Private claimant Harry Ploss brought the class action suit against Kraft Foods Group, Inc. and Mondelēz Global LLC in February last year.
He alleges five breaches of the Commodity Exchange Act (CEA), a violation of the Sherman Antitrust Act and unjust enrichment – seven counts in total related to Mondelēz wheat trades in December 2011.
Five counts proceed, two dismissed
On Monday (June 27), a district court in Chicago allowed the case to proceed for five counts, but dismissed claims related to “wash trading” –a form of market manipulation.
The US Commodity Futures Trading Commission (CFTC) launched its own civil suit against Mondelēz International and Kraft Foods last year based on similar claims. In that case, Mondelēz has said it will bear any costs incurred as the wheat in question is used in products such as cookies and crackers, which are not made by Kraft Foods Group.
Michael Mitchell, senior director of corporate external communications at Mondelēz said the firm would not comment on active litigation, but pointed to the company's most recent Form 10-Q filing from April 28.
"As you see in that filing, we do not expect that the ultimate costs to resolve any of these legal matters, individually or in the aggregate, will have a material effect on our financial results," he said.
Toledo cash market
Ploss contends Mondelēz illegitimately purchased $90m worth of wheat futures contracts in December 2011 when the cash price of No. 2 soft red winter wheat in the Toledo market rose around 34% in the summer/fall of 2011.
The lawsuit alleges this led to the price of wheat in the Toledo market to fall, allowing Mondelēz to obtain wheat in the cash market at more favorable prices.
According to court documents, Mondelēz sources the bulk of its US wheat needs - in particular, No. 2 soft red winter wheat—from the local Toledo cash wheat market.
Mondelēz processes 90% of its US wheat needs at its primary flour mill in Toledo, Ohio, where it processes around 15 million bushels of wheat every six months, say court papers.
But the company also trades wheat from the futures market on the Chicago Board of Trade (CBOT), allowing it to hedge against the risk of price increases.
Mondelēz is not subject to the same rules as speculators on the futures market because it is an end-user of wheat. Hedge exemptions expire one year from the date of issuance and must be renewed.
Ploss’ lawsuit alleges Mondelēz was without an exemption from December 2 to December 28, 2011, and therefore bound to a 600-contract limit that applies to speculators.
Ploss has been allowed to amend the dismissed “wash trading” counts. Mondelēz has until July 18, 2016 to respond to the five surviving counts.
Ploss v Kraft Foods Group, Inc. and Mondelēz Global LLC
United States District Court for the Northern District of Illinois Eastern Division