Respondents Brief — Phillips Petroleum Co. v. Shutts

No. 84-233 | JAN ? 1985

IN THE CLERK

Supreme Court of the United States

OCTOBER TERM, 1984

PHILLIPS PETROLEUM COMPANY,

+ Petitioner,

IRL SHUTTS and ROBERT ANDERSON and BETTY ANDERSON,

individually and as representatives of all royalty

owners to whom Phillips Petroleum Company made

payment of suspended proceeds of royalties’ pursuant

to Federal Power Commission Opinion Nos. 699, 699H,

749, 749C, 770 and 770A,

Respondents.

On Writ of Certiorari to the Supreme Court of Kansas

BRIEF FOR RESPONDENTS

W. LUKE CHAPIN

(Counsel of Record)

CHAPIN & PENNY

P.O. Box 148

Medicine Lodge, Kansas 67104

(316) 886-5611

ED MOoRE

GINDER & MOORE

Cherokee, Oklahoma 73728

HAROLD GREENLEAF

SMITH, GREENLEAF & BROOKS

P.O. Box 1039

Liberal, Kansas 67901

JOEL I. KLEIN

ONEK, KLEIN & FARR

2550 M Street, N.W.

Washington, D.C. 20037

Attorneys for Respondents

BTEC

WILSON - Eras Printing Co.. Inc. - 789-0096 - WASHINGTON. D.C. 20001

QUESTIONS PRESENTED

1. Whether a defendant has standing in this Court to

raise the due process rights of absent plaintiff class mem-

bers as a basis for reversing a state court judgment in

favor of those class members.

2. Whether the Due Process Clause prohibits a state

court from exercising personal jurisdiction over nonresi-

dent plaintiff class members to whom the court provides:

(1) adequate representation through the named plaintiffs

and their attorneys; (2) first class mail notice describing

the action; (3) the right to participate; and (4) the

right to opt out.

8. Whether the Due Process and Full Faith and

Credit Clauses prohibit a state court from applying basic

principles of restitution embodied in that State’s law to

a nationwide class where the dispute arose as a by-

product of federal administrative rate regulation, the

measure of damages employed was established by the

defendant’s own actions taken in response to that regu-

latory process, and there has been no showing of a

relevant conflict with any other State’s law.

(i)

TABLE OF CONTENTS

QUESTIONS PRESENTED ........0..2.002.22.-222222ceceeeeeeeeess

TABLE OF AUTHORITIES .....W0...22...2222.22-ccesceeeceeeeeeees

' STATEMENT OF THE CASE ....000022.......eeeeeeseeeceeeees

SUMMARY OF ARGUMENT W020... eeeeceee cece

aac cerincienemeceneenectnonemmneneressores

I. PHILLIPS LACKS STANDING TO RAISE

II.

Ill.

DUE PROCESS CLAIMS BELONGING EX-

CLUSIVELY TO ADVERSE PARTIES WHO

ARE FULLY CAPABLE OF RAISING SUCH

CLAIMS THEMSELVES ...........0.....22.22.22222.-00-+

A STATE COURT MAY CONSTITUTION-

ALLY EXERCISE JURISDICTION OVER

NONRESIDENT PLAINTIFF CLASS MEM-

BERS REGARDLESS OF WHETHER THEY

HAVE MINIMUM CONTACTS WITH THE

FORUM STATE WHERE AS HERE SUCH

CLASS MEMBERS ARE PROVIDED WITH

ADEQUATE REPRESENTATION, PERSON-

AL NOTICE, A RIGHT TO PARTICIPATE,

AND A RIGHT TO OPT OUT ..... Ee

A. The Differences Between The Interests Of

Nonresident Plaintiff Class Members And

Those Of Nonresident Defendants Justify

Different Due Process Requirements For

Personal Jurisdiction .....................00.0.0.000....0...

B. The Rights Of All Absent Class Members

Were Fully Protected By The Procedures

cesumunennons

THE APPLICATION OF BASIC PRINCIPLES

OF RESTITUTION EMBODIED IN KANSAS

LAW TO ALL CLASS MEMBER CLAIMS

WAS NEITHER ARBITRARY NOR UNFAIR

AND RESULTED IN NO RELEVANT CON-

FLICT WITH THE LAW OF ANY OTHER

LES LIRA

14

15

17

23

iv

TABLE OF CONTENTS—Continued

Page

A. The Constitutional Limitations On A State

Court’s Choice Of Law, Which Are Intended

To Protect Basic Fairness, Were Not Vio-

IEE TIE. ncccicsinsinisigubicinsidtiabbuienmiiampmmmasion 24

B. Assuming Arguendo That It Was Constitu-

tional Error To Apply Kansas Law To All

Class Member Claims, The Error Was Harm-

less Since Oklahoma Law, Which Is Appar-

ently Conceded To Be Applicable, Would

Have Led To The Same Result .. , 30

OIC II acs cccticsscscsccceesensnccessrsncnsnecccescensncensionsesesseene 32

Vv

TABLE OF AUTHORITIES

Cases: Page

Allstate Insurance Co. v. Hague, 449 U.S. 302

I iii enlist cabal passim

Barrows v. Jackson, 346 U.S. 249 (1953) _............. 11

Bigelow v. Old Dominion Copper Mining & Smelt-

i Se 4 SO eee 11

Boddie v. Connecticut, 401 U.S. 371 .......20...00000-020.... 16

Califano ». Yamasaki, 442 U.S. 682 ...........0000000000..... 22

Christopher v. Brusselback, 302 U.S. 500 (1938)... 18

Craig v. Boren, 429 U.S. 190 (1976) ........................ 11

Deposit Guaranty National Bank v. Roper, 445

ad taaidadaian 14, 16

Donson Stores Inc. v. American Bakeries Co., 58

ff Ee GS 8 erent 17

Eisen v. Carlisle & Jaquelin, 417 U.S. 156 (1974)... 6, 20

Exxon Corp. v. Middleton, 613 S.W.2d 240 (Tex.

ENNIS NR IE SPS SOAS RR A 29

Foster v. City of Detroit, 405 F.2d 138 (6th Cir.

1968), aff’ 254 F. Supp. 655 (E.D. Mich. 1966)... 12

Hansberry v. Lee, 311 U.S. 32 (1940) ........00.... 6, 15, 17

Hanson v. Denckla, 357 U.S. 235 (1958) ................ 10

Hartford Life Insurance Co. v. Barber, 245 U.S.

ee I ca cclueihcdbuibiusdaieeaeaiamonaaaan 18

Hartford Life Insurance Co. v. Ibs, 237 U.S. 662

SEA anak ane ee ee ans ne aS 18, 20

In Re Federal Skywalk Cases, 680 F.2d 1175 (8th

Cir.), cert. denied, 103 S. Ct. 342 (1982) _......... 23

In Re Northern District of Cal. “Dalkon Shield”

IUD Products Liability Litigation, 693 F.2d 847

(9th Cir. 1982), cert. denied, 103 S. Ct. 817

RII PRES ae ore iars OLY aPC eee ree 23

Insurance Corp. of Ireland v. Compagnie Des

Bauxites de Guinee, 456 U.S. 694 (1982) _........ 5, 8, 21

International Shoe Co. v. Washington, 326 U.S.

I aa er aD 4,5, 15

Keeton v. Hustler Magazine, Inc., 104 S. Ct. 1473

ESERIES cies SNe SIE OE OED AALS E UI 5, 8, 9, 15, 21

Klaxon Co. v. Stentor Electric Mfg. Co., 313 US.

I IIE xcithisscdedsihiesshtenietiscs-tuanletelaschieeddaihgaatedialsteaiiaials 25

vi

TABLE OF AUTHORITIES—Continued

Page

Logan v. Zimmerman Brush Co., 455 U.S. 422

(1982) . Para oie Oe Se OE EO 17

Milliken v. Meyer, 311 U.S. 457 (1940) -............... 31

Miner v. Gillette Co., 87 Ill. 246, 428 N.E.2d 478

(1981), cert. dismissed, 459 U.S. 86 (1982)........ 21

Mobil Oil Corp. v. Federal Power Commission, 463

F.2d 256 (D.C. Cir. 1971), cert. denied, 406 U.S.

RETESET SEC ag ae eee en ae ee 26

Morrisey v. Brewer, 408 U.S. 471 (1972) ............... 15

New York Life Insurance Co. v. Dunlevy, 241 U.S.

il eemeltnicenietien 15

Parklane Hosiery Co. v. Shore, 489 U.S. 322

ERS SELREEGSAT a pee Ree ree meen eee 12, 13

Pasquier v. Tarr, 318 F. Supp. 1350 (E.D. La.

