Police Abuse Claims and Municipal Bankruptcy — A New Report (Part 1 of 3)

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11 U.S.C. Sec. 109(c) — Chapter 9 Eligibility

By Donald L. Swanson

Detroit’s mediated settlements are “an extraordinary accomplishment in bankruptcy and an ideal model for future municipal debt restructurings.

–Judge Steven W. Rhodes, from Detroit Bankruptcy’s Plan Confirmation Ruling

A new report

Who Pays for Police Misconduct in Bankrupt Cities” is the title for the report of a study, published on August 21, 2016.  The report is most helpful–and well worth reading in its entirety!

Here’s how the report begins:

“In March 2015, the United States Department of Justice released a report finding racial bias and discrimination pervading police and court practices in Ferguson Missouri. When asked to comment shortly thereafter, Ferguson’s mayor suggested that an unduly aggressive stance by DOJ could push Ferguson into bankruptcy.”

Given the developing role of mediation in resolving municipal bankruptcy cases, this report warrants our consideration.

Who pays the misconduct claims?

Here is empirical information cited in the report:

“[A] recent empirical study . . . found that governments, rather than individuals, pay the vast majority of § 1983 judgments—even in the absence of an indemnification mandate. In large departments, officers contributed to the settlements or judgments in only .41% of the actions. In small departments, officers did not contribute at all to settlements or judgment payments.”

Municipal bankruptcy eligibility

The report identifies and discusses a “conjunctive list” of the following statutory requirements (contained in 11 U.S.C. § 109(c)) for a city’s bankruptcy filing under Chapter 9 of the Bankruptcy Code:

1. The city must meet the definition of a “municipality” in 11 U.S.C. § 101(40).

[Editorial Comment. This item should not be a significant hurdle for a city.]

2. State law must authorize the city to file. The report says some states already authorize such action; while other states require more. There is, for example, “no express authorization in Illinois law for the City of Chicago to file.”

[Editorial Comment. A state statute where I reside, for example, says: “Any county, city . . . is hereby permitted, authorized, and given the power to file a petition . . . under 11 U.S.C. chapter 9.” Neb. Rev. Stat. § 13-402.]

3. The city must be insolvent, as defined in § 101(32)(c). The report says this requirement “is enforced quite rigorously” and “prevents a city in stable financial condition from filing for bankruptcy solely as leverage to manage one particular type of debt, such as civil rights liability.”

4. The city must be genuinely pursuing a plan confirmation, rather than merely seeking delay.

5. The city must have negotiated in good faith prior to bankruptcy (or meet an alternative requirement).

6. The bankruptcy Petition must be filed in good faith.

Debt restructuring and discharge

Regarding “debt restructuring and discharge,” the report provides the following information:

–“In a municipal bankruptcy, only the debtor can propose a plan to restructure debts, although it requires substantial creditor support, as well as compliance with a long list of statutory requirements; the list is conjunctive and thus all must be satisfied.”

–If a court confirms a municipality’s plan as adhering to all statutory requirements, “the debtor is discharged from all debts as of the time when the plan is confirmed.”

–“There is no explicit exception to discharge for civil rights debts in municipal bankruptcy.” Exception to discharge for “willful and malicious injury by the debtor to another entity or to the property of another entity” applies “only to individuals“ and not to entities.”

The article then cites and discusses various “key cases.” Here’s are two items on the City of Detroit case:

–“Detroit classified claims arising from § 1983 litigation as general unsecured claims and proposed . . . an estimated recovery of ten to thirteen cents on the dollar.” The Court approved this proposal.

–“Detroit’s restructuring plan also sought to release the individual capacity liability of . . . individual officers, to whom the city had indemnification obligations. The court . . . refused to approve this part of the plan.”

Conclusions

The report’s conclusion contains these four opinions:

First: “[K]ey details of the law remain unsettled.”

Second: “[T]here is case law support for the proposition that a discharge of debt in bankruptcy can include a release of a city’s liability stemming from police misconduct claims.”

Third: “Due to the other requirements associated with municipal bankruptcy, including the eligibility threshold and good faith, it is unlikely that a city could file for bankruptcy solely for the purpose of shedding liability associated with unconstitutional police practices.”

