Law School Resources
Phillips Petroleum Co. v.
Shutts, 472 U.S. 797 (1985)
Syllabus
During the 1970's, petitioner produced or purchased natural
gas from leased land located in 11 States. Respondents, royalty owners
possessing rights to leases from which petitioner produced the gas, brought a
class action against petitioner in a Kansas state court, seeking to recover
interest on royalty payments that had been delayed by petitioner. The trial
court certified a class consisting of 33,000 royalty owners. Respondents
provided each class member with a notice by first-class mail describing the
action and informing each member that he could appear in person or by counsel,
that otherwise he would be represented by respondents, and that class members
would be included in the class and bound by the judgment unless they "opted out"
of the action by returning a "request for exclusion." The final class consisted
of some 28,000 members, who reside in all 50 States, the District of Columbia,
and several foreign countries. Notwithstanding that over 99% of the gas leases
in question and some 97% of the plaintiff class members had no apparent
connection to Kansas except for the lawsuit, the trial court applied Kansas
contract and equity law to every claim, and found petitioner liable for interest
on the suspended royalties to all class members. The Kansas Supreme Court
affirmed over petitioner's contentions that the Due Process Clause of the
Fourteenth Amendment prevented Kansas from adjudicating the claims of all the
class members, and that that Clause and the Full Faith and Credit Clause
prohibited application of Kansas law to all of the transactions between
petitioner and the class members.
Held:
1. Petitioner has standing to assert the claim that Kansas
did not have jurisdiction over the class members who were not Kansas residents
and had no connection to Kansas. Whether it wins or loses on the merits,
petitioner has a distinct and personal interest in seeing the entire plaintiff
class bound by res judicata just as petitioner is bound. The only way petitioner
can assure itself of this binding effect is to ascertain that the forum court
has jurisdiction over every plaintiff whose claim it seeks to adjudicate,
sufficient to support a res judicata defense in a later suit by class members.
The alleged injury petitioner would incur if the class action judgment against
it became final without binding the plaintiff class is sufficient to give
petitioner standing on its own right to raise the jurisdiction claim in this
Court
2. The Kansas trial court properly asserted personal
jurisdiction over the absent plaintiff class members and their claims against
petitioner. The Due Process Clause requires notice, an opportunity to appear in
person or by counsel, an opportunity to "opt out," and adequate representation.
It does not require that absent class members affirmatively "opt in" to the
class, rather than be deemed members of the class if they did not "opt out." The
procedure followed by Kansas, where a fully descriptive notice is sent by
first-class mail to each class member, with an explanation of the right to "opt
out," satisfies due process. The interests of the absent plaintiff class members
are sufficiently protected by the forum State when those plaintiffs are provided
with a request for exclusion that can be returned within a reasonable time to
the trial court.
3. The Kansas Supreme Court erred in deciding that the
application of Kansas law to all claims would be constitutional. Kansas must
have a "significant contact or aggregation of contacts" to the claims asserted
by each plaintiff class member in order to ensure that the choice of Kansas law
was not arbitrary or unfair. Given Kansas' lack of "interest" in claims
unrelated to that State, and the substantive conflict between Kansas law and the
law of other States, such as Texas, where some of the leased land in question is
located, application of Kansas law to every claim in this case was sufficiently
arbitrary and unfair as to exceed constitutional limits.
235 Kan.195, 679 P.2d 1159, affirmed in part, reversed in
part, and remanded.
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