Shutts v. Phillips Petroleum Co.

• Decision Date: 11 July 1977
• Docket Number: No. 47917,47917
• Parties: Irl SHUTTS, as Executor of the Estate of Althea Shutts, Individually, and as a representative of all that class of gas royalty owners under Phillips Petroleum Company oil and gas leases in the Hugoton-Anadarko area, Appellee and Cross- Appellant, v. PHILLIPS PETROLEUM COMPANY, Appellant and Cross-Appellee.
• Court: Kansas Supreme Court

Page 1292

567 P.2d 1292

222 Kan. 527

Irl SHUTTS, as Executor of the Estate of Althea Shutts Individually, and as a representative of all that class of gas royalty owners under Phillips Petroleum Company oil and gas leases in the Hugoton-Anadarko area, Appellee and Cross- Appellant, v. PHILLIPS PETROLEUM COMPANY, Appellant and Cross-Appellee.

No. 47917.

Supreme Court of Kansas.

July 11, 1977.

Syllabus by the Court

1. While the essential element to establish in personam jurisdiction over nonresident defendants is some "minimum contacts" between the defendant and the forum state, the element necessary to the exercise of jurisdiction over nonresident plaintiff class members is procedural due process.

2. Although the general rule is that only persons subject to a court's jurisdiction are bound by its judgment, there is a recognized exception for suits of a representative character, where those members of the class who are not joined as parties are adequately represented to protect their interest.

3. In its present form the Kansas Class Action Rule, modeled after the Federal Rule of Civil Procedure 23, is K.S.A. 60-223 and reveals a recognition of the need for permitting actions to be brought by a named plaintiff in a representative capacity.

4. The prerequisites to a class action are specified in K.S.A. 60-223(a ) which provides that one or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

5. Class actions are maintainable under K.S.A. 60-223(b )(3) if the prerequisites of subdivision (a ) are satisfied and in addition the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.

6. Venue is not a jurisdictional matter but a procedural one, where real property is only incidentally affected and the action is transitory in nature.

7. Under K.S.A. 60-223 Kansas courts can exercise jurisdiction over nonresident plaintiffs in a class action if procedural due process guarantees are met.

8. Under K.S.A. 60-223(c )(2) the judgment in an action maintained as a class action is required to extend by its terms to the members of the class, as defined, whether or not the judgment is favorable to them.

9. Many cases, and subsequent actions in the context of giving full faith and credit to the prior decisions of other state courts, clearly recognize a plaintiff class action may be binding on nonresident plaintiffs when a "common fund" is involved and where due process requirements are met.

10. When a stakeholder commingles funds, which would otherwise be "common funds" with its other cash, and uses the funds to fulfill its business obligations, where such funds never did or could belong to the stakeholder, the case is embraced within the "common fund" rule.

11. The notice which must be given to class members in a class action is set forth in K.S.A. 60-223(c )(2) and provides: ". . . To afford members of the class an opportunity to request exclusion, the court shall direct that reasonable notice be given to the class, including specific notice to each member known to be engaged in a separate suit on the same subject matter with the party opposed to the class."

12. In the conduct of a class action further notice is authorized under K.S.A. 60-223(d )(2) which provides: "In the conduct of actions to which this section applies, the court may, without limitation, make appropriate orders: . . . (2) requiring, for the protection of the members of the class or otherwise for the fair conduct of the action, that notice be given in such manner as the court may direct to some or all of the members of any step in the action, or of the proposed extent of the judgment, or of the opportunity of members to signify whether they consider the representation fair and adequate, to intervene and present claims or defenses, or otherwise to come into the action. . . . "

13. Both the federal rules and Kansas rules regarding class actions permit members of a class to "opt-out" upon receiving the required notice, and under K.S.A. 60-223(c )(2) the court shall exclude those members who, by a date to be specified, request exclusion, unless the court finds that their inclusion is essential to the fair and efficient adjudication of the controversy and states its reasons therefor.

14. In a review of the record on appeal involving a plaintiff class action which includes nonresident plaintiffs, it is held : The plaintiff class members were given reasonable notice which satisfies jurisdictional and constitutional due process requirements.

15. The class action is premised on the theory that members of the class who are not before the court can justly be bound because the self-interest of their representative coincides with the interest of the members of the class and will assure adequate litigation of the common issues. Where the interests of absent class members have not been adequately represented, binding them by the class judgment would seem to offend the requirements of due process. Notice to absent members of the class in this regard is particularly important, for it is the greatest single safeguard against inadequate representation.

16. The provisions of K.S.A. 60-223(d ) authorize the court to make appropriate orders for the protection of the members of the class or otherwise for the fair conduct of the action. It provides that notice be given in such manner as the court may direct to some or all of the members of any step in the action, or of the proposed extent of the judgment, or of the opportunity of members to signify whether they consider the representation fair and adequate, to intervene and present claims or defenses, or otherwise to come into the action. K.S.A. 60-223(e ), which authorizes the court to control dismissals and compromises, assists in assuring that absent class members are adequately represented.

17. Where inadequate representation is established, courts have denied res judicata effect to class action judgments.

18. Before a class action is certified the trial judge should consider concepts of manageability in terms of our Kansas class action statute, the nature of the controversy and the relief sought, the interest of Kansas in having the matter determined, and the class size and complexity. A court should also give careful consideration to any possible conflict of law problems.

19. The doctrine of unjust enrichment prevents one from profiting or enriching himself at the expense of another contrary to equity. But there must be some specific legal principle or situation which equity has established or recognized to bring a case within the scope of the doctrine.

20. Where a party retains and makes actual use of money belonging to another, equitable principles require that it pay interest on the money so retained and used.

21. In an action by royalty owners against their producer for interest on royalties held in "suspense," pending determination of lawful rates by the Federal Power Commission upon application of the producer for increased rates, it is held that interest on suspended royalties may be recovered for the period of time such royalties remained in the control of, and were available for use by, the gas producer during the pendency of FPC proceedings and related litigation regarding the determination of applicable lawful rates for gas sales, and litigation regarding the determination of issues involved in this appeal, all as more particularly set forth in the opinion.

22. Where a gas producer, under circumstances described in the foregoing syllabus, files a corporate undertaking with the Federal Power Commission, wherein it agrees to pay 7% interest on "FPC suspense monies" until rate proceedings are determined by the commission, and 8% thereafter on the gas purchasers' share of the "impounded" money, in the event the commission orders a refund, equitable principles require that the royalty owners receive the same treatment as to their share, all as more particularly set forth in the opinion.

23. Where the lessee gas producer has expressly contracted to pay a percentage of the price received for the sale of gas on which month-by-month payments to royalty owners were to be based, and the amount received by the lessee for the sale of gas in excess of the established rates pending FPC determination, although subject to possible refund, was not contractually excluded from the price received, the lessee is in no position to unilaterally impose burdensome conditions upon the royalty owners precedent to fulfilling its contractual commitment, albeit permissive until final FPC approval of rate increase applications; and the failure of the royalty owners to comply with these conditions precedent to payment of royalty in excess of the established rates does not constitute a waiver of their claim to interest on "suspense royalties," held and used by their lessee, or operate as an estoppel.

24. The "United States Rule" approved by this court provides that in applying partial payments to an interest-bearing debt which is due, in the absence of an agreement or statute to the contrary, the payment should first be applied to the interest due.

25. In an action by royalty owners against their producer for interest on royalties held in "suspense," it is held : The trial court's judgment is affirmed as to (1) the certification of the plaintiff class action, (2) its determination that the class members had not waived any...