Shaffer v. HeitnerAnnotate this Case
433 U.S. 186 (1977)
U.S. Supreme Court
Shaffer v. Heitner, 433 U.S. 186 (1977)
Shaffer v. Heitner
Argued February 22, 1977
Decided June 24, 1977
433 U.S. 186
APPEAL FROM THE SUPREME COURT OF DELAWARE
Appellee, a nonresident of Delaware, filed a shareholder's derivative suit in a Delaware Chancery Court, naming as defendants a corporation and its subsidiary, as well as 28 present or former corporate officers or directors, alleging that the individual defendants had violated their duties to the corporation by causing it and its subsidiary to engage in actions (which occurred in Oregon) that resulted in corporate liability for substantial damages in a private antitrust suit and a large fine in a criminal contempt action. Simultaneously, appellee, pursuant to Del.Code Ann., Tit. 10, § 366 (1975), filed a motion for sequestration of the Delaware property of the individual defendants, all nonresidents of Delaware, accompanied by an affidavit identifying the property to be sequestered as stock, options, warrants, and various corporate rights of the defendants. A sequestration order was issued pursuant to which shares and options belonging to 21 defendants (appellants) were "seized" and "stop transfer" orders were placed on the corporate books. Appellants entered a special appearance to quash service of process and to vacate the sequestration order, contending that the ex parte sequestration procedure did not accord them due process; that the property seized was not capable of attachment in Delaware; and that they did not have sufficient contacts with Delaware to sustain jurisdiction of that State's courts under the rule of International Shoe Co. v. Washington,326 U. S. 310. In that case, the Court (after noting that the historical basis of in personam jurisdiction was a court's power over the defendant's person, making his presence within the court's territorial jurisdiction a prerequisite to its rendition of a personally binding judgment against him, Pennoyer v. Neff,95 U. S. 714) held that that power was no longer the central concern, and that
"due process requires only that, in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice'"
(and thus the focus shifted to the relationship among the defendant, the forum, and the litigation, rather than the mutually exclusive sovereignty of the States on which the rules of Pennoyer had rested). The Court of Chancery, rejecting appellants' arguments, upheld the § 366 procedure of compelling the
personal appearance of a nonresident defendant to answer and defend a suit brought against him in a court of equity, which is accomplished by the appointment of a sequestrator to seize and hold the property of the nonresident located in Delaware subject to court order, with release of the property being made upon the defendant's entry of a general appearance. The court held that the limitation on the purpose and length of time for which sequestered property is held comported with due process, and that the statutory situs of the stock (under a provision making Delaware the situs of ownership of the capital stock of all corporations existing under the laws of that State) provided a sufficient basis for the exercise of quasi in rem jurisdiction by a Delaware court. The Delaware Supreme Court affirmed, concluding that International Shoe raised no constitutional barrier to the sequestration procedure because
"jurisdiction under § 366 remains . . . quasi in rem founded on the presence of capital stock [in Delaware], not on prior contact by defendants with this forum."
1. Whether or not a State can assert jurisdiction over a nonresident must be evaluated according to the minimum contacts standard of International Shoe Co. v. Washington, supra. Pp. 433 U. S. 207-212.
(a) In order to justify an exercise of jurisdiction in rem, the basis for jurisdiction must be sufficient to justify exercising "jurisdiction over the interests of persons in the thing." The presence of property in a State may bear upon the existence of jurisdiction by providing contacts among the forum State, the defendant, and the litigation, as for example, when claims to the property itself are the source of the underlying controversy between the plaintiff and defendant, where it would be unusual for the State where the property is located not to have jurisdiction. Pp. 433 U. S. 207-208.
(b) But where, as in the instant quasi in rem action, the property now serving as the basis for state court jurisdiction is completely unrelated to the plaintiff's cause of action, the presence of the property alone, i.e., absent other ties among the defendant, the State, and the litigation, would not support the State's jurisdiction. Pp. 433 U. S. 208-209.
(c) Though the primary rationale for treating the presence of property alone as a basis for jurisdiction is to prevent a wrongdoer from avoiding payment of his obligations by removal of his assets to a place where he is not subject to an in personam suit, that is an insufficient justification for recognizing jurisdiction without regard to whether the property is in the State for that purpose. Moreover, the availability of attachment procedures and the protection of the Full Faith and Credit Clause also militate against that rationale. Pp. 433 U. S. 209-210.
(d) The fairness standard of International Shoe can be easily applied in the vast majority of cases. P. 433 U. S. 211.
(e) Though jurisdiction based solely on the presence of property in a State has had a long history, "traditional notions of fair play and substantial justice" can be as readily offended by the perpetuation of ancient forms that are no longer justified as by the adoption of new procedures that do not comport with the basic values of our constitutional heritage. Cf. Sniadach v. Family Finance Corp,395 U. S. 337, 395 U. S. 340; Wolf v. Colorado,338 U. S. 25, 338 U. S. 27. Pp. 433 U. S. 211-212.
