Los Angeles Business Journal
Are you familiar with Huy Fong Foods Sriracha hot sauce? Many people are – and until 2016, the jalapeño peppers to make it were grown on my family farm. In fact, we had been growing jalapeño peppers for Huy Fong Foods for many years, until they jeopardized the survival of our business, Underwood Ranches, which has operated in California for over 150 years.
Around 30 years ago, we began growing jalapeño peppers for Huy Fong Foods, and eventually became their sole supplier for Sriracha hot sauce. By 2016, Huy Fong Foods was our primary customer, and our 2,000 acres were producing 100 million pounds of peppers annually. Then suddenly, that same year, they abruptly terminated our contract without notice, forcing us to lay off half our workforce and costing us millions of dollars.
While we tried our best to preserve the business relationship, we ultimately filed claims against Huy Fong Foods in court and were grateful when a jury found that they had breached our contract, awarding us $23.3 million in damages. But this legal fight was expensive, and as a small business, we lacked the funds to pay additional legal fees. It would cost us hundreds of thousands of dollars to defend our rights on appeal, which could take over a year to resolve. In the meantime, we could not afford to maintain our farm operations, pay our employees, and simultaneously pay our lawyers.
That’s where Burford Capital, a commercial litigation finance provider, stepped in. Burford gave us $4 million in a partial advance of the jury verdict. The funding was nonrecourse, meaning we would have been able to keep the funds Burford provided even if we later lost the appeal. These funds gave us much-needed liquidity not only to deal with the fallout from Huy Fong Foods’ breach of contract, but also to continue operating our business during the hardship of the Covid-19 pandemic.
We used this money to stay afloat, diversify our crops and pay our lawyers. Burford’s funding was a lifesaver for my family’s business and helped us prevail in the appeal.
Critics of litigation finance, led by the U.S. Chamber of Commerce, call for forced disclosure of litigation funding. The Chamber, which spends millions of dollars a year lobbying against the litigation funding industry, seeks to undermine the privacy of the contracts between funders and their clients – clients like our family farm. The Chamber is pushing new laws that would require a small business like mine to disclose if we have a litigation finance arrangement, for how much, and under what terms.
But there is a problem with this: disclosure would give the upper hand to larger and better resourced companies, by letting them learn whether or not a small business can afford a long and expensive litigation and, where it has financing, letting the bigger business unfairly know the terms of that
Worse, if forced disclosure of litigation finance were to become law, defense lawyers would use this as a costly litigation delaying tactic. Slower litigation would make the courts more expensive for all businesses, but small businesses, which would now be more reluctant to seek outside funding, would be forced to accept lower settlements or abandon good claims – the ultimate goal of the U.S. Chamber of Commerce and its allies.
Without litigation funding, my family’s farming business would not have survived. Underwood Ranches had a very positive experience with litigation funding. It is important for policymakers, regulators and other business owners to see how this tool can help businesses like mine stay afloat during tough times, while also holding big businesses accountable for unfair practices.
Craig Underwood is the owner of Underwood Ranches. Founded in 1867, Underwood and his family have been growing chili peppers on their Ventura County farm for more than three decades.
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