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PHILLIPS PETROLEUM CO. v. SHUTTS 472 U.S. 797 (1985)
United States Supreme Court
PHILLIPS PETROLEUM CO. v. SHUTTS (1985)
No. 84-233
Argued: February 25, 1985 Decided: June 26, 1985
During the 1970's, petitioner produced or purchased natural gas from leased land located in 11 States. Respondents, royalty owners possessing rights to leases from which petitioner produced the gas, brought a class action against petitioner in a Kansas state court, seeking to recover interest on royalty payments that had been delayed by petitioner. The trial court certified a class consisting of 33,000 royalty owners. Respondents provided each class member with a notice by first-class mail describing the action and informing each member that he could appear in person or by counsel, that otherwise he would be represented by respondents, and that class members would be included in the class and bound by the judgment unless they "opted out" of the action by returning a "request for exclusion." The final class consisted of some 28,000 members, who reside in all 50 States, the District of Columbia, and several foreign countries. Notwithstanding that over 99% of the gas leases in question and some 97% of the plaintiff class members had no apparent connection of Kansas except for the lawsuit, the trial court applied Kansas contract and equity law to every claim and found petitioner liable for interest on the suspended royalties to all class members. The Kansas Supreme Court affirmed over Petitioner's contentions that the Due Process Clause of the Fourteenth Amendment prevented Kansas from adjudicating the claims of all the class members, and that that Clause and the Full Faith and Credit Clause prohibited application of Kansas law to all of the transactions between petitioner and the class members.
Held:
- 1. Petitioner has 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. Whether it wins or loses on the merits, petitioner has a distinct and personal interest in seeing the entire plaintiff class bound by res judicata just as petitioner is bound. The only way petitioner can assure itself of this binding effect is to ascertain that the forum court has jurisdiction over every plaintiff whose claim it seeks to adjudicate, sufficient to support a res judicata defense in a later suit by class members. The alleged injury petitioner would incur if the class-action judgment against it became final without binding the plaintiff class is sufficient to give petitioner standing on its own right to raise the jurisdiction claim in this Court. Pp. 803-806.
[472
U.S. 797, 798]
- 2. The Kansas trial court properly asserted personal jurisdiction over the absent plaintiff class members and their claims against petitioner. 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. Pp. 806-814.
- 3. 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. Pp. 814-823.
REHNQUIST, J., delivered the opinion of the Court, in which BURGER, C. J., and BRENNAN, WHITE, MARSHAL, BLACKMUN, and O'CONNOR, JJ., joined, and in Parts I and II of which STEVENS, J., joined. STEVENS, J., filed an opinion concurring in part and dissenting in part, post, p. 823. POWELL, J., took no part in the decision of the case.
Arthur R. Miller argued the cause for petitioner. With him on the briefs were Joseph W. Kennedy, Robert W. Coykendall, Kenneth Heady, William G. Paul, and T. L. Cubbage II.
Joel I. Klein argued the cause for respondents. With him on the brief were W. Luke Chapin, Ed Moore, and Harold Greenleaf. *
[ Footnote * ] Briefs of amici curiae urging reversal were filed for the Legal Foundation of America by David Crump; and for Amoco Production Co. by Lucas A. Powe, Jr., R. H. Landt, and Glenn D. Young, Jr. [472 U.S. 797, 799]
Alan B. Morrison and David C. Vladeck filed a brief for the Public Citizen as amicus curiae urging affirmance.
David B. Kahn filed a brief for the Consumer Coalition as amicus curiae. [472 U.S. 797, 799]
JUSTICE REHNQUIST delivered the opinion of the Court.
Petitioner is a Delaware corporation which has its principal place of business in Oklahoma. During the 1970's it produced or purchased natural gas from leased land located in 11 different States, and sold most of the gas in interstate commerce. Respondents are some 28,000 of the royalty owners possessing rights to the leases from which petitioner produced the gas; they reside in all 50 States, the District of Columbia, and several foreign countries. Respondents brought a class action against petitioner in the Kansas state court, seeking to recover interest on royalty payments which had been delayed by petitioner. They recovered judgment in the trial court, and the Supreme Court of Kansas affirmed the judgment over petitioner's contentions that the Due Process Clause of the Fourteenth Amendment prevented Kansas from adjudicating the claims of all the respondents, and that the Due Process Clause and the Full Faith and Credit Clause of Article IV of the Constitution prohibited the application of Kansas law to all of the transactions between petitioner and respondents. 235 Kan. 195, 679 P.2d 1159 (1984). We granted certiorari to consider these claims.
Because petitioner sold the gas to its customers in interstate commerce, it was required to secure approval for price increases from what was then the Federal Power Commission, and is now the Federal Energy Regulatory Commission. Under its regulations the Federal Power Commission permitted petitioner to propose and collect tentative higher gas prices, subject to final approval by the Commission. If the Commission eventually denied petitioner's proposed price increase or reduced the proposed increase, petitioner would [472 U.S. 797, 800] have to refund to its customers the difference between the approved price and the higher price charged, plus interest at a rate set by statute. See 18 CFR 154.102 (1984).
Although petitioner received higher gas prices pending review by the Commission, petitioner suspended any increase in royalties paid to the royalty owners because the higher price could be subject to recoupment by petitioner's customers. Petitioner agreed to pay the higher royalty only if the royalty owners would provide petitioner with a bond or indemnity for the increase, plus interest, in case the price increase was not ultimately approved and a refund was due to the customers. Petitioner set the interest rate on the indemnity agreements at the same interest rate the Commission would have required petitioner to refund to its customers. A small percentage of the royalty owners provided this indemnity and received royalties immediately from the interim price increases; these royalty owners are unimportant to this case.
The remaining royalty owners received no royalty on the unapproved portion of the prices until the Federal Power Commission approval of those prices became final. Royalties on the unapproved portion of the gas price were suspended three times by petitioner, corresponding to its three proposed price increases in the mid-1970's. In three written opinions the Commission approved all of petitioner's tentative price increases, so petitioner paid to its royalty owners the suspended royalties of $3.7 million in 1976, $4.7 million in 1977, and $2.9 million in 1978. Petitioner paid no interest to the royalty owners although it had the use of the suspended royalty money for a number of years.
Respondents Irl Shutts, Robert Anderson, and Betty Anderson filed suit against petitioner in Kansas state court, seeking interest payments on their suspended royalties which petitioner had possessed pending the Commission's approval of the price increases. Shutts is a resident of Kansas, and the Andersons live in Oklahoma. Shutts and the Andersons [472 U.S. 797, 801] own gas leases in Oklahoma and Texas. Over petitioner's objection the Kansas trial court granted respondents' motion to certify the suit as a class action under Kansas law. Kan. Stat. Ann. 60-223 et seq. (1983). The class as certified was comprised of 33,000 royalty owners who had royalties suspended by petitioner. The average claim of each royalty owner for interest on the suspended royalties was $100.
After the class was certified respondents provided each class member with notice through first-class mail. The notice described the action and informed each class member that he could appear in person or by counsel; otherwise each member would be represented by Shutts and the Andersons, the named plaintiffs. The notices also stated that class members would be included in the class and bound by the judgment unless they "opted out" of the lawsuit by executing and returning a "request for exclusion" that was included with the notice. The final class as certified contained 28,100 members; 3,400 had "opted out" of the class by returning the request for exclusion, and notice could not be delivered to another 1,500 members, who were also excluded. Less than 1,000 of the class members resided in Kansas. Only a minuscule amount, approximately one quarter of one percent, of the gas leases involved in the lawsuit were on Kansas land.
After petitioner's mandamus petition to decertify the class was denied, Phillips Petroleum v. Duckworth, No. 82-54608 (Kan., June 28, 1982), cert. denied,
The trial court in the present case applied the rule from Shutts, Executor, and held petitioner liable for prejudgment and postjudgment interest on the suspended royalties, computed at the Commission rates governing petitioner's three price increases. See 18 CFR 154.102 (1984). The applicable interest rates were: 7% for royalties retained until October 1974; 9% for royalties retained between October 1974 and September 1979; and thereafter at the average prime rate. The trial court did not determine whether any difference existed between the laws of Kansas and other States, or whether another State's laws should be applied to non-Kansas plaintiffs or to royalties from leases in States other than Kansas. 235 Kan., at 221, 679 P.2d, at 1180.
Petitioner raised two principal claims in its appeal to the Supreme Court of Kansas. It first asserted that the Kansas trial court did not possess personal jurisdiction over absent plaintiff class members as required by International Shoe Co. v. Washington,
The Supreme Court of Kansas held that the entire cause of action was maintainable under the Kansas class-action statute, and the court rejected both of petitioner's claims. 235 Kan. 195, 679 P.2d 1159 (1984). First, it held that the absent class members were plaintiffs, not defendants, and thus the traditional minimum contacts test of International Shoe did not apply. The court held that nonresident class-action plaintiffs were only entitled to adequate notice, an opportunity to be heard, an opportunity to opt out of the case, and adequate representation by the named plaintiffs. If these procedural due process minima were met, according to the court, Kansas could assert jurisdiction over the plaintiff class and bind each class member with a judgment on his claim. The court surveyed the course of the litigation and concluded that all of these minima had been met.
