“Jurisdiction Yes, Standing No” – New York Re-Anchors the Internal Affairs Doctrine in Ezrasons, Inc. v. Rudd (2025)

1. Introduction

In Ezrasons, Inc. v. Rudd, 2025 NY Slip Op 03008, the New York Court of Appeals confronted a long-simmering conflict between two pillars of corporate litigation in the state:

The “internal affairs doctrine,” a common-law choice-of-law rule instructing courts to apply the substantive law of the state (or country) of incorporation to disputes over corporate governance; and
Sections 626(a) and 1319(a)(2) of New York’s Business Corporation Law (BCL), language that—at first blush—appears to grant any “holder of a beneficial interest” in shares of a foreign corporation doing business in New York the right to sue derivatively in New York courts.

Plaintiff Ezrasons, Inc., a New York corporation and merely a beneficial (not record) owner of shares of Barclays PLC—an English company—brought a sweeping derivative action in New York against Barclays’ directors and officers. The defendants invoked English law, which restricts derivative standing to registered members (record shareholders). Ezrasons countered that BCL §§ 626 and 1319 override any foreign standing restrictions. After Supreme Court and the Appellate Division dismissed the complaint, the Court of Appeals granted leave to resolve whether the BCL provisions displace the internal-affairs doctrine on standing questions.

2. Summary of the Judgment

Writing for a six-judge majority, Judge Cannataro held:

BCL § 626(a) confers subject-matter jurisdiction on New York courts to hear derivative suits involving foreign corporations, but it does not create an unqualified substantive right to sue that supersedes foreign corporate law.
BCL § 1319(a)(2) likewise does not operate as a choice-of-law directive; it merely specifies which provisions of the BCL may reach foreign corporations “to the extent provided therein.”
Because English substantive law limits derivative standing to registered members—and Ezrasons is not one—plaintiff lacks standing. The complaint was therefore properly dismissed.
Arguments that English standing rules are “procedural” were unpreserved for appellate review.

Chief Judge Wilson dissented at length, asserting that (i) the historical internal-affairs doctrine was jurisdictional, not choice-of-law, when the BCL was enacted in 1961, and (ii) the statutory text and history show a legislative intent to grant New York beneficial owners standing notwithstanding foreign law.

3. Analysis

3.1 Precedents Cited and Their Influence

Eccles v. Shamrock Capital Advisors, LLC, 42 NY3d 321 (2024) – Reaffirmed that New York “with rare exception” follows the internal-affairs doctrine. Used here as the immediate foundation for the majority’s framework.
Marshall v. Sherman, 148 NY 9 (1895) & Merrick v. Van Santvoord, 34 NY 208 (1866) – 19th-century roots of internal-affairs choice-of-law analysis. Quoted to show longstanding deference to the law of the chartering jurisdiction.
Federal Cases: CTS Corp. v. Dynamics Corp., 481 U.S. 69 (1987); Edgar v. MITE, 457 U.S. 624 (1982) – U.S. Supreme Court descriptions of the doctrine’s policy rationale (avoidance of conflicting commands).
Culligan Soft Water Co. v. Clayton Dubilier & Rice LLC, 118 AD3d 422 (1st Dept 2014) & Norlin Corp. v. Rooney, Pace Inc., 744 F.2d 255 (2d Cir 1984) – Lower-court decisions the plaintiff relied upon; the Court declined to follow them, signaling they are no longer good law on this point.

3.2 Court’s Legal Reasoning

Presumption Against Implied Abrogation of Common Law. Under Assured Guaranty v. JPMorgan (2011), a statute must unambiguously override long-standing common-law rules. The majority found no such clarity in §§ 626 or 1319.
Textual Reading of BCL § 626. The phrase “may be brought” is jurisdictional: it tells courts they can receive such suits. It does not say who ultimately has a right to maintain them after a standing defense is raised and foreign law is consulted.
Structure of § 626. Subsections (b)–(e) impose pleading requirements—they presuppose an underlying substantive entitlement that must still be proven by reference to governing law.
Function of § 1319. The clause “to the extent provided therein” signals that each cross-referenced provision carries its own limitations; it is not a blanket instruction to apply New York substantive law in the face of conflict.
Legislative Silence Not Enough. The 1961 Bill Jacket and committee reports show no clear intent to displace the doctrine on derivative-standing issues, unlike BCL § 1317, which explicitly equates certain liabilities of domestic and foreign directors.
Reliance Interest. Sixty-plus years of case law and corporate planning assumed the doctrine’s continued vitality; sudden reversal would upset settled expectations.

3.3 Impact of the Judgment

Foreign Corporations: Reinforces confidence that New York courts will not rewrite a foreign company’s governance rules merely because it does business—or lists securities—in New York.
Derivative Plaintiffs: Beneficial owners must confirm that they satisfy both New York procedural predicates and foreign substantive standing requirements before filing in New York. Expect more actions filed in courts of incorporation (e.g., the English High Court or Delaware Chancery).
Transactional Practice: Counsel structuring cross-border investments should ensure that share-registration or nominee arrangements preserve the right to sue derivatively under the issuer’s home law.
Potential Legislative Response: The Court invites (explicit) statutory action if the Legislature truly wishes to empower New York beneficial holders irrespective of foreign law.
Precedential Weight: Resolves a split between Culligan/ Norlin and the majority line of trial-court cases. Going forward, Ezrasons will control.

4. Complex Concepts Simplified

Internal Affairs Doctrine: Think of a corporation as carrying a “legal passport” from its state of incorporation. Disputes about the company’s internal relationships (shareholders, directors, officers) are governed by the law stamped on that passport, no matter where the dispute is litigated.
Derivative Action: A lawsuit where a shareholder steps into the corporation’s shoes to sue wrongdoers on the company’s behalf. Any money recovered goes to the corporation, not directly to the shareholder-plaintiff.
Registered Member vs. Beneficial Owner: A registered member is listed on the company’s official share register (often a broker or custodian). A beneficial owner merely enjoys the economic benefit of the shares (e.g., through a brokerage account) but is not on the register.
Standing vs. Jurisdiction: “Jurisdiction” asks whether the court has power to hear the type of case; “standing” asks whether the particular plaintiff is the right party to press the claim.
Procedural vs. Substantive Law: Procedural rules govern how to litigate; substantive rules define the underlying rights. The internal-affairs doctrine concerns substantive rights; New York procedural requirements (e.g., demand-futility pleading) still apply.

5. Conclusion

Ezrasons, Inc. v. Rudd does not forge new terrain so much as erect a sturdy barricade around an old landmark. By holding that BCL §§ 626(a) and 1319(a)(2) were never meant to override the internal-affairs doctrine, the Court of Appeals preserves a century-plus of choice-of-law predictability and signals to litigants that statutory language conferring jurisdiction will not—without unmistakable words—rewrite substantive corporate rights imported from abroad. Beneficial owners of foreign corporations must look first, and last, to the issuer’s domicile for authority to bring a derivative claim, even when New York’s courthouse doors stand open.