AOT v. ADM

On May 22, 2020, Korein Tillery secured a favorable ruling for firm client AOT Holding AG (“AOT”), as the United States District Court for the Central District of Illinois denied a motion to dismiss filed by Archer Daniels Midland Company (“ADM”) in a class action alleging that ADM has manipulated a key benchmark for the settlement and pricing of ethanol futures and options contracts dating back to as early as November 2017, in violation of the Commodity Exchange Act (“CEA”). AOT is seeking to recover on behalf of itself and a putative class hundreds of millions of dollars in damages incurred in trading ethanol futures and options contracts at prices that were negatively impacted by ADM’s alleged manipulation.

In an eighteen-page ruling, Judge Colin Bruce ruled that AOT had “stated a claim that is plausible on its face and upon which relief could be granted” and “describe[d] the claim in sufficient detail to give ADM fair notice of what the claim is and the grounds upon which it rests.” While the Court dismissed two individual statutory bases for the claims AOT seeks, the primary claim – of market manipulation of ethanol prices and ethanol derivatives in violation of the CEA – survived.

In an important part of the ruling that will benefit all plaintiffs in future Commodity Exchange Act claims, the Court also upheld the availability of punitive damages under the CEA.  This was a key ruling on an issue of first impression because, as the Court noted, “there is a near total absence of case law about the availability of punitive damages [under the CEA] in circumstances analogous to those of the instant case.”

According to the Court, because ADM’s alleged manipulation impacted the price of ethanol derivatives traded on a registered entity (NYMEX), punitive damages were available because “the CEA violation in this case arises, at least partially, out of the execution of orders on the floor of a registered entity.” The Court further rejected ADM’s argument that punitive damages were available under the CEA only against floor brokers, and agreed with AOT that “the availability of punitive damages under [7 U.S.C] § 25(a)(3)(B) is not limited to only floor brokers who violate the CEA via the execution of orders on the floor, but are also available against the customers, such as ADM in this case, who gave the floor brokers those orders.”

The Court further held that allowing claims for punitive damages against customers who concoct schemes to manipulate derivatives serves the broader interests of the CEA: “to allow punitive damages only against the floor broker who executed the illegal trades, but not against the corporate entity customer that allegedly concocted the scheme and directed the broker’s actions, would not serve the CEA’s stated purpose of ensuring financial integrity of market transactions, protecting market participants from fraudulent/abusive sales practices, and especially to deter and prevent market price manipulations. Indeed, it would serve to insulate from liability the entity responsible for the scheme in many cases.”

This is a significant ruling for plaintiffs and an important legal precedent under the Commodity Exchange Act. The decision adds clarity that entities that manipulate commodity prices (and thereby impact derivatives tied to those commodities that are traded on exchanges) in a manner that violates the CEA face the possibility of punitive damages. Would-be manipulators will be further deterred from engaging in price manipulation in the commodities markets as a result.

Korein Tillery attorneys involved in this case include George Zelcs, Michael Klenov, Stephen Tillery, John Libra, Chad Bell, Carol O’Keefe, Ryan Cortazar, Jamie Steinmetz, and Aidan McNamara.

The case is AOT Holding AG v. Archer Daniels Midland Company, No. 19-cv-02240 (C.D. Ill.) (Bruce, J.). A copy of the ruling denying ADM’s motion to dismiss can be found at this LINK

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