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 officers.
    • 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 corporation.
      • 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 reversed.
    • 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 (in personam)!
    • 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 Delaware forum.
  • 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 domestic corporations.”