Third party litigation funding or “litigation financing” is a form of investing in which hedge funds and other financiers invest in a lawsuit in exchange for a portion of any settlement or judgement award. The investment provides cash to plaintiffs to litigate a claim, while the financier—thanks to its sophisticated underwriting—anticipates the case to end in a large enough judgement or settlement to satisfy its obligations.
According to one report, American litigation funders invested $3.2 billion in 2022. Those companies had a combined total of $13.5 billion in assets under management. Critics of litigation financing argue that it raises litigation costs, delays settlements, supports unmeritorious lawsuits, and risks allowing third parties to influence or control a party’s decisions.
A recent and particularly egregious example of this practice concerns Burford Capital, a financial services firm specializing in legal activities. Burford is the largest provider of litigation financing in the world. The dispute between Burford and its client, food distributor Sysco, arose from an ongoing lawsuit involving antitrust claims filed by Sysco against several large meat producers.
According to court filings from Burford subsidiaries, the firm advanced more than $140 million to Sysco to finance the lawsuit. The filings also show that Burford had a contractual right to review and consent to any settlement offers, as long as Burford’s consent was not “unreasonably withheld.”
Burford’s CEO stated to the media in 2022 that its clients are “free to run their litigations as they see fit” and that, while the firm may offer advice, “the client is free to disregard that advice and take its own path.”
When Sysco attempted to settle its claims against some of the defendants, Burford intervened because the firm felt the settlement amounts were too low. An arbitration panel ruled that Burford could prevent Sysco from settling those claims. Sysco filed suit, contending that Burford is “forcing Sysco to continue to litigate against its will” and “attempting to unlawfully seize control of Sysco’s settlement rights and rewrite the terms of our contract.”
As a result of its dispute with Burford, Sysco also cut ties with its legal counsel, alleging that the law firm took steps to “assist Burford in preventing the settlements.” The law firm originally pitched Sysco to make a deal with Burford to finance the litigation.
Recently, the federal judge overseeing Sysco’s antitrust lawsuit declined to consolidate that case with the dispute between Burford and Sysco, forcing Sysco to continue separate litigation against the financing firm. Sysco argues the two cases are “fundamentally intertwined” because Burford can prolong the lawsuit and veto any settlement agreements. Meanwhile, Burford has asked a state court to confirm the arbitration judgement allowing the firm to control Sysco’s settlement decisions.
The problems revealed by the ongoing dispute between Sysco and Burford demonstrate the importance of reasonable, commonsense regulations on litigation financing, which are needed to prevent conflicts of interest and protect the integrity of the legal system. For instance, courts and all other parties to a lawsuit should be made aware of a third party’s financial interest in the case, especially if that third party may control or influence a party’s decisions. Without this transparency, it is difficult for parties, judges, and juries to make informed decisions about a case.
In Wisconsin, under 2017 Act 235, a litigation financing agreement must be disclosed to the court and other parties to a case. The U.S. Chamber Institute for Legal Reform called this transparency requirement “groundbreaking” and is working to enact similar disclosure reforms in other states, holding Wisconsin up as an example to follow.