Fourth: “On the other hand, it is entirely possible that a city facing lawsuits for widespread police misconduct is also in dire straits financially and thus far more likely to be eligible for the extraordinary relief offered by the federal bankruptcy system.”

[Editorial Comment: Three of these four opinions appear to be well-supported. However, the “Third” conclusion is probably subject to significant exceptions.]

Note: The second article in this series will consider the “insolvency” element for Chapter 9 eligibility.  And the third article will consider “good faith” requirements and exceptions mentioned in the Editorial Comment immediately above.

ABI’s “Bankruptcy Mediation” Book: Evaluative Mediation (Part 1)

Bankruptcy Mediation-FINAL-SMBy: Donald L. Swanson 

When a mediating party and counsel say to the mediator:

Just give us your evaluation!

What they are actually saying is:

Just confirm that you agree with my side.”

Prof. Elayne E. Greenberg of St. John’s University School of Law 

This observation appears in the “Bankruptcy Mediation” book recently published by the American Bankruptcy Institute.

I laughed out loud upon reading this observation, because I’ve always sensed it to be true — but I’d never be able to articulate it.

I can think of a possible exception or two — maybe. But, otherwise, this observation is dead-on.

FullSizeRenderProf. Greenberg writes this observation in a chapter titled, “What They Really Want: Bringing Objective Evaluations into Mediation.”

Here’s a hypothetical she addresses:

“The mediation is at an impasse, and the parties turn to you, their esteemed mediator, to provide them with an evaluation.”
–“How flattering it is to have respected lawyers and experienced business people turn to you, their bankruptcy mediator, and ask your opinion of their case.”
–You may believe that your “well-reasoned analysis of the bankruptcy dispute at hand could resolve the matter.”
–“Besides, if parties are asking for an evaluation and you comply with that request, aren’t you just honoring party self-determination?”

Prof. Greenberg discusses rules of professional responsibility and practical considerations relating to this hypothetical.

She also talks about strategies for bringing evaluation into the mediation.

And her suggestions for dealing with “dueling experts” are most helpful!

Prof. Greenberg concludes her chapter with this thought on mediators dealing with evaluation requests:

“Now is your time to demonstrate the depth of your mediation skills and the anchoring of your ethics.”

I commend Prof. Greenberg’s chapter in this book to your consideration. It’s well worth the read!

The book can be ordered here.

Mandatory Mediation: A Remedy for Non-Cooperative Behavior?

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A failure to cooperate

By: Donald L. Swanson

Two local municipal authorities in Ohio are not cooperating.  So, a local judge orders them to mediate the dispute between them, according to this news report from The Athens Messenger.

The Facts

One municipality, a local school district, wants to connect a proposed wellness center into the sewer system of the local village.

The local village says it can’t allow the proposed sewer connection, unless the village is able to annex the proposed wellness center.

Apparently, the school district is opposed to annexation but wants the sewer connection anyway, so it sues the village to get its way.

The Court’s Ruling

The village files a motion to dismiss the school district’s lawsuit.

Judge Patrick Lang of the Athens County Common Pleas Court rules on the motion to dismiss in this fashion:

–The lawsuit “warrants dismissal”; but
–A mediator is appointed instead, with a requirement that the parties have at least one mediation session, to be scheduled as soon as possible; and
–The dismissal ruling is deferred to allow time for the parties to pursue a mediated settlement.

The Judge’s rationale for this ruling includes these factors:

–If a final judgment is made, the parties might appeal and continue the legal fight for a year or more.
–“The parties may wish to post-pone or alleviate the need for a final judgment by mediating or negotiating a solution to this dispute,” noting that there may be other plausible courses of action.
–The local school district and the village must “co-exist” in a small community.
–“If there is any consensus that a Wellness Center would benefit the community at large, perhaps the parties can investigate feasible methods for making the center a reality rather than litigating for months or years to come.”

These are wise judicial words and a wise course of action.

A Translation

Here’s a translation of how I read the Judge’s ruling:

“C’mon folks!
We all need to do what’s best for our small community.
Stop this ridiculous fighting and start doing what you are supposed to be doing!”

Good for the Judge!

Follow-Up

While the foregoing is a good try (and a commendable effort) by the Judge, fighters are gonna’ fight.

