In Re: Nutraquest ( 2006 )

Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
1-20-2006
In Re: Nutraquest
Precedential or Non-Precedential: Precedential
Docket No. 04-4387
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 04-4387
IN RE: NUTRAQUEST, INC.,
Debtor
Civil Action No. 03-cv-05869
LINDA WILL; GEORGE WHEELER, JR.,
as Independent Co-Administrators of
the Estate of RASHIDI WHEELER, deceased
v.
NORTHWESTERN UNIVERSITY; CHARLES TAYLOR;
RANDALL WALKER; JERRY BROWN;
TERRENCE AGGELER,
LARRY LILJA; THOMAS CHRISTIAN;
JUSTIN CHABOT; MICHAEL ROSE;
MARK GARDNER, M.D.
v.
*NEXT PROTEINS, INC., f/k/a Next Nutrition, Inc.,
d/b/a Next Proteins International ;
THE ULTIMATE ORANGE ENERGY CO. LLC;
ULTIMATE ENERGY CO.;
PHOENIX LABORATORIES, INC.;
GENERAL NUTRITION CORPORATION,
d/b/a General Nutrition Companies, Inc.,
a wholly owned subsidiary of ROYALO NUMICO NV,
CYTODYNE TECHNOLOGIES, INC., n/k/a
NUTRAQUEST, INC.,
Third Party Defendants
Adversary Proceeding No. 04-cv-01275
Northwestern University, Charles Taylor,
Randolph Walker,
Jerry Brown, Terence Aggeler, Larry Lijla,
Thomas Christian,
Justin Chabot and Michael Rose,
Appellants
*(Amended Per the Clerk's Order dated 6/24/05)
Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 03-cv-05869)
District Judge: Honorable Garrett E. Brown, Jr.
Submitted Under Third Circuit LAR 34.1(a)
November 15, 2005
2
Before: BARRY and AMBRO, Circuit Judges
and POLLAK * , District Judge
(filed: January 20, 2006)
OPINION OF THE COURT
AMBRO, Circuit Judge
Rashidi Wheeler, a football player at Northwestern
University, died during a team practice. His estate 1 sued
Northwestern. Because Wheeler had ingested ephedra-
containing products on the day he died, Northwestern sued the
makers of these products for contribution. Nutraquest, Inc., one
of these third-party defendants (all of whom were ultimately
sued by Wheeler as well as by Northwestern), filed for
bankruptcy and settled with Wheeler (as did some of the other
third-party defendants). The District Court approved the
settlement, finding that it met the requirements of Bankruptcy
Rule 9019 and the Illinois Joint Tortfeasor Contribution Act,
*
Honorable Louis H. Pollak, United States District Judge for
the Eastern District of Pennsylvania, sitting by designation.
1
For convenience we shall refer simply to Wheeler in this
opinion.
3
and barred Northwestern’s contribution claims against the
settling third-party defendants. We hold that the Court properly
applied our Court’s factors in approving the settlement under
bankruptcy law and that it did not abuse its discretion in finding
the settlement was made in good faith under Illinois law. We
therefore affirm.
I. Factual Background and Procedural History
Wheeler was a starting safety at Northwestern. During
a 2001 team conditioning test, he collapsed and died.
Emergency medical personnel did not arrive until almost 40
minutes after Wheeler’s collapse. The Cook County Medical
Examiner concluded that he had died from bronchial asthma.
Earlier that day, Wheeler had taken two supplements
containing ephedra and caffeine. One supplement was made by
a company called Next Proteins, Inc. The other—Xenadrine
RFA-1—was made by Phoenix Laboratories, Inc. at the
direction of Nutraquest (formerly Cytodyne Technologies, Inc.).
These supplements were purchased at a store owned by General
Nutrition Corporation (GNC). (Ephedra was banned by the
Food and Drug Administration in 2004 because of the risk of
heart arrhythmia and stroke associated with it.)
