Saying the case illustrates how litigation financing can be used to threaten the wellbeing of American companies and the nation itself, the U.S. Chamber of Commerce has stepped into a dispute between U.K.-based lawsuit-funding giant Burford Capital and food distribution company Sysco.
The new filing seeks to support Sysco’s effort to throw out an arbitrator’s award that they say would effectively grant Burford the power to force Sysco to continue suing other companies against their will.
At the same time, Burford has asked that same judge to reject Sysco’s petition. Burford accuses Sysco, in turn, of “outrageous conduct,” “gamesmanship” and “blatant forum shopping” in a bid to escape its alleged obligations to allow Burford to protect its $140 million investment in antitrust lawsuits Sysco had pursued against the country’s meat suppliers over alleged food price fixing.
On March 27, the U.S. Chamber of Commerce asked U.S. District Judge Martha Pacold for permission to file a so-called amicus brief, or “friend of the court” brief, on behalf of Sysco.
In its submitted brief, the Chamber acknowledges that it would be unusual for a federal judge to agree to vacate an arbitration order of this kind.
But it says the action is warranted in this instance, because, if the arbitrator’s order is allowed to stand, it other litigation investors will be emboldened to use similar funding arrangements and mechanisms to force other U.S. companies to remain in court, solely to use the power of the courts and arbitrators to boost their own profits, regardless of the desires of their clients and the demands of justice.
The arbitrators’ “interpretation of Burford’s litigation funding agreement with Sysco gives litigation funders the right to force parties to go to trial in the hopes of achieving windfall
judgments, even when the parties would rather settle,” the Chamber wrote. “Although arbitrators have broad authority to resolve disputes, they lack the authority to manipulate ongoing federal court proceedings by forcing parties to continue to litigate against their will in this manner.
“Federal courts, not arbitrators, manage federal court litigation,” the Chamber wrote.
Further, the Chamber argued, the case demonstrates the potential risks to the U.S. economy and to national security from potential malicious interference by foreign investors in lawsuits in American courts.
Allowing third-party litigation financiers to remain anonymous, with control of litigation worth potentially hundreds of millions or even billions of dollars, could allow foreign governments or interests potentially hostile to the U.S. to use lawsuits to secure confidential information about American companies and, by extension, U.S. national defense or critical systems.
In this instance, for instance, Burford’s role in Sysco’s lawsuits only came to light because Sysco and Burford have suffered a highly public disagreement. Ordinarily, the Chamber noted, such arrangements may never be disclosed. And even when they are, “the ownership and structure of litigation funding firms is extremely opaque,” the Chamber said.
The Chamber noted so-called “sovereign wealth funds,” such as those either under the control of or answerable to the government of China, could strategically invest in lawsuits against U.S. defense contractors to clandestinely obtain critical information.
“Not only do ‘most judges have no idea whether [third-party litigation funding] is at play in litigation they are overseeing,’ courts might have no idea who the funder really is,” the Chamber wrote. “Foreign governments and sovereign wealth funds can take advantage of this lack of transparency to invest in litigation that suits their strategic interests while remaining anonymous.”
The filing comes as one of the latest in a loud court fight that erupted in recent weeks between Burford and Sysco, playing out in courts in Chicago and New York.
In early March, the Houston-based Sysco filed suit in Chicago federal court, asking the judges to prevent Burford from using an arbitrators’ award to effectively seize control of lawsuits Sysco had filed against companies like Tyson Foods that supply chicken, pork, beef and other foods.
According to court documents, after Sysco filed the lawsuits, accusing the companies of violating federal antitrust laws in how they controlled the prices of chicken and other meat, Burford, through three affiliates, agreed to loan Sysco $140 million.
According to Burford’s most recent court filings, the loan was not intended to directly fund Sysco’s lawsuits. Instead, Burford said the funds were intended to give Sysco “liquidity” amid Covid-related lockdowns and economic downturn that threatened its income from the restaurants and food vendors Sysco supplies. As collateral, Sysco offered the funds it expected to receive from its lawsuits.
Burford asserts these kinds of arrangements, “using litigating matters as collateral for financing,” are “a commonplace occurrence in general, and doubly so in antitrust cases…”
However, Sysco said, when it sought to settle its antitrust claims last summer, Burford moved to block any settlements. Sysco said Burford told them the settlements were too low compared to what it expected it could receive, and wanted Sysco to continue suing until it could either extract a bigger settlement or a judgment at trial.
When Sysco refused, court documents say Burford took the matter to an international arbitration tribunal, which ruled that Sysco had violated its contract with Burford. The tribunal issued a preliminary injunction ordering Sysco to allow Burford to exercise its control rights over the lawsuits.
Burford has asked a New York state court to sign off on the arbitrators’ injunction, and is further seeking permanent order from the arbitration tribunal.
Sysco has asserted courts should not allow these injunctions to stand, as Sysco said the orders fly in the face of U.S. public policy by giving Burford, who is not a party in the lawsuits, the “unfettered right” to attempt to control the outcome of the case.
Sysco has noted Burford’s efforts to force Sysco to remain in court would force the company to continue suing against its will, potentially damaging “key commercial relationships.”
Burford, in response, asserts Sysco, by contrast, is the offending party. In a motion to dismiss, filed March 28, Burford argues Sysco breached its contract and is now using “forum shopping” and legal “gamesmanship” to attempt to “turn a straightforward New York debtor-creditor dispute into a sideshow.”
Burford asserts Sysco is attempting to move the matter before U.S. District Judge Thomas Durkin, who is overseeing the larger sprawling antitrust lawsuits over chicken prices.
“Sysco’s hope is that Judge Durkin will be irritated by this wrinkle in resolving some of those cases and take some precipitate action,” Burford wrote.
Burford argues Judge Pacold should dismiss Sysco’s action, and force Sysco to bring its fight over the litigation financing to courts in New York, instead.
Burford affiliates Glaz LLC, Posen Investments LP and Kenosha Investments LP, are represented in the action by attorneys Richard Prendergast and Michael Layden, of the firm of Croke Fairchild Duarte & Beres, of Chicago; Derek T. Ho, of Kellogg, Hansen, Todd, Figel & Frederickm of Washington, D.C.; Elizabeth Snodgrass, of Three Crowns LLP, of Washington, D.C.
The U.S. Chamber of Commerce is represented by attorneys Clifford W. Berlow, Adam G. Unikowsky and Grace Wallack, of Jenner & Block, of Washington, D.C.; and attorneys Jennifer B. Dickey and Jordan L. Von Bokern, of the U.S. Chamber Litigation Center.
Editor’s note: The Cook County Record is owned by the U.S. Chamber of Commerce.