Opinion ID: 792943
Heading Depth: 4
Heading Rank: 2

Heading: Should the settlement have been approved under the Martin factors?

Text: 31 The parties agree that the second factor (ease of collection) is not relevant here, so we only discuss three of the four Martin factors. 32 Northwestern argues that the District Court failed to consider the probability-of-success-in-litigation factor. Northwestern contends that the likelihood of success would have been zero, because Wheeler would not have been able to reassert his previously dismissed claims against the settling defendants under the Illinois statute of limitations. While the Court did not devote a full section in its opinion to this factor (as it did for two of the other factors), it said elsewhere that Wheeler's decision not to pursue claims against the Settling Defendants may reflect weaknesses in [his] claims and little likelihood of success on the merits. In re Nutraquest, Inc., Civ. No. 03-5869(GEB), mem. op. at 7 (D.N.J. Nov. 17, 2004). 33 Northwestern asserts also that the complexity-expense-and-delay factor does not apply; that there is no litigation to discuss; and that Northwestern's defense in Wheeler's action against it will still involve discovery concerning Nutraquest's manufacture and sale of ephedra products, thus leading nonetheless to expense and inconvenience for Nutraquest. It is axiomatic that settlement will almost always reduce the complexity and inconvenience of litigation. See, e.g., TMT Trailer, 390 U.S. at 434, 88 S.Ct. 1157 (Litigation and delay are always the alternative to settlement, and whether that alternative is worth pursuing necessarily depends upon a reasoned judgment as to the probable outcome of litigation.). Because Wheeler appeared to have a low probability of success, the Court easily could have found that Nutraquest's escaping via settlement a complex defense of a weak case was a good move (although the Court did not make this statement explicit). The balancing of the complexity and delay of litigation with the benefits of settlement is related to the likelihood of success in that litigation. See id. In this regard, it is simply good judgment — thus the opposite of an abuse of discretion — to conclude that the discovery Nutraquest faces from Northwestern will be less inconvenient and expensive than defending Wheeler's suit against it. 34 For the last factor, Northwestern argues that the settlement was not in the creditors' interest. The Court held that the insignificant disadvantages to Northwestern, the only objecting creditor, did not outweigh the benefits to the estate. Northwestern cites to a bankruptcy court case from Florida, In re Covington Props., Inc., 255 B.R. 77 (Bankr.N.D.Fla.2000), to suggest that this settlement cannot be approved. In Covington the Talley family, insiders who held over 90% of the debtor's secured debt, sought to settle with the debtor. This settlement would have resolved not only all claims held by the debtor but also all claims held by the debtor's creditors against the Talley family. The only other creditors were the McAlisters — noninsiders — and they had filed a separate lawsuit in state court against members of the Talley family. Because the members of the Talley family were the major creditors of the estate, they stood to recoup most of their settlement payments, so the settlement was designed simply to cut off the McAlisters' state-court claims. Id. at 79. The Court held this settlement not fair and equitable, and disapproved the settlement agreement. Id. at 79-80. 35 The result in Covington is easily distinguishable from the situation here. Covington involved a group of insiders using their powers to insulate themselves from litigation outside the bankruptcy context by the only (and noninsider) creditors of the estate. Here, on the other hand, Nutraquest is but one of a handful of potential defendants who settled with Wheeler. Although Northwestern is a possible creditor of Nutraquest, this settlement had nothing to do with insulating Nutraquest insiders from claims of its creditors. Nutraquest had, at the time of its Chapter 11 filing, 52 cases pending against it. Northwestern was simply a plaintiff in one of those cases for contribution, and Illinois law bars it from getting contribution from Nutraquest once Nutraquest settles with Wheeler. The harms present in the Covington case are not present here. 4 36