So . . . the legal fight between these small-community authorities continues, according to this news article dated July 4, 2016.

–The ordered mediation does not occur.

–Instead, the legal fight on the same issue has moved out of the court system and on to the Ohio EPA.

Go figure.

COMMENTS AND RESPONSES TO ARTICLE — LINKED IN  8-29 to Present

Mark B. Baer Mandatory “mediation” is required in California after someone files a Request for Order Regarding Child Custody and/or Visitation. It bears mentioning that 70% of those matters are resolved in that post-filing, “mediation, after the parties stated derogatory things against each other in their respective pleadings.

I propose that more such cases settle when attempted pre-filing and that they don’t unnecessarily further damage their ability to co-parent their children.

In other words, don’t poo poo mandatory mediation.

           Donald Swanson Thanks for your insights, Mark.

  • John (Norval) Settle I’ve participated in many “mandatory” mediations, including ones (a) where a judge has referred parties to a mandatory engagement with a mediator before continuing in court, and (b) where a boss has sent subordinates to mediation. Both have an overtone of coercion, I suppose, but once they’re in the room with me, in the vast majority of cases, we quickly get beyond that into discussing the drivers of the parties’ conflict and the magic of mediation takes over.

    Age E. (Aga) Smies Away from the Judge, possibly without their lawyers present, people may actually communicate and realize the potential savings. Of course, in family cases, the realization that they will remain parents no matter what may actually sink in.

    Gary Kettring In Florida, the parties are required to make an appearance at mediation. in court ordered cases. One can not be forced to mediate.
    Once the opening statement has been made by the mediator, the parties have fulfilled their obligation to make an appearance and can leave. At that point a court report of “no agreement ” is issue.
    No other comments are made or necessary.

    John Woodward It sounds to me, Gary Kettring, like the Florida system represents a triumph of form over substance. A formal appearance before a mediator with the pre-determined intention to leave immediately after the mediator’s opening statement is hardly an engagement with the process. Nor, I suggest, would it add anything to the litigation except an entirely unnecessary additional step so that the parties can pay lip service to “attempted” mediation.

    ELOM CHRISTIAN ALEKE ESQ Dear gentle men, needs a help, where can i study ” VICTIM OFFENDER MEDIATION as LLM research work?

    John (Norval) Settle But it can work, John Woodward. In Virginia, by law, a judge can order parties to a session with a mediator, to hear an explanation of mediation (not to mediate per se) — the parties can then CHOOSE to stay & try mediation or go back to court. Often,they choose to mediate — for all the good reasons we know and sometimes merely because “why not?” or they don’t want to annoy the judge. Some judges refer many cases, some a few, some rarely. But it is an opportunity.

    Amb.Lawrence Olufemi Obisakin, BA,BBA, MA,Ph.D Interesting developments. I know that generally, mediation is cheaper than litigation and it may also led to a more. Lasting solution.

    Lawrence Kolin In 15 years of mediating in FL, never had party walk after openings. I suppose our system has matured to point of parties engaging rather than resisting process– and foregoing advocacy for problem solving to fashion self-determined resolution with mediator’s help.

    Baltazar Ordonez One basic principle remains to be voluntary mediation. Coerce mediation may work well but at the end, agreements may never be as successful as when parties volunteer to engage in mediation. As example, in divorce cases mediation agreements are often broken when the parties are force to mediate. Perhaps in certain conflicts, coerced mediation may find a way to succeed but rough edges will persevere.

    Max Kimber SC We really need some good data on this important issue.Is there any?? I always like to know why a party says they do not want to mediate–and explore that first.It is particularly important if they say ” I want my day in court”–why is that??what if you don’t get what you want/need– eg vindication/revenge?Of course,the views of their lawyers(trusted advisors?) will often be critical to the outcome of this inquiry. know that Bill Hewlett–a very senior family law mediator, has been exploring the reasons why people say “I want my day in court”–and sees that family of origin issues loom large. I think that while it is true that you can lead a horse to water…I find that when the water is in sight and it is hot ,the prospect of a drink becomes more attractive–and it becomes voluntary PS:much better than a dry old argument in court!

