472 U.S. 797 (USSC 1985)
Phillips Petroleum Company, a Delaware corporation with its principal place of business in Oklahoma, produced or purchased natural gas from leased land in 11 states during the 1970s.1
It sold most of the gas in interstate commerce at prices regulated by the Federal Power Commission, later the Federal Energy Regulatory Commission.2 Beginning in the mid-1970s Phillips proposed price increases. It collected higher amounts subject to refund with interest if disapproved. Phillips suspended royalty payments to lessors until final Commission approval. It paid the suspended royalties of $3.7 million in 1976, $4.7 million in 1977, and $2.9 million in 1978 without interest after the increases were approved.3
In 1979 the Commission began investigating overcharges. In 1983 it issued an opinion ordering refunds.4 Royalty owners Irl Shutts, a Kansas resident, and Robert and Betty Anderson, Oklahoma residents owning leases in Oklahoma and Texas, filed suit in Kansas state court seeking interest on the suspended royalties.5 They sought to represent a class of 33,000 royalty owners later reduced to 28,100 members after 3,400 opted out and 1,500 could not be notified. Fewer than 1,000 class members resided in Kansas and only about one-quarter of one percent of the leases were located there.6
The Kansas trial court certified the class under a state statute modeled on Federal Rule of Civil Procedure 23 on an opt-out basis. It sent first-class mail notice describing the action and the right to opt out. The court applied Kansas law to award interest at Commission rates followed by the Kansas post-judgment rate of 15 percent.7 After the Kansas Supreme Court affirmed, the United States Supreme Court granted certiorari in 1984.8
Whether Phillips has standing to challenge the Kansas court's assertion of personal jurisdiction over the claims of absent nonresident class members?9
A party has standing to raise a jurisdictional challenge when it possesses a distinct personal interest in the binding effect of the judgment. Such an interest includes ensuring that res judicata will protect it from subsequent suits by class members if jurisdiction is proper.10
Yes. Phillips faces immediate injury because a judgment rendered without jurisdiction over absent plaintiffs would bind Phillips but leave class members free to sue elsewhere, exposing it to multiple litigations.11 The established facts show that Phillips is the defendant in a class action certified by the Kansas trial court under a statute modeled on Federal Rule of Civil Procedure 23, encompassing 28,100 royalty owners after 3,400 opted out and 1,500 could not be notified.12 Fewer than 1,000 class members resided in Kansas and only one-quarter of one percent of the leases were located there.13 The Kansas Supreme Court affirmed the judgment, and Phillips sought review precisely to obtain a judgment that would bind the entire class.14 This personal stake satisfies Article III and prudential standing requirements.15
The procedural history confirms the injury is concrete and redressable.16 After the FERC ordered refunds in 1983, royalty owners Irl Shutts, a Kansas resident, and Robert and Betty Anderson, Oklahoma residents owning leases in Oklahoma and Texas, filed suit in Kansas state court seeking interest on suspended royalties.17 The trial court applied Kansas law to award interest at Commission rates followed by the Kansas post-judgment rate of 15 percent.18 Phillips appealed, raising the jurisdiction issue, and the United States Supreme Court granted certiorari in 1984.19 Because Phillips would be bound by any final judgment while nonresident class members would not if jurisdiction failed, Phillips possesses standing to litigate the due process question on its own behalf.20
Phillips possesses standing to assert that the Kansas court lacked personal jurisdiction over absent class members.21
Whether a state court may exercise personal jurisdiction over the claims of absent nonresident class members who lack minimum contacts with the forum state?22
Due process permits a forum state to exercise jurisdiction over absent class-action plaintiffs who lack minimum contacts when the class members receive notice, an opportunity to be heard, an opportunity to opt out, and adequate representation by named plaintiffs. The burdens on absent plaintiffs differ substantially from those on defendants.23
Yes. The Kansas court provided first-class mail notice describing the action and the right to opt out.24 More than 3,400 members exercised the opt-out right.25 The named plaintiffs vigorously prosecuted the claims.26 No conflict of interest existed between named and absent members.27 The established facts establish that the class was certified on an opt-out basis under Kansas law similar to Federal Rule of Civil Procedure 23.28 Notice informed class members they would be bound unless they returned a request for exclusion.29 The average claim was approximately $100, making individual suits uneconomical for most members.30 The trial court and Kansas Supreme Court both found representation adequate, and no party disputes that finding.31
