Shutts v. Phillips Petroleum Co.

• Decision Date: 24 March 1984
• Docket Number: 770 and 770,Nos. 669,669,No. 55796,749,A,s. 669,55796
• Citation: 679 P.2d 1159,235 Kan. 195
• Parties: Irl SHUTTS and Robert Anderson and Betty Anderson, Individually and as representatives of all producers and royalty owners to whom Phillips Petroleum Company made payment of suspended proceeds of royalties pursuant to Federal Power Commission Opinionppellees, v. PHILLIPS PETROLEUM COMPANY, Appellant.
• Court: Kansas Supreme Court

Page 1159

679 P.2d 1159

235 Kan. 195

Irl SHUTTS and Robert Anderson and Betty Anderson Individually and as representatives of all producers and royalty owners to whom Phillips Petroleum Company made payment of suspended proceeds of royalties pursuant to Federal Power Commission Opinion Nos. 669, 669H, 749, 749C 770 and 770A, Appellees, v. PHILLIPS PETROLEUM COMPANY, Appellant.

No. 55796.

Supreme Court of Kansas.

March 24, 1984.

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. Where the procedural due process guarantees of notice and adequate representation are present, Kansas courts may exercise jurisdiction over nonresident plaintiffs in a class action under K.S.A. 60-223 and issue a judgment binding on the nonresident plaintiff class members.

3. 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.

4. What constitutes adequate representation is a question of fact to be determined by the trial court based upon the circumstances of each case. The decision should not be disturbed on appeal absent a showing of an abuse of discretion.

5. In determining the adequacy of the representative the trial court should consider: (1) whether there is adequate competent counsel; (2) whether the litigants are involved in a collusive suit; (3) whether the interests of the named parties are conflicting with or are antagonistic in any way to the interests of the other members of the class; (4) whether the named representatives' interests are co-extensive with the interests of the other members of the class; and (5) the extent of the named representatives' interests in the suit's outcome.

6. 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.

7. The commonality requirement of K.S.A. 60-223(a )(2) requires the existence of either a common question of fact or a common question of law. It does not require the presence of both.

8. In a review of the record on appeal involving a plaintiff class action which includes nonresident plaintiffs, it is held: Reasonable notice and adequate representation were afforded the absent nonresident plaintiff class members which satisfies jurisdictional and constitutional due process requirements.

9. 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.

10. In an action by royalty owners against their producer or purchaser of gas for interest on royalties held in "suspense," pending determination of lawful rates by the Federal Power Commission, 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 or purchaser 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.

11. Where the lessee gas producer has expressly contracted to make month-to-month payments to the royalty owners based upon the price received for the sale of any gas in the designated area, the obligation to pay interest on the suspended royalties owed the royalty owners exists whether during the period in which the royalties were suspended the gas was purchased by a pipeline company and the increased price was actually received, or the gas was consumed by the producer.

12. Where casinghead gas contracts entered into between producers (lessees) and the buyer of gas provide that the buyer pay royalties on behalf of the producers and further provide that suspense royalties held pending FPC determination of lawful rates be paid to royalty owners, after the rate increase is authorized, "without interest," the royalty owners who are not parties to the contracts are entitled to interest on the suspense royalties which they otherwise are entitled to under the leasing agreement.

13. Where a state court determines it has jurisdiction over a multistate class action and procedural due process guarantees of notice and adequate representation are present, the law of the forum should be applied unless compelling reasons exist for applying a different law.

14. In determining the amount of attorney fees to be awarded in a class action the trial court must hold an evidentiary hearing so that it has before it sufficient information to make a fair and adequate fee award. Factors which should be considered by the trial court in determining the size of attorney fees in a class action include: (1) the number of hours spent on the case by the various attorneys and the manner in which they were spent; (2) the reasonable hourly rate for each attorney; (3) the contingent nature of success; (4) the extent, if any, to which the quality of an attorney's work mandates increasing or decreasing the amount to which the court has found the attorney reasonably entitled; (5) the amount involved in the class action; and (6) the benefit produced by the lawsuit.

15. Where established guidelines are followed by the district court in determining the size of the attorney fee to be awarded in a class action, appellate review is limited to abuse of discretion.

Joseph W. Kennedy, of Morris, Laing, Evans, Brock & Kennedy, Chartered, Wichita, argued the cause, and Robert W. Coykendall, of the same firm, James R. Yoxall, of Light, Yoxall, Antrim & Richardson, Liberal, and T.L. Cubbage, II, of Phillips Petroleum Company, Bartlesville, Okl., were with him on the briefs for appellant.

W. Luke Chapin, Penny & Goering, Medicine Lodge, argued the cause, and Ed Moore, of Ginder & Moore, Cherokee, Oklahoma, and Harold K. Greenleaf, of Smith, Greenleaf & Brooks, Liberal, were with him on the brief for appellees.

Gerald Sawatzky and Jim H. Goering, of Foulston, Siefkin, Powers & Eberhardt, Wichita, were on the brief for amicus curiae, Sun Oil Co.

SCHROEDER, Chief Justice:

This is a class action suit brought against Phillips Petroleum Company (Phillips) by Irl Shutts, Robert Anderson and Betty Anderson, individually and on behalf of 28,100 royalty owners, including those who are not residents of Kansas, for recovery of interest on "suspense royalties" on gas produced from leases in eleven states. These royalties were withheld by Phillips at various times from July 1974 to February 1978 under three Federal Power Commission (FPC) opinions pertaining to gas rates in nationwide gas rate proceedings, and later paid by Phillips to the royalty owners without interest. The trial court determined (1) the class consisted of all royalty owners and overriding royalty owners who received suspense royalties from Phillips, whether or not they were residents of Kansas, (2) Phillips was liable for interest on all royalties and overriding royalties retained by it under the FPC opinions, and (3) the applicable rate of interest owed on the suspended royalty payments. Phillips challenges these findings on appeal. The plaintiff class has cross-appealed contending the trial court incorrectly determined the applicable rate of interest.

With a few exceptions this case is similar in legal issues and factual situation to that presented in Shutts, Executor v. Phillips Petroleum Co., 222 Kan. 527, 567 P.2d 1292 (1977), cert. denied 434 U.S. 1068, 98 S.Ct. 1246, 55 L.Ed.2d 769 (1978) (hereinafter referred to as "Shutts I"). The following relevant facts were stipulated to by the parties in the pretrial order and later adopted by the trial court as part of its findings of fact in its journal entry of judgment. This action was filed in July 1979, by Irl Shutts, a resident of Kansas, and Robert Anderson and Betty Anderson, residents of Oklahoma. Shutts is the owner of royalty interests under five leases owned by Phillips in Texas and Oklahoma. The Andersons are owners of gas royalty interests under a lease owned by Phillips in Oklahoma.

Notice was given to 33,000 potential class members by first-class mail. Approximately 3,400 class members elected to opt out of the class and notice could not be delivered to approximately 1,500 other potential class members, thereby reducing the size of the class to approximately 28,100 members. No notice by publication was used in this case.

Beginning with FPC Opinion No. 699 the Federal Power Commission began rate making on a nationwide, rather than areawide, basis as had been done previously. Payments of gas royalties were suspended in part by Phillips under FPC Opinion No. 699 from July 1974 through July 1976; under FPC Opinion No. 749 from January 1976 through February 1978; and under FPC Opinion No. 770 from August 1976 through July 1977. Notices of the suspended payments were sent to royalty owners on various dates during the suspension periods. Following final approval of price increases, royalties were paid to the royalty owners in the approximate amounts of $3,700,000 under Opinion No. 699; $2,900,000 under Opinion No. 749; and $4,700,000 under...