UNITED STATES – 2015 marks the 30th anniversary of the U.S. Supreme Court case that impacted the way courts determine class certification claims by indirect purchasers under state antitrust laws. Under Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985), the U.S. Constitution’s Due Process Clause and Full Faith and Credit Clause require that state law cannot be automatically applied to each claim brought by a class comprised of multistate members. In most cases, this operates due to Rule 23(a)(2) (commonality) and 23(b)(3) (predominance) to limit the scope of a class in a state antitrust class action to residents of the state under whose law the action is brought.
In Shutts, Phillips Petroleum (“Phillips”), a company which produced natural gas from land leased in 11 states, was sued in Kansas by a class of landowners who argued that Phillips did not timely pay the interest on its royalty payments to the landowners. Less than one percent of the class members resided in Kansas.
The U.S. Supreme Court held that the lower courts properly asserted personal jurisdiction over the absent class members who did not opt out of the class. Kansas could exercise jurisdiction over claims submitted by absent class action plaintiffs, even if those plaintiffs did not have the minimum contacts with the forum state.
However, Kansas law could not be universally applied to every claim made by the alleged class. Kansas’ lack of interest in claims unrelated to the state and the apparent conflict with the laws of other relevant jurisdictions like Oklahoma and Texas would mean that using Kansas law for every claim would be arbitrary and would violate the Constitution’s Due Process Clause and Full Faith and Credit Clause. Essentially, the existence of personal jurisdiction over both Phillips and the plaintiff class was not sufficient by itself to justify applying Kansas law to each and every claim.
Today, indirect purchaser class action claims are almost invariably joined with Sherman Act Section 1 claims in the U.S. Federal Courts, either by pendent jurisdiction or by removal from state courts under the Class Action Fairness Act. In order to avoid the constitutional issues confronted by Shutts and because applying several states’ laws to a class would defeat the commonality and predominance requirements of Rule 23, most courts will require an in-state class representative and will limit the scope of the state law class to people who reside in the state.
