Saying investor financing of potentially massive lawsuits worth many millions or even billions of dollars is simply the new reality in U.S. courts, a federal judge in Chicago has rejected an attempt by American poultry producers to pull the plug - or at least, pull back the curtain - on a deal that would allow a lawsuit funder to substitute themselves for food supplier Sysco in a sprawling action over claims the poultry producers fixed prices for their birds.
In late March, U.S. District Judge Thomas Durkin ruled in favor of lawsuit financing giant Burford Capital, and its subsidiary, in the tussle with some of the biggest names in chicken production over Burford's ability to assume control of the legal claims by Sysco Corp. against the chicken sellers.
The decision marks the latest and perhaps final step in a court battle stretching back more than a year over who can and should control Sysco's legal claims and potential payment received from a settlement or judgment.
U.S. District Judge Thomas M. Durkin
| Law.depaul.edu
Last year, Sysco and Burford settled a dispute over Burford's move to stop Sysco from settling those claims, apparently without first securing approval from Burford.
In a rare moment of transparency, Sysco and Burford allowed the public a glimpse into the financing arrangement that undergirded Sysco's lawsuits against many of the biggest poultry producers in the U.S., accusing the companies of colluding to artificially boost the price of chicken, and causing restaurants and their suppliers, like Sysco, to pay significantly more than they should have for the chicken.
Sysco's lawsuits were similar to a large number of other claims from commercial purchasers of chicken products. All of those lawsuits were consolidated into combined proceedings before Judge Durkin in Chicago federal court.
According to court documents, Burford allegedly used three subsidiaries to loan Sysco at least $140 million to finance Sysco's lawsuits alone. It is not known at this point if Burford, a company that annually invests billions of dollars into lawsuits targeting American companies, has similarly financed other plaintiffs' claims against the poultry producers.
In 2022, Sysco moved to settle its lawsuits and exit the litigation. However, Burford was unhappy with the deals, apparently believing it should receive far more on its investment than what Sysco was willing to accept. Burford instead demanded Sysco continue suing until it could either extract a bigger settlement or a judgment at trial.
When Sysco refused, Burford went to an arbitrator in New York to enforce its claim under its funding agreement to seize control of Sysco's lawsuits. The arbitrator sided with Burford.
Sysco fought that arbitration order in court, saying the arbitrator's orders fly in the face of U.S. public policy by giving Burford, a company that is not a party to the lawsuits and suffered no harm from the alleged chicken price fixing, the "unfettered right" to attempt to control the outcome of the case.
That court fight ended in a settlement, under which Sysco agreed to sign over its legal claims to a Burford subsidiary, identified as Carina Ventures.
That settlement, however, was challenged, in turn, by the poultry producers, including Perdue, Pilgrim's Pride, Tyson, Koch Foods, Sanderson Farms and others. They said Judge Durkin should reject Burford's gambit, asserting, like Sysco, that the maneuver would allow a lender with no motive or skin in the game other than pure maximization of profit to dictate control of the litigation, which ostensibly is about addressing artificially high chicken prices that allegedly ultimately harmed American consumers.
Indeed, as part of the court fight between Sysco and Burford, the U.S. Chamber of Commerce weighed in, urging the court to take note of the harms to the U.S. legal system, its economy and even its national security that could occur if foreign interests are allowed to use third-party lawsuit funding arrangements to force U.S. companies to "continue to litigate against their will."
Durkin, however, rejected such claims all around, saying everyone involved in the chicken price legal actions must learn to accept that third-party litigation financing is "a fact of contemporary complex litigation."
With or without Burford's involvement, Durkin said, the multi-faceted court fight over chicken prices will only slowly move toward its conclusion.
"The funding agreement is at the bottom of this motion, and Defendants (poultry producers) do not argue that there was anything improper or unusual about that agreement," the judge wrote. "The assignment is an unsurprising and logical result of the dispute between Sysco and Burford that arose from the funding agreement.
"Despite Defendants protestations to the contrary, the assignment does not appear to be a very unusual circumstance either. Like litigation funding agreements, such assignments are a fact of modern litigation."
While the judge acknowledged that neither Burford nor its susidiaries had a known stake in the litigation besides their investment in Sysco's lawsuits, he said that is enough to allow them to continue suing the chicken producers, whether or not Sysco wishes to continue.
