Maines Paper & Food Services, a national food distributor, was part of a direct-purchasers class seeking antitrust relief against the turkey processing industry. Before Maines could see the litigation through, however, the company filed for Bankruptcy. The Bankruptcy Court confirmed a liquidation plan for the trustee to dispose of Maines’ assets, including all “Causes of Action the Debtors hold or may hold against any Entity.” Amory Investments LLC purchased Maines’ antitrust claims. The purchase included an assignment agreement that explicitly referenced the transfer and assignment of Maines’ cause of action under the Olean Wholesale Grocery Cooperative v. Agri States Inc. action to Amory. Subsequently, Amory opted out of the direct-purchasers class and filed a separate complaint.

Amory is a special purpose vehicle used to hold investments, like antitrust claims, for Burford Capital, a litigation funder. Pursuant to the limited liability company agreement that formed the vehicle, Burford owns 100% of Amory and has exclusive and complete authority to manage the operations and make decisions on Amory’s behalf.

The defendants in the antitrust litigation attempted to have the case dismissed, arguing that, under either Delaware or Illinois law, the assignment was invalid on grounds of champerty.  The Federal District Court, however, applied Federal Common Law to the assignment, reasoning that: although States “have the authority to dictate how state claims are transferred and assigned to parties … it would be intolerable to permit the states to determine the transferability, and thus the value, of interests created by federal law.”

The Court noted that “the question of assignability, at its core, implicates a significant federal interest in who can bring an antitrust claim” and the Supreme Court “has emphasized that antitrust violations can cause particularly pernicious and pervasive harm that ripples across our economy…. Thus, the goal is to facilitate access to federal courts rather than place hurdles when plaintiffs bring their antitrust claims. Applying a patchwork of differing state laws on champerty, which then impacts whether a party can enforce a federal antitrust claim, does nothing to advance this policy.”

Turning to the issue of whether the assignment is valid as a matter of Federal Common Law, the Court noted that “this is not a traditional litigation funding arrangement where a third-party agrees to fund a litigation in exchange for a contingent fee upon success. Amory bought the antitrust claim wholesale from Maines Paper’s liquidation trustee. The trustee received compensation regardless of whether Amory can recover from this suit. In other words, there is no ‘division of the proceeds of litigation’ contingent on some success. Moreover, in purchasing the right, Amory is the owner of the claim, so there are no concerns of strong-arming a party to not settle or discharge the litigation….

“As Maines Paper relinquished its antitrust claim, there is only one point of recovery. And the assignment agreement is straightforward; it in no way adds to the complexity of Maines Paper’s antitrust claim…. Defendants can dispute whether Maines Paper’s injury is too speculative for recovery, but they cannot deny that Amory has the legal title, right, and interest to be present in this litigation.”

With respect to the argument that champerty should be adopted as part of the general common law, the Court explained that: “discussions of a third-party’s role in litigation date back to at least medieval England, where claims and rights were not freely assignable and litigation was viewed ‘as a sign of belligerent, vexatious spirit, counter to Christian teaching,’ regardless of the suit’s merit. Champertors would avoid these assignability impediments by officiously intermeddling and financing suits, in part to get wealthier, but also to harass and inflict financial or political injury to their enemies. Champerty was morphed into a form where ‘powerful men aggrandized their estates and the background was unquestionably that of private war.’ As William Blackstone commented, the third-party maintenance of a lawsuit ‘is an offense against public justice, as it keeps alive strife and contention, and perverts the remedial process of the law into an engine of oppression.’ To that end, the Crown declared champerty a crime to protect against the evils of speculation in lawsuits, engaging in frivolous litigation, and financial overreaching by a party of superior bargaining position.”

