Reply Brief — Sun Oil Co. v. Wortman

No. 87-352

In the Supreme Court of the Unit

OCTOBER TERM, 1987

SUN OIL COMPANY,

Petitioner,

VS.

RICHARD WORTMAN and HAZEL MOORE, Individually

and as representatives of all producers and royalty owners

to whom Sun Oil Company has made or should make pay-

ment of suspended proceeds or royalties pursuant to FPC

opinions or FERC,

Respondents.

On Writ oF CERTIORARI TO THE SUPREME COURT

OF THE STATE OF KANSAS

REPLY BRIEF FOR PETITIONER

GERALD SAWATZKY*

Jim H. GoOERING

TrmMotuy B. MUSTAINE

FOULSTON, SIEFKIN, POWERS

& EBERHARDT

700 Fourth Financial Center

Wichita, Kansas 67202

(316) 267-6371

Epwyn R. SHERWOOD

P.O. Box 2880

Dallas, Texas 75221-2880

(214) 890-5608

Attorneys for Petitioner

Date: February 17, 1988

*Counsel of Record

E. L. Menpennatt, Inc., 926 Cherry Street, Kansas City, Mc. 64106, (816) 421-3030

STATEMENT PURSUANT TO RULE 238.1

Sun Oil Company’s name has been changed to Sun

Exploration and Production Company, the parent com-

pany of which is Sun Company, Inc. The assets of Sun

Exploration and Production Company have been trans-

ferred to Sun Energy Partners, L.P., of which Sun Ex-

ploration and Production Company is the managing gen-

eral partner. The non-wholly owned subsidiaries of Sun

Exploration and Production Company are Canyon Reef

Carriers, Inc., East Texas Salt Water Disposal Company

and Van Salt Water Disposal Company. The non-wholly

owned subsidiary of Sun Company, Inc., is Suncor, Inc.

II

TABLE OF CONTENTS

I. Because Limitations Laws Are Substantive in

Nature, the Full Faith and Credit Clause and the

Due Process Clause Require Kansas to Apply the

Limitations Law of the State Where the Claim

Arose and Claimant Resides—

A. The Artificial Judicial Classification of Limi-

tations Laws As Procedural Is Wrong ................ 1

B. The “Outcome-Determinative” Test Reinforces

the Classification of Limitations Laws As Sub-

stantive for Constitutional Purposes ................ 6

C. Whether the Forum State May Constitution-

ally Apply Its “Discovery Rule’ When the Ac-

tien Is Barred by Limitations in the State

Where the Claim Arose Is Not Presented for

Decision in This Case ................e 10

Ji. Texas, Oklahoma, and Louisiana Laws Govern-

ing Liability for Interest, and the Period of Limita-

tions, Differ From Kansas Laws Applied Below—

A. The Court Below Did Not Apply the Substan-

tive Interest Laws of Texas, Oklahoma and

Louisiana, As Required by Phillips Petroleum

Co. v. Shutts, 472 U.S. 797 (1985) .................... 12

B. The Limitations Laws of Texas, Oklahoma

and Leuisiana Bar Interest Claims Related to

Sun’s 1976 Payout More Than Three Years

Prior tO Sumit ........ceccc.cccsecccecsssse

Conclusion weds a oenesussusnsessaeslespeseiienennneiannn

Ill

TABLE OF AUTHORITIES

Cases

Chase Securities Corp. v. Donaldson, 325 U.S. 304

a Era leasbhidentischemesesecess aie beetannies 7, 10

Ferens v. Deere & Co., 819 F.2d 423 (1987), certiorari

EE 4,5

Filtsch v. Johnson, 174 Okl. 132, 50 P.2d 138 (1935) —...... 17

Flanagan v. Campbell, 183 Okl. 610, 83 P.2d 865 (1938) 17

Goad v. Celotex Corporation, 831 F.2d 508 (4th Cir.

1987), certiorari pending No. 87-1163 ................0........... 9

Home Insurance Co. v. Dick, 281 U.S. 397 (1930) ........ 8

Le Roy v. Crowninshield, 15 F.Cas. 362, 2 Mason. 151

Nee cascsancaconeese 4,7

M’Elmoyle v. Cohen, 13 Pet. 312 (1839)... 7, 8,11

Order of R. Telegraphers v. Railway Exp. Agency, 321

SEE 10

Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985) ... 14

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

gD) 17

Shutts v. Phillips Petroleum Co., 567 P.2d 1292 (1977) 15

Shutts v. Phillips Petroleuin Co., 235 Kan. 195, 679 P.2d

EE 15

Shutts v. Phillips Petroleum Co., 240 Kan. 764, 732 P.2d

ET 15

Sun Oil Co. v. Wortman, 474 U.S. 806 (1985) ........... 12, 14

T & S Inv. Co. v. Coury, 593 P.2d 503 (Okl. 1979) ........ 17

Wells v. Simonds Abrasive Co., 345 U.S. 514 (1953) ...... 2

Wortman v. Sun Oil Co., 236 Kan. 266, 690 P.2d 385

ESE 15, 16, 17

Wortman v. Sun Oil Co., 241 Kan. 226, 734 P.2d 1190

EE A

IV

Constitutional Provision

Constitution of the United States, Article IV, Sec.