The court also rejected petitioner's contention that Kansas law could not be applied to plaintiffs and royalty arrangements having no connection with Kansas. The court stated that generally the law of the forum controlled all claims unless "compelling reasons" existed to apply a different law. The court found no compelling reasons, and noted that "[t]he plaintiff class members have indicated their desire to have this action determined under the laws of Kansas." 235 Kan., at 222, 679 P.2d, at 1181. The court affirmed as a matter of Kansas equity law the award of interest on the suspended royalties, at the rates imposed by the trial court. The court set the postjudgment interest rate on all claims at the Kansas statutory rate of 15%. Id., at 224, 679 P.2d, at 1183.
I
As a threshold matter we must determine whether petitioner has standing to assert the claim that Kansas did not possess proper jurisdiction over the many plaintiffs in the [472 U.S. 797, 804] class who were not Kansas residents and had no connection to Kansas. Respondents claim that a party generally may assert only his own rights, and that petitioner has no standing to assert the rights of its adversary, the plaintiff class, in order to defeat the judgment in favor of the class.
Standing to sue in any Article III court is, of course, a federal question which does not depend on the party's prior standing in state court. Doremus v. Board of Education,
Additional prudential limitations on standing may exist even though the Article III requirements are met because "the judiciary seeks to avoid deciding questions of broad social import where no individual rights would be vindicated and to limit access to the federal courts to those litigants best suited to assert a particular claim." Gladstone, Realtors v. Village of Bellwood,
Respondents claim that petitioner is barred by the rule requiring that a party assert only his own rights; they point out that respondents and petitioner are adversaries and do [472 U.S. 797, 805] not have allied interests such that petitioner would be a good proponent of class members' interests. They further urge that petitioner's interference is unneeded because the class members have had opportunity to complain about Kansas' assertion of jurisdiction over their claim, but none have done so. See Singleton, supra, at 113-114.
Respondents may be correct that petitioner does not possess standing jus tertii, but this is not the issue. Petitioner seeks to vindicate its own interests. As a class-action defendant petitioner is in a unique predicament. If Kansas does not possess jurisdiction over this plaintiff class, petitioner will be bound to 28,100 judgment holders scattered across the globe, but none of these will be bound by the Kansas decree. Petitioner could be subject to numerous later individual suits by these class members because a judgment issued without proper personal jurisdiction over an absent party is not entitled to full faith and credit elsewhere and thus has no res judicata effect as to that party. Whether it wins or loses on the merits, petitioner has a distinct and personal interest in seeing the entire plaintiff class bound by res judicata just as petitioner is bound. The only way a class-action defendant like petitioner can assure itself of this binding effect of the judgment is to ascertain that the forum court has jurisdiction over every plaintiff whose claim it seeks to adjudicate, sufficient to support a defense of res judicata in a later suit for damages by class members.
While it is true that a court adjudicating a dispute may not be able to predetermine the res judicata effect of its own judgment, petitioner has alleged that it would be obviously and immediately injured if this class-action judgment against it became final without binding the plaintiff class. We think that such an injury is sufficient to give petitioner standing on its own right to raise the jurisdiction claim in this Court.
Petitioner's posture is somewhat similar to the trust settlor defendant in Hanson v. Denckla,
II
Reduced to its essentials, petitioner's argument is that unless out-of-state plaintiffs affirmatively consent, the Kansas courts may not exert jurisdiction over their claims. Petitioner claims that failure to execute and return the "request for exclusion" provided with the class notice cannot constitute consent of the out-of-state plaintiffs; thus Kansas courts may exercise jurisdiction over these plaintiffs only if the plaintiffs possess the sufficient "minimum contacts" with Kansas as that term is used in cases involving personal jurisdiction over out-of-state defendants. E. g., International Shoe Co. v. Washington,
In International Shoe we were faced with an out-of-state corporation which sought to avoid the exercise of personal jurisdiction over it as a defendant by a Washington state court. We held that the extent of the defendant's due process protection would depend "upon the quality and nature of the activity in relation to the fair and orderly administration of the laws . . . ."
The purpose of this test, of course, is to protect a defendant from the travail of defending in a distant forum, unless the defendant's contacts with the forum make it just to force him to defend there. As we explained in Woodson, supra, the defendant's contacts should be such that "he should reasonably anticipate being haled" into the forum.
Although the cases like Shaffer and Woodson which petitioner relies on for a minimum contacts requirement all dealt with out-of-state defendants or parties in the procedural posture of a defendant, cf. New York Life Ins. Co. v. Dunlevy,
We think petitioner's premise is in error. The burdens placed by a State upon an absent class-action plaintiff are not of the same order or magnitude as those it places upon an absent defendant. An out-of-state defendant summoned by a plaintiff is faced with the full powers of the forum State to render judgment against it. The defendant must generally hire counsel and travel to the forum to defend itself from the plaintiff's claim, or suffer a default judgment. The defendant may be forced to participate in extended and often costly discovery, and will be forced to respond in damages or to comply with some other form of remedy imposed by the court should it lose the suit. The defendant may also face liability for court costs and attorney's fees. These burdens are substantial, and the minimum contacts requirement of the Due Process Clause prevents the forum State from unfairly imposing them upon the defendant.
A class-action plaintiff, however, is in quite a different posture. The Court noted this difference in Hansberry v. Lee,
Modern plaintiff class actions follow the same goals, permitting litigation of a suit involving common questions when there are too many plaintiffs for proper joinder. Class actions also may permit the plaintiffs to pool claims which would be uneconomical to litigate individually. For example, this lawsuit involves claims averaging about $100 per plaintiff; most of the plaintiffs would have no realistic day in court if a class action were not available.
In sharp contrast to the predicament of a defendant haled into an out-of-state forum, the plaintiffs in this suit were not haled anywhere to defend themselves upon pain of a default judgment. As commentators have noted, from the plaintiffs' point of view a class action resembles a "quasi-administrative proceeding, conducted by the judge." 3B J. Moore & J. Kennedy, Moore's Federal Practice § 23.45 [4.-5] (1984); Kaplan, Continuing Work of the Civil Committee: 1966 Amendments to the Federal Rules of Civil Procedure (I), 81 Harv. L. Rev. 356, 398 (1967).
A plaintiff class in Kansas and numerous other jurisdictions cannot first be certified unless the judge, with the aid of the named plaintiffs and defendant, conducts an inquiry into the common nature of the named plaintiffs' and the absent plaintiffs' claims, the adequacy of representation, the jurisdiction possessed over the class, and any other matters that will bear upon proper representation of the absent plaintiffs' interest. See, e. g., Kan. Stat. Ann. 60-223 (1983); Fed. Rule Civ. Proc. 23. Unlike a defendant in a civil suit, a class-action plaintiff is not required to fend for himself. See Kan. Stat. Ann. 60-223(d) (1983). The court and named plaintiffs protect his interests. Indeed, the class-action defendant itself has a great interest in ensuring that the absent plaintiffs' claims are properly before the forum. In this case, for [472 U.S. 797, 810] example, the defendant sought to avoid class certification by alleging that the absent plaintiffs would not be adequately represented and were not amendable to jurisdiction. See Phillips Petroleum v. Duckworth, No. 82-54608 (Kan., June 28, 1982).
The concern of the typical class-action rules for the absent plaintiffs is manifested in other ways. Most jurisdictions, including Kansas, require that a class action, once certified, may not be dismissed or compromised without the approval of the court. In many jurisdictions such as Kansas the court may amend the pleadings to ensure that all sections of the class are represented adequately. Kan. Stat. Ann. 60-223(d) (1983); see also, e. g., Fed. Rule Civ. Proc. 23(d).
Besides this continuing solicitude for their rights, absent plaintiff class members are not subject to other burdens imposed upon defendants. They need not hire counsel or appear. They are almost never subject to counter claims or cross-claims, or liability for fees or costs. 2 Absent plaintiff class members are not subject to coercive or punitive remedies. Nor will an adverse judgment typically bind an absent plaintiff for any damages, although a valid adverse judgment may extinguish any of the plaintiff's claims which were litigated.
Unlike a defendant in a normal civil suit, an absent class-action plaintiff is not required to do anything. He may sit back and allow the litigation to run its course, content in knowing that there are safeguards provided for his protection. In most class actions an absent plaintiff is provided at least with an opportunity to "opt out" of the class, and if he takes advantage of that opportunity he is removed from the [472 U.S. 797, 811] litigation entirely. This was true of the Kansas proceedings in this case. The Kansas procedure provided for the mailing of a notice to each class member by first-class mail. The notice, as we have previously indicated, described the action and informed the class member that he could appear in person or by counsel, in default of which he would be represented by the named plaintiffs and their attorneys. The notice further stated that class members would be included in the class and bound by the judgment unless they "opted out" by executing and returning a "request for exclusion" that was included in the notice.
