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By Samson Habte
March 10 — DuPont Co. failed March 9 to convince the Delaware Superior Court to invalidate a litigation funding contract a small company is using to bankroll its trade secrets lawsuit against DuPont (Charge Injection Techs., Inc. v. E.I. DuPont de Nemours & Co., 2016 BL 73231, Del. Super. Ct., No. N07C-12-134-JRJ, 3/9/16).
A review of authority by Bloomberg BNA indicates this is the first Delaware case validating the legality of alternative (or third-party) litigation financing.
DuPont asked the court to dismiss the trade secrets suit on grounds the plaintiff's litigation funding contract with Aloe Investments Ltd., a subsidiary of Burford Capital LLC, violated common law prohibitions on champerty and maintenance.
Champerty is investing in another person’s litigation in exchange for part of the recovery. Maintenance is supporting a lawsuit brought by another person who has no valid right to be litigating it.
Judge Jan R. Jurden turned DuPont down. She said the contract between Aloe and the plaintiff, Charge Injection Technologies (CIT), didn't violate either doctrine because it “does not give Burford any right either to direct, control, or settle CIT's claims against DuPont.”
CIT said after it sued DuPont in 2007 it “quickly found that it lacked adequate resources to pursue long, drawn-out litigation against DuPont, which has tens of billions of dollars at its disposal to wage a war of attrition against litigation adversaries.”
Accordingly, CIT entered into a “Forward Purchase Agreement” (FPA) with Aloe in which Aloe agreed to provide financing in exchange for a share of future proceeds from the lawsuit and a security interest in CIT's claim.
DuPont argued the FPA was champertous because it gave Burford “de facto control” over the litigation.
Jurden wasn't persuaded. “The record before the Court demonstrates that CIT is the bona fide owner of the claims in this litigation, and Burford has no right to maintain this action,” she wrote.
The opinion cites a case that said champerty “is based upon the ground that no encouragement should be given to litigation by the introduction of a party to enforce those rights which the owners are not disposed to prosecute.”
That is not what occurred here, the court said. “CIT did not bargain with Burford to enforce claims which CIT is not disposed to prosecute,” Jurden wrote.
She pointed to a provision in the FPA expressly stating that Aloe doesn't “have any rights as to the direction, control, settlement or other conduct of the [claim]” and that CIT “retains the unfettered right to settle the [claim] at any time for any amount.”
DuPont also argued the financing arrangement violated the common law prohibition on maintenance—which, the opinion states, “involves the officious intermeddling in a suit” for the purpose of “stirring up litigation and strife” and “encouraging others to bring actions or make defenses they have no right to make.”
Jurden disagreed. “This is not a case in which Burford ‘stirred up' litigation, is controlling or forcing CIT to pursue litigation, or is controlling the litigation for the purpose of continuing a frivolous or unwanted lawsuit,” she said.
Jurden again pointed to the contractual language preventing Aloe from directing the litigation. She also cited testimony from CIT's chief executive officer, who said he made decisions regarding the lawsuit and that Burford had not reviewed any confidential information or participated in any mediation sessions.
To contact the reporter on this story: Samson Habte in Washington at email@example.com
To contact the editor responsible for this story: Kirk Swanson at firstname.lastname@example.org
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