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Phillips Petroleum Co. v. Shutts

    Brief Fact Summary. Plaintiffs, royalty owners to gas produced by Defendant, brought a class action in Kansas state court against Defendant to recover interest on royalty payments. The trial court sent notice to all class members, most of whom were located outside of Kansas, notifying them of the litigation, their right to appear and their right to opt out of the litigation. The trial court, applying Kansas law to the transactions, found Defendant liable to all class members, which Defendant appealed.

    Synopsis of Rule of Law. In order to bind absent class members to a class action involving monetary judgment, due process requires that all absent class members receive notice describing the litigation, their right to appear, and their right to opt out of the litigation. A state’s law can only be applied if the state has contact or an aggregation of contacts that create state interests in the litigation so that the choice of law is neither arbitrary nor unfair.

    Facts. Plaintiffs Shutts and others similarly situated were royalty owners possessing rights to leases from which Defendant produced gas. Defendant produced or purchased gas from lease land located in eleven states. Plaintiffs brought a class action against Defendant in Kansas state court to recover interest on royalty payments. The trial court certified a class of 33,000 royalty owners. All class members were sent notice that described the lawsuit, offered an opportunity to personally appear, and that they could opt out by returning a request for exclusion. The final class was 28,000 that resided in all 50 states, the District of Columbia, and some foreign countries. Class members whose notice was undeliverable were also excluded. 99% of the leases and 97% of the class members had no connection with Kansas except for the lawsuit. The trial court applied Kansas contract and equity law and found Defendant liable to all class members. Defendant appealed arguing the due process clause of the Fourteenth Amendment prevented the Kansas court from adjudicating the claims of all the class members and the full faith and credit clause prohibited application of Kansas law to all of the transactions between Defendant and the class members. The Supreme Court of Kansas affirmed the trial court’s ruling.

    Issue. Did the Kansas trial court have jurisdiction to adjudicate the claims of absent class members not residing in Kansas? Should the Kansas trial court have applied to Kansas law to all transactions of the absent class members?

    Held. First issue: Yes. Second issue: No. Reversed to the extent the court decided Kansas law applied to all transactions. The “minimum contacts” analysis of whether a court has personal jurisdiction over absent defendants does not apply to a situation with absent Plaintiffs. The court must first look to the adequacy of representation, the common nature of the named Plaintiffs and absent Plaintiffs, the jurisdictional bases, and any other matters concerning representation of absent class members before the Court can certify the class. Absent Plaintiffs, unlike absent defendants, did not have to hire counsel or appear, are not subject to counterclaims and can opt out of the class action. The due process clause is not violated as to the absent Plaintiffs and if the court wants to bind an absent Plaintiff concerning a claim for money damages it must provide minimal procedural due process protection. Absent Plaintiffs must receive notice and be given an opportunity to be heard. In this situation, the absent class members did have that opportunity. An “opt in” provision would impede the class action and would require revisions of many lawsuits. In order for the law of Kansas to apply, Kansas must have contacts or a “significant aggregation of contacts” that creates Kansas’ interest in the litigation so applying Kansas law would not be arbitrary or unfair. This prevents application of the law from violating the full faith and credit clause and the due process clause of the United States Constitution. There is a conflict between Kansas law and the laws of other states regarding the interest rates owed to Plaintiffs. The parties that do not reside in Kansas had no expectation that Kansas law would apply to the royalty transactions. The Court is permitted to apply the laws of various states and must exercise that authority when applying the law of the forum state would be arbitrary and unfair.

    Dissent. Justice Stevens concurred in Parts I and II of the opinion and dissented from Part III. Omitted from casebook.

    Discussion. Personal jurisdiction over absent class members in a class action is not evaluated under the “minimum contacts” test governing personal jurisdiction over absent class members. Absent class members in cases involving money judgment must be given notice. However, the decision is binding if the plaintiff is given adequate notice, is adequately represented and does not opt out. The choice of law governing a class action must not violate the full faith and credit clause or the due process clause of the Constitution. The state (not the parties) must have a connection to the litigation so as not to make applying its law unfair or arbitrary.


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