Shaffer, et al.

v.
Heitner
433 U.S. 186
Marshall, J.:
Digest Author: Jude Fanila

Topic: REMEDIES FOR PROTECTING PROPERTY RIGHTS - E. Action in rem, action in

Case Summary: Heitner filed a complaint against Shaffer, et, al. Shaffer and friends were
stockholders of a Delaware company (greyhound inc.) Pursuant to Heitner’s suit, shares and
options belonging to Shaffer were seized and sequestered in order to secure their presence at the
trial.

Shaffer contends that the enabling law for this is void for non-compliance with the minimum-
contact standards for the acquisition of jurisdiction set in international shoe. Heitner counters that
such standards have applied only to actions in personam, not actions in rem.

SC held that the standard now also applies to actions in rem.

Petitioners: Shaffer
Respondents: Heitner

Doctrines Involved: (1) all assertions of state jurisdiction, including in rem and quasi in rem
actions, must be evaluated according to the minimum contacts standard, and (2) neither the
presence of the nonresident defendants' stock in Delaware nor the fact that the nonresident
defendants were officers of a Delaware chartered corporation, provided the requisite contacts to
establish the jurisdiction of Delaware courts.

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.

FACTS:
1. Respondent, Heitner is a non-resident of Delaware that owns a share of stock in
Greyhound Corp., a business incorporated in Delaware. He filed an action for damages
against Greyhound Lines Inc. (subsidiary of Greyhound Corp.) Filing a shareholder’s
derivative suit in a Delaware Chancery Court.
2. Pursuant to the above order, a sequestration order was issued, under which shares and
options belonging to the 21 petitioners were seized and corresponding stop transfer orders
were placed on the corporate books.
3. Petitioners filed a motion to quash service of process and to vacate the sequestration
order. Contending that the property seized was not capable of attachment in Delaware.
There being no sufficient contacts with Delaware and the petitioners for it to acquire
jurisdiction following the ruling in International Shoe Co. v. Washington where the US
 SC held that an action in personam there must be a certain minimum contacts 1 with the
state court and the party to the case so that the court may acquire jurisdiction.
a. Motion was denied by the Delaware Court, finding that the case of International
Shoe does not bar the sequestration procedure as the action is one that is quasi in
rem as it was directed against the capital stock in Delaware, not on prior contact
by defendants with the Delaware Court. Under Rule 366 of the Delaware Rules of
procedure, in an action based on quasi-in-rem applies because the capital stock
was in Delaware.
b. This was done pursuant to Delaware Code, Ann., Tit. 8 which provided that
Delaware was the situs of ownership of all stocks in Delaware corporation. Thus,
even if none of the certificates representing the seized property was not in
Delaware, such certificates could be seized.
c. Also found that seizure was not to secure possession of property pending trial.
Instead, in sequestration orders the seizure was only to compel the personal
appearance of a nonresident defendant. Once the defendant enters a general
appearance, the sequestered property is released.
4. On appeal, the Delaware SC affirmed the judgment of the Delaware Court of Chancery.
5. Led to current appeal.

ARGUMENTS BEFORE THE SUPREME COURT:

ISSUES + HELD:
1. W/N the minimum-contacts standard applies to actions in rem as well as actions in
personam? – YES
a. International Shoe – held that a minimum standard of contact between the
defendant and the state court must be established for it to acquire jurisdiction over
the defendant. This applies only to actions in personam. This is in the interest of
fair play and substantial justice.
b. US SC provides analysis for reasons behind applying same principle to in rem
cases.
c. History – an action quasi-in-rem deals with property present in the jurisdiction.
Thus, the jurisdiction is not based on the contact between the defendant and the
state but the contact between the property and the state. This was the doctrine in
the case of Pennoyer v. Neff which held that the basis of a court’s jurisdiction in
an action in rem is based on its power over property in its territory thus, a
proceeding against a property is not a proceeding against the owners of that
property. In contrast, in actions in personam the party had to be within the
territorial jurisdiction of the state.

