Citation. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 105 S. Ct. 2965, 86 L. Ed. 2d 628, 53 U.S.L.W. 4879, 85 Oil & Gas Rep. 486, 2 Fed. R. Serv. 3d (Callaghan) 797 (U.S. June 26, 1985)
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Brief Fact Summary
Phillips (Defendant) argued the trial court erred in applying Kansas law to Shutt’s (Plaintiff) class claim for interest on royalty payments.
Synopsis of Rule of Law
In a class action involving plaintiffs from several states, the application of one state’s substantive law rests upon whether that state has significant contact and interest making the choice of its law neither arbitrary nor fundamentally unfair.
Facts
Phillips (Defendant), a Delaware corporation with a principal place of business in Oklahoma, leased land in 11 states from Shutts (Plaintiff) and others in similar situations. A class action was brought to recover interest on royalties arising under the lease agreements. The suit was brought in Kansas and the trial court applied Kansas law. Phillips (Defendant) appealed, arguing the application of Kansas law violated due process. The Kansas court of last resort affirmed. The Supreme Court granted certiorari.
Issue
Does the application of one state’s substantive law rest upon whether that state has significant contact and interest making the choice of its law neither arbitrary nor fundamentally unfair?
Held
(Rehnquist, J.) Yes. In a class action involving plaintiffs from several states, the application of one state’s substantive law rests upon whether that state has significant contact and interest making the choice of its law neither arbitrary nor fundamentally unfair. In the present case, 99% of the leases and 97% of the plaintiffs had no contact with Kansas. Plus, there was no common fund in Kansas. Therefore, the application of that state’s law was arbitrary and fundamentally unfair. Affirmed and remanded.
Dissent
(Stevens, J.)Â The Court was correct in holding Kansas had jurisdiction over the action, however, because of the parties’ expectations, Kansas law should have applied.
Discussion
The Court points out that the determination of jurisdiction over the defendant and the application of choice of law principles are separate inquiries. The constitutional limitations on choice of law determinations are not changed by how burdensome it would be to apply a particular state law. This is obviously not the case in a jurisdictional inquiry.
