On January 3, 2020, Judge Edmond E. Chang of the United States
District Court for the Northern District of Illinois Eastern
Division granted Plaintiffs' motion to certify a class of
investors in an action alleging that two major food companies
("Defendants") manipulated the wheat futures
market. Plaintiffs asserted claims against Defendants under
Sections 6(c)(1) and 9(a)(2) of the Commodity Exchange Act
("CEA"), under Section 2 of the Sherman Antitrust Act
("Sherman Act"), and for common law unjust
enrichment. Harry Ploss v. Kraft Foods Group Inc. et
al., No. 1:15-cv-02937 (N.D. Ill. Jan. 3,
2020).
According to the complaint, Defendants allegedly used a "long
wheat futures scheme" to manipulate the price of wheat in the
cash market. Specifically, Plaintiffs alleged that through
buying and holding very significant positions in wheat futures,
Defendants indicated to the market that they had satisfied their
need for wheat from the futures market rather than the cash market,
causing prices in the futures market to rise and prices in the cash
market for wheat to drop. As a result of the alleged scheme,
Plaintiffs contended that those who transacted in the wheat futures
market in December 2011 and March 2012 suffered losses. On
that basis, Plaintiffs sought to certify two classes under Rule
23(b)(3), one for purchasers of certain specified wheat futures,
and another for purchasers of options on those futures.
Defendants opposed Plaintiffs' motion for failing to meet Rule
23(a)'s and Rule 23(b)(3)'s requirements of typicality,
adequacy, predominance, and ascertainability.
The Court first turned to typicality and adequacy, finding that
both were satisfied because Plaintiffs, like each member of the
proposed classes, allegedly purchased wheat futures during the
relevant period and suffered losses as a result of Defendants'
scheme. In opposition, Defendants argued that Plaintiffs were
exposed to a unique defense and were therefore not typical of the
class or adequate representatives. Defendants contended that
Plaintiffs admitted in discovery to not being aware that Defendants
would take physical delivery of wheat under the futures contracts,
which, according to Defendants, showed that Plaintiffs did not rely
on representations from Defendants that their wheat requirements
would be satisfied by the futures market rather than the cash
market. The Court disagreed, finding that this argument was
irrelevant because Plaintiffs relied on a fraud on the market
theory of liability, meaning that Plaintiffs, like all the other
class members, were alleged to have "relied on
'misrepresentations' that were baked into the market price
at the time of their transactions, rather than explicit
misrepresentations directed at them
specifically."
The Court next turned to Rule 23(b)'s requirement that
"questions of law or fact common to the class members
predominate over any questions affecting only individual
members," which can be met by showing that "common
evidence will be used to prove the class members'
claims." After carefully reviewing the elements of
Plaintiffs' claims under the CEA, the Sherman Act, and for
unjust enrichment, the Court noted that there were at least two
common questions in the case: "(1) whether [the
Defendants] engaged in the alleged long wheat futures scheme; and
(2) whether that scheme inflated futures prices in the
marketplace."
The Court found that Plaintiffs had established that both questions
would be answered by common evidence. On the first, because
Plaintiffs intended to rely on Defendants' emails and trading
history to prove the existence of the scheme. On the second,
because Plaintiffs intended to rely on an event study by their
expert to show that Defendants' alleged scheme
"artificially inflated futures prices in the marketplace . . .
[and] by how much." The Court explained than an event
study "is a regression analysis that seeks to show that the
market price of a stock (or here a commodity) tends to respond to
pertinent publicly reported events, in an attempt to isolate the
effect of a certain event on the price." In opposition,
Defendants did not contest that an event study could be used to
prove price inflation by the purported scheme, but instead argued
that individual questions would nonetheless predominate because of:
(i) "differences in when class members traded wheat
futures," (ii) the need to identify a particular
"signal" that the market received, (iii) individualized
statute of limitations defenses, (iv) individualized damages
issues, and (v) questions of "antitrust standing."
The Court rejected each argument in turn.
On the first argument, the Court found that questions of timing
would either be handled by the proposed event study, or would not
be, for the class as a whole; meaning timing was not
individualized. On the second, Defendants argued that
Plaintiffs had not identified a specific "signal" that
the market had received and interpreted in a uniform way, meaning
that the parties would need to investigate what information was
known to the market and how market participants reacted. The
Court disagreed, finding that Plaintiffs' proposed event study
did not rely on a specific piece of market information but rather
analyzed the entire "flow" of information. Whether
that was appropriate, in the Court's view, was a merits
question inappropriate for class certification. It also found
that individual trading strategies were not relevant given
Plaintiffs' fraud on the market theory of liability, which
presumed reliance on market prices. As to Defendants'
third argument, the Court found that the running of the limitations
period would generally be framed by the "fraud on the market
theory"—meaning it would be determined on a class-wide
basis. Moreover, while Defendants argued that three class
members allegedly had notice that Defendants would not take
physical delivery under the futures contracts, the Court found this
unavailing because they did not establish that the notice issue
extended to other class members. Finally, as to
Defendants' fourth and fifth arguments—that
Plaintiffs' event study could not prove class members'
damages and that Plaintiffs lacked antitrust standing—the
Court again found that these were essentially merits questions not
relevant to class certification.
Regarding the issue of ascertainability, Defendants argued that
because the proposed classes included "intraday and hedging
traders," who could have suffered no damages, the classes were
not ascertainable in that they included persons who were not harmed
at all. The Court disagreed, holding that whether certain
traders may have ultimately not suffered damages was a question of
damages and not whether they were harmed at all. Defendants
also argued that the proposed classes were not ascertainable
because Plaintiffs' market definition should have been limited
to a specific geographic region, which would render it impossible
to identify class members. The Court disagreed, finding that
this was again an inappropriate merits argument going to the
Plaintiffs' chosen market definition.
In addition to granting the class certification motion, the Court
rejected Defendants' motion to exclude the causation opinions
in Plaintiffs' expert report and to strike the expert's
rebuttal, finding that Defendants' arguments attacked
Plaintiffs' attempts to "prove" loss causation and
were therefore not relevant to class certification.
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