CERTIORARI TO THE SUPREME COURT OF KANSAS.
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. 734. O'connor, J., filed an opinion concurring in part and dissenting in part, in which Rehnquist, C. J., joined, post, p. 743. Kennedy, J., took no part in the consideration or decision of the case.
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 (1987).
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 undertaking
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 (1978). That case, which also involved suspended royalty payments, had held that Kansas law governed
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 residents of other States concerning properties located in those States, and remanded that case to the Kansas Supreme Court for application of the governing law of the other States to those claims. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 816-823 (1985) (Shutts III). We also vacated the decision in Wortman I and remanded it for reconsideration in light of our decision in Shutts III. Sun Oil Co. v. Wortman, 474 U.S. 806 (1985) (Wortman II).
On the remand in this case, the trial court held that under the law of the other States that had been held by Shutts III to govern the vast majority of claims, petitioner was liable for interest at the rate specified in the FPC regulations. The trial court further held that nothing in Shutts III precluded the application of Kansas' 5-year statute of limitations to these claims, and that therefore claims for interest on the suspended royalty payments made in July 1976 were timely.
The Kansas Supreme Court agreed with the first of these holdings in Shutts v. Phillips Petroleum Co., 240 Kan. 764, 732 P. 2d 1286 (1987) (Shutts IV), cert. pending, No. 87-348. The decision that the other States' pertinent substantive legal rules were consistent with those of Kansas was reaffirmed in Wortman III, the decision we now review. Wortman III also held that this Court's decision in Shutts III applied only to substantive law, and not to procedural matters such as the appropriate statute of limitations.
This Court has long and repeatedly held that the Constitution does not bar application of the forum State's statute of limitations to claims that in their substance are and must be governed by the law of a different State. See, e. g., Wells v. Simonds Abrasive Co., 345 U.S. 514, 516-518 (1953); Townsend v. Jemison, 9 How. 407, 413-420 (1850); McElmoyle v. Cohen, 13 Pet. 312, 327-328 (1839). We granted certiorari to re-examine this issue. We conclude that our prior holdings are sound.
The Full Faith and Credit Clause provides:
"Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Acts, Records and Proceedings shall be proved, and the Effect thereof."
The Full Faith and Credit Clause does not compel "a state to substitute the statutes of other states for its own statutes dealing with a subject matter concerning which it is competent to legislate." Pacific Employers Ins. Co. v. Industrial Accident Comm'n, 306 U.S. 493, 501 (1939). Since the procedural rules of its courts are surely matters on which a State is competent to legislate, it follows that a State may apply its own procedural rules to actions litigated in its courts. The issue here, then, can be characterized as whether a statute of
limitations may be considered as a procedural matter for purposes of the Full Faith and Credit Clause.
Petitioner initially argues that McElmoyle v. Cohen, supra, was wrongly decided when handed down. The holding of McElmoyle, that a statute of limitations may be treated as procedural and thus may be governed by forum law even when the substance of the claim must be governed by another State's law, rested on two premises, one express and one implicit. The express premise was that this reflected the rule in international law at the time the Constitution was adopted. This is indisputably correct, see Le Roy v. Crowninshield, 15 F. Cas. 362, 365, 371 (No. 8,269) (Mass. 1820) (Story, J.) (collecting authorities), and is not challenged by petitioner. The implicit premise, which petitioner does challenge, was that this rule from international law could properly have been applied in the interstate context consistently with the Full Faith and Credit Clause.
The first sentence of the Full Faith and Credit Clause was not much discussed at either the Constitutional Convention or the state ratifying conventions. However, the most pertinent comment at the Constitutional Convention, made by James Wilson of Pennsylvania, displays an expectation that would be interpreted against the background of principles developed in international conflicts law. See 2 M. Farrand, The Records of the Federal Convention of 1787, p. 488 (rev. ed. 1966). Moreover, this expectation was practically inevitable, since there was no other developed body of conflicts law to which courts in our new Union could turn for guidance.*fn1
The reported state cases in the decades immediately following ratification of the Constitution show that courts looked without hesitation to international law for guidance in resolving the issue underlying this case: which State's law governs the statute of limitations. The state of international law on that subject being as we have described, these early decisions uniformly concluded that the forum's statute of limitations governed even when it was longer than the limitations period of the State whose substantive law governed the merits of the claim. See Nash v. Tupper, 1 Cai. 402, 412-413 (N. Y. 1803) (citing unreported 1795 New York case,
and not the lex loci was to prevail with respect to the time when the action should be commenced").
The historical record shows conclusively, we think, that the society which adopted the Constitution did not regard statutes of limitations as substantive provisions, akin to the rules governing the validity and effect of contracts, but rather as procedural restrictions fashioned by each jurisdiction for its own courts. As Chancellor Kent explained in his landmark work, 2 J. Kent, Commentaries on American Law 462-463 (2d ed. 1832): "The period sufficient to constitute a bar to the litigation of sta[l]e demands, is a question of municipal policy and regulation, and one which belongs to the discretion of every government, consulting its own interest and convenience."
Unable to sustain the contention that under the original understanding of the Full Faith and Credit Clause statutes of limitations would have been considered substantive, petitioner argues that we should apply the modern understanding that they are so. It is now agreed, petitioner argues, that the primary function of a statute of limitations is to balance the competing substantive values of repose and vindication of the underlying right; and we should apply that understanding here, as we have applied it in the area of choice of law for purposes of federal diversity jurisdiction, where we have held that statutes of limitations are substantive, see Guaranty Trust Co. v. York, 326 U.S. 99 (1945).
To address the last point first: Guaranty Trust itself rejects the notion that there is an equivalence between what is substantive under the Erie doctrine and what is substantive for purposes of conflict of laws. 326 U.S., at 108. Except at the extremes, the terms "substance" and "procedure" precisely describe very little except a dichotomy, and what they mean in a particular context is largely determined by the purposes for which the dichotomy is drawn. In the context of our Erie jurisprudence, see Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), that purpose is to establish (within the limits
of applicable federal law, including the prescribed Rules of Federal Procedure) substantial uniformity of predictable outcome between cases tried in a federal court and cases tried in the courts of the State in which the federal court sits. See Guaranty Trust, supra, at 109; Hanna v. Plumer, 380 U.S. 460, 467, 471-474 (1965). The purpose of the substance-procedure dichotomy in the context of the Full Faith and Credit Clause, by contrast, is not to establish uniformity but to delimit spheres of state legislative competence. How different the two purposes (and hence the appropriate meanings) are is suggested by this: It is never the case under Erie that either federal or state law -- if the two differ -- can properly be applied to a particular issue, cf. Erie, supra, at 72-73; but since the legislative jurisdictions of the States overlap, it is frequently the case under the Full Faith and Credit Clause that a court can lawfully apply either the law of one State or the contrary law of another, see Shutts III, 472 U.S., at ...