Recent New York Court of Appeals Decision Eases Path for Investor Lawsuits Against Cayman Funds, but Certain Hurdles Remain
Friedman Kaplan partner Anne E. Beaumont has authored an article in the Hedge Fund Law Report on the trial court, Appellate Division, and Court of Appeals decisions in Davis v. Scottish Re Group Ltd. Ms. Beaumont explains the progress of Davis through the New York courts and outlines the implications for investors, funds and managers of the Court of Appeals’ ultimate decision, which held that Rule 12A of the Rules of the Grand Court of the Cayman Islands, which previously had been held by some New York courts to bar a derivative claim in a U.S. court, is procedural and does not apply to a derivative claim governed by Cayman law that is brought in a New York court.
Ms. Beaumont cautions that the decision clears the way for plaintiffs only partially. She notes that Foss v. Harbottle, which holds that a shareholder cannot bring a derivative action except where the alleged wrong: is ultra vires; requires a special majority to ratify; infringes the shareholder’s personal rights; or qualifies as a "fraud on the minority," continues to pose a serious obstacle to plaintiffs seeking to bring derivative claims governed by Cayman law. Ms. Beaumont concludes by offering advice as to how would-be plaintiffs might seek to avoid the Foss rule in New York courts.