1970), aff'd, 444 F.2d 116 (5th Cir. 1971) -........ 13

Pennoyer v. Neff, 95 U.S. 714 (1877) -............... 16

Phillips Petroleum Co. v. Adams, 513 F.2d 355

(5th Cir.), cert. denied, 423 U.S. 930 (1975)... 26

Phillips Petroleum Co. v. Duckworth, 459 US.

a eainene 3

Phillips Petroleum Co. v. Riverview Gas Compres-

sion Co., 409 F. Supp. 486 (N.D. Tex. 1976) _...... 29, 30

Phillips Petroleum Co. v. Stahl Petroiewm Co., 569

ee ee CB ._.csisnesnnnemastommnanicien 28, 29

Rush v. Savchuk, 444 U.S. 320 (1980) _................... 15

Schrader v. Selective Service System, Local Board

No. 76 of Wisconsin, 470 F.2d 73 (7th Cir.),

cert. denied, 409 U.S. 1085 (1972) ..... RS TO 13

Secretary of State v. Joseph H. Munson Co., 104

i ile 11

Shaffer v. Heitner, 433 U.S. 186 (1977) -............... 15

Shutts v. Phillips Petroleum Co., 22 Kan. 527, 567

P.2d 1292 (1977), cert. denied, 434 U.S. 1068

SERRE RASS aN ee ne eT Te passim

Singleton v. Wulff, 428 U.S. 106 (1976) ...... 5, 8, 10, 11, 13

Smith v. Owens, 397 P.2d 673 (Okl. 1963) ............ 28

Smith v. Swormstedt, 57 U.S. (16 How.) 228

SUED ieee ietnenineninnigbiaituiedatanebiticigttenantinite 18, 19

vii

TABLE OF AUTHORITIES—Continued

Page

Sovereign Camp of the Woodmen of the World v.

Bolin, 305 U.S. 66 (1988) .....2.....2......22...eeee eee eee 18

Supreme Council of the Royal Arcanum v. Green,

te 7,18

Supreme Tribe of Ben-Hur v. Cauble, 255 U.S.

EEE Severe nna ne nA a nee en ee 18

Tileston v. Ullman, 318 U. = Fee 13

Underwriters National Assurance Co. v. North

Carolina Life and Accident and Health Insur-

ance Guaranty Ass’n, 455 U.S. 691 (1982) ......... 31

Union Carbide & Carbon Corp. v. Nisley, 300 F.2d

561 (10th Cir. 1961), cert. dismissed, 371 U.S.

SO i 12

United States Gas Improvement Co. v. Callery

Properties, Inc., 382 U.S. 223 (1965) .......000...0.... 26

Wabash R.R. v. Adelbert College, 208 U.S. 38

REIMAN a RR Lot Re AiR Ps ad RT 12

Warth v. Seldin, 422 U.S. 490 (1975) .....000 0. 8, 11,13

Webb’s Fabulous Pharmacies, Inc. v. Beckwith,

A a eeisiedibitiog 27

Zablocki v. Redhail, 434 U.S. 374 (1978) .............. 8

Regulations and Rules:

EE SE 6, 22

EE Ra eI NER IE 2 2, 26

Other Authorities:

Abrams & Dimond, Toward A. Constitutional

Framework For the Control of State Court Ju-

risdiction, 69 Minn. L. Rev. 75 (1984) 0.000000. 22

1966 Advisory Committee Notes to Rule 23, re-

printed in 3B Moore’s Federal Practice % 23.01

a a aaa 12

Comment, Jurisdiction and Notice in Class Ac-

tions: “Playing Fair’ Wi'h National Classes,

ek i. rere 22

Kalven & Rosenfield, The Co..:emporary Function

of The Class Suit, 8 U. Chi. L. Rev. 684 (1941).. 16

viii

TABLE OF AUTHORITIES—Continued

Page

Kaplan, Continuing Work of the Civil Committee:

1966 Amendments of the Federai Rules of Civil

Procedure (I), 81 Harv. L. Rev. 356 (1967)........ 22

8B Moore’s Federal Practice { 23.11[5] (1984)... 20

Newberg on Class Actions § 1206 (1980 Supp.).... 20

Note, Binding Effect of Class Actions, 67 Harv.

= "S —,_ RERES TEER FE Nye onsen eee 11

Note, Class Action Judgments and Mutuality of

Estoppel, 48 Geo. Wash. L. Rev. 814 (1975) ......... 13

Note, Multistate Plaintiff Class Actions, 69 lowa

iC ia lealeenianinn 17

Note, Multistate Plaintiff Class Actions: Jurisdic-

tion and Certification, 92 Harv. L. Rev. 718

I atelier iaiaiennataninnlets 9, 12, 23

Restatement (Second) of Judgments § 41 (1982).. 20

Sedler, Constitutional Limitations on Choice of

Law: The Perspective of Constitutional Gener-

alism, 10 Hofstra L. Rev. 59 (1981) .................... 30

7A C. Wright & A. Miller, Federal Practice and

Procedure $1789 (1972) ...............2--00.....c0--e--00000 12, 13

IN THE

Supreme Court of the Rnited States

OCTOBER TERM, 1984

No. 84-233

PHILLIPS PETROLEUM COMPANY,

Petitioner,

V.

IRL SHUTTS and ROBERT ANDERSON and BETTY ANDERSON,

individually and as representatives of all royalty

owners to whom Phillips Petroleum Company made

payment of suspended proceeds of royalties pursuant

to Federal Power Commission Opinion Nos. 699, 699H,

749, 749C, 770 and 770A,

Respondents.

On Writ of Certiorari to the Supreme Court of Kansas

BRIEF FOR RESPONDENTS

STATEMENT OF THE CASE

This case arose because of the way in which the fed-

eral government regulates gas prices, and the effect of

that regulatory process on the rights of royalty owners.

During the time in questicn, the Federal Power Com-

mission (“FPC’”) (now the Federal Energy Regulatory

Commission) was authorized to engage in retroactive

rate approval. A regulated company, such as the peti-

2

tioner in this case, was allowed to charge unapproved

prices for its gas, subject to a written undertaking with

the FPC to refund any excess to purchasers, along with

a prescribed rate of interest, if those prices were not

ultimately approved. See 18 CFR § 154.102. This regu-

latory process did not directly control the rights of

royalty owners, however, even though they were clearly

affected by its operation since all royalty payments were

based on FPC-approved gas prices. Pet. App. 33.

The three FPC proceedings that led to this case in-

volved reviews of nationwide rates being charged by

petitioner Phillips in the mid-1970’s. While these re-

views were taking place, Phillips “suspended” a portion

of the payments to royalty owners on the ground that

the unapproved part of its rates might later be subject

to recoupment. In each instance, however, Phillips

agreed to pay the full royalty, based on the unapproved

rate, if the royalty owner provided a bank letter or cor-

porate indemnity guaranteeing repayment plus interest

at the FPC prescribed rates if the full gas price was

not subsequently approved. Pet. App. 51. See also Shutts

v. Phillips Petroleum Co., 222 Kan. 527, 567 P.2d 1292,

1299 (1977), cert. denied, 434 U.S. 1068 (1978)

(“Shutts I”). A very smali percentage of royalty own-

ers provided such an indemnity and thereafter received

full royalty payments in a timely fashion. Pet. App. 51.

The remaining royalty owners received no royalty on

the unapproved portion of the rates until the FPC rul-

ings on those rates became final. The three vate pro-

ceedings at issue here ultimately led to the payment of

“suspense royalties” of $3.7 million in July 1976, $4.7

million in July 1977, and $2.9 million in February 1978.

Pet. App. 50. Although Phillips had the use of this

$11.3 million for several years, it refused to pay royalty

owners any interest whatsoever when it finally paid the

royalties.

3

The instant suit was filed in July 1979 by one royalty

owner in Kansas and two in Oklahoma seeking to repre-

sent a class of royalty owners and gas producers who

had received suspense payments without interest from

Phillips. J.A. 4. The trial court limited the class to roy-

alty owners, however, finding that the producers’ claims

raised separate issues. J.A. 17-19. The number of poten-

tial class members was approximately 33,000 people,

who resided in every state in the country. Pet. App. 49.

While the amount allegedly due each class member varied,

the average claim was for interest on about $340

(amounving to less than $100), which the trial court

found to be “too small to enable each to file a separate

action.” J.A. 18."

Pursuant to order of the trial court, every potential

class member was sent a notice by first class mail, paid

for by plaintiffs, describing the action and advising the

class member that he could appear in person or by coun-

sel, and that he could opt out of the case by signing and

returning the “request for exclusion” that was included

with the notice. J.A. 20-22. The final class as certified

contained 28,100 members; 3,400 people had opted out

and notice could not be delivered to another 1,500 peo-

ple. Pet. App. 50. Close to 1,000 class members resided

in Kansas and a small undetermined additional number

owned leaseholds in that State.

After a trial based essentially on undisputed facts,

the court concluded that under established precedent in

Kansas, including a decision by the Kansas Supreme

Court in a virtually identical case involving areawide

rate proceedings, see Shutts I, the royalty owners were

owed interest on the suspense royalties from the date

Phillips received the payments until the full royalties and

1 Phillips sought to mandamus the trial court to exclude all non-

resident class members from the «ction. The Kansas Supreme Court

denied the petition without opinion on June 28, 1982, and this

Court denied certiorari. Phillips Petroleum Co. v. Duckworth, 459

U.S. 1103 (1983).

4

interest were paid. The rate of interest was set at

precisely the rate provided for in the federal regula-

tions—i.e., the rate that Phillips would have had to pay

purchasers on refunds and the rate Phillips had de-

manded in the indemnity agreements from royalty

owners.”