ID \cespucashLiesaticiptinianas<patibiieeniaaasecsd eiicbipaameiaaieaanastelmaaddaradel passim

Other Authorities

51 Am.Jur.2d, Limitation of Actions, Sec. 453, p. 914. 6

Arthur R. Miller and David Crump, Jurisdiction and

Choice of Law in Multistate Class Actions After

Phillips Petroleum Co. v. Shutts, 96 Yale LJ. 1

OE SIUINEE © ciicocivdecimasatiesanahescosceistadssenieseneuinaassiekicasthiaiedniietretan a ite 18

III Blackstone, Commentaries on the Laws ef England,

308 (1765-1769) (2 Chitty’s Blacksione 246; N.Y.

REID cidcddsbaainchasnadsagecicnesscielctsacl Nlendsr ais taediantcad cee ea enemas 6

Developments in the Law: Statutes of Limitations,

Fe SS 8) eee 6,7

Fischer, The Limits of Statutes of Limitation, 16 South-

westerm Univ. LoBeOV. 3 C1GGB) nnncccccliccnccccccccccncccsesesenese 8

Grossman, Statutes of Limitations and the Conflict of

Laws: Modern Analysis, 1980 Ariz. St. L.J. 1 ........ 3-4, 8

Hay, Full Faith and Credit and Federalism in Choice

of Law, 34 Mercer L.Rev. 709 (1983) -........00....ec... 5,13

Jackson, Full Faith and Credit—The Lawyers’ Clause

of the Constitution, 45 Col. L.Rev. 1 (1945) ........ 4,5, 13

Leflar, The New Conflicts-Limitations Act, 35 Mercer

L.Rev. 461 (1984) .................... Ce A Eee Oe Nat TE 7, 8,11

Martin, Constitutional Limitations on Choice of Law,

61 Cornell L.Rev. 185 (1976) —.....000000000..... URIS re 3,13

Martin, Statutes of Limitation and Rationality in the

Conflict of Laws, 19 Washburn L.J. 405 (1980) ........ 4,8

III Papers of Madison 1449 (1840) 2.00.02... 5

Peilemeier, Why We Should Worry About Full Faith

and Credit to Laws, 60 So. Calif. L.Rev. 1299

PINE cess vacsdtieataiene noe pecan ebiaochanadeicedieeud. eae

Vv

Restatement (Second) of Conflict of Laws, Sec. 142 ....

Uniform Conflict of Laws—Limitations Act, 12 U.L.A.

See RI SRDS Spisscenciecscnininnnistdasisrvonemsdentiobussiestsmiesicianameninabies

Uniform Statute of Limitations on Foreign Claims Act

SITE: sccdaus bbeosacsiasaesaasesthadinianiindcadieibiaaaritectedepiigieomseeunalutuneiiedesiates

Weintraub, Commentary on the Conflict of Laws, Sec.

eB earn

H)

No. 87-352

In the Supreme Court of the United States

OCTOBER TERM, 1987

SUN OIL COMPANY,

Petitioner,

VS.

RICHARD WORTMAN and HAZEL MOORE, Individually

and as representatives of all producers and royalty owners

to whom Sun Oil Company has made or should make pay-

ment of suspended proceeds or royalties pursuant to FPC

opinions or FERC,

Respondents.

On Writ or CERTIORARI TO THE SUPREME COURT

OF THE STATE OF KANSAS

REPLY BRIEF FOR PETITIONER

I. Because Limitations Laws Are Substantive in

Nature, the Full Faith and Credit Clause and the

Due Process Clause Require Kansas to Apply the

Limitations Law of the State Where the Claim

Arese and Claimant Resides

A. The Artificial Judicial Classification of Limita-

tions Laws As Procedural Is Wrong

The arguments advanced by respondents and amicus

curiae Wiley Goad rest upon the supposition that limita-

tions statutes are procedural. Their arguments do not con-

sider the reasons that have led scholars and courts to rec-

ognize limitations statutes as substantive. Rather, they

merely reiterate archaic rationalizations which have no

2

relation to reality. The result is one fiction flowing from

another, i.e., that a state which extinguishes all right to

sue on a claim created by that state, nevertheless “intends”

that the claim can be sued on later in any distant state

having a longer limitations law.

