Opinion ID: 2167196
Heading Depth: 1
Heading Rank: 4

Heading: The Internal Affairs Doctrine

Text: Because the choice of law clause does not apply, we must determine which jurisdiction's law should govern Tomran's right to proceed. For guidance we turn to the internal affairs doctrine. The internal affairs doctrine provides that the law of the jurisdiction of incorporation governs the rights and responsibilities of the parties involved. See Gilman v. Wheat, First Securities Inc., 345 Md. 361, 370-71, 692 A.2d 454, 459 (1997); N.A.A.C.P. v. Golding, 342 Md. 663, 674, 679 A.2d 554, 559 (1996); Stockley v. Thomas, 89 Md. 663, 43 A. 766 (1899). Courts first developed the internal affairs doctrine in the 1860s. Frederick Tung, Lost In Translation: From U.S. Corporate Charter Competition to Issuer Choice in International Securities Regulation, 39 GA. L. REV. 525, 543 (2005). In its earliest explication, the doctrine embodied the recognition that a corporation's internal disputes implicated the territorial sovereignty of the incorporating state, which reflected the historically intimate legal, economic, and geographical ties between the corporation and its incorporating state. Id. Each corporation was a creature of statute and was treated as existing only within the boundaries of the state of incorporation. Id. at 544. As transportation and communication were facilitated in the middle of the nineteenth century, interstate corporations arose and the Commerce Clause was construed as preventing states from enacting protectivist legislation. Id. It was at this time that courts first delineated the internal affairs doctrine, deferring to the territorial sovereignty of the incorporating state regarding the internal matters of its corporations. Id. The internal affairs doctrine remains in force today. As described by this Court in N.A.A.C.P. v. Golding, 342 Md. 663, 674, 679 A.2d 554, 559 (1996), quoting Edgar v. MITE Corp., 457 U.S. 624, 102 S.Ct. 2629, 73 L.Ed.2d 269 (1982): [t]he internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation's internal affairsmatters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholdersbecause otherwise a corporation could be faced with conflicting demands. See also Gilman v. Wheat, First Securities Inc., 345 Md. 361, 370-71, 692 A.2d 454, 459 (1997). Therefore, because, as the parties agree, AIB is an Irish corporation, Irish law governs whether Tomran may maintain a derivative suit on AIB's behalf.