Shaffer v. Heitner

Facts

Arnold Heitner ("Heitner") owned a share of stock in Greyhound Corporation ("the corporation"), which was incorporated in Delaware. He instituted a derivative suit in Delaware against 28 of the corporation's officers, most of whom reside outside the state, for causing the corporation to perform acts which eventually led to it incurring substantial anti-trust liabilities. In connection with the said suit, Heitner filed a motion to have the shares of the defendant officers in the corporation sequestered. None of the concerned certificates of stock were physically in Delaware. Nevertheless, Delaware law provides that the said certificates shall be deemed within the said state as it was the state of incorporation.

Service of notice was effected by registered mail to the defendant officers' last known addresses and by publication in a newspaper. The defendant officers objected, arguing that the mode of service denied them of due process and that they did not have sufficient contacts with Delaware so as to justify the said state's exercise of jurisdiction over them.

Issue

Whether or not the Delaware has jurisdiction over the defendant officers by virtue of their ownership of stock of a Delaware corporation.

Held

No. There is no sufficient contacts between the forum state and the defendants.

Ratio Decidendi

Mere ownership of property within a state does not justify that state's automatic assumption of personal jurisdiction over a party. The shares of stock held by the defendant officers is not the subject matter of the suit. Further, the cause of action underlying the suit is not related to the said shares. Heitner's argument that Delaware, being the state of incorporation, has a strong interest in the supervision of the corporation and therefore, jurisdiction over its officers as corporate fiduciaries deserve little consideration. Delaware law bases its jurisdiction not on the status of the defendant officers as corporate fiduciaries, but on the presence of their property in the said state. In any case, if the argued strong interest did exist, then the Delaware Legislature would have enacted a statute establishing such jurisdiction. Moreover, Heitner's contention that fairness dictates that the defendant officers be made accountable for misusing benefits given to them by Delaware law is untenable. It does not demonstrate that the defendant officers deliberately took advantage of the said privileges within Delaware so as to justify the exercise of the said state's jurisdiction over them. The defendant officers were not required to acquire their respective shares in order to hold their position. Mere acquisition of the said interests within a state is not a waiver of their rights to be sued only in states where they have minimum contacts.