However: “Although champerty found its way to the early days of American common law, the doctrine has fallen out of favor, with the consistent trend across the country is toward limiting, not expanding, champerty’s reach. Its decline can be explained by the fact that the motivations behind the doctrine no longer comport with the modern legal system. Litigation is now seen as a powerful tool for changing the status quo, for challenging the powerful, for rearranging the economic and political landscape, for achieving social change. Assignment of causes of actions are accepted in courts. The problems that banning champerty seek to address are also better remedied by various modern rules of civil procedure and other areas of law. The Federal Rules of Civil Procedure, federal statutes, and rules of professional responsibility can better root out frivolous lawsuits and sanction parties who engage in litigation solely to harass the other side. There are federal and state laws that scrutinize excessive contingent fees without relying on the champerty doctrine. And doctrines of unconscionability, duress, and good faith establish standards of fair dealing between opposing parties. Federal courts have similarly downplayed the importance of champerty in our legal system. The purchasing of claims, whether before or after suit has been brought upon them, for the purpose of turning a profit is nonetheless not categorically forbidden. One rationale, the Second Circuit posits, is that assignment allows claims owners to transfer the risk of loss to someone better able or more willing to pursue the claim or to undertake the risk. In this sense, assignability resembles the insurance industry where, in the event of an accident, the insurance company provides the insured with an upfront payment and then the insured shifts to the company, via subrogation, the cause of action so it may pursue the claim. The Seventh Circuit has also noted that the champerty doctrine has been abrogated and diluted in many states. ‘Today “trolldom” — the seeking of financial advantage by buying or otherwise obtaining a legal claim (as distinct from filing a legal claim in order to seek redress for injury) — thrives.’ The commonest example is patent trolling, where an individual acquires by purchase or application to the Patent and Trademark Office a patent that he uses not to protect an invention but to obtain a license fee from, or legal judgment against, an alleged infringer. Surely, if Amory’s assignment agreement offends the spirit of champerty, then so must patent trolling. Yet, that practice, while frowned upon, is legal.”

Finally, the Court rejected the argument that the assignment should nevertheless be invalidated on Public Policy grounds: “First, Defendants contend that courts have upheld litigation funding agreements only where the cases involved (1) a bona fide plaintiff (2) who maintained control over the litigation. Here, as the argument goes, neither condition exists because Burford, a litigation fund, controls the litigation, but Amory, the special purpose vehicle, owns the federal claim. Second, Defendants believe that by condoning such an arrangement, the Court’s decision will open a floodgate of litigation funders to purchase claims and prosecute them for profit. Accordingly, this type of speculation and commercialization of lawsuits for financial gain is an affront to our legal system. Despite the ominous tone, the Court finds neither public policy reason persuasive. There is no doubt that a party with legal title alone can bring suits before courts. Here, the liquidation trustee transferred its legal rights and interests in this federal antitrust claim to Amory. For all intents and purposes, Amory is a bona fide plaintiff. Moreover, Defendants’ position that public policy forbids litigation funders from controlling the litigation is misleading without context. Courts are against third-party financiers — with no relation to the plaintiffs or the case — from dictating how litigation or settlement should proceed. The fear, understandably, is that these third parties will flex their financial power to bully plaintiffs, who own the legal right to the claim, into pursuing a course of action adverse to plaintiffs’ interests. In other words, a litigation funder should be a silent partner, and the plaintiff calls the shots. But Burford is not an arms-length third party who is only financing the litigation. Burford owns 100% of Amory — Amory’s claims are Burford’s claims. The fears of undue influence or manipulation by an overreaching litigation funder are not present here because Amory’s and Burford’s interests are united. Finally, Defendants’ stance as a champion of lofty legal principles is a peculiar one. They attack the Burford-Amory relationship as improper speculation and commercialization but clarify that they are not challenging litigation funding generally. The Court fails to see why the former is demonized, yet the latter is spared the same criticism. Both involve speculation — whether the fund’s suit will triumph. And presumably, even under traditional litigation funding, the financier expects a profit from their investment. In truth, the Burford-Amory relationship is a variation of, but suffers from the same flaws as, traditional litigation funding. Regardless, the Court is not concerned with the doomsday future painted by Defendants….”

 

In re Turkey Antitrust Litigation, 727 F.Supp.3d 756 (N.D.Ill. 2024).