What the case involved: Plaintiffs, including a shareholder in a BVI holding company, brought an action in Ohio state court alleged self-dealing transactions by other shareholders related to a purported $58.5 million investment in the BVI company’s main asset – a Delaware LLC which owned a steel company located in Ohio. Plaintiffs initially obtained a temporary restraining order, enjoining the sale of the steel company and the transfer of its assets.
Trial Court Result: Marks & Sokolov, LLC successfully obtained dismissal of all of the Plaintiffs’ claims for inspection of books and records and an accounting related to the Ohio steel plant under the internal affairs doctrine. First, the trial court held that since Halliwel is incorporated under BVI law, the internal affairs doctrine mandated that BVI law be followed in determining the viability of Plaintiffs’ claims. Second, the trial court determined Plaintiffs’ claims for conspiracy, fraud, and theft related to the $58.5 investment were derivative and could not be brought without BVI High court approval, as required by BVI law. Third, in the alternative, the trial court dismissed for forum non conveniens because the BVI is an adequate forum, no critical sources of proof or witnesses were located in Ohio, and difficult questions of BVI law were at issue. Plaintiffs appealed.
Appeal Result: Marks & Sokolov, LLC successfully defeated the appeal with the Ohio Court of Appeals, which affirmed dismissal on September 11, 2017 pursuant to the internal affairs doctrine. First, Court of Appeals affirmed that Plaintiffs’ claims should be analyzed under the laws of the BVI, the site of Halliwel’s incorporation. The Court of Appeals rejected Plaintiffs’ argument Ohio law should be applied even though the steel plant was located in Ohio because the actual dispute between shareholders had no clear connection to Ohio. Second, the Court of Appeals rejected Plaintiffs’ contention that the internal affairs doctrine had no application to their claims brought under Ohio law because Plaintiffs made no allegations that the subject matter loan agreements or contracts were negotiated or executed in Ohio; or that any aspect of the alleged conspiracy occurred within Ohio. Third, the Court of Appeals rejected Plaintiffs’ contention that the internal affairs doctrine did not apply because their claims were brought as “creditors” and affirmed the trial court’s ruling that Plaintiffs’ claims could only be characterized as “shareholder” based causes of actions, either direct or derivative. As a result, it affirmed dismissal of the derivative claims because Plaintiffs lacked standing to bring such claims without leave from the BVI High Court under BVI law, which they did not obtain. The Court of Appeals was not required to address the forum non coveniens or inspection of books and records issues.