    Donald Swanson The U.S. Sixth Circuit Court of Appeals has a mandatory mediation rule. Cases to be mediated are selected “at random” because they found that “cases that appeared to be amenable to mediation were not actually more likely to settle than any other case.” The Sixth Circuit’s mediation program “settles about 40% of appeals that participate in mediation.” This is according to an April 6, 2012 article on the Sixth Circuit Appellate Blog.

 

How Mediation Developed in Bankruptcy Court — A Local Example (Part 4)

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Front Door, Federal Courthouse in Omaha, Nebraska

By Donald L. Swanson

We’ve just finished adopting new local rules on mediation in Nebraska’s Bankruptcy Court, back in 1911.  And we are expecting that attorneys will promptly start utilizing these rules.  We are wrong.

An alleged Ponzi scheme case is going on when our rules are adopted, and the chapter 11 trustee files 117 transfer-avoidance actions. He agrees that a mandatory mediation system would be appropriate for those actions, so the system is established. All 117 actions settle. None are tried. But mediation sessions occur in only five of them.

Other than the Ponzi case, we see no mediation activity — nothing — for five months after adopting the rules. Meanwhile, the Mediation Committee is working hard at promoting bankruptcy mediation: writing articles, speaking at bankruptcy CLE events, chatting up mediations with colleagues, etc. Additionally, I’m watching activity in pending cases like a hawk. Every time a significant event occurs (e.g., a motion for summary judgment is denied), I shoot an email to the disputing attorneys suggesting, as chair of the Mediation Committee, that the dispute is ripe for mediation.

But nothing seems to work. On occasion, there is even a sense of hostility to a mediation suggestion. I do not understand the hostility, but here is a guess: Bankruptcy attorneys are good at settling disputes — that’s a huge part of being a successful bankruptcy attorney. So “We don’t need no stinking mediations” is how some of that initial hostility seemed.

Aside from the Ponzi case, the first mediation motion is filed five months after adoption of the rules. One party wants to mediate. The other doesn’t. The court denies the mediation motion and then appoints a trustee.

Aside from the Ponzi case, the first mediation session occurs seven months after adoption of the rules. The session does not succeed, and the case goes on through trial and appeal.

But, somewhere along the way, attitudes begin to change. I don’t know what it is, and I can’t put a finger on it. Perhaps it’s a result of promotional persistence over time. Or maybe a change is occurring in the legal community. But whatever its source, openness to mediation begins to appear. There is a dawning of a new day — the Age of Mediation Aquarius (or something like that). One of the initially hostile naysayers even suggests that a bankruptcy dispute be mediated. I declare victory (to myself).

Then, as luck would have it, the economy improves.

*** Note 1: this article was originally published by the American Bankruptcy Institute in its June 2015 edition of the Mediation Committee Newsletter (Vol. 2, Num 2). And it can also be found via web***

Note 2:  This article is the fourth of a four-part series on the history of mediation development in Omaha, Nebraska.  The first two parts discuss mediation developments in non-bankruptcy courts, and the last two parts discuss mediation developments in the Bankruptcy Court.

Click below to view the different Parts.

Part 1 , Part 2, Part 3.

Former Judge as Bankruptcy Mediator (IN RE SMITH, Part Three)

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By: Donald L. Swanson

This is the third-of-three articles on In re Smith, 524 B.R. 689 (Bkrtcy.S.D.Tex. 2015).

Sitting Judges as Mediators–for Comparison

I’ve published an earlier article on sitting bankruptcy judges as mediators in bankruptcy cases titled, “What’s the Fascination with Requesting an Unnamed ‘Sitting Bankruptcy Judge’ as Bankruptcy Mediator?

In response to that article, an attorney from New Jersey provides this comment / concern on sitting bankruptcy judges serving as bankruptcy mediators:

–[This subject] has been a source of much frustration for me and many other practitioners I know over the years as the situation has worsened (i.e., you see more and more sitting judges mediating). I think that the honest reason that parties ask for a sitting judge . . . is because there is the assumption that a sitting judge will be most likely to force a settlement . . . . In my experience, practitioners generally have expressed (privately) their concern about what the “mediator”/sitting judge will tell the judge that is overseeing the ch 11 cases if they are the holdouts and what that may mean as far as their treatment in both the ch 11 cases at issue and in future cases. It is for all of these reasons and many more that I think sitting judges should never be allowed to oversee mediations in their own districts (frankly, I think it should be generally frowned upon).