Petitioner contends, however, that the "opt out" procedure provided by Kansas is not good enough, and that an "opt in" procedure is required to satisfy the Due Process Clause of the Fourteenth Amendment. Insofar as plaintiffs who have no minimum contacts with the forum State are concerned, an "opt in" provision would require that each class member affirmatively consent to his inclusion within the class.
Because States place fewer burdens upon absent class plaintiffs than they do upon absent defendants in nonclass suits, the Due Process Clause need not and does not afford the former as much protection from state-court jurisdiction as it does the latter. The Fourteenth Amendment does protect "persons," not "defendants," however, so absent plaintiffs as well as absent defendants are entitled to some protection from the jurisdiction of a forum State which seeks to adjudicate their claims. In this case we hold that a forum State may exercise jurisdiction over the claim 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. If the forum State wishes to bind an absent plaintiff concerning a claim for money damages or similar relief at law,
3
it must provide minimal
[472
U.S. 797, 812]
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." Mullane,
We reject petitioner's contention that the Due Process Clause of the Fourteenth Amendment requires that absent plaintiffs affirmatively "opt in" to the class, rather than be deemed members of the class if they do not "opt out." We think that such a contention is supported by little, if any precedent, and that it ignores the differences between class-action plaintiffs, on the one hand, and defendants in nonclass civil suits on the other. Any plaintiff may consent to jurisdiction. Keeton v. Hustler Magazine, Inc.,
We think that the procedure followed by Kansas, where a fully descriptive notice is sent first-class mail to each class member, with an explanation of the right to "opt out," satisfies due process. Requiring a plaintiff to affirmatively [472 U.S. 797, 813] request inclusion would probably impede the prosecution of those class actions involving an aggregation of small individual claims, where a large number of claims are required to make it economical to bring suit. See, e. g., Eisen, supra, at 161. The plaintiff's claim may be so small, or the plaintiff so unfamiliar with the law, that he would not file suit individually, nor would he affirmatively request inclusion in the class if such a request were required by the Constitution. 4 If, on the other hand, the plaintiff's claim is sufficiently large or important that he wishes to litigate it on his own, he will likely have retained an attorney or have thought about filing suit, and should be fully capable of exercising his right to "opt out."
In this case over 3,400 members of the potential class did "opt out," which belies the contention that "opt out" procedures result in guaranteed jurisdiction by inertia. Another 1,500 were excluded because the notice and "opt out" form was undeliverable. We think that such results show that the "opt out" procedure provided by Kansas is by no means pro forma, and that the Constitution does not require more to protect what must be the somewhat rare species of class member who is unwilling to execute an "opt out" form, but whose claim is nonetheless so important that he cannot be presumed to consent to being a member of the class by his failure to do so. Petitioner's "opt in" requirement would require the invalidation of scores of state statutes and of the class-action provision of the Federal Rules of Civil Procedure, 5 [472 U.S. 797, 814] and for the reasons stated we do not think that the Constitution requires the State to sacrifice the obvious advantages in judicial efficiency resulting form the "opt out" approach for the protection of the rara avis portrayed by petitioner.
We therefore hold that the protection afforded the plaintiff class members by the Kansas statute satisfies the Due Process Clause. The interest of the absent plaintiffs 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 court. See Insurance Corp. of Ireland,
III
The Kansas courts applied Kansas contract and Kansas equity law to every claim in this case, notwithstanding that [472 U.S. 797, 815] over 99% of the gas leases and some 97% of the plaintiffs in the case had no apparent connection to the State of Kansas except for this lawsuit. 6 Petitioner protested that the Kansas [472 U.S. 797, 816] courts should apply the laws of the States where the leases were located, or at least apply Texas and Oklahoma law because so many of the leases came from those States. The Kansas courts disregarded this contention and found petitioner liable for interest on the suspended royalties as a matter of Kansas law, and set the interest rates under Kansas equity principles.
Petitioner contends that total application of Kansas substantive law violated the constitutional limitations on choice of law mandated by the Due Process Clause of the Fourteenth Amendment and the Full Faith and Credit Clause of Article IV, 1. We must first determine whether Kansas law conflicts in any material way with any other law which could apply. There can be no injury in applying Kansas law if it is not in conflict with that of any other jurisdiction connected to this suit.
Petitioner claims that Kansas law conflicts with that of a number of States connected to this litigation, especially Texas and Oklahoma. These putative conflicts range from the direct to the tangential, and may be addressed by the Supreme Court of Kansas on remand under the correct constitutional standard. For example, there is no recorded [472 U.S. 797, 817] Oklahoma decision dealing with interest liability for suspended royalties: whether Oklahoma is likely to impose liability would require a survey of Oklahoma oil and gas law. Even if Oklahoma found such liability, petitioner shows that Oklahoma would most likely apply its constitutional and statutory 6% interest rate rather than the much higher Kansas rates applied in this litigation. Okla. Const., Art XIV, 2; Okla. Stat., Tit. 15, 266 (Supp. 1984-1985); Rendezvous Trails of America, Inc. v. Ayers, 612 P.2d 1384, 1385 (Okla. App. 1980); Smith v. Robinson, 594 P.2d 364 (Okla. 1979); West Edmond Hunton Lime Unit v. Young, 325 P.2d 1047 (Okla. 1958).
Additionally, petitioner points to an Oklahoma statute which excuses liability for interest if a creditor accepts payment of the full principal without a claim for interest, Okla. Stat., Tit. 23, 8 (1951). Cf. Webster Drilling Co. v. Sterling Oil of Oklahoma, Inc., 376 P.2d 236 (Okla. 1962). Petitioner contends that by ignoring this statute the Kansas courts created liability that does not exist in Oklahoma.
Petitioner also points out several conflicts between Kansas and Texas law. Although Texas recognizes interest liability for suspended royalties, Texas has never awarded any such interest at a rate greater than 6%, which corresponds with the Texas constitutional and statutory rate.
7
Tex. Const., Art. 16, 11; Tex. Rev. Civ. Stat. Ann., Art. 5069-1.03 (Vernon 1971). See Phillips Petroleum Co. v. Stahl Petroleum Co., 569 S. W. 2d 480 (Tex. 1978); Phillips Petroleum Co. v. Adams, 513 F.2d 355 (CA5), cert. denied,
The conflicts on the applicable interest rates, alone - which we do not think can be labeled "false conflicts" without a more thoroughgoing treatment than was accorded them by the Supreme Court of Kansas - certainly amounted to millions of dollars in liability. We think that the Supreme Court of Kansas erred in deciding on the basis that it did that the application of its laws to all claims would be constitutional.
Four Terms ago we addressed a similar situation in Allstate Ins. Co. v. Hague,
The plurality in Allstate noted that a particular set of facts giving rise to litigation could justify, constitutionally, the application of more than one jurisdiction's laws. The plurality recognized, however, that the Due Process Clause and the Full Faith and Credit Clause provided modest restrictions on the application of forum law. These restrictions required "that for a State's substantive law to be selected in a constitutionally permissible manner, that State must have a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair." Id., at 312-313. The [472 U.S. 797, 819] dissenting Justices were in substantial agreement with this principle. Id., at 332 (opinion of POWELL, J., joined by BURGER, C. J., and REHNQUIST, J.). The dissent stressed that the Due Process Clause prohibited the application of law which was only casually or slightly related to the litigation, while the Full Faith and Credit Clause required the forum to respect the laws and judgments of other States, subject to the forum's own interests in furthering its public policy. Id., at 335-336.
The plurality in Allstate affirmed the application of Minnesota law because of the forum's significant contacts to the litigation which supported the State's interest in applying its law. See id., at 313-329. Kansas' contacts to this litigation, as explained by the Kansas Supreme Court, can be gleaned from the opinion below.
Petitioner owns property and conducts substantial business in the State, so Kansas certainly has an interest in regulating petitioner's conduct in Kansas. 235 Kan., at 210, 679 P.2d, at 1174. Moreover, oil and gas extraction is an important business to Kansas, and although only a few leases in issue are located in Kansas, hundreds of Kansas plaintiffs were affected by petitioner's suspension of royalties; thus the court held that the State has a real interest in protecting "the rights of these royalty owners both as individual residents of [Kansas] and as members of this particular class of plaintiffs." Id., at 211-212, 679 P.2d, at 1174. The Kansas Supreme Court pointed out that Kansas courts are quite familiar with this type of lawsuit, and "[t]he plaintiff class members have indicated their desire to have this action determined under the laws of Kansas." Id., at 211, 222, 679 P.2d, at 1174, 1181. Finally, the Kansas court buttressed its use of Kansas law by stating that this lawsuit was analogous to a suit against a "common fund" located in Kansas. Id., at 201, 211-212, 679 P.2d, at 1168, 1174.
