Savchuk v. Rush

• Decision Date: 20 October 1978
• Docket Number: No. 45556.,45556.
• Parties: Jeffrey D. SAVCHUK, Respondent, v. Randal RUSH and State Farm Mutual Automobile Insurance Company, garnishee, Appellants.
• Court: Minnesota Supreme Court

272 N.W.2d 888 (1978)

Jeffrey D. SAVCHUK, Respondent, v. Randal RUSH and State Farm Mutual Automobile Insurance Company, garnishee, Appellants.

No. 45556.

Supreme Court of Minnesota.

October 20, 1978.

Meagher, Geer, Markham, Anderson, Adamson, Flaskamp & Brennan and James F. Roegge, Minneapolis, for appellants.

Minnesota Trial Lawyers Assn., Robert J. Milavetz and Karen Ives, Minneapolis, for amicus curiae.

Schermer, Schwappach, Borkon & Ramstead and John D. Mariani and Richard I. Diamond, Minneapolis, for respondent.

Considered and decided by the court en banc.

WAHL, Justice.

On remand from the United States Supreme Court for further consideration in light of Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977). For the reasons below, we distinguish Shaffer v. Heitner, supra, and hold that the assertion of jurisdiction pursuant to Minn.St. 571.41, subd. 2, as limited by our earlier decision in Savchuk v. Rush, Minn., 245 N.W.2d 624 (1976), vacated and remanded, 433 U.S. 902, 97 S.Ct. 2964, 53 L.Ed.2d 1086 (1977), is consistent with the standards established by International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), and its progeny.

The facts are as stated in the earlier decision. Plaintiff, Jeffrey Savchuk, was injured in a single-car accident in Elkhart, Indiana, on January 13, 1973. At the time of the accident, both Savchuk, a senior in high school, and the driver of the car, defendant Randal Rush, were Indiana residents. In June 1973, Savchuk moved with his parents to Minnesota, where he became employed, was married and continues to reside. The personal injury action was commenced in district court, Hennepin County, on May 28, 1974. Savchuk served a garnishment summons on garnishee State Farm Insurance pursuant to Minn.St. 571.41, subd. 2¹ and Minn.St. 60A.19, subd. 1(3). Defendant Rush, still an Indiana resident, was personally served with a copy of the garnishment summons and copies of the summons and personal injury complaint.

By order, the district court denied the motion of Rush and State Farm to dismiss for lack of jurisdiction and insufficient process. They appealed to this court and the order was affirmed. Savchuk v. Rush, Minn., 245 N.W.2d 624 (1976).

Upholding the constitutionality of Minnesota's garnishment provision, Minn.St. 571.41, subd. 2, this court found that procedure "consistent with two often-stated positions of this court — namely, our interest in providing a forum to residents of this state and our determination in long-arm cases to extend the jurisdiction of our courts to the maximum limits consistent with due process." 245 N.W.2d 628. The statute was interpreted to satisfy three due process requirements: the provision of adequate notice to defendant-insured; a limitation of liability to insurance policy amounts; and restriction of use to plaintiffs who reside in the forum state. 245 N.W.2d 628.

On June 24, 1977, the United States Supreme Court vacated that judgment and remanded the case for further consideration in light of Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977), which requires, in particular, that "all assertions of state court jurisdiction must be evaluated according to the standards set forth in International Shoe Co. and its progeny." 97 S.Ct. 2584-85.

The issue now before this court is whether Minnesota's assertion of jurisdiction over out-of-state defendants pursuant to Minn.St. 571.41, subd. 2, as limited by this court in Savchuk, supra, satisfies the due process standards set forth in International Shoe Co. and Shaffer.

In Shaffer, supra, a nonresident plaintiff filed a shareholder's derivative suit in Delaware state court, naming as defendants Greyhound (a Delaware corporation), Greyhound Lines (its wholly-owned subsidiary incorporated in California), and 28 present or former officers or directors of one or both of the corporations, none of the last being Delaware residents. The complaint alleged that the individual defendants had violated their duties to the corporation and its subsidiary by permitting activities in Oregon which made the company liable for substantial antitrust litigation, damages, and criminal contempt fines. The Delaware court obtained jurisdiction by sequestering, via stop-transfer orders, Greyhound stock owned by the individual defendants.²

On appeal to the Delaware Supreme Court, one constitutional challenge to the jurisdiction-by-sequestration procedure was side-stepped:

"There are significant constitutional questions at issue here but we say at once that we do not deem the rule of International Shoe to be one of them. * * * The reason, of course, is that jurisdiction under § 366 remains, as it was in 1963, quasi in rem founded on the presence of capital stock here, not on prior contact by defendants with this forum * * *." Greyhound Corporation v. Heitner, 361 A.2d 225, 229 (Del.1976), reversed sub nom. Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683.

