## Facts

- BP p.l.c., a public limited company incorporated in England and Wales, was sued derivatively by shareholders on BP’s behalf.
- Shareholders alleged directors, officers, and employees breached fiduciary duties by failing to prevent or remedy: (1) Prudhoe Bay pipeline corrosion and shutdown, (2) Texas City refinery safety failures culminating in a fatal explosion, and (3) unlawful commodities trading by BP traders.
- Plaintiffs claimed the alleged misconduct exposed BP to regulatory and civil liability and caused substantial financial and reputational harm.
- Defendants moved to dismiss the second amended complaint under Rule 12(b)(6), arguing, among other things, that governing law under choice-of-law principles barred the derivative action.

## Issues

1. Whether New York choice-of-law rules and the internal-affairs doctrine require applying the law of England and Wales to a derivative suit involving a corporation incorporated there.
2. If English law applies, whether the asserted claims fit within any narrow English exception permitting a shareholder derivative action (including fraud-on-the-minority/self-dealing).
3. Whether a New York public-policy exception permits applying U.S. derivative standards despite BP’s foreign incorporation.
4. Whether the U.K. Companies Act 2006 derivative-action reforms apply retroactively or otherwise affect the viability of the claims.

## Decision

- The court held that English law governed because the dispute concerned BP’s internal corporate affairs and BP was incorporated in England and Wales.
- Applying then-governing English derivative-suit rules, the court concluded plaintiffs could not maintain a derivative action because no recognized exception allowing such a suit was adequately alleged.
- The court rejected the public-policy argument for applying U.S. standards, finding no compelling New York policy basis to displace the internal-affairs doctrine, particularly given BP’s limited New York contacts.
- The court held the Companies Act 2006 derivative provisions were not retroactive and did not control claims based on earlier conduct.
- The court granted the motion to dismiss under Rule 12(b)(6) and dismissed the derivative claims without prejudice.

## Legal Principles

- Under New York choice-of-law rules, the internal-affairs doctrine generally applies the law of the state (or nation) of incorporation to disputes over corporate governance, including fiduciary-duty claims asserted derivatively.
- A forum’s public-policy exception to applying foreign internal-affairs law is narrow and is not triggered merely because foreign law provides more limited shareholder remedies.
- Under traditional English derivative doctrine (pre-Companies Act 2006), derivative suits are generally barred absent limited exceptions (including fraud on the minority/self-dealing), which require allegations showing the wrongdoers’ control sufficient to block the company from pursuing relief.
- Statutory reforms expanding shareholder derivative rights are not applied retroactively absent clear legislative direction.

## Conclusion

The court applied the internal-affairs doctrine to require English law for a derivative action involving an English-incorporated company and dismissed the complaint because the pleaded misconduct did not fall within the narrow English exceptions permitting shareholders to sue derivatively, with no public-policy basis to substitute U.S. standards and no retroactive effect from later U.K. reforms.


In re BP P.L.C. Derivative Litig., 507 F. Supp. 2d 302 (S.D.N.Y. 2007)