Heitner brought a derivative shareholder suit against Greyhound Corporation, Greyhound Lines, its subsidiary, and 28 former or present officers or directors of Greyhound in Delaware state court. Greyhound was incorporated in the State of Delaware but was headquartered in Phoenix Arizona. The activities of the corporation underlying the complaint occurred in the State of Oregon. None of the officers or directors was a resident of the State of Delaware; nor did they have any contacts with Delaware.
Simultaneously with his complaint, Heitner filed a motion to sequester Greyhound common stock belonging to the Greyhound officers and directors named in the lawsuit. The sequestration motion was made under a Delaware statute providing that when a complaint is filed against a non-resident, a court may compel the appearance of the non-resident defendant by seizing his property. The court seized 82,000 shares of common stock having a market value on the day of the seizure of approximately $1.2 million dollars belonging to 21 of the 28 named officers and directors. The seizure amounted to placing "stop transfer" orders on the books of Greyhound Corporation since the physical stock certificates were not located in Delaware. Rather, a Delaware statute deemed the stock to be located in that state. In addition, Heitner satisfied the mailing and publication requirements.
The 21 defendants whose property was seized appeared in the Delaware state court.
The plaintiff Heitner brought a derivative shareholder suit against Greyhound, its subsidiary and several former and present officers and directors. The complaint was filed in the State of Delaware Chancery Court, the state of incorporation. Simultaneously with the complaint and pursuant to a Delaware statute, Heitner filed a motion to sequester property (stock) belonging to the non-resident defendants.
The court granted the motion to sequester and seized the common stock belonging to the several officers and directors named in the complaint. In response, the defendants appeared in Delaware court to challenge its jurisdiction over them and moved to dismiss the lawsuit.
The Chancery Court denied defendant's motion to dismiss, declared that the Delaware statute authorizing seizure of non-resident defendant's property for the purpose of compelling appearance did not violate the 14th Amendment and found that court control of defendant's property gave the court quasi in rem jurisdiction over the matter.
On appeal, the Delaware Supreme Court affirmed the judgment of the Chancery Court. The U.S. Supreme Court reversed.
The Delaware court lacked jurisdiction over the non-resident defendants because the technical presence of their property (common stock) in the state failed to establish that the non-resident defendants had adequate contacts with the forum state to give that state jurisdiction over them and their interests in that property.
Pennoyer v. Neff proclaimed that a state has virtually absolute jurisdiction over property physically located within the territory of the state whether a resident or non-resident owns that property. Consequently, in a case involving a non-resident defendant and owner of property in the forum state, the forum state always had jurisdiction over the matter if the court took legal control of the property.
Contrary to that view of jurisdiction, International Shoefocused on contacts between the forum state and the non-resident defendant. The jurisdiction decision turned on whether the interaction between the non-resident defendant and the forum state made it reasonable to allow the forum state to exercise jurisdiction over the non-resident.
In cases involving in rem or quasi in rem jurisdiction, International Shoe collided with Pennoyer since under Pennoyer the forum court has jurisdiction over the property of a non-resident regardless of the "contacts" the non-resident has with the forum state and the relationship between the property and the cause of action
The Shaffer court pierced, and then collapsed, the distinction between jurisdiction over things and jurisdiction over persons. To have jurisdiction over a thing is really to have jurisdiction over a person's interest in that thing. That being the case, jurisdiction over a non-resident must be measured by the "minimum contacts" test set forth under International Shoe to establish in personam jurisdiction.
Therefore the Delaware statute authorizing the seizure of non-resident property for the sole of purpose of compelling the non-resident's appearance in the state violated the non-resident defendant's 14th Amendment rights. In the Shaffer majority's view, the relationship between the constructive presence of common stock in the state of Delaware owned by the non-residents and the nature of the claim against them did not satisfy the minimum contacts required to establish jurisdiction.
The Shaffer opinion contains an extensive review of the law on jurisdiction from Pennoyer to International Shoe and vitiates the link between territorial sovereignty and jurisdiction over non-residents. In Pennoyer's day, there would have been no question that the court had jurisdiction because the state has legal authority over property located there without regard to additional relationships between the non-resident and the forum state. The opinion also unified the test for jurisdiction based in rem and in personam.