The United States Supreme Court overruled this categorical in rem/in personam jurisdiction analysis:

"* * * in order to justify an exercise of jurisdiction in rem, the basis for jurisdiction must be sufficient to justify exercising `jurisdiction over the interests of persons in a thing.\' The standard for determining whether an exercise of jurisdiction over the interests of persons is consistent with the Due Process Clause is the minimum contacts standard elucidated in International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). 433 U.S. 207, 97 S.Ct. 2582, 53 L.Ed.2d 699.

"* * * For in cases such as Harris v. Balk, 198 U.S. 215, 25 S.Ct. 625, 49 L.Ed. 1023 (1905) and this one, the only role played by the property is to provide the basis for bringing the defendant into court. Indeed, the express purpose of the Delaware sequestration procedure is to compel the defendant to enter a personal appearance. In such cases, if a direct assertion of personal jurisdiction over the defendant would violate the Constitution, it would seem that an indirect assertion of that jurisdiction would be equally impermissible." 433 U.S. 209, 97 S.Ct. 2583, 53 L.Ed.2d 701.

Evaluating the sequestration procedure by that standard, the court held Delaware's assertion of jurisdiction to be inconsistent with the due process "minimum contacts" limitation on state power. It found the asserted state interest in supervising the management of local operations to be imperfectly served by the sequestration procedure, which is not expressly limited to corporate fiduciaries and does not even guarantee jurisdiction over all such figures.³ 433 U.S. 214, 97 S.Ct. 2585-86, 53 L.Ed.2d 704. Though such an interest might support the application of Delaware law to the controversy, choice of law does not necessarily establish jurisdiction over the parties. 433 U.S. 215, 97 S.Ct. 2586, 53 L.Ed.2d 704. Accordingly, judgment was reversed.

Shaffer generally directs the application of International Shoe Co. standards to all assertions of state court jurisdiction, 433 U.S. 212, 97 S.Ct. 2584, 53 L.Ed.2d 703, but the necessary consequences for jurisdiction under Minn.St. 571.41, subd. 2, are not clear. That statute embodies the rule of Seider v. Roth, 17 N.Y.2d 111, 269 N.Y.S.2d 99, 216 N.E.2d 312 (1966). It provides jurisdiction over a nonresident defendant via garnishment of a contractual obligation, the obligation of the insurance company (doing business in this state) to defend and indemnify the nonresident, insured defendant. Under the statute, as interpreted in our earlier opinion, the nonresident defendant is guaranteed notice, his liability is limited to the policy's face amount and the procedure may be utilized only by residents of the forum state. Savchuk v. Rush, supra.

Although Seider v. Roth-type jurisdiction is undoubtedly the most highly controversial and significant contemporary application of the doctrine of quasi-in-rem jurisdiction, it does not appear in the historical discussion in Shaffer.⁴

Since Shaffer, New York courts have split over its implications for Seider v. Roth-type jurisdiction. Several trial courts have held such jurisdiction to be precluded by Shaffer: Torres v. Towmotor Division of Caterpillar, Inc., D.C., 457 F.Supp. 460 (E.D.N.Y.1977) (cited in Alford v. McGaw, 61 A.D.2d 504, 402 N.Y.S.2d 499 (1978); Rodriguez v. Wolfe, 401 N.Y.S.2d 442 (N.Y. Sup.1978); Attanasio v. Ferre, 401 N.Y.S.2d 685 (N.Y.Sup.1977); Katz v. Umansky, 92 Misc.2d 285, 399 N.Y.S.2d 412 (N.Y.Sup. 1977); Kennedy v. Deroker, 91 Misc.2d 648, 398 N.Y.S.2d 628 (N.Y.Sup.1977). Other trial courts have held that such jurisdiction does not offend due process: O'Connor v. Lee-Hy Paving Corp., 437 F.Supp. 994 (E.D. N.Y.1977), affirmed, 579 F.2d 194 (2d Cir. 1978); Wallace v. Target Store, Inc., 92 Misc.2d 454, 400 N.Y.S.2d 478 (N.Y.Sup. 1977). Most recently, a New York appellate court upheld the exercise of Seider-type jurisdiction in light of Shaffer v. Heitner. Alford v. McGaw, 61 A.D.2d 504, 402 N.Y.S.2d 499 (1978).

This exercise of jurisdiction differs in many important respects from the Delaware sequestration procedure invalidated in Shaffer: First, sequestration did not parallel the asserted state interest in the management of state-chartered corporations — sequestration could be used in any suit against a nonresident, and in fact did not guarantee jurisdiction over corporate fiduciaries. By contrast, Minnesota's garnishment procedure specifically premises jurisdiction on attachment of the obligation to respond to claims in the underlying action, Minn.St. 571.41, subd. 2(b)(3). Delaware's interest in supervising its corporations' fiduciaries established only the propriety of Delaware law, not necessarily a Delaware forum. 433 U.S. 214-15, 97 S.Ct. 2586, 53 L.Ed.2d 704-05. Minnesota's legitimate interest in facilitating recoveries for resident plaintiffs ⁵ not only requires provision of a local forum, but may...