Durkin also rejected the poultry producers' assertions that Burford's involvement amounts to improper "champerty," a legal doctrine under which parties who otherwise have no interest in a lawsuit provide money to take control of the action with no goal other than claiming a financial cut of any judgment or settlement.
Durkin said under Illinois Supreme Court precedent dating to the 1940s, the arrangement between Sysco and Burford doesn't qualify as champerty, because prohibitions on champerty were established to protect unsophisticated litigants from predatory lenders seeking to take advantage of unforunate circumstances to seize control of legal claims.
The judge said that is not at all the nature of the relationship between Sysco and Burford in this case.
Durkin further rejected requests from the poultry producers to force Sysco and Burford to provide them to see the settlement, to determine how much both Sysco and Burford have gained from the arrangement, and how much they stand to gain from settlement talks or a trial against the chicken producers.
Since the judge already determined Burford can simply step into court in place of Sysco, Durkin said the poultry producers also have no right to discover the agreement between Burford and Sysco to end their fight over Burford's ownership of the legal claims.
Attorneys for the poultry producers did not respond to requests from The Record for comment on Durkin's ruling, which included a question over whether the poultry companies may appeal Durkin's decision.
However, Durkin's decision stands in sharp contrast to a ruling from a Minnesota federal judge, who rejected Burford's move to seize control of Sysco's claims against pork producers, also over allegedly price collusion.
In that ruling in February, U.S. Magistrate Judge John Docherty agreed Burford had no interest other than to protect its investment and maximize its return. He said that would frustrate public policy and bog down the courts by allowing Burford to frustrate any settlements it doesn't believe produces enough profit for lenders or investors underwriting the lawsuits.
Burford has pledged to fight Docherty's order.
Burford is also seeking to take control of Sysco's lawsuits over alleged collusion in the price of turkeys and beef. Judge Docherty is handling hearings over Burford's substitution request in the beef prices litigation. No ruling has yet been issued in those other proceedings concerning Burford's substitution attempts.
Burford has been represented in Chicago federal court in the chicken price litigation by attorneys Scott Gant, of the Washington, D.C., office of Boies Schiller Flexner, and Colleen Harrison, from the firm’s New York office.
Representing Sysco are the Paul Hastings firm, of Washington, D.C., and Salvatore Prescott Porter & Porter, of Evanston.
Mountaire Farms is represented by ArentFox Schiff, of Chicago and Ann Arbor, Michigan, and Rose Law Firm, of Chicago and Little Rock, Arkansas
Perdue Farms is represented by Venable, of Washington, D.C., and Falkenberg Ives, of Chicago.
Koch Foods and JCH Foods are represented by Armstrong Teasdale, of Chicago.
Foster Farms is represented by Mayer Brown, of Washington, D.C.
Simmons Foods is represented by Shook Hardy & Bacon, of Chicago and Kansas City, Missouri, and Conner & Winters, of Fayetteville, Arkansas.
House of Raeford is represented by Vedder Price, of Chicago, and Jordan Price Wall Gray Jones & Carlton, of Raleigh, North Carolina.
Claxton Poultry Farms is represented by Vaughan & Murphy, of Atlanta, and Wintston & Strawn, of Chicago.
Wayne Farms is represented by Proskauer Rose, of Washington, D.C., New York and Los Angeles.
Harrison Poultry is represented by Eversheds Sutherland, of Atlanta, and Amundsen Davis, of Chicago.
Case Foods is represented by Joseph D. Carney & Associates, of Avon, Ohio; Miller Shakman Levine & Feldman, of Chicago; D. Klaw Law, of Bel Air, California; and Paul Bunder, of Fairview Park, Ohio.
Tyson Foods is represented by Axinn, Veltrop & Harkrider, of Washington, D.C., Hartford, Connecticut and New York; and Lipe Lyons Murphy Nahrstadt Pontikis, of Chicago.
Pilgrim’s Pride is represented by Quinn Emanuel Urquhart & Sullivan, of Washington, D.C., Atlanta and Chicago.
Sanderson Farms is represented by Proskauer Rose, of Chicago, Washington, New York and Los Angeles.