In August 2001 Wheeler (through his parents and co-
administrators, Linda Will and George Wheeler, Jr.) sued
Northwestern and its personnel in Illinois state court, claiming
4
that he died from an acute asthma attack to which the defendants
failed to respond appropriately. Northwestern, believing that
Wheeler’s death was related to his ingesting the ephedra-
containing products, filed a third-party complaint seeking
contribution from Nutraquest, Phoenix Labs, Next Proteins, and
GNC. Wheeler did not initially sue any of these third-party
defendants.
In July 2003—just before the statute of limitations
expired—Wheeler amended his complaint to add claims against
the third-party defendants. In October 2003 Nutraquest filed a
voluntary bankruptcy petition under Chapter 11 in the United
States Bankruptcy Court for the District of New Jersey. Five
days later, Wheeler voluntarily dismissed his claims against the
third-party defendants, including Nutraquest.
After Nutraquest’s Chapter 11 filing, 52 pending
wrongful-death and personal-injury actions were transferred to
the District of New Jersey on the ground that they were related
to the bankruptcy filing in that District. Wheeler moved for a
remand back to Illinois state court, but the District Court denied
his motion. The Court and the bankruptcy parties began
resolving the tort claims in an organized way: Nutraquest
retained litigation counsel, steering committees were created,
and test cases were designated and set for trial in early 2005.
In September 2004 Wheeler entered into a tentative
settlement agreement with Nutraquest, Phoenix Labs, and GNC.
5
The settlement was for $75,000 in cash ($25,000 from each of
the settling defendants) and an allowed general unsecured
$25,000 claim against Nutraquest’s bankruptcy estate.
Northwestern contrasts this comparatively small sum with the
millions of dollars Wheeler sought from it. Nutraquest’s insurer
is paying Nutraquest’s and GNC’s shares of the cash settlement.
(GNC was shielded from direct liability by Nutraquest’s insurer
because Nutraquest had agreed to indemnify GNC for any
liability arising from Nutraquest’s products.) When the
settlement agreement was executed tentatively (pending Court
approval), Wheeler was still within the one-year period allowed
by Illinois law to reassert his claims against the settling
defendants. But by the time the settlement became effective
after receiving the required approval, Wheeler’s time for
reasserting claims against the settling defendants had expired.
The settlement was conditioned on the District Court’s
(1) finding that it complied with the requirements for approval
under Bankruptcy Rule 9019(a),2 (2) making a determination
that the settlement was entered into with good faith under the
Illinois Joint Tortfeasor Contribution Act, 740 Ill. Comp. Stat.
100/1 et seq., and (3) barring Northwestern’s contribution
claims against the settling defendants. Northwestern objected
to the settlement, but the District Court approved it in November
2
“On motion by the trustee and after notice and a hearing, the
court may approve a compromise or settlement.” Fed. R. Bankr.
P. 9019(a).
6
2004, barred and dismissed all third-party claims under the
Illinois Contribution Act,3 and remanded the case to Illinois state
court. Northwestern appeals the approval of the settlement.
II. Jurisdiction
The District Court had jurisdiction over the claims
against Nutraquest under 28 U.S.C. §§ 1334(b) and 157(b)(5).
Because the Court’s order approving the settlement agreement
is a final order, we have appellate jurisdiction under 28 U.S.C.
§ 1291. Binker v. Pennsylvania, 977 F.2d 738, 744 (3d Cir.
1992).
III. Standard of Review
We review the District Court’s approval of the settlement
for an abuse of discretion. See Myers v. Martin (In re Martin),
91 F.3d 389, 391 (3d Cir. 1996). The question of whether it
applied the proper test in approving the settlement we review de
novo. Fry’s Metals, Inc. v. Gibbons (In re RFE Indus., Inc.),
283 F.3d 159, 165 (3d Cir. 2002).
We review the District Court’s good-faith determination
under the Illinois Contribution Act for an abuse of discretion.
Johnson v. United Airlines, 784 N.E.2d 812, 821–22 (Ill. 2003).
3
We note that the District Court’s authority to do this was not
questioned directly.
7
IV. Discussion
A. The District Court’s approval of the settlement
under bankruptcy law
A district court has the authority to “approve a
compromise or settlement” on the bankruptcy trustee’s motion.
