Law School Resources

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

 Shaffer v. Heitner was a case in which the United States Supreme Court established that in order for a state to assert personal jurisdiction, due process requires minimum contacts over and above the mere ownership of stocks in a corporation incorporated in that state.

Facts

Arnold Heitner (as custodian for Mark Andrew Heitner, owner of one share of stock in Greyhound Corp.) instituted a shareholder’s derivative suit against Greyhound Corp., Greyhound subsidiary Greyhound Lines, Inc., and 28 members of Greyhound’s Board of Directors and officers. Heitner brought the suit in the Court of Chancery of New Castle County in Delaware, Greyhound's state of incorporation. Heitner simultaneously filed a motion for an order to sequester (i.e. to 'seize' the stock by barring its sale) approximately 82,000 shares of Greyhound stock owned by 21 of the defendants. The defendants were notified by certified mail and by publication in a New Castle County, Delaware newspaper.

The defendants responded by entering a special appearance in the Delaware court for the purpose of moving to quash service of process and to vacate the sequestration order and to contest personal jurisdiction, pointing out that none of them had ever set foot in Delaware or conducted any activities in that state. They contended that the ex parte sequestration procedure did not accord them due process of law as required by the Fourteenth Amendment of the United States Constitution and that the property seized was not capable of attachment in Delaware. In addition, appellants asserted that they did not have sufficient contacts with Delaware to sustain the jurisdiction of that State's courts.

The Delaware state court found that it had quasi in rem jurisdiction, based on a Delaware statute that declared stock owned in a Delaware corporation to be legally located 'in' Delaware.

The Delaware Court of Chancery stated the purpose of the statute:

The primary purpose of 'sequestration' 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. 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. [Citations removed]

The defendants ultimately appealed to the U.S. Supreme Court, asserting that under the Court's decision in International Shoe v. Washington, 326 U.S. 310 (1945), Delaware could not constitutionally seize the property in question.

Issue

Does the minimum contacts standard established in International Shoe apply to quasi in rem lawsuits, where jurisdiction is premised on the presence of property within a state?

Result

In an opinion written by Justice Marshall, the Court determined that the minimum contacts rule of International Shoe applies to actions brought in rem and quasi in rem as well as individuals. Justice Marshall theorized that in rem actions would remain mostly unaffected by the ruling but "Type 2" quasi in rem actions (actions seizing property for the purpose of settling a dispute unrelated to that property) would be greatly affected because the mere ownership of property in a state is not a sufficient contact to subject the property owner to a lawsuit in that state, unless that property is the issue of the lawsuit. The state in which property is located will still generally have personal jurisdiction over disputes concerning the ownership of property within that state, because the owner will be receiving the benefits and protections of that state, while the state will have a strong interest in the peaceful resolution of disputes, and records and witnesses will probably be located therein.

Heitner argued that Delaware's interest in controlling the behavior of its corporations justified its assertion of personal jurisdiction over the defendants. The Court responded that this was a reason to use Delaware law, not a Delaware forum.

Concurrences

Concurring opinions were written by Justice Powell and by Justice Stevens. Both agreed with the outcome in this case, but differed on the question of whether the analysis would be the same if the property in question was real estate instead of stock. Powell would reserve judgment on whether ownership of real property would constitute minimum contacts. Stevens saw no in rem jurisdiction for stocks because of the lack of notice to purchasers of securities that the purchase may subject them to such jurisdiction, but would not say the same for real estate.

Dissent

Justice Brennan wrote an opinion concurring in the method, but dissenting in the outcome. He agreed that an International Shoe-type minimum contacts analysis was appropriate, but asserted that in this case minimum contacts would have been found because the directors "voluntarily associated themselves with the State of Delaware...by entering into a long-term and fragile relationship with one of its domestic corporations."