A corollary to this irrational conclusion is that citizens

must “expect” to be governed by laws of the most un-

expected, unrelated places; and that litigants are presumed

to understand the state’s “intent” that, though a claim

it created is extinguished in that state, it remains alive

in each of the other forty-nine states that has a longer

limitations law. In this Alice-in-Wonderland legal world

the forum state’s applice.ion of its own different limita-

tions law to claims arising elsewhere is asserted as re-

flecting the “freedom” of a “sovereign” state. In reality,

however, it is a refusal io respect the freedom and con-

stitutional right of another state to govern the substantive

claims there arising.

The same inverted logic requires that a limitations

defense, which can only be invoked by the affirmative

defense of a litigant for his own repose and security, is

mysteriously transformed into a mere “administrative”

policy relating to “procedure”, which affects the remedy

but not the right. And in return for the “freedom” which

each state has to disregard another state’s laws, each state

which also subscribes to these fictions loses the right to

have its limitations laws respected elsewhere.

According to amicus curiae Goad, a state may free

itself from the rules of this game by calling its limitations

laws “substantive”, thus requiring other states to then

apply that state’s laws—although Wells v. Simonds Abra-

sive Co., 345 U.S. 514 (1953), holds to the contrary. Goad’s

suggestion, that a state may opt into the coverage of the

3

Full Faith and Credit Clause, only continues the charade.

The truth is that there is no discernable difference be-

tween the purpose of a “substantive” limitations law, and

a “procedural” limitatioas law. Both have the same basic

purpose and operate in the same way. To say that the

“substantive” limitation law is a statute of “repose”, while

the “procedural” limitations law is not, makes no sense.

For a state to selectively control whether the federal

Constitution does, or does not, apply, by labeling its limita-

tions law “substantive” cr “procedural” would only add to

the disorder now rampani in this area of constitutional

law.

In this case, Sun Oil Company does not, as charged,

seek a new interpretation of the Constitution. Rather,

we urge the removal of a historical legal aberration which

is contrary to the literal words and the plain purpose of

the Full Faith and Credit Clause, as intended by the

founders and as needed more than ever today. We also

suggest that, once limitations laws are correctly classified

as substantive, the Due Process Clause applies just as

it would to any other substantive law. The correction

of this constitutional error will be a breath of fresh air

removing abuses, and reducing existing disorder in rela-

tions among our States.

Amicus curiae Goad seriously errs in stating that

contemporary scholars do not urge that a change is “con-

stitutionally mandated”. (Brief, p. 4). With few, if any,

exceptions scholars urge constitutional clarification to cor-

rect recognized deficiencies in the present rule.’

1. E.g. Martin, Constituiional Limitations on Choice of

Law, 61 Cornell L.Rev. 185, 221 (1976); Grossman, Statutes

of Limitations and the Conflict of Laws: Modern Analysis,

(Continued on following page)

4

Likewise, respondents err in stating that the existing

rule was “well established in the common law before our

Constitution was adopted. . .” (Brief, p. 6). The common

law rule was not generally known nor was it adopted

in the United States until the early part of the nineteenth

century. See Le Roy v. Crowninshield, 15 F.Cas. 362, 2

Mason. 151 (1820), and cases cited therein. The first

treatise on the subject was Justice Story’s “Commentaries

on the Conflict of Laws”, first published in 1834. Jack-

son, Full Faith and Credit—The Lawyers’ Clause of the

Constitution, 45 Col. L.Rev. 1, 6 (1945). In 1777 the

Articles of Confederation included a full faith and credit

requirement applicable to judicial proceedings. In 1787

that clause was broadened in the Constitution itself to

apply to all public Acts, Records and judicial Proceedings

of each state. During that era the English rule was

virtually unknown and was not established in the states.

Hence the contention that the English rule must be read

into the Full Faith and Credit Clause must fail on this

ground alone. It would be—it was—most incongruous

that this Clause, intended “to form a more perfect Union”

should be cast aside in favor of an English common law

doctrine antithetical to this Union.

In any event, a common law rule contrary to the

letter and the spirit of a constitutional command must

not be read into it, absent strong evidence of such intent

Footnote continued—

1980 Ariz. St. L.J. 1, 48: Weintraub, Commentary on the Con-

flict of Laws, Sec. 9.2B, p. 517 (2d ed. 1980); Martin, Statutes

of Limitation and Rationality in the Conflict of Laws, 19 Wash-

"urn LJ. 405, 421 (1980).

See also, Ferens v. Deere & Co., 819 F.2d 423 (1987), cer-

tiorari pending, No. 87-477.

