Sun Oil Company v. Wortman

• Citation: 108 S.Ct. 2117,486 U.S. 717,100 L.Ed.2d 743
• Decision Date: 15 June 1988
• Docket Number: No. 87-352,87-352
• Parties: SUN OIL COMPANY, Petitioner v. Richard WORTMAN and Hazel Moore etc
• Court: United States Supreme Court

486 U.S. 717

108 S.Ct. 2117

100 L.Ed.2d 743

SUN OIL COMPANY, Petitioner

v Richard WORTMAN and Hazel Moore etc.

No. 87-352.

Argued March 22, 1988.

Decided June 15, 1988.

Syllabus

In the 1960's and 1970's, petitioner extracted gas from properties leased from respondents in Texas, Oklahoma, and Louisiana, in exchange for agreements to pay royalties. Petitioner's prices for interstate gas sales had to be approved by the Federal Power Commission (FPC), which permitted petitioner to collect proposed increased prices from customers prior to FPC approval on the condition that petitioner comply with regulations requiring it to refund to customers any ultimately unapproved increase plus interest at specified rates. Petitioner withheld royalties on the unapproved increases until it obtained FPC approval. Two of the respondents filed a class action in a Kansas court, seeking interest on the suspended payments for the period they were held and used by petitioner. The trial court held that petitioner was liable for interest at the FPC-set rates under Texas, Oklahoma, and Louisiana law, and that the application of Kansas' 5-year statute of limitations rendered respondents' claims for interest on the July 1976 payments timely. The Kansas Supreme Court affirmed, rejecting petitioner's contentions that (1) the Full Faith and Credit Clause of the Constitution and the Due Process Clause of the Fourteenth Amendment required the application of the statutes of limitations of the other States, under which the suit would be barred, and (2) those same constitutional provisions mandated interpretations of the other States' substantive laws concerning interest that were different from the interpretations arrived at in this case.

Held:

1. The Constitution does not bar application of the forum State's statute of limitations to claims governed by the substantive law of a different State. Pp. 722-730.

(a) Kansas did not violate the Full Faith and Credit Clause by applying its own statute of limitations. The holding of McElmoyle v. Cohen, 13 Pet. 312, 10 L.Ed. 177, that statutes of limitation may be treated as procedural and therefore governed by the forum State's law for choice-of-law purposes, was correct when handed down. Petitioner's argument that this traditional view should be abandoned in favor of the modern understanding that statutes of limitations are substantive—as exemplified by Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079, which so held for Erie doctrine purposes—is without merit. Guaranty Trust itself rejected the notion that there is an equivalence between what is substantive under the Erie doctrine and what is substantive for choice-of-law purposes. The adoption of petitioner's argument under the Full Faith and Credit Clause, in the face of the traditional and still subsisting general practice to the contrary, would amount to the improper constitutionalizing of choice-of-law rules, without sufficient guiding standards. Pp. 722-729.

(b) Petitioner's due process attack upon Kansas' adoption of its own statute of limitations is without merit. Both the tradition in place when the constitutional provision was adopted and subsequent and subsisting general practice establish that a State has legislative jurisdiction to control the remedies available in its courts by imposing statutes of limitations in the interest of regulating the courts' workload and determining when a claim is stale. Petitioner could not have been unfairly surprised by the application of this established rule. Pp. 729-730.

2. The Kansas Supreme Court did not violate the Full Faith and Credit Clause or the Due Process Clause in its constructions of the laws of Texas, Oklahoma, and Louisiana regarding interest, since it contradicted no law of those States that was clearly established and that had been brought to the court's attention. The court pointed to laws of those States authorizing agreements to pay interest at higher than the specified rates, and petitioner did not point to decisions clearly contradicting the court's conclusion that such an agreement was implied by petitioner's undertaking with the FPC. Phillips Petroleum Co. v. Stahl Petroleum Co., 569 S.W.2d 480 (Tex.), Okla.Stat., Tit. 23, § 8 (1981), and Whitehall Oil Co. v. Boagni, 217 So.2d 707 (La.App.), distinguished. Pp. 730-734.

241 Kan. 226, 755 P.2d 488, affirmed.

SCALIA, J., delivered the opinion of the Court, in Part I of which all participating Members joined, in Part II of which REHNQUIST, C.J., and WHITE, STEVENS, and O'CONNOR, JJ., joined, and in Part III of which BRENNAN, WHITE, MARSHALL, BLACKMUN, and STEVENS, JJ., joined. BRENNAN, J., filed an opinion concurring in part and concurring in the judgment, in which MARSHALL and BLACKMUN, JJ., joined, post, p. ___. O'CONNOR, J., filed an opinion concurring in part and dissenting in part, in which REHNQUIST, C.J., joined, post, p. ___. KENNEDY, J., took no part in the consideration or decision of the case.

