Applying Minimum Contacts to Delaware

Shaffer v. Heitner held that minimum contacts governs every exercise of state-court jurisdiction, quasi in rem included, but announcing that rule did not decide the case. A court exercising in rem or quasi in rem jurisdiction is in effect exercising jurisdiction over the defendant personally, so the plaintiff must show that the defendant would be subject to specific or general jurisdiction in the forum.¹ Before Shaffer, no such showing was needed. Under Pennoyer, a court could act whenever the asset was in the state and attached at an appropriate time, and in Harris v. Balk that was enough.² With the old rule gone, the Court had to measure the Delaware defendants' actual dealings with Delaware against the International Shoe test. That test asks for contacts with the forum that relate to the claim, and then asks whether jurisdiction is consistent with notions of fair play and substantial justice.³

The facts that mattered were thin. The individual defendants were officers and directors of Greyhound, a Delaware corporation. Their primary residence and business were in Arizona, and their only contact with Delaware was owning stock in the corporation incorporated there.⁴ They were not otherwise subject to Delaware jurisdiction, so they entered a special appearance to challenge the sequestration order on constitutional grounds.⁵ Heitner's position rested on two supports. One was the statutory presence of the stock in Delaware, the only basis on which Delaware's courts had ruled. The other was the defendants' corporate positions, which he pressed as “contacts, ties, or relations” with the state. The Court rejected both, and each failed for its own reason.

Justice Brennan agreed that the Delaware quasi in rem statute was invalid, but he objected to Part IV. Heitner had never pleaded minimum contacts, made them the subject of discovery, or obtained a ruling on them from the Delaware courts, and Delaware expressly denied having enacted a minimum-contacts law.⁶ That objection goes to whether the Court should have reached the question at all. The majority's analysis, which follows, is the part to master.

Unrelated Stock Ownership

The Court began with the one link Delaware's own courts had relied on, the defendants' Greyhound stock. Those courts had based jurisdiction solely on the statutory presence of the shares in Delaware, yet the shares were not the subject matter of the litigation and the cause of action did not relate to them. The holdings therefore supplied no contacts sufficient to support jurisdiction, and any jurisdiction would have to rest on “some other foundation.”⁷

The stock failed two relatedness tests. It was not what the dispute was about: Heitner's claim ran against individuals for misusing their corporate power, and the shares were merely what a Delaware statute let him seize. Nor did the claim arise from owning the shares. A fiduciary-duty claim arises from the defendants' roles as officers and directors, and the Court observed that holding such a position bears no necessary relationship to owning stock or other interests in the corporation.⁸ Heitner's own failure to secure jurisdiction over seven of the defendants he named proves the point. Those seven evidently held fiduciary positions yet had no Delaware property for the statute to reach.⁹

Nothing else in the record filled the gap. Heitner did not allege that the defendants had ever set foot in Delaware, and he identified no act related to his cause of action as having taken place there.¹⁰ That closed off presence-based jurisdiction as well. Justice Stevens later agreed, concurring in the judgment in Burnham, that due process generally permits a state court to exercise jurisdiction over a defendant served with process while voluntarily present in the forum.¹¹ The Greyhound defendants were never in Delaware. The conduct behind the suit took place in Oregon, and the individual defendants lived and did business mainly in Arizona.¹² Specific jurisdiction requires that the claim arise out of or relate to the defendant's contacts with the forum, and a claim about Oregon events cannot arise out of Delaware contacts.¹³ Even if the shares counted as some contact with Delaware, the case did not arise out of that contact.¹⁴

Relatedness carries so much weight because a contact counts through the relationship it creates among the defendant, the forum, and the litigation. Ownership of Greyhound stock created no relationship to conduct in Oregon. If it did, every shareholder of every corporation could be sued in the state of incorporation on any claim whatever, and the unrelated-property problem the Court had just rejected would return through the statute that placed the shares in Delaware.

The same kind of ownership can matter a great deal when the claim grows out of the asset. A nonresident who owns property in a state can be sued there on claims arising out of that property, such as injuries caused by failing to maintain it safely. The state's sovereign control over the property supports a judgment against a landlord who has the privilege of owning it.¹⁵

The cottage and the Greyhound shares are both assets located in the forum and owned by a nonresident, so ownership alone separates nothing. The claim does. Had the guest's suit concerned a collision in Kansas, with the cottage attached to start the case, the cottage would sit in Maine exactly as before and would explain nothing about the claim. The owner would then stand where the Greyhound directors stood. Land also lies under the state's sovereign control, which is what justified suing the landlord there. The Greyhound shares were in Delaware only because a statute said so.

The holding on the stock does not end the inquiry, because the Court did not say Delaware could never reach these defendants. Heitner's second support, the defendants' corporate positions and Delaware's interest in the corporation, is taken up next.