+)

on the part of those drafting and ratifying the Consti-

tution. There exists no such evidence.”

ihe growing realization that the common law con-

flicts-limitations rule is wrong lends urgent impetus to

the need to reconsider the holdings of M’Elmoyle and

Wells, since the common law rule controlled what little

constitutional analysis those opinions contain. The long

failure to re-examine M’Elmoyle’s acceptance of the com-

mon law fiction that limitations laws affect the “remedy”

but not the “right”, has resulted from the acceptance

of a verbal formula which became sanctified as legal

dogma. The problems and evils wrought by adherence

to this shopworn shibboleth have become more evident

in our present era of burgeoning commercial litigation,

instant communication and rapid travel. This is why

Ferens v. Deere & Co., 819 F.2d 423 (3rd Cir. 1987),

refused to countenance this fiction any longer.

Only recently, therefore, has the problem been ad-

dressed. Only recently have demands for reform and

change been pressed. The realization that limitations

laws are indeed substantive has led judges, lawyers and

scholars to urge change in every available way, as in

the Uniform Conflict of Laws—Limitations Act, and in

proposed revisions to Section 142 of Restatement (Sec-

ond) of Conflict of Laws. Even England in 1984 changed

its common law—the law responsible for our present

problem—to treat limitations laws as substantive. [Sun’s

Brief, pp. 27-32, notes 12, 14, 16].

2. Jackson, Full Faith and Credit—-The Lawyers’ Clause

of the Constitution, 45 Col. L.Rev. 1, 3-6 (1945); Hay, Full

Faith and Credit and Federalism in Choice of Law, 34 Mercer

L.Rev. 709, 710 (1983); Peilemeier, Wny We Should Worry

About Full Faith and Credit to Laws, 60 So. Calif. L.Rev. 1299,

1302 (1987): III Papers of Madison 1449, 1480-81 (1840).

6

Once it is determined, however, that limitations laws

are primarily substantive, as reason dictates and scholars

agree, the solution to the problem merely requires appli-

cation of our Constitution as written, according to its pur-

pose from the beginning.

B. The ‘“Outcome-Determinative”’’ Test Reinforces

the Classification of Limitations Laws As Sub-

stantive for Constitutional Purposes

The primary purpose of limitations statutes is ‘“un-

doubtedly one of fairness to the defendant. There comes

a time when he ought to be secure in his reasonable

expectation that the slate has been wiped clear of ancient

obligations, . . .” Developments in the Law. Statutes

of Limitations, 63 Harv. L.Rev. 1177, 1185. (1950).

This primary purpose of repose is reflected in the

fact that limitations is an affirmative defense to be in-

voked by a defendant for its own benefit. From Black-

stone’s age to the present, only the litigant could plead

the statute of limitations in bar. For example, to a com-

plaint on a promise, defendant could plead that “he made

no such promise within six years; which is an effectual

bar to the complaint.” III Blackstone, Commentaries on

the Laws of England, 308 (1765-1769) (2 Chitty’s Black-

stone 246: N.Y. 1832). 51 Am.Jur.2d, Limitation of Ac-

tions, See. 453, p. 914. Justic: Story himself observed

that the then recent common law conflicts cases had failed

to consider the important factor that a limitations de-

fense is “authorized to be made by the debtor and at his

option”. For this reason as well, he said, a limitations

defense should be no different from any other legal de-

fense. He “could perceive no reason why the right to

use that defence, good by his own laws, should not travel

7

with the debtor into every other country.” Only because

the error of the contrary rule was “too strongly en-

grafted” did he so rule, against his own reason and judg-

ment. Le Roy v. Crowninshield, 15 F.Cas. at 368, 369.

The English conflicts rule, first adopted on this con-

tinent years after our Constitution was ratified, was then

applied in a constitutional case to negate the Full Faith

and Credit Clause, in M’Elmoyle v. Cohen, 13 Pet. 312

(1839). The “historical accident” whereby the parochial

English rule separated “right” from “remedy”, led to

the erroneous correlation of “procedure” with “remedy”

and the ensuing failure of courts to classify limitations

laws as substantive. Leflar, The New Conflicts-Limita-

tions Act, 35 Mercer L.Rev. 461, 473 (1984). The tech-

nical terminology of common law writs as to forms of

action and “remedies” stifled logical analysis. Develop-

ments in the Law: Statutes of Limitations, 63 Harv.

L.Rev. at 1187 (1950). Cases involving limitations con-

flicts questions, therefore, historically failed to analyze

the substantive nature of limitations laws. Rote accep-

tance of legal dogma became an easy substitute for real-

istic analysis.

Now that our jurisprudence has long since disen-

thralled itself of common law technicalities, it can dis-

pense with these “unsatisfactory rationalizations”. Chase

Securities Corp. v. Donaldson, 325 U.S. 304, 314 (1945).

With this history behind us, we have a more objective

overview of the constitutional problem and its solution.