We do not lightly discount this description of Kansas' contacts with this litigation and its interest in applying its law. There is, however, no "common fund" located in Kansas that
[472
U.S. 797, 820]
would require or support the application of only Kansas law to all these claims. See, e. g., Hartford Life Ins. Co. v. Ibs,
We also give little credence to the idea that Kansas law should apply to all claims because the plaintiffs, by failing to opt out, evinced their desire to be bound by Kansas law. Even if one could say that the plaintiffs "consented" to the application of Kansas law by not opting out, plaintiff's desire for forum law is rarely, if ever controlling. In most cases the plaintiff shows his obvious wish for forum law by filing there. "If a plaintiff could choose the substantive rules to be applied to an action . . . the invitation to forum shopping would be irresistible." Allstate, supra, at 337 (opinion of POWELL, J.). Even if a plaintiff evidences his desire for forum law by moving to the forum, we have generally accorded such a move little or no significance. John Hancock Mut. Life Ins. Co. v. Yates,
The Supreme Court of Kansas in its opinion in this case expressed the view that by reason of the fact that it was adjudicating a nationwide class action, it had much greater latitude in applying its own law to the transactions in question than might otherwise be the case: [472 U.S. 797, 821]
- "The general rule is that the law of the forum applies unless it is expressly shown that a different law governs, and in case of doubt, the law of the forum is preferred. . . . Where a state court determines it has jurisdiction over a nationwide class action and procedural due process guarantees of notice and adequate representation are present, we believe the law of the forum should be applied unless compelling reasons exist for applying a different law. . . . Compelling reasons do not exist to require this court to look to other state laws to determine the rights of the parties involved in this lawsuit." 235 Kan., at 221-222, 679 P.2d, at 1181.
Kansas must have a "significant contact or significant aggregation of contacts" to the claims asserted by each member of the plaintiff class, contacts "creating state interests," in order to ensure that the choice of Kansas law is not arbitrary
[472
U.S. 797, 822]
or unfair. Allstate,
When considering fairness in this context, an important element is the expectation of the parties. See Allstate, supra, at 333 (opinion of POWELL, J.). There is no indication that when the leases involving land and royalty owners outside of Kansas were executed, the parties had any idea that Kansas law would control. Neither the Due Process Clause nor the Full Faith and Credit Clause requires Kansas "to substitute for its own [laws], applicable to persons and events within it, the conflicting statute of another state," Pacific Employees Ins. Co. v. Industrial Accident Comm'n,
Here the Supreme Court of Kansas took the view that in a nationwide class action where procedural due process guarantees [472 U.S. 797, 823] of notice and adequate representation were met, "the law of the forum should be applied unless compelling reasons exist for applying a different law." 235 Kan., at 221, 679 P.2d, at 1181. Whatever practical reasons may have commended this rule to the Supreme Court of Kansas, for the reasons already stated we do not believe that it is consistent with the decisions of this Court. We make no effort to determine for ourselves which law must apply to the various transactions involved in this lawsuit, and we reaffirm our observation in Allstate that in many situations a state court may be free to apply one of several choices of law. But the constitutional limitations laid down in cases such as Allstate and Home Ins. Co. v. Dick, supra, must be respected even in a nationwide class action.
We therefore affirm the judgment of the Supreme Court of Kansas insofar as it upheld the jurisdiction of the Kansas courts over the plaintiff class members in this case, and reverse its judgment insofar as it held that Kansas law was applicable to all of the transactions which it sought to adjudicate. We remand the case to that court for further proceedings not inconsistent with this opinion.
- It is so ordered.
Footnotes
[ Footnote 1 ] The holding in Hansberry, of course, was that petitioners in that case had not a sufficient common interest with the parties to a prior lawsuit [472 U.S. 797, 809] such that a decree against those parties in the prior suit would bind the petitioners. But in the present case there is no question that the named plaintiffs adequately represent the class, and that all members of the class have the same interest in enforcing their claims against the defendant.
[ Footnote 2 ] Petitioner places emphasis on the fact that absent class members might be subject to discovery, counterclaims, cross-claims, or court costs. Petitioner cites no cases involving any such imposition upon plaintiffs, however. We are convinced that such burdens are rarely imposed upon plaintiff class members, and that the disposition of these issues is best left to a case which presents them in a more concrete way.
[ Footnote 3 ] Our holding today is limited to those class actions which seek to bind known plaintiffs concerning claims wholly or predominantly for money judgments. We intimate no view concerning other types of class actions, [472 U.S. 797, 812] such as those seeking equitable relief. Nor, of course, does our discussion of personal jurisdiction address class actions where the jurisdiction is asserted against a defendant class.
[ Footnote 4 ] In this regard the Reporter for the 1966 amendments to the Federal Rules of Civil Procedure stated:
- "[R]equiring the individuals affirmatively to request inclusion in the lawsuit would result in freezing out the claims of people - especially small claims held by small people - who for one reason or another, ignorance, timidity, unfamiliarity with business or legal matters, will simply not take the affirmative step." Kaplan, Continuing Work of the Civil Committee: 1966 Amendments of the Federal Rules of Civil Procedure (I), 81 Harv. L. Rev. 356, 397-398 (1967).
[ Footnote 5 ] The following statutes or procedural rules permit "opt out" notice in some types of class actions:
Fed. Rule Civ. Proc. 23(c)(2)(A); Ala. Rule Civ. Proc. 23(c)(2)(A); Alaska Rule Civ. Proc. 23(c)(2)(A); Ariz. Rule Civ. Proc. 23(c)(2)(A); Cal. Civ. Code Ann. 1781(e)(1) (West 1973) (consumer class action); Colo. Rule Civ. Proc. 23(c)(2)(A); Del. Ch. Ct. Rule 23(c)(2)(A); D.C. Super. Ct. Rule Civ. Proc. 23(c)(2)(A); Fla. Rule Civ. Proc. 1.220(d)(2)(A); Idaho Rule Civ. Proc. 23(c)(2)(A); Ind. Rule Trial Proc. 23(C)(2)(A); Iowa Rule Civ. Proc. 42.8(b); Kan. Stat. Ann. 60-223(c)(2) (1983); Ky. Rule Civ. Proc. 23.03(2)(a); Me. Rule Civ. Proc. 23(c)(2)(A); Md. Rule Civ. Proc. 2-231(e)(1); Mich. Ct. Rule 3.501(C)(5)(b); Minn. Rule Civ. Proc. 23.03 (2)(A); Mo. Rule Civ. Proc. 52.08; Mont. Rule Civ. Proc. 23(c)(2)(A); Nev. Rule Civ. Proc. 23(c)(2)(A); N. J. Civ. Prac. Rule 4:32-2; N. Y. Civ. Prac. Law 904 (McKinney 1976); N. D. Rule Civ. Proc. 23(g)(2)(B); Ohio Rule Civ. Proc. 23(C)(2)(a); Okla. Stat., Tit. 12, 2023(C)(2)(a) (Supp. 1984-1985); Ore. Rule Civ. Proc. 32F(1)(b)(ii); Pa. Rule Civ. Proc. 1711(a); Tenn. Rule Civ. Proc. 23.03(2)(a); Vt. Rule Civ. Proc. 23(c)(2)(A); Wash. Ct. Rule 23(C)(2)(i); Wyo. Rule Civ. Proc. 23(c)(2)(A).
[ Footnote 6 ] The Commission approved petitioner's price increases in Opinion Nos. 699, 749 and 770. Petitioner reimbursed royalty owners $3.7, $2.9, and $4.7 million in suspended royalties, respectively. The States where the leases were located and their resident plaintiffs are as follows.
- OPINION 699 ___________________________________________________________________________
- No. royalty States No. leases Royalties to owners in state state leases in state ___________________________________________________________________________
- 7,389 $3,696,274.97
- OPINION 749 ________________________________________________________________________ No. royalty States No. leases Royalties to owners in state state leases in state ________________________________________________________________________
- 6,109 $2,873,827.18
[472
U.S. 797, 816]
- OPINION 770 ____________________________________________________________________________
- No. royalty States No. leases Royalties to owners in state state leases in state ____________________________________________________________________________
- 6,232 $4,744,024.10
[ Footnote 7 ] The Kansas interest rate also conflicts with the rate which is applicable in Louisiana. At the time this suit was filed that rate was 7%. See La. Civ. Code Ann., Art. 1938 (1977) (amended in 1982); Wurzlow v. Placid Oil Co., 279 So.2d 749, 772-774 (La. App. 1973) (applying Art. 1938 to oil and gas royalties).
