Burford Capital Logo Light Burford Capital Logo Dark

Legal finance helps companies to pursue meritorious claims regardless of liquidity restrictions

January 19, 2023
Adobestock 239727109 Sm

When businesses have been harmed by rulebreakers, legal finance helps companies large and small to be made whole and enforce any obligations owed to them, regardless of liquidity or budget restrictions.

Below we discuss one real life case study in which legal finance from Burford enabled a small business owner to stay in business as he pursued a meritorious claim. This case study was also highlighted in a December 2022 interview with CBS’ “60 Minutes.”

Underwood Ranches v. Huy Fong Foods

For almost 30 years, Underwood Ranches, a family farm in Ventura County, California, grew jalapeño peppers for Huy Fong to make its famous Sriracha hot sauce. By 2016, Underwood Ranches was growing over 100 million pounds of peppers a year on 1,750 acres with Huy Fong as its primary customer.

So when Huy Fong suddenly terminated the relationship without notice in 2016, the harm was severe: Underwood Ranches lost 80% of its revenue and was forced to lay off 50% of its employees.

Litigation soon followed. Underwood Ranches filed claims against Huy Fong for breach of contract, intentional misrepresentation, concealment, negligent misrepresentation and intentional interference with contractual relations based on Huy Fong’s failure to give reasonable notice of termination.

In July 2019, a jury found Huy Fong liable for breach of contract, intentional misrepresentation and concealment. The jury awarded Underwood Ranches $23.3 million. Huy Fong appealed on several grounds.

By the time of the appeal, Underwood Ranches had lost millions in revenue and incurred significant legal expenses. As a small business, it simply lacked the funds to maintain its operations and pay additional legal fees during a lengthy appeal which was not without risk.  Although it had won a trial verdict, it might not collect its recovery for up to two more years.

Burford’s role in recovering the award   

In February 2020, Burford Capital provided legal finance to help Underwood Ranches stay in business and get through the appeal, accelerating $4 million of the expected recovery to Underwood Ranches in a monetization deal. This advance served to de-risk the appeal of Underwood Ranches’ jury verdict (because the business would keep the funds regardless of the appeal’s outcome) and provide immediate liquidity that was integral to the survival of the business, which had been further harmed by the Covid-19 pandemic. Ultimately, in July 2021, the appellate court affirmed the trial judgment, and  Underwood Ranches was paid its recovery in August 2021.

As the owner of Underwood Ranches, Craig Underwood shared with correspondent Lesley Stahl on “60 Minutes”: “[Burford] stepped in and helped us out when we couldn’t have got money from anybody else. They basically rescued us.”

Beyond advancing capital to Underwood Ranches, Burford also shared its considerable expertise in commercial disputes and appeals by working closely with Underwood’s attorneys on the appellate briefing and oral argument. While Burford is a passive capital provider and the client, who retained control of the litigation, was free to ignore Burford’s insights, as with many users of legal finance capital, this “value add” was welcomed by the legal team.

Legal finance capital allowed Underwood Ranches to bridge the gap between the trial and the company’s ultimate recovery following the appeal. The immediate capital provision also allowed Mr. Underwood to retool his business. Instead of being forced to shutter his company or lay off more workers, legal finance enabled him to invest in his business’s future.