Being free of arbitrary dogma, courts can better analyze

the true nature of limitations laws, so as to anchor our

Constitution’s operation in the bedrock of reality. When

so viewed, the substantive nature of the limitations de-

8

fense as intending to grant repose cannot fairly be dis-

puted. Leflar, The New Conflicis-Limitations Act, 35

Mercer L.Rev. 461, 469 (1984); Martin, Statutes of Lim-

itation and Rationality in the Conflict of Laws, 19 Wash-

burn L.J., 405, 420 (1980); Fischer, The Limits of Statutes

of Limitation, 16 Southwestern Univ. L.Rev. 1, 32 (1986).

The injustice inherent in failure to apply the limita-

tions law of another state where the claim arose led to

the enactment of “borrowing” statutes by many states,

requiring those limitations laws to be applied, in some

circumstances, by the forum. But the inconsistency and

confusion caused by this “unruly assemblage of statutes

and their uncertain interpretation” only added to the

problem. Leflar, The New Conflicts-Limitations Act, 35

Mercer L.Rev. 461, 463-4. Grossman, Statutes of Lim-

itations and Conflict of Laws: Modern Analysis, 1980

Ariz. St. L.J. 1, 14-15. The vacuum left by M’Elmoyle’s

failure to apply the Full Faith and Credit Clause to the

substantive limitations issue, led to these ineffective at-

tempts by states to address what should have been a

federal constitutional solution.

The irrationality of the common iaw rule that a right

could exist without a remedy, which led to equating

remedy with procedure, also led courts to make excep-

tions concerning “built-in” limitations statutes by calling

them “substantive” for conflicts purposes, even though

their function as statutes of repose was the same. Leflar,

Id., at p. 462.°

3. Similarly, contractual limitations provisions, otherwise

valid, have no significant substantive difference from limita-

tions statutes. Their operation is merely confined to a given

contract. Martin, Statutes of Limitation and Rationality in the

Conflict of Laws, 19 Washburn L.J. 405, 416-17 (1980), dis-

cussing Home Insurance Co. v. Dick, 281 U.S. 397 (1930).

9

Yet respondents and amicus curiae Goad ignore these

reasons, these purposes, and this history. They assume

ipso facto the procedural nature of limitations laws, per-

petuating the obvious fiction without rhyme or reason.

Then they argue that any procedural law may on occasion

be “outcome-determinative”, thereby invalidating this test

for constitutional purposes even though the law may be

substantive. Their argument, of course, entirely by-passes

the point made in Sun’s brief. Limitations laws are not

procedural rules governing how an action may be com-

menced and maintained, nor determining which of several

remedies may be available in granting legal relief. They

determine whether a claim can be maintained, or cannot

be maintained, when invoked by a litigant. They a. for

the purpose of “wiping the slate clean”, to grant repose to

the litigant. They are either a defense to the claim, or

they are not. In either instance they are outcome-deter-

minative in barring, or not barring, the action. These are

indisputable reasons requiring limitations laws to be

classified as substantive.

Yet amicus curiae Goad, ignoring these compelling

reasons, indulges in more faulty logic. Stripped of pre-

tense, the argument is that a procedural noncompliance

may be outcome-determinative in a given case. (Brief,

11-12). If limitations laws are outcome-determinative, it

is inferred, they are also procedural. But this false

syllogism is bereft of all meaning. On that premise, any

substantive law which is outcome-determinative would

also be considered to be procedural.

The conclusion in Goad v. Celotex Corporation, 831

F.2d 508 (4th Cir. 1987), certiorari pending No. 87-1163,

that limitations laws are primarily for efficient “court

management” and only incidentally for “repose”, is un-

10

sound. Goad’s reliance on Chase Securities Corp. v. Don-

aldson, 325 U.S. 304, 314 (1945) is misplaced. Chase held

that a state could lengthen its own limitations law without

violating due process. It described limitations statutes as

sparing courts from litigating “stale claims, and the citizen

from being put to his defense after memories have faded,

witnesses have died or disappeared, and evidence has been

lost.” Cited in support of this purpose was Order of R.

Telegraphers v. Railway Exp. Agency, 321 U.S. 342, 348-49

(1944), which described the limitations statute’s “conclu-

sive effects .. . designed to promote justice” by preventing

surprises and giving timely notice to litigants. These are

plainly purposes of “conclusive” repose for the litigant.

Nowhere in the cases or literature has anyone at-

tempted to show how a court would be adversely affected

in its procedure by applying another state’s different limita-

tions law. It is the claim of the litigant which is always

directly affected. Thus policies affecting the viability of

that claim are necessarily substantive in nature. If a

state, therefore, has no interest affecting that claim other

than adjudicating it in court, the forum state may not

constitutionally apply its own different limitations law.