Former / Retired Judges as Mediators:

The Judge in the In re Smith case, weighs in on the subject–only this time involving a former / retired bankruptcy judge, who previously served alongside the presiding judge.

Here’s what the In re Smith Judge says about the matter:

–[T]he Court . . . noticed that the parties . . . had already scheduled mediation . . . with retired Bankruptcy Judge Leif Clark (ex-Judge Clark) to serve as the mediator.
–Here, for the reasons stated below, this Court finds that to prevent the abuse of–including the appearance of abuse of –selecting ex-bankruptcy judges as mediators, it is necessary to apply § 327(a) and Rule 2014(a).

The “Cronyism” Concern:

The Court rejects the proposed mediation retention for various reasons, including the following:

–Shortly after the modern U.S. bankruptcy system emerged with the Bankruptcy Act of 1898 (the Bankruptcy Act), the practice began to develop a reputation for incestuousness and cronyism. . . .

The practice was essentially controlled by “bankruptcy rings,” closely knit groups of professionals who would appoint each other for every role in a bankruptcy case. . . .

This insularity bred a perception of the bankruptcy practice as exploitative and unprincipled.

–The instant case provides a prime example of the risk and appearance of “cronyism.

The undersigned judge and ex-Judge Clark were long-time colleagues in the innermost circle of the bankruptcy profession. . . .

If the undersigned judge were to allow ex-Judge Clark’s employment without the protections of § 327(a) and related provisions, it would reopen the door–at least in appearance–to the cronyism that the Bankruptcy Reform Act was designed to prevent. . . .

In cowboy parlance, the process of selecting an ex-judge as a mediator must be “clean as a hound’s tooth.”

–The undersigned judge and ex-Judge Clark served on the bankruptcy bench in Texas for eight years until the latter’s retirement in late 2012.

Editorial Comments:

This Bankruptcy Judge in Texas is on record as being opposed to mediation in general.  And he is most-definitely opposed to mediation in this particular case.

But his anti-mediation bias seems to get the better of his rationale.  For example:

–Who is still citing “cronyism” problems that arose under the “Bankruptcy Act of 1898”?

That Act has been old-news for decades.

And no one is suggesting that the current bankruptcy system is plagued by the “cronyism” that this Judge so adamantly wants to protect us from.

–This proposed mediation is between two disputing parties: a bankruptcy trustee and a partnership.  And these two parties chose this mediator themselves, without the Court’s input.

It’s not like the Judge selected his former colleague as mediator and imposed him upon the parties: that might raise a “cronyism” concern–but that’s not what happened here.

The appointment of a sitting bankruptcy judge as mediator, and imposing that appointment upon non-consenting parties, may raise “cronyism” concerns.

But that’s not what happened here either.

Surely, former bankruptcy judges are entitled to make themselves available as mediators to whichever parties want to retain their services!

Question:

What does everyone think about this?

View previous articles IN RE SMITH: Part I and Part II .

 

We Need a Federal Bankruptcy Rule on Mediation

By: Donald L. Swanson

The time is here. We need a new mediation tool!

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A new tool is needed.

We need to include mediation — explicitly and by name — in the Federal Rules of Bankruptcy Procedure.

Mediation is already included in the Federal Rules of Civil Procedure for U.S. District Courts. And mediation has become a important tool for resolving civil lawsuits in U.S. District Courts throughout the land.

–Why should the Federal Rules of Bankruptcy Procedure be different?

U.S. District Court Rules

Mediation appears in Fed.R.Civ.P. 16(c)(2), for example, which provides:

–“At any pretrial conference, the court may consider and take appropriate action on . . . (I) settling the case and using special procedures to assist in resolving the dispute when authorized by statute or local rule.”

–And every U.S. District Court must have local mediation rules, due to the requirements of 28 U.S.C. Sec. 651.

Mediation also appears in Fed.R.Civ.P. 53, which authorizes the appointment of a mediator by U.S. District Courts as a “settlement master.” But Fed.R.Bankr.P. 9031 rejects Rule 53 special masters in bankruptcy.