2. Delaware's assertion of jurisdiction over appellants, based solely as it is on the statutory presence of appellants' property in Delaware, violates the Due Process Clause, which
"does not contemplate that a state may make binding a judgment . . . against an individual or corporate defendant with which the state has no contacts, ties, or relations."
(a) Appellants' holdings in the corporation, which are not the subject matter of this litigation and are unrelated to the underlying cause of action, do not provide contacts with Delaware sufficient to support jurisdiction of that State's courts over appellants. P. 433 U. S. 213.
(b) Nor is Delaware state court jurisdiction supported by that State's interest in supervising the management of a Delaware corporation and defining the obligations of its officers and directors, since Delaware bases jurisdiction not on appellants' status as corporate fiduciaries, but on the presence of their property in the State. Moreover, sequestration has been available in any suit against a nonresident, whether against corporate fiduciaries or not. Pp. 433 U. S. 213-215.
(c) Though it may be appropriate for Delaware law to govern the obligations of appellants to the corporation and stockholders, this does not mean that appellants have "purposefully avail[ed themselves] of the privilege of conducting activities within the forum State," Hanson v. Denckla,357 U. S. 235, 357 U. S. 253. Appellants, who were not required to acquire interests in the corporation in order to hold their positions, did not, by acquiring those interests, surrender their right to be brought to judgment in the States in which they had "minimum contacts." Pp. 433 U. S. 215-216.
361 A.2d 225, reversed.
MARSHALL, J., delivered the opinion of the Court, in which BURGER, C.J., and STEWART, WHITE, BLACKMUN, and POWELL, JJ., joined, and in Parts I-III of which BRENNAN, J., joined. POWELL, J., filed a concurring opinion, post, p. 433 U. S. 217. STEVENS, J., filed an opinion concurring in the
judgment, post, p. 433 U. S. 217. BRENNAN, J., filed an opinion concurring in part and dissenting in part, post, p. 433 U. S. 219. REHNQUIST, J., took no part in the consideration or decision of the case.
MR. JUSTICE MARSHALL delivered the opinion of the Court.
The controversy in this case concerns the constitutionality of a Delaware statute that allows a court of that State to take jurisdiction of a lawsuit by sequestering any property of the defendant that happens to be located in Delaware. Appellants contend that the sequestration statute as applied in this case violates the Due Process Clause of the Fourteenth Amendment both because it permits the state courts to exercise jurisdiction despite the absence of sufficient contacts among the defendants, the litigation, and the State of Delaware and because it authorizes the deprivation of defendants' property without providing adequate procedural safeguards. We find it necessary to consider only the first of these contentions.
Appellee Heitner, a nonresident of Delaware, is the owner of one share of stock in the Greyhound Corp., a business incorporated under the laws of Delaware with its principal place of business in Phoenix, Ariz. On May 22, 1974, he filed a shareholder's derivative suit in the Court of Chancery for New Castle County, Del., in which he named as defendants Greyhound, its wholly owned subsidiary Greyhound Lines, Inc., [Footnote 1] and 28 present or former officers or directors of one or
both of the corporations. In essence, Heitner alleged that the individual defendants had violated their duties to Greyhound by causing it and its subsidiary to engage in actions that resulted in the corporation's being held liable for substantial damages in a private antitrust suit [Footnote 2] and a large fine in a criminal contempt action. [Footnote 3] The activities which led to these penalties took place in Oregon.
Simultaneously with his complaint, Heitner filed a motion for an order of sequestration of the Delaware property of the individual defendants pursuant to Del.Code Ann., Tit. 10, § 366 (1975). [Footnote 4] This motion was accompanied by a supporting
affidavit of counsel which stated that the individual defendants were nonresidents of Delaware. The affidavit identified the property to be sequestered as
"common stock, 3% Second Cumulative Preferenced Stock and stock unit credits of the Defendant Greyhound Corporation, a Delaware corporation, as well as all options and all warrants to purchase said stock issued to said individual Defendants and all contractural [sic] obligations, all rights, debts or credits due or accrued to or for the benefit of any of the said Defendants under any type of written agreement, contract or other legal instrument of any kind whatever between any of the individual Defendants and said corporation."
"seized" approximately 82,000 shares of Greyhound common stock belonging to 19 of the defendants, [Footnote 7] and options belonging to another 2 defendants. [Footnote 8] These seizures were accomplished by placing "stop transfer" orders or their equivalents on the books of the Greyhound Corp. So far as the record shows, none of the certificates representing the seized property was physically present in Delaware. The stock was considered to be in Delaware, and so subject to seizure, by virtue of Del.Code Ann., Tit. 8, § 169 (1975), which makes Delaware the situs of ownership of all stock in Delaware corporations. [Footnote 9]
All 28 defendants were notified of the initiation of the suit by certified mail directed to their last known addresses and by publication in a New Castle County newspaper. The 21 defendants whose property was seized (hereafter referred to as appellants) responded by entering a special appearance for
the purpose of moving to quash service of process and to vacate the sequestration order. They contended that the ex parte sequestration procedure did not accord them due process of law, and that the property seized was not capable of attachment in Delaware. In addition, appellants asserted that, under the rule of International Shoe Co. v. Washington,326 U. S. 310 (1945), they did not have sufficient contacts with Delaware to sustain the jurisdiction of that State's courts.
