## Facts

- A real estate investment trust was organized as a Massachusetts business trust under a declaration of trust providing that Massachusetts law governed the parties’ rights.
- Beneficial owners held transferable “beneficial shares of interest,” and the trust operated with corporate-like governance features.
- The trust’s portfolio was managed by a New York investment-advisory corporation; five of the trust’s eleven trustees were officers of that corporation.
- A beneficial owner brought a derivative action in New York against the trustees, the New York management company, and the trust.
- The complaint alleged imprudent or improper investment decisions and excessive management fees.
- The plaintiff did not make a pre-suit demand on the trustees to pursue the claims on the trust’s behalf and did not plead a Massachusetts-law basis excusing demand.

## Issues

1. Whether claims about alleged mismanagement and excessive fees in a Massachusetts business trust are governed by Massachusetts internal-affairs law when litigated in New York.
2. Whether Massachusetts’ pre-suit demand-on-trustees requirement for derivative actions is a substantive condition that New York courts must enforce.
3. Whether the pleaded allegations excused demand under Massachusetts law.

## Decision

- The Court of Appeals affirmed dismissal of the derivative complaint.
- The court held that Massachusetts law governed the trust’s internal affairs, including conditions for bringing a derivative action.
- The court treated the Massachusetts demand requirement as part of the right to sue derivatively, not a New York pleading formality.
- Because no demand was made and no Massachusetts-law excuse was sufficiently pleaded, the action could not proceed.

## Legal Principles

- Internal-affairs disputes—governance, fiduciary duties, and the relationship between managers (trustees) and owners (beneficiaries)—are governed by the law of the entity’s state of formation.
- A governing-instrument provision selecting the formation state’s law is generally enforced for internal-affairs matters absent a strong contrary public policy.
- Under Massachusetts law applied here, a beneficiary ordinarily must make a pre-suit demand on trustees before bringing a derivative action, unless a recognized excuse applies.
- A derivative demand requirement prescribed by the formation state may function as a substantive limitation on the derivative cause of action that a forum court must enforce.

## Conclusion

New York applied Massachusetts internal-affairs law to a Massachusetts REIT-like business trust and enforced Massachusetts’ pre-suit demand-on-trustees requirement as a substantive condition to suit, requiring dismissal of a derivative action filed without demand or an adequately pleaded excuse.


Greenspun v. Lindley, 36 N.Y.2d 473, 369 N.Y.S.2d 123, 330 N.E.2d 79 (N.Y. 1975)