The Kansas Supreme Court affirmed, except that it

applied the 15% Kansas statutory interest rate, rather

than the FPC rates, to post-judgment interest. The

court rejected Phillips’ claim regarding the application

of the “minimum contacts” rule of International Shoe

Co. v. Washington, 326 U.S. 310 (1945), as a basis for

asserting personal jurisdiction over nonresident class

members. It held instead that procedural due process—

assured by the Kansas class action statute, which was

modelled on Federal Rule 23—provided a sufficient con-

stitutional predicate for this purpose. The court also

noted that no other action had been brought on these

claims, and that the statute of limitatious had run in

other States. Pet. App. 17.

The court then found Phillips’ efforts to differentiate

among various royalty owners—on the basis of such fac-

tors as whether Phillips sold the gas or used it, or

whether Phillips had agreements regarding interest with

producers that it purchased from—to be unavailing. It

pointed out that every class member’s royalty payments

were tied directly to the FPC-approved gas rates, and that

“Ta]ll suspense monies were withheld and paid out to all

royalty owners on a uniform basis. All royalty owners

were notified of the right to receive the additional royal-

ties during the suspension period if an acceptable indem-

nity was filed with Phillips.” Pet. App. 41.

2 As provided in the federal regulations, the rate varied over time

depending on bank prime rates. The specific rates are set out at

Pet. App. 54.

5

The Kansas Supreme Court next addressed Phillips’

argumer.: that it should look to the law of each of the

eleven states in which the underlying leaseholds were lo-

cated to determine the interest due on the suspended roy-

alties. Pet. App. 48. The court also rejected this claim,

ruling that the FPC interest rates were a proper measure

of damages in the circumstances presented. Relying on

the equitable principles set out in its earlier opinion in

Shutts I, the court said that it saw no reason not to ad-

here to those principles in this case. It also concluded

that “[t]he common fund nature of the lawsuit provides

an excellent reason to apply a uniform measure of dam-

ages to the class as a whole, as each member of the class

has been similarly deprived of the rightful use of his or

her money.” Pet. App. 43.

SUMMARY OF ARGUMENT

I. Phillips lacks standing to argue that the Kansas

courts did not obtain personal jurisdiction over nonresi-

dent class members. That claim rests solely on the due

process rights of those absent class members. See Jnsur- .

ance Corp. of Ireland v. Compagnie Des Bauwxites de

Guinee, 456 U.S. 694 (1982); Keeton v. Hustler Maga-

zine, Inc., 104 S. Ct. 1473 (1984). The established

rule is that a party may not assert rights belonging to

others except in narrow circumstances not present here.

See Singleton v. Wulff, 428 U.S. 106 (1976). In no in-

stance has this Court allowed a party to raise the rights

of its adversary in an effort to undermine his adversary’s

interests. This case provides no justification for depart-

ing from the established rule.

II. The “minimum contacts” requirement, developed

for determining when a nonresident defendant can be

haled into a faraway court and forced to defend himself

or fail to do so at his peril, see International Shoe Co. v.

Washington, supra, is an inappropriate constitutional

standard for testing the assertion of jurisdiction over

6

nonresident class action plaintiffs. The basic distinctions

between nonresident plaintiff class members and nonresi-

dent defendants amply justify different approaches to per-

sonal jurisdiction. See, e.g., Hansberry v. Lee, 311 U.S.

82 (1940). The process afforded class members by Kan-

sas included an assurance of adequate representation, see

id., first class mail notice, see Eisen v. Carlisle &

Jacquelin, 417 U.S. 156 (1974), the right to appear per-

sonally or by counsel, and the right to opt out. Due proc-

ess requires no more.

Petitioner itself acknowledges that an “opt-in” class

action procedure would be constitutionally adequate. Br.

at 16 n.13. The essential jurisdictional dispute in this

case thus reduces to the difference between an opt-out and

opt-in requirement. In our view, the opt-out approach—

which was specifically adopted under the Federal Rules,

Rule 23(b) (3), (ce) (2) (A)—is constitutionally prefer-

able: it allows small claimants to remain in without re-

quiring them to contact an attorney or take other actions

before they execute an opt-in agreement; at the same

time, it protects larger claimants who either have counsel

or have a sufficient amount at stake to assure that they

will take proper steps to decide whether it is in their in-

terest to opt out and proceed on their own.

III. The application of basic equitable principles of

restitution to the facts of the instant case violated no

constitutional proscription concerning choice of law. The

measure of damages authorized by the court below, while

premised on Kansas law, can hardly be said to be “ar-

bitrary or fundamentally unfair” in any constitutional

sense. See Allstate Insurance Co. v. Hague, 449 U.S. 302

(1981). It was based, in fact, solely on Phillips’ under-

taking with the FPC and its indemnity offer to class

members. Despite petitioner’s suggestion to the contrary,

there is no real basis for claiming that the laws of other

States would have led to a different result. See Shutts /,

567 P.2d at 1317-21. |

7

In any event, even assuming that the Kansas court

erred in applying its own law to all claims, the error was

harmless. Phillips itself appears to acknowledge that Ok-

lahoma—where Phillips has its principal place of busi-

ness, where it held the suspense royalties, and from where

it mailed those royalties to all class members—has a suf-

ficient interest to allow that State’s law to be applied to

all claims. See, e.g., Supreme Council of the Royal

Arcanum V. Green, 237 U.S. 531 (1915). The Kansas

Supreme Court in its predecessor decision in Shutts I

examined Oklahoma law and found it to be in accord with

the legal principles applied here. Nothing has changed

since then to indicate that any other decision would be

warranted now.

ARGUMENT

Raising the spectre of “irreparable damage to federal-

ism,” Br. at 39, Phillips seeks reversal of the decision

below by invoking first the due process rights of absent

class members and then the sovereignty interests of ab-

sent States. Curicusly, no class member has sought to in-

tervene and no State has filed an amicus brief. The reason,

we suggest, is because the rulings by the Kansas courts

fully protected the legitimate interests of all class mem-

bers and in no way trespassed on the sovereignty inter-

ests of any Sister State. Phillips’ real concern is to pre-

vent meaningful class action proceedings and thereby

deny many class members relief clearly owed to them—

relief that unless aggregated is too small to warrant being

pursued. Neither the Due Process Clause or any con-

stitutional notion of federalism requires such an unjust

result.

I. PHILLIPS LACKS STANDING TO RAISE DUE

PROCESS CLAIMS BELONGING EXCLUSIVELY

TO ADVERSE PARTIES WHO ARE FULLY CAPA-

BLE OF RAISING SUCH CLAIMS THEMSELVES.

Phillips’ first argument—that the Kansas courts im-

permissibly exercised personal jurisdiction over nonresi-

dent plaintiff class members—rests solely on its ability to

8

assert the due process claims of those class members.

Such an effort, however, is barred by the well-established

prudential doctrine requiring that a party “must as-

sert his own legal rights and interests, and cannot rest

his claim to relief on the legal rights or interests of third

parties.” Warth v. Seldin, 422 U.S. 490, 499 (1975)

(citations omitted). While there are limited exceptions to

this principle, see, e.g., Singleton v. Wulff, supra, 428 U.S.

at 114-116, the Court has never suggested that a party

has standing to raise the rights of its adversary. The facts

of the instant case demonstrate that this is not an appro-

priate occasion to create such an exception. Cf. Zablocki

v. Redhail, 434 U.S. 374, 380 n.6 (1978) (named defend-

ant cannot raise due process claims of absent defendant

class members) .

Phillips does not argue that it is not amenable to suit

in Kansas by all nonresident class members. Nor does it

assert that any claim, other than one resting solely on the

rights of class members, would have prohibited the exer-

cise of jurisdiction by the courts below. Such an argu-

ment would be untenable in any event. Only recently this

Court made clear that “[t]he requirement that a court

have personal jurisdiction flows not from Art. III, but

from the Due Process Clause. The personal jurisdiction

requirement .. . represents a restriction on judicial power

not as a matter of sovereignty, but as a matter of in-

dividual liberty.” Insurance Corp. of Ireland v. Com-

pagnie Des Bauxites de Guinee, supra, 456 U.S. at 702

(footnote omitted) (emphasis supplied). As a result, a

nonresident plaintiff, much like any defendant, can con-

sent to jurisdiction. See Keeton v. Hustler, supra, 104

S. Ct. at 1480-81.°

8 Phillips recognizes this principle when it admits that a state

court can exercise jurisdiction over nonresident class members, with

or without “minimum contacts,” if it uses an “opt-in” provision.

Br. at 16 n. 13. See p. 21 infra. Despite this recognition, however,

in its petition for certiorari Phillips claimed that both due process

nail

9

It is equally obvious that Phillips has no desire to pro-

tect absent class members. Quite to the contrary, its only

interest in raising their rights is to defeat their recovery.*

Not a single absent class member has ever sought to ini-

tiate separate litigation. And if one had, Phillips’ view

of his rights would have been very different indeed. Thus,

when three absent Texas class members attempted to opt

out in Shutts I, “Phillips filed a motion to deny the re-

quest for exclusion alleging in part that the three men

would file a class action suit in Texas.” 567 P. 2d at

1313. In short, Phillips plainly is not here seeking to

bring about a multiplicity of lawsuits in various states.

