Supreme Court, New York County, October 15, 2020

Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York City (Audra J. Soloway and Christopher L. Filburn of counsel), Simpson Thacher & Bartlett LLP, New York City (George Wang of counsel), and Simpson Thacher & Bartlett LLP, Washington, DC (Karen Porter of counsel), for defendants.

Robbins Geller Rudman & Dowd LLP, Melville (Samuel H. Rudman and Mary K. Blasy of counsel), Robbins Geller Rudman & Dowd LLP, San Diego, California (Travis E. Downs III, Benny C. Goodman III and Erik W. Luedeke of counsel), Sugarman & Susskind, P.A., Coral Gables, Florida (Pedro A. Herrera of counsel), and Robbins LLP, San Diego, California (Brian J. Robbins and Ashley R. Rifkin of counsel), for plaintiff.

This case presents novel questions as to whether, and under what circumstances, the shareholders of an English company may bring a derivative action in a New York court.

Plaintiff holds American Depositary Shares (ADS) of Carnival plc, an English company. As an ADS holder, plaintiff holds beneficial ownership of Carnival plc ordinary shares. Defendants are directors of both Carnival plc and Carnival Corporation (a Panamanian company), which are part of a dual-listed company (DLC) called "Carnival Corporation & plc." Under the dual-listed company structure, which arose out of a transaction in 2003, the companies maintain their separate corporate existence, but they have identical boards of directors and senior executive management and share equally in the combined entity's revenues and costs.

Plaintiff alleges that defendants' failure to properly oversee the operations of Princess Cruise Lines, Ltd. (Princess), a subsidiary of Carnival Corporation, led to the imposition of over $60 million of fines and penalties for environmental and maritime crimes. The financial impact of those fines and penalties was borne equally by Carnival plc and Carnival Corporation via the dual-listed company structure. Plaintiff asserts that defendants' conduct breached their fiduciary duties to Carnival plc and its shareholders.

Defendants move to dismiss the complaint on various grounds. First, they argue that plaintiff lacks standing under New York law because defendants' alleged failings occurred in their oversight of Carnival Corporation, a company in which plaintiff is not a shareholder. Second, they argue that plaintiff's claims are barred by English statutory and common law, which (in their view) impose conditions on shareholder standing to{**70 Misc 3d at 236} assert derivative claims that [*2]plaintiff does not satisfy. Finally, they argue that the complaint should be dismissed because plaintiff failed to make a demand upon the Carnival plc board to bring this action and because the complaint fails to state claims with sufficient specificity.

For the reasons described below, defendants' motion to dismiss is granted. Plaintiff (an ADS holder) is not a registered "member" of Carnival plc, and thus under the United Kingdom Companies Act 2006, chapter 46 (Companies Act) it is not permitted to bring a derivative action on Carnival plc's behalf. Because the membership requirement is a substantive limit on shareholder standing to assert a derivative claim—and not merely a procedural hurdle—the court is obliged to apply it to this case under the "internal affairs" doctrine.^[FN1] New York's Business Corporation Law does not, as plaintiff suggests, displace the substantive law of the state of incorporation (here, England and Wales) with respect to shareholder standing.

Defendants' remaining arguments in support of dismissal—including that plaintiff does not satisfy New York share ownership requirements, that plaintiff failed to obtain English court approval before filing suit, and that plaintiff failed to make a demand upon Carnival plc's board to bring suit—are unavailing.

The Carnival DLC

As noted above, Carnival plc and Carnival Corporation are part of a DLC known as "Carnival Corporation & plc," the world's largest leisure travel company and cruise ship operator (verified complaint [complaint] ¶ 2). Under the DLC, the businesses of Carnival Corporation and Carnival plc are combined through, inter alia, provisions in Carnival Corporation's articles of incorporation and bylaws and Carnival plc's articles of association (NY St Cts Elec Filing [NYSCEF] Doc No. 18, aff of Arnaldo Perez [Perez aff] ¶ 3). The DLC structure enables Carnival Corporation and Carnival plc to operate as a single economic enterprise, with a single senior executive management team and identical boards of directors (id.; complaint ¶ {**70 Misc 3d at 237}2). They also file consolidated financial statements, believing that "[g]iven the DLC arrangement, . . . providing separate financial statements for each of Carnival Corporation and Carnival plc would not present a true and fair view of the economic realities of their operations" (NYSCEF Doc No. 33, affirmation of Mary K. Blasy [Blasy affirmation], exhibit B [SEC Form 10-K for Carnival Corporation & plc]; Perez aff ¶ 3).

The DLC arrangement began in 2003, when Carnival Corporation combined with P & O Princess Cruises plc, the precursor to Carnival plc (Blasy affirmation ¶¶ 4-5). Before the combination, the ordinary shares of P & O Princess Cruises plc were listed on the London Stock Exchange (LSE), with ADS, each one representing four ordinary shares, trading on the New York Stock Exchange (NYSE) (id.; see NYSCEF Doc No. 32, Blasy affirmation, exhibit A [equalization agreement]). In order for shareholders of the combining companies to avoid the tax liability resulting from divestiture, and to permit U.K. investors to maintain ownership of [*3]their old Princess shares, the transaction was accomplished through a dual-listing agreement rather than a formal merger (id.). Following the combination, the then-existing shareholders and ADS holders of both Carnival Corporation and P & O Princess Cruises plc retained those securities in what are now, respectively, Carnival Corporation and Carnival plc (id.).