Fed. R. Bankr. P. 9019(a). Settlements are favored, but the
unique nature of the bankruptcy process means that judges must
carefully examine settlements before approving them. See
Martin, 91 F.3d at 393; see also Protective Comm. for Indep.
Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S.
414, 424 (1968). According to TMT Trailer, settlements must
be “fair and equitable.” 390 U.S. at 424. The District Court
approved the Nutraquest settlement under both the “fair and
equitable” standard and under the Martin test set out more fully
below.
We have two issues to decide under the bankruptcy
portion of this case. Northwestern disputes the Court’s use of
Martin as the proper test. In any event, Northwestern also
claims that the Court incorrectly approved the settlement both
under Martin and under the “fair and equitable” standard of
TMT Trailer.
8
1. Was Martin the proper standard to use in
approving the settlement?
Martin provided four criteria for a court to consider when
faced with a proposed settlement: “(1) the probability of success
in litigation; (2) the likely difficulties in collection; (3) the
complexity of the litigation involved, and the expense,
inconvenience and delay necessarily attending it; and (4) the
paramount interest of the creditors.” Martin, 91 F.3d at 393.
We followed TMT Trailer in listing these factors, id. (citing
TMT Trailer, 390 U.S. at 424–25), and simply fleshed out its
general requirement.
Northwestern disputes the use of Martin. Its primary
argument is that Martin is only useful when analyzing a
settlement of a claim belonging to the debtor, not a claim against
the debtor. We disagree.
We did not hold in Martin that the factors were only to be
used to scrutinize settlements of claims held by the debtor. In
fact, Martin itself involved a settlement partially of claims
against the debtor. The Martins contracted to sell their house to
the Myerses, but the Myerses refused to go through with the
purchase. Id. at 391. The Martins, who had been depending on
the sale to go through, found themselves in dire financial straits
and had to file a Chapter 7 bankruptcy petition. Id. Both parties
filed contract suits in state court, the Martins for damages and
the Myerses for specific performance. Id. The trustee’s
9
proposed settlement provided for the release of both actions. Id.
Two other points are worth making here. First, the
“Martin” factors have been around for a long time, far longer
than Martin itself or even TMT Trailer. Second, there are
several cases applying these four factors to settlements of claims
against debtors.
The Martin Court “t[ook its] cue” from TMT Trailer, id.
at 393, but the origin of the four factors can be traced back to a
1929 Eighth Circuit case. Four considerations were listed in
Drexel v. Loomis for scrutinizing a compromise in bankruptcy:
“(a) The probability of success in the litigation; (b) the
difficulties, if any, to be encountered in the matter of collection;
(c) the complexity of the litigation involved, and the expense,
inconvenience and delay necessarily attending it; (d) the
paramount interest of the creditors and a proper deference to
their reasonable views . . . .” 35 F.2d 800, 806 (8th Cir. 1929).
Moreover, there are many cases that have applied the
Drexel–TMT Trailer–Martin factors to settlements involving
claims against debtors. See, e.g., Ars Brook, LLC v. Jalbert (In
re ServiSense.com, Inc.), 382 F.3d 68, 70–72 (1st Cir. 2004);
Rivercity v. Herpel (In re Jackson Brewing Co.), 624 F.2d 599,
601–02 (5th Cir. 1980); Bache & Co. v. Loeffler (In re Equity
Funding Corp. of Am.), 519 F.2d 1274, 1275, 1277 (9th Cir.
1975); Am. W. Airlines, Inc. v. City of Phoenix (In re Am. W.
Airlines, Inc.), 214 B.R. 382, 384, 386 (Bankr. D. Ariz. 1997);
10
Tindall v. Mavrode (In re Mavrode), 205 B.R. 716, 719, 721
(Bankr. D.N.J. 1997); Jacobson v. Robert Speece Props., Inc.
(In re Speece), 159 B.R. 314, 316–17 (Bankr. E.D. Cal. 1993).
