Shaffer v.

Heitner

433 US 186

(1977)

Brief Fact Summary.

Plaintiff stockholder brought a shareholders derivative action in Delaware state court against
Defendants, corporations incorporated in Delaware with their principal place of business in
Arizona, and corporate officers of the corporations (Defendants). Plaintiff moved to sequester
Defendants property, which was stock in the company, located in Delaware as defined by the
Delaware statute. Defendants moved to quash the summons and to vacate the sequestration order,
arguing that both exercising personal jurisdiction and seizing Defendants property violated due
process.
Synopsis of Rule of Law.
When the only contact the defendant has with the forum state is the location of property as
defined by statute in the forum state, the forum lacks personal jurisdiction over the defendant
unless the minimum contacts test of International Shoe is satisfied.
Facts.
Plaintiff, a stockholder for Greyhound Corp., a company incorporated in Delaware with its
principal place of business in Arizona, sued Greyhound Corp., Greyhound Lines, Inc., (a
subsidiary of Greyhound Corp.) and present and former officers of the two companies for
violating duties to Greyhound Corp. by causing it to be liable for damages in an antitrust suit and
a fine in a criminal contempt action in Oregon. Plaintiff filed a motion for sequestration of the
officers stock. Under a Delaware statute, Delaware is the situs of all stock in Delaware
corporations. The stock was seized. Defendants were notified by certified mail of the
sequestration and notice was published in a Delaware newspaper. Defendants entered a special
appearance so they could move to quash service of process and vacate the sequestration order.
Defendant argued that the order violated due process and therefore the property could not be
attached in Delaware. In addition, Defendants argued that they did not have the minimum
contacts with Delaware required to establish jurisdiction under International Shoe Co. v.
Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). In addition, Defendants argued that
the sequestration procedures were inconsistent with the Sniadach cases (see Sniadach v. Family
Finance Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969)). The Court of Chancery
found for Plaintiff and the Supreme Court of Delaware affirmed the Court of Chancery. The
Supreme Court of Delaware reasoned that the Sniadach cases involved default judgments and not
compelling a party to appear. This court furthered reasoned that sequestration procedures help to
adjudicate claims of mismanagement against Delaware companies, and do not cause permanent
deprivation of property to their shareholders. Defendant appealed.
Issue.
In order for the forum state to exercise in rem jurisdiction on a nonresident, must the nonresident
have minimum contacts with the forum state such that the defendant has purposefully availed
itself of the benefits of that states laws? If so, must the cause of action be sufficiently related to
the contacts the nonresident has with the forum state?
Held. Yes to both. Judgment reversed. In rem is not a proceeding against the property, it is a
proceeding against a persons interest in the property. You need to give an owner of property

reasonable and appropriate notice of an in rem proceeding so that he or she recognizes that such
a proceeding directly affects his or her interests. Having property in a state does not give the state
jurisdiction over causes of action unrelated to the property unless the person also passes the
minimum contacts test articulated in the International Shoe decision. If it is unconstitutional to
exercise jurisdiction over the person directly then it should be unconstitutional to assert
jurisdiction indirectly. Plaintiffs argument that Delaware has an interest in asserting jurisdiction
over corporate fiduciaries is not established by Delaware law. Delaware law determines that it
has jurisdiction over Defendants because Defendants property is in Delaware and not due to
their status as corporate fiduciaries. First, the statute authorizing jurisdiction does not specifically
apply to stockholder derivative actions. Moreover, Plaintiffs inability to secure jurisdiction over
seven of the defendants because they didnt have property in Delaware shows that there is no
necessary relationship between corporate fiduciaries and stockholders. In addition, Plaintiff has
not demonstrated that Delaware is a fair forum. Plaintiff must demonstrate more than the
applicability of Delawares laws to the controversy to establish a basis for jurisdiction. Plaintiffs
argument that Defendants have received benefits from Delaware laws only demonstrates that it
would be appropriate for Delaware law to govern obligations between Defendant and
stockholders. This argument does not require that Delaware be permitted to exercise jurisdiction,
especially considering its lack of a long-arm statute. Concurrence. Justice Stevens: The majority
should not broadly eliminate in rem jurisdiction by stating that there is no personal jurisdiction if
the only contact the defendant has with the forum state is property located in the state. There are
other means of acquiring jurisdiction over local actions that may be unintentionally limited by
this broad language. Justice Brennan (concurring in part and dissenting in part): The Delaware
sequestration statute embodies quasi in rem jurisdiction that is no longer valid. The parties did
not make the minimum contacts test an issue so the court should not have decided this issue.
There is no proper factual record for determining the level of contacts in this case. This is also a
constitutional question, and this decision will reach to all the state statutes that permit quasi in
rem action through sequestration of property. The general rule is that the forum state has
jurisdiction over the directors and officers of a corporation chartered by the state in a shareholder
derivative action. A states valid substantive interests are considerations in assessing the
constitutionality of exercising jurisdiction. Delaware has interests in preventing local
corporations from being victims of foreign stockholders and in regulating its own corporations.
In addition, jurisdiction can be based on out-of-state activities that have foreseeable effects in the
forum state. Delawares failure to express an interest in corporate fiduciaries does not pertain to
the minimum contacts analysis. In addition, there was purposeful availment of the forums laws
because the corporate officers entered business relationships with Greyhounds stockholders
pursuant to the laws of Delaware.
Discussion. As the concurring opinions illustrate, it is highly unlikely a court has personal
jurisdiction over a non-resident defendant that is absent from the forum state when the only
contact is property owned by the defendant located within the forum state. Even if the property is
connected to the suit, minimum contacts must still be established in compliance with the
International Shoe test.