Shaffer v. Heitner
433 U.S. 186, S. Ct. 2569, 53 L. Ed. 2d 683 (1977)
Heitner owned some stock in a
company called Greyhound. He started a shareholder's derivative suit
against Greyhound and 28 members of Greyhound's Board of Directors and
Greyhound had been found
guilt in an anti-trust suit. A stockholder's derivative action is kind
of like a class action suit. In it, a stockholder who has not been
injured directly, but who's been injured indirectly sues because the
corporation has done something to lower the stock price.
These suits are done on
behalf of the corporation against the Board of Directors of the
In anti-trust cases, you
can sue for 3x damages plus attorney's fees!
Heitner brought the suit in
Delaware, where Greyhound was incorporated, and attached the Board
members' stock to the lawsuit.
The Board members were
notified by certified mail and by publication in a Delaware newspaper.
None of the 28 Board
members lived in Delaware.
The Board members made a special
appearance in the Delaware Court to
contest personal jurisdiction.
The Board members argued
that that none of them had ever set foot in Delaware or conducted any
activities in that State.
The Trial Court found that it
had jurisdiction. The Board members appealed.
The Trial Court found there
was quasi in rem jurisdiction,
based on a Delaware Statute that declared stock owned in a Delaware
corporation to be legally located 'in' Delaware.
Basically, under Delaware
law, no matter where people who owned the stock lived, that stock was
legally in Delaware, making them eligible for quasi in rem jurisdiction!
The Delaware Supreme Court
upheld the Trial Court decision. The Board members appealed.
The U.S. Supreme Court
The US Supreme Court found
that based on International Shoe v. Washington (326 U.S. 310 (1945)) Delaware could not
constitutionally seize the property in question.
The Court found that the minimum
contacts rule of International
Shoe applies to actions brought against property via in rem and quasi in rem as well as actions brought against individuals
The Court found that 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.
Heitner was suing because
he was mad at the way the Directors were running the company, not
because they owned stock. An argument might have been made that there
was in personam jurisdiction
based on the fact that the Directors were officers of a Delaware company
(some States have a Statute that all company Directors consent to
jurisdiction in the State of incorporation). However, the fact that
they owned stock wasn't the reason they were getting sued, so the fact
they owned stock in the company was just coincidental.
Heitner argued that
Delaware's interest in controlling the behavior of its corporations
justified its assertion of personal jurisdiction over the defendants.
However the Court found that this was a reason to use Delaware law, not a
In a dissent it was argued
that that an International Shoe-type minimum contacts analysis was
appropriate, but should have found minimum contacts because the directors
"voluntarily associated themselves with the State of Delaware by
entering into a long-term and fragile relationship with one of its