Each Carnival entity within the DLC also retains its own separate legal identity (complaint ¶ 2). Carnival plc is incorporated in England and Wales; its stock continues to trade on the LSE and, as ADS, on the NYSE (id. ¶¶ 14, 18). Carnival Corporation, meanwhile, is incorporated in Panama and its shares are traded on the NYSE (Blasy affirmation ¶¶ 4, 7; see Blasy affirmation, exhibit B).

The U.S. government brings charges against Princess in Florida.

This action comes in the wake of criminal proceedings brought by the U.S. government against Princess, a Carnival Corporation subsidiary, for violations of environmental and maritime laws (complaint ¶ 3; see Blasy affirmation ¶ 11).^[FN2] In December 2016, Princess entered into a plea agreement in which it pleaded guilty to, inter alia, charges that it knowingly discharged "oily bilge water and slops from bilges" in U.S. {**70 Misc 3d at 238}waters, and agreed to a sentence that included $40 million in penalties "plus mandatory special assessments" (NYSCEF Doc No. 41, Blasy affirmation, exhibit J, at 2, 4 [plea agreement]). In addition, the plea agreement called for Princess "and Carnival Corporation and Carnival plc" to "fully fund and implement" an Environmental Compliance Plan (ECP) (id. at 9). The plea agreement was signed by authorized representatives for Princess as well as for "Carnival Corporation & plc" (see id. at 19). This followed an earlier board meeting in which "Carnival Corporation and Carnival plc (collectively, 'Carnival')" adopted a resolution approving entry into the plea agreement and authorized a senior manager of the DLC to execute the plea agreement (NYSCEF Doc No. 39, Blasy affirmation, exhibit H). Both the "Designation of Authority" and a "Secretary's Certificate" attesting to the veracity of the documentation were signed by Arnaldo Perez, in his dual capacities as "Secretary of Carnival Corporation" and "Company Secretary of Carnival plc" (id.).

The United States District Court for the Southern District of Florida accepted Princess's guilty pleas in December 2016 (NYSCEF Doc No. 40, Blasy affirmation, exhibit I). Then in April 2017, the court sentenced Princess to pay a $40 million criminal penalty and to serve a five-year term of probation (see NYSCEF Doc No. 48, Blasy affirmation, exhibit Q). Additionally, "Carnival Corporation and Carnival plc . . . agreed to fully fund and implement th[e] ECP" accompanying the probation, such that Carnival Corporation and Carnival plc's "compliance with the terms of th[e] ECP [was] a Special Condition of [Princess's] Probation" (NYSCEF Doc No. 43, Blasy affirmation, exhibit L [ECP]). The ECP mandated that a court-appointed monitor would serve as the court's "eyes and ears" within the Carnival entities to assess the "big picture" of the companies' compliance efforts (NYSCEF Doc No. 48, Blasy affirmation, exhibit Q, at 5 [First Annual Report of the Court Appointed Monitor (2017-2018)]).

Those efforts foundered. In 2019, the government filed a superseding petition in the case, asserting six probation violations (NYSCEF Doc No. 52, Blasy affirmation, exhibit U; complaint ¶¶ 4-5). To resolve the government's new round of charges, Princess "admit[ted] that it committed the violations alleged in the Superseding Petition" and "further admit[ted] that [Princess], its corporate parent (Carnival Corporation & plc) and related subsidiaries and entities . . . violated terms of {**70 Misc 3d at 239}probation and the [ECP]" (Blasy affirmation, exhibit U). The "defendant"—i.e., Princess—"agree[d] to pay an additional financial penalty of $20 million" (id.). The resolution was signed by defendant's counsel and by three "Member[s] of the Executive Committees of the Board of Directors" for "Carnival Corporation and Carnival plc" (id.).

Plaintiff brings the instant action in New York.

A few months later, on October 23, 2019, plaintiff initiated the instant lawsuit by filing a summons and verified complaint (NYSCEF Doc No. 1). In this case, plaintiff "seeks to vindicate Carnival plc's rights against its wayward fiduciaries" (id. ¶ 11). Carnival plc is named as a nominal defendant. Plaintiff is, and at all relevant times has been, a shareholder of Carnival plc (id. ¶ 17) through its holding of ADS. The individual defendants are members of Carnival plc's board of directors, including defendant Micky Arison, who serves as Chairman of the board (id. ¶¶ 19-29).

Plaintiff alleges that defendants "were duty bound to protect and preserve Carnival plc's interests in Carnival Corporation & plc's valuable corporate enterprise," and abdicated those responsibilities by allowing serious violations of U.S. laws and U.S. federal court orders to unfold under their watch (id. ¶¶ 7-8). Defendants' "faithless misconduct" "severely damaged and injured" Carnival Corporation & plc, which in turn damaged and injured Carnival plc's interest in the DLC (id. ¶ 9). Further, according to plaintiff, while "Carnival plc has been severely damaged by the $60 million paid to resolve the illegal dumping claims and probation violations," not counting additional remediation costs, "defendants have collectively pocketed more than $59.5 million in compensation" (id. ¶ 10).

The complaint asserts two causes of action against defendants: (1) breach of fiduciary duty and (2) corporate waste. Plaintiff acknowledges in the complaint that "New York generally recognizes the 'internal affairs' doctrine under which a company's jurisdiction of incorporation has the greatest interest in regulating that company's internal affairs and the law of that jurisdiction is applied to corporate matters," but urges the application of New York law in this case, rather than English law, to avoid "an unjust result" (id. ¶¶ 12-14).

On a motion to dismiss pursuant to CPLR 3211 (a) (7), the court must "accept the complaint's factual allegations as true, {**70 Misc 3d at 240}according to plaintiff the benefit of every possible favorable inference, and determining only whether the facts as alleged fit within any cognizable legal theory" (Weil, Gotshal & Manges, LLP v Fashion Boutique of Short Hills, Inc., 10 AD3d 267, 270-271 [1st Dept 2004] [internal quotation marks and citation omitted]; see also Leon v Martinez, 84 NY2d 83, 88 [1994]). And "[o]n a motion to dismiss pursuant to CPLR 3211 (a) (1), the defendant has the burden of demonstrating that the documentary evidence conclusively resolves all factual issues and that plaintiff's claims fail as a matter of law" (Robinson v Robinson, 303 AD2d 234, 235 [1st Dept 2003]). "While a complaint is to be liberally construed in favor of plaintiff on a CPLR 3211 motion to dismiss, the court is not required to accept factual allegations that are plainly contradicted by the documentary evidence or legal conclusions that are unsupportable based upon the undisputed facts" (id.; see Summit Solomon & Feldesman v Lacher, 212 AD2d 487, 487 [1st Dept 1995]).

A. Plaintiff satisfies threshold share-ownership requirements for asserting derivative claims.

New York law "mandates that shareholders instituting a derivative action must demonstrate that they owned stock both when the lawsuit was brought and at the time of the transaction(s) of which they complain" (Pessin v Chris-Craft Indus., 181 AD2d 66, 70 [1st Dept 1992], citing Business Corporation Law § 626 [b] ["In any such action, it shall be made to appear that the plaintiff is such a holder at the time of bringing the action and that he was such a holder at the time of the transaction of which he complains . . . ."]; Independent Inv. Protective League v Time, Inc., 50 NY2d 259, 263 [1980] [noting that "the contemporaneous ownership rule must, as a general matter, be rigorously enforced"]).

Plaintiff plainly satisfies those requirements. It is suing derivatively on behalf of nominal defendant Carnival plc, "seek[ing] to vindicate Carnival plc's rights against its wayward fiduciaries" (complaint ¶ 11). Plaintiff pleads that at all relevant times it held stock in Carnival plc through its ADS (id. ¶ 17). Nothing more must "be made to appear" in this regard (Business Corporation Law § 626 [b]; see e.g. Ganzi v Ganzi, 2016 NY Slip Op 33099[U], *30, *31 [Sup Ct, NY County 2016] [denying leave to amend answer to include affirmative defense of lack of derivative standing where stock ownership was "uncontroverted" and the "concerns (in Independent Inv. Protective League [50 NY2d at 263]) are clearly not present"], affd {**70 Misc 3d at 241}144 AD3d 510 [1st Dept 2016]; Berger v Friedman, 2015 NY Slip Op 32189[U], *3 [Sup Ct, Queens County 2015] [denying "misguided" motion to dismiss where "defendants failed to demonstrate . . . that (plaintiff) is no longer a shareholder in (nominal defendant)"], affd 151 AD3d 678 [2d Dept 2017]).

Defendants' argument to the contrary—essentially, that plaintiff lacks standing because it is not a shareholder of Carnival Corporation—is unavailing. The authorities upon which defendants rely reaffirm the necessity of owning shares in the nominal defendant (here, Carnival plc), which plaintiff does (see Pessin, 181 AD2d at 70 ["Plaintiffs concede that they did not own stock in (the nominal defendant) when the alleged misconduct took place and that the contemporaneous ownership rule is strictly enforced"]; Simon v FrancInvest, S.A., 178 AD3d 436, 436 [1st Dept 2019] [affirming dismissal of derivative claims because plaintiff was not a shareholder in the nominal defendant]).

Defendants' reliance on the Eleventh Circuit Court of Appeals' decision in Sabo v Carnival Corp. (762 F3d 1330 [11th Cir 2014]) is misplaced. Sabo analyzed the Carnival DLC entity's capacity to be sued, not the plaintiff's standing to sue on behalf of Carnival plc (id. at 1332-1334 ["(c)onsider(ing) whether Carnival Corporation & PLC . . . is properly suable under the laws of Florida in this action"]; see Matter of World Trade Ctr. Lower Manhattan Disaster Site Litig., 30 NY3d 377, 384 [2017] [cautioning that "(c)apacity should not be confused with standing" because "(c)apacity, unlike standing, does not concern the injury a party suffered"]). In contrast to the Sabo plaintiffs' ill-fated "decision to sue the DLC rather than its different corporate components" (762 F3d at 1334), here plaintiff charts a more familiar course for a derivative action, seeking to hold the board members of Carnival plc accountable for the harm they allegedly caused to Carnival plc.