[ Footnote 8 ] In this case the Kansas Supreme Court held that "[t]he trial court did not determine whether any difference existed between the laws of Kansas and other states or whether another state's law should be applied." 235 Kan. 195, 221, 679 P.2d 1159, 1180 (1984). Respondents contend that the trial court and the Supreme Court actually incorporated by reference the opinion in Shutts, Executor, 222 Kan. 527, 567 P.2d 1292 (1977), where the court looked to the Texas and Oklahoma interest rate statutes and found them inapplicable. We do not think that the Kansas Supreme Court fully adopted the choice-of-law discussion in Shutts, Executor as its holding in this case. But even if we agreed that Shutts, Executor was somehow incorporated below, that would be insufficient. Shutts, Executor was a pre-Allstate case involving only 2 other States, rather than the 10 present here. Moreover, the gas region involved in Shutts, Executor was primarily within Kansas borders. Shutts, Executor only considered the conflict involving interest rate liability and state statutes, and in finding the 6% Texas rate inapplicable it cited but did not follow contrary Texas precedent. 222 Kan., at 562-565, 567 P.2d, at 1317-1319.
JUSTICE STEVENS, concurring in part and dissenting in part.
For the reasons stated in Parts I and II of the Court's opinion, I agree that the Kansas courts properly exercised jurisdiction over this class action. I also recognize that the use of the word "compelling" in a portion of the Kansas Supreme Court's opinion, when read out of context, may create an inaccurate impression of that court's choice-of-law holding. See ante, at 821. Our job, however, is to review judgments, not to edit opinions, and I am firmly convinced that there is no constitutional defect in the judgment under review.
As the Court recognizes, there "can be no [constitutional] injury in applying Kansas law if it is not in conflict with that
[472
U.S. 797, 824]
of any other jurisdiction connected to this suit." Ante, at 816. A fair reading of the Kansas Supreme Court's opinion in light of its earlier opinion in Shutts v. Phillips Petroleum Co., 222 Kan. 527, 567 P.2d 1292 (1977) (hereinafter Shutts I), cert. denied,
The Court errs today because it applies a loose definition of the sort of "conflict" of laws required to state a constitutional claim, allowing Phillips a tactical victory here merely on allegations of "putative" or "likely" conflicts. Ante, at 816, 817. The Court's choice-of-law analysis also treats the two relevant constitutional provisions as though they imposed the same constraints on the forum court. In my view, however, the potential impact of the Kansas choice on the interests of other sovereign States and the fairness of its decision to the litigants should be separately considered. See Allstate Insurance Co. v. Hague,
I
Petitioner (Phillips) is a large independent producer, purchaser, and seller of natural gas. Beginning in 1954, the prices at which it sold natural gas to interstate pipeline companies were regulated by the Federal Power Commission (Commission).
3
Phillips Petroleum Co. v. Wisconsin,
In a series of orders entered after 1954, the Commission established a practice of suspending price increases proposed by Phillips until approved by the Commission, but allowing Phillips to collect the higher proposed prices upon the filing by Phillips with the Commission of a corporate undertaking to refund to its customers any portion of an increase [472 U.S. 797, 826] that is ultimately disapproved by the Commission. Pursuant to Commission regulation, Phillips agrees that unapproved prices it collects are subject to refund "with interest at seven percent (7%) per annum from the date of receipt until September 18, 1970, and eight percent (8%) per annum thereafter until paid out, if the FPC [does] not approve the sales price." Shutts I, supra, at 533, 567 P.2d, at 1299 (emphasis deleted) (citing 18 CFR 154.102(c) (1977) and Commission opinion No. 586, 44 F. P. C. 761, 791 (1970)). Phillips' receipts during periods when its proposed price increases have not yet received final approval therefore include two components - the "firm" proceeds and the "FPC suspense money." For example, while an increase in price from 11 cents per Mcf (thousand cubic feet) to 13 cents is under consideration, the collection of the higher price would include firm proceeds of 11 cents and 2 cents of FPC suspense money.
In July 1961, while a price increase applicable to the tristate Hugoton-Anadarko area (Kansas, Oklahoma, and Texas) was pending, Phillips sent a notice to the royalty owners for that area advising them that "until further notice" they would be paid royalties on the basis of firm proceeds only and that royalties based on suspense money would be paid only after it was "determined that the sums collected are no longer subject to refund." The notice also advised the royalty owners that they could receive ongoing payment of royalties on the suspense money as well if they furnished Phillips with an "acceptable indemnity to cover their proportionate part of any required refunds, plus the required interest." Shutts I, 222 Kan., at 534, 567 P.2d, at 1299 (emphasis added). 4 The indemnity which Phillips required was a corporate [472 U.S. 797, 827] security bond covering a principal amount based on estimated production for a 2-year period, plus the 7% interest rate Phillips would be required to pay to its customers if the price increase were not approved. Only 17 royalty owners provided Phillips with such an indemnity; approximately 6,400 royalty owners who did not do so did not receive royalties on the suspense proceeds until 11 years later, after the price increase was finally approved. The situation was succinctly summarized by the Kansas Supreme Court in Shutts I:
- "From June 1, 1961, to October 1, 1970, Phillips deposited the increased rate monies collected in its general account and commingled it with its other funds, without ever giving notice of this fact to royalty owners during the time it was holding money. It is important to note that during this period of time Phillips had no entitlement to the gas royalty owners' share of the `suspense royalties,' whether or not the rates were approved by the FPC. Phillips never owned this money. While Phillips collected eight-eighths (8/8) of the increased rates, under no condition was the one-eighth (1/8) of the increase attributable to the royalty owners ever to go to Phillips. That royalty share, according to eventual FPC ruling, was either to go to Phillips' royalty owners, or back to Phillips' gas purchasers with interest, or part to one and part to the other." Id., at 535, 567 P.2d, at 1300 (emphasis in original).
[472
U.S. 797, 828]
The foregoing facts gave rise to Shutts I. This case (Shutts II) involves suspense royalties due on similar price increases approved in 1976, 1977, and 1978 to a larger number of royalty owners (28,100) with interests in leased areas located in 11 States, including Kansas. Otherwise, however, "[w]ith a few exceptions this case is similar in legal issues and factual situation to that presented in Shutts [I]." 235 Kan., at 198, 679 P.2d, at 1165. Both cases involve what the Kansas Supreme Court has characterized as a "common fund" consisting of the suspense royalties undeniably owed by Phillips [472 U.S. 797, 829] but not paid for periods of several years while Commission approval of rate increases were pending. 5 It is undisputed that Phillips enjoyed the unfettered use of that money. See 222 Kan., at 560, 567 P.2d, at 1316 (testimony of Phillips' Treasurer). It is also undisputed that when the Commission proceedings ended, none of the money could be retained by Phillips. To the extent that a price increase was disapproved, a refund to the purchasing pipelines, plus interest at the rate set by the Commission, would be required; to the extent that the increases were approved, the money was contractually owned to the royalty owners. As the Kansas court noted: "What is significant is these gas royalty suspense monies never did nor could belong to Phillips." Ibid. (emphasis deleted). 6 [472 U.S. 797, 830]
In Shutts I, the Kansas Supreme Court held that general equitable principles required the award of interest on royalties owned to royalty owners but used by Phillips for a number of years. In support of that conclusion it relied on general statements in two Kansas cases 7 and a long line of federal cases applying Texas law and concluding that equity requires "the award of interest on suspense royalties under similar circumstances." Id., at 561, 567 P.2d, at 1317. 8 The court noted that Oklahoma had no decisions allowing interest on suspense royalties, but concluded that "several Oklahoma decisions hold that interest may be awarded on equitable grounds where necessary to arrive at a fair compensation. (Smith v. Owens, 397 P.2d 673 [Okla. 1963]; and First Nat. Bank & T. Co. v. Exchange Nat. Bank and T. Co., 517 P.2d 805 [Okla. App. 1973])." 9 Finally, the court construed the royalty agreements at issue as containing a "contractual [472 U.S. 797, 831] obligation" to pay interest on the royalties "for the period of time the suspense money was held and used by Phillips." Id., at 562, 567 P.2d, at 1317. Thus the Kansas court also found its result consistent with the only Texas state-court decision on point, Stahl Petroleum Co. v. Phillips Petroleum Co., 550 S. W. 2d 360 (Tex. Civ. App. 1977), which had "awarded interest on suspended royalties" based on "the terms of the royalty agreement . . . rather than unjust enrichment." 222 Kan., at 561, 567 P.2d, at 1317. Significantly, when the Texas Supreme Court subsequently affirmed the Stahl judgment, it relied on the Kansas Supreme Court's decision in Shutts I to decide that equity as well as contract law requires interest on suspense royalties. Phillips Petroleum Co. v. Stahl Petroleum Co., 569 S. W. 2d 480, 485-488, and n. 5 (1978).
After determining that Phillips was liable for interest on the suspense royalties, the court reversed the trial court's decision that the rate should be 6% because that was the statutory interest rate in Kansas, Oklahoma, and Texas. The Kansas Supreme Court noted that the statutory rate in all three States expressly applied only when no other rate had been agreed upon, 10 and that in this case Phillips had made an express agreement, evidenced by its corporate undertaking, to pay interest at the rate set by the Commission on suspense moneys found refundable. 222 Kan., at 564, 567 P.2d, at 1319. The Kansas court therefore declined to apply any State's interest statute, including its own. "[E]quitable principles require, and contractual principles dictate, that the royalty owners receive the same treatment" as refunded purchasers, [472 U.S. 797, 832] that is, payment at the same FPC rate of interest. 11 Id., at 563, 567 P.2d, at 1318.
