Shaffer v. Heitner

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Shaffer v. Heitner
Seal of the United States Supreme Court.svg
Argued February 22, 1977
Decided June 17, 1977
Full case nameShaffer, et al. v. Heitner
Citations433 U.S. 186 ( more )
97 S. Ct. 2569; 53 L. Ed. 2d 683; 1977 U.S. LEXIS 139
Case history
PriorAppeal from the Supreme Court of Delaware
Holding
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 subject of the lawsuit.
Court membership
Chief Justice
Warren E. Burger
Associate Justices
William J. Brennan Jr.  · Potter Stewart
Byron White  · Thurgood Marshall
Harry Blackmun  · Lewis F. Powell Jr.
William Rehnquist  · John P. Stevens
Case opinions
MajorityMarshall, joined by Burger, Stewart, White, Blackmun
ConcurrencePowell
ConcurrenceStevens
Concur/dissentBrennan
Rehnquist took no part in the consideration or decision of the case.
This case overturned a previous ruling or rulings
Harris v. Balk (1905)

Shaffer v. Heitner, 433 U.S. 186 (1977), is a United States corporate law case in which the Supreme Court of the United States established that a defendant's ownership of stock in a corporation incorporated within a state, without more, is insufficient to allow that state's courts to exercise jurisdiction over the defendant. The case set forth a framework for evaluating when a defendant will be deemed to have minimum contacts with the forum state sufficient for the exercise of jurisdiction to be consistent with due process under the Fourteenth Amendment. [1]

Contents

Facts

Arnold Heitner, who as trustee owned one share of stock in Greyhound Corporation, a Delaware corporation, instituted a shareholder’s derivative suit in the Delaware Court of Chancery against 28 of the company's directors and officers. Most of these individuals resided outside Delaware. To secure jurisdiction over these defendants, at the outset of the litigation Heitner filed a motion for an order to "sequester" the shares of Greyhound stock owned by the defendants, meaning that they would be unable to sell the stock. The defendants were notified by certified mail and by publication of a legal notice in a newspaper. [2]

By sequestering defendants' property, Delaware sought to exercise quasi in rem jurisdiction over the defendants. The defendants at issue were not subject to personal jurisdiction because they did not reside in Delaware and had not taken any actions in Delaware that were the subject matter of the lawsuit. However, because Delaware law deemed all stock in Delaware corporations to have a situs within the state, Delaware exercised jurisdiction over the stock itself. The defendants then had the choice of either filing an appearance in the lawsuit, thereby subjecting themselves to jurisdiction, or failing to appear to defend themselves, thus risking losing their stock.

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, thus contesting Delaware's exercise of jurisdiction over them. They contended 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, as construed by Supreme Court cases defining the requirements of personal jurisdiction, and that exercising quasi in rem jurisdiction over property in the forum state that was unrelated to the subject-matter of the litigation was constitutionally impermissible.

As the Supreme Court explained:

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 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 sought review by the United States Supreme Court, which granted certiorari . [3]

Result

In an opinion written by Justice Thurgood Marshall, the Court determined that the minimum contacts rule of International Shoe Co. v. Washington applies to actions brought in rem as well as to ordinary "in personam" actions. 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 could be a reason to apply Delaware law in resolving the dispute, but that this did not need to take place in a Delaware forum.

Concurring opinions

Justices Lewis F. Powell, Jr. and John P. Stevens each authored concurring opinions. 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. [4]

Dissenting opinion

Justice William J. Brennan, Jr. wrote a dissenting opinion, largely concurring in the Court's method of analyzing the jurisdictional issue, but disagreeing with the ultimate result. Brennan agreed that International Shoe required a determination whether the defendants had at least minimum contacts sufficient to subject them to jurisdiction in Delaware. However, he would have held that defendants did have such contacts because the directors voluntarily associated themselves with Delaware by becoming directors of a Delaware corporation. [5] Justice William H. Rehnquist did not participate in the decision of the case.

See also

Related Research Articles

Jurisdiction is the legal term for the legal authority granted to a legal entity to enact justice. In federations like the United States, areas of jurisdiction apply to local, state, and federal levels.

