Phillips Petroleum Co. v. Shutts

Phillips Petroleum Co. (Phillips) (defendant), a producer and seller of natural gas, extracted some of its gas from leased real property in 11 states. Shutts (plaintiff), a royalty owner with rights to the leases from which Phillips produced the gas, brought a class-action suit in a Kansas state court, alleging that the plaintiff class members were owed interest on royalty payments that Phillips had delayed. The trial court certified a class consisting of royalty owners from all 50 states, Washington, DC, and foreign countries. Shutts sent a letter via first-class mail to each class member. The letter advised each class member that he could appear in person or by counsel or, otherwise, that each class member would be represented by Shutts and the other named plaintiffs. The letter also advised each class member that he could opt out of the class if he returned a document included with the notice entitled “request for exclusion.” The final class as certified contained 28,100 members. Approximately 97 percent of the class members and over 99 percent of the leases had no connection to Kansas beyond the lawsuit. After trial, the Kansas court found Phillips liable under Kansas law for interest on the delayed royalty payments. Phillips appealed to the Kansas Supreme Court. On appeal, Phillips argued that the Kansas court did not have personal jurisdiction over the absent class members and that the opt-out notice was not sufficient to bind class members who were not Kansas residents or did not have minimum contacts with Kansas. Phillips also asserted that the trial court erred in applying Kansas law to all of the claims and that the court instead should have looked to the law of each state where a lease was located to determine whether interest could be recovered and at what rate. The Kansas Supreme Court affirmed the decision of the trial court. The United States Supreme Court granted Phillips’s petition for certiorari.