Phillips Petroleum Co. v. Shutts
86 L. Ed. 2d 628 · Supreme Court of the United States · 1985
Facts
Phillips Petroleum Co. produced natural gas from leased land in 11 states and delayed royalty payments to approximately 28,000 royalty owners residing across the U.S. and abroad, pending federal approval of price increases. Although the price increases were eventually approved and Phillips paid the suspended royalties, it paid no interest on these delayed payments. Three royalty owners, including one Kansas resident, filed a class action in Kansas state court seeking interest on these suspended royalties. The class was certified, and notice was sent to members, allowing them to opt out. Less than 1,000 class members resided in Kansas, and only a minuscule portion of the gas leases were in Kansas.
Procedural history
Respondents initiated a class action against Phillips in Kansas state court. The trial court certified the class and found Phillips liable under Kansas law for interest on suspended royalties. The Supreme Court of Kansas affirmed this judgment, rejecting Phillips' arguments concerning personal jurisdiction over absent class members and the application of Kansas law. The U.S. Supreme Court granted certiorari to review these two claims.
Issue
The primary legal questions were whether a Kansas state court could exercise personal jurisdiction over absent plaintiff class members who lacked minimum contacts with Kansas, and whether Kansas law could be constitutionally applied to all claims in a nationwide class action where most plaintiffs and leases had no connection to Kansas.
Holding
The Supreme Court affirmed the Kansas Supreme Court's judgment regarding personal jurisdiction, finding that the Kansas court properly asserted jurisdiction over the absent plaintiffs. However, the Court reversed the judgment regarding choice of law, holding that Kansas law could not be applied to all transactions due to insufficient contacts with many of the claims.
Rule
For a forum state to exercise personal jurisdiction over absent class-action plaintiffs, due process requires adequate notice, an opportunity to be heard and participate, an opportunity to opt out, and adequate representation by named plaintiffs. Unlike defendants, absent plaintiffs do not need minimum contacts with the forum. For choice of law, the forum state must have a "significant contact or significant aggregation of contacts, creating state interests," such that applying its law is neither arbitrary nor fundamentally unfair. This standard applies even in nationwide class actions, and a state cannot apply its law to claims with little or no relationship to the forum simply because it has jurisdiction over the class.
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