A glimpse into the secret world of litigation funding agreements

Food distributors filed several class actions against their animal protein suppliers alleging price fixing. Sysco opted out and brought its own direct antitrust actions. See Sysco Corp. v. Tyson Foods, et al., No. 18-cv-700 (N.D. Ill.); Sysco Corp. v. Agri Stats Inc., et al., No. 21-cv-1374 (D. Minn.); Sysco Corp. v. Cargill Inc., et al., No. 22-cv-1750 (D. Minn.) (collectively, Antitrust Litigation). Burford, through special financial vehicles, invested over $140 million in the Antitrust Litigation collateralized by a share of the proceeds from a settlement or judgment pursuant to a Capital Provision Agreement (CPA). Burford was to be a passive provider of capital; Sysco had control over the prosecution of the claims. Sysco was not permitted to assign its claims or any portion thereof.

In January, 2021, Sysco began to assign antitrust food claims to some of its customers without Burford's consent. See Respondents' Motion to Stay (Sysco Corp. v. Glaz LC, Posen Investments LP and Kenosha Investments),1:23-cv- 01451, pp 3-4 (N.D. Ill. 2023)(https://jusmundi.com/fr/document/pdf/other/en-glaz-llc-posen-investments-lp-and-kenosha-investments-lp-v-sysco-corporation-motion-to-stay-monday-27th-march-2023) As a result, Burford and Sysco re-negotiated the CPA. Burford sent Sysco a proposal which would have expressly given Burford control to direct and settle the antitrust claims; Sysco refused to give up control of its claims. Decl. of Barrett G. Flynn (Sysco Corp. v. Glaz LC, Posen Investments LP and Kenosha Investments), 1:23-cv- 01451, 3-4 (N.D. Ill. 2023) paras. 8-9 (https://jusmundi.com/fr/document/pdf/other/en-glaz-llc-poden-investments-lp-and-kenosha-investments-lp-v-sysco-corporation-declaration-of-barrett-g-flynn-in-support-of-petition-to-vacate-arbitration-award-wednesday-8th-march-2023) Ultimately, they agreed to increase Burford's financial return on the unassigned claims. To safeguard the value of the claims, Sysco agreed to "take such actions as are reasonable and appropriate to maximize the Proceeds received from each Claim" and "not accept a settlement offer without [Burford's] prior written consent, which shall not be unreasonably withheld." See Respondents' Motion to Stay, 1:23-cv- 01451, pp. 4-5 (N.D. Ill. 2023).

After negotiations and two all-day mediation sessions, seeking to preserve its relationships with its suppliers, Sysco reached agreements-in-principle to settle its claims. Decl. of Barrett G. Flynn (Sysco Corp. v. Glaz LC, Posen Investments LP and Kenosha Investments), 1:23-cv-01451, para. 11 (N.D. Ill. 2023). Burford objected to the proposed settlements alleging that the settlement amount were too low. Sysco alleged that Burford was blocking it from executing settlement and due to confidentiality it could not even explain the reasons for the delay in executing the proposed settlements. Id. at paras. 27-30.

The discord between Sysco and Burford

Burford filed a petition in the London Court of International Arbitration requesting arbitration and seeking to enjoin Sysco from executing the settlements. Glaz LLC et al. v. Sysco Corp. LCIA Case No. 225609 (9 Sept. 2022) (https://jusmundi.com/fr/document/other/en-glaz-llc-posen-investments-lp-and-kenosha-investments-lp-v-sysco-corporation-request-for-arbitration-friday-9th-september-2022#other_document_30894.) The seat was New York and New York was the chosen law. The tribunal panel granted the TRO.

Sysco filed a petition in Illinois to vacate the arbitration award. See Petition to Vacate Arbitration Award (Sysco Corporation v. Glaz LLC), 1:23-cv-01451, (N.D. Ill. 2023) (https://storage.courtlistener.com/recap/gov.uscourts.ilnd.431139/gov.uscourts.ilnd.431139.1.0.pdf). The U.S. Chamber of Commerce filed an amicus curiae brief in favor of vacating the arbitration award. See Brief Amicus Curiae (Sysco Corporation v. Glaz LLC), 1:23-cv-01451, (N.D. Ill. 2023) (https://fingfx.thomsonreuters.com/gfx/legaldocs/gkvlwbkalpb/Chamber-Sysco-v-Burford-2023.pdf). Within days, the arbitral tribunal issued the injunction, regarding the matter between Burford and Sysco as one of contractual right. "Burford bargained for the right to participate in the conduct of Sysco's claims as a consequence of Sysco's prior breach of the anti-assignment provisions of the CPA." Glaz LLC et al. v. Sysco Corporation, LCIA Case No. 225609 Order of Claimant's Preliminary Injunction Application (Corrected) (10 March 2023) Para.186 (https://jusmundi.com/fr/document/decision/en-glaz-llc-posen-investments-lp-and-kenosha-investments-lp-v-sysco-corporation-order-on-claimants-preliminary-injunction-application-corrected-friday-10th-march-2023#decision_46429)

Burford petitioned to confirm the arbitration award in the New York Supreme Court. See Petition to Confirm Arbitration Award (Ganz LLC et al v. Sysco Corporation), Index No. 651289/2023 (N.Y. Sup. Ct. 2023)(https://jusmundi.com/fr/document/pdf/other/en-glaz-llc-posen-investments-lp-and-kenosha-investments-lp-v-sysco-corporation-petition-to-confirm-arbitration-award-friday-10th-march-2023). Sysco then removed Burford's state court action to the Southern District of New York and then filed a motion to reassign the case to the North District of Illinois and consolidate it with its pending action. Notice of Removal (Ganz LLC et al v. Sysco Corporation Case), 1:23-cv-02489 (S.D.N.Y. 2023) (https://jusmundi.com/fr/document/pdf/other/en-glaz-llc-posen-investments-lp-and-kenosha-investments-lp-v-sysco-corporation-notice-of-removal-thursday-23rd-march-2023) Burford moved to dismiss Sysco's petition and stay the action.

How did this end? Burford and Sysco settled their differences. Sysco assigned its claims in the Antitrust Litigation to Carina Ventures, LLC (Carina), a special purpose vehicle created by Burford to hold and prosecute the Antitrust Litigation. Burford and Sysco filed a stipulation of dismissal of the Sysco Arbitration. See Stipulation of Dismissal (Glaz LLC et al. v. Sysco Corp.), 1:23-cv-02489-PGG (S.D.N.Y. 2023) (https://jusmundi.com/fr/document/pdf/other/en-glaz-llc-posen-investments-lp-and-kenosha-investments-lp-v-sysco-corporation-stipulation-of-dismissal-wednesday-28th-june-2023). Sysco and Carina then requested the District Court of Minnesota to substitute Carina for Sysco in the Pork and Beef /Cattle consolidated lawsuits. They filed the same request with the Northern District Court in Illinois in the poultry antitrust litigation. The two courts reached opposite conclusions.

This guest article is part two of a three-part series exploring litigation funding. The next article will appear on Monday, Aug. 26.