Judge’s Order Deals Blow to Sysco, Burford Capital in Pork Suits

A federal judge’s decision to stop plaintiff Sysco Corp. from handing off its claims in ongoing price-fixing lawsuits to litigation funder Burford Capital Ltd deals a setback to the funder and puts the opaque litigation financing industry in an increasingly glaring spotlight.

Magistrate Judge John F. Docherty of the US District Court for the District of Minnesota said in a Feb. 9 order that a Burford Capital affiliate can’t take over as plaintiff in two pork and beef price-fixing lawsuits it funded for food distributor Sysco Corp. Burford provided Sysco $140 million to pursue the lawsuits, according to court documents from Sysco’s initial suit against Burford, but they sparred over Sysco’s attempt to settle with some defendants on terms Burford deemed too low.

The meat-producer defendants have strongly opposed the motion to substitute, saying in a court document that the assignment turns the claim into an “instrument of financial speculation for a litigation funder with no connection to the underlying claim.”

“It absolutely isn’t a positive for the [litigation funding] industry just as a general matter,” said Maria Glover, civil procedure and civil justice professor at Georgetown Law School. “This is sort of a cascade of things going wrong.”

The judge said that it went against public policy to allow the substitution of the Burford affiliate as the plaintiff. “The substitution sought here is different from any other case to which the court’s attention has been directed by the parties, because this substitution would have a litigation funder, in order to prevent settlement of litigation, step into the shoes of the party to whom it was providing financing after litigation was well underway.”

“The litigation burden caused by Burford’s efforts to maximize return on investment has been enormous,” he wrote.

Docherty’s decision is subject to review by the district judge before any further appeal.

Burford said in a statement that its “role here was made necessary by a set of unique circumstances around prior violations of a financing agreement.” The funder said it will seek review of the decision “as it is illogical to have Burford owning the claims but not being the party in the litigation.”

Sysco declined to comment. Representatives for defendants Tyson and JBS did not respond to requests for comment.

Litigation funding is a $13.5 billion industry in which investors pay for lawsuits in exchange for a portion of the award. Though there is no data on how often plaintiffs like Sysco are seeking funding and contractual terms are not made public, antitrust claims are a very common area for financing, says Rebecca Berrebi, a litigation finance broker.

Private antitrust cases are especially expensive, notes William Kovacic, a former Federal Trade Commission chair and current law professor with George Washington University.

“It can be years before you see a penny,” Kovacic said. “The class counsel has to spend a lot of money before you get into the world of a potential settlement or even a favorable verdict.”

Call for More Transparency

The industry has faced little state or federal regulation, but in recent years the US Chamber of Commerce has rallied legislators in various states to introduce bills that would require disclosure of litigation finance to all parties in a case. Litigation finance detractors have used the issue between the funder and Sysco as an example of a funder having undue influence on a litigation.

“Courts exist to resolve disputes and provide justice,” said Nathan Morris, senior vice president of legal reform advocacy at the chamber. “Burford exists to control litigation and maximize its own profit. The judge is right, and the decision is correct.”

At a Florida senate hearing last week to discuss a pending disclosure bill, state senator Jay Collins brought up the clash between Sysco and Burford as one reason he introduced the legislation.

“What we’re concerned about here is like in Sysco versus Burford, where they were essentially pressing and interfering with the outcome and how the court proceedings went,” said Collins. “Those are investors putting their thumb on the scale and shifting justice. So that’s a concern and that’s why we’re trying to clean that part of it up.”

Tom Baker, a law professor at the University of Pennsylvania, says that though the judge ruled this claim couldn’t be reassigned to Burford’s affiliate, he didn’t rule whether a litigation funder could be assigned a claim from the beginning of the litigation.

Going forward, he expects that litigation funders will now view the assignment of a claim as riskier and it could chill some transactions. He also says that this will give more fuel to industry opponents.

“From a big picture perspective, this will be something that the anti litigation funders will use to try to promote what the industry will regard as restrictive regulation,” said Baker.

“The Sideshow”

People in the industry see the cases as more of an anomaly.

The ruling is less of a step back and more an inconvenience, said Dai Wai Chin Feman, managing director at litigation funder Parabellum Capital.

“It’s just more of the sideshow,” said Chin Feman, and “a huge distraction from the underlying case.”

“This is not what the industry looks like. It’s the result of a series of unfortunate events and it is not typical,” said Berrebi.

The cases are: In re Pork Antitrust Litig., D. Minn., No. 18-cv-1776, 2/9/24 and In re Cattle and Beef Antitrust Litig., D. Minn., No. 22-md-3031, 2/9/24.