Gerald Sawatzky, Wichita, Kan., for petitioner.

Gordon Penny, Medicine Lodge, Kan., for respondents.

Justice SCALIA delivered the opinion of the Court.

Petitioner Sun Oil Company seeks reversal of a decision of the Supreme Court of Kansas that it is liable for interest on certain previously suspended gas royalties. Wortman v. Sun Oil Co., 241 Kan. 226, 755 P.2d 488 (1987) (Wortman III ). The Kansas Supreme Court rejected petitioner's contentions that (1) the Full Faith and Credit Clause of the Constitution, Art. IV, § 1, and the Due Process Clause of the Fourteenth Amendment prohibited application of Kansas' statute of limitations so as to allow to proceed in Kansas courts a suit barred by the statute of limitations of the State whose substantive law governs the claim, and (2) those same Clauses of the Constitution mandated interpretations of other States' substantive laws concerning interest that were different from those arrived at by the Kansas courts. We granted certiorari. 484 U.S. 912, 108 S.Ct. 256, 98 L.Ed.2d 214 (1987).

I

In the 1960's and 1970's, petitioner, a Delaware corporation with its principal place of business in Texas, extracted gas from properties that it leased from respondents. The leases provided that respondents would receive a royalty, usually one-eighth of the proceeds, from the sale of gas. Petitioner sold the gas in interstate commerce at prices that had to be approved by the Federal Power Commission (FPC). The FPC permitted petitioner on several occasions to collect proposed increased prices from customers pending final approval, but required petitioner to refund with interest any amount so collected that was not ultimately approved. Specifically, petitioner had on file with the FPC an under- taking to comply with regulations, now codified at 18 CFR § 154.102 (1987), requiring petitioner to refund any ultimately unapproved increase plus interest at certain specified rates. § 154.102(c). Petitioner made no royalty payments to respondents on the increased amounts collected until the FPC approved the increases. The respondents' royalty shares of these increases have been called "suspended royalty payments" in this litigation.

In July 1976, petitioner paid respondents $1,167,000 in suspended royalty payments after the FPC approved increases that had been collected from July 1974 through April 1976. These payments covered 670 properties, 43.7% of which were located in Texas, 24% in Oklahoma, and 22.8% in Louisiana. In April 1978, petitioner paid respondents $2,676,000 in suspended royalty payments after the FPC approved increases that had been collected from December 1976 through April 1978. These payments covered 690 properties, 40.3% located in Texas, 31.6% in Oklahoma, and 23.6% in Louisiana.

In August 1979, respondents Richard Wortman and Hazel Moore filed a class action in a Kansas trial court on behalf of all landowners to whom petitioner had made or should have made suspended royalty payments, seeking interest on those payments for the period that the payments were held and used by petitioner. The trial court ruled that Kansas law governed all claims for interest, even claims relating to leases in another State and brought by residents of that State. The court further ruled that under Kansas law petitioner was liable for prejudgment interest at the rates petitioner had agreed to pay with respect to customer refunds under the FPC regulations. These rates were 7% per annum prior to October 10, 1974; 9% from then until September 30, 1979; and thereafter the average prime rate compounded quarterly. The trial court relied on Shutts v. Phillips Petroleum Co., 222 Kan. 527, 567 P.2d 1292 (1977) (Shutts I ), cert. denied, 434 U.S. 1068, 98 S.Ct. 1246, 55 L.Ed.2d 769 (1978). That case, which also involved suspended royalty payments, had held that Kansas law gov- erned the claims of residents of other States concerning properties in those States, and that under Kansas law (1) the royalty owners were entitled to interest on suspended royalty payments because the royalty payments became owing under the royalty contract at the moment the gas company's customers paid the increases and (2) the interest rate to be used was that set forth in the FPC regulations because the gas company's corporate undertaking with the FPC constituted an agreement to pay that rate. See 222 Kan., at 562-565, 567 P.2d, at 1317-1319.

The principles of Shutts I were reaffirmed in Shutts v. Phillips Petroleum Co., 235 Kan. 195, 679 P.2d 1159 (1984) (Shutts II ), a factually similar case involving suspended royalty payments different from those in Shutts I. The original decision of the trial court in this case was then affirmed on the strength of Shutts II in Wortman v. Sun Oil Co., 236 Kan. 266, 690 P.2d 385 (1984) (Wortman I ). The losing gas companies in both cases petitioned this Court for certiorari.

We reversed that part of Shutts II which held that Kansas could apply its substantive law to claims by...