Antitrust Law Daily Wrap Up, ANTITRUST—D. Minn.: Denial of request to substitute plaintiff in pork and beef price fixing lawsuits affirmed, (Jun 4, 2024)

By Martin A. Steinberg, J.D.

Courts must ensure that litigation financiers do not seek to control the course of litigation.

The federal court in St. Paul, Minnesota, affirmed a magistrate’s order denying the joint motions of Plaintiff Sysco Corporation and Carina Ventures LLC to substitute Carina for Sysco in the ongoing antitrust cases of In re Pork Antitrust Litigation (Pork) and In re Cattle and Beef Antitrust Litigation (Beef). Plaintiff Sysco sought to substitute Carina as a “special purpose vehicle” for itself in the cases. Carina was formed in June 2023 to serve as the assignee of Sysco’s claims following a dispute between Sysco and its litigation financier over settlement authority. The magistrate viewed the proposed substitution as doing “violence to the Federal Rules of Civil Procedure’s meaning of transferring an ‘interest,’ has caused serious practical problems in this litigation, and will allow a financier with no interest in the litigation beyond maximizing profit on its investment to override decisions made by the party that actually brought suit.” The magistrate, therefore, exercised its discretion under Rule 25(c) to allow the case to proceed by the original party and denied the substitution. Sysco and Carina had appealed the magistrate’s order to the district court judge (In Re Pork Antitrust Litigation, No. 0:22-cv-01750-JRT-JFD (D. Minn. June 3, 2024)).

Background. The underlying cases involve allegations by Sysco and other direct purchasers that America’s largest pork producers conspired to limit the supply of pork and thereby fix prices and that America’s largest meat packers conspired to fix cattle prices. Sysco’s actions alleging price-fixing conspiracies in the pork and beef industries were transferred to this court and consolidated into the Pork and Beef multidistrict litigation (MDL) cases. Sysco financed its litigation in the MDLs with over $140 million provided by Burford Capital. Under their financing agreement, Sysco was not permitted to accept any settlement offer without Burford’s prior written consent, which it could not unreasonably withhold.

However, when Sysco attempted to settle with some defendants in the twin cases on terms Burford did not approve, it refused to permit the settlements. This led Sysco to fire its legal counsel, which it shared with Burford, accusing the lawyers of providing advice to Burford that was contrary to Sysco’s interests.

Carina created. Burford and Sysco entered arbitration to determine the meaning and validity of the provision that required Burford’s written consent to accept a settlement after Burford vetoed settlements that Sysco negotiated with some of the defendants. In the meantime, an arbitration panel in New York granted Burford a temporary restraining order to prevent Sysco from finalizing the negotiated settlements. Rather than litigate subsequently filed motions to vacate and confirm the arbitration award, Sysco assigned its interest in the Pork and Beef MDLs to Carina, a “special purpose vehicle” created by Burford for the sole purpose of accepting and litigating Sysco’s assigned claims in the MDLs.

Motion for substitution. Sysco and Carina subsequently filed joint motions to substitute Carina for Sysco in these cases pursuant to Federal Rule of Civil Procedure 25(c), which permits substitutions of parties when an interest is transferred during a lawsuit. The defendants objected to the substitution.

Magistrate’s order. Though the magistrate did not invalidate Sysco’s assignment of its claims to Carina, he denied the motions because the substitution would be contrary to the Federal Rules and public policy. The magistrate was especially concerned with the possibility that substitution would allow a litigation financer “with no interest in the litigation beyond maximizing profit on its investment to override decisions made by the party that actually brought suit.” Sysco and Burford’s assignment agreement and substitution would allow Carina to stymie settlements for Burford’s gain, contravening public policy favoring party control over litigation and settlements.

The magistrate wrote that “[t]he largest harm that condoning Burford’s efforts to maximize its return on investment would cause is the harm of forcing litigation to continue that should have settled.” He further noted that though antitrust standing can be obtained via assignment, the rationale behind antitrust standing, that antitrust cases should be brought by plaintiffs who have suffered antitrust injury, counseled against substitution. The magistrate, recognizing that this scenario was unique, was reluctant to allow a special purpose vehicle, which was established by a litigation financer and only has Article III and antitrust standing from assignment, to be substituted for a party who had both types of standing in the Pork and Beef MDLs.