Finally, the Kansas Supreme Court rejected Phillips' contention that royalty owners had "waived" their claims to interest by accepting payment of the royalties later or by failing to post an indemnity "acceptable" to Phillips in order to receive contemporaneous payment of suspense royalties. The court noted that the "conditions imposed by Phillips were far more stringent than the corporate undertaking Phillips filed with the FPC," id., at 567, 567 P.2d, at 1320, and concluded that it was "apparent [that] Phillips' previous imposition of burdensome conditions upon royalty owners . . . was designed to accomplish precisely what the facts disclose. Virtually none of the royalty owners complied with the conditions, thereby leaving the suspense royalties in the hands of Phillips as stakeholder to use at its pleasure . . . ." Id., at 566, 567 P.2d, at 1320. The court found the rule that "payment of the principal sum is a legal bar to a subsequent action for interest" inapplicable on these facts. Id., at 567, 567 P.2d, at 1321. Instead, because "payment of [the royalties due] to the plaintiff class members, instead of extinguishing the debt, constituted only a partial payment on an interest-bearing debt[,] [t]his situation invokes application of the so-called `United States Rule,' which provides that in applying partial payments to an interest-bearing debt which is due, in [472 U.S. 797, 833] the absence of an agreement or statute to the contrary, the payment should be first applied to the interest due." Ibid. 12
In Shutts II, the case now under review, the Kansas Supreme Court adopted its earlier analysis in Shutts I without repeating it. "Although a larger class is involved than in Shutts I, the legal issues presented are substantially the same. While these issues are complex they were thoroughly reviewed in Shutts I." 235 Kan., at 211, 679 P.2d, at 1174. 13 Noting that "Phillips has not satisfactorily established why this court should not apply the rule enunciated in Shutts I," the Kansas court went on to state that once jurisdiction over [472 U.S. 797, 834] a "nationwide class action" is properly asserted, "the law of the forum should be applied unless compelling reasons exist for applying a different law." Id., at 221, 679 P.2d, at 1181.
II
This Court, of course, can have no concern with the substantive merits of common-law decisions reached by state courts faithfully applying their own law or the law of another State. When application of purely state law is at issue, "[t]he power delegated to us is for the restraint of unconstitutional [action] by the States, and not for the correction of alleged errors committed by their judiciary." Commercial Bank of Cincinnati v. Buckingham's Executors, 5 How. 317, 343 (1847). The Constitution does not expressly mandate particular or correct choices of law. Rather, a state court's choice of law can invoke constitutional protections, and hence our jurisdiction, only if it contravenes some explicit constitutional limitation. 14
Thus it has long been settled that "a mere misconstruction by the forum of the laws of a sister State is not a violation of the Full Faith and Credit Clause." Carroll v. Lanza,
Merely to state these general principles is to refute any argument that Kansas' decision below violated the Full Faith and Credit Clause. As the opinion in Shutts I indicates, the Kansas court made a careful survey of the relevant laws of Oklahoma and Texas, the only other States whose law is proffered as relevant to this litigation. But, as the Court acknowledges, ante, at 816-818, no other State's laws or judicial decisions were precisely on point, and, in the Kansas court's judgment, roughly analogous Texas and Oklahoma cases supported the results the Kansas court reached. The Kansas court expressly declared that, in a multistate action, a "court should also give careful consideration, as we have attempted to do, to any possible conflict of law problems." 222 Kan., at 557, 567 P.2d, at 1314. 17 While a common-law judge might disagree with the substantive legal determinations made by the Kansas court (although nothing in its opinion seems erroneous to me), that court's approach to the possible choices of law evinces precisely the "full faith and credit" that the Constitution requires. [472 U.S. 797, 836]
It is imaginable that even a good-faith review of another State's law might still "unjustifiably infring[e] upon the legitimate interests of another State" so as to violate the Full Faith and Credit Clause. Allstate,
III
It is nevertheless possible for a State's choice of law to violate the Constitution because it is so "totally arbitrary or . . . fundamentally unfair" to a litigant that it violates the Due Process Clause. Allstate,
Again, however, a constitutional claim of "unfair surprise" cannot be based merely upon an unexpected choice of a particular State's law - it must rest on a persuasive showing of an unexpected result arrived at by application of that law. Thus, absent any conflict of laws, in terms of the results they produce, the Due Process Clause simply has not been violated. This is because the underlying theory of a choice-of-law due process claim must be that parties plan their conduct and contractual relations based upon their legitimate expectations [472 U.S. 797, 838] concerning the subsequent legal consequences of their actions. For example, they might base a decision on the belief that the law of a particular State will govern. But a change in that State's law in the interim between the execution and the performance of the contract would not violate the Due Process Clause. Nor would the Constitution be violated simply because a state court made an unanticipated ruling on a previously unanswered question of law - perhaps a choice-of-law question.
In this case it is perfectly clear that there has been no due process violation because this is a classic "false conflicts" case. 20 Phillips has not demonstrated that any significant conflicts exist merely because Oklahoma and Texas state case law is silent concerning the equitable theories developed by the Kansas courts in this litigation, or even because the language of some Oklahoma and Texas statutes suggests that those States would "most likely" reach different results. Ante, at 816-818. The Court's heavy reliance on the characterization of the law provided by Phillips is not an adequate substitute for a neutral review. Ante, at 816, 817 ("Petitioner claims," "petitioner shows," "petitioner points to," "Petitioner also points out . . ."). As is unmistakable from a review of Shutts I, the Kansas Supreme Court has examined the same laws cited by the Court today as indicative of "direct" conflicts, and construed them as supportive of the [472 U.S. 797, 839] Kansas result. 21 Our precedents, to say nothing of the Constitution and our statutory jurisdiction to review state-court judgments, do not permit the Court to second-guess these substantive judgments. Moreover, an independent examination demonstrates solid support for the Kansas court's conclusions. 22 [472 U.S. 797, 840]
The crux of my disagreement with the Court is over the standard applied to evaluate the sufficiency of allegations of choice-of-law conflicts necessary to support a constitutional [472 U.S. 797, 841] claim. Rather than potential, "putative," or even "likely" conflicts, I would require demonstration of an unambiguous conflict with the established law of another State as an essential element of a constitutional choice-of-law claim. Arguments that a state court has merely applied general common-law principles in a novel manner, or reconciled arguably [472 U.S. 797, 842] conflicting laws erroneously in the face of unprecedented factual circumstances should not suffice to make out a constitutional issue.
In this case, the Kansas Supreme Court's application of general principles of equity, its interpretation of the agreements, its reliance on the Commission's regulations, 23 and its construction of general statutory terms contravened no established legal principles of other States and consequently cannot be characterized as either arbitrary or fundamentally unfair to Phillips. I therefore can find no due process violation in the Kansas court's decision. 24 [472 U.S. 797, 843]
IV
In final analysis, the Court today may merely be expressing its disagreement with the Kansas Supreme Court's statement that in a "nationwide class action . . . the law of the forum should be applied unless compelling reasons exist for applying a different law." 235 Kan., at 221, 679 P.2d, at 1181. Considering this statement against the background of the Kansas Supreme Court's careful analysis in Shutts I, however, I am confident that court would agree that every state court has an obligation under the Full Faith and Credit Clause to "respect the legitimate interests of other States and avoid infringement upon their sovereignty." Allstate,
It is also agreed that "the fact that a choice-of-law decision may be unsound . . . does not necessarily implicate the federal concerns embodied in the Full Faith and Credit Clause." Allstate,
I do not believe the Court should engage in detailed evaluations of various States' laws. To the contrary, I believe our limited jurisdiction to review state-court judgments should foreclose such review.
27
Accordingly, I trust that today's
[472
U.S. 797, 845]
decision is no more than a momentary aberration, and that the Court's opinion will not be read as a decision to constitutionalize novel state-court developments in the common law whenever a litigant can claim that another State connected to the litigation "most likely" would reach a different result. The Court long ago decided that state-court choices of law are unreviewable here absent demonstration of an unambiguous conflict in the established laws of connected States. See n. 15, supra. "To hold otherwise would render it possible to bring to this court every case wherein the defeated party claimed that the statute of another State had been construed to his detriment." Johnson v. New York Life Ins. Co.,
Accordingly, while I join Parts I and II of the Court's opinion, I respectfully dissent from Part III and from the judgment.
[ Footnote 1 ] "Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Acts, Records and Proceedings shall be proved, and the Effect thereof." U.S. Const., Art. IV, 1. See also 28 U.S.C. 1738.
[ Footnote 2 ] "No State shall . . . deprive any person of life, liberty, or property, without due process of law . . . ." U.S. Const., Amdt. 14, 1.