The Court of Chancery rejected these arguments in a letter opinion which emphasized the purpose of the Delaware sequestration procedure:
"The primary purpose of 'sequestration' as authorized by 10 Del.C. § 366 is not to secure possession of property pending a trial between resident debtors and creditors on the issue of who has the right to retain it. On the contrary, as here employed, 'sequestration' is a process used to compel the personal appearance of a nonresident defendant to answer and defend a suit brought against him in a court of equity. Sands v. Lefcourt Realty Corp., Del.Super., 117 A.2d 365 (1955). It is accomplished by the appointment of a sequestrator by this Court to seize and hold property of the nonresident located in this State subject to further Court order. If the defendant enters a general appearance, the sequestered property is routinely released, unless the plaintiff makes special application to continue its seizure, in which event the plaintiff has the burden of proof and persuasion."
App. 75-76. This limitation on the purpose and length of time for which sequestered property is held, the court concluded, rendered inapplicable the due process requirements enunciated in Sniadach v. Family Finance Corp.,395 U. S. 337 (1969); Fuentes v. Shevin,407 U. S. 67 (1972); and Mitchell v. W. T. Grant Co.,416 U. S. 600 (1974). App. 75-76, 80, 83-85. The court also found no state law or federal constitutional barrier to the sequestrator's reliance on Del.Code Ann., Tit. 8, § 169
(1975). App. 76-79. Finally, the court held that the statutory Delaware situs of the stock provided a sufficient basis for the exercise of quasi in rem jurisdiction by a Delaware court. Id. at 85-87.
On appeal, the Delaware Supreme Court affirmed the judgment of the Court of Chancery. Greyhound Corp. v. Heitner, 361 A.2d 225 (1976). Most of the Supreme Court's opinion was devoted to rejecting appellants' contention that the sequestration procedure is inconsistent with the due process analysis developed in the Sniadach line of cases. The court based its rejection of that argument in part on its agreement with the Court of Chancery that the purpose of the sequestration procedure is to compel the appearance of the defendant, a purpose not involved in the Sniadach cases. The court also relied on what it considered the ancient origins of the sequestration procedure and approval of that procedure in the opinions of this Court, [Footnote 10] Delaware's interest in asserting jurisdiction to adjudicate claims of mismanagement of a Delaware corporation, and the safeguards for defendants that it found in the Delaware statute. 361 A.2d at 230-236.
Appellants' claim that the Delaware courts did not have jurisdiction to adjudicate this action received much more cursory treatment. The court's analysis of the jurisdictional issue is contained in two paragraphs:
"There are significant constitutional questions at issue here, but we say at once that we do not deem the rule of International Shoe to be one of them. . . . The reason, of course, is that jurisdiction under § 366 remains . . . quasi in rem founded on the presence of capital stock here, not on prior contact by defendants with this forum. Under 8 Del. C. § 169 the 'situs of the ownership of the capital stock of all corporations existing under the laws of this State . . . [is] in this State,' and that provides the initial basis for jurisdiction. Delaware may constitutionally establish situs of such shares here, . . . it has done so and the presence thereof provides the foundation for § 366 in this case. . . . On this issue, we agree with the analysis made and the conclusion reached by Judge Stapleton in U.S. Industries, Inc. v. Gregg, D.Del., 348 F.Supp. 1004 (1972). [Footnote 11]"
"We hold that seizure of the Greyhound shares is not invalid because plaintiff has failed to meet the prior contacts tests of International Shoe."
Id. at 22.
We noted probable jurisdiction. 429 U.S. 813. [Footnote 12] We reverse.
The Delaware courts rejected appellants' jurisdictional challenge by noting that this suit was brought as a quasi in rem proceeding. Since quasi in rem jurisdiction is traditionally based on attachment or seizure of property present in the jurisdiction, not on contacts between the defendant and the State, the courts considered appellants' claimed lack of contacts with Delaware to be unimportant. This categorical analysis assumes the continued soundness of the conceptual structure founded on the century-old case of Pennoyer v. Neff,95 U. S. 714 (1878).
Pennoyer was an ejectment action brought in federal court under the diversity jurisdiction. Pennoyer, the defendant in that action, held the land under a deed purchased in a sheriff's sale conducted to realize on a judgment for attorney's fees obtained against Neff in a previous action by one Mitchell. At the time of Mitchell's suit in an Oregon State court, Neff was a nonresident of Oregon. An Oregon statute allowed service by publication on nonresidents who had property in the State, [Footnote 13] and Mitchell had used that procedure to bring Neff
before the court. The United States Circuit Court for the District of Oregon, in which Neff brought his ejectment action, refused to recognize the validity of the judgment against Neff in Mitchell's suit, and accordingly awarded the land to Neff. [Footnote 14] This Court affirmed.