The facts of the case further illustrate why the opt-out procedure satisfies due process. Phillips, a Delaware corporation with its principal place of business in Oklahoma, produced natural gas from wells in 11 states during the 1970s and suspended royalty payments pending FERC approval of price increases.32 It later paid $3.7 million in 1976, $4.7 million in 1977, and $2.9 million in 1978 without interest.33 Shutts and the Andersons filed suit in Kansas seeking interest on those suspended royalties.34 The Kansas trial court certified a class of 33,000 royalty owners later reduced to 28,100. The court applied Kansas equity law derived from an earlier unrelated case and awarded interest at the rates the Commission would have required Phillips to pay its customers.35 Because absent plaintiffs are not haled into court to defend themselves and face no counterclaims or discovery burdens in the typical case, the procedural protections of notice and opt-out suffice.36 The Kansas Supreme Court affirmed, and the United States Supreme Court upheld jurisdiction while reversing on choice of law.37
The Kansas court properly exercised personal jurisdiction over the absent nonresident class members.38
Related opinions on this issue
Joined by Justice Marshall As To Parts I And Ii
Justice Stevens agreed with the Court's conclusion that the Kansas courts had jurisdiction over the nonresident class members.39 The notice and opt-out procedure satisfied due process.40 He therefore joined Parts I and II of the Court's opinion.41
Stevens emphasized that the opt-out mechanism adequately protected absent plaintiffs because the burdens on class plaintiffs differ markedly from those on defendants.42 An absent class plaintiff is not haled into court to defend and faces no counterclaims or discovery burdens in the typical case.43 The Kansas procedure of first-class mail notice with an opportunity to opt out therefore satisfied due process.44
Stevens concluded that the protection afforded the plaintiff class members by the Kansas statute satisfies the Due Process Clause.45
Whether the Due Process Clause and Full Faith and Credit Clause permit a forum state to apply its own substantive law to the claims of nonresident class members whose leases and residences have no significant connection to the forum?46
A forum state may apply its own substantive law to a claim only when it possesses a significant contact or aggregation of contacts creating state interests. Application of forum law must be neither arbitrary nor fundamentally unfair. When multiple states have interests in the litigation, the forum may not apply its law if doing so would be arbitrary or unfair.47
No. Kansas lacked significant contacts to the vast majority of claims because the gas was produced in other states, the leases were located in other states, and the royalty owners resided in other states.48 The only connections were that the suit was filed in Kansas and Phillips conducted business there.49 The established facts show that over 99 percent of the gas leases and 97 percent of the plaintiffs had no apparent connection to Kansas except for the lawsuit.50 The Kansas Supreme Court nevertheless applied Kansas contract and equity law to every claim, awarding interest at Commission rates followed by the Kansas post-judgment rate of 15 percent.51 This application was arbitrary and fundamentally unfair because Kansas had no interest in regulating royalties paid on gas produced elsewhere.52
The facts of the case demonstrate the constitutional violation.53 Phillips proposed price increases, collected higher amounts subject to refund, and suspended royalties until final Commission approval.54 After approval, it paid the suspended royalties without interest.55 The named plaintiffs sought interest under state law.56 The trial court did not determine whether the laws of other states differed or should apply.57 The Kansas Supreme Court held that the law of the forum controls absent compelling reasons to apply different law and found no such reasons.58 Because the leases and plaintiffs were overwhelmingly connected to Texas, Oklahoma, and other states, and because those states' laws on interest rates and waiver differed materially from Kansas law, application of Kansas law to all claims exceeded constitutional limits.59 The Court therefore reversed the choice-of-law portion of the judgment while affirming jurisdiction.60
Kansas violated the Due Process Clause and Full Faith and Credit Clause by applying its own law to claims lacking significant connection to the state.61
Related opinions on this issue
Joined by Justice Marshall As To Parts I And Ii
Justice Stevens dissented from the choice-of-law holding.62 He concluded there was no constitutional defect in the judgment under review.63 Kansas had examined the laws of connected jurisdictions and correctly found no direct or substantive conflict between the law applied by Kansas and the laws of those other States.64
Stevens argued that the case presented a false conflict.65 Kansas had developed general common-law principles to accommodate the novel facts of this litigation, and other state courts either agreed with Kansas or had not yet addressed precisely similar claims.66 He would have affirmed the Kansas Supreme Court's judgment in its entirety because the Full Faith and Credit Clause did not require Kansas to apply the law of any other State and the Due Process Clause did not prevent Kansas from applying its own law.67