C. Whether the Forum State May Constitutionally

Apply Its “‘Discovery Rule’’ When the Action

Is Barred by Limitations in the State Where

the Claim Arose Is Not Presented for Decision

in This Case

Amicus curiae Goad argues that if the Constitution

requires forum states to apply limitations laws as being

substantive in nature, an exception should be made where

the forum state has a “discovery rule”, but the state

whose substantive law applies does not. This argument

11

centers on the “unfairness” exception or “escape clause”

contained in Section 4 of the Uniform Conflict of Laws—

Limitations Act, 12 U.L.A. 50 (1987 Supp.).

The conclusion of the Committee approving the Uni-

form Act was that limitations laws are substantive and

should be so treated in deciding conflict of laws issues.

Under Seciion 2, the limitations law of the state whose

substantive law governs is to be applied, whether shorter

or longer than the forum state. By a narrow vote, the

“unfairness” exception in Section 4 was retained in the

Uniform Act. This vague exception would benefit a claim-

ant who could not reascnably have known of his claim

before the limitations period had expired in the state

where his claim arose, or in certain tolling situations.

Leflar, The New Conflicts-Limitations Act, 35 Mercer

L.Rev. 461, 479-80 (1984).

The Uniform Conflict of Laws—Limitations Act super-

seded the earlie' Uniform Statute of Limitations on For-

eign Claims Act (1957). The latter Act would have

applied either the limitations law of the place where the

claim accrued, or that of the forum, whichever was

shorter. This was found to be unsatisfactory, and was

not considered a “sound solution to the choice of law

problem. ...” Leflar, Id., at 464-465. But all these

laudable efforts aimed at legal reform were but continuing

attempts to fill the constitutional void in this area of law

created by the old M’Elmoyle rule. Hence the history

of the Uniform Act confirms the near universal judgment

of legal scholars and judges that limitations laws are

indeed substantive in nature.

Once we conclude that limitations laws are substan-

tive, the constitutional consequences follow because such

12

laws significantly affect people’s legal rights. What ex-

ceptions the Uniform Act may have made are not perti-

nent to the constitutional issue, unless they address a

constitutional concern.

In our federal Union, each state is entitled to enact

and apply substantive laws governing events occurring

in that state, in any way that is constitutionally valid.

It follows that the forum state must, as a general rule,

give full faith and credit to the limitations laws of the

state whose substantive law is found to be applicable.

If those limitations laws are so “unfair” or otherwise

defective, as to be unconstitutional under the Due Process

Clause or the Equal Protection Clause, the solution is

to grant the relief that the Constitution requires in that

individual case. The solution is not to apply the law

of the forum state in order to avoid a more stringent,

but valid, law of another state.

The present case does not involve a “discovery” issue,

nor any similar issue of “unfairness”. There is no reason

now to address or decide the specific question raised by

Goad.

Il. Texas, Oklahoma, and Louisiana Laws Governing

Liability for Interest, and the Period of Limita-

tions, Differ From Kansas Laws Applied Below

A. The Court Below Did Not Apply the Substan-

tive Interest Laws of Texas, Oklahoma and

Louisiana, As Required by Phillips Petroleum

Co. v. Shutts, 472 U.S. 797 (1985)

After having been directed by this Court’s remand

(474 U.S. 806) to apply the applicable laws of other states

to class members’ claims arising in those states, the Kansas

13

court has failed to do so. Instead, Kansas has ventured

to predict that the other states would adopt the Kansas

theory, and has again exported its own peculiar version

of interest law. This case, therefore, presents the oppor-

tunity to articulate a standard under which courts must

heed and apply the Full Faith and Credit constitutional

command.

In the past, the Clause has been weakened by ques-

tions whether it was self-executing, whether it meant any-

thing other than what Congress might provide by legisla-

tion, and whether it applied to a state’s common law laid

down in judicial decisions, as well as to judgments and

public acts. While these questions have been resolved, this

legal history combined with deficient “private advocacy”

have resulted in lack of clarity and strength in court de-

cisions. Jackson, Full Faith and Credit—The Lawyer's

Clause of the Constitution, 45 Col. L.Rev. 1, 7-17, 33-34

(1945). We can only join the calls of Justice Jackson, and

of other scholars on this subject, for doctrinal clarification

and strengthening of the Full Faith and Credit Clause, to

better implement its purpose. Hay, Full Faith and Credit

and Federalism in Choice of Law, 34 Mercer L.Rev. 709

(1983); Pielemeier, Why We Shouid Worry About Full

Faith and Credit to Laws, 60 So. Calif. L.Rev. 1299 (1987);

Martin, Constitutional Limitations on Choice of Law, 61

Cornell L.Rev. 185 (1976).‘

4. Constitution of the United States, Article IV, Sec. 1 con-

tains the proviso that “. . . Congress may by general Laws pre-

scribe the Manner in which such Acts, Records and Proceedings

shall be proved, and the Effect thereof.”