Mr. Justice Field's opinion for the Court focused on the territorial limits of the States' judicial powers. Although recognizing that the States are not truly independent sovereigns, Mr. Justice Field found that their jurisdiction was defined by the "principles of public law" that regulate the relationships among independent nations. The first of those principles was "that every State possesses exclusive jurisdiction and sovereignty over persons and property within its territory." The second was "that no State can exercise direct jurisdiction and authority over persons or property without its territory." Id. at 95 U. S. 722. Thus, "in virtue of the State's jurisdiction over the property of the nonresident situated within its limits," the state courts "can inquire into that nonresident's obligations to its own citizens . . . to the extent necessary to control the disposition of the property." Id. at 95 U. S. 723. The Court recognized that, if the conclusions of that inquiry were adverse to the nonresident property owner, his interest in the property would be affected. Ibid. Similarly, if the defendant consented to the jurisdiction of the state courts or was personally served within the State, a judgment could affect his interest in property outside the State. But any attempt "directly" to assert extraterritorial jurisdiction over persons or property would offend sister States and exceed the inherent limits of the State's power. A judgment resulting from such an attempt, Mr. Justice Field concluded, was not only unenforceable
in other States, [Footnote 15] but was also void in the rendering State because it had been obtained in violation of the Due Process Clause of the Fourteenth Amendment. Id. at 95 U. S. 732-733. See also e.g., Freeman v. Alderson,119 U. S. 185, 119 U. S. 187-188 (1886).
This analysis led to the conclusion that Mitchell's judgment against Neff could not be validly based on the State's power over persons within its borders, because Neff had not been personally served in Oregon, nor had he consensually appeared before the Oregon court. The Court reasoned that, even if Neff had received personal notice of the action, service of process outside the State would have been ineffectual, since the State's power was limited by its territorial boundaries. Moreover, the Court held, the action could not be sustained on the basis of the State's power over property within its borders because that property had not been brought before the court by attachment or any other procedure prior to judgment. [Footnote 16] Since the judgment which authorized the sheriff's sale was therefore invalid, the sale transferred no title. Neff regained his land.
From our perspective, the importance of Pennoyer is not its result, but the fact that its principles and corollaries derived from them became the basic elements of the constitutional
doctrine governing state court jurisdiction. See, e.g., Hazard, A General Theory of State Court Jurisdiction, 1965 Sup.Ct.Rev. 241 (hereafter Hazard). As we have noted, under Pennoyer, state authority to adjudicate was based on the jurisdiction's power over either persons or property. This fundamental concept is embodied in the very vocabulary which we use to describe judgments. If a court's jurisdiction is based on its authority over the defendant's person, the action and judgment are denominated "in personam," and can impose a personal obligation on the defendant in favor of the plaintiff. If jurisdiction is based on the court's power over property within its territory, the action is called "in rem" or "quasi in rem." The effect of a judgment in such a case is limited to the property that supports jurisdiction, and does not impose a personal liability on the property owner, since he is not before the court. [Footnote 17] In Pennoyer's terms, the owner is affected only "indirectly" by an in rem judgment adverse to his interest in the property subject to the court's disposition.
By concluding that "[t]he authority of every tribunal is necessarily restricted by the territorial limits of the State in which it is established," 95 U.S. at 95 U. S. 720, Pennoyer sharply limited the availability of in personam jurisdiction over defendants not resident in the forum State. If a nonresident defendant could not be found in a State, he could not be sued there. On the other hand, since the State in which property
was located was considered to have exclusive sovereignty over that property, in rem actions could proceed regardless of the owner's location. Indeed, since a State's process could not reach beyond its borders, this Court held after Pennoyer that due process did not require any effort to give a property owner personal notice that his property was involved in an in rem proceeding. See, e.g., Ballard v. Hunter,204 U. S. 241 (1907); Arndt v. Griggs,134 U. S. 316 (1890); Huling v. Kaw Valley R. Co.,130 U. S. 559 (1889). The Pennoyer rules generally favored nonresident defendants by making them harder to sue. This advantage was reduced, however, by the ability of a resident plaintiff to satisfy a claim against a nonresident defendant by bringing into court any property of the defendant located in the plaintiff's State. See, e.g., Zammit, Quasi-In-Rem Jurisdiction: Outmoded and Unconstitutional?, 49 St. John's L.Rev. 668, 670 (1975). For example, in the well known case of Harris v. Balk,198 U. S. 215 (1905), Epstein, a resident of Maryland, had a claim against Balk, a resident of North Carolina. Harris, another North Carolina resident, owed money to Balk. When Harris happened to visit Maryland, Epstein garnished his debt to Balk. Harris did not contest the debt to Balk, and paid it to Epstein's North Carolina attorney. When Balk later sued Harris in North Carolina, this Court held that the Full Faith and Credit Clause, U.S.Const., Art. IV, § 1, required that Harris' payment to Epstein be treated as a discharge of his debt to Balk. This Court reasoned that the debt Harris owed Balk was an intangible form of property belonging to Balk, and that the location of that property traveled with the debtor. By obtaining personal jurisdiction over Harris, Epstein had "arrested" his debt to Balk, 198 U.S. at 198 U. S. 223, and brought it into the Maryland Court. Under the structure established by Pennoyer, Epstein was then entitled to proceed against that debt to vindicate his claim against Balk, even though Balk himself was not subject to the jurisdiction