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A new tool is needed.

So, it’s time to provide the U.S Bankruptcy Courts with the same type of Federal Rule authorization for mediation that Federal Rules already provide to the U.S. District Courts.

Preliminary Draft

Below is a preliminary draft (for discussion purposes only) of such a Rule. This draft provides for mediation authority, confidentiality and privilege. And it uses language from the model mediation rules prepared by the American Bankruptcy Institute.

Here’s the draft of a revised Fed.R.Bankr.P. 7016:

(a) Rule 16 Fed.R.Civ.P. applies in adversary proceedings.

(b) Mediation. Regarding sub-part (c)(2)(i) of Rule 16:

(1) The court may assign to mediation any dispute in a bankruptcy case; and the parties to any dispute may stipulate to mediation, subject to court approval.
(2) The mediator and the mediation participants are prohibited from divulging, outside of the mediation, any oral or written information disclosed by the mediation participants or by witnesses in the course of the mediation.
(3) The mediator shall not testify or be compelled to testify in regard to the mediation or the mediation communications in connection with any arbitral, judicial or other proceeding.

This Rule 7016(b) would need to be added to the Fed.R.Bankr.P. 9014(c) list of adversary proceeding rules that apply in contested matters.

There are probably a million better ways to write such a mediation rule. But the foregoing draft provides something to think about.

Adopting Local Mediation Rules

Then, each Bankruptcy Court can flesh-out details with its own local mediation rules. The ABI’s model mediation rules are available for this purpose.

–Including mediation in the Federal Rules of Bankruptcy Procedure will undoubtedly create a sense of urgency for all bankruptcy courts to adopt their own local mediation rules.

 

What do you think?

How Mediation Developed in Bankruptcy Court — A Local Example (Part 3)

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Federal Courthouse, Omaha, Nebraska

By Donald L. Swanson

It’s January 2011. I’m sitting in a conference room at the Federal Courthouse in Omaha (the building is new and beautiful; you should visit it sometime). It’s a “brown-bag luncheon” for the local bankruptcy bench and bar. We’re on the last agenda item (open forum), and the judge asks for input. Having recently completed a couple of state court meditations, I raise my hand and say, “What about using meditations in bankruptcy?” Next thing that happens: I’m chair of the Nebraska Bankruptcy Court Mediation Committee.

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Rotunda, Federal Courthouse in Omaha, Nebraska

How hard can this be? We gather together a blue-ribbon committee, including a couple of law school mediation professors, a clerk of court official, and a bunch of attorneys that span the business/consumer and debtor/creditor divides. Having model local rules to draw from would be to die for — but we don’t, so we poach from local rules in other jurisdictions and cobble together a respectable-looking set of local rules. And the local bankruptcy court promptly adopts them. Then we find trained mediators and create a list of highly qualified, court-approved mediators.

Then the hard part begins. It is assumed that “if we build it, they will come.” No such luck.

Part four will discuss difficulties in getting local attorneys to utilize the new mediation rules.

*** Note 1: this article was originally published by the American Bankruptcy Institute in its June 2015 edition of the Mediation Committee Newsletter (Vol. 2, Num 2). And it can also be found via web***

Note 2:  This article is the third of a four-part series on the history of mediation development in Omaha, Nebraska.  The first two parts discuss mediation developments in non-bankruptcy courts, and the last two parts discuss mediation developments in the Bankruptcy Court.

Are Mediators “Professionals” under § 327(a) (IN RE SMITH, Part Two)

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By: Donald L. Swanson

The first of my three articles on In re Smith, 524 B.R. 689 (Bkrtcy.S.D.Tex. 2015), quotes the Judge’s arguments for opposing mediation. Some of those arguments seem off-base, as I noted in Part 1.

Mediator as Professional

However, the Judge addresses another issue in that case on which his ruling is more main-steam.  He rules that a mediator is a “professional person” under § 327(a) and Rule 2014(a), whose employment must be approved by the Court before being paid by the bankruptcy estate.

Here’s what the Judge says on this mediator-as-a-professional issue:

–This Court prohibited the parties from going forward with their scheduled mediation because the Trustee failed to obtain prior approval to retain ex-Judge Clark as a mediator pursuant to 11 U.S.C. § 327(a).

