Phillips Petroleum Co. v. Shutts

Brief Fact Summary.

The class of plaintiffs in a class action suit provided notice to class members that they could opt-out of the suit via first-class mail.

Synopsis of Rule of Law.

A forum state may exercise jurisdiction over the claims of an absent class action plaintiff, even though that plaintiff may not possess the minimum contacts with the forum which would support personal jurisdiction over a defendant.

Facts.

During the 1970s, Defendant acquired natural gas by leasing gas-producing lands from others and paying royalties on the gas it extracted. While regulatory approval was pending regarding prices, Defendant sold the gas at higher prices, but paid royalties only on the lower approved prices. Plaintiff Shutts, on behalf of himself and 33,000 small royalty owners, filed suit in Kansas state court, claiming they were entitled to interest on the money during the period when Defendant was awaiting regulatory approval of price increases. After the class was certified, Plaintiff Shutts provided each class members with notice through first-class mail. The notice informed each member they would be represented by Shutts, the named plaintiff, unless they appeared in person or by counsel. The notice also stated that all class members would be included in the suit and bound by the judgment unless they filed a form to “opt out.” The final class as certified contained 28,100 members; 3,400 had opted out. Less than 1,000 of the class members resided in Kansas and only one quarter of one percent of the land involved in the leases were on Kansas land. The court entered judgment for Plaintiffs. The Supreme Court of Kansas affirmed.

Issue.

May a forum state exercise jurisdiction over the claims of an absent class action plaintiff, even though that plaintiff may not possess the minimum contacts with the forum which would support personal jurisdiction over a defendant?

Discussion.

A forum state may exercise jurisdiction over the claims of an absent class action plaintiff, even though that plaintiff may not possess the minimum contacts with the forum which would support personal jurisdiction over a defendant. The minimum-contacts requirement established in International Shoe Co. v. Washington, Shaffer v. Heitner, and World-Wide Volkswagen Corp. v. Woodson involved the exercise of personal jurisdiction over out-of-state defendants. The burden placed by a state on an out-of-state defendant is greater than on an out-of-state plaintiff. An out-of-state defendant must hire counsel and travel to the forum to defend itself. Further, the defendant may need to participate in discovery, pay damages, or comply with some form of remedy imposed by the court against it. Because out-of-state plaintiffs are faced with less of a burden, states may exercise personal jurisdiction over the claim of an out-of-state plaintiff, even though that plaintiff lacks the minimum contacts with the state that would support personal jurisdiction over a defendant. However, a forum state seeking to bind an out-of-state plaintiff must still provide minimum procedural-due-process protection. For instance, plaintiffs must receive notice and an opportunity to participate in the litigation, either in person or through counsel. Additionally, an absent plaintiff must be given the opportunity to remove himself from the class. Absent class members also must be represented adequately at all times by the named plaintiff.

Here, the absent out-of-state plaintiffs did receive a fully descriptive notice sent via first-class mail with an explanation of the right to opt-out. They had the option to participate in the litigation by appearing in person or by counsel. The opt-out option gave them the opportunity to remove themselves from the class. In fact, over 3,400 members of the potential class did opt out. Because the class members in this case received appropriate due-process protection, the Kansas court appropriately exercised jurisdiction over the class, and the decision of the Supreme Court of Kansas is affirmed as to the jurisdictional issue.