Ploss v. Kraft Foods Group, Inc.
197 F. Supp. 3d 1037
N.D. Ill.2016Background
- Plaintiff Harry Ploss (for a proposed class) alleges Kraft/Mondeléz executed a coordinated scheme in late 2011 to acquire an outsized long position in December 2011 CBOT wheat futures (≈3,150 contracts, ~$90M) not for bona fide commercial delivery but to influence prices — lowering Toledo cash wheat prices and inflating December futures to profit on spread trades.
- Plaintiff alleges Kraft lacked economic reasons to take delivery (transport, storage, quality issues, limited Toledo storage) and accepted only a small fraction of delivery certificates; emails from Kraft procurement discuss "stopping" December wheat and expected basis/spread benefits.
- Separately, Plaintiff alleges multi-year off-exchange EFP transactions that were effectively wash trades between Kraft accounts and that Kraft reported EFP volumes to the exchange, causing misleading market signals.
- Claims brought: CEA manipulation under §9(a)(2) and §6(c)(1) (long-futures scheme and EFP/wash scheme), principal-agent liability under §2(a)(1)(B), Sherman Act §2 monopolization, and state-law unjust enrichment.
- Court ruling on motion to dismiss: denies dismissal for CEA claims, principal-agent, Sherman Act monopolization, and unjust enrichment as to the long futures scheme (Counts 1–3, 6, 7); grants dismissal without prejudice for the CEA claims based on the EFP/wash trading (Counts 4–5).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §6(c)(1) (Dodd-Frank anti-manipulation) claim based on long-futures market activity requires a misrepresentation and whether pleading must meet Rule 9(b) | Ploss: §6(c)(1) can cover manipulative trading that sends false price signals without an explicit misrepresentation; alleged facts meet heightened particularity if required | Kraft: §6(c)(1) is fraud-like and requires a misrepresentation and Rule 9(b) specificity | Court: An explicit misrepresentation is not required; market-manipulation claims may be pleaded under §6(c)(1); Ploss met pleading requirements (denies dismissal as to long-futures §6(c)(1)) |
| Whether §9(a)(2) price-manipulation claim is adequately pleaded for the long-futures scheme (ability, artificial price, causation, specific intent) | Ploss: Kraft had ability (large % of open interest), caused artificial prices in December futures and Toledo cash, intended to do so (emails, economic irrationality), and suffered damages | Kraft: Purchases reflected bona fide hedging/end-user needs; not a classic corner/squeeze; lacking specific intent; statute of limitations | Court: Allegations suffice on all four elements, including specific intent and timeliness (denies dismissal of §9(a)(2) long-futures claim) |
| Whether CEA claims based on alleged EFP wash trades (off-exchange self‑matched EFPs reported as volume) state manipulatory or false-report claims under §9(a)(2) and §6(c)(1) | Ploss: Kraft reported bogus EFP volumes that misled market price discovery and caused artificial futures prices | Kraft: Allegations are conclusory and lack particularized linkage between reported EFP volumes and price or plaintiff injury | Court: Dismisses both EFP-based CEA claims without prejudice for failure to plead how reported EFPs affected prices, caused plaintiffs’ injuries, or produced a defendant benefit (grants leave to replead) |
| Whether Sherman Act §2 monopolization claim based on control of December 2011 futures market survives pleading | Ploss: December 2011 futures constitute a relevant market; Kraft’s dominant long positions (allegedly up to 87% open interest) summarily excluded competition and were uneconomic unless intended to exclude; conduct was willful/exclusionary | Kraft: Market-definition improper (must include cash market); open-interest share is not a reliable market-share proxy; no predatory bidding theory fits | Court: Market definition plausible for a contract-month futures market; allegations of dominant position and willful exclusion/uneconomic conduct suffice to survive dismissal (denies dismissal) |
| Whether unjust enrichment claim survives and whether CEA preempts it | Ploss: Seeks disgorgement/restitution based on same facts supporting CEA/antitrust claims | Kraft: Unjust enrichment is preempted or barred because CEA private remedy limits recovery to actual damages | Court: Unjust enrichment allowed to proceed to the extent it rests on surviving long-futures statutory claims; CEA does not plainly preempt state unjust-enrichment claims (denies dismissal) |
Key Cases Cited
- Sullivan & Long, Inc. v. Scattered Corp., 47 F.3d 857 (7th Cir. 1995) (distinguishes lawful short-selling/arbitrage from manipulation; Rule 10b-5 requires deception or manipulation)
- ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (market-manipulation may be based on trading that sends false price signals; "something more" required beyond routine trading)
- In re Amaranth Natural Gas Commodities Litigation, 587 F. Supp. 2d 513 (S.D.N.Y. 2008) (trading patterns unsupported by legitimate economic rationale can constitute manipulation by sending false market signals)
- CFTC v. Kraft Foods Grp., Inc., 153 F. Supp. 3d 996 (N.D. Ill. 2015) (parallel enforcement decision: §6(c)(1) may reach market-manipulation conduct; guided court’s pleading analysis)
- In re Dairy Farmers of Am., Inc. Cheese Antitrust Litig., 801 F.3d 758 (7th Cir. 2015) (antitrust analysis recognizing contract-month futures can be a relevant market; direct/indirect evidence of market power; nontraditional manipulation can support antitrust claims)
- Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (U.S. 2005) (elements of fraud-based securities claim include material misrepresentation, scienter, reliance, economic loss, and loss causation)
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (U.S. 1976) (scienter requirement in securities fraud context)
- Weyerhaeuser Co. v. Ross‑Simmons Hardwood Lumber Co., 549 U.S. 312 (U.S. 2007) (predatory bidding standard and limits on antitrust theories not grounded in traditional predatory conduct)