Wednesday, November 20, 2019

Kraft says au contraire to CFTC’s mootness theory, stage set for court status hearing

By Mark S. Nelson, J.D.

Kraft Foods Group, Inc. and Mondelez Global LLC (collectively Kraft), urged a federal court in Chicago to view skeptically the CFTC’s assertion that contempt proceedings initiated by Kraft against the CFTC are now moot or entirely constrained by sovereign immunity. The CFTC and Kraft had reached an agreement to settle the CFTC’s enforcement case against Kraft via a consent order but Kraft objected to the CFTC’s and individual CFTC commissioners’ public statements following announcement of the consent order, which contained a provision purporting to limit what Kraft or the CFTC could say publicly about the settlement. Following a fast-tracked appeal to the Seventh Circuit, the district court vacated the consent order and scheduled a hearing for November 20, 2019 at which the CFTC and Kraft are expected to deal with a variety of unresolved issues as the case once again heads toward trial (CFTC v. Kraft Foods Group, Inc., November 18, 2019).

Consent order vacated but not forgotten. The court recently vacated the consent order between the CFTC and Kraft following the Seventh Circuit’s grant of mandamus in favor of the CFTC. Kraft, however, does not see the contempt proceeding that it initiated as complete and now disputes the CFTC’s assertions of mootness and sovereign immunity.

Specifically, Kraft countered by asserting, among other things, that CFTC attorneys tried to get the gag provision removed from the consent order because CFTC commissioners might be limited in speaking about the settlement if that provision remained in the consent order. "Those requests demonstrate the CFTC knew that Defendants intended Paragraph 8 to reach such statements," Kraft told the court. Kraft further asserted that the CFTC falsely represented to the court that it and Kraft had reached an agreement, a theory Kraft said is underscored by the CFTC’s later public efforts to explain why individual commissioners could nevertheless speak publicly about the consent order.

With respect to mootness, Kraft argued that the consent order may have been vacated, but that the court could still reprimand the CFTC for the agency’s conduct during the consent order’s lifetime. Put another way, Kraft argued that the consent order was vacated because of the CFTC’s own conduct.

Potential remedies for CFTC conduct. Kraft also sought to turn the words of Commissioners Dan Berkovitz and Rostin Behnam against the CFTC, noting that the joint statement by Berkovitz and Benham suggested a limit to any penalties the CFTC could obtain. "The $16 million penalty and injunctive relief that the Commission has obtained in this consent order is as much as the Commission could reasonably expect to obtain if it were to prevail at trial," said Commissioners Berkovitz and Benham at the beginning of their separate public statement on the consent order.

At a later point in its briefing, Kraft would combine the Berkovitz-Benham statement with a similar assertion made by the Commission. "The Consent Order results in a $16 million civil monetary penalty—nearly three times the unlawful profit the Commission alleged the Defendants obtained," said the Commission. Kraft said the Commission’s reference to "three times the unlawful profit" implied that the agency had obtained the maximum amount possible and, thus, suggested a ceiling.

According to Kraft, the court could impose a variety of sanctions against the CFTC for the agency’s alleged violations of the consent order. Specifically, Kraft said the court could:
  • Find that the CFTC violated prior court orders and acted in contempt of court and make findings about the acts that constituted the CFTC’s contemptuous conduct (Kraft urged this result even if the CFTC would not be subject to financial penalties);
  • Order appropriate relief, including either a compensatory contempt remedy or a litigation sanction that caps Kraft’s liability going forward at the $16 million amount agreed to in the vacated consent order (alternatively, Kraft said the court could bar the CFTC from presenting evidence that a higher amount should be imposed on Kraft, if the CFTC won at trial); and
  • Award Kraft its attorney’s fees for prosecuting the contempt proceeding, an award Kraft said would not be barred by principles of sovereign immunity.
Kraft, however, acknowledged that some remedies would be out of reach. As a result, Kraft said the court could not impose punitive or criminal relief, bar commissioners from making additional statements, or order a contempt award that would violate sovereign immunity. Still, Kraft said it believed that its request for relief from the CFTC would not run afoul of any of these potential limits.

The case is No. 15-cv-2881.