2. Should the settlement have been approved?
Even applying Martin, Northwestern challenges the
outcome reached by the District Court. The Court used the “fair
and equitable” rubric as well as the Martin factors to approve
the settlement. We examine its findings for an abuse of
discretion, at root a deferential standard of review. We do not
“disturb an exercise of discretion unless there is a definite and
firm conviction that the court . . . committed a clear error of
judgment in the conclusion it reached upon a weighing of the
relevant factors.” In re Orthopedic Bone Screw Prods. Liab.
Litig., 246 F.3d 315, 320 (3d Cir. 2001) (internal quotation
marks omitted). Put another way, for us to find an abuse of
discretion the District Court’s decision must rest on “a clearly
erroneous finding of fact, an errant conclusion of law or an
improper application of law to fact.” Id. (internal quotation
marks omitted).
i. Was the settlement fair and equitable?
TMT Trailer held that compromises must be “‘fair and
equitable,’” just as do the “other aspects of reorganizations.”
390 U.S. at 424. Under the “fair and equitable” standard, we
look to the fairness of the settlement to other persons, i.e., the
11
parties who did not settle. See, e.g., id. at 435; Feld v. Zale
Corp. (In re Zale Corp.), 62 F.3d 746, 754 (5th Cir. 1995).
Although Nutraquest points out that Northwestern was the only
creditor to object to this settlement, this is merely “noteworthy,
albeit not conclusive.” Rivercity, 624 F.2d at 605; see also In re
Boston & Providence R.R. Corp., 673 F.2d 11, 13 (1st Cir.
1982) (per curiam) (“[T]he court must act independently, out of
its own initiative, for the benefit of all creditors. This obligation
prevails even where the creditors are silent . . . .”).
The District Court found that the settlement was fair and
equitable for three reasons. First, Wheeler’s failure to file a
proof of claim against Nutraquest is irrelevant; that failure may
simply reflect Wheeler’s perceived weakness of his claims
against Nutraquest. Wheeler’s noncreditor status does not
negate the possibility that this settlement could have achieved
benefits for the bankruptcy estate. The $25,000 in cash and the
$25,000 unsecured claim are not per se unfair to Nutraquest’s
creditors.
Second, the Court found that Northwestern would not be
significantly prejudiced by the settlement because it would
retain all of its defenses in the Wheeler suit. Northwestern can
still argue proximate cause, it can still argue contributory
negligence, and it likely can get a setoff of at least $75,000 from
the settlement. Northwestern may be barred by statute from
seeking contribution, but that does not mean that it has lost the
Wheeler suit.
12
Third, the Court found that the settlement is not unfair
because that is not what affects Northwestern’s rights to
contribution. Its injury stems instead from the Illinois
Contribution Act, which post-settlement cuts off its contribution
rights. And this effect is only potential, because if Northwestern
loses the Wheeler suit for reasons unrelated to the ephedra issue,
it would have few (if any) contribution rights against the settling
defendants.
In this context, we cannot decide that the District Court
abused its discretion in finding the settlement “fair and
equitable.”
ii. Should the settlement have been approved under
the Martin factors?
The parties agree that the second factor (ease of
collection) is not relevant here, so we only discuss three of the
four Martin factors.
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
13
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).
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 (“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.
14
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
f a m i l y. T h e o n l y o t h e r c r e d i t o r s w e r e th e
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.
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
15
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
4
Northwestern also raises the issue that the payment of the
cash settlement by Nutraquest’s insurance company diminishes
the estate by reducing the pool of potential insurance proceeds.
Nutraquest’s right to its insurance-policy proceeds is property of
the estate under 11 U.S.C. § 541(a). Am. Bankers Ins. Co. of
Fla. v. Maness, 101 F.3d 358, 362 (4th Cir. 1996); St. Clare’s
Hosp. & Health Ctr. v. Ins. Co. of N. Am. (In re St. Clare’s
Hosp. & Health Ctr.), 934 F.2d 15, 18–19 (2d Cir. 1991);
Tringali v. Hathaway Mach. Co., Inc., 796 F.2d 553, 560 (1st
Cir. 1986); see also Blake Rohrbacher, Note, More Equal than
Others: Defending Property-Contract Parity in Bankruptcy, 114
Yale L.J. 1099, 1125 (2005).