Pennoyer itself recognized that its rigid categories, even as blurred by the kind of action typified by Harris, could not accommodate some necessary litigation. Accordingly, Mr. Justice Field's opinion carefully noted that cases involving the personal status of the plaintiff, such as divorce actions, could be adjudicated in the plaintiff's home State even though the defendant could not be served within that State. 95 U.S. at 95 U. S. 733-735. Similarly, the opinion approved the practice of considering a foreign corporation doing business in a State to have consented to being sued in that State. Id. at 95 U. S. 735-736; See Lafayette Ins. Co. v. French, 18 How. 404 (1856). This
basis for in personam jurisdiction over foreign corporations was later supplemented by the doctrine that a corporation doing business in a State could be deemed "present" in the State, and so subject to service of process under the rule of Pennoyer.See, e.g., International Harvester Co. v. Kentucky,234 U. S. 579 (1914); Philadelphia & Reading R. Co. v. McKibbin,243 U. S. 264 (1917). See generally Note, Developments in the Law, State-Court Jurisdiction, 73 Harv.L.Rev. 909, 919-923 (1960) (hereafter Developments).
The advent of automobiles, with the concomitant increase in the incidence of individuals causing injury in States where they were not subject to in personam actions under Pennoyer, required further moderation of the territorial limits on jurisdictional power. This modification, like the accommodation to the realities of interstate corporate activities, was accomplished by use of a legal fiction that left the conceptual structure established in Pennoyer theoretically unaltered. Cf. Olberding v. Illinois Central R. Co.,346 U. S. 338, 346 U. S. 340-341 (1953). The fiction used was that the out-of-state motorist, who it was assumed could be excluded altogether from the State's highways, had, by using those highways, appointed a designated state official as his agent to accept process. See Hess v. Pawloski,274 U. S. 352 (1927). Since the motorist's "agent" could be personally served within the State, the state courts could obtain in personam jurisdiction over the nonresident driver.
The motorists' consent theory was easy to administer, since it required only a finding that the out-of-state driver had used the State's roads. By contrast, both the fictions of implied consent to service on the part of a foreign corporation and of corporate presence required a finding that the corporation was "doing business" in the forum State. Defining the criteria for making that finding and deciding whether they were met absorbed much judicial energy. See, e.g., International Shoe
Co. v. Washington, 326 U.S. at 326 U. S. 317-319. While the essentially quantitative tests which emerged from these cases purported simply to identify circumstances under which presence or consent could be attributed to the corporation, it became clear that they were, in fact, attempting to ascertain "what dealings make it just to subject a foreign corporation to local suit." Hutchinson v. Chase & Gilbert, 45 F.2d 139, 141 (CA2 1930) (L. Hand, J.). In International Shoe, we acknowledged that fact.
The question in International Shoe was whether the corporation was subject to the judicial and taxing jurisdiction of Washington. Mr. Chief Justice Stone's opinion for the Court began its analysis of that question by noting that the historical basis of in personam jurisdiction was a court's power over the defendant's person. That power, however, was no longer the central concern:
"But now that the capias ad respondendum has given way to personal service of summons or other form of notice, due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.' Milliken v. Meyer,311 U. S. 457, 311 U. S. 463."
326 U.S. at 326 U. S. 316. Thus, the inquiry into the State's jurisdiction over a foreign corporation appropriately focused not on whether the corporation was "present," but on whether there have been
"such contacts of the corporation with the state of the forum as make it reasonable, in the context of our federal system of government, to require the corporation to defend the particular suit which is brought there."
Id. at 326 U. S. 317.
Mechanical or quantitative evaluations of the defendant's activities in the forum could not resolve the question of reasonableness:
"Whether due process is satisfied must depend rather upon the quality and nature of the activity in relation to the fair and orderly administration of the laws which it was the purpose of the due process clause to insure. That clause does not contemplate that a state may make binding a judgment in personam against an individual or corporate defendant with which the state has no contacts, ties, or relations."
Id. at 326 U. S. 319. [Footnote 19] Thus, the relationship among the defendant, the forum, and the litigation, rather than the mutually exclusive sovereignty of the States on which the rules of Pennoyer rest, became the central concern of the inquiry into personal jurisdiction. [Footnote 20] The immediate effect of this departure from Pennoyer's conceptual apparatus was to increase the ability of the state courts to obtain personal jurisdiction over nonresident defendants. See, e.g., Green, Jurisdictional Reform in California,
21 Hastings L.J. 1219, 1231-1233 (1970); Currie, The Growth of the Long Arm: Eight Years of Extended Jurisdiction in Illinois, 1963 U.Ill.L.F. 533; Developments 1000-1008.
