A federal judge has ruled a federal regulatory agency under former President Barack Obama violated a court order and the public trust, when it decided to effectively take a public victory lap after reaching a settlement agreement with Kraft Foods and Mondelez International, in which the food makers agreed to pay $16 million to end an action accusing the companies of manipulating wheat markets.
U.S. District Judge John Robert Blakey said in an order issued April 15 that the actions of the U.S. Commodity Futures Trading Commission rose to the level of civil contempt of court, and the judge said he could yet impose sanctions on the agency for its actions.
And the judge warned the CFTC’s actions in this case should serve as a warning for others who may find themselves across the table from the agency for settlement talks.
U.S. District Judge John Robert Blakey
| fedbarchicago.org
“In the end, the CFTC’s contemptuous actions undermine the rule of law, especially where, as here, the plaintiff represents an agency of the United States government,” Blakey wrote.
“As an entity exercising federal executive power, the CFTC is the ‘representative not of an ordinary party to a controversy, but of a sovereignty whose obligation to govern impartially is as compelling as its obligation to govern at all’ and while it may pursue its cases ‘with earnestness and vigor’ and ‘strike hard blows,’ it is ‘not at liberty to strike foul ones.’
“Here, the CFTC struck foul blows. Its conduct in this case violated the public trust, as well as the CFTC’s own core values and its long tradition of providing excellent service to the nation,” Blakey wrote.
The decision comes as the latest step in a legal fight dating back nearly seven years.
In 2015, the CFTC filed suit against Kraft and Mondelez in Chicago federal court, accusing the food packagers of violating the U.S. Commodity Exchange Act in 2011 by allegedly using deception to buy $90 million in wheat futures contracts to cut the price it would pay for wheat.
The CFTC said the alleged maneuvers saved the companies about $5.4 million on cash wheat, at a time wheat prices were otherwise spiking.
The parties reached a settlement in March 2019, under which Kraft and Mondelez agreed to pay $16 million. The agreement was set in a consent order issued by the court in August 2019.
The consent order also specifically instructed both sides to limit “any public statement about this case other than to refer to the terms of this settlement agreement or public documents filed in this case.”
The CFTC’s release included statements from the commission’s chairman at the time, and from two other commissioners, who said the $16 million was equivalent to what the CFTC would have won at trial and asserting Kraft and Mondelez had inflicted “real pain” on farmers and “American families.”
Kraft cried foul, saying the settlement included no admission from the food companies or the court concerning the alleged misconduct by Kraft and Mondelez.
Blakey voided the settlement and initiated possible contempt proceedings against the CFTC.
At the Seventh Circuit Court of Appeals, however, judges largely blocked those proceedings, saying it supported the CFTC’s position that only the CFTC itself had agreed to the secrecy provision. The individual commissioners and even the CFTC chairman may not be bound to such a provision.
They stopped short of completely shutting down the contempt proceedings against the CFTC, and in February 2020, Blakey issued a finding of contempt against the agency.
In the years since, Kraft, Mondelez and the CFTC renewed settlement talks, according to court filings.
Because those talks continue with the goal of bringing the matter to an end, Blakey agreed to put off delving any further into the matter “in support of the prior contempt ruling.”
Instead, Blakey opted to issue an order formally reprimanding the CFTC for its earlier “contemptuous actions.” The judge noted “the facts here overwhelming support (sic) the prior contempt finding.”
Aside from the facts of this case, Blakey said the CFTC’s conduct and its legal reasoning against the contempt charge raise “troubling concerns for the future.”
“… Its actions fundamentally erode the long-established protocols for settlement conferences in both state and federal court,” Blakey wrote. “Future litigants should take note of the CFTC’s position that consent orders only bind the CFTC, but not its commissioners or agents who, apparently, may act with impunity.”
Kraft and Mondelez have been represented by attorneys Dean N. Panos, J. Kevin McCall, Nicole A. Allen and Thomas E. Quinn, of the firm of Jenner & Block, of Chicago, and Gregory S. Kaufman, of Eversheds Sutherland, of Washington, D.C.
The CFTC has been represented by its in-house counsel.