Court Overturns Green Plains Ruling

LINCOLN, Neb. (DTN) -- A federal appeals court gave Green Plains Renewable Energy new life in a lawsuit it filed against Archer Daniels Midland which alleged the company interfered with a Green Plains ethanol contract by conducting a scheme to illegally depress the ethanol cash market beginning in 2017.

Green Plains' originally sued ADM in October 2021 in the U.S. District Court for the District of Nebraska. The case was transferred to the U.S. District Court for the District of Central Illinois in 2022. That court dismissed the case in December 2022, ruling Green Plains did not state a claim and failed to identify specific contracts with which ADM allegedly interfered.

The U.S. Court of Appeals for the Seventh Circuit vacated the decision and sent the case back to the Illinois court, where according to the ruling, Green Plains will have the opportunity to file an amended complaint.

The Illinois court dismissed the case because it said Green Plains did not have a claim for tortured interference with a contract and because Nebraska courts may not recognize such claims.

"A federal court sitting in diversity has a basic constitutional responsibility to ascertain correctly the content of state law," the Seventh Circuit said in its ruling.

"When the highest court of the state has not spoken on the matter, this inquiry can be difficult, but it cannot be avoided. In such situations, our case law, and that of the Supreme Court, instructs us to search elsewhere for a persuasive indication of how the highest court of the state would rule if the present case were before that tribunal today."

The Seventh Circuit said the district court in Illinois misread the appeals court's case law on torturous interference in the "most restrictive" way when the content of state law "points to the less-restrictive" option.

"Here, the district court seemed to believe that the Nebraska Supreme Court might well be willing to apply section 766A (torturous interference law)," the Seventh Circuit said.

"Yet, it also believed that it could not take that course because it required applying section 766A for the first time in Nebraska without explicit direction from the Nebraska Supreme Court. But there is no such impediment to a district court applying the rule it believes the highest court of the state would apply."

In its legal challenge, Green Plains alleged ADM executed a three-step strategy that included lowering prices at the Argo terminal in Illinois by "flooding" the terminal with ethanol to lower the price.

The Argo terminal is the daily location for ethanol trading. The 30-minute trading window at the terminal is considered crucial because it is used to set the daily Chicago benchmark price to determine the value of Chicago ethanol derivatives.

That benchmark is used to price and settle ethanol derivatives on the New York Mercantile Exchange and the Chicago Board of Trade.

Second, Green Plains alleged ADM sold on average 1 million gallons of ethanol daily and adversely affected the pricing of more than 32 million gallons of physical ethanol produced industry-wide each day.

Green Plains said starting in November 2017, ADM was a buyer at the Argo Terminal on the market on close (MOC) window just once at 210,000 gallons. The MOC window is when traders execute trades as close to the closing price as possible.

Green Plains said ADM, however, "was a seller at all other times for a total of approximately 821 million gallons -- a sea change from their pre-November 2017 trading behavior in which ADM was consistently a buyer."

In addition, there are two other similar lawsuits pending in the U.S. District Court for the District of Central Illinois. Those were filed by Midwest Renewable Energy and AOT Holdings.

Todd Neeley can be reached at todd.neeley@dtn.com

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