Shaffer v. Heitner

433 U.S. 186 (1977)

Yeazell, p. 104-113


Facts: Heitner was a shareholder in Greyhound who sued a number of officers of the company.  He moved to “sequester” their property in Delaware.  This property included the defendants’ stock in Greyhound and other financial instruments.  The motion was granted.


Procedural Posture: The suit and the sequestration motion were originally filed in the Delaware Court of Chancery.  Service of process was made by certified mail and publication.  The defendants made a special appearance to argue that under Shoe, the Delaware courts did not have personal jurisdiction over them because the defendants had insufficient contacts with the state. The Delaware courts ruled for the plaintiff, and the decision was appealed up to the U.S. Supreme Court.


Issue: Does the Delaware court have jurisdiction over the defendants or their property or both?


Rule: NEW RULE!  The Shoe model should be applied to jurisdiction in rem as well as in personam.


Analysis: I think the Court is on very shaky ground, but maybe it only appears that way because the decision is so heavily edited.  They basically seem to say “Pennoyer is old, and we think something different now, so we’re going to change the rules.  So there.”


The Court asserts that the true test of jurisdiction is the “relationship among the defendant, the forum, and the litigation”.  This had been the test for in personam jurisdiction since Shoe, and the Court says it should be extended to quasi in rem actions.


The Court argues that no in rem action is, strictly speaking, “thing-related”.  There is always a person behind the thing they own who will be affected.  The Court suggests that apply minimum contacts standards to in rem actions won’t change anything, because the simple fact that you own land or other big-time property in a state can be seen as sufficient proof that you have more than minimal contacts there.


The Court says that quasi in rem jurisdiction is going to have to change.  The difference with quasi in rem is that the property in question isn’t really related to the subject of the plaintiff’s lawsuit.  The Court will no longer allow the states to assert jurisdiction merely because somebody owns some property in that state.


The Court argues against Heitner’s assertion that the state of Delaware has an interest in controlling corporations that are formed within its borders.  The Court says that the Delaware legislature didn’t seem to have this intent when it made the sequestration statute.


Heitner also suggests that the officers and directors of the company received benefits from the state of Delaware, and thus they should be subject to Delaware’s jurisdiction.  The Court rejects this by saying the defendants had no relationship with the state whatsoever.


Powell concurs, but says that he favors preserving the traditional notion of quasi in rem jurisdiction for real property for efficiency purposes.


Stevens concurs, saying that buying stock should not be seen as consent to jurisdiction.  He also states his fear that the decision goes further than is necessary.


Brennan concurs on three points and dissents on the last, saying the state has a compelling interest in maintaining a convenient forum for corporate disputes like the one in the present case.  He favors using the standard that anyone who is under the protection of a state’s laws ought to be under the jurisdiction of that state.


Conclusion: The Court rules that Delaware does not have jurisdiction over the defendants, and therefore, it reverses the ruling of the Delaware Supreme Court.


Notes and Problems


1.     This particular suit had nothing to do with Greyhound as a company.  It was one guy against 21 other guys (probably all guys at that time).


a.      No, because the Court concedes that there are some situations where the property is closely related to the cause of action, and thus the state has jurisdiction.

b.     No, but the Court suggests that each piece of property in question must be evaluated based on whether or not it constitutes a “contact” between the defendant, the forum, and the litigation.

c.     No; the Court says that if a state wants to have jurisdiction over corporate directors, they can, but they must pass a statute to that effect first.

d.     Yes, it seems the Court does say that in the absence of a statute, acceptance of a position on the board of directors does not constitute consent to be under the jurisdiction of the state.  This isn’t the driving force behind the ruling, though.

e.      Not in general.  The Court seems to suggest that in cases where the property is intimately tied up with the issue in the lawsuit, the state certainly can seize the property.

3.     Good question!  What the heck were they thinking???

a.      In this case, I think the Pennoyer Court would say that Oregon has jurisdiction.  On the other hand, the Shaffer Court would say that Neff has insufficient contacts with Oregon and his property has an insufficient connection with the subject of the lawsuit.  Therefore, the Court would rule in the latter case that Oregon does not have jurisdiction.

b.     Here, I think the two courts would be in agreement.  Because the land is closely related to the subject of the lawsuit, the Shaffer Court would grant Oregon jurisdiction.

4.     If there’s a statute that says a corporation must give consent to be served in order to do business in a state, then I don’t think that’s implied consent.  If there’s a law on the books, I ought to know, explicitly, that I’m in for service of process if I go and do business there.  As a policy matter, Delaware might not want to pass such a statute for fear of driving away businesses that otherwise would have incorporated there and paid taxes.

5.     Brennan doesn’t want too much power taken away from states in regulating their internal affairs.

6.     It would seem there would be few cases where there was no other possible forum for the plaintiff.  I can’t think of any besides when the defendant is from another country.  As a policy matter, the courts won’t want to make it too easy to attach the property of foreign defendants because it may discourage foreign investment.

[Supplement: Yeazell, FEDERAL RULES OF CIVIL PROCEDURE at 379 (2003).]  15 U.S.C. § 1125(d)(2) deals with in rem and in personam on the Internet.  The statute uses the domain name registration system to help establish jurisdiction.  If you can’t find obtain in personam jurisdiction over someone, you can serve process by e-mail and postal mail to the domain name registrant or just publish service of process.

a.      Based on the present case, the standard of Shoe ought to be applied to in rem as well as in personam actions.  Therefore, López may argue that it is not fair to hale him into Virginia court because he presumably lacks minimum contacts with that state and the burden on him would be too great.  I would want to know if López has any other contacts with Virginia.

b.     According to the statute, it seems that the domain name registrar is required to sort of “freeze” the domain name and deliver documents to the court that will give the court control over the domain name.  This seems constitutional, because this is almost a pure in rem action.  The property in dispute is exactly what gets seized.

c.     We haven’t done much with interpleader yet, but I would think the domain name registrar has little interest in coming into court with a lot of disputes.  It seems cheaper for the domain name registrar to selfishly let the parties go at it and just send the appropriate documents to the courts when necessary.

7.     The court in this case seems to argue that you can’t seize property just to get the defendant to come in and face the music, but you can seize the property if it’s needed to make sure you can get your money from a lawsuit where the forum already has jurisdiction.

8.     The Court is so broad in this decision that it seems attractive for a defendant who is served “gotcha” process to argue that this violates “fair play” and “substantial justice”, and that they need to be in a state for a certain amount of time conducting certain activities before they may be served process.


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