That proviso authorized Congress to enact uniform eviden-

tiary methods for proving state laws, thereby preventing the

danger that a state’s procedural or evidentiary rules might lead

to evasion of the Full Faith and Credit Clause. Ironically,

(Continued on following page)

14

In Phillips Petroleum Co. v. Shutts, this Court di-

rected Kansas to apply the laws of Texas, Oklahoma and

Louisiana to the class action claims for interest; and re-

manded this case for that purpose. (474 U.S. 806). Yet

Kansas proceeded to ignore the existing laws of those

states by predicting that those states would be enlightened

enough to adopt the Kansas theory.

It is Sun’s position that Kansas must, under our

Constitution, apply the existing law of another state as

it is found. Kansas is not entitled to change the existing

law of another state, under the guise that it is merely

construing and applying that law. If Kansas is allowed

to disregard the Full Faith and Credit Clause, and Due

Process Clause, in that manner, it will remain free for

each state tu evade the constitutional command with

impunity. A brief look at how Kansas exported its own

unorthodox theory of interest law proves the need to for-

mulate and enunciate a test requiring constitutional com-

pliance.

Notwithstanding this Court’s recognition that “. . .

Texas has never awarded any such interest at a rate

greater than 6% .. .”’ (472 U.S. at 817), the Kansas Su-

preme Court again on remand applied the Kansas theory

of interest which adopts the interest rate found in an

inapplicable federal regulation, as it had before. Sun’s

Footnote continued—

that proviso led to unwarranted doubts, questioning whether

the Clause was self-executing without congressional action; thus

weakening the impact of the Clause. The Articles of Confedera-

tion in 1777 required ful] faith and credit to be given to court

records and proceedings. In 1787, the Constitutional Clause

was enlarged to include a state’s other public acts and records,

and Congress was given power to prescribe the manner in which

such laws should be proved. The purpose was to strengthen

the requirement, not to weaken it.

15

brief demonstrates that the Texas Supreme Court applied

the Texas statutory and state constitutional 6% rate in

its identical Stahl case, with full knowledge of the higher

federal rate, and with full knowledge of Kansas’ different

theory utilizing the federal rate.

Respondents are unable to answer Sun’s summary of

the Texas judicial record in its royalty interest cases, pre-

ferring instead to quote from inapplicable personal injury

cases. Respondents then lamely claim that Sun’s federally

filed FPC undertaking to refund excess gas prices to its

pipeline purchasers, with interest, mysteriously became a

contract between Sun and its royalty owners (over whom

the federal commission exercised no jurisdiction). It is

thus contended that Texas would enforce this “contract” to

pay a higher rate of interest. But the lower court, at least,

recognized that the only basis for recovery in any state was

under unjust enrichment “equitable principles,” not on a

written contract. (Shutts, supra, 732 P.2d at 1290, 1294;

679 P.2d at 1175; 567 P.2d at 1319, 1321) (Wortman, supra,

J.A. 119, 150).

In advocating a new theory of recovery, respondents

are merely grasping for non-existent support for the lower

court’s refusal to follow Texas law. Neither can respon-

dents find support for the lower court’s similar export of

the Kansas theory to Oklahoma and Louisiana. (Sun Brief,

p. 38). The truth is that the Kansas theory, adopting in-

applicable federal interest rates as state law, is based en-

tirely on the lower court’s notions of “equity.” It is an

unorthodox theory unsupported by statutes or cases in

other states. Whatever its equitable merit, however, each

state is entitled to promulgate its own laws. Kansas cannot

constitutionally export its theory so as to govern class

members’ interest claims arising in other states.

16

B. The Limitations Laws of Texas, Oklahoma and

Louisiana Bar Interest Claims Related to Sun’s

1976 Payout More Than Three Years Prior to

Suit

Respondents are also forced to grasp at straws in

their argument contending that the limitations laws of

Texas and Oklahoma do not bar claims arising in those

states. (Respondents concede that Louisiana law bars such

claims). They erroneously state that interest, awarded

on the basis of unjust enrichment “equitable principles,”

is instead based upon written contracts requiring interest.

The plaintiff class members were subject to written

oil and gas leases requiring Sun to pay a 1/8th royalty on

gas sales. But the leases contained no provision, express or

implied, for interest. The interest award was based on the

equitable doctrine of unjust enrichment, which, until this

case, was subject to the three year Kansas limitations staut-

ute.

Recognizing this impediment to denying Sun’s limita-

tions defense, the Kansas court, sua sponte, developed a

new theory of Kansas limitations law avoiding iis three

year limitations for such equitable actions, based on an-

other common law fiction. (690 P.2d at 391, J.A. 122).

