Milwaukee firms battle natural gas companies in U.S. Supreme Court

The U.S. Supreme Court only takes a very small percentage of the cases that pass through the U.S. court system each year.

“I think (the U.S. Supreme Court gets) about 5,000 to 6,000 of what’s called writ of certs a year, basically asking the court to take a case, and grants 80 to 100 per year,” said Chris Donovan, an attorney at Pruhs & Donovan S.C. in Milwaukee who brought a Milwaukee federal criminal case before the Supreme Court last year. “It’s relatively rare.”

One of the cases the Court took up this session involved several Milwaukee-area companies represented by a local firm. At issue is whether the federal Natural Gas Act preempted state antitrust claims based on a conspiracy to inflate prices in retail natural gas sales from 2000 to 2002.

The Wisconsin plaintiffs in the case are: Wauwatosa-based engine manufacturer Briggs & Stratton Corp.; Menomonee Falls-based commercial printer Arandell Corp.; Cudahy-based forging company ATI Ladish LLC (which has since been acquired); Kenosha-based Carthage College; Middleton-based animal nutrition provider Merrick’s Inc.; Wisconsin Rapids-based NewPage Wisconsin System Inc.; and Plymouth-based Sargento Foods Inc.

Robert Gegios of Glendale law firm Kohner, Mann & Kailas S.C. is representing the companies in the case.

According to KMK, Wisconsin businesses and residents consume up to $3.5 billion in natural gas per year, which is almost 2 percent of state GDP. It is the primary energy source for a variety of Wisconsin businesses, including electricity generation, metal working, food processing, brewing and dairy processing.

“Between 2000 and 2002, the retail price of natural gas in Wisconsin rose dramatically,” according to the brief for the Wisconsin respondents. “For instance, the city-gate price for natural gas in Wisconsin increased from $2.94 per thousand cubic feet in January 2000, to a price of $9.92 per thousand cubic feet in January 2001. On average, prices during this period more than doubled. That dramatic spike was the result of a conspiracy among petitioners. The victims of the conspiracy include industrial and commercial users of natural gas who consumed it. These Wisconsin businesses were injured by the exorbitantly high prices paid for natural gas as a result of petitioners’ wrongful acts.”

The Wisconsin plaintiffs represent a proposed class action that could include hundreds of Wisconsin businesses impacted by the alleged price manipulation.

The case before the Supreme Court, Oneok Inc. v. Learjet Inc., also includes claims from several other states where state antitrust laws came into conflict with the federal regulation related to natural gas pricing. KMK submitted the brief representing the Wisconsin respondents in the case in November, and the Supreme Court justices held oral arguments in the case in January. A decision is expected to come down any day now, and will definitely be released before the justices end this session in June or July.

It’s been a long and complicated road to the U.S. Supreme Court since the initial Wisconsin case was filed in 2006, but most recently Kohner, Mann & Kailas helped overturn a district court’s ruling that the Natural Gas Act preempted state antitrust laws, which would have prevented the plaintiffs from using Wisconsin’s antitrust laws to secure damages for the alleged manipulation of their natural gas costs. KMK appealed the ruling to the U.S. Court of Appeals for the Ninth Circuit on behalf of its Wisconsin business clients, and that court reversed the district court’s decision.

The natural gas company defendants then took the case to the U.S. Supreme Court, hoping for a reversal of the Ninth Circuit decision.

“All we’re asking for is a fair recovery,” Gegios said. “They did significant, substantial harm to Wisconsin businesses, the Wisconsin economy.”

The group of natural gas companies that appealed the case to the Supreme Court, which include major energy providers ONEOK Inc. and Shell Energy North America L.P., argue that the Federal Energy Regulatory Commission has sole authority to regulate their alleged price manipulation practices. The claims being brought by states in the case could add up to billions of dollars in payouts for the natural gas providers, and allowing individual states to bring antitrust claims throws the energy companies into “regulatory chaos.”

“FERC’s orders regulating index-reporting practices sought to give jurisdictional sellers clear rules to guide their conduct,” the petitioners’ brief reads. “Respondents’ use of state law to impose liability for those same practices threatens to undermine that uniform regulatory scheme and replace it with a morass under which individual states can impose their own conflicting standards.”

After nine years of trying to recover for the Wisconsin businesses, Gegios is hoping for a quick decision from the Supreme Court affirming the Ninth Circuit decision that the Wisconsin firms can pursue the antitrust issue. If that happens, the case could come back to federal court in Madison to be tried on its merits.

“We just want to get to the merits as soon as we can and get these matters to a courtroom to be tried,” he said.
If the Supreme Court decision is in the Wisconsin plaintiffs’ favor, it would allow the state to more easily argue it should not be superseded by federal agencies going forward, Gegios said.

While KMK is up against some of the country’s top law firms, Gegios said he isn’t intimidated and feels the Wisconsin companies’ case is strong.

“It’s not unusual for our firm in particular to do battle against very large firms and companies,” he said. “We don’t shy away from big controversies against firms bigger than we are. That’s how you handle a case like this. You outdo everybody by just working better and more than they will.”

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