[ Footnote 3 ] The responsibilities of the Federal Power Commission were transferred to the Federal Energy Regulatory Commission in 1977. See 91 Stat. 578, 582-584.
[ Footnote 4 ] The relevant portion of the 1961 notice provided in full:
- "Effective June 1, 1961, and until further notice, royalties paid you will be computed by excluding that portion of any price being collected subject to refund which exceeds 11 [cents] per Mcf (presently the maximum area
[472
U.S. 797, 827]
price level for increased rates as recently announced by the Federal Power Commission in its Statement of General Policy). Payment of royalty based on the balance of the sums collected will be made at such time as it is determined that the sums collected are no longer subject to refund.
- "Interest owners desiring to receive payments computed currently on the full sums being collected may arrange to do so by furnishing Phillips Petroleum Company acceptable indemnity to cover their proportionate
[472
U.S. 797, 828]
part of any required refunds, plus the required interest." Shutts I, 222 Kan., at 534, 567 P.2d, at 1299.
[
Footnote 5
] "Had Phillips put the `suspense royalties' into a common trust fund, separate from its operating funds, to be used solely to pay either the pipeline companies or the gas royalty owners once the FPC ultimately decided the rate increase question, this case would dovetail nicely into the `common fund' cases." Shutts I, 222 Kan., at 552, 567 P.2d, at 1311. Accord, 235 Kan., at 201, 212, 679 P.2d, at 1168, 1174. The Court criticizes Kansas' use of the "common fund" concept as applied to these funds. Ante, at 819-820. Kansas is not alone, however, in applying the common fund concept in a class action to a pool of readily identifiable moneys placed within the court's power by a liability determined by the lawsuit itself. See, e. g., Perlman v. First National Bank of Chicago, 15 Ill. App. 3d 784, 799-802, 305 N. E. 2d 236, 247-250 (1973) (cited in Shutts I, 222 Kan., at 553, 567 P.2d, at 1311-1312); see also Sprague v. Ticonic National Bank,
[ Footnote 6 ] Phillips argued below that some distinction should be made for purposes of interest liability between royalties owed on gas sold to pipeline companies who paid the higher "suspense" price and royalties owned on gas used by Phillips itself rather than sold. Yet "Phillips acknowledges . . . that its obligation to pay royalties under the various . . . contracts exists [472 U.S. 797, 830] without regard to the actual disposition of the gas." 235 Kan., at 215, 679 P.2d, at 1177 (emphasis added). Thus, "[b]y choosing to withhold payment Phillips was allowed the use of the suspense monies during the suspense period which rightfully belonged to the royalty owners, and the royalty owners, in turn, were deprived of receiving and using those monies during that time." Id., at 216, 679 P.2d, at 1177. Applying the same unjust enrichment theory developed in Shutts I, the Kansas Supreme Court accordingly rejected Phillips' proffered distinction. 235 Kan., at 217, 679 P.2d, at 1178. Significantly, Phillips does not claim here that even a "putative" conflict of laws might turn on this distinction. Phillips pursues the argument only to contend in a footnote that, because it never actually collected higher prices on gas that it used itself, no "fund" actually existed. Brief for Petitioner 21, n. 18. As the Kansas court noted, however, the fund at issue is the "easily computed" amount of royalties that were due the royalty owners in any case, not the moneys collected by Phillips in return for sales. 235 Kan., at 217, 679 P.2d, at 1178.
[
Footnote 7
] Lightcap v. Mobil Oil Corp., 221 Kan. 448, 562 P.2d 1, cert. denied,
[ Footnote 8 ] The court cited six cases, four from the Fifth Circuit and two from the Northern District of Texas, in all of which Phillips was a named party.
[
Footnote 9
] The Kansas court also pointed out that "the United States Supreme Court has noted the imposition of interest on refunds ordered by the FPC is not an inappropriate means of preventing unjust enrichment. (United
[472
U.S. 797, 831]
Gas v. Callery Properties,
[ Footnote 10 ] See Kan. Stat. Ann. 16-201 (1974) ("Creditors shall be allowed to receive interest at the rate of six percent per annum, when no other rate of interest is agreed upon"); Okla. Stat., Tit. 15, 266 (1971) ("The legal rate of interest shall be six per cent in the absence of any contract as to the rate of interest"); Tex. Rev. Civ. Stat. Ann., Art. 5069-1.03 (Vernon 1971) ("When no specified rate of interest is agreed upon by the parties, interest at the rate of 6% per annum shall be allowed") (all emphasis added).
[
Footnote 11
] The court also held that interest accruing after the entry of judgment should be determined by Kansas' postjudgment interest statute. Kan. Stat. Ann. 16-204 (1974). Phillips does not and could not contend that the Constitution bars a Kansas court from applying the Kansas postjudgment interest statute to judgments entered by Kansas courts. Such statutes demonstrate an irrefutable state interest in the force carried by judgments entered by a State's own courts. See also Klaxon Co. v. Stentor Electric Mfg. Co.,
[ Footnote 12 ] The court noted that the "`United States Rule' is also followed in Oklahoma and Texas," and that Phillips had "raised and lost" its contention of waiver in a similar case in Texas. 222 Kan., at 568, 567 P.2d, at 1321, citing Phillips Petroleum Co. v. Riverview Gas Compression Co., 409 F. Supp. 486 (ND Tex. 1976). Moreover, because the relevant Oklahoma statute expressly stated that payment of a principal sum must be accepted "as such" to support a finding of waiver, Okla. Stat., Tit. 23, 8 (1971), the statute was inapplicable here inasmuch as the royalty payments were not so accepted. 222 Kan., at 568, 567 P.2d, at 1321.
[ Footnote 13 ] The only apparently new argument raised by Phillips in Shutts II was that it should not be liable for interest to a subclass of the affected royalty owners whose direct contractual agreement for royalties was with other producers who sold their gas to Phillips under a separate agreement. Although Phillips assumed the obligation to pay royalties directly to the royalty owners in these separate agreements, the separate agreements also stated that if a suspended price increase were ultimately approved by the Commission, Phillips would pay the other producers additional money "without interest." Phillips argued that this "without interest" clause barred interest to the royalty owners as well as to the other producers. The Kansas Supreme Court rejected this argument, however, because the royalty owners were not parties to the separate agreements and because no consideration was paid to the royalty owners by Phillips in return for this purported waiver of interest. 235 Kan., at 220, 679 P.2d, at 1180. "[T]hese provisions, entered into between Phillips and the producers, cannot unilaterally deprive royalty owners of interest which they would otherwise be entitled to receive under casing head gas contracts in which the provisions do not appear." Ibid.
[ Footnote 14 ] See 28 U.S.C. 1257: "Final judgments or decrees rendered by the highest court of a State . . . may be reviewed by the Supreme Court . . . (3) [b]y writ of certiorari . . . where any title, right, privilege or immunity is specially set up or claimed under the Constitution" (emphasis added).
[
Footnote 15
] This principle was settled in a number of cases decided on either side of the turn of this century. See, e. g., Pennsylvania Fire Ins. Co. v. Gold Issue Mining & Milling Co.,
[
Footnote 16
] Cf. Guaranty Trust Co. v. New York,
[ Footnote 17 ] The Kansas court also stated that Kansas' statutory class-action requirements would "not be fulfilled" if "liability is to be determined according to varying and inconsistent state laws." 222 Kan., at 557, 567 P.2d, at 1314. This belies any notion that the Kansas court plans to "boot-strap," ante, at 821, its choice-of-law decisions onto its assertion of jurisdiction over multistate actions; precisely the opposite is suggested.
[
Footnote 18
] As I noted in Allstate, however, the litigant challenging a court's choice of law clearly "bears the burden of establishing" a constitutional infringement.
[
Footnote 19
] I noted in Allstate that choice of forum law might also violate the Due Process Clause in other ways, such as by irrationally favoring residents over nonresidents or representing a "dramatic departure from the rule that obtains in most American jurisdictions."
[
Footnote 20
] "`[F]alse conflict' really means `no conflict of laws.' If the laws of both states relevant to the set of facts are the same, or would produce the same decision in the lawsuit, there is no real conflict between them." R. Leflar, American Conflicts Law 93, p. 188 (3d ed. 1977). See also E. Scoles & P. Hay, Conflict of Laws 2.6, p. 17 (1982) ("A `false conflict' exists when the potentially applicable laws do not differ"). The absence of any direct conflicts here distinguishes this case from decisions such as Home Ins. Co. v. Dick,
[ Footnote 21 ] In Shutts II the Kansas Supreme Court noted that "the legal issues presented are substantially the same" as in Shutts I, and that "[w]hile these issues are complex they were thoroughly reviewed in Shutts I." 235 Kan., at 211, 679 P.2d, at 1174. The court then addressed the award and rate of interest as "damages to compensate the plaintiffs for the unjust enrichment derived by Phillips from the use of the plaintiffs' money," and concluded that "[i]n the instant case Phillips has not satisfactorily established why this court should not apply the rule enunciated in Shutts I" respecting this claim. Id., at 221, 679 P.2d, at 1181. Two sentences later in the same paragraph, the court made the broad statement that its forum law should apply absent "compelling reason." The only fair reading of this statement in context is that the Kansas court in Shutts II adopted its multistate choice-of-law survey performed in Shutts I, and properly placed the burden on Phillips, see n. 18, supra, to show why the Shutts I conclusions should be reexamined. Even if this were ambiguous, this Court should give the Kansas Supreme Court the benefit of the doubt when reviewing its judgment. Thus, I frankly do not understand the Court's summary rejection of that court's attempt to incorporate Shutts I. Ante, at 822, n. 8. As for the implication in that same footnote that the choice-of-law discussion in Shutts I may have been erroneous on the merits, the statement that the Kansas court "did not follow contrary Texas precedent" (emphasis added), is simply wrong. See n. 22, infra.