1
From what I understand minimum standards of contact basically requires that the defendant purposefully availed
of the benefits of the state’s laws.
 i. This was later amended in International Shoe which established the
minimum-contact test. There, a state may not make a binding judgment in
personam against an individual or corporate defendant if they have had no
contacts, ties or relations.
ii. No similar amendatory rulings for actions in rem. However, SC has held
in Schroeder v. NY that property cannot be subjected to judgment unless
reasonable and appropriate efforts have been made to give the property
owners actual notice of the action.
d. Case for applying minimum-contact standard – jurisdiction over a thing is
equivalent to jurisdiction over the interests of a person over a thing. Thus, in order
to justify jurisdiction in rem there must be sufficient justification for jurisdiction
over the interests of a person in a thing. This standard is the minimum-contacts
standard in international shoe.
i. This does not affect regular actions-in-rem. As there is still a recognition
that the presence of property in a State may provide the contact between
the forum state, the defendant, and the litigation. Such as in cases where
the claims to the property itself are the source of the controversy.
ii. This affects only certain kinds of proceedings where the property which is
the basis for the state-court jurisdiction is completely unrelated to the
plaintiff’s cause of action such as in the present case.
iii. Allowing the acquisition of jurisdiction in procedures like the
sequestration procedures would in effect be allowing an indirect assertion
of jurisdiction where a direct assertion of personal jurisdiction is
impermissible.
1. Primary basis for allowing this is International Shoe – which held
that a wrongdoer should not be able to avoid payment of
obligations by merely removing his assets to a place where they
cannot be subject of an in personam suit.
2. SC points out that this does not explain why jurisdiction should be
recognized without regard to whether the property is present in the
State because of an effort on the part of the owner to avoid
obligations. Doesn’t support jurisdiction to adjudicate the
underlying claim. At most, suggests that a State in which the
property is located should have jurisdiction to attach the property
as security for a judgment being sought in a forum where the
litigation can be maintained.
a. Also, no justification for the assumption that a debtor can
avoid paying obligations by moving property from the
state. Under the Full Faith and Credit Clause, valid in
personam judgment of one State is enforceable in all other
States.
iv. Finally, argument that allowing in rem jurisdiction avoids the uncertainty
inherent in the International Shoe standard.
1. SC points out that normally, minimum-standards contract can be
easily applied in most cases. In cases where the existence of
jurisdiction under said standard is unclear, the cost of simplifying
 litigation by avoiding the jurisdictional question comes at the cost
of fair play and substantial justice which is too high a cost.
v. SC concludes that ALL assertions of state-court jurisdiction must conform
to standards set in International Shoe i.e. actions in rem and in personam.
2. W/N Delaware Court has jurisdiction? – NO
a. Basis of Court – sole basis is the statutory presence of the property in Delaware.
b. SC points out that the property is not the subject matter of litigation, nor is the
underlying cause of action related to the property. Thus, no minimum-contact
sufficient to justify jurisdiction.
c. Alternative Basis – Heitner argues that the fact that the directors and officers of a
corporation chartered in Delaware provides minimum contact to justify
jurisdiction over Shaffer, et al’s property. This is based on an alleged strong
interest of Delaware in supervising the management of a Delaware corporation.
Which in turn is derived from the role fo Delaware law in establishing the
corporation and defining the obligations owed to it by its officers and directors.
Thus, Delaware court must have jurisdiction over corporate fiduciaries such as
Shaffer and the other corporate fiduciaries.
i. SC – says that Delaware Legislature failed to assert the above state
interest. Delaware law bases jurisdiction on the presence of property in the
state, not on status as corporate fiduciaries. Even granting that such an
interest exists, this doesn’t show why Delaware is a fair forum for
litigation. Just because a state law can be properly applied toa dispute, it
doesn’t necessarily follow that the court has jurisdiction over the parties to
that dispute.
ii. All in all, the mere acquisition of interests in a Delaware based company
does not mean that they consented to Delaware jurisdiction even in cases
where there has been no minimum contact. At most, it only establishes
that it is appropriate for Delaware law to govern obligations between
Shaffer, Greyhound and its stockholders does not establish that they
purposefully availed themselves of the privilege of conducting activities
within Delaware.
d. Thus, the due process clause does not allow a state to make a binding judgment
against an individual or corporate defendant with which the state has no contacts,
ties or relations.
RULING:

The judgment of the Delaware Supreme Court must, therefore, be reversed.

It is so ordered.

DISSENT:

NOTES: