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The Availability of Pre-Suit Discovery in a Shareholder Derivative Action is a Substantive, Not a Procedural, Issue—The Law in the State Where the Corporation Is Chartered Controls

The First Department, in a full-fledged opinion by Justice Moskowitz, determined the law surrounding a corporation’s refusal to answer a pre-suit discovery demand in a purported shareholder derivative action is a matter of substantive law, not procedural law.  Therefore, under New York choice of law rules, the law of Delaware, where the corporation was chartered, applied.  Under Delaware law “plaintiffs in a derivative sure are not entitled to discovery to assist their compliance with the particularized pleading requirement … in the case of a demand refusal.”  The motion to compel discovery was properly denied and the motion to dismiss the amended complaint was properly granted.   Lerner v Prince, 2014 NY Slip Op 03763, 1st Dept 5-22-14

 

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