By Alison Frankel
(Reuters) - (The opinions expressed here are those of the author, a columnist for Reuters. If you are a shareholder of the publicly traded litigation funder Burford Capital Ltd, Friday was a very good day.
Burford shares opened the day’s trading on the New York Stock Exchange at about $7.15 per share. By mid-afternoon, the share price had reached nearly $11.85 — an almost 66% increase. Shares dropped a smidge, but at the end of the day on Friday, Burford’s market capitalization was 55% higher.
The reason for the stunning escalation, as Burford explained in a statement issued on Sunday, was a summary judgment decision from U.S. District Judge Loretta Preska of Manhattan. Preska ruled that the Republic of Argentina is liable to two minority shareholders of the energy company YPF SA for complex claims arising from the government’s takeover of the company.
Burford funded the consolidated case and is entitled to a big piece of whatever damages are ultimately recovered by the plaintiffs, Petersen Energia Inversora SAU and Eton Park Capital Management LP.
There are still, of course, all kinds of uncertainties about what those damages should be and whether the plaintiffs will be able to enforce any judgment that survives Argentina’s likely appeal. But Burford’s press release said that before adding prejudgment interest, Petersen’s claims could be as high as $7.5 billion, with Buford slated to recover 35%. Eton Park damages, before interest, could be $900 million, of which Burford will get 70%.
For Burford’s shareholders, in other words, Preska’s ruling was a big step toward a payday that could top billions of dollars. That’s the explanation for the remarkable rise in the funder’s share price on Friday.
What’s also remarkable is that Burford’s role in the YPF case has been a matter of hot dispute — and that the fight over Burford’s role has taken place in the public docket (albeit with lots of redactions).
Litigation funders are usually in the background of big commercial litigation in the U.S. You may have heard, for instance, about a recently filed lawsuit against Burford by the food supplier Sysco Corp and a countersuit by Burford. But until those filings last month, you probably had no idea that Burford had invested $140 million in Sysco's antitrust litigation against meat and poultry producers. By contrast, Burford has been openly discussing its investment in the YPF case since 2016, not long after Petersen first sued YPF and Argentina.
This litigation, in fact, would not exist without Burford's funding. Both Burford and Argentina agree on that point, though they are sharply at odds over its implications. Argentina argued in its motion for summary judgment that the entire case is simply Burford's long-shot play for a windfall. Burford, meanwhile, contends that Preska’s summary judgment decision shows exactly why litigation financiers should be embraced.
The YPF case "exemplifies the contribution we make to the civil justice system,” Burford chief investment officer Jonathan Molot said in the funder’s press release. “Without us, there would be no justice in this complicated and long-running case.”
Argentina counsel Robert Giuffra of Sullivan & Cromwell directed me to Argentina’s summary judgment brief in response to my query about Burford’s role. YPF, which won summary judgment against the shareholders’ claims in Preska’s decision on Friday, was represented by Debevoise & Plimpton. The firm declined to comment.
Petersen and Eton were represented by Clement & Murphy, King & Spalding and Kellogg, Hansen, Todd, Figel & Frederick. Paul Clement did not respond to my query. Kellogg Hansen and King & Spalding declined to comment.
Burford was able to disclose its financing of the YPF case, said CEO Christopher Bogart, because a Spanish bankruptcy court appointed the funder to pursue creditors' claims after the Petersen companies defaulted on loans secured by YPF shares. (Eton Capital is also in wind down.)
Argentina has repeatedly asserted that Burford bought the right to prosecute Petersen’s claims. Burford has criticized that “persistent mischaracterization,” saying that it acquired only the right to finance the case, not the claims themselves.
There is no doubt, however, that Burford was deeply engaged in the case. As Molot said in this weekend’s press release, the funder brought in heavy-hitting lawyers (and experts) to represent Petersen and Eton Capital. And Burford's own top executives, according to a declaration from CEO Bogart, acted throughout the litigation as “a particularly engaged set of inside counsel.” (Bogart's declaration said that Burford employees would face physical danger if the case were moved to Argentina, based on Argentina's criminal charges against the fund after it invested in an unrelated arbitration against the Argentine government.)
Burford’s publicly disclosed funding of the Petersen and Eton claims led to heated back-and-forth motions on Argentina’s demand for discovery from the litigation financier. Burford’s clients argued that all of their communications with the funder were shielded by work-product and attorney-client privilege. It would be bad policy, Burford’s clients said, to force cash-poor plaintiffs to reveal their litigation strategy just because they need outside financing to pursue their claims.
Argentina and YPF retorted (among other arguments) that Burford had waived privilege by selling a piece of the case to other investors. The defendants also said that Burford cannot claim attorney-client privilege because it’s not a law firm but is instead “an investment firm that gambles on litigation.” (After the bilateral posturing, the two sides seem to have worked out their differences on discovery.)
Bogart told me that ancillary litigation over privilege is one of the reasons why his fund is reluctant to disclose investments. “It’s not that we have anything to hide,” he said. “It’s that defendants try to misuse the information.”
Notably, Preska’s summary judgment ruling made no mention of Burford or the plaintiffs’ outside funding, despite Argentina’s arguments that the whole case was ginned up by an opportunistic funder.
The YPF case wouldn’t have reached summary judgment without Burford’s capital. In the end, though, Burford’s money was not relevant to the merits of its clients’ claims.
Read more:
Litigation funder Burford slams Sysco, as U.S. Chamber steps into court fight
Sysco sues litigation funder Burford, blasts Boies Schiller over $140 million soured deal (Reporting By Alison Frankel; editing by Leigh Jones)