Its only possible interest, therefore, is to defeat class

and sovereignty concerns warranted a minimum contacts rule for

absent class plaintiffs. Pet’n at 5-12. It has now changed course,

arguing in its brief first that the Due Process Clause alone requires

such minimum contacts. Later, after making a separate argument

concerning the choice-of-law issue, Phillips concludes with a third

argument to the effect that federalism concerns bar the combined

assertion of jurisdiction avd application of Kansas law. This com-

bined argument is fundamentally misguided, however. As the Court

stated in Keeton v. Hustler, supra, 104 S. Ct. at 1480, “we do not

think that such choice of law concerns should complicate or distort

the jurisdictional inquiry.” Phillips’ argument is especially inap-

propriate here because its jurisdictional claim is based exclusively

on the rights of its adversaries, whereas its choice of law argument

rests in part on its own rights. By lumping the claims together

Phillips generates much heat but no light. See note 18 infra.

* To the extent Phillips is concerned whether absent classmembers

will be bound by the judgment, that issue cannot be finally resolved

in the initial class action. See p. 11 infra. Moreover, as one com-

mentator put it in discussing Shutts J, “the issue of binding non-

resident class members was, from the standpoint of the class, vir-

tually moot. The judgment below had been in favor of the class.

All that remained was to distribute damages to the victorious class

members. A trial court in that posture could easily structure dis-

tribution to ensure that acceptance of the award would constitute

consent to the court’s jurisdiction and waiver of all future claims

against the defendant.” Note, Multistate Plaintiff Class Actions:

Jurisdiction And Certification, 92 Harv. L. Kev. 718, 7385 (1979)

(footnote omitted).

10

members’ claims. There could hardly be a more compell-

ing reason for prohibiting a party from pressing the

rights of others.

The rationale that led to this standing doctrine con-

firms this conclusion. A party is barred from raising

another’s rights because: (1) “the holders of those rights

either [may] not wish to assert them, or will be able to

enjoy them whether the in-court litigant is successful or

not”; and (2) “third parties themselves usually will be the

best proponents of their own rights.” Singleton v. Wulff,

supra, 428 U.S. at 114 (citations omitted). In this case, it

is obvious that absent class members have no interest in

seeing their rights raised to defeat their recovery. Those

absent class members, moreover, might well take a differ-

ent view of what their rights are. Thus, the reasons for

applying the doctrine are present here.

The Court has authorized a limited exception to this

doctrine when (1) the relationship of the litigant to the

third party is such that the litigant’s interest in asserting

the other’s rights assures that he will be an effective pro-

ponent, and (2) it appears that the third party himself

might otherwise be denied the opportunity to protect his

rights. See id. at 114-116. Neither criteria supports peti-

tioner’s standing here.* Not only is Phillips’ interest di-

5 Hanson V. Denckla, 357 U.S. 235 (1958), relied on by Phillips,

is not to the contrary. There, a defendant was allowed to assert

the in personam rights of a nonresident co-defendant who did not

appear in the action. In contrast to this case, the co-defendant

whose rights were pressed had no interest that was adverse to the

party given standing. Moreover, the Court allowed the in-court

defendant to raise the issue because under the forum State’s law

the action could not proceed unless there was jurisdiction over the

absent co-defendant. See id. at 245. In this case, however, it is

clear, as Phillips itself concedes, that an action against it would

have been maintainable by Kansas residents, with or without the

nonresident class members.

Phillips reads Hanson to require only that the defendant have a

“direct and substantial personal interest in the outcome” to allow

11

rectly antagonistic to the interest of those whose rights

it seeks to assert,* but there is no question that the parties

possessing the rights are fully able to exercise them if

they so wish. Despite the pendency of the instant action,

any nonresident class member remained free to initiate

his own suit against Phillips and test whether the Kansas

court had properly exercised jurisdiction over him. That

issue simply could not be conclusively determined by the

first court purporting to assert jurisdiction. See, e.g.,

Bigelow v. Old Dominion Copper Mining & Smelting Co.,

225 U.S. 111 (1912). See generally Note, Binding Effect

of Class Actions, 67 Harv. L. Rev. 1059 (1954). Consistent

with these principles, this Court has reviewed many cases

involving collateral challenges to class actions, testing

whether the first court had obtained jurisdiction over ab-

sent class members. See cases cited at p. 18 infra. In no

instance were these claims presented by anyone other than

the absent class member himself.

The effect of this standing doctrine as applied here

admittedly has an element of non-mutuality to it: by

preventing the defendant from asserting the due process

rights of absent class members it allows those class mem-

bers to accept a judgment if the named representatives

prevail, while also allowing them a chance to relitigate

him to raise an absent party’s jurisdictional claim. Reply Br. on

Pet’n at 2 (citations omitted). Satisfying that criteria alone is not

sufficient, however. See, e.g., Warth v. Seldin, supra; Singleton v.

Wulff, supra.

6 The cases that have allowed parties to litigate others’ rights

involved relationships where the interest in the exercise of the

right was coincident. See, e.g., Secretary of State v. Joseph H.

Munson Co., 104 S. Ct. 2839 (1984) (fundraiser asserting rights of

charitable organization that he solicits for); Singleton v. Wulf,

supra (doctor-patient) ; Craig v. Boren, 429 U.S. 190 (1976) (seller

of beer who wanted to sell to minors who wanted to buy) ; Barrows

v. Jackson, 346 U.S. 249 (1953) (white convenantor who was sued

for failure to honor convenant not to sell to blacks).

12

their claims if they lose. This consideration, however,

should not lead to a different rule in the present situation.

Much like with the use of one-way collateral estoppel

against a defendant, see Parklane Hosiery Co. v. Shore,

439 U.S. 322 (1979), there is nothing unfair about hold-

ing the defendant bound even though it is possible that

an absent class member may not be. The defendant in

these circumstances has “had a full opportunity to litigate

the issues” knowing that the decision was presumptively

applicable to the whole class. 7A C. Wright & A. Miller,

Federal Practice and Procedure § 1789, at 182 (1972).

See also Note, Multistate Plaintiff Class Actions: Juris-

diction And Certification, 92 Harv. L. Rev. 718, 736-37

(1979).7 A defendant’s legitimate concerns can thus be

adequately protected by requiring him to wait until an

absent class member attempts to attack the judgment

on due process grounds. At that time the defendant will

be able to secure a full test of the jurisdictional question

by pressing his own interest—i.e., the binding effect of a

judgment favorable to him. The issue will then be prop-

erly framed.

Nor is it of any consequence here that a defendant in a

federal class action under Rule 23 can challenge adequacy

of representation or notice, which are requirements de-

signed to protect absent class members. Those and other

criteria must be satisfied to comply with the provisions

of the Rule, and are supposed to be assessed by “the

court with the aid of the parties.” 1966 Advisory Com-

mittee Notes to Rule 23, reprinted in 3B Moore’s Federal

7 Before the 1966 Amendments to Federal Rule 23, in fact, class

members in so-called “spurious’”—+.e., common issue of law or fact—

class actions could always unilaterally decide whether to be included

in the class, see Wabash R.R. v. Adelbert College, 208 U.S. 38

(1908), sometimes even after judgment. See, e.g., Foster v. City of

Detroit, 405 F.2d 138 (6th Cir. 1968), aff’g 254 F. Supp. 655

(E.D. Mich. 1966); Union Carbide & Carbon Corp. v. Nisley, 300

F.2d 561, 569 (10th Cir. 1961), cert. dismissed, 371 U.S. 801

(1962).

13

Practice § 23.01, at p. 237-27 (1984). Thus, the Rule, in ef-

fect, grants the defendant standing that he would not other-

wise have, thereby allowing him to raise these issues in

the trial court. See Warth v. Seldin, supra, 422 U.S. at

500. And even if such statutorily-created standing would

also permit a defendant to press these issues on appeal in

a federal class action,’ that rationale does not apply to

a state class action statute, especially as a basis for allow-

ing the defendant to appeal a due process claim, like the

one here, that goes beyond the requirements of the statute

in question.®

8 Whether the justification for non-mutuality in class actions, see

p. 12 supra, would prohibit a defendant from raising inadequacy

of representation or lack of notice to appeal a judgment against him

in a federal action is unclear. The issue has almost never arisen

for obvious reasons. There were a few instances in the early 1970’s

where federal courts refused to allow absent class members to rely

on a favorable decision in a draft exemption case because they had

not received notice, and therefore would not have been bound. See

Schrader Vv. Selective Service System, Local Bd. No. 76 of Wisconsin,

470 F.2d 73, 75 (7th Cir.), cert. denied, 409 U.S. 1085 (1972);

Pasquier V. Tarr, 318 F. Supp. 1350, 1353-54 (E.D. La. 1970), aff’d

on other grounds, 444 F.2d 116 (5th Cir. 1971). These rulings have

been subject to considerable criticism, see, e.g., 7A C. Wright &

A. Miller, supra, § 1789 at 181-83, and their continuing vitality is

questionable after Parklane Hosiery Co. v. Shore, supra. See gen-

erally Note, Class Action Judgments and Mutuality of Estoppel, 43

Geo. Wash. L. Rev. 814 (1975).

