No. 86-577

IN THE SUPREME COURT OF THE STATE OF MONTANA
1987

CONSUMERS UNITED INSURANCE COMPANY, a foreign corporation, Plaintiffand Respondent,-vsROGER JOHN SYVERSON,
Defendant and Appellant.

APPEAL FROM: DistrictCourt of the Eighteenth JudicialDistrict, In and for the County ofGallatin, TheHonorable Joseph Gary, Judgepresiding.

COUNSEL OF RECORD:

ForAppellant: Landoe, Brown, Planalp,Kommers & Johnstone; Gene I. Brown argued,Bozeman, Montana

For Respondent: Poore,Roth & Robinson;JohnP. Davis argued,Butte, Montana

Submitted:May 1,1987 Decided: June 11, 1987

- ClerkMr. Justice John C. Sheehy delivered the Opinion of the Court.

We determine here that the tests of "traditional notions of fair play and substantial justice" (InternationalShoeCo.

v. Washington (1945), 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95) are met to establish jurisdiction of a nonresident defendant in the Montana court stemming from a bank account in controversy between Consumers United Insurance Company (Consumers)and Roger John Syverson (Syverson) 

# . Consumers, a Washington, D.C. corporation, brought suit in the District Court,Eighteenth JudicialDistrict,Gallatin County, against Syverson, a Texas resident, by filing a complaint alleging Syverson,while an officer of Consumers, had made unauthorized loans of Consumers' funds to third persons and had accepted "kick-backs" or unauthorized commissions from the borrowing third persons. Consumers further claimed that the unauthorized funds had been deposited throughwire transferby Syverson inFirstCitizens Bank of Bozeman, Montana (not a party to this action). Consumersprayed for judgment covering the unauthorized funds and further damages, or in the alternative, a preliminary injunction or restraining order conserving the deposited funds pending the action. Consumers also sought a declaration that the depositswere subject to a constructive trust in favor ofConsumers. On receiving the complaint, theDistrictCourt entered a temporary restraining order and showcauseorder addressed to Syverson. He appeared andmoved todismiss the action on the grounds that the District Court lacked jurisdiction of the action and hisperson.All sides concede that Syverson has "not set foot in Montana;" that Consumers has no contactwithin Montana; that

an action is presently pending in the Texas courts between Consumers and Syverson over the same controversy. The District Court did determine, upon evidence, that the deposited funds in the Bozeman bank are traceable to the claimed unauthorized commissions or kick-backs received by Syverson while acting as an officer of Consumers. No other contact between Syverson and the forum state, Montana, appears in this case. The District Court, after hearing, entered judgment requiring (1) the funds on deposit in the Bozeman bank be retained (or invested by stipulation of the parties); (2) that upon receipt of a certified judgment from the Texas court, the deposited funds be disbursed in accordance with the Texas judgment to the prevailing party; and, (3) a sufficient bond of Consumers to abide the Texas result. The Montana judgment is final but without prejudice as to the claimsof either party asbetween thempersonally. Syverson has appealed the judgment to this Court again

on the grounds that the Montana courts have no jurisdiction

over the person of Syverson nor the funds deposited in the Bozemanbank. Immediately brought intoplay by the facts of this case is a consideration of the jurisdiction, if any, of Montana state courts arising from a wire deposit of funds in a Montana bank by anonresident defendantowner. The complete answer is found in Shaffer v. Heitner (1977),433U.S. 186, 97S.Ct. 2569, 53 L.Ed.2d 683. In that
case, Heitner, a nonresident of Delaware, filed a shareholders derivative suit in a Delaware state court, naming as defendants the Greyhound Corporation and its subsidiary and 28 present or former corporate officers ordirectors. Heitner alleged that the individual defendants had violated their duties to the Greyhound Corporation by causing it and its subsidiary to engage in actions which occurred in Oregon that resulted in corporate liability for substantial damages in a private antitrust suit and a large fine in a criminal contempt action. Simultaneously Heitner, under aDelaware statute, filed amotion for sequestrationof the Delawarecorporateproperty of the individualdefendants, all nonresidents of Delaware, accompanied by an affidavit identifyingtheproperty tobe sequesteredas stock, options, warrants and various corporate rights of defendants. Under the Delaware statute,a sequestration orderwas issuedby the Delaware state court pursuant to which shares and options belonging to 21 defendants were "seized"and "stop transfer" orders were placed on the corporate books. Under the Delaware statute, the sequestration would remain in effect as to the nonresidents, to be releasedwhen the defendants came into the actionby way of general appearance, thus completely subjecting themselves to the jurisdiction of the Delaware court. The nonresident defendants appeared specially in the Delaware state court,seekingto quash serviceofprocess and to vacate the sequestration order, contending that the ex 

### - parte sequestration procedure did not accord them due process, that the property seized was not capable of attachment in Delaware and that they, the individual nonresident defendants,did nothave sufficient contacts with Delaware to sustain jurisdiction of Delaware state courts under the ruleof InternationalShoe,supra. The Delaware Court of Chancery asserted quasi in rem 

### -- jurisdiction which the Delaware Supreme Court affirmed, ruling out the holding of InternationalShoe:There are significant constitutional questions at issue here but we say at once that we do not deem the rule of ~nternationalShoe to be one of them.