No equally dramatic change has occurred in the law governing jurisdiction in rem. There have, however, been intimations that the collapse of the in personam wing of Pennoyer has not left that decision unweakened as a foundation for in rem jurisdiction. Well-reasoned lower court opinions have questioned the proposition that the presence of property in a State gives that State jurisdiction to adjudicate rights to the property regardless of the relationship of the underlying dispute and the property owner to the forum. See, e.g., U.S. Industries, Inc. v. Gregg, 540 F.2d 142 (CA3 1976), cert. pending, No. 76-359; Jonnet v. Dollar Savings Bank, 530 F.2d 1123, 1130-1143 (CA3 1976) (Gibbons, J., concurring); Camire v. Scieszka, 116 N.H. 281, 358 A.2d 397 (1976); Bekins v. Huish, 1 Ariz.App. 258, 401 P.2d 743 (1965); Atkinson v. Superior Court, 49 Cal.2d 338, 316 P.2d 960 (1957), appeal dismissed and cert. denied sub nom. Columbia Broadcasting System v. Atkinson,357 U. S. 569 (1958). The overwhelming majority of commentators have also rejected Pennoyer's premise that a proceeding "against" property is not a proceeding against the owners of that property. Accordingly, they urge that the "traditional notions of fair play and substantial justice" that govern a State's power to adjudicate in personam should also govern its power to adjudicate personal rights to property located in the State. See, e.g., Von Mehren & Trautman, Jurisdiction to Adjudicate: A Suggested Analysis, 79 Harv.L.Rev. 1121 (1966) (hereafter Von Mehren & Trautman); Traynor, Is This Conflict Really Necessary?, 37 Texas L.Rev. 657 (1959) (hereafter Traynor); Ehrenzweig, The Transient Rule of Personal Jurisdiction: The "Power" Myth and Forum Conveniens, 65 Yale L.J. 289 (1956); Developments; Hazard.
Although this Court has not addressed this argument directly, we have held that property cannot be subjected to a court's judgment unless reasonable and appropriate efforts have been made to give the property owners actual notice of the action. Schroeder v. City of New York,371 U. S. 208 (1962); Walker v. City of Hutchinson,352 U. S. 112 (1956); Mullane v. Central Hanover Bank & Trust Co.,339 U. S. 306 (1950). This conclusion recognizes, contrary to Pennoyer, that an adverse judgment in rem directly affects the property owner by divesting him of his rights in the property before the court. Schroeder v. City of New York, supra at 371 U. S. 213; cf. Continental Grain Co. v. Barge FBL-585,364 U. S. 19 (1960) (separate actions against barge and barge owner are one "civil action" for purpose of transfer under 28 U.S.C. § 1404(a)). Moreover, in Mullane, we held that Fourteenth Amendment rights cannot depend on the classification of an action as in rem or in personam, since that is
"a classification for which the standards are so elusive and confused generally, and which, being primarily for state courts to define, may and do vary from state to state."
339 U.S. at 339 U. S. 312.
It is clear, therefore, that the law of state court jurisdiction no longer stands securely on the foundation established in Pennoyer. [Footnote 21] We think that the time is ripe to consider whether the standard of fairness and substantial justice set forth in International Shoe should be held to govern actions in rem as well as in personam.
The case for applying to jurisdiction in rem the same test of "fair play and substantial justice" as governs assertions of jurisdiction in personam is simple and straightforward. It is premised on recognition that "[t]he phrase, judicial jurisdiction over a thing,' is a customary elliptical way of referring to jurisdiction over the interests of persons in a thing." Restatement (Second) of Conflict of Laws § 56, Introductory Note (1971) (hereafter Restatement). [Footnote 22] This recognition leads to the conclusion that, in order to justify an exercise of jurisdiction in rem, the basis for jurisdiction must be sufficient to justify exercising "jurisdiction over the interests of persons in a thing." [Footnote 23] The standard for determining whether an exercise of jurisdiction over the interests of persons is consistent with the Due Process Clause is the minimum contacts standard elucidated in International Shoe.