®The “minimum contacts” claim raised by Phillips is not an

inquiry relevant to class action certification in Kansas. Pet. App.

at 65-67. Thus, even if it could be said that the Kansas class

action statute would confer standing in this Court to allow the

defendant to litigate the requirements there at issue, that statute

would still not give Phillips standing in this case. We note in this

regard that the Kansas Supreme Court did consider various chal-

lenges by Phillips to the propriety of certifying the class under

Kansas law. Pet. App. 20-24, 28-29. The fact that the court also con-

sidered the minimum contacts claim presented by Phillips does not

confer standing to litigate the issue in this Court. See, e.g., Tileston

v. Ullman, 318 U.S. 44 (1943).

14

In sum, there is no basis for departing from the estab-

lished rule and allowing Phillips to raise the rights of

absent class members to defeat their recovery. Those

rights are fully capable of being raised by the class mem-

bers themselves, who are best situated to espouse them.

Il. A STATE COURT MAY CONSTITUTIONALLY EX-

ERCISE JURISDICTION OVER NONRESIDENT

PLAINTIFF CLASS MEMBERS REGARDLESS OF

WHETHER THEY HAVE MINIMUM CONTACTS

WITH THE FORUM STATE WHERE AS HERE

SUCH CLASS MEMBERS ARE PROVIDED WITH

ADEQUATE REPRESENTATION, PERSONAL NO-

TICE, A RIGHT TO PARTICIPATE, AND A RIGHT

TO OPT OUT.

Capturing the essence of class action litigation, this

Court recently stated that “[t]he aggregation of individ-

ual claims in the context of a classwide suit is an evolu-

tionary response to the existence of inequities unremedied

by the regulatory action of government. Where it is not

economically feasible to obtain relief within the tradi-

tional framework of a multiplicity of small individual

suits for damages, aggrieved persons may be without any

effective redress unless they may employ the class-action

device.” Deposit Guaranty National Bank v. Roper, 445

U.S. 326, 339 (1980). Phillips disregards this essential

recognition as well as the basic differences between plain-

tiff class members and defendants, and urges the adoption

of the “minimum contacts” rule to test all assertions of

state court jurisdiction. The effect of such a rule, as the

facts of the instant case illustrate, would be to deny

judicial access for many small claimants dispersed

throughout the country. It would thus allow national bus-

inesses to ignore their obligations to such people, knowing

that the practicalities of modern litigation will limit, if

not eliminate, meaningful redress. To invoke the name

of due process in the service of such ends is ironic at

best.

15

A. The Differences Between The Interests Of Nonresi-

dent Plaintiff Class Members And Those Of Non-

resident Defendants Justify Different Due Process

Requirements For Personal Jurisdiction.

“{D]ue process is flexible and calls for such . . . protec-

tections as the particular situation demands.” Morrisey

v. Brewer, 408 U.S. 471, 481 (1972). With respect to

state court assertions of personal jurisdiction, the Due

Process Clause imposes certain requirements that make

it fair to insist that a person have his interests adjudi-

cated in that State. See, e.g., International Shoe Co. Vv.

Washington, supra, 326 U.S. at 316; Hansberry v. Lee,

supra, 311 U.S. at 42. Applying this principle to non-

resident defendants, the Court has held that the “mini-

mum contacts” test, first enunciated in International

Shoe, is a constitutional prerequisite. There is no basis,

however, for extending that standard to absent plaintiff

class members, who are in an significantly different posi-

tion.

It should be noted initially that, notwithstanding Phil-

lips’ suggestion to the contrary, the Court has never ap-

plied the minimum contacts rule to a non-defendant.

Although Phillips quotes the language in Shaffer v.

Heitner, 433 U.S. 186, 212 (1977), to the effect that “all

assertions of state court jurisdiction must be evaluated

according to the standard set forth in International Shoe

and its progeny[,]” it conveniently ignores the Court’s

later explanation of that precise quote as being limited to

“defendant[s].” Rush v. Savchuk, 444 U.S. 320, 327

(1980). See also Keeton v. Hustler Magazine, Inc., supra,

104 S. Ct. at 1480-81.”

10 This is not to suggest that a mere label should control the

constitutional inquiry. A party faced with the same interests at

stake as a defendant would obviously be entitled to the protection

of the minimum contacts rule irrespective of the formal status

assigned to him by state law. Cf. New York Life Ins. Co. Vv.

Dunlevy, 241 U.S. 518 (1916) (pre-Jnternational Shoe case involv-

ing interpleader).

16

Nor is there any justification for unhinging the mini-

mum contacts rule from the specific considerations that

gave rise to its creation. A defendant’s interest in avoid-

ing litigation is always great, irrespective of where the

suit is filed. To afford him a measure of confidence in

ordering his affairs and limiting his exposure—i.e., to

protect “traditional notions of fair play and substantial

justice,” International Shoe v. Washington, supra, 326

U.S. at 316—the Court has held that a defendant must

have some contacts with a State before he can be forced

to litigate there. A defendant, moreover, is invariably re-

quired to obtain counsel and stands to have a judgment

entered against him, a judgment that may include coercive

court orders, damages, and court costs. And if he fails to

appear he faces a default judgment. Before International

Shoe, these interests were thought to be of such magnitude

as to require that the defendant actually be present in a

State for him to be amendable to personal jurisdiction.

See Pennoyer Vv. Neff, 95 U.S. 714 (1877).

An absent plaintiff class member, by contrast, has very

different interests at stake. The class action device, far

from being a means by which to protect the absent class

member against being unfairly haled into court, was de-

veloped to help assure judicial access for him. See Deposit

Guaranty National Bank v. Roper, supra, 445 U.S. at

339 See generally Kalven & Rosenfield, The Contempo-

rary Function of the Class Suit, 8 U. Chi. L. Rev. 684

(1941). In recognition of this purpose, the class action

11 Whether the minimum contacts rule should apply to absent

defendant class members is an issue not presented by this case. A

defendant class member faces different risks and thus his due

process protections should be assesed independently.

12 Tronically, two of the key cases relied on by Phillips to sup-

port its claim of equivalence between defendants and plaintiffs

with respect to the minimum contacts rule involved due process

holdings invalidating barriers to plaintiff access to judicial or

administrative proceedings. See Boddie v. Connecticut, 401 U.S.

17

was designed so that the absent plaintiff need not retain

counsel or appear in court and cannot be subject to coer-

cive court orders, damages, or the imposition of court

costs."* Rather, the absent plaintiff class member can sit

idly by and reap the benefits of the class representative’s

effort. The only risk he faces is that he may be bound by

the judgment if it is not favorable. This interest ad-

mittedly merits due process protection, see Logan V. Zim-

merman Brush Co., 455 U.S. 422, 428 (1982), but it

hardly follows that the due process requirements that ap-

ply to an absent plaintiff class member should be the

same as those that apply to a defendant. See generally

Note, Multistate Plaintiff Class Actions, 69 Iowa L. Rev.

795, 806-809 (1984).

B. The Rights Of All Absent Class Members Were

Fully Protected By The Procedures Used In Kansas.

The principles that govern personal jurisdiction in

plaintiff class action suits are to be found not in the

minimum contacts cases, but rather in Hansberry v. Lee,

supra, and the cases discussed therein. Specifically ac-

kuowledging that class actions were a “recognized excep-

tion” to the “general rules” governing personal jurisdic-

tion, the Court in Hansberry stated that such suits were

intended to bind even persons “not within the jurisdic-

tion” as long as “the interests of those not joined are of

the same class as the interests of those who are, and

where it is considered that the latter fairly represent the

871 (1971) (filing fee in divorce proceedings) ; Logan v. Zimmer-

man Brush Co., 455 U.S. 422 (1982) (arbitrary time requirements

in administrative proceedings).

13 There is no suggestion that Kansas would allow counterclaims

against absent class members. If it did, that consideration might

affect the constitutional balance. In general, courts have not per-

mitted the assertion of counterclaims against absent class members.

See, e.g., Donson Stores, Inc. v. American Bakeries Co., 58 F.R.D.

485. 488-89 (S.D.N.Y. 1973), discussed in Case Note, 87 Harv. L.

Rev. 470 (1973).

18

former in the prosecution of the litigation in which all

have a common interest.” 311 U.S. at 41. While invali-

dating the particular action at issue there on the ground

that the named plaintiffs had a conflict with the absent

class members, the Court nevertheless took pains to note

that it saw no due process objection to state court class

actions, even when predicated on a “single issue of fact

of law,” if “the litigation is so conducted as to insure

the full and fair consideration of the common issue.” Id.

at 43."

The Court in Hansberry also approvingly cited several

cases in which it had upheld multistate (or national) class

actions in state and federal courts. See, e.g., Smith V.