[ Footnote 22 ] The Court provides a list of "putative conflicts" ante, at 816-818. The errors and omissions apparent in the Court's discussion demonstrate the dangers of relying on characterizations of state law provided by an interested party.
1. Although there technically may be "no recorded Oklahoma decision dealing with interest liability for suspended royalties," ante, at 816-817 (emphasis added), Oklahoma law expressly provides that the damages "caused by the breach of an obligation to pay money only is deemed to be the amount due by the terms of the obligation, with interest thereon." Okla. Stat., Tit. 23, 22 (1981) (emphasis added); see also 6 ("Any person who is entitled to recover damages certain, or capable of being made certain by calculation, . . . is entitled also to recover interest thereon"). The [472 U.S. 797, 840] Oklahoma Supreme Court has specifically held that oil field royalty owners may sue as a class to recover royalties due them and may recover interest on the amount of recovery. West Edmond Hunton Line Unit v. Young, 325 P.2d 1047 (1958).
2. No authority in the Court's string citation regarding Oklahoma's 6% statutory interest rate supports the statement that Oklahoma would "most likely" impose that rate in a suit such as this. Ante, at 817. The constitutional and statutory provisions merely provide that "in the absence of any contract" the rate is indeed 6%. Okla. Stat. Ann., Tit. 15, 266 (1981). The cited judicial decisions merely hold that interest is recoverable on certain obligations, including royalties due to oil field royalty owners, without discussing applicable limitations on the rate.
After examining these Oklahoma authorities, the Kansas Supreme Court found the Oklahoma statutory rate, as well as that of Texas and Kansas, inapplicable by its own terms, because here Phillips had contractually agreed to the higher federal rate. 235 Kan., at 220-221, 679 P.2d, at 1180; 222 Kan., at 563-565, 567 P.2d, at 1318-1319. No reported Oklahoma decision contradicts this judgment, and the express terms of the Oklahoma statute permit it. See also McAnally v. Ideal Federal Credit Union, 428 P.2d 322, 326 (Okla. 1967) (where federal law provides for interest in excess of 12% per year, that rate "must govern" over Oklahoma statutory rate).
3. The Kansas court similarly reviewed Texas' 6% interest statute and found that Phillips' contractual agreement to the FPC rate rendered the statute inapplicable. 235 Kan., at 220, 679 P.2d, at 1180; 222 Kan., at 563-565, 567 P.2d, at 1318-1319. It is true that Texas has not awarded suspense royalty interest at a rate higher than 6% - it is equally plain from the cited cases that no higher rate has been sought. Texas courts have, however, specifically permitted recovery at higher rates when a contract, even an implied or oral contract, evidences agreement to such rates. Preston Farm & Ranch Supply, Inc. v. Bio-Zyme Enterprises, 625 S. W. 2d 295 (Tex. 1981); Moody v. Main Bank of Houston, 667 S. W. 2d 613 (Tex. App. 1984).
4. While noting Phillips' reliance on an Oklahoma statute stating that "accepting payment of the whole principal, as such, waives all claim to interest," Okla. Stat. Ann., Tit. 23, 8 (1981), the Court itself demonstrates that this statute's application here is open to question, by citing as "cf." Webster Drilling Co. v. Sterling Oil of Okla., Inc., 376 P.2d 236, 238 [472 U.S. 797, 841] (Okla. 1962). In that case, the Oklahoma Supreme Court held that when a right to interest is "based upon a contract, the interest has become `a substantive part of the debt itself,'" and Title 23, 8, "is not applicable." Id., at 238 (citation omitted). The claim to interest upheld in Webster Drilling was based on an implied contract, exactly as the Kansas Supreme Court found in Shutts I. 222 Kan., at 562, 565, 567 P.2d, at 1317, 1319. The Kansas Supreme Court explicitly considered Title 23, 8, and relied on Webster Drilling to find it inapplicable. 222 Kan., at 568, 567 P.2d, at 1321. It is therefore impossible to suggest, as the Court does, that the Kansas court "ignor[ed]" the Oklahoma statute. Ante, at 817.
5. Finally, the Court plainly misconstrues Texas law by suggesting that a mere "offer" to pay suspended royalties in return for an indemnity agreement would, by itself, excuse interest. In the federal decision cited by the Court, which mentions no Texas cases at the relevant pages, Phillips Petroleum Co. v. Riverside Gas Co., 409 F. Supp., at 495-496, indemnity agreements were actually entered into. Id., at 490. The Fifth Circuit case relied on for authority, which did cite Texas cases, states that an "unconditional offer to give up possession of a disputed fund" is necessary before a bar to interest is created. Phillips Petroleum Co. v. Adams, 513 F.2d 355, 370 (1975) (emphasis added). The Texas Supreme Court has subsequently agreed that Adams correctly stated Texas law. Phillips Petroleum Co. v. Stahl Petroleum Co., 569 S. W. 2d 480, 487 (1978). See also Fuller v. Phillips Petroleum Co., 408 F. Supp. 643, 646 (ND Tex. 1976) (entering indemnity agreement terminates interest liability because Phillips "lost the reasonably free use of the money"). No indemnity agreements were entered into by the plaintiffs here, however, and as the Kansas Supreme Court found, Phillips' indemnity offer was not "unconditional" - to the contrary, it was "far more stringent than the corporate undertaking Phillips filed with the FPC." 222 Kan., at 567, 567 P.2d, at 1320. It is also uncontested that Phillips continued to use freely the unpaid suspense royalties long after its "burdensome" conditions were not accepted by the royalty owners. Id., at 566, 567 P.2d, at 1320. The Court errs drastically by relying on what one Federal District Court "appears" to have held to sustain a constitutional choice-of-law claim.
[ Footnote 23 ] The fact that the Kansas court rejected its own State's statute in favor of the uniform federal interest rate, to which it found Phillips had contractually agreed, demonstrates the absence of parochialism from its decision. There is absolutely no indication that Texas or Oklahoma courts would have decided differently had the same claim been presented there.
[
Footnote 24
] Neither Phillips nor the Court contends that Kansas cannot constitutionally apply its own laws to the claims of Kansas residents, even though the leased land may lie in other States and no other apparent connection to Kansas may exist. Phillips has done business in Kansas throughout the years relevant to this litigation and it seems unarguable that application of Kansas law, or indeed the law of any of the 50 States where royalty owners reside, to the claims of at least some of the plaintiff class members was thus "perceived as possible" by Phillips "at the time of contracting." Allstate,
[
Footnote 25
] See Allstate,
[ Footnote 26 ] Accord, 3 H. Newberg, Newberg on Class Actions 13.28, p. 63 (2d ed. 1985) ("the Kansas court in Shutts II may have committed only harmless error in applying its own law because there appears to be no significant conflict of laws among the states involved").
[ Footnote 27 ] The Court's decision in Allstate has been criticized on the ground that there may well have been no true conflict of laws present, and, therefore, no need for extended constitutional discussion. See Weintraub, Who's Afraid of Constitutional Limitations on Choice of Law?, 10 Hofstra L. Rev. 17, 18-24 (1981). As I have demonstrated, the Court is once again open to this criticism.
Indeed, unless our review is restricted to cases in which conflicts are unambiguous, the Court will constantly run the risk of misconstruing the common law of any number of States. For example, the Kansas Supreme Court has already decided that Oklahoma would not apply its statutory interest rates where there is evidence of a contractual agreement to a different rate, and that such an agreement is present here. 235 Kan., at 220, 679 P.2d, at 1180; 222 Kan., at 562-565, 567 P.2d, at 1318-1319. Yet today the Court speculates that Oklahoma "would most likely apply" its statutory rates in this lawsuit. Ante, at 817. Since this Court has no more authority to resolve such issues of Oklahoma law than does the Kansas Supreme Court, however, the latter court remains free to abide by its former judgment. [472 U.S. 797, 846]
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PHILLIPS PETROLEUM CO. v. SHUTTS, 472 U.S. 797(1985)
Citation: 472 U.S. 797
No. 84-233
Argued: February 25, 1985
Decided: June 26, 1985
Court: United States Supreme Court
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