# . . . The reason, of course, is that jurisdiction under 5 366 [the Delaware sequestration statute] remains

# . .

# .quasi in

## rem founded on the presence of capital stock here, not on prior contact by defendants with this forum. Under 8Del. C. 5 169 the "situsof the ownershipof the capital stock of all corporations existing under the laws of this state

# . .. [is] in this State",and that provides the initial basis for jurisdiction. Delaware may constitutionally establish situs of such shares here, [Citations omitted] it has done so and the presence thereof provides the foundation for S§ 366 in this case. Greyhound Corp. v. Heitner (Del. 1976), 361 ~.2d 225, 229. As might be expected, the United States Supreme Court held that jurisdiction of the nonresident defendants could not be acquired in Delaware under its sequestration statute, saying: The Delaware courts based their assertion of jurisdiction in this case solely on the statutory presence of appellants' property in Delaware. Yet that property is not the subject matter of this litigation, nor is the underlying cause of action related to the property. Appellants1holdings in Greyhound do not, therefore,provide contacts with Delaware sufficient to support the jurisdiction of that State's courts over appellants. If it exists, that jurisdiction must have some other foundation. Shaffer, 433 U.S. at 213, 97 S.Ct. at 2584, 53 L.Ed.2d at

The corollary to the foregoing statement by the United States Supreme Court is that if the property in the state is the subject matter of the litigation or if it is related to the underlying cause of act,ions between the parties, jurisdiction over the nonresident owner could be acquired by the state court. The United States Supreme Court in Shaffermade the corollary clear, although the Delaware statute was held unconstitutional. The Supreme Court in Shaffer noted its holdings in the history of state court jurisdiction over nonresident defendants in in personam, in rem and quasi in rem actions 

### - -- 

### -- from Pennoyer v. Neff (1877), 95 U.S. 714, 5 Otto 714, 24 L.Ed. 565, down to International Shoe. It noted that International Shoe departed from Pennoyer in that a state court could subject a nonresident defendant to a judgment 

### - in personam even though the defendantwas notpresent within the territory of the forum,but had certain minimum contacts with it such that the maintenance of the suit did not offend "traditional notions of fair play and substantial justice." Shaffer, 433 U.S. at 203, 97 S.Ct. at 2579, 53 L.Ed.2d at 697. "Thus,the relationshipamong the defendant, the forum, and the litigation, rather than the mutually exclusive sovereignty of the States on which the rules of Pennoyer rest,became the central concernof the inquiry into personal jurisdiction." Shaffer,433U.S. at 204, 97S.Ct at 2580, 53 L.Ed.2d at 698. Not touched by International Shoe was the status of state court judgments over nonresident defendants based on jurisdiction 

### -- in rem or quasi 

### -- in rem. The Supreme Court in Shaffer questioned whether the presence of property in the state, standing alone, gave the state jurisdiction to adjudicate owner's rights to the property regardless of the relationship of the property or the underlying dispute and the property owner to the forum. Shaffer, 433 U.S. at 205, 97 S.Ct. at 2580, 53 L.Ed.2d at 698. Recognizing that an adverse judgment 

### -- in rem directly affects the property owner by divesting him of his rights before the court, the Supreme Court decided itwas time to considerwhether the standard offairness and substantial justice set forth in International Shoe should govern actions 

### -- in rem as well as 

### - in personam: The case for applying to jurisdiction 

### -- in rem the same testof "fairplay and substantial justice" as governs assertions of jurisdiction in personam is simple and straightforward. It is premised on recognition that 

### "[t] he phrase, 

### 'judicial jurisdiction over a thing,' is a customary elliptical way of referring to jurisdiction over the interests ofpersons in a thing." Restatement

(Second) of Conflict of Laws 56, Introductory Note (1971) (hereafter Restatement)

# . This recosnition leads to the conclusion that 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 InternationalShoe. Shaffer, 433 U.S. at 207, 97 S.Ct. at 2581, 53 L.Ed.2d at 699-670. The Supreme Court in Shaffer recognized that difficulties may arise in applying International Shoe to jurisdiction quasi 

### -- in rem. It solved the difficulty by stating that if thepresence ofproperty in a statewas tobe the basis of jurisdiction in that state for a judgment against a nonresident defendant, the property in the state must be the subject of the action or related to the underlying controversy. In the case at bar,we have clearly an item ofpersonal property, though intangible, that is related to the subject in controversy, and is in fact the subject of the controversy. The DistrictCourt here specifically found that the deposited funds in the Bozeman bank were traceableto the alleged claimsof kick-back assertedby Consumers.Applying the International Shoe factors to this case,as

we must under Shaffer,we examine the relationship among the defendant,the forum,and the litigation to determine whether these factorsmeet the test ofminimum contacts so as not to offend traditional notions of fair play and substantial justice. In the case at bar, the test is clearlymet. There is apositive nexus between Syverson,who caused the funds to be deposited in his name in Montana, the forum, where the deposits are located, and the litigation, which concerns ownership of the deposits. Moreover, the judgment of the District Court supports traditional notions of fairplay and substantial justice by effectively making the Bozemanbank a stakeholder of the deposited funds biding the determination of the controversy in the Texas courts. Syverson,a resident of Texas, can have no objection to the resolution of the underlying controversy inhishome state. We note that the decision of this Court in Gassert v. Strong (1908), 38 Mont. 18, 98 P. 497, which was decided under principles of quasi 

### -- in rem, following Pennoyer,would be the same if examined under theprinciples of International Shoe and Shaffer. Accordingly, we affirm the judgment of the District Court in this case. Because of this affirmance, discussion of the other issues raised by the parties is unnecessary. 

# sbb

# e. Justice We Concur: ,/District Judge, sittidfgfor JusticeFrank B. Morrison