Swormstedt, 57 U.S. (16 How.) 228 (1854) ; Supreme

Council of Royal Arcanum V. Green, supra, Hartford Life

Insurance Co. Vv. Ibs, 237 U.S. 662 (1915) ; Hartford Life

Insurance Co. Vv. Barber, 245 U.S. 146 (1917) ; Supreme

Tribe of Ben-Hur v. Cauble, 255 U.S. 356 (1921); Sov-

ereign Camp of the Woodmen of the World v. Bolin, 305

U.S. 66 (1938).2* None of these decisions reflected any

concern about whether the nonresident plaintiffs had con-

tacts with the forum State. The sole contact in most in-

stances was that the class member held an insurance pol-

icy through a group fund or fraternal organization that

was chartered in that State. This is particularly impor-

tant because, as noted, the general rule for personal ju-

risdiction when these cases were decided required actual

14 Phillips suggests that Hansberry is sapped of its vitality

because it antedated International Shoe. As noted above, however,

the due process requirements for exercising jurisdiction over de-

fendants were more stringent prior to International Shoe.

15 Christopher Vv. Brusselback, 302 U.S. 500 ( 1938), relied on by

Phillips, detracts nothing from these rulings. In that case, a

federal court was found to have lacked jurisdiction over several

defendants who were stockholders of a bank. Under federal law,

the obligations of the stockholders to the bank’s creditors were

personal and could only be enforced through a suit against them,

and not through a suit against the bank.

19

presence.'® Even today, we doubt that such a contact

would render someone amendable to jurisdiction as a de-

fendant in the chartering State. If it did, it would cer-

tainly come as a surprise to millions of individuals who

have insurance policies issued by mutual companies or

through national membership organizations.

Rather than any minimum contacts concept of jurisdic-

tion, the rationale that supported these so-called “com-

mon fund” cases was expressed in the first of the line,

Smith v. Swormstedt, supra, a multistate class action in-

volving a disputed church fund.” There, the Court noted

that even “though the rights of the several persons may

be separate and distinct,” a class action is appropriate if

there is “a common interest or a common right, which the

bill seeks to establish or enforce.” 57 U.S. at 302 (em-

phasis supplied). Such an action is permissible because:

16 Phillips asserts “that the decisive factor in [these] cases was

the significant affiliating circumstances among the defendant, the

forum, and the litigation.” Br. at 22 (footnote omitted). If this is

meant to suggest that these factors—as distinct from the class

nature of the litigation—supported jurisdiction over the non-

resident plaintiffs, the suggestion is particularly inapt considering

that the general rule for jurisdiction then required that a person be

present. Nor could jurisdiction over the plaintiff class members

have turned on any quasi-in-rem notion. The rights and obligations

being adjudicated were individual to each classmember, as the

Court made clear. See, e.g., Hartford Life Insurance Co. v. Ibs,

supra, 237 U.S. at 673.

17 The claim by Phillips that no fund did or could exist in this

case, Br. at 21 n.18, is mistaken. As Phillips’ own behavior indi-

cates, it held the suspense royalties on behalf of the royalty owners.

It could have, and we believe should have, kept those funds in a

separate interest-bearing account. Had it done so, the royalties

and the interest would constitute a common fund. The fact that

Phillips commingled these royalties with its other monies does not

defeat this characterization. If anything, by commingling the

funds, Phillips inappropriately put them at risk. Surely in the

other. common fund cases it would have had no effect on the

jurisdictional issue if the fundholder had commingled the funds.

20

Where the parties interested in the suit are nu-

merous, their rights and liabilities are so subject to

change and fluctuation by death or otherwise, that it

would not be possible, without very great inconven-

ience, to make all of them parties, and would often-

times prevent the prosecution of the suit to a hear-

ing. For convenience, therefore, and to prevent a

failure of justice, a court of equity permits a portion

of the parties in interest to represent the entire body,

and the decree binds all of them the same as if all

were before the court. The legal and equitable rights

and liabilities of all being before the court by repre-

sentation, and especially where the subject-matter of

the suit is common to all, there can be very little

danger but that the interest of all will be properly

protected and maintained.

Id. at 308, quoted in Hartford Insurance Co. v. Ibs, supra,

937 U.S. at 672. This same concern—‘“to prevent a fail-

ure of justice’—and this same assurance—“the rights of

all being before the court by representation” —supported

the exercise of personal jurisdiction over nonresident

class members in this case. See Restatement (Second) of

Judgments § 41 (1982); 3B Moore’s Federal Practice

q 23.11[5], at p. 23-2893 (1984) ; Newberg on Class Ac-

tions § 1206 et seg. (1980 Supp.).

Indeed, the Kansas court went considerably further to

protect nonresident class members. In addition to insist-

ing that the named plaintiffs have the identical interest

at stake as did the absent class members, and that they

and their counsel adequately represent the class, the court

also required first class mail notice (at plaintiff’s ex-

pense) to all class members. See Eisen v. Carlisle &

Jacquelin, supra, 417 U.S. at 172-178. Moreover, it gave

class members the right to participate in person or

through counsel, and the right to opt out of the litigation

simply by signing and returning to the court a clearly-

worded form included with the notice. Taken together

these procedures amply protected the legitimate due proc-

ess rights of nonresident plaintiffs.

21

Significantly in this regard, while going on at length

about the minimum contacts rule and the supposed erosion

of state sovereignty in its absence, Phillips is forced to

concede that an “opt-in” requirement would be constitu-

tionally adequate to establish jurisdiction over nonresi-

dent class members, even in the absence of any contacts

with the forum State. Br. at 16 n.13. See also Keeton

v. Hustler, supra.’* In short, the real constitutional issue

in this case boils down to the difference between an opt-

out provision and an opt-in provision. In our view, this

18 This concession essentially eliminates the policy arguments

that Phillips advances in the third section of its brief. Br. at 36-46.

The fact is that any sovereignty concerns related to personal

jurisdiction requirements inevitably remain at the mercy of a

party, even if he is a defendant, since he may always consent to

jurisdiction. See Insurance Corp. of Ireland V. Compagnie Des

Bauzxites de Guinee, supra, 456 U.S. at 702-03 n.10. Moreover, the

kind of rule proposed by Phillips, which apparently seeks to limit

where multistate class actions can be brought on the basis of

competing state interests, would only lead to further litigation

over the relative interests of the states affected by the dispute.

It is difficult to see how such an approach would improve relations

among the states, to say nothing of its complete lack of constitu-

tional foundation.

We should also note that the “parade of horribles” suggested by

Phillips in its final argument, like most such claims, has little

substance to it. Phillips asks this Court not to trust the state

courts because “they will run riot with the national class action

and balkanize numerous areas of substantive law.” Br. at 45. The

reality is that the state courts have been willing to entertain

relatively few multistate class actions, and when they have done so,

the cases, much like this one, have usually involved small claims

that would otherwise go unremedied, and that are all truly identical

in nature and easy to litigate. See, e.g., Miner v. Gillette Co., 87 Ill.

246, 428 N.E.2d 478 (1981), cert. dismissed, 459 U.S. 86 (1982)

(identical claims worth $7.95 or each class member). Indeed in

this very case the Kansas courts specifically limited the class to

assure commonality of interest and manageability. J.A. 17-19. See

also Shutts 1, 567 P.2d at 1314 (“this opinion should not be read as

an invitation to file nationwide class action suits in Kansas”). In

trying to discern the reason for the decision below, Phillips would

do better to look to its own behavior, rather than that of the

Kansas courts.

22

distinction attempts to parse the due process requirement

too finely. See Abrams & Dimond, Toward A Constitu-

tional Framework for the Control of State Court Jurisdic-

tion, 69 Minn. L. Rev. 75, 99-100 & n.124 (1984) (such a

due process objection deemed “trivial” ) ; Comment, Juris-

diction and Notice In Class Actions: “Playing Fair”

With National Classes, 182 U. Pa. L. Rev. 1487, 1499-

1500 (1984). It is certainly difficult to fathom what rea-

sonable concern for fairness to absent class members

would justify an opt-out provision for those with mini-

mum contacts and an opt-in provision for all others.

If anything, we think that an opt-out requirement bet-

ter protects the interests of absent class members. It is,

of course, the procedure chosen to govern class actions

under the Federal Rules. See Fed. R. Civ. P. 23(b) (3),

(c) (2) (A). Explaining this choice, then-Professor Ben-

jamin Kaplan, Reporter to the Advisory Committee on

Civil Rules that proposed the Rule, stated, “requiring in-

dividuals affirmatively to request inclusion in the lawsuit

would result in freezing out the claims of people—espe-

cially 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 af-

firmative step.” Kaplan, Continuing Work of the Civil

Committee: 1966 Amendments of the Federal Rules of

Civil Procedure (I), 81 Harv. L. Rev. 356, 398 (1967).

In short, an opt-out requirement realistically protects

small claimants, who are almost certain not to pursue an

independant action if excluded from the class.

An opt-out procedure also provides meaningful protec-

tion for any class member who prefers not to participate.

All he need do is sign a form and mail it to the court.

Even in the present case ten percent of the class exercised

19 There is no “minimum contacts” requirement for exercising

jurisdiction over plaintiffs in national class actions conducted under

the Federal Rules. See Califano v. Yamasaki, 442 U.S. 682, 702-03

(1979).

re

23

this option. Clearly in cases involving larger sums there

is every reason to believe that absent class members will

take the steps necessary to decide whether it is in their

interest to remain in or to opt out and proceed on their

own. Cf. In re Federal Skywalk Cases, 680 F.2d 1175

(8th Cir.), cert. denied, 103 S.Ct. 342 (1982) (invalidat-

ing mandatory class action involving large damages claims

by plaintiffs); In re Northern District of Cal. “Dalkon

Shield” IUD Products Liability Litigation, 693 F.2d 847

(9th Cir. 1982), cert. denied, 103 S.Ct. 817 (1983)

(same).

