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Phillips Petroleum Co. v. Shutts | 472 U.S. 797 (1985)
Class-action lawsuits can be tricky and complicated, especially if the dispute crosses multiple state lines. Consider the case of Phillips Petroleum Company versus Shutts.
Phillips Petroleum Company, a natural-gas producer, extracted natural gas from wells in eleven states. If the gas came from private property, Phillips paid royalties to the property owners. Royalties were calculated as a percentage of the price Phillips charged for the gas, and the federal government regulated that price.
Phillips applied for a price increase. Before the increase was approved, Phillips began charging its customers the increased price. If the increase ended up being denied, Phillips would refund any overcharges, plus interest.
But Phillips wouldn’t pay royalties on provisionally increased prices until after the government approved them. One increase sat unresolved for eleven years, during which time property owners received no royalty increase. Irl Shutts, a Kansas resident, along with two Oklahoma residents, sued Phillips in Kansas state court. The trial court certified their lawsuit as a class action, representing 33,000 royalty owners throughout all fifty states, the District of Columbia, and foreign countries. Fewer than a thousand class members resided in Kansas, and fewer than one percent of the leased wells were in Kansas.
As part of the class-certification process, the plaintiffs’ attorneys mailed notices to all 33,000 class members, advising them of the lawsuit. The letters also informed them that they could appear individually or opt out by returning a form. Otherwise, Shutts would represent their interests. Thereafter, the trial court awarded the class over $10 million. The Kansas Supreme Court affirmed, and Phillips then sought review in the United States Supreme Court.
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