Editor's note: This article has been revised to accurately reflect the current status of the litigation and arbitration actions referenced within. It also has been revised to include a statement from Burford CEO Christopher Bogart.
Food wholesaler Sysco has asked a federal judge to toss an arbitration award in an antitrust lawsuit, arguing third party litigation financier Burford Capital is being allowed to improperly interfere with out-of-court settlements.
Burford has since obtained further relief from arbitrators, who found Burford has the rights under its contract with Sysco to stop the company from settling for less than what Burford wants to justify its $140 million investment in Sysco's lawsuits.
Burford asserts that further ruling renders Sysco's new lawsuit against Burford moot.
In March 8 filings in Chicago federal court, Houston-based Sysco, a nationwide restaurant supplier, said Burford invested in its antitrust claims against companies like Tyson Foods that supply chicken, pork, beef and other foods. The capital infusion puts Burford — through subsidiaries Glaz, Posen Invetments and Kenosha Investments — in line to share in any proceeds, but Sysco said the “multibillion dollar litigation funding firm” has exceeded its limited settlement consent rights.
In August, Sysco alleged, Burford said proposed settlements were too low compared to the outcome of other antitrust litigation. In September, Burford initiated arbitration proceedings to stop Sysco from executing the settlements, which Sysco said would force it to continue litigation against its own will. Later that month, and again in October, Burford submitted and abandoned applications for an immediate injunction.
Sysco accused Burford of waiting until Dec. 12, following finalization of draft settlement agreements, to file a third application for an injunction. On Dec. 14, before Sysco had responded, “the Tribunal granted Burford’s request and issued the (temporary restraining order) award...”
The case is in federal court in Chicago in part because that’s where Sysco is involved in lawsuits stemming from antitrust allegations concerning price fixing in the poultry industry. Sysco said Burford invested in its claims in some lawsuits but argued the restraining order functionally requires a “litigation financier’s permission to settle the underlying litigation.” The tribunal conducted a hearing in early February on Burford’s injunction request.
After Sysco filed suit in Chicago, the international tribunal in London issued a preliminary injunction against Sysco.
A spokesperson for Burford said the litigation financier has also filed suit in New York seeking a court order enforcing the injunction issued by the arbitration tribunal.
Burford CEO Christopher Bogart released the following statement: "Because the tribunal dissolved the temporary restraining order when it issued the preliminary injunction, Sysco’s filing in Illinois is moot. It is worth wondering why Sysco made the frivolous filing when it knew the preliminary injunction decision was forthcoming other than to try to score free media coverage in advance of its conclusive loss at the preliminary injunction stage.”
For its part, Sysco said Burford's turn to arbitration means Sysco could be forced to continue litigating against its will to try to ensure Burford lands the return on investment it believes it is owed.
According to documents supplied by Burford, the third party lawsuit financier loaned $140 million to Sysco to support its antitrust actions.
“Sysco has been and continues to be forced to litigate against important suppliers (risking chilling key commercial relationships) who have advised Sysco that they may shortly withdraw the proposed settlements altogether,” Sysco alleged through its attorneys from the firms of Reed Smith, of Chicago, and Cleary Gottlieb Steen & Hamilton, of New York and London.
“Arbitrators have no power to bar a plaintiff from settling a federal action, to force a plaintiff to litigate federal claims against its will, or to burden federal courts with management of unnecessary litigation.”
In addition to halting the settlements, Sysco also accused Burford of seeking to “improperly influence Sysco’s outside counsel in the ongoing antitrust litigations, Boies Schiller Flexner … to betray its fiduciary duties to Sysco and assist Burford in preventing the settlements. But Burford’s contract with Sysco does not give it the right to obstruct the reasonable settlements, and deep-rooted public policy prohibits financial investors from controlling a plaintiff’s settlement decision-making.”
Sysco’s petition to vacate the arbitrator’s award details its side of the relationship with Burford dating to 2019, including several updates to the parties’ agreements as the litigation proceeded. It said those agreements “repeatedly and unambiguously” established mutual intent to let Sysco retain complete control of its lawsuits and not Burford.
Sysco also asserted Burford's alleged conduct in its cases amounts contradict Burford's public assurances.
“Burford has also told the public, regulators, the U.S. Securities and Exchange Commission and its investors that it does not seek to control the claims in which it invests," Sysco wrote.
Scott Gant, of Boies Schiller, was Sysco’s outside counsel and also represents Burford in its own antitrust lawsuits. The settlements Burford wants to stop are in the range Gant advised Sysco would be reasonable, Sysco said, but it alleged Gant now sides with Burford regarding the adequacy of the settlement sum.
As such, the company developed “serious concerns about whether Boies Schiller violated its ethical obligations and fiduciary duties to Sysco, including its duties to communicate material developments, provide candid advice and preserve confidential information, as well as its duty to reasonably consult with the client about the means by which the client’s objectives can be accomplished.”
Sysco discharged Boies Schiller on Feb. 23, but said Burford’s assertion of veto rights is partially inhibiting its ability to secure new outside counsel, including ongoing refusal to consent to a prospective new firm’s fee arrangement. Sysco also said other defendants are exploring amicable resolutions to lawsuits, but Burford’s involvement inhibits those conversations.
Sysco is represented in the action by attorneys William Weltman, of Reed Smith, of Chicago; Jeffrey A. Rosenthal, Lina Bensman and Christopher P. Moore, of Cleary Gottlieb, of New York and London.
Jonathan Bilyk contributed to this report.