The differing effect on large and small claimants of

these kinds of transaction costs in class action litigation

demonstrates that due process is better served by an opt-

out provision than it would be by an opt-in provision.

The procedures used by the Kansas courts, therefore, fully

protected the rights of all class members, and should be

upheld by this Court.”

Ill. THE APPLICATION OF BASIC PRINCIPLES OF

RESTITUTION EMBODIED IN KANSAS LAW TO

ALL CLASS MEMBER CLAIMS WAS NEITHER

ARBITRARY NOR UNFAIR AND RESULTED IN

NO RELEVANT CONFLICT WITH THE LAW OF

ANY OTHER STATE.

The second issue raised by Phillips concerns the deci-

sion by the Kansas Supreme Court to apply general prin-

20 If the Court should disagree with this position and find that, in

the absence of minimum contacts, an opt-in procedure is constitu-

tionally required, this case should be remanded for an opportunity

to allow nonresident class members to opt in. It would be grossly

unfair to class members who all along have had reason to believe

that their claims were being adjudicated in Kansas to be advised

that the Kansas proceeding was void rather than voidable. This is

especially so now that the statutes of limitations have run in other

jurisdictions. Pet. App. 17. Nor would there be any cognizable

prejudice to Phillips as a result of such a remand. Phillips’ legiti-

mate interest is to be certain that class members are bound. For

those who opt in, that binding effect will have been assured. See

Note, Multistate Plaintiff Class Actions, supra, 92 Harv. L. Rev. at

734-37 (urging a post-judgment opt-in requirement in all cases).

24

ciples of restitution embodied in Kansas law to all class

member claims. Phillips asserts that this was error be-

cause all but a small percentage of class members had no

involvement with Kansas and therefore are not entitled

to the application of that State’s law. In our view, Phil-

lips’ argument rests on an overreading of existing prece-

dent and the suggestion of a conflict among the laws in

various States that does not in fact exist. In any event,

if it was error to apply Kansas law, the error was harm-

less. Phillips itself appears to recognize that Oklahoma

law could properly have been applied to all claims. Br. at

45. The Kansas Supreme Court examined that State’s

law in Shutts /, and concluded that it would lead to the

same result as did Kansas law. On the facts of the in-

stant case, that conclusion from Shutts J merits applica-

tion here.

A. The Constitutional Limitations On A State Court’s

Choice of Law, Which Are Intended To Protect

Basic Fairness, Were Not Violated Here.

The Due Process Clause and the Full Faith and Credit

Clause, taken together, require that a state court’s choice

of law be “neither arbitrary nor fundamentally unfair.”

Allstate Insurance Co. v. Hague, supra, 449 U.S. at 308,

citing Alaska Packers Ass’n Vv. Industrial Accident

Comm'n, 294 U.S. 532, 542 (1935). The Court in All-

state stressed that, implicit in this constitutional inquiry,

was a recognition that more than one State’s law could

apply, and that no “weighing-of-interests requirement” ex-

isted in such circumstances. 449 U.S. at 307-308 & n.10.

Thus, a State is free to apply its own law if it has “a

significant contact or significant aggregation of contacts,

creating state interests, such that choice of its law is

neither arbitrary nor fundamentally unfair.” /d. at 313.

In the instant case, the defendant owned property and

did a significant amount of business in Kansas. While

most class members had no prior contact with the State,

they nevertheless were willing to have their rights ad-

25

judicated there since they declined to opt out. Whether

these facts, standing alone, would be sufficient to justify

the application of Kansas law is an issue that was ex-

plicitly left open in Allstate. Id. at 320 n.29. We

think it need not be decided here either. Although All-

state employed a rule that focused on the “contacts” of

the parties to the forum State for testing choice-of-law

decisions, the Court did not hold that other factors were

necessarily irrelevant to the analysis. The essence of the

constitutional inquiry, of course, remains basic fairness to

the parties and to the interests of other States. See id.

at 320-32 (Stevens, J., concurring in the judgment). On

the specific facts of this case, those underlying precepts

were not infringed. ‘This is especially so because, for

there even to be a constitutional issue over choice-of-law

decisions, there must be a genuine conflict between the

laws of the forum State and those of another State with

competing interests. No such conflict was present here.

The Kansas law applied in this case was by no means

parochial or arcane. As the decision below makes clear,

the legal analysis employed rested on fundamental “equi-

table principles” requiring that a “party making use of

another’s money should pay interest on the money so

used.” Pet. App. 4.27 This approach flowed almost in-

exorably from the facts presented. Thus, in essentially

identical circumstances under federal law, this Court held

that “the imposition of interest on refunds [due to a

retroactive refusal by the FPC to approve gas rates] is

21 The Kansas Supreme Court applied its own State statute ,to

determine post-judgment interest. Phillips does not dispute this

application, nor could it. The sole purpose of post-judgment inter-

est is to protect the value of the judgment rendered by the issuing

court. Plainly that court has sufficient justification to support the

use of its own State’s law for this purpose. Addressing a similar

post-verdict interest provision, this Court stated that ‘courts at

the forum have been free to apply their own or some other law

as they see fit.” Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S.

487, 498 (1941) (emphasis supplied).

26

not an inappropriate means of preventing unjust enrich-

ment.” United States Gas Improvement Co. v. Callery

Properties, Inc., 382 U.S. 223, 230 (1965). Cf. Webb’s

Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155

(1980) (county’s appropriation of interest on inter-

pleader fund violated Fifth and Fourteenth Amend-

ments).

It is important to recognize in this regard that the

issue presented here was a by-product of the federal rate-

making procedures of the FPC. If the Commission did

not engage in retroactive rate approval, full royalty pay-

ments to all class members would have been paid on a

timely basis. Although the FPC does not have authority

to regulate royalty payments, see, @.9., Mobil Oil Corp.

v. Federal Power Commission, 463 F.2d 256 (D.C. Cir.

1971), cert. 7-nied, 406 U.S. 967 (1972), the federal im-

pact on this case should not be ignored in addressing

choice-of-law concerns.”

Under the federal regulatory system, if Phillips’ rates

had been rejected the interest that it would have had to

pay purchasers on the same money that it ultimately

turned over to royalty owners was dictated by the FPC.

See 18 C.F.R. § 154.102(c). Subject to FPC approval of

the gas prices, moreover, the royalties clearly belonged to

the royalty owners even while Phillips held them. See

Phillips Petroleum Co. v. Adams, 513 F.2d 355, 363 (5th

Cir.), cert. denied, 423 U.S. 930 (1975) (suspense royal-

ties owed to royalty owner who had title at time original

gas payment is made and not to subsequent royalty owner

who had title when FPC approved rates). Prior to 1961,

in fact, Phillips paid suspense royalties on a timely basis.

See Shutts I, 567 P.2d at 1299. And even when it began

2 This does not mean that the choice-of-law decision would be-

come “federalized” as Phillips claims. Br. at 34. We argue only

that the circumstances at issue, including the implications of fed-

eral policy, are appropriate considerations for evaluating basic

constitutional choice-of-law concerns.

27

withholding such royalties pending FPC rate approval, it

still made an exception for any royalty owner who put up

a bank- or corporate-backed indemnity to cover the sus-

pense royalties plus interest at the “applicable” FPC

rates. See id. at 1299-1300. In these circumstances, the

Kansas Supreme Court concluded that Phillips itself had

“establish[ed] an appropriate measure of damages to be

awarded the royalty owners, expressed in terms of inter-

est, for the commingling and use of suspense monies by

Phillips.” Pet. App. 42. The court was simply unwilling

to allow Phillips to “ ‘seize upon the procedural complexi-

ties of the FPC to avoid responsibility for an appropriate

measure of damages.’” Pet. App. 31 (quoting Shutts I).

Phillips seeks to undermine the force of this straight-

forward analysis by raising several collateral issues,

and then suggesting that other States would have treated

them differently. It asserts that it used some of the gas

itself rather than selling it, that it had a variety of dif-

ferent kinds of agreements with royalty owners, and that

some of these agreements were pursuant to contracts with

other gas producers providing for no interest if Phillips

had to pay the producer higher prices based on subse-

quent FPC approval of Phillips’ rates. Br. at 31-33. The

indisputable facts and Phillips’ own behavior, however,

demonstrate that these claims are merely obfuscatory.

Royalty payments to each class member were calculated

in identical fashion, irrespective of whether Phillips used

the gas or sold it, or whether it was paying royalties on

its leases or on its agreements to pay royalties on behalf

of producers from whom it had made purchases. Pet.

App. 33-41. Regardless of any of these factors, moreover,

Phillips treated each class member in precisely the same

way: it offered each the same opportunity to receive roy-

alties in a timely fashion upon providing an indemnity,

and it paid each his full suspense royalty when the rates

were approved. As the Kansas court put it, “[a]ll roy-

alty owners, regardless of residency, particular lease pro-

28

visions, or royalty agreements, were given the same no-

tices by Phillips and were treated uniformly when sus-

pense royalties and interest were withheld.” Pet App. 27.

