Shaffer v. Heitner

Brief Fact Summary.

Simultaneously with the filing of a shareholder’s derivative lawsuit against a corporation, its subsidiary, and individual defendants, Heitner filed a motion for an order of sequestration of stock. The Delaware state court granted the sequestration motion; the order provided for the seizure of Greyhound stock held by the Appellants. The Appellants moved to quash service of process and vacate the sequestration order. The Delaware court denied relief. The Delaware Supreme Court affirmed.

Synopsis of Rule of Law.

All assertions of state court jurisdiction must be evaluated according to the standards set forth in International Shoe and its progeny.

Facts.

Heitner filed a shareholder’s derivative lawsuit against Greyhound Corp., a subsidiary, and 28 of its then-present and former officers or directors, seeking damages arising out of events that took place in Oregon. Simultaneously with the filing of the lawsuit, Heitner filed a motion for an order of sequestration of Delaware property, in the form of Greyhound Corp. stock, of the individual defendants. The sequestration motion was granted by the Delaware court; the court’s order provided for the seizure of stock held by the Appellants (21 of the parties whose stock was seized, referred to as “Appellants” by the Court). The stock was considered to be in Delaware and subject to the seizure based on a state statute that made Delaware the situs of ownership of all stock in Delaware corporations. The Appellants entered a special appearance in order to move to quash service of process and vacate the sequestration order, arguing that the ex parte sequestration procedure denied them due process, that the property seized could not be attached in Delaware and that they did not have contacts with Delaware that provided a sufficient basis for jurisdiction under the minimum contacts rule of International Shoe.  The Delaware court rejected these arguments and the Delaware Supreme Court affirmed.

Issue.

Did a Delaware statute that allowed the Delaware state court to assert jurisdiction by sequestering Appellants’ stock violate the due process clause of the Fourteenth Amendment?

Held.

Yes. The stock was not the subject matter of the action, and the underlying cause of action was not related to the stock; therefore, Appellants’ stock holdings did not provide sufficient contacts to form a basis of jurisdiction. If jurisdiction existed, it had to be based on a different foundation, which was lacking.

Concurrence.

Justice Powell

Concurring in the result that the minimum contacts analysis should be extended to govern in rem jurisdiction, Justice Powell stated that he would explicitly reserve judgment on whether ownership of property indisputably and permanently located within a state may provide a basis for jurisdiction to the extent of the value of the property.

Justice Stevens

Justice Stevens expressed concern over uncertainty as to the reach of the Court’s decision as applied in other contexts, agreeing with Justice Powell that it should not be read to invalidate quasi in rem jurisdiction where real estate is involved.

Justice Brennan

Justice Brennan agreed with application of the minimum contacts analysis, the application of which he concluded would not render it unfair for the Delaware court to assert jurisdiction over Appellants who voluntarily associated themselves with the state and invoked its laws benefits and protections.

Discussion.

Jurisdiction could not be based on the presence of the stock in Delaware, based on the Delaware statute; the property was not the subject matter of the lawsuit, the underlying cause of action was not related to the stock itself, and jurisdiction could not be based on any other foundation; Appellants did not have sufficient contacts with Delaware.