–Commentators are divided on whether mediators are “professional persons” governed by § 327(a) and Rule 2014(a).

–[T]his Court concludes that mediators should be governed by the provisions of the Code and Rules regulating employment of professional persons. Mediators dealing with disputes in bankruptcy are professionals in the ordinary sense of the word, as they are usually attorneys with a highly specialized skill set.

Such statements are well-within the mainstream of judicial reasoning.

Mediation is Bad

But then, the Judge gets back on his mediation-is-bad kick and goes overboard on the “professional” issue as follows:

The primary purpose of § 327(a) is to ” contain the estate’s expenses and avoid intervention by unnecessary participants.” . . .

The attorneys of record in this dispute–Hoeffner, Lemmon, and Wentworth–are seasoned trial lawyers with substantial experience in bankruptcy, each of whom has been practicing for more than 25 years.

They are also first-rate counselors at law who have the courage and temperament to look their respective clients in the eye and tell them the risks of losing at trial, the risks of losing on appeal, and whether settlement offers on the table fall within the range of reasonableness given the risks of continuing to litigate. They are equally capable of devising and recommending settlement and counter-settlement offers to their clients.

Finally, Hoeffner, Lemmon, and Wentworth are consummate professionals who have been on excellent speaking terms with one another as lawyers. Indeed, throughout this Chapter 7 case, they have been models of how to be warriors in the courtroom zealously representing their clients, but nevertheless being polite and professional.

Under these circumstances, this Court sees no reason why the Trustee should use estate funds to pay a mediator–as well as his counsel to participate in that mediation–when the lawyers involved in this dispute have the negotiating skills, brainpower, and demeanor that Hoeffner, Lemmon, and Wentworth in fact possess.

Rather, it makes more economic sense for these three lawyers to continue communicating with each other without any mediator.

Editorial Comments

Seriously?!

Over the past four decades, mediation has become a primary tool for resolving civil cases in state and federal courts throughout the land.  The use of mediation expanded rapidly and dramatically in recent times for one reason: because mediation works.

Somewhere and somehow, this judge got an anti-mediation burr under his saddle.  He’s trying to keep the bankruptcy world safe from mediation.  And he won’t let it go.

 

 

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How Mediation Developed — A Local Example (Part 2)

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Douglas County Courthouse, Omaha, Nebraska

By: Donald L. Swanson

Michael Mullin is an Omaha attorney.  He is a mediator and has been mediating lawsuits for many years. Mike mediates cases all-day, every-day — literally: including Saturday’s, Sunday’s and holidays, as needed.

Mike became active as a mediator when mediation began taking hold in the Omaha area back in the mid-1990’s.

Mike explains how mediation developed from non-use to common use  as follows:

Initially, “there was some reluctance by attorneys on both sides of the bar to the concept of mediation.” But both sides soon realize they have “strong incentives to mediate their disputes.”

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Michael Mullin, Mediator

In the early- to mid- 1990s, Mike served on a committee that drafted proposed local rules giving the local state court judges “authority to order cases to mediation.”

The Plaintiff’s Bar

Initially, the plaintiff’s bar “emphatically opposed” the rule but then changed their position as they realized that mediation “is the best thing to happen” for them.  Here are some of those best things:

–“getting files closed more quickly, with less expense, and with greater client satisfaction”;

–quickly settling a new case “for 70% to 90% of full value, without risking a defense verdict or lowball verdict”;

–having happy clients: “it is a rare plaintiff who wants to go through the discovery process, a trial, and then a possible if not probable appeal prior to knowing whether they would recover anything on their claim”; and

–reducing substantially “the risk of a malpractice action by a dissatisfied plaintiff.”

The Defense Bar

Insurance companies are “notoriously” opposed to paying legal fees. Prior to the rise of mediation, they and their corporate defendant counterparts “had no choice but to hire the best (and frequently the most expensive) defense attorneys” to defend the suits against them. But “once mediation became available, insurers and corporate defendants saw the opportunity to save on legal fees, cap their exposures, and get files closed.” As a result, “almost all files involving insurance defense claims end up being mediated, and very few get to trial.”

