Shaffer v. Heitner
433 U.S. 186 (1977)

Annotate this Case

U.S. Supreme Court

Shaffer v. Heitner, 433 U.S. 186 (1977)

Shaffer v. Heitner

No. 75-1812

Argued February 22, 1977

Decided June 24, 1977

433 U.S. 186

Syllabus

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

Page 433 U. S. 187

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."

Held:

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.

Page 433 U. S. 188

(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."

International Shoe, supra at 433 U. S. 319. Pp. 433 U. S. 213-217.

(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

Page 433 U. S. 189

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.

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Primary Holding

Property is not an appropriate basis for a state to declare personal jurisdiction unless the International Shoe test of minimum contacts is satisfied.

Facts

Heitner, who was not a resident of Delaware, brought a derivative suit against Greyhound in Delaware after it was subjected to a large antitrust judgment in Oregon. Heitner owned only one share of Greyhound stock. He chose Delaware because it was the site of the company's incorporation. Of the 28 corporate officers whom Heitner also sued, only seven were residents of Delaware. Jurisdiction in Delaware over the remaining 21 was based on their ownership of Greyhound stock, which was considered to be located within the state of incorporation. Delaware permitted plaintiffs to seize property within it ex parte to compel another party to submit to personal jurisdiction there.

When a freeze order was placed on the corporate books, although none of the stock certificates was in Delaware, the 21 defendants who were non-residents argued that the court did not have personal jurisdiction and that the Delaware law was unconstitutional under Sniadach v. Family Finance Corp. (1969). They pointed out that they did not have minimum contacts with Delaware such that personal jurisdiction was appropriate. However, the lower courts ruled that the statute was valid because it did not seize a defendant's property but rather was used simply to bring defendants into court. The lower courts generally did not address the argument about minimum contacts.

Opinions

Majority

  • Thurgood Marshall (Author)
  • Warren Earl Burger
  • Potter Stewart
  • Byron Raymond White
  • Harry Andrew Blackmun
  • Lewis Franklin Powell, Jr.

Minimum contacts must be established to find personal jurisdiction over a defendant, even if the defendant has property in the forum state. The existence of that property does not independently satisfy the minimum contacts test. To this extent, the Court disapproves of Harris v. Balk (1905) and related cases. Due process and equal protection concerns under the Fourteenth Amendment require this outcome in the interests of fair play and substantial justice. Since the stock in Delaware has no relation to the controversy, nor do the officers have any individual contacts with Delaware, nor did the injury occur there, nor is the plaintiff a resident, jurisdiction is not proper there.

Concurrence

  • Lewis Franklin Powell, Jr. (Author)

A finding of personal jurisdiction still should be appropriate without meeting the minimum contacts test if the defendant had real estate or other permanent property within the forum state.

Concurrence

  • John Paul Stevens (Author)

Purchase of stock should not result in jurisdiction over an individual in the state of a company's incorporation under an in rem theory.

Concurrence/Dissent In Part

  • William Joseph Brennan, Jr. (Author)

The Delaware statute should be found unconstitutional, at which point there would be no need to conduct the minimum contacts analysis or investigate other issues. No state law should be allowed to compel personal jurisdiction through a quasi in rem seizure of property. Still, the minimum contacts analysis was correctly conducted.

Case Commentary

Choosing to incorporate in a certain state automatically makes a corporation subject to jurisdiction in that state, but a derivative suit is against the directors of the entity rather than the entity itself. None of the directors lived in or had any connection to Delaware.

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