At bottom, defendants' argument about share ownership is not an argument about standing at all. It is, instead, an argument about the scope of defendants' fiduciary duties as directors of all three closely related entities—Carnival plc, Carnival Corporation, and the DLC. "The fundamental aspect of standing is that it focuses on the party seeking to get [its] complaint before a . . . court and not on the issues [it] wishes to have adjudicated" (Flast v Cohen, 392 US 83, [*4]99 [1968]). In the same vein, the share-ownership rule focuses on whether the party seeking to sue derivatively possesses standing to do so, not on{**70 Misc 3d at 242} whether the derivative claims themselves show merit (see In re Facebook, Inc., Initial Pub. Offering Derivative Litig., 797 F3d 148, 157 [2d Cir 2015] ["The contemporaneous stock ownership rule is thus a procedural requirement which, in effect, denies a putative derivative plaintiff standing to challenge wrongdoing that predated the time the plaintiff became a shareholder"]).

Defendants insist that the Carnival plc board members had no fiduciary duty to oversee the Princess Cruise Line, and therefore that plaintiff's claims "belong[ ]" to Princess's parent, Carnival Corporation, not to Carnival plc (NYSCEF Doc Nos. 15, defendants' mem of law at 11-12; 58, defendants' reply mem of law at 8). But defendants' argument, while clothed as a challenge to plaintiff's standing, attacks the merit of plaintiff's claims. The scope of defendants' fiduciary duty to Carnival plc, not plaintiff's undisputed status as a shareholder of that entity, will determine whether Carnival plc has a cause of action.

Moreover, defendants overstate the practical distinction among the Carnival entities. Although Carnival Corporation and Carnival plc maintain independent legal identities, the two companies operate interdependently, "as a single economic enterprise with a single senior executive management team and identical Boards of Directors" (Blasy affirmation, exhibit B). This relationship extends to the two companies' shareholders, who "effectively vote as a single body" on most matters, with "one share of Carnival Corporation common stock and one Carnival plc ordinary share . . . generally entitled to the same distributions" (id.). Carnival Corporation and Carnival plc also issue joint financial statements, explaining that "[g]iven the DLC arrangement, . . . providing separate financial statements for each of Carnival Corporation and Carnival plc would not present a true and fair view of the economic realities of their operations" (id.).

Notably, while Princess is a Carnival Corporation subsidiary, the plea agreement at issue in this case received authorization from the boards of both Carnival Corporation and Carnival plc, committing Carnival Corporation and Carnival plc to a mandated ECP. And when the terms of the ECP were not met, the resolution of the government's superseding petition was signed by "Member[s] of the Executive Committees of the Board of Directors" for "Carnival Corporation and Carnival plc."

In sum, while the scope of defendants' fiduciary duty to Carnival plc in connection with Princess-related matters remains to be seen, plaintiff's ownership of shares in Carnival{**70 Misc 3d at 243} plc clearly meets the threshold share-ownership requirement under New York law.

That is not, however, the end of the matter.

B. Plaintiff does not have standing under English law to bring a derivative claim on behalf of Carnival plc.

1. The Internal Affairs Doctrine

"[U]nder the internal affairs doctrine, 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" (New Greenwich Litig. Trustee, LLC v Citco Fund Servs. [Europe] B.V., 145 AD3d 16, 22 [1st Dept 2016] [citation omitted]; see Davis v Scottish Re Group Ltd., 30 NY3d 247, 253 [2017] [same]). The doctrine is a "conflict of laws principle which recognizes that only one State should have the authority to regulate a [*5]corporation's internal affairs—matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders—because otherwise a corporation could be faced with conflicting demands" (New Greenwich Litig. Trustee, 145 AD3d at 22 [emphasis omitted], citing Edgar v MITE Corp., 457 US 624, 645 [1982]; Hart v General Motors Corp., 129 AD2d 179, 184 [1st Dept 1987] [underscoring "the need for uniform application of one body of law to corporations and their directors on issues involving the regulation of a corporation's internal affairs"]).

Accordingly, plaintiff must show that it has standing to sue under English law (see Hart, 129 AD2d at 182 [holding that the law of the place of incorporation governs "the threshold demand issue" of standing to sue]; Matter of Hakimian [Bear Stearns & Co., Inc.], 46 AD3d 294, 295 [1st Dept 2007] ["Whether the investors had standing to sue on behalf of the hedge fund . . . was to be determined by the law of Delaware, where the entity was organized"]; Matter of CPF Acquisition Co. v CPF Acquisition Co., 255 AD2d 200, 200 [1st Dept 1998] ["Plaintiff's standing to sue is governed by Delaware law, that being the State of the subject corporation's incorporation"]).

However, only substantive English law applies to this action. "[P]rocedural rules are governed by the law of the forum" (Scottish Re, 30 NY3d at 252). "[T]he key analytic step" is thus classifying whether particular English law rules governing the maintenance of derivative actions are substantive or procedural{**70 Misc 3d at 244} (Tanges v Heidelberg N. Am., 93 NY2d 48, 53 [1999]). If the rules function as substantive limitations on derivative actions involving English companies, no matter where those actions proceed, then plaintiff's claims are barred. If they are procedural rules that apply only to cases initiated in English courts, such rules are inapplicable here.