The exception to this general rule arises when the debtor
does not own the insurance proceeds, but just owns the policy.
For example, when the debtor was a corporation, but the liability
policy insured only the corporation’s directors and officers (and
would pay only to them), the liability proceeds were not property
of the bankruptcy estate. La. World Exposition, Inc. v. Fed. Ins.
Co. (In re La. World Exposition, Inc.), 832 F.2d 1391, 1399–401
(5th Cir. 1987). This exception does not fit our case, in which
the insurance policy and any proceeds from it both belong to
16
B. The District Court’s good-faith determination
under Illinois law
The Illinois Contribution Act provides that tortfeasors
who settle claims with the plaintiffs are “discharged from all
liability for any contribution to any other tortfeasor.” 740 Ill.
Comp. Stat. 100/2(d). The only statutory requirement for this
discharge is that the release in the settlement be “given in good
faith.” Id. 100/2(c); Johnson v. United Airlines, 784 N.E.2d
812, 818 (Ill. 2003).
The Illinois Supreme Court’s Johnson decision provides
guidance for this good-faith determination. A settlement is not
in good faith if the settling parties “engaged in wrongful
conduct, collusion, or fraud.” Id. at 821. There is no evidence
of that in this case. A settlement cannot “satisfy the good-faith
requirement if it . . . is inconsistent with the policies underlying
Nutraquest. The District Court was therefore incorrect when it
suggested that the estate was not diminished at all by the
settlement.
But this does not undercut the District Court’s larger
point that “Nutraquest avoids the significant expense and delay
inevitably involved in litigating this action,” and the further
point that “[b]y settling, Nutraquest can focus its resources
towards resolution of the remaining claims and efficient
administration of the estate.” In re Nutraquest, Inc., mem. op.
at 7.
17
the Act.” Id. The test of good faith is “a matter left to the
discretion of the trial court based upon the court’s consideration
of the totality of the circumstances.” Id. As noted already, we
thus review the District Court’s determination for an abuse of
discretion. Id. at 821–22.
1. Was the settlement consistent with the policies
underlying the Illinois Contribution Act?
We first must decide whether the settlement is
inconsistent with the policies underlying the Illinois
Contribution Act. The policies promoted by the Act are
twofold: it favors both settlement and the “equitable
apportionment of damages among tortfeasors.” Bowers v.
Murphy & Miller, Inc., 650 N.E.2d 608, 611 (Ill. App. Ct.
1995), cited in Johnson, 784 N.E.2d at 820. A settlement
agreement cannot be inconsistent with either of these two
policies. Johnson, 784 N.E.2d at 821.
Northwestern maintains that the District Court failed to
consider whether the settlement contravened the Act’s policy
goal of equitable apportionment of liability. We conclude that
the Court did not abuse its discretion, as its discussion meets the
requirement to consider the Act’s policies.
The Court did examine the fair shares of the settling
defendants. Finding these within the range of reasonableness,
it was able to determine that the settling defendants were not
18
dumping a “large and inequitable portion” of their liability onto
Northwestern’s shoulders. Because the Court did not find a
violation of the Act’s policies (which include the policy favoring
settlement), it did not have to make detailed findings about how
much liability was being shifted to Northwestern to find good
faith. Moreover, courts are not required to “rule on the relative
liabilities of the parties before making a good-faith
determination.” Id. at 824.
2. Was the settlement made in good faith?
The District Court found that the settlement was made in
good faith. Northwestern disputes this finding with two
arguments. First, the settlement shifted an inequitable share of
liability to Northwestern. Second, the settlement was motivated
by a desire to impede Northwestern’s contribution claims.
Northwestern claims that the settlement amount is not
commensurate with the settling defendants’ liability. It
characterizes the $75,000-plus settlement consideration as
nominal. But Wheeler found so little value in his claims against
the settling defendants that he dismissed them. The low
settlement amount simply reflects his valuation of the claims.
Northwestern continues to press its claims that Wheeler died
from the ingestion of ephedra, but if it is correct, it will win at
trial under proximate causation or contributory negligence.
