Documents unsealed in CFTC v Kraft

Thom Thompson

Thom Thompson

Editor

On Wednesday, October 2, the Chicago federal district court unsealed 500 hundred pages of documents in the contempt of court dispute between the CFTC and Kraft Foods and Mondelez, as ordered by the Seventh Circuit Court of Appeals. The CFTC had filed on September 13 its motion to prevent the district court from questioning CFTC officials and, if questioning is ever to be allowed, that it be conducted by a different district court judge. The CFTC has scored a victory by so far avoiding the evidentiary hearing scheduled for October 2. 

Kraft complained to the district court on August 15, the same day court entered the settlement on its docket, that the CFTC had published three statements on its website that violated Paragraph 8 of the freshly minted settlement agreement. Paragraph 8 states, “Neither party shall make any public statement about this case other than to refer to the terms of this settlement agreement or public documents filed in this case, except any party may take any lawful position in any legal proceedings, testimony or by court order.”     

At an emergency hearing on August 19, U.S. District Court Judge John Robert Blakely, who presided over the settlement discussions and entered the settlement agreement as his court’s consent decree, ordered a hearing to obtain evidence regarding whether the CFTC had adhered appropriately to its settlement agreement with Kraft. 

Blakely wanted to examine the CFTC’s chairman and two other commissioners, whose statements were published on the CFTC’s website. Blakely said he wanted to question the CFTC representatives in order to determine, among other things, whether the matter should be referred to the Justice Department for a criminal investigation in the event that there was evidence of a “plot” to violate the consent decree. 

The CFTC’s motion for mandamus put forth both procedural and legal grounds for why the CFTC’s commissioners and enforcement chief may not be questioned on the record by a federal judge. For example, the CFTC argues that none of the commissioners is a “party” to the agreement and thus is not bound by it. The CFTC also asserts that the CFTC was powerless under the Commodity Exchange Act to interfere with the commissioners’ individual rights to publish their – in this case, oddly enough – concurring opinions.  

In its defenses against Kraft’s complaint, the CFTC tells the court that it must strike Paragraph 8 gag order from the final settlement if it believes that the individual commissioners would be bound by it. The transcript from the March 2019 settlement hearing includes Paragraph 8, indicating that that the gag order was integral to the agreement. At the August hearing, both Kraft and the CFTC said they did not want to vacate the agreement.  

Additionally, the CFTC questions a federal court’s authority to question the commission: “Our legal system does not contemplate an inquisitorial role for federal judges.” Disregarding the potential for offending a judge who might still question the commissioners, the CFTC goes on to quote the U.S. Supreme Court, saying “that contemptuous conduct ‘often strikes at the most vulnerable and human qualities of a judge’s temperament’ so there is a high risk of ‘arbitrary exercise of official power.’”  

The question of whether the CFTC violated the consent decree still needs to be decided. Did the CFTC’s three published statements constitute making a “public statement about this case other than to refer to the terms of this settlement agreement or public documents filed in this case”? 

Kraft and Mondelez have been ordered to respond by Monday, October 7. Judge Blakely is also invited to respond by then. After that, who knows what happens? It somewhat depends on what Kraft’s attorneys argue and request in response to the CFTC’s motion.  Although not originally demanded by Kraft, an evidentiary hearing might be ordered. The CFTC commissioners could be referred to the Justice Department for further investigation. Kraft could win sanctions. Given the extensive record that the CFTC’s and Kraft’s arguments have created, the case could be decided or dismissed by the appeals court.

So far, both sides in this dispute are losing. It Kraft wanted to quiet public discussions of alleged 2011 manipulation of the wheat futures market, dragging the CFTC before a district court judge and risking relitigating the case has not been a winning tactic. And while the CFTC has avoided handing over its commissioners for questioning under oath and on the record, at least for the time being, the agency’s proclivity for secrecy has garnered unwelcome attention.  With regard to both parties, we are left with the question “What were they possibly thinking?”

 

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