Law School Case Brief
Phillips Petroleum Co. v. Shutts - 472 U.S. 797, 105 S. Ct. 2965 (1985)
If a forum State wishes to bind an absent plaintiff concerning a claim for money damages or similar relief at law, it must provide minimal procedural due process protection. The plaintiff must receive notice plus an opportunity to be heard and participate in the litigation, whether in person or through counsel. The notice must be the best practicable, reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.
Phillips Petroleum Co. (“Phillips”), which had sought three natural gas price increases in a period of years, followed a practice of charging its customers the increased rate while it waited for federal approval of an increase, subject to a refund plus interest if the increase were denied, but suspending any increase in royalty payments until the price increase was approved and then paying the accumulated extra royalties without interest. A group of royalty owners, Irl Shutts, Robert Anderson, and Betty Anderson, filed suit against Phillips in a Kansas trial court seeking recovery of interest on the delayed royalty payments and successfully sought certification of the suit as a class action on behalf of all affected royalty owners,. These owners resided in every state and several foreign countries and possessed rights to leases in several states. The group of royalty owners would send notice to each of the affected royalty owners by first-class mail informing them that that they would be included in the class unless they executed a request for exclusion, which was provided with the notice. The trial court held Phillips liable, applying Kansas law even though less than one percent of the leases involved were on Kansas land. The Supreme Court of Kansas affirmed, holding that the state courts did have personal jurisdiction over the nonresident plaintiffs despite their lack of contacts with the state, and that the law of the forum state controlled in the absence of compelling reasons to apply a different law.
Can a state exercise personal jurisdiction over the class, including over absent class members?
The Supreme Court of the United States affirmed jurisdiction over the claims and found that Phillips had 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, since it had a clear interest in seeing that every member of the plaintiff class would be bound by the judgment. The Court held that the Kansas trial court properly asserted personal jurisdiction over the absent plaintiff class members and their claims against Phillips. 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. Finally, the Court held that 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.
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