2. New York law does not supplant English law on derivative standing.

New York's Business Corporation Law does not, as plaintiff argues, override the internal affairs doctrine on the issue of standing to bring a derivative claim. Business Corporation Law § 1319 is considered "a mere statutory predicate to jurisdiction," which "simply confers jurisdiction upon New York courts over derivative suits on behalf of out-of-state corporations" but "does not require application of New York law in such suits" (Stephen Blau MD Money Purchase Pension Plan Trust v Dimon, 2015 NY Slip Op 32909[U], *11 [Sup Ct, NY County 2015, Singh, J.]; David Shaev Profit Sharing Plan v Bank of Am. Corp., 2014 NY Slip Op 33986[U], *5 [Sup Ct, NY County 2014] ["Section 1319 of the NY Business Corporation Law should not be interpreted as a conflict of laws rule that absolutely compels its application to matters of substantive law"]; Potter v Arrington, 11 Misc 3d 962, 966 [Sup Ct, Monroe County 2006] ["(T)his statute is not a conflict of laws rule and does not compel the application of New York law; rather it must be viewed as the statutory predicate allowing New York to follow its conflict rules in determining the applicable law"]; Lewis v Dicker, 118 Misc 2d 28, 30 [Sup Ct, Kings County 1982] ["(S)ection 1319 of the Business Corporation Law is not a conflict of laws rule, and does not compel the application of New York domestic law"]).

Plaintiff's argument "is contrary to decades of controlling appellate precedent" (Blau, 2015 NY Slip Op 32909[U], *8). The First Department routinely applies the internal affairs doctrine in derivative actions featuring foreign corporations (see e.g. CPF Acquisition Co., 255 AD2d at 200; Levin v Kozlowski, 45 AD3d 387, 388 [1st Dept 2007] [applying "the law of Bermuda, where (the nominal defendant) was incorporated"]). Indeed, the cases upon which plaintiff relies most [*6]heavily, Scottish Re (30 NY3d at 257), and Mason-Mahon v Flint (166 AD3d {**70 Misc 3d at 245}754 [2d Dept 2018]), are inconsistent with plaintiff's argument that the internal affairs doctrine does not apply in this context.^[FN3]

In sum, the court finds that the internal affairs doctrine requires consideration and application of substantive English law to decide plaintiff's standing to sue derivatively.

3. Derivative Actions under the Companies Act

Part 11 of the Companies Act ("Derivative Claims and Proceedings by Members") is divided into two chapters. Chapter 1 (Companies Act §§ 260-264) "applies to proceedings in England and Wales or Northern Ireland by a member of a company" (id. § 260 [1]). Chapter 2 (id. §§ 265-269) applies to proceedings in Scotland by "a member of a company" (id. § 265 [1]).

Section 260 sets forth the basic contours of a derivative cause of action. First, a "derivative claim" is defined as a claim brought by a "member of a company . . . in respect of a cause of action vested in the company, and . . . seeking relief on behalf of the company" (id. § 260 [1] [a]-[b]). Second, the claim "may be brought only in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company" (id. § 260 [3]). Third, the claim may be brought "against the director or another person (or both)" (id.). Fourth, "[i]t is immaterial whether the cause of action arose before or after the person seeking to bring or continue the derivative claim became a member of the company" (id. § 260 [4]). The statute makes clear that derivative claims "may only be brought—(a) under this Chapter [1], or (b) in pursuance of an order of the court in proceedings under section 994 (proceedings for protection of members against unfair prejudice)" (id. § 260 [2] [emphasis added]).

{**70 Misc 3d at 246}The remaining sections of chapter 1 (id. §§ 261-264) focus mainly on the process of obtaining court "permission" or "leave" to continue the pursuit of derivative claims. In particular, section 261 provides that "[a] member of a company who brings a derivative claim under this Chapter must apply to the court for permission (in Northern Ireland, leave) to continue it" (id. § 261 [1]). The "court" is specified elsewhere in the statute to mean the English High Court or County Court (or equivalent courts in Scotland and Northern Ireland) (NYSCEF Doc No. 22, affirmation of Martin Luke Moore, QC [Moore affirmation] ¶ 48, citing Companies Act § 1156). If the evidence submitted in [*7]support of the application does "not disclose a prima facie case for giving permission (or leave), the court . . . must dismiss the application, and . . . may make any consequential order it considers appropriate" (Companies Act § 261 [2]; see also §§ 262 ["Application for permission to continue claim (initially brought by the company) as a derivative claim"], 263 ["Whether permission to be given"], 264 ["Application for permission to continue derivative claim brought by another member"]).

A "member" is, as relevant here, a "person who agrees to become a member of a company, and whose name is entered in its register of members" (id. § 112 [2] [emphasis added]). A "company," in turn, is defined to mean, "unless the context otherwise requires," a company incorporated in the U.K. under the Companies Act or predecessor legislation (id. § 1; see § 1044; Moore affirmation ¶¶ 36, 66). The membership requirement for derivative suits does not purport to govern companies incorporated outside the U.K., which are defined in the statute to be "overseas companies," which is a term not used in part 11 (governing derivative claims) (Moore affirmation ¶ 36).