Personal jurisdiction is a court's jurisdiction over the parties, as determined by the facts in evidence, which bind the parties to a lawsuit, as opposed to subject-matter jurisdiction, which is jurisdiction over the law involved in the suit. Without personal jurisdiction over a party, a court’s rulings or decrees cannot be enforced upon that party, except by comity; i.e., to the extent that the sovereign which has jurisdiction over the party allows the court to enforce them upon that party. A court that has personal jurisdiction has both the authority to rule on the law and facts of a suit and the power to enforce its decision upon a party to the suit. In some cases, territorial jurisdiction may also constrain a court's reach, such as preventing hearing of a case concerning events occurring on foreign territory between two citizens of the home jurisdiction. A similar principle is that of standing or locus standi, which is the ability of a party to demonstrate to the court sufficient connection to and harm from the law or action challenged to support that party's participation in the case.

<i>In rem</i> jurisdiction Type of jurisdiction

In rem jurisdiction is a legal term describing the power a court may exercise over property or a "status" against a person over whom the court does not have in personam jurisdiction. Jurisdiction in rem assumes the property or status is the primary object of the action, rather than personal liabilities not necessarily associated with the property.

<span class="mw-page-title-main">Diversity jurisdiction</span> U.S. court jurisdiction over persons of different states or nationalities

In the law of the United States, diversity jurisdiction is a form of subject-matter jurisdiction that gives U.S. federal courts the power to hear lawsuits that do not involve a federal question. For a U.S. federal court to have diversity jurisdiction over a lawsuit, two conditions must be met. First, there must be "diversity of citizenship" between the parties, meaning the plaintiffs must be citizens of different U.S. states than the defendants. Second, the lawsuit's "amount in controversy" must be more than $75,000. If a lawsuit does not meet these two conditions, U.S. federal courts will normally lack the power to hear it unless it involves a federal question, and the lawsuit would need to be heard in state court instead.

International Shoe Co. v. Washington, 326 U.S. 310 (1945), was a landmark decision of the Supreme Court of the United States in which the Court held that a party, particularly a corporation, may be subject to the jurisdiction of a state court if it has "minimum contacts" with that state. The ruling has important consequences for corporations involved in interstate commerce, their payments to state unemployment compensation funds, limits on the power of states imposed by the Due Process Clause of the Fourteenth Amendment, the sufficiency of service of process, and, especially, personal jurisdiction.

<span class="mw-page-title-main">Minimum contacts</span>

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<i>Quasi in rem</i> jurisdiction

A quasi in rem legal action is a legal action based on property rights of a person absent from the jurisdiction. In the American legal system the state can assert power over an individual simply based on the fact that this individual has property in the state. Quasi in rem jurisdiction does not have much function in the United States any longer. However, in very specific cases, quasi in rem jurisdiction can still be effective.

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Pennoyer v. Neff 95 U.S. 714 (1878) was a decision by the Supreme Court of the United States in which the Court held that a state court can only exert personal jurisdiction over a party domiciled out-of-state if that party is served with process while physically present within the state. More importantly, the court imposed a procedural limit on quasi in rem jurisdiction over property located within the state; it would have to be "brought under the control of the court" at the time the suit commenced otherwise quasi in rem jurisdiction would remain unavailable.

A shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a corporation against a third party. Often, the third party is an insider of the corporation, such as an executive officer or director. Shareholder derivative suits are unique because under traditional corporate law, management is responsible for bringing and defending the corporation against suit. Shareholder derivative suits permit a shareholder to initiate a suit when management has failed to do so. To enable a diversity of management approaches to risks and reinforce the most common forms of corporate rules with a high degree of permissible management power, many jurisdictions have implemented minimum thresholds and grounds to such suits.

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References

  1. "U.S. Reports: Shaffer v. Heitner, 433 U.S. 186 (1977)". Library of Congress. Retrieved 17 June 2021.
  2. Thomley, P.W. (1978). "State Court Jurisdiction after Shaffer v. Heitner". American Journal of Trial Advocacy. 2: 98.
  3. FRIEDENTHAL, JACK H. "Comment on the Impact of Shaffer v. Heitner in the Classroom". Washington University Law Review.
  4. Silberman, Linda J. (1978). "Shaffer v. Heitner: The End of an Era". New York University Law Review. 53: 33.
  5. "Analyses of Shaffer v. Heitner, 433 U.S. 186 | Casetext". casetext.com. Retrieved 17 June 2021.