Phillips further asserts that “the application of Kansas

law results in ‘unfair surprise’ and the ‘frustration of

legitimate expectations’ of Phillips.” Br. at 26, quoting

Allstate, supra, 449 U.S. at 318 n.24. The argument has

a hollow ring. Not only did Phillips establish the interest

rate through its FPC undertaking and its indemnity ar-

rangement with royalty owners, but at the time that it

payed most of the suspense royalties at issue here, Shutts

J—which had analyzed the law of Oklahoma, Texas, and

Kansas—had already been decided. Moreover, Phillips

could have had no reasonable expectation that any par-

ticular State’s law would be applied to the transactions

in question since it does business in all 50 states, and its

royalty agreements covered residents of 50 states who, in

turn, owned leases in 11 different states. Under any view

of choice-of-law principles, the number of potential States’

laws that could have been found to govern these claims

was almost unlimited. Significantly in this regard, Phil-

lips does not claim that any royalty agreement provided

that it would be interpreted under the law of a particular

State. See Allstate, supra, 449 U.S. at 318 n.24.

Nor does Phillips strengthen its choice-of-law claim by

combing through opinions in other juriscictions in an ef-

fort to suggest that those States would apply different

legal principles to the circumstances presented here. In

fact, the cases cited by Phillips from other jurisdictions

are either inapposite or simply did not consider the claim

decided below. Since, to our knowledge, no State disre-

gards basic equitable principles of restitution, see, ¢.g.

Smith v. Owens, 397 P.2d 673 (Okl. 1963) ; Phillips Pe-

troleum Co. Vv. Stahl Petroleum Co., 569 S.W.2d 480, 485-

488 (Tex. 1978), it seems doubtful that any would diverge

from the ruling in this case. Indeed, in Shutts /, 567

P.2d at 1317-21, the Kansas Supreme Court examined the

a ee Oe

29

law of Oklahoma and Texas—the two States that Phillips

focuses on in its brief—and concluded that both States

would reach the same result as Kansas did. Thus, the

23 Phillips makes little effort to suggest that Oklahoma law would

justify a different result. See Br. at 33 nn.33-34. Both the statu

tory and constitutional provision it cites were discussed and

found inapplicable in Shutts I, 567 P.2d at 1319, 1321. As we

indicate below, this consideration is sufficient to justify affirmance.

Several of the issues raised by Phillips with respect to Texas

law were likewise resolved in Shutts I, 567 P.2d at 1317, 1318.

Phillips also raises two additional claims based on recent Texas

Supreme Court decisions. First, it cites 2xxon Corp. v. Middleton,

613 S.W.2d 240 (Tex. 1981), for the proposition that Texas would

not have granted interest to those royalty owners who were due

royalties under agreements between Phillips and another producer

providing that Phillips would not have to pay interest to the pro-

ducer base« on retroactive FPC rate approvals. These agreements,

however, were never consented to by royalty owners whose entitle-

ments to royalties were based on pre-existing agreements. Pet.

App. 37. In this fundamental sense, the instant case differs from

Exxon Corp., where the court relied on the fact that the agreements

(called “division orders”) which modified the original leases had

been “executed by the royalty owners.” 613 S.W.2d at 249 (em-

phasis supplied). Even then, the court held that the orders were

binding only “until revoked.” Jd. at 250. The care thus supports

the decision below.

Phillips also cites the decision in Phillips Petroleum Co. V. Stahl

Petroleum Co., supra, for the proposition that Texas would require

the use of its statutory interest rate rather than the FPC rates

used by the court below. That case involved monies due to Stahl

based on gas sold to Phillips by Stahl and then resold by Phillips

at rates that were regulated by the FPC. When those rates were

subsequently approved in 1972, Phillips paid Stahl an additional

sum based on the higher rates. Although Stahl never requested

any interest, Phillips filed a declaratory judgment action against it

three years after payment. 569 S.W.2d at 482. Stahl then counter-

claimed, asserting specifically that it was entitled to the Texas six

percent statutory rate of interest. Jd. at 483. It never requested

the FPC rates and therefore the issue was never considered.

Lastly, we should note that Phillips’ description of Phillips Petro-

leum Co. ¥. Riverview Gas Compression Co., 409 F. Supp. 486 (N.D.

Tex. 1976), 2 case considered in Shutts I, 567 Ped at 1317, is

80

necessary conflict, which is a prerequisite to any constitu-

tional choice-of-law inquiry, is absent here.”

In view of the foregoing, we submit that the law em-

ployed by the Kansas Supreme Court was “neither ar-

bitrary nor fundamentally unfair,” and thus violated no

constitutional provision. See generally Sedler, Constitu-

tional Limitations on Choice of Law: The Perspective of

Constitutional Generalism, 10 Hofstra L. Rev. 59 (1981).

B. Assuming Arguendo That It Was Constitutional

Error To Apply Kansas Law To Ail Class Member

Claims, The Error Was Harmless Since Oklahoma

Law, Which Is Apparently Conceded To Be Applica-

ble, Would Have Led To The Same Result.

In a closing section of its brief that merges j urisdictional

and choice-of-law issues, Phillips states that “Oklahoma

appears to be a proper forum to bind all plaintiffs, since

each class member had contact with that state and all

additional royalties were disbursed from that state. These

contacts with Oklahoma, coupled with the interest Okla-

homa has in regulating a company with its principal place

misleading. That case involved an agreement between Phillips and

two local gas producers whereby Phillips would pay royalties based

on the unapproved FPC rates subject to an indemnity guaranteeing

the return of the excess plus interest if the rates were not approved.

409 F. Supp. at 495. The producers put up the indemnity and

received the money. In that circumstance, the court held that

there was no interest due the producers for the time from when

they executed the indemnity until they received their payments.

Significantly, the court also held that another producer who did not

sign an indemnity was entitled to interest on the full suspense pay-

ments. Jd. at 493.

% In contrast to the situation in Allstate, supra, 449 U.S. at 306

n.6, it is appropriate in this case to determine whether a conflict

existed, and not merely whether it was error to apply Kansas law.

The Kansas court believed it was applying generally recognized

equitable principles, and gave no indication that it thought a con-

flict with any other State’s law existed. On the contrary, as noted

above, the court had examined Oklahoma and Texas law in Shutts i

and found no such conflict.

le a at

a, gle A ts a

31

of business in Bartlesville, might well make it fair to

litigate all claims in Oklahoma.” Br. at 45 (emphasis

supplied). Even without this apparent concession, there

can be little doubt that Oklahoma law could be applied ‘to

all claims. See Allstate Insurance Co. v. Hague, supra.

See also the “common fund” cases cited at p. 18 supra.*

This fact, in turn, means that even if the court below

improperly used Kansas law, the error was harmless. As

Phillips acknowledges, Br. at 24 n.23, 27 n.26, the same

court in Shutts I had applied Oklahoma law to claims

identical to those raised in this case, and had concluded

that the result would be the same as that reached here.

It is entirely appropriate in the present circumstances

to apply the prior Kansas Supreme Court holding to the

instant case: Phillips was a defendant in both cases, and

it raised the same Oklahoma law issues on that appeal as

it did in this case. Moreover, it cites no Oklahoma case

since Shutts I to suggest that the Kansas court’s inter-

pretation of Oklahoma law might be different on reex-

amination. And although Phillips continues to assert that

the Kansas Supreme Court misconstrued Oklahoma law,

Br. at 33 nn. 33 & 34, that argument is not only in-

correct, it is also beside the point. A state court’s ap-

plication of another State’s law is entitled to full faith

and credit so long as the legal issue was fairly considered.

See, e.g., Underwriters National Assurance Co. v. North

Carolina Life and Accident and Health Insurance Guar-

anty Ass’n, 455 U.S. 691, 715 (1982) ; Milliken v. Meyer

311 U.S. 457 (1940).

25 Because Phillips’ statement about Oklahoma comes in a sec-

tion of its brief that merges choice-of-law and personal jurisdiction

arguments, it is not clear whether Phillips agrees that Oklahoma

law could govern all claims. Earlier in its brief, however, it also

suggests that if there is a common fund in this case it was in

Oklahoma or Delaware. Br. at 23 n.22. Since the money was held

at Phillips’ headquarters in Oklahoma, for the ultimate benefit of

the royalty owners, we think it is clear that that State’s law could

be applied to al! claims, as the “common fund” cases uniformly

indicate.

32.

In sum, had the Kansas Supreme Court applied Okla-

homa law to the claims at issue here, the judgment be-

low would have been the same. It should therefore be

affirmed.

CONCLUSION

The judgment below should be affirmed.

Respectfully submitted,

W. LUKE CHAPIN

(Counsel of Record)

CHAPIN & PENNY

P.O. Box 148

Medicine Lodge, Kansas 67104

(316) 886-5611

Ep MOoRE

GINDER & MOORE

Cherokee, Oklahoma 73728

HAROLD GREENLEAF

SMITH, GREENLEAF & BROOKS

P.O. Box 1039

Liberal, Kansas 67901

JOEL I. KLEIN

ONEK, KLEIN & FARR

2550 M Street, N.W.

Washington, D.C. 20037

Attorneys for Respondents

DATED: January 7, 1985