support dismissal.

Background

In a derivative suit, a stockholder enforces a company’s right to sue its board. It is an exception to the rule that the board decides when to initiate litigation on the company’s behalf. Courts therefore scrutinize whether a derivative plaintiff has met all pre-suit requirements.

Many countries have exacting derivative pre-suit requirements, like ownership thresholds and record membership. Investors in some non-U.S. companies have attempted to circumvent those requirements by filing derivative suits in New York state court. Judges concluded that those claims were governed by the internal affairs doctrine. That doctrine applies the substantive law of a company’s place of incorporation to stockholder disputes. Courts dismissed many of these cases, reasoning that the pre-suit requirements were substantive and must be satisfied. This included, for example, a UK requirement that a stockholder’s name be entered in the company’s register of members before suing derivatively.Ezrasons, Inc. v. Rudd, 2025 NY Slip Op, *12-13.

[8]  Id., *13.

[9]  Cattan v. Ermotti, 2021 WL 6200975, at *1 (Sup. Ct. N.Y. Cnty. Dec. 30, 2021).

[10]   Id.

[11]   Id.

[12]   Cattan v. Vasella, 2022 WL 3574155, at *2 (Sup. Ct. N.Y. Cnty.  Aug. 18, 2022).