Plaintiff does not allege that it is a member of Carnival plc (see Perez aff ¶ 5 [averring that plaintiff "is not identified as a registered shareholder of Carnival plc"]). Nor does it dispute defendants' assertion (via its English law expert) that plaintiff cannot be a member under the Companies Act, because it holds Carnival plc shares in the form of ADS: "One important practical consequence of [the statute] is that a beneficial owner of shares, such as an ADS holder where the depositary is the member, or any person holding his or her interest through a central depositary, cannot bring a statutory derivative claim" (Moore affirmation ¶ 38; cf. Batchelder v Kawamoto, 147 F3d 915, 922, 921 [9th Cir, June 15, 1998, as amended July 15, {**70 Misc 3d at 247}1998] [finding plaintiff "lacked standing as an ADR holder under Japanese law to bring his shareholder derivative action" because, inter alia, "ADR holders are not shareholders of record under Japanese law" (internal quotation marks omitted)]).^[FN4]

4. The membership requirement is a substantive bar to plaintiff's claims.

The question whether the Companies Act's membership requirement is a substantive [*8]limitation on derivative standing—rather than a mere procedural hurdle applicable only in U.K. court proceedings—appears to be a matter of first impression. The court's analysis of that question is guided principally by the Court of Appeals' decision in Scottish Re. "Where there is disagreement as to the nature of a law, the law of the forum normally determines for itself whether a given question is one of substance or procedure" (Scottish Re, 30 NY3d at 252, quoting Tanges, 93 NY2d at 54 [internal quotation marks omitted]).

In Scottish Re, the Court considered whether a shareholder of a Cayman Islands corporation had standing to bring a derivative action in New York. The Cayman Islands Grand Court Rules require "that a plaintiff bringing a contested derivative action in the Cayman Islands must apply to the Cayman Islands Grand Court for leave to continue the action, entailing a hearing and a decision issued by the court" (id. at 251). The plaintiff failed to satisfy that requirement. The Court of Appeals carefully scrutinized the Cayman Islands statute and concluded that this prior approval provision was a procedural requirement—applicable only in actions initiated "by writ" in {**70 Misc 3d at 248}Cayman Islands courts—and not a substantive bar to initiating a derivative action in New York. In reaching that result, the Court assessed (i) "the plain language of [the] rule," (ii) whether the statute itself "creates a right," and (iii) "general policy considerations" (id. at 253, 255-256). These interpretive guideposts here point in favor of deeming the membership requirement a substantive rule.^[FN5]

i. Statutory Text

First, the court must examine the language of the statute. Statutory text can clarify whether foreign law regulates the substantive rights of foreign corporations or, conversely, the procedural rules of a foreign forum (id. at 253).

Here, the statutory language is inconclusive. On the one hand, section 260 (1) states that chapter 1 of part 11 "applies to proceedings in England and Wales or Northern Ireland," which arguably suggests a set of forum-specific procedural rules. But while that interpretation may be persuasive when applied to the judicial-permission requirements of sections 261-264 (see Mason-Mahon, 166 AD3d at 757), which expressly mandate proceedings in U.K. courts, it is far less persuasive when applied to the core provisions of section 260. For example, section 260 (3) sets forth the basic claims for relief that can be asserted by a member in a derivative action, and against whom they can be made, which can hardly be called procedural rules. Yet that would be the incongruous conclusion if the entirety of chapter 1 (i.e., sections 260-264) is deemed limited to "proceedings in England and Wales or Northern Ireland." So too with the membership requirement, which (as discussed below) is similar to limitations on derivative standing that have [*9]been found to be substantive.^[FN6]

Indeed, the cases on which plaintiff mainly relies focused on judicial-permission requirements, rather than on threshold requirements as to shareholder or "member" status. In Scottish {**70 Misc 3d at 249}Re, the Court of Appeals found the Cayman Islands' judicial-permission requirement to be a procedural rule in part because, by its terms, the statute was steeped in the idiosyncrasies of Cayman Islands procedure and governed derivative actions "brought by writ on behalf of any corporation, no matter where incorporated" (30 NY3d at 254). In other words, the statute focused on derivative actions brought in the Cayman Islands, not on derivative actions brought on behalf of Cayman Islands companies wherever they might be sued (id. [reasoning that the statute "serves a gatekeeping function, but only as to derivative actions brought in the Cayman Islands, not for derivative actions, wherever brought, concerning Cayman companies specifically"]).^[FN7]

In Mason-Mahon, the Second Department reached the same conclusion with respect to the judicial-approval requirements of Companies Act § 261 et seq. Applying Scottish Re, the Court relied on the introductory language in section 260 (1), discussed above, along with the requirement in section 261 (1) that "[a] member of a company who brings a derivative claim under this Chapter must apply to the court for permission (in Northern Ireland, leave) to continue it." Reading those provisions together, the Court concluded that

"by its own terms, UK Companies Act § 261 (1) applies only to derivative claims brought in England and Wales, or Northern Ireland, and does not suggest that it applies in any other jurisdiction such as New York. Moreover, the plain meaning of the rule is that it applies to any derivative action commenced in England and Wales, or Northern Ireland, in respect of a cause of action vested in the 'company' and seeking relief on behalf of the 'company' {**70 Misc 3d at 250}irrespective of where such company is incorporated. Thus, as in [Scottish Re], the rule appears to 'serve[ ] a gatekeeping function,' but only as to derivative actions commenced in England and Wales, or Northern Ireland, not for derivative actions, wherever commenced, concerning companies incorporated in England and [*10]Wales, or Northern Ireland, specifically" (166 AD3d at 756-757 [citations omitted]).

While certain language in Mason-Mahon could, as plaintiff suggests, be read broadly to indicate that all provisions contained in part 11, chapter 1 of the Companies Act, including that the action be brought by a "member," are procedural (i.e., they have no application outside courts in England and Wales or Northern Ireland), it is not necessary or appropriate for this court to assume the Second Department would have made that leap. The Court's holding was limited to the application of section 261 (1), which (together with subsequent sections) sets forth a procedural framework for a judicial determination whether a derivative action may be maintained. By contrast, the requirement that the derivative plaintiff be a "member" is not tied to unique procedural trappings of foreign courts. Moreover, as noted below, limitations as to the authority of a plaintiff to initiate a derivative action generally are deemed to be substantive rather than procedural.

On the whole, the court finds that the statutory text of the Companies Act does not support the conclusion that the membership requirement is merely a procedural rule limited to proceedings in U.K. courts.^[FN8]

ii. Rights and Remedies

Second, the court must assess whether the membership requirement in the Companies Act concerns "the remedy rather than the right," or else "envelop[s] both the right and the remedy" (Tanges, 93 NY2d at 54-55, 56). The paradigmatic examples are statutes of limitations and statutes of repose,{**70 Misc 3d at 251} respectively. As analyzed in Tanges, and recounted in Scottish Re, "statutes of limitations are generally treated as procedural in New York because they pertain 'to the remedy rather than the right,' meaning that when the allotted time period under the statute has expired, the plaintiff loses its remedy, although it continues to have the underlying right" (Scottish Re, 30 NY3d at 255, quoting Tanges, 93 NY2d at 54-55). Statutes of repose, meanwhile, "are theoretically and functionally distinct": they run from when a "specified event or events takes place," independent of a potential claim or injury, and therefore have the practical effect of "block[ing] causes of action before they even accrue" (Tanges, 93 NY2d at 55-56; see 4 American Law of Products Liability 3d § 47:70 ["(T)he period of repose has the effect of preventing what might otherwise have been a cause of action from ever arising"]). Therefore, statutes of repose "exhibit a substantive texture, nature and consequence that distinguishes them from ordinary limitation provisions" (Tanges, 93 NY2d at 56; Scottish Re, 30 NY3d at 255-256).

Similar reasoning works to differentiate between procedural and substantive corporation [*11]statutes. In Scottish Re, the defendants tried to analogize the Cayman Islands statute to a statute of repose, but the Court rejected the comparison. Unlike a statute of repose, the Cayman Islands law could not "negate a plaintiff's right to ever bring an action in court":

"[I]t allows any plaintiff the right to commence a derivative action, and sets forth a procedural mechanism for a threshold determination of merits and standing. . . . [R]ule 12A itself neither creates a right, nor defeats it. Rather, it is the initial decision by the Grand Court judge, made after an evaluation of the plaintiff's complaint using the substantive law, along with the defendant's evidence, that may terminate the action" (id. at 256 [emphasis omitted]).

Consistent with this reasoning, the "real inquiry must be directed to the question whether [the plaintiff's] right to bring this action involves no more than compliance with procedural requirements extraneous to the substance of their claim, or whether it concerns the very nature and quality of their substantive right, powers and privileges as stockholders" (Hausman v Buckley, 299 F2d 696, 701 [2d Cir 1962] [finding that Venezuelan majority-shareholder rule was substantive]; see Vaughn v LJ Intl., Inc., 174 Cal App 4th 213, 221, 94 Cal Rptr {**70 Misc 3d at 252}3d 166, 171 [2009] [finding BVI Act § 184C "is a substantive provision"], citing Hausman, 299 F2d at 701, cited by Scottish Re, 30 NY3d at 254; Coster v Coster, 289 NY 438, 442 [1943] [finding Massachusetts law barring suit by a married woman against her spouse to be substantive because "(h)er right to bring and to maintain the suit and to recover damages against her spouse is a substantive right, a part of her cause of action and not a mere matter of remedy"]).

The membership requirement in the Companies Act shapes the substantive rights of stakeholders to sue derivatively on behalf of English corporations. The requirement, in and of itself, "can negate a plaintiff's right to ever bring an action in court" (30 NY3d at 256) because without registered membership in the corporation, the putative derivative plaintiff cannot seek permission from a court to continue the action (Companies Act § 263 [1] ["The following provisions have effect where a member of a company applies for permission . . . under section 261"]). In that sense, the membership requirement is predicated on a fact independent from the plaintiff's particular claim or injury, just like a statute of repose. Consequently, the membership requirement can "ha[ve] the effect of preventing what might otherwise have been a cause of action from ever arising" (Tanges, 93 NY2d at 55-56 [emphasis and citation omitted]).

iii. Policy Considerations

Third, "general policy considerations . . . ought to be weighed when determining whether a rule is substantive or procedural" (Scottish Re, 30 NY3d at 256). The court must "consider whether [its] determination would impose a burden on the foreign court . . . or federal courts operating under diversity rules and whether it would threaten to cause delay in the conduct of judicial business and impair judicial efficiency" (id. [citation and internal quotation marks omitted]). Admittedly, these "general policy considerations" tend to fall in line with whichever classification the court settles on (compare id. [finding factors "weigh(ed) in favor of our conclusion that rule 12A is procedural"], with Tanges, 93 NY2d at 58 [finding "the relevant policy concerns support our analysis and convince us to dub (Connecticut statute) as substantive"]). Still, they serve as reminders to assess the practical effects of the preceding analysis. While implementing innately procedural foreign rules invites confusion and inefficiency, recognizing a rule as{**70 Misc 3d at 253} substantive[*12]"should help to discourage forum shopping, and may improve judicial efficiency and provide fair, even-handed justice to all parties" (Tanges, 93 NY2d at 58).

Classifying the membership requirement as substantive imposes no additional burden on other courts, and at the same time discourages forum shopping by acknowledging the Companies Act's uniform standard for derivative actions brought on behalf of English companies, wherever they are brought. Moreover, this particular facet of the Companies Act does not pose the procedural riddles described in Scottish Re, where it "[wa]s unclear what procedural path a party seeking to bring a derivative action in New York on behalf of a Cayman company would follow to comply with [the court approval requirements of] rule 12A" (30 NY3d at 256). The membership requirement, as noted above, does not plot a "procedural path" but rather creates a substantive precondition for having the right to sue derivatively on behalf of the corporation. That, in turn, provides stable guidance to shareholders and ADS holders in English companies as to the scope of their rights to bring derivative actions on behalf of the company. The same is true for corporate officers and directors, who have more than a passing interest in knowing whether and under what circumstances they will be subject to derivative lawsuits outside the United Kingdom.

Finally, there is the question of international comity (Hilton v Guyot, 159 US 113, 164 [1895] [describing concept as "the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws"]). The United Kingdom has decided, as a matter of policy, to restrict the types of stakeholders that have the authority to bring lawsuits in the name of an English company, with the attendant burdens on the company and its officers and directors. Imposing New York rules of shareholder standing (and by logical extension the laws of any of the 50 United States in which an ADS holder might seek to bring suit) would undermine the limits embodied in the Companies Act definition of "member" and would subject the company, its officers, and directors to litigation costs and risks that U.K. lawmakers seemingly sought to prevent.

Therefore, because the membership requirement of the Companies Act is a substantive provision that must be met{**70 Misc 3d at 254} here, and plaintiff has failed to meet it, plaintiff lacks standing to bring derivative claims on behalf of Carnival plc.^[FN9]

C. Defendants' other arguments for dismissal are unavailing.

For the sake of completeness and efficiency (in the event of an appeal), the court will briefly address defendants' other arguments in support of dismissal. The court finds each of them to be without merit.

First, defendants' argument that plaintiff was required to obtain English High Court approval to continue this action is foreclosed by Mason-Mahon, which (as described above) held that the "judicial-permission requirement set forth in the UK Companies Act is a procedural rule" and therefore "does not bar [plaintiff's] derivative claims in New York" (166 AD3d at 755-757). In the absence of contrary authority from the Court of Appeals or the First Department, that decision is binding on this court (D'Alessandro v Carro, 123 AD3d 1, 6 [1st Dept 2014] ["It is axiomatic that Supreme Court is bound to apply the law as promulgated by the Appellate Division within its particular Judicial Department, and where the issue has not been addressed within the Department, Supreme Court is bound by{**70 Misc 3d at 255} the doctrine of stare decisis to apply precedent established in another Department, either until a contrary rule is established by the Appellate Division in its own Department or by the Court of Appeals"], citing Mountain View Coach Lines v Storms, 102 AD2d 663, 664 [2d Dept 1984] [other citation omitted]). Defendants' contention that Mason-Mahon misconstrued or misapplied the Court of Appeals' decision in Scottish Re must be directed to the First Department and/or the Court of Appeals, not to this court.

Second, assuming that the "demand" requirements of New York law are applicable in this case, plaintiff adequately pleads demand futility under Business Corporation Law § 626 (c) by alleging that the board's actions in violating the terms of the court order in the Princess case "could not have been the product of sound business judgment" (Marx v Akers, 88 NY2d 189, 200-201 [1996]).

Third, the exculpation provision in Carnival plc's articles of association does not warrant dismissal of plaintiff's claims. Plaintiff alleges sufficiently that defendants failed to act in good faith.

And finally, plaintiff pleads its claims with requisite particularity under CPLR 3016 (b).

Accordingly, it is ordered that defendants' motion to dismiss is granted, and the complaint is dismissed in its entirety.