Shaffer v. Heitner

1977-06-24

Headline: Court limits Delaware’s power to seize out‑of‑state directors’ stock to force them into court, ruling that mere statutory designation of stock as located in Delaware cannot alone justify jurisdiction over absent defendants.

Holding:

Real World Impact:

Prevents states from using statutory stock 'situs' alone to seize property and assert jurisdiction.
Protects nonresident directors and shareholders from being haled into Delaware without sufficient contacts.
Requires courts to assess minimum contacts before exercising in rem or quasi in rem jurisdiction.

Topics: state court jurisdiction, stock situs and location, corporate officers' lawsuits, seizing stock to force appearances, shareholder derivative suits

Summary

Background

Appellee Heitner, a nonresident shareholder, sued Greyhound and its officers and directors in Delaware chancery court in a derivative action claiming they mismanaged the company and caused large penalties. He asked the court to sequester Delaware‑located property of the individual defendants under Delaware statute §366. A sequestration order was issued and a sequestrator placed stop‑transfer orders seizing about 82,000 shares and options, even though the stock certificates and owners were located elsewhere. Delaware law (§169) treats stock of Delaware corporations as having situs in Delaware, and the Delaware courts relied on that statute to assert quasi in rem jurisdiction.

Reasoning

The Supreme Court held that state assertions of jurisdiction, including in rem and quasi in rem proceedings, must satisfy the International Shoe minimum‑contacts standard of “fair play and substantial justice.” Because the seized stock here was unrelated to Heitner’s underlying claims and the individual defendants lacked contacts, ties, or relations with Delaware, the statutory situs of the shares alone did not establish constitutionally sufficient contacts. The Court therefore reversed the Delaware Supreme Court’s judgment upholding the sequestration.

Real world impact

The ruling limits the ability of a State to use a statutory fiction about where stock "resides" to seize property and force absent defendants into court without other contacts. Corporate officers and out‑of‑state shareholders cannot be haled into a State solely because stock is treated as located there by statute. The decision preserves sovereign interests in notice and fairness and requires more concrete ties before a court exercises power over absent persons.

Dissents or concurrances

Justice Stevens emphasized notice concerns and called the Delaware statute unconstitutional on its face; Justice Brennan would have allowed Delaware jurisdiction in many derivative suits; Justice Powell reserved judgment on real property issues.