Shaffer v. Heitner

Brief Fact Summary

Heitner (Plaintiff) brought a derivative suit against Greyhound (Defendant) directors for antitrust losses it had sustained in Oregon.  The suit was brought in Delaware, Greyhound’s (Defendant) state of incorporation.

Synopsis of Rule of Law

Jurisdiction cannot be founded on property within a state unless there are sufficient contacts within the meaning of the test developed in International Shoe.

Facts

Heitner (Plaintiff) owned one share of Greyhound (Defendant) stock.  Defendant had been subjected to a large antitrust judgment in Oregon.  Heitner (Plaintiff), a nonresident of Delaware, brought a derivative suit in Delaware, the state of Defendant’s incorporation.  Jurisdiction was based on sequestration of Defendant stock, which was deemed to be located within the state of incorporation.  The Delaware sequestration statute allowed property within the state to be seized ex parte to compel the owner to submit to the in personam jurisdiction of the court.  None of the stock was actually in Delaware, but a freeze order was placed on the corporate books.  Defendant made a special appearance to challenge the jurisdiction of the court to hear the matter.  Defendant argued that the sequestration statute was unconstitutional under the line of cases beginning with Sniadach, 395 U.S. 337 (1969).  Defendant also argued that there were insufficient contacts with Delaware to justify an exercise of jurisdiction.  The Delaware courts found that the sequestration statute was valid as it was not a per se seizure of the property and was only invoked to compel out-of-state residents to defend actions within the state. Little, if any, consideration was given to the “contact†argument based on a finding that the presence of stock within the state conferred quasi in rem jurisdiction.

Issue

May a state assume jurisdiction over an issue just because defendant’s property happens to be within the state?

Held

(Marshall, J.)  No.  There mere presence of property within a state is not sufficient to confer jurisdiction on a court without independent contacts within the meaning of International Shoe, which would make acceptance constitutional.  It is expressly disapproved of that the line of cases represented by Harris v. Balk permits jurisdiction just because the property happens to be within the state.  If sufficient contacts do not exist to assume jurisdiction without the presence of property within the state, it cannot be invoked on the basis of property within the court’s jurisdiction.  This decision is based on the fundamental concepts of justice and fair play required under the due process and equal protection clauses of the Fourteenth Amendment.  In this case, the stock is not the subject of the controversy.  There is no claim to ownership of it or injury caused by it.  The defendants do not reside in Delaware or have any contacts there.  The injury occurred in Oregon.  No activities complained of were done within the forum.  Finally, Heitner (Plaintiff) is not even a Delaware resident.  Jurisdiction was improperly granted.  Reversed.

Dissent

(Brennan, J.)  Concurrence is with the use of a minimum contacts test, but dissent as to the result in this case.  The Delaware sequestration statute’s only purpose is to force in personam jurisdiction through a quasi in rem seizure.  The opinion is purely advisory because if the court finds the statute invalid, the rest of the opinion is not required.  Delaware never argued that it was attempting to obtain in rem jurisdiction.  Also, it is held that a derivative suit may be brought in the state of incorporation.  Greyhound’s (Defendant) choice of incorporation in Delaware is a prima facie showing of submission to its jurisdiction.

Concurrence

(Powell, J.)  Disagreement is with cases involving property permanently within the state, e.g., real property.  Such property should confer jurisdiction.

(Stevens, J.)  Concurrence is in the result as purchase of stock in the marketplace should not confer in rem jurisdiction in the state of incorporation.  Concurrence is also with Mr. Justice Powell’s statements.

Discussion

While the corporation could be sued in its state of incorporation under the dissents’ theory, the suit is against the directors and neither the site of the wrong or the residence of a defendant is in Delaware.  The decision will have a major impact only in cases such as this one where the state really has no reason to want to adjudicate the issue.  Real property would, of course, still be treated as an exception.