Shaffer v. Heitner – Case Brief Summary

Summary of Shaffer v. Heitner, 433 U.S. 186, 97 S. Ct. 2569, 53 L. Ed. 2d 683 (1977).

Facts

Greyhound, a Delaware corporation, lost a large antitrust judgment and Heitner (P) initiated a shareholder derivative suit in Delaware against 28 officers and directors of the corporation (i.e. Shaffer, D). Heitner owned one share of Greyhound stock and was a nonresident of Delaware. Heitner filed a motion for sequestration of stock owned by 21 of the defendants in order to obtain quasi-in-rem jurisdiction. The legal situs of the stock was deemed to be in Delaware.

The Delaware sequestration statute allowed property within the state to be seized to allow the Delaware court to obtain personal jurisdiction over the owner. Shaffer et al. made a special appearance to challenge the court’s jurisdiction on the grounds that the statute was unconstitutional. Shaffer also asserted that there were insufficient contacts to confer jurisdiction. The District Court found that the statute was valid, and did not address the minimum contacts argument due to the finding that the legal presence of the stock in Delaware conferred quasi-in rem jurisdiction.

Issues

  1. Can a state obtain personal jurisdiction over a party based on that party’s ownership of property in the state?
  2. Is quasi in rem jurisdiction subject to the constitutional requirements of minimum contacts?

Holding and Rule (Marshall)

  1. No. A state cannot obtain personal jurisdiction over a party based merely on that party’s ownership of property in the state.
  2. Yes. Quasi in rem jurisdiction is subject to the constitutional requirements of minimum contacts.

Rules

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.

In rem jurisdiction: due process under the Fourteenth Amendment requires that 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 allow 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.

Where, as in this case, the property serving as the basis for 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.

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. Appellants’ holdings in the corporation do not provide contacts with Delaware sufficient to support jurisdiction of that State’s courts over appellants.

Delaware state-court jurisdiction is not 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.

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 availed themselves of the privilege of conducting activities within the forum State. See Hanson v. Denckla. 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.

Discussion

In Mullane v. Central Hanover Bank and Trust we held certain Fourteenth Amendment rights attach once an adverse judgment in rem directly affects the property owner by divesting him of his rights in the property. If jurisdiction over property involves jurisdiction over a person’s interests, the proper standard is the minimum contacts standard of International Shoe. This makes the assertion of jurisdiction over the property an assertion of jurisdiction over the person. Thus, all assertions of jurisdiction must be determined according to the standards of International Shoe and its progeny.

Delaware has a strong interest in supervising the management of corporations created within its borders. The legislature must assert that interest, however. Delaware is not a fair forum for this litigation because the officers and directors have never set foot in the state and have not purposefully availed themselves of the benefits and protections of the state.

Disposition

Reversed.

Concurring (Powell)

I reserve judgment as to whether ownership of real property in a jurisdiction may provide the contacts necessary for jurisdiction. Quasi in rem jurisdiction should remain valid when real property is involved.

Concurring (Stevens)

This holding should not be read to invalidate in rem jurisdiction.

Concurring in Part and Dissenting in Part (Brennan)

The use of minimum contacts is more than justified and it represents a sensible approach to the exercise of state court jurisdiction, however the majority’s approach to minimum contacts is wrong. To be proper, State court jurisdiction must have both notice and a long arm statute. Under this case there is no such statute.

As a general rule, a state forum has jurisdiction to adjudicate a shareholder derivative action centering on the conduct and policies of the directors and officers of a corporation incorporated in that State. I therefore would not foreclose Delaware from asserting jurisdiction over appellants were it persuaded to do so on the basis of minimum contacts. Heitner however never pleaded or demonstrated that the defendants had minimum contacts with the state.

Greyhound’s choice of incorporation in Delaware is a prima facie showing of submission to its jurisdiction. There was a voluntary association with the State of Delaware invoking the benefits and protections of its laws. The majority opinion is purely advisory once it finds that the state statute is invalid.

Texaco, Inc. v. Pennzoil Co.


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