On October 23, the federal court judge in Chicago presiding over the 2015 enforcement action by the Commodity Futures Trading Commission against Kraft Foods Group, Inc. and Mondelez Global, LLC set aside the settlement agreement among the parties confirmed in an August 14, 2019 consent order. The CFTC originally charged the defendants with manipulating and attempting to manipulate December 2011 wheat futures contracts and cash wheat.

The Hon. John Blakey revoked the settlement order following a decision by a federal court of appeals to grant, in part, relief requested by the CFTC in a mandamus petition precluding him from requiring the Chairman of the CFTC, two commissioners, and various employees of the Commission to provide testimony in a contempt proceeding against the CFTC and the individuals. Previously, the defendants requested that the CFTC and the individuals be held in contempt because they claimed the CFTC and the individuals had violated terms of a mutual gag agreement contained in the consent order when the Commission and two commissioners issued statements contemporaneously with publication of the order. The defendants also sought sanctions against the CFTC.

Under the agreement, defendants agreed to remit a fine of US $16 million and not to violate various provisions of law relating to manipulation, wash sales, and speculative limits. The consent order made clear, however, that nothing in the order reflected an agreement or determination that the defendants violated any provision of applicable law. (Click here for details regarding this dispute in the article “Contempt and Sanctions Hearing Against the CFTC Arising From Manipulation Complaint Settlement Delayed to October 2” in the September 2, 2019 edition of Between Bridges.)

The US Court of Appeals for the Seventh Circuit held that only the CFTC could potentially be held in contempt for violating the gag order and not any individuals, and that the determination of whether the CFTC was in contempt should be made by Judge Blakey solely on the basis of the existing record without any consideration of collateral evidence, including the testimony of any CFTC commissioners or employees.

In response, Judge Blakey issued a docket entry noting that he would resolve defendants’ motion for contempt, sanctions and other relief relying solely on the existing record. He also set aside the consent order on the grounds that the “factual record” does not support a proposition that the parties agreed to settle their dispute with an understanding that the settlement terms were binding on the Commission but not on agents of the Commission, including commissioners and staff. Additionally, Judge Blakey requested that the CFTC and defendants renew their motions for summary judgment and propose a trial date during a hearing on November 20. Judge Blakey indicated that the parties may still try to settle this matter, however.

Separately, the New York-based law firm of Kobre & Kim sued the CFTC in a federal court in NY, claiming that the Commission failed to produce documents related to the CFTC-Kraft/Mondelez settlement that it requested under the Freedom of Information Act. The law firm claims that it requested the documents because the original settlement failed to contain any findings of fact or conclusions of law, and thus the CFTC has left “the public in the dark” regarding its current theory of manipulation. According to the law firm, “[i]n effect, the CFTC negotiated a private resolution that left the industry without any intelligible guidance and with a potential misimpression that the legal theories asserted against [Kraft/Mondelez] had a sound legal basis.” (Click here to access a copy of Kobre & Kim’s Complaint.)

Legal Weeds: In its petition for mandamus, the CFTC also requested that the civil contempt proceeding against it be ended. However, the Court of Appeals rejected this request, claiming that if a decision ultimately is rendered adverse to the CFTC, the Commission can appeal that outcome in the ordinary course. The Court of Appeals also declined to transfer the contempt proceeding to a different judge as asked by the CFTC, saying that Judge Blakey was in the “best position to decide as an initial matter” if a contempt determination was warranted.

Following the Court of Appeals’ decision, Judge Blakey indicated that not only would he be considering the CFTC’s possible violation of the consent order, but also possible violations of the court’s prior orders, “including this Court’s orders making the settlement conference discussions private in conformity with traditional trial court practice.”

Judge Blakey previously had suggested that the Commission as well as individual commissioners and staff might be subject to criminal contempt determinations. However he withdrew this threat on September 19. (Click here to access the relevant docket entry at 336.)

Judge Blakey’s pronouncement on the wide scope of his contempt determination coupled with Kobre & Kim’s FOIA lawsuit against the CFTC on Halloween serve to underscore how the Commission’s initial handling of its settlement with Kraft and Mondelez will continue to haunt the agency for some time.