Corporate Interest Versus Contacts

Once the shares had failed, Shaffer v. Heitner turned to Heitner's fallback. He argued that the defendants' positions as directors and officers of a Delaware corporation gave them “contacts, ties, or relations” with Delaware sufficient to support jurisdiction.¹⁷ The argument had two strands. The first was Delaware's strong interest in securing jurisdiction over corporate fiduciaries. The second was that Delaware law gives officers and directors substantial benefits, that those benefits were at least in part the incentive for the defendants to take their positions, and that it was therefore “only fair and just” to make them answer in Delaware when accused of misusing their power.¹⁸ The Court rejected both strands, and its reasons show what the contacts inquiry measures.

The Court first looked at what Delaware itself had done with the interest Heitner called so great. Heitner's failure to secure jurisdiction over seven of the defendants he named showed that holding a fiduciary position and owning stock do not necessarily go together, so the sequestration statute reached a fiduciary only by happenstance. If Delaware valued jurisdiction over corporate fiduciaries as highly as Heitner claimed, the Court would expect it to have enacted a statute more clearly designed to protect that interest, and it had not.¹⁹

The Court then granted the interest for the sake of argument and denied that it answers the jurisdictional question. Delaware's interest may support applying Delaware law to controversies over the defendants' actions as officers and directors, but the Court had rejected the argument that if a state's law can properly be applied to a dispute, its courts necessarily have jurisdiction over the parties to it.²⁰ The two inquiries ask different things. Choice of law asks which state's rules govern, and the state that created the corporation is a natural answer. Jurisdiction asks whether this defendant can fairly be made to appear and defend in this state's courts, and the answer depends on what the defendant did. The Court borrowed the formulation from Hanson v. Denckla: “The issue is personal jurisdiction, not choice of law.”²¹

Hanson shows how far apart the two questions can sit. A Florida court had undertaken to decide the validity of a trust administered by a Delaware trustee, and Florida's connection to the controversy was strong: the settlor had executed her power of appointment there.²² Yet the Supreme Court held that Florida did not acquire jurisdiction by being the “center of gravity” of the controversy or the most convenient location for litigation. Jurisdiction was resolved by considering the acts of the trustee, and those acts were insufficient.²³ The unilateral activity of those who claim some relationship with a nonresident defendant cannot supply the required contact, and the settlor's act in Florida could not remedy the absence of an act by the trustee.²⁴ Shaffer applied the same reasoning to Delaware. The state that supplies the governing law has not thereby acquired jurisdiction over defendants who did nothing there.

The benefits strand fails for a parallel reason. It shows only that Delaware law may appropriately govern the defendants' obligations to Greyhound. It does not show that the defendants purposefully availed themselves of the privilege of conducting activities in Delaware in a way that would justify bringing them before a Delaware tribunal. In the Court's words, they “have simply had nothing to do with the State of Delaware.”²⁵ Purposeful availment looks for some act by which the defendant invokes the benefits and protections of the forum's laws, so it concerns what the defendant does, not what the forum's law provides.²⁶

Fair warning supplies the remaining piece. The defendants had no reason to expect to be haled before a Delaware court, because Delaware had not enacted a statute treating acceptance of a directorship as consent to jurisdiction there.²⁷ Implied consent could not fill the gap. It strains reason to suggest that anyone buying securities in a Delaware corporation impliedly consents to Delaware jurisdiction on any cause of action. Defendants who were not required to acquire Greyhound interests to hold their positions did not, by acquiring them, surrender their right to be brought to judgment only in states with which they had minimum contacts.²⁸

Delaware later added what the Court had found missing. After Shaffer, it enacted a provision under which a person who accepts a directorship in a Delaware corporation becomes subject to Delaware jurisdiction for claims related to the directorship, Del. Code Ann. tit. 10, § 3114(a)–(b), and the Delaware courts upheld it in Armstrong v. Pomerance.²⁹ The statute postdates the opinion, but it supplies exactly what the Court said was lacking. A director who takes the position has advance notice that doing so carries exposure to suit in Delaware. That exposure rests on the director's own voluntary act and reaches only claims related to the directorship. The same chartering state and the same supervisory interest therefore yield a different answer once the state has legislated.

The consent statute and the in-state vote are two ways of supplying what the interest argument lacks, a connection that comes from the defendant's own conduct. Property in the state that is the subject of the claim is a third, as the cottage example showed.

When an exam stem recites that the chartering state has a strong interest in how its corporations are run, treat that as a choice-of-law fact, because it explains why the state's law applies and says nothing about whether its courts can reach the defendant. Then look for a contact of the defendant's own: an act in the state related to the claim, a consent statute that the defendant triggered by accepting the position, or property in the state that is the subject of the claim. If none appears, the interest does not carry the case. A reference to the benefits of the state's corporate law adds nothing either, because those benefits reach the defendant through the charter.