Kris Kobach loses Kansas natural gas lawsuit on technicality after firing outside counsel

Kansas Attorney General Kris Kobach has lost — at least for now — a federal lawsuit seeking to recover money for alleged price gouging of natural gas during the February 2021 winter storm.

Kobach lost on a technicality after firing the state's outside counsel, and the founder of that law firm said the state would have won had their services been retained. Kobach said that law firm, Morgan & Morgan, is to blame.

The lawsuit alleged that Macquarie Energy's actions caused more than $50 million in excess costs for Kansas consumers. Kobach previously said he was "very confident we'll be able to get money back for Kansans."

"Winter Storm Uri left some Kansas residents out in the cold — literally," wrote District Judge Daniel Crabtree. "This case's claims ask whether one of the largest natural gas marketers in the United States also left Kansas residents out in the cold — figuratively."

Crabtree acknowledged that Macquarie reported substantially higher profits after the storm than the company had previously expected while Kansas utility customers are paying increased rates approved by the Kansas Corporation Commission to cover the excess costs incurred by the utilities.

The company has maintained it did nothing wrong. It argued in court that the attorney general did not have "a scintilla of evidence that Macquarie intended to manipulate the price of natural gas through its purchase of natural gas on Southern Star" or have "any evidentiary support that Macquarie did anything other than purchase natural gas at arms' length and then accurately report that transaction."

Crabtree's 19-page order issued Thursday dismissed the case on a technicality and didn't address whether Macquarie actually manipulated gas prices to their own benefit and at the expense of Kansas residents.

"This ruling puts plaintiff's claims on ice, for now at least, pending any proper re-filing in federal or state court," Crabtree wrote.

Crabtree's ruling suggests that Kobach could refile the lawsuit. But it remains unclear whether any statute of limitations would bar the claims from being refiled, and an unresolved dispute over Macquarie's registration status could ultimately doom such an effort.

"This decision illustrates why we fired Morgan & Morgan months ago," Kobach said in a statement. "They’re the attorneys who wrote and filed this case, and it’s their work the court rejected. We are now working with a different law firm and are committed to getting restitution from the companies who took advantage of Kansans during a winter storm emergency."

His statement didn't directly answer whether he will appeal the ruling or refile the case.

"Macquarie Energy is pleased with the Court's ruling and will continue to vigorously defend any claims brought against it," a company spokesperson said in a statement.

Kris Kobach lost natural gas case on technicality

This appears to be Kobach's first major legal defeat since taking office in January, and it comes on a technicality.

Deputy attorney general Frances Oleen and assistant attorney general Melanie Jack told the court their "technical deficit" was "merely an oversight."

Kobach's office had argued the court should be flexible and "assume jurisdiction," while also arguing for an amendment to correct the "'technical' jurisdictional defect." The state's attorneys asserted that Macquarie's "attempt to get this case dismissed on something so easily cured ... reeks of gamesmanship."

"Perhaps it is, but the court can't relax pleading requirements and assume jurisdiction," Crabtree wrote, explaining why he was legally bound to dismiss the case.

"While defendant's maneuver looks like gamesmanship, it's necessarily effective," Crabtree wrote. "Defendant has found a rule of the game that works in its favor, and the parties must obey the rules. So too must the court."

Kris Kobach fired counsel hired by Derek Schmidt for its expertise

Losing the case on a technicality comes after Kobach fired the outside counsel that had been hired by his predecessor, former Attorney General Derek Schmidt. Schmidt hired Florida law firm Morgan & Morgan, which was the lowest of three bidders, after announcing that his office needed additional resources and expertise.

While Morgan & Morgan was still contracted by the state when Kobach's office filed the lawsuit in February, none of its lawyers were listed as attorneys of record. The state notified Morgan & Morgan in March that its contract would be terminated in April, with mixed messaging alleging political bias and subpar work.

By May, the attorney general's office was requesting delays in court, with staff attorneys writing that they weren't "sufficiently competent in oil and gas law, the interstate natural gas market, and related regulatory and legal matters" — even though they were the attorneys who filed the lawsuit. Macquarie objected, arguing that a prompt resolution "could very well clear Macquarie's name in full."

"It would be deeply troubling if the Attorney General is willing to bring a case authorized by the weight of his office, but his office is then unable to defend it on the merits," Macquarie wrote in court documents.

Crabtree granted an extension while writing that "Kansas created its own predicament here."

"Its appropriate to infer that sophisticated lawyers like those leading the Attorney General's office must have known the breakup would create a problem for a lawsuit as complex as this one," Crabtree wrote.

The state rebid the contract that same month. The only response when bidding closed in June was from Hilgers Graben, a law firm co-founded by current Nebraska Attorney General Mike Hilgers. The Department of Administration database doesn't show a contract awarded to that firm.

"You get what you pay for," John Morgan, the Morgan & Morgan founder, said in a statement. "The AG played politics instead of putting the interests of the people of Kansas first. If we had been allowed to finish this case, we would have won because that is what we do. Our sin. Some of us are Democrats. I am an Independent. I supported Joe Biden, but I also support Republicans all the time. When they fired us, Kansas lost."

Technical deficiency stemmed from original complaint

Crabtree dismissed the case based on the derivative jurisdiction doctrine due to a deficiency in the original complaint filed by the attorney general's office.

The case was originally filed in Shawnee County District Court, but Macquarie removed it to federal court. Macquarie's lawyer, former U.S. attorney for Kansas and former Kansas solicitor general Stephen McAllister, moved swiftly to dismiss the case on the technicality.

The problem was that Kobach's petition omitted a required allegation to sue, which dealt with Macquarie's registration status under the Commodity Exchange Act.

Because it was missing, Crabtree said, Shawnee County District Court didn't have subject matter jurisdiction at the time the case was removed. And because of the derivative jurisdiction doctrine, the federal court couldn't have jurisdiction over the case, and Kobach wasn't allowed to amend the complaint.

"This omission deprived the state court of jurisdiction at the time of removal to federal court," he wrote, adding that Kobach's office "can’t cure that omission now with an amended pleading."

Crabtree wrote that his order "in effect, ices the disputes and creates numerous inefficiencies." He noted that the derivative jurisdiction doctrine has been "heavily criticized" because of such outcomes, yet Congress hasn't chosen to change it.

He also suggested Kobach shares the blame.

"And plaintiff could have avoided this outcome by either filing in federal court initially or properly pleading state court jurisdiction at the outset," Crabtree wrote. "So, the court's hands are tied."

Meanwhile, a separate lawsuit remains pending in Shawnee County District Court, where the attorney general's office has been trying for 11 months to get a court order to enforce a subpoena. Macquarie contends the subpoena is a "fishing expedition" that would force the company to turn over "highly confidential, proprietary trading information."

The case appears to be waiting on a ruling from the judge following the most recent filing in July.

More: Kris Kobach tells Nebraska town he can still work for it while Kansas attorney general

Jason Alatidd is a statehouse reporter for the Topeka Capital-Journal. He can be reached by email at jalatidd@gannett.com. Follow him on X @Jason_Alatidd.

This article originally appeared on Topeka Capital-Journal: Kris Kobach lost Kansas v. Macquarie natural gas price gouging lawsuit