Conclusion

In short, “every player and decision-maker in civil litigation benefits from the mediation process.”

So, the result for civil litigation in the Omaha area has been a progression from little-to-no mediation in the early 1990s to mediation serving a major today

What are the odds something like this could happen in bankruptcy?

 

 

 

 

Bankruptcy Mediation? “Over My Dead Body,” Says a Bankruptcy Judge (IN RE SMITH, Part One)

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By Donald L. Swanson

Not everyone is a fan of mediation. And one Texas Bankruptcy Judge is emphatically opposed.

Judicial Actions

Here is an unofficial transcription (from the official recording) of an in-court exchange occurring on September 3, 2014, as reported on this webpage:

“The Court: . . . Is the Trustee eventually going to be using estate funds to pay the mediator?

Male Speaker: I think that’s what we had envisioned.

The Court: Over my dead body. I do not like mediation. I think it is wasteful for the most part and you all needed to get my permission.

As to possibilities for compensating  the Trustee’s efforts in mediation, the Judge says:

Ain’t gonna happen. Don’t you ever do that again.”

The Judge explains:

I think for the most part mediation is a waste of time and money. You all are grown up big boy attorneys. You can talk settlement. You’ve been talking settlement And I’m not going to allow more money to go to a mediator. Either you settle it or you don’t. But don’t ever do that again. . . .

I think mediation is undercutting the jury trial system in this country and I think it is making lawyers lazy and judges lazy and I also think it’s excess costs to pay for a mediator. . . . And I think it is rare that I allow people to go to mediate so don’t do it ever again.”

Judicial Opinion

The Judge in this case also issues a written opinion on the matter (In re Smith, 524 B.R. 689 (Bkry.S.D.Tex. 2015)).  In this opinion, the Judge explains the concerns he holds about mediation, including these:

“Mediation is not free. The parties must pay not only the mediator, but also their respective counsel”

“Some clients do not want to be forced into mediation; rather, they simply want their day in court because they want vindication from a judge that their actions were legal, or at least not illegal.”

“Fear of trial by the attorney is another factor . . . Some attorneys who are not experienced in actually trying disputes in the courtroom push their clients into mediation by explicitly — and incorrectly — telling them that the judge insists that the parties undergo mediation or that the local rules require mediation.”

“Another factor to consider is whether the attorneys for the parties are able to communicate with each other as well as with their own clients.”

“The final factor to consider is the importance of having a hearing (or trial) so that one party will win and the other will lose. The losing party, by learning a hard lesson in the courtroom — including how unpleasant it can be to undergo cross-examination by opposing counsel — may stop behaving in the manner that created the dispute in the first place. However, if that same party does not lose in the courtroom, but rather settles at a mediation (without the embarrassment and sting that can come with a courtroom loss), the party is more likely to continue the same behavior and foment future disputes similar to the one that has settled in mediation. Thus, in certain instances, it is appropriate for a court to deny mediation in the interest of pushing a ‘winner take all’ scenario.”

So . . . there you have it.

Editorial Comments

I’m going out on a limb here:  I think the foregoing judicial actions and rationale are faulty — and more-than-a-little bizarre!

For starters, what’s with an “undercutting the jury trial system” rationale from a bankruptcy judge?   Jury trials are exceedingly rare in bankruptcy courts.

And the Judge’s “final factor to consider” is disturbing.

A function and purpose of a bankruptcy trial is to teach “a hard lesson” to bad actors through an “embarrassment and sting”?!

–Such a stereotype might have validity in a criminal case where the defendant actually committed a crime (yet, plea bargains are common in the criminal world).

–But in the bankruptcy world, this stereotype is downright awful!!  It’s an affront to all those innocents who get dragged into a difficult situation against their will.

–What about, for example, preference defendants who did nothing wrong?

–What about lien priority disputes over technical filing and notice rules?  Improprieties are nowhere involved.

–Or what about an injured party who wants a settlement as quickly and efficiently as possible and has no interest in teaching any kind of lesson to anyone?

–And whatever happened to the interests of judicial economy?  Trials are expensive.

Scheesh!!  I get irritated all-over-again every time I re-read that “final factor.”  . . . Which means it’s probably time for me to stop typing.