This argument, of course, does not ignore the fact that the presence of property in a State may bear on the existence of jurisdiction by providing contacts among the forum State, the defendant, and the litigation. For example, when claims to the property itself are the source of the underlying controversy between the plaintiff and the defendant, [Footnote 24] it would be unusual for the State where the property is located not to have jurisdiction. In such cases, the defendant's claim to property
located in the State would normally [Footnote 25] indicate that he expected to benefit from the State's protection of his interest. [Footnote 26] The State's strong interests in assuring the marketability of property within its borders [Footnote 27] and in providing a procedure for peaceful resolution of disputes about the possession of that property would also support jurisdiction, as would the likelihood that important records and witnesses will be found in the State. [Footnote 28] The presence of property may also favor jurisdiction in cases, such as suits for injury suffered on the land of an absentee owner, where the defendant's ownership of the property is conceded, but the cause of action is otherwise related to rights and duties growing out of that ownership. [Footnote 29]
It appears, therefore, that jurisdiction over many types of actions which now are or might be brought in rem would not be affected by a holding that any assertion of state court jurisdiction must satisfy the International Shoe standard. [Footnote 30] For the type of quasi in rem action typified by Harris v. Balk and the present case, however, accepting the proposed analysis would result in significant change. These are cases where
the property which now serves as the basis for state court jurisdiction is completely unrelated to the plaintiff's cause of action. Thus, although the presence of the defendant's property in a State might suggest the existence of other ties among the defendant, the State, and the litigation, the presence of the property alone would not support the State's jurisdiction. If those other ties did not exist, cases over which the State is now thought to have jurisdiction could not be brought in that forum.
Since acceptance of the International Shoe test would most affect this class of cases, we examine the arguments against adopting that standard as they relate to this category of litigation. [Footnote 31] Before doing so, however, we note that this type of case also presents the clearest illustration of the argument in favor of assessing assertions of jurisdiction by a single standard. For in cases such as Harris and this one, the only role played by the property is to provide the basis for bringing the defendant into court. [Footnote 32] Indeed, the express purpose of the Delaware sequestration procedure is to compel the defendant to enter a personal appearance. [Footnote 33] In such cases, if a direct assertion of personal jurisdiction over the defendant would violate the Constitution, it would seem that an indirect assertion of that jurisdiction should be equally impermissible.
The primary rationale for treating the presence of property as a sufficient basis for jurisdiction to adjudicate claims over which the State would not have jurisdiction if International Shoe applied is that a wrongdoer
"should not be able to avoid payment of his obligations by the expedient of removing his assets to a place where he is not subject to an in personam suit."
Restatement § 66, Comment a.Accord, Developments 955. This justification, however, does not explain why jurisdiction should be recognized without regard to whether the property is present in the State because of an effort to avoid the owner's obligations. Nor does it support jurisdiction to adjudicate the underlying claim. At most, it suggests that a State in which property is located should have jurisdiction to attach that property, by use of proper procedures, [Footnote 34] as security for a judgment being sought in a forum where the litigation can be maintained consistently with International Shoe.See, e.g., Von Mehren & Trautman 1178; Hazard 284-285; Beale, supra,n 18, at 123-124. Moreover, we know of nothing to justify the assumption that a debtor can avoid paying his obligations by removing his property to a State in which his creditor cannot obtain personal jurisdiction over him. [Footnote 35] The Full Faith and Credit Clause, after all, makes the valid in personam judgment of one State enforceable in all other States. [Footnote 36]
It might also be suggested that allowing in rem jurisdiction avoids the uncertainty inherent in the International Shoe standard and assures a plaintiff of a forum. [Footnote 37] See Folk & Moyer, supra,n 10, at 749, 767. We believe, however, that the fairness standard of International Shoe can be easily applied in the vast majority of cases. Moreover, when the existence of jurisdiction in a particular forum under International Shoe is unclear, the cost of simplifying the litigation by avoiding the jurisdictional question may be the sacrifice of "fair play and substantial justice." That cost is too high.
We are left, then, to consider the significance of the long history of jurisdiction based solely on the presence of property in a State. Although the theory that territorial power is both essential to and sufficient for jurisdiction has been undermined, we have never held that the presence of property in a State does not automatically confer jurisdiction over the owner's interest in that property. [Footnote 38] This history must be
considered as supporting the proposition that jurisdiction based solely on the presence of property satisfies the demands of due process, cf. Ownbey v. Morgan,256 U. S. 94, 256 U. S. 111 (1921), but it is not decisive. "[T]raditional notions of fair play and substantial justice" can be as readily offended by the perpetuation of ancient forms that are no longer justified as by the adoption of new procedures that are inconsistent with the basic values of our constitutional heritage. Cf. Sniadach v. Family Finance Corp., 395 U.S. at 395 U. S. 340; Wolf v. Colorado,338 U. S. 25, 338 U. S. 27 (1949). The fiction that an assertion of jurisdiction over property is anything but an assertion of jurisdiction over the owner of the property supports an ancient form without substantial modern justification. Its continued acceptance would serve only to allow state court jurisdiction that is fundamentally unfair to the defendant.
