Sysco sues litigation funder Burford, blasts Boies Schiller over $140 million soured deal
(Reuters) - Critics of the multibillion-dollar litigation finance industry could hardly have dreamed up a more vivid illustration of its purported perils than a lawsuit filed on Wednesday by the gigantic restaurant food distributor Sysco Corp against subsidiaries of Burford Capital Limited, the biggest litigation funder in the world.
Burford advanced millions to Sysco in 2019 to fund the company’s antitrust litigation against chicken, beef and pork suppliers. (Buford says the total was $140 million. Sysco declined to confirm the amount.) Late last summer, Sysco reached proposed settlements with several of the defendants.
Then things went badly awry, according to Wednesday’s filings in federal court in Chicago. Sysco asserts that Burford nixed the settlements and brought an arbitration proceeding to enjoin Sysco from finalizing the proposed deals. The arbitration panel issued a temporary restraining order in December. Sysco's new lawsuit seeks to vacate that order.
In essence, Sysco is arguing in the new case that it is a litigation hostage, forced by a greedy funder to keep litigating cases that it wants to resolve. (Burford, as you will see below, says otherwise.)
Sysco also claims that its own outside counsel in the antitrust litigation, Boies Schiller Flexner, was secretly in cahoots with Burford. Wednesday’s filings do not assert formal claims against Boies Schiller because Sysco’s suit is fashioned as a petition to vacate the temporary restraining order imposed by the arbitration panel that granted Burford’s bid to halt Sysco’s settlements. But the company's lawyers at Cleary Gottlieb Steen & Hamilton portrayed Boies Schiller as “betraying” Sysco and aligning with Burford in the hopes that continued litigation would boost the law firm’s contingency fee.
Sysco terminated Boies Schiller on Feb. 23. In an email statement to me, the firm defended its handling of the litigation but said that, as Sysco’s onetime counsel, it is constrained from a point-by-point rebuttal of the company’s assertions. “Suffice it to say, we strongly dispute the accuracy of accusations against [Boies Schiller] in Sysco's filing,” the statement said.
The main event in this case is Sysco’s fight with Burford, not with Boies Schiller. It’s rare for disputes between litigation funders and their clients to become public at all. It's unprecedented, in my experience, for a Fortune 100 company to go to court and disclose a trove of details about a huge litigation funding deal.
Sysco, moreover, is positioning its case as a matter of public policy. Its filings point out that Burford has repeatedly pledged to courts, regulators and even 60 Minutes that it does not interfere with its clients’ settlement decisions. Burford broke that pledge in Sysco’s case, the company argued, and set a dangerous example: Ancient doctrines and modern ethics rules, according to Sysco's expert witness, dictate that funders cannot seize control of their clients' cases.
"The court case is not at all about the value of the settlements," Sysco said in a statement. "It is exclusively about the validity of Burford's claim that it can veto any settlement it does not like and force Sysco to litigate indefinitely against its will."
Burford, as I'm sure you've guessed, has a different story about its deal with Sysco and its role in Sysco’s antitrust litigation. The financier hooked up with the company in 2019, according to court filings, through an approach Burford made to Boies Schiller. Sysco quickly agreed to a funding deal, not just in the poultry case, but in the company's litigation against beef and pork suppliers as well. The relationship, according to a Burford statement, was “excellent."
That changed when Sysco entered into side deals with some of its own customers, assigning them part of its potential recovery in the beef, pork and chicken cases. Sysco has said that it might otherwise have been sued by customers that bore the burden of inflated prices. Burford, however, regarded the side deals as a breach of its original funding agreement with Sysco because they impaired the funder’s potential recovery.
Sysco agreed to renegotiate the funding agreement, giving a higher percentage of the company’s recovery to Burford. In fact, according to Sysco's filings, Burford and Boies Schiller would receive “nearly the entire economic benefit" of its future antitrust settlements.
The revised terms created a “fundamental economic misalignment between Sysco and Burford,” said Burford CEO Chris Bogart in an email statement on Wednesday, because Burford would reap more benefit than Sysco from fatter settlements.
To assure that Sysco was not incentivized to settle on the cheap, Burford included what Bogart called “a unique set of contractual provisions” in the revised Sysco deal, giving the funder a limited right to evaluate settlements.
Bogart emphasized that Burford’s "unprecedented" deal with Sysco was “in no way typical of Burford’s relationships with its clients or of litigation finance generally.” The funder, he said, deliberately structures its typical financing agreements to foreswear control over settlement decisions – precisely to avoid disputes like the Sysco fight.
Sysco’s new suit acknowledged Burford’s limited right to withhold approval of its proposed settlements, but the company insisted that the settlements negotiated last summer by its then-outside counsel at Boies Schiller were fair and reasonable. It said it was “shocked” during a Sept. 6 phone call when Burford objected to the agreements – and when Boies Schiller sided with Burford.
Sysco said it was even more distressed when it subsequently learned that Boies Schiller and Burford had privately conferred on what the company described as an “ambush.”
The Sept. 6 phone call ended, according to Sysco, with Burford threatening to sue Sysco for damages if it finalized the proposed settlements without Burford’s consent. Burford then turned to arbitration in New York to obtain a temporary restraining order.
The arbitration panel has already heard arguments from both sides on whether to issue a permanent injunction and has said it intends to issue a ruling by March 17. Sysco said it nevertheless sued on Wednesday because it was up against a deadline to vacate the temporary restraining order.
I can pretty much guarantee that litigation finance opponents are going to exploit this case, arguing that it’s just the tip of an iceberg of self-serving conduct by litigation funders that never emerges into public view.
On the other hand, the Sysco case proves that litigation funding has become entrenched even at the biggest U.S. companies. Financiers like Burford can’t usually disclose that they’ve advanced $140 million to a company that grosses tens of billions of dollars a year – unless that company decides to make the relationship public by suing.
Litigation funders deployed $3.2 bln in U.S. investments last year – report
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