The Northern District of Illinois1 permitted a financing company to pursue federal antitrust claims after purchasing the claims out of bankruptcy in the case of Olean Wholesale Grocery Cooperative et al v. Agri Stats, Inc. In the litigation, Maines Paper & Food Services was part of a direct-purchasers class-seeking antitrust relief against the turkey processing industry. However, before Maines Paper could see litigation through, the company filed for bankruptcy, and the antitrust claims were purchased by Amory Investments LLC. Despite arguments that such claims could not be pursued on public policy grounds, the court allowed the investment company to proceed.
Case Background
Plaintiffs filed a class action against major turkey distributors who allegedly used Agri States to exchange competitively sensitive information about turkey production and sales. This information would be unavailable to producers without Agri Stats, an agricultural focused data company. The plaintiffs claim this information allowed the turkey producers to coordinate or align their behavior, such as limiting supply or setting prices, in a way that was anticompetitive.
Maines Paper & Food services was part of the class before it declared 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.
Amory is a special purpose vehicle used to hold investments, like antitrust claims, for Burford Capital, a litigation funder. According to the LLC agreement that formed the company, Burford owns 100% of Amory and has exclusive and complete authority to manage the operations and make decisions on Amory’s behalf.
The turkey producer defendants in the antitrust case attempted to have the claims dismissed, arguing that, under either Delaware or Illinois law, the assignment was invalid on grounds of champerty, a legal doctrine that makes it illegal for someone who has no connection to a lawsuit to finance or support the lawsuit in exchange for a share of the winnings. The Federal District Court, however, applying Federal Common Law, reasoned that States cannot control the transfer of legal claims created by Federal Law.
Assignability
The Court noted the question of assignability implicates federal interest in who can bring an antitrust claim. The Supreme Court has emphasized antitrust violations can cause pervasive harm to the United States economy; thus, the goal is to facilitate access to courts rather than place hurdles when plaintiffs bring antitrust claims.
On the issue of whether the assignment is valid as a matter of Federal Common Law, the Court noted that the case is not a traditional litigation funding arrangement where a third party funds litigation in exchange for a fee upon success. Amory bought the antitrust claim from the Maines Paper liquidation trustee. There’s no division of the proceeds of litigation. Since Amory is the owner of the claim, there are no concerns of strong-arming a party to not settle or discharge litigation.
Defendants can dispute whether Maines Paper’s injury is too speculative for recovery, but there is no denying Amory has the legal right and interest to assert Main’s claims in the litigation.
The Champerty Doctrine: Origins and Applicability
The role of third parties in litigation dates to medieval England when lawsuits were viewed as a sign of belligerent spirit, counter to Christian teachings. Champertons would avoid these impediments by financing suits to become wealthier and inflict financial or political injury on their enemies. Champerty morphed into private battles being fought between the wealthy. As William Blackstone, an 18th century English justice, put it, 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.” Champerty became a crime to protect against frivolous litigation and financial overreach by a party with more financial means.
In American Common Law, the consistent trend favors limiting champerty’s reach. The original motivations behind this doctrine are outdated in the modern legal system. Litigation has systematically changed. It is now a powerful tool for changing the status quo, challenging the powerful, and achieving social change. There are also better ways the modern legal system can root out frivolous lawsuits: the Federal Rules of Civil Procedure, various federal statutes, and the Rules of Professional Responsibility generally accomplish this, by sanctioning parties or attorneys who engage in litigation solely to harass the other side, or for other non-meritorious reasons.
Federal courts have therefore downplayed the importance of champerty in our legal system. The purchasing of claims for the purpose of turning a profit is not categorically forbidden, as such assignment allows claim owners to transfer the risk of loss to someone better able or more willing to pursue the claim. In this way, assignability resembles the insurance industry, where, in the event of an accident, the carrier provides the insured with an upfront payment who then, through subrogation, shifts the cause of action to the insurance company to pursue the claim.
The Seventh Circuit also notes that the champerty doctrine has been diluted in many states. Troll-dom, seeking financial gain by buying claims instead of bringing a lawsuit, thrives. Patent trolling is a common example, where a patent is purchased to demand fees or sue others, not to protect an invention. If Amory’s legal claim conflicts with the champerty doctrine, then patent trolling would seem toas well. While frowned upon, that practice is legal.
Ruling
The court rejected the argument that the purchase and assignment should be rejected on public policy grounds. The defendants argued that litigation funding is typically only permitted when there’s a real representative plaintiff, but in this case, Burford, the funder, controlled the case while Amory is the owner of the claims. Allowing this setup would encourage funders to buy claims just to profit from lawsuits-- which, they argue, undermines the legal system.
The court concluded, however, that that Amory was a real party in interest. Burford is not a separate party “pressuring” Amory, but, rather, the owner of Amory, whose interests are the same. Thus, the concern about a third-party stranger “controlling” the plaintiff doesn’t apply in this case.
Conclusion
The Court’s ruling shows how old doctrines like champerty have given way to modern rules that favor access to justice and enforcement of federal rights. By allowing Amory’s assignment, the Court made clear that federal antitrust claims can be validly transferred and pursued, even when profit is part of the motive.
1 In re Turkey Antitrust Litigation, 727 F.Supp.3d 756 (N.D.Ill. 2024).