In calculating unpaid interest accruing on principal already

paid, the so-called “United States Rule” allows the unpaid

interest amount as of date of payout, also to draw interest

until date of judgment. To avoid the common law rule

forbidding compounding of interest (interest on interest),

the Rule as stated treats the debtor’s payment of principal

as being partly for the accrued interest as of that date, so

that interest may then continue to accrue on the unpaid

“principal” balance.

17

Despite respondents’ petition seeking only interest,

and alleging prior payment of principal; and despite a

stipulation to that effect in the pretrial order (J.A. 7,

90-51), the Kansas court cited the foregoing fiction as a

basis for saying that the suit was for “principal” royalty

amounts required to be paid by the written lease. Using

this fiction, it applied the Kansas five year statute applica-

ble to written contracts. (Wortman v. Sun Oil Co., 690 P.2d

at 391, J.A. 122).

Conceding that Kansas has the constitutional right

to use a fictional formula to turn suits for equitable in-

terest into suits for royalty principal long since paid, Kan-

sas has no right to export this medieval magic into the

law of other states. Texas does not indulge in the Kansas

fiction that interest is principal. Phillips Petroleum Co.

v. Stahl Petroleum Co., 569 S.W.2d 480, 488 (Tex. S.Ct.

1978), ruled that interest is properly calculated on interest.

It held there was no need to indulge in an irrelevant fic-

tion of this kind, i.e., that interest is principal. In Texas,

there is not the slightest pretense for applying a limita‘ions

statute applicable to written contracts to the interest claims

in this case. Accordingly, the two year Texas limitations

statute is applicable. (Sun Brief, p. 7).

Nor could any court, we suppose, rationally hold that

Oklahoma would adopt the Kansas theory treating an

equitable suit for interest, after the principal debt was

paid in full, as a suit for principal owing under a written

contract. Oklahoma’s three year limitations statute bars

the interest claims arising therein, related to Sun’s 1976

payout. Filtsch v. Johnson, 174 Okl. 132, 50 P.2d 138

(1935) (action for rent); Flanagan v. Campbeil, 183 Okl.

610, 83 P.2d 865 (1938) (action for royalty oil); T« S

Inv. Co. v. Coury, 593 P.2d 503 (Okl. 1979) (quasi-contract).

18

The unorthodox theories adopted by Kansas for its

own purposes and for its own reasons, relating to interest

liability and limitations laws, are vivid examples of laws

created by “magnet states”, drawing to themselves nation-

wide litigation in a given area of law. Arthur R. Miller

and David Crump, Jurisdiction and Choice of Law in

Multistate Class Actions After Phillips Petroleum Co. v.

Shutts, ¥6 Yale L.J. 1 (1986).*° Unless protected by the

Full Faith and Credit Clause and the Due Process Clause,

litigants’ substantive rights will be determined by the

fortuitous laws of states who have no legitimate interest

in the disputes. And each state having laws considered

favorable for one class or group of citizens will become

a litigation haven where local state courts create and

apply “national” law. Our Constitution was meant to pre-

vent that result.

5. Another example is the lower court’s construction of

the Kansas limitations “borrowing” statute which adopts the

shorter limitations act of the state where the cause of action

arose. Kansas holds its “borrowing” statute inapplicable in

this class action because the “cause of action arose in Kansas

as well as in Texas, Oklahoma, Louisiana, New Mexico, and

Mississippi.” (J.A. 157). Treating many individual claims from

many states as one cause of action arising in Kansas vividly

demonstrates that state’s intent to apply its own law to claims

arising elsewhere.

19

CONCLUSION

Kansas has again, after prior remand by this Court,

avoided applying substantive laws of Texas, Oklahoma and

Louisiana to the claims arising in each of those states.®

In order to insure compliance with the Constitution, it

becomes necessary for this Court to examine those laws

in laying down a test which each state may use as a guide

in enforcing the constitutional command.

In this particular case, another general remand re-

quiring the lower court to consider again the substantive

laws of the interested states is not enough. The Kansas

court should be directed to enter judgment for Sun as

requested in the Conclusion to its Brief.

Respectfuliy submitted,

GERALD SAWATZKY*

Jim H. GOERING

TIMOTHY B. MUSTAINE

FOULSTON, SIEFKIN, POWERS

& EBERHARDT

700 Fourth Financial Center

Wichita, Kansas 67202

(316) 267-6371

- and -

Epwyn R. SHERWOOD

P.O. Box 2880

Dallas, Texas 75221-2880

(214) 890-5608

Attorneys for Petitioner

*Counsel of Kecord

6. Because the claims arising in Mississippi and New Mexico

are de minimis, Sun disregards them in this Court.