The magistrate’s decision was appealed to the district court judge.

Rule 25(c). The magistrate’s decision to deny substitution was not contrary to precedent or the purposes of Rule 25(c), according to the district court. This rule allows an action to continue unabated when an interest in a lawsuit changes hands, rather than requiring the initiation of an entirely new lawsuit. The decision whether to substitute parties lies within the district court’s discretion.

While federal antitrust claims can be freely assigned and courts have found substitution appropriate where a claim is assigned, Sysco and Carina underestimated the discretionary power afforded to the district court. Rule 25(c) does not require substitution when an interest is transferred during a lawsuit. Rather, the court is free to exercise its discretion to deny substitution, especially in light of valid public policy concerns. Given the extraordinary facts of this case, where a litigation financer is essentially requesting to substitute itself in the place of its client mid-litigation, the court found that the magistrate’s decision to deny substitution was not contrary to precedent or the purposes of Rule 25(c).

Public policy concerns. The court found that the magistrate’s decision to deny substitution was based on valid policy concerns and therefore was not clearly erroneous. Nothing in the record suggested that the magistrate erroneously denied substitution based on his cited public policy concerns. The fact that public policy could support substitution in this instance does not mean that the magistrate clearly erred. Rather, he appropriately explained that granting substitution could have a detrimental impact on antitrust cases across the country.

The magistrate was justifiably concerned that allowing the substitution could encourage litigation financers everywhere to use mid-litigation assignments and substitutions to undermine agreements between parties otherwise willing to settle. Sysco and Burford’s conduct that resulted in the assignment agreement threatens the public policy favoring the settlement of lawsuits. Moreover, substitution in this instance would threaten antitrust standing policy. While federal antitrust claims can be freely assigned, the unique facts of this case counsel against substitution. Permitting a litigation funder to step into the shoes of its client via assignment and substitution would contravene the purpose of antitrust laws and standing requirements by condoning third parties with only investment interests to take over and litigate antitrust cases.

Finally, whether the assignment agreement is valid was not relevant. Though the State of Minnesota abolished its common-law prohibition against champerty, courts must still “be careful to ensure that litigation financiers do not attempt to control the course of the underlying litigation.” See Maslowski v. Prospect Funding Partners LLC, 944 N.W.2d 235, 241 (Minn. 2020). Sysco and Burford’s conduct was precisely the kind of conduct of which courts are wary. The substitution motion directly resulted from their attempt to resolve their dispute over whether Sysco or Burford should control this litigation. The court refused to approve such conduct.

The Case is No. 0:22-cv-01750-JRT-JFD.

Judge: Tunheim, J.

Attorneys: Christopher P. Wilson (Baker Botts L.L.P.) for Sysco Corporation. Derek T. Ho (Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C.) for Carina Ventures LLC. Craig S. Coleman (Faegre Drinker Biddle & Reath LLP) for Hormel Foods Corporation and Hormel Foods, LLC. Daniel E. Laytin (Kirkland & Ellis LLP) for Clemens Food Group, LLC and The Clemens Family Corporation. John A. Cotter (Larkin Hoffman Daly & Lindgren) for Smithfield Foods, Inc. Sami H. Rashid (Quinn Emanuel Urquhart & Sullivan, LLP) for JBS USA Food Company, JBS Packerland, Inc., Swift Beef Company, and JBS S.A. Peter J. Schwingler (Jones Day) for Seaboard Foods LLC. Christopher A. Smith (Husch Blackwell LLP) for Triumph Foods, LLC. Tiffany Rider Rohrbaugh (Axinn, Veltrop & Harkrider LLP) for Tyson Foods, Inc., Tyson Prepared Foods, Inc. and Tyson Fresh Meats, Inc. William L. Monts III (Hogan Lovells US LLP) for Agri Stats, Inc. Kosta S. Stojilkovic (Wilkinson Stekloff LLP) for Cargill, Incorporated and Cargill Meat Solutions Corporation. Benjamin L. Ellison (Jones Day) for National Beef Packing Company, LLC.

Companies: Sysco Corporation; Agri Stats, Inc.; Seaboard Foods, LLC; Clemens Food Group, LLC; Hormel Foods Corp.; Triumph Foods, LLC; Tyson Foods, Inc.

Cases: Antitrust MinnesotaNews