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.[1]
Bayer and Barclays
Two of these derivative cases advanced to the New York Court of Appeals, New York’s highest court. In the first, the lower court dismissed a derivative suit against Bayer’s directors.[2] It confirmed that the internal affairs doctrine, and thus German law, applied.[3] It held that the requirement that a plaintiff own at least 1% of the company’s stock, make demand on the company, and seek permission from a German court was substantive and barred the suit.[4] In the second, the lower court dismissed a suit against Barclays’ board.[5] It applied the internal affairs doctrine and the UK requirement that a plaintiff be a registered member of the company.[6]
Stockholders’ counsel in both appeals argued that New York’s Business Corporation Law (“BCL”) superseded the internal affairs doctrine and that New York courts should not apply non-U.S. pre-suit requirements. On May 20, 2025, the New York Court of Appeals rejected that argument and affirmed both dismissals with costs. It held that the BCL provisions at issue merely confer jurisdiction upon New York courts to hear derivative suits involving non-U.S. companies.[7] They do not override the internal affairs doctrine or require application of New York law.[8]
Forum Clauses
These decisions confirm the hurdles that New York derivative suits against non-U.S. companies face. Appropriate forum clauses can also help companies dismiss such suits without regard to pre-suit requirements. UBS’s articles of association, for example, reserved jurisdiction “for any disputes arising out of the corporate relationship” solely to its registered office.[9] Based on that clause, a New York court dismissed a derivative suit filed against UBS’s directors. The court found it “logical for a Swiss company, like many Delaware companies, to mandate that its internal-affairs disputes be adjudicated by a court with expertise in its corporate law.”[10] By investing, UBS stockholders “agreed to be bound” by the clause.[11] Another New York court reached the same conclusion based on Novartis’s articles of incorporation, which conferred exclusive jurisdiction to its registered office “for any disputes arising from or in connection with the shareholdership.”[12]
This memorandum is not intended to provide legal advice, and no legal or business decision should be based on its content.
[1] See City of Aventura Police Officers’ Ret. Fund v. Arison, 134 N.Y.S.3d 662, 674-75 (Sup. Ct. N.Y. Cnty. 2020).
[2] Haussmann v. Baumann, 217 A.D.3d 569, 570 (1st Dep’t 2023).
[3] Id.
[4] Id. at 571.
[5] Ezrasons, Inc. v. Rudd, 217 A.D.3d 406, 406 (1st Dep’t 2023).
[6] Id. at 406-07.
[7] 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).