We therefore conclude that all assertions of state court jurisdiction must be evaluated according to the standards set forth in International Shoe and its progeny. [Footnote 39]
The Delaware courts based their assertion of jurisdiction in this case solely on the statutory presence of appellants' property in Delaware. Yet that property is not the subject matter of this litigation, nor is the underlying cause of action related to the property. Appellants' holdings in Greyhound do not, therefore, provide contacts with Delaware sufficient to support the jurisdiction of that State's courts over appellants. If it exists, that jurisdiction must have some other foundation. [Footnote 40]
Appellee Heitner did not allege, and does not now claim, that appellants have ever set foot in Delaware. Nor does he identify any act related to his cause of action as having taken place in Delaware. Nevertheless, he contends that appellants' positions as directors and officers of a corporation chartered in Delaware [Footnote 41] provide sufficient "contacts, ties, or relations," International Shoe Co. v. Washington, 326 U.S. at
326 U. S. 319, with that State to give its courts jurisdiction over appellants in this stockholder's derivative action. This argument is based primarily on what Heitner asserts to be the strong interest of Delaware in supervising the management of a Delaware corporation. That interest is said to derive from the role of Delaware law in establishing the corporation and defining the obligations owed to it by its officers and directors. In order to protect this interest, appellee concludes, Delaware's courts must have jurisdiction over corporate fiduciaries such as appellants.
This argument is undercut by the failure of the Delaware Legislature to assert the state interest appellee finds so compelling. Delaware law bases jurisdiction not on appellants' status as corporate fiduciaries, but rather on the presence of their property in the State. Although the sequestration procedure used here may be most frequently used in derivative suits against officers and directors, Hughes Tool Co. v. Fawcett Publications, Inc., 290 A.2d 693, 695 (Del.Ch.1972), the authorizing statute evinces no specific concern with such actions. Sequestration can be used in any suit against a nonresident, [Footnote 42] see, e.g., U.S. Industries, Inc. v. Gregg, 540 F.2d 142 (CA3 1976), cert. pending, No. 76-359 (breach of contract); Hughes Tool Co. v. Fawcett Publications, Inc., supra, (same), and reaches corporate fiduciaries only if they happen to own interests in a Delaware corporation, or other property in the State. But as Heitner's failure to secure jurisdiction over seven of the defendants named in his complaint demonstrates, there is no necessary relationship between holding a position as a corporate fiduciary and owning stock or other interests in the corporation. [Footnote 43] If Delaware perceived its interest in securing jurisdiction over corporate fiduciaries
to be as great as Heitner suggests, we would expect it to have enacted a statute more clearly designed to protect that interest. Moreover, even if Heitner's assessment of the importance of Delaware's interest is accepted, his argument fails to demonstrate that Delaware is a fair forum for this litigation. The interest appellee has identified may support the application of Delaware law to resolve any controversy over appellants' actions in their capacities as officers and directors. [Footnote 44] But we have rejected the argument that, if a State's law can properly be applied to a dispute, its courts necessarily have jurisdiction over the parties to that dispute.
"[The State] does not acquire . . . jurisdiction by being the 'center of gravity' of the controversy, or the most convenient location for litigation. The issue is personal jurisdiction, not choice of law. It is resolved in this case by considering the acts of the [appellants]."
Hanson v. Denckla,357 U. S. 235, 357 U. S. 254 (1958). [Footnote 45] Appellee suggests that, by accepting positions as officers or directors of a Delaware corporation, appellants performed the acts required by Hanson v. Denckla. He notes that Delaware law provides substantial benefits to corporate officers and directors, [Footnote 46] and that these benefits were, at least in part,
the incentive for appellants to assume their positions. It is, he says, "only fair and just" to require appellants, in return for these benefits, to respond in the State of Delaware when they are accused of misusing their power. Brief for Appellee 15.
But, like Heitner's first argument, this line of reasoning establishes only that it is appropriate for Delaware law to govern the obligations of appellants to Greyhound and its stockholders. It does not demonstrate that appellants have "purposefully avail[ed themselves] of the privilege of conducting activities within the forum State," Hanson v. Denckla, supra at 357 U. S. 253, in a way that would justify bringing them before a Delaware tribunal. Appellants have simply had nothing to do with the State of Delaware. Moreover, appellants had no reason to expect to be haled before a Delaware court. Delaware, unlike some States, [Footnote 47] has not enacted a statute that treats acceptance of a directorship as consent to jurisdiction in the State. And
"[i]t strains reason . . . to suggest that anyone buying securities in a corporation formed in Delaware 'impliedly consents' to subject himself to Delaware's . . . jurisdiction on any cause of action."
Folk & Moyer, supra,n 10, at 785. Appellants, who were not required to acquire interests in Greyhound in order to hold their positions, did not, by acquiring those interests, surrender their right to be brought to judgment only in States with which they had had "minimum contacts."
The Due Process Clause
"does not contemplate that a state may make binding a judgment . . . against an individual or corporate defendant with which the state has no contacts, ties, or relations."
International Shoe Co. v. Washington, 326 U.S. at 326 U. S. 319. Delaware's assertion of jurisdiction over appellants in this case is inconsistent with that constitutional limitation on
state power. The judgment of the Delaware Supreme Court must, therefore, be reversed.
It is so ordered.
MR. JUSTICE REHNQUIST took no part in the consideration or decision of this case.
Greyhound Lines, Inc., is incorporated in California and has its principal place of business in Phoenix, Ariz.
A judgment of $13,146,090 plus attorneys' fees was entered against Greyhound in Mt. Hood States, Inc. v. Greyhound Corp., 1972-3 Trade Cas.
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