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Ploss v. Kraft Foods Group, Inc.

United States District Court, N.D. Illinois, Eastern Division

January 3, 2019

HARRY PLOSS, as Trustee for the HARRY PLOSS TRUST DTD 8/16/1993, on behalf of himself and a proposed class, et al., Plaintiffs,
v.
KRAFT FOODS GROUP, INC. and MONDELĒZ GLOBAL LLC, Defendants.

          MEMORANDUM OPINION AND ORDER

          Honorable Edmond E. Chang, United States District Judge

         Harry Ploss and other plaintiffs brought this proposed class-action lawsuit against Kraft Food Group, Inc. and Mondelēz Global LLC, alleging violations of the Commodity Exchange Act (CEA); the Sherman Antitrust Act; and unjust enrichment.[1] (For simplicity, the Opinion will refer to the Plaintiffs collectively as Ploss and to the Defendants collectively as Kraft.) In the Consolidated Class Action Complaint (“Complaint” for short), Ploss alleged that Kraft manipulated the wheat-futures market using two schemes: the long wheat futures scheme, and the wash trading scheme. R. 71, Compl.[2] After a prior motion to dismiss, all that remains are the claims on the long wheat futures scheme. See R. 113, Opinion (granting Kraft's motion to dismiss (R. 76) as to Count Four (Section 9(a)(2) EFP wash trading manipulation) and Count Five (Section 6(c)(1) EFP wash trading manipulation)); Ploss v. Kraft Foods Group, Inc., 197 F.Supp.3d 1037 (N.D. Ill. 2016).

         Ploss now wishes to certify the class on the remaining claims. See R. 237, Mot. Class Cert. In support of the motion for class certification, Ploss submitted expert reports authored by Dr. Craig Pirrong. R. 240, Pirrong Rep.; R. 315, Pirrong Rebuttal Rep. In response, Kraft moves to exclude Pirrong's opening report, R. 276, Defs.' Mot. Exclude, and to strike his rebuttal report, R. 319, Defs.' Mot. Strike. For the reasons below, the Court grants Ploss's motion for class certification and denies Kraft's motions.

         I. Background

         This Opinion assumes familiarity with the facts set out in greater detail in the opinion that addressed the motion to dismiss. Ploss, 197 F.Supp.3d 1037. As a quick refresher, Ploss alleges that Kraft manipulated the wheat-futures market by buying and maintaining an enormous position on wheat futures for the purpose of influencing prices, rather than out of any legitimate need for that quantity of wheat. Compl. ¶ 122-138. Specifically, Kraft bought $90 million worth of December 2011 wheat futures contracts, and then refused to liquidate its long position and stopped buying wheat in the cash market. Id. ¶¶ 86, 91, 92. These acts, according to Ploss, falsely signaled to the market that Kraft was satisfying its need for wheat from the futures market rather than the cash market, and caused the wheat prices in the cash market to drop and the price of wheat futures to increase. Id. ¶¶ 55-56, 82. As a result of the artificial prices allegedly caused by the scheme, all of the Plaintiffs that transacted in December 2011 and March 2012 wheat futures lost money-that is, the Plaintiffs allege that they either bought at a higher price or sold at a lower price than they would have absent Kraft's allegedly manipulative actions.

         Ploss now seeks to certify the following two classes under Federal Rule of Civil Procedure 23(b)(3), comprised of all persons who either:

a. purchased a CBT December 2011 or a CBT March 2012 futures contract after October 31, 2011 except that purchases of CBT March 2012 futures contracts made after December 14, 2011 qualify for inclusion in the Class only to the extent they were made in liquidation of a short position in the CBT March 2012 contract (whether an outright short position or as part of a spread position) which was sold between November 1 and December 14, 2011 inclusive; or
b. sold put options or purchased call options on the CBT December 2011 contract or on the CBT March 2012 contract after October 31, 2011 except that sales of put options or purchases of call options on the CBT March 2012 contracts made after December 14, 2011 qualify for inclusion in the Class only to the extent they were made in liquidation of a position in the CBT March 2012 contract (whether an outright position or as part of a spread position) which was initiated between November 1 and December 14, 2011 inclusive.

Mot. Class Cert. at 1. In support of the motion, Ploss first submitted an opening expert report authored by Dr. Craig Pirrong. See Pirrong Rep. In the opening report, Pirrong opined, among other things, that Kraft caused artificially high prices in the December 2011 and March 2012 wheat futures markets, thus causing the Plaintiffs' damages. See generally id. Kraft, unsurprisingly, opposes the class-certification motion. R. 267, Defs.' Resp. Br. (SEALED). To rebut Pirrong's report, Kraft submitted the expert report of Dr. James Overdahl, who attempted to poke holes in Pirrong's causation opinions. R. 264-3, Overdahl Rep. (SEALED). Ploss then submitted a rebuttal report written by Pirrong, which responded to Overdahl's criticisms. See Pirrong Rebuttal Rep. Kraft moves to exclude Pirrong's causation opinions and to strike parts of the rebuttal report.

         II. Legal Standard

         To justify class certification, a plaintiff must satisfy each requirement of Rule 23(a)-numerosity, commonality, typicality, and adequacy of representation-as well as at least one of the subsections of Rule 23(b). See Harper v. Sheriff of Cook Cnty., 581 F.3d 511, 513 (7th Cir. 2009); Oshana v. Coca-Cola Co., 472 F.3d 506, 513 (7th Cir. 2006). Here, Ploss is seeking class certification under Rule 23(b)(3). So in addition to the requirements of Rule 23(a), he must also show predominance and superiority. See Fed. R. Civ. P. 23(b)(3). Separate and apart from the requirements in Rule 23(a) and (b)(3), “a class must be sufficiently definite that its members are ascertainable.” Jamie S. v. Milwaukee Pub. Sch., 668 F.3d 481, 493 (7th Cir. 2012); Oshana, 472 F.3d at 513 (“The plaintiff must also show ... that the class is indeed identifiable as a class.”).

         Failure to meet any of those requirements precludes class certification. Harper, 581 F.3d at 513 (cleaned up).[3] The Court “must make whatever factual and legal inquiries are necessary to ensure that requirements for class certification are satisfied before deciding whether a class should be certified, even if those considerations overlap the merits of the case.” Am. Honda Motor Co. v. Allen, 600 F.3d 813, 815 (7th Cir. 2010); see also Schleicher v. Wendt, 618 F.3d 679, 685 (7th Cir. 2010) (“[A] court may take a peek at the merits before certifying a class, ” but that peek is “limited to those aspects of the merits that affect the decisions essential under Rule 23.”). At the same time, however, the ultimate inquiry at the class-certification stage are the requirements of Rule 23. See Bell v. PNC Bank, Nat. Ass'n, 800 F.3d 360, 376 (7th Cir. 2015). So class-certification proceedings cannot be allowed to turn into a preemptive determination of the merits if the answers to merits questions are not needed to decide the certification motion. Id.

         III. Analysis

         A. Rule 23 Requirements

         Kraft challenges Ploss's showing on (1) typicality; (2) the adequacy of class representatives; (3) predominance; and (4) ascertainability.[4] The Court addresses each in turn.

         1. Typicality and Adequacy

         Rule 23(a)(3) requires that “the claims or defenses of the representative parties [be] typical of the claims or defenses of the class.” Fed.R.Civ.P. 23(a)(3). “A plaintiff's claim is typical if it arises from the same event or practice or course of conduct that gives rise to the claims of other class members and is based on the same legal theory.” Lacy v. Cook Cty., Illinois, 897 F.3d 847, 866 (7th Cir. 2018) (quoting Rosario v. Livaditis, 963 F.2d 1013, 1018 (7th Cir. 1992)) (cleaned up). The typicality requirement “is meant to ensure that the named representative's claims have the same essential characteristics as the claims of the class at-large.” Id. (cleaned up).

         Relatedly, Rule 23(a)(4) requires that the named plaintiffs “fairly and adequately protect the interest of the class.” Fed.R.Civ.P. 23(a)(4). “To be an adequate representative, the named plaintiff must be part of the class and possess the same interest and suffer the same injury as the class members.” Conrad v. Boiron, Inc., 869 F.3d 536, 539 (7th Cir. 2017) (quoting Amchem Prod., Inc. v. Windsor, 521 U.S. 591, 625-26 (1997)) (cleaned up). A class representative is not adequate if, for example, the proposed representative is subject to a defense to which other class members are not, or if the representative cannot prove the elements of the class's claim for reasons unique to the representative. CE Design Ltd. v. King Architectural Metals, Inc., 637 F.3d 721, 724-25 (7th Cir. 2011).

         Here, the named Plaintiffs'[5] claims are all typical of those of the class. All class members, including the named Plaintiffs, bought December 2011 and March 2012 wheat futures and allegedly lost money because of the artificial prices caused by the scheme. There simply is nothing that distinguishes the claims of the proposed representatives from those of the rest of the class. The proposed representatives' claims target the same conduct, and seek relief under the Commodity Exchange Act and the Sherman Act based on the same legal theories and on the same facts. The named Plaintiffs are adequate class representatives for largely the same reason: the claims of the named Plaintiffs are identical, both legally and factually, to those of the proposed class members. There are no individual defenses or unique obstacles to proving the claims that would in any way impede the named Plaintiffs' ability to adequately represent the interest of the class members. See Conrad, 6869 F.3d at 539.

         Kraft contends, though, that Ploss failed to establish both typicality and adequacy because the named Plaintiffs are supposedly subject to one of Kraft's defenses: that Kraft's conduct did not signal that it would physically load out the wheat pursuant to the futures contracts. Defs.' Resp. Br. at 26-28 (SEALED). Before getting into what this defense really means, it is worth going back to the allegations in the Complaint and Kraft's defenses. The Complaint alleges that, as part of the long wheat futures scheme, Kraft bought $90 million worth of December 2011 wheat futures contracts, even though it did not make financial sense to do so. Compl. ¶¶ 55-56, 82. This purchase signaled to market participants that Kraft would supposedly satisfy its need for wheat from the futures market, and not from the local cash market. Id. ¶ 55. This in turn artificially caused prices in the cash market to fall and the December 2011 futures prices to rise, both of which put Kraft ahead by millions of dollars. Id. ¶¶ 82-83, 87, 89. That was just as predicted by Kraft's Senior Director of Global Procurement in internal emails written in October and December 2011. Id. ¶¶ 83, 89.

         To defend against these allegations, Kraft argues that its conduct did not signal that Kraft would physically load out under the futures contracts. Defs.' Resp. Br. at 26 (SEALED). In other words, Kraft broadly contends that it did not send any false signals, defraud anyone, or cause any market participants to make trades based on artificially high prices for December or March futures. Id.[6] With this defense laid out, Kraft argues that the named Plaintiffs are subject to a unique defense because they supposedly made admissions in line with the defense. Id. Kraft points out, for example, that Ploss conceded that, back in December 2011, he did not get a signal about what Kraft was going to do in the wheat market, and that before this litigation, Ploss did not know when Kraft bought its December long position. Id. at 28; see also R. 264-21, Ploss Dep. Tr. at 119:14-120:13 (SEALED). Ploss also testified that he did not know when Kraft sold its March position, nor did he know that Kraft was “stopping wheat” (which means, in futures jargon, standing for delivery of the wheat) in the December delivery period. Ploss Dep. Tr. at 124:21-125:10, 252:20-254:14 (SEALED). Likewise, the representative for White Oak Fund, one of the named Plaintiffs, testified that, in December 2011, no one at White Oak had any specific understanding about Kraft's futures position or whether any shipping certificates would be delivered. Defs.' Resp. Br. at 27 (SEALED); see also R. 264-22, Exh. 22, Sullivan Tr. 72:21-77:22 (SEALED).

         At first glance, this testimony suggests that Kraft is right-the named Plaintiffs did not rely on any misrepresentations made by Kraft. The problem for Kraft, however, is that Ploss's theory of liability is based on how Kraft's conduct affected the market as a whole, rather than on any overt misrepresentations to particular market participants. See Ploss, 197 F.Supp. at 1055. That theory of liability is often referred to as a “fraud on the market” theory, and is often invoked in securities-fraud cases. It posits that “in an open and developed securities market, the price of a company's stock is determined by the available material information regarding the company and its business.” See Basic Inc. v. Levinson, 485 U.S. 224, 241-42 (1988). Under that theory, “misleading statements will therefore defraud purchasers of stock even if the purchasers do not directly rely on the misstatements.” Id. Likewise, in a commodities-manipulation case, the fraud on the market theory assumes that buyers and sellers rely on public misstatements whenever the investor buys or sells futures contracts at the price set by the market because the market transmits information to the participants in the form of the market price. Id. Here, by definition, if Kraft manipulated the prices in the wheat futures market, then all of the class members bought and sold contracts at manipulated prices. In other words, the class members relied on “misrepresentations” that were baked into the market price at the time of their transactions, rather than explicit misrepresentations directed at them specifically. See Ploss, 197 F.Supp.3d at 1055. So it is unimportant, under Ploss's theory of liability, whether any of the named Plaintiffs had direct and specific knowledge of Kraft's conduct or its futures positions. What Kraft labels as admissions by the named Plaintiffs is neither specific to those Plaintiffs nor anyway much of a defense.[7] The named Plaintiffs have met the typicality and adequacy requirements.

         2. ...


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