As previously pointed out, Northwestern finds alarming
19
the difference between the $75,000 cash settlement and the
millions claimed by Wheeler. But Illinois courts have dismissed
similar arguments. See, e.g., Wreglesworth v. Arctco, Inc., 740
N.E.2d 444, 455–56 (Ill. App. Ct. 2000) (noting that, because
the settling defendant “owed no duty,” zero would have been
reasonable, so the $5,000 settlement payment did not suggest
bad faith); cf. Alvarez v. Fred Hintze Constr., 617 N.E.2d 821,
824–25 (Ill. App. Ct. 1993) (holding that a settlement is not
unreasonable just because “the plaintiff’s actual damages exceed
the amount of the settlement” when the claim was for over $1
million and the settlement was for $400,000). In Johnson itself,
the defendant city claimed absolute immunity from tort liability,
and at the time the plaintiffs settled with the city—for $1,000
per plaintiff—they had not directly sued the city. 784 N.E.2d at
823. The Court found the nominal settlement sound given the
relative weakness of the claims, as shown by plaintiffs’ well-
researched decision not to sue the city. Id. The District Court
here did a similar analysis, basing the reasonableness of the
settlement amount in part on Wheeler’s initial decision not to
sue the settling defendants. While the Court’s analysis arguably
could have been more probing, the counter-argument is to ask
why the need where the answer appeared so intuitive. No matter
what, the Court’s determination was not an abuse of discretion.
Northwestern disputes the District Court’s good-faith
determination for two additional reasons. First, Northwestern
argues that the settlement was simply a tactical attempt to get the
case remanded back to Illinois state court. The Johnson Court
20
dismissed the argument that motivations of “matters of venue”
alone constituted bad faith and noted that the forum benefits of
a settlement “f[ell] short of being evidence of collusion or
wrongdoing.” Id. at 823–24. That Court simply held it to be
“one factor in the totality of the circumstances” in the good-faith
determination. Id. at 824. This is undoubtedly correct.
Second, Northwestern argues that, because Wheeler had
no claims against the settling defendants when the settlement
was approved due to the purported expiration of the statute of
limitations, the only purpose of the settlement could have been
to block its contribution claims against Nutraquest. But as of
the date Wheeler agreed to settle with Nutraquest pending Court
approval, he could have reasserted his claims against the settling
defendants. He did not, perhaps simply motivated to dispense
with the claims for good. Conjecture aside, the Court found
“nothing in the record to suggest that the settlement was
motivated by a desire to frustrate Northwestern’s contribution
claims.” In re Nutraquest, mem. op. at 12. Moreover, avoiding
contribution is not per se evidence of bad faith, Alvarez, 617
N.E.2d at 824, so long as the settlement is not “grossly
disproportionate” to the settling defendant’s relative liability,
Associated Aviation Underwriters, Inc. v. Aon Corp., 800
N.E.2d 424, 435 (Ill. App. Ct. 2003). Here we have already
determined that the settlement was not grossly disproportionate
21
to Wheeler’s claims against Nutraquest.5
In this context, finding good faith appears the only
sensible course under the circumstances presented. The only
abuse of discretion would be to conclude otherwise.
V. Conclusion
The District Court properly applied the correct factors in
deciding whether to approve this settlement. It also did not
abuse its discretion in approving the settlement under federal
bankruptcy law or under Illinois law.
5
Northwestern argues that, because the District Court did not
apportion the settlement amount between Wheeler’s wrongful-
death and survival claims, the Court abused its discretion. The
requirement that courts consider the settlement allocation within
the good-faith determination applies when the settlement
agreement itself allocates the settlement amount among the
various claims. Readel v. Towne, 706 N.E.2d 99, 101–02 (Ill.
App. Ct. 1999). In this case, the settlement agreement made no
such allocation. Illinois law does not require settlements to
apportion the settlement amount; in that context, the burden
simply shifts to the plaintiff to prove in a later proceeding which
portion of the settlement should be set off against later awards.
Patton v. Carbondale Clinic, S.C., 641 N.E.2d 427, 433 (Ill.
1994).
22