TOP STORY—N.D. Ill.: Judge declares CFTC struck foul blows and violated the public trust in breaching its 2019 settlement with Kraft Foods - 19 April 2022

After more than two years of silence, Judge Robert Blakely has issued a scathing rebuke to the CFTC which confirms an earlier finding of the agency’s contempt for willfully violating the confidentiality provisions of an August 2019 settlement order.

Judge Robert Blakey of the North District of Illinois has issued an order confirming a prior contempt finding against the CFTC. The judge stated that the agency had willfully violated the unambiguous and lawful confidentiality provisions of a consent order, as well as the court’s own routine settlement conference orders, when it published press materials related to the settlement of an underlying enforcement action against Kraft Foods Group, Inc.; Mondelez Global LLC involving market manipulation. (CFTC v. Kraft Foods Group, Inc., April 15, 2020).

While no sanctions were imposed, in a striking and highly unusual condemnation of a federal agency, Blakey declared “the CFTC’s contemptuous actions undermine the rule of law, especially where, as here, the plaintiff represents an agency of the United States government. 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.” The court continued, “[h]ere 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.

A most unusual case -- how did we get here? The CFTC sued Kraft in 2015, alleging the unlawful manipulation of the wheat markets. Kraft denied those allegations, and, after years of zealous litigation, in August of 2019 the parties settled their dispute via a settlement conference with the court. The events that follow are extraordinary. They are summarized here:

  • An “unusual” settlement. On August 14, 2019, the parties entered into a settlement agreement that provided for the defendants to pay $16 million to resolve claims that they manipulated wheat futures markets. Notably, Kraft, Mondelez, and the CFTC (as a full Commission) also agreed to a “gag” provision in the consent order that limited their ability to speak publicly about the case. Moreover, the consent order did not contain any factual findings or conclusions of law thereby denying Congress and the public with the basis of the sanctions obtained as well as the rationale for entering into the settlement. Then Commissioners Rostin Behnam and Dan Berkovitz described these two provisions as “unusual” in their joint statement. The CFTC also issued a press release and separate statement in connection with the settlement. Behnam now serves as CFTC Chairman.

  • CFTC leaders ordered to testify in Chicago courtroom on contempt charges. In an emergency motion, Kraft and Mondelez, charged the CFTC with deliberately violating the consent order, contending that the statements of the CFTC and its commissioners following the settlement demonstrated that they never intended to comply with the agreement they had negotiated. In a hearing held on August 19, 2019, Judge Blakey ordered then CFTC Chairman Heath Tarbert, and Commissioners Dan Berkovitz and Rostin Behnam, and James McDonald, then the agency's director of enforcement, to appear in his Chicago courtroom at a future hearing to testify in connection with the agency’s potentially contemptuous conduct.

  • 7th Circuit stays district court’s contempt proceedings. The CFTC scored a significant victory as a three-judge panel from the Seventh Circuit Court of Appeals granted its motion for a stay of proceedings in a ruling dated September 26, 2019.

  • 7th Circuit issues writ of mandamus giving CFTC a major victory. The Seventh Circuit issued a writ of mandamus on October 22, 2020 granting the Commission a majority of its requested relief, and which notably eliminated the requirement for the CFTC’s high-level leadership to appear at the controversial contempt hearing. The district court was permitted to keep its contempt inquiry open, but only with respect to the CFTC, and not with respect to any of the agency’s personnel.

  • District court vacates the settlement and reopens the underlying market manipulation case. Judge Blakey, on October 23rd, vacated the consent order and the associated settlement among the parties previously agreed to by the CFTC.

  • Court cites CFTC’s "egregious misconduct" after parties tell judge they have again agreed to settle. On February 14, 2020, Judge John Robert Blakey of the Northern District of Illinois on granted in part Kraft Foods and Mondelez Global’s motions for contempt, sanctions and other relief arising out of the CFTC’s violation of a gag order. At a hearing on the prior day, lawyers for the CFTC and the defendants advised the court that they had reached a preliminary agreement to settle the litigation. The defendants had also told the judge that they had agreed to withdraw that motion eventually as part of the proposed settlement.

Basis of final contempt finding. In supporting its contempt finding, the court stated the following:

  • The CFTC expressly agreed to abide by the confidentiality requirements, and then intentionally worked to unilaterally circumvent them with the CFTC press materials.

  • Kraft proffered compelling facts showing that the CFTC engaged in improper gamesmanship in finalizing the draft consent order and then publishing the CFTC press materials.

  • Kraft’s evidence also comports with the court’s own observations (both on the record and off the record during the settlement conference) that Kraft’s request for the confidentiality provision constituted a material term to Kraft, and that the CFTC acted willfully, and in bad faith, in publishing the CFTC press materials after agreeing not to engage in such conduct.

  • The record also confirms that the CFTC willfully violated this court’s orders concerning participation in settlement negotiations when the CFTC intentionally disclosed (and in part misrepresented) the contents of the settlement conference discussions in bad faith.

Other troubling issues. Blakey also noted other concerns, including how the CFTC’s misconduct raises troubling concerns for the future, because the agency’s actions fundamentally erode the long-established protocols for settlement conferences in both state and federal court. The judge noted that future litigants should take note of the CFTC’s position that consent orders only bind the CFTC, but not its commissioners or agents who, he observed, apparently, may act with impunity.

The order concludes with the court stating that despite the CFTC’s misconduct, if the parties wish to finalize a resolution of this matter, it will not impede that process further by imposing any sanctions for civil contempt beyond the reprimand set forth. The court gave the parties until April 29, 2022, to file a status report and submit, if they wish, an updated proposed consent order for the court’s review.

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