Food distribution giant Sysco has sued to be released from a temporary restraining order (TRO) that’s preventing it from settling antitrust lawsuits it’s been involved in with suppliers of chicken and other protein products.
The company accuses its litigation funder, Burford Capital, of getting the TRO imposed on it by an arbitrator, inappropriately exercising control over its litigation strategy.
“Burford is … forcing Sysco to continue to litigate against its will,” the company says in a claim filed March 8 in the U.S. District Court for the Northern District of Illinois, where one of its antitrust claims is being handled. “Burford wants to roll the dice on Sysco’s claims, hoping that something good will happen in the future that will make them more valuable.”
In an email to Legal Dive, Burford Capital CEO Christopher Bogart says the company has had to protect its investors after Sysco went outside the original agreement the companies had entered into by assigning shares in the cases to some of its customers.
“It is very unfortunate that Sysco has chosen to try to avoid its obligations,” Bogart said. “We enjoyed an excellent relationship with Sysco and continue to this day to be funding its ongoing litigation. However, Sysco’s earlier, admitted breaches of our agreements led to a fundamental economic misalignment between Sysco and Burford of no fault of Burford’s that in turn led to a unique set of contractual provisions and ultimately to this dispute. This is a situation unprecedented in Burford’s history; it is in no way typical of Burford’s relationships with its clients or of litigation finance generally. Indeed, Burford structures our arrangements — as we had with Sysco — precisely to avoid such situations.”
Litigation funding has been growing rapidly in the United States and in 2021 was roughly a $17 billion business, according to estimates.
In exchange for their investment in a case, funders get a share of any proceeds that are awarded.
The industry has been at pains to emphasize that, once funders conduct their due diligence and decide to invest in a case or series of cases, they leave management of the legal strategy to their clients.
“Litigation funders are passive providers of capital,” Gary Barnett, executive director of the International Legal Finance Association, told Legal Dive last year. “They’re there to potentially provide some strategic advice on budgeting issues but they don’t stand in the shoes of a client and they don’t control the litigation strategy.”
Burford Capital, through three of its affiliates, provided $140 million in funding to Sysco in 2019 to help it pursue antitrust cases against some of its suppliers of chicken, beef, pork and other protein foods and other products.
After shares in the cases were assigned to other companies that bought protein products through Sysco, Burford and Sysco agreed to amend their capital provision agreement (CPA) to give the funder a higher stake in the proceeds.
As part of that amended contract, Burford agreed not to interfere with Sysco’s outside counsel or unreasonably withhold consent to settlement terms or seek to impose a commercially unreasonable result.
Those provisions come on top of the original terms of the CPA, Sysco said, which gave it control over its management of the litigation and emphasized that “neither the [Burford affiliates] nor their respective affiliates shall exercise or seek to exercise, any such control over the claims,” among other things.
The amended agreement later came under tension when Sysco negotiated settlements with the suppliers on terms Burford thought were too low, leading it to seek the TRO.
“Sysco was shocked to hear [an outside counsel working on the matter] express the view that the proposed settlements … were too low, a view [the counsel] had never previously expressed,” Sysco said.
The company later learned the outside counsel had raised concerns over the settlement amounts after other companies had settled for better terms, according to the claim.
Sysco also took issue with the way Burford made its concerns known, alleging it withheld information, and describing a call to discuss the settlement terms as an ambush. It also took issue with Burford’s hardball approach to getting the TRO imposed on an ex parte basis even though the funder had waited to seek the TRO almost three months after applying for injunctive relief.
The delay Burford was causing in settling the cases, Sysco said, could lead to it to lose the opportunity to get the settlement terms it had negotiated.
“After having lived for months with an abridgment of its rights, and tolerating the risk that the settlement offers it wishes to accept will be withdrawn … Sysco can wait no longer without forfeiting its right to challenge the TRO Award altogether,” the company said.
It’s seeking release of the restraining order and damages.
Update: The arbitral tribunal on March 10 granted Burford’s request for a preliminary injunction. Burford has in turn filed an action in the New York courts to confirm that preliminary injunction award.
“Because the tribunal dissolved the temporary restraining order when it issued the preliminary injunction, Sysco’s filing in Illinois is moot,” Burford Capital CEO Christopher Bogart said in a statement. “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.”