Litigation Risk Analysis Supports Trustee's Settlement
IN RE: FORT WAYNE TELSAT, INC. (November 23, 2011)
Indiana University held an FCC license that allowed it to broadcast educational materials on specified frequencies. Afraid that it might lose its license for non-use, the University agreed to transfer it to the Fort Wayne Public Broadcasting Service. In turn, the Service agreed to lease part of the license to Fort Wayne Telsat, a local television broadcaster. Unfortunately, after Telsat spent $350,000 modifying some of its equipment in anticipation of acquiring the license lease, it ended up in bankruptcy. The trustee filed a promissory estoppel claim against the University, which the parties agreed to settle for $100,000. JAS Partners, the debtor's principal unsecured creditor, opposed the settlement. It contended that the trustee should have gone after the license itself, which it valued at over $4 million. The bankruptcy judge concluded that the trustee had acted prudently. Judge Springmann (N.D. Ind.) agreed. Partners appeals.
In their opinion, Seventh Circuit Judges Bauer, Posner, and Wood affirmed. The Court engaged in a relatively straightforward litigation risk analysis. It identified the various legal theories and some of the evidence in support of and in opposition to them. It identified the potential value of the license, which it concluded was only approximately $600,000. Finally, it considered the litigation cost to obtain the license. In the end, the Court concluded that the trustee had, at best, a 50% likelihood of obtaining the $600,000, resulting in a gross expected gain of $300,000. Considering the likely litigation cost, the Court concluded that the trustee acted reasonably in settling for $100,000.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select