“Public Rights” Doctrine for Bankruptcy Court Jurisdiction, While Always Tenuous, Is Now Dead and Buried

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RIP: “Public Rights” doctrine for bankruptcy court jurisdiction  (Photo by Marilyn Swanson)

By Donald L. Swanson

“Public rights” doctrine enters the bankruptcy scene thirty five years ago in the four-Justice plurality opinion of Northern Pipeline v. Marathon Pipe Line, 458 U.S. 50 (1982). Three Justices in that case write an vigorous dissent to such a use of public rights doctrine, while two other Justices concur with the plurality on only a narrow result.

Northern Pipeline Facts

Congress adopts a new Bankruptcy Code in 1978.

Northern Pipeline files Chapter 11 in January of 1980 under the new Bankruptcy Code and then sues Marathon Pipe Line in bankruptcy court for breaches of contract and warranty and for misrepresentation, coercion, and duress. Marathon has no other connection to the bankruptcy case.

Northern Pipeline Ruling

The U.S. Supreme Court, in its 1982 Northern Pipeline ruling, appears to adopt public rights doctrine as the basis for bankruptcy court jurisdiction, and a four-Justice plurality declares the new Bankruptcy Code unconstitutional in its entirety.  The combination of concurring and dissenting opinions, however, limits the extent of unconstitutionality to a narrow issue of jurisdiction.

A Dissenting View that Foreshadows Today’s Law

Chief Justice Burger foreshadows, in a separate dissenting opinion, what has become the actual state of today’s bankruptcy jurisdiction law. The Northern Pipeline plurality ruling is limited, says the Chief Justice back then, to these propositions:

–A “‘traditional’ state common law action” may be heard by a bankruptcy court upon “the consent of the litigants”;

–There is nothing “inherently unconstitutional about the new bankruptcy courts”;

–Bankruptcy courts may adjudicate all “claims ‘arising under’ or ‘arising in or related to cases under'” the Bankruptcy Code — with only limited exception; and

–The problems of the Northern Pipeline case can be resolved by “providing that ancillary common law actions . . . be routed to the United States district court of which the bankruptcy court is an adjunct.”

Basis for Public Rights Doctrine

The basis for the four-Justice plurality decision in Northern Pipeline, in its focus on “public rights,” is summarized by those Justices like this:

There are “three narrow situations” in which “the congressional assertion of a power to create legislative courts was consistent with” constitutional mandates of “separation of powers.” These three situations are, territorial courts, courts-martial, and cases involving “public rights.” And since bankruptcy courts are nothing like territorial courts or courts-martial, that leaves public rights as the only available basis for bankruptcy court jurisdiction.

Subsequent Developments

–Stern v. Marshall in 2011

In 2011, the Supreme Court, in Stern v. Marshall, issues a five-Justice majority opinion on bankruptcy court jurisdiction.  And the majority opinion is purportedly based on public rights doctrine.

Four Justices dissent in Stern v. Marshall, rejecting public rights doctrine and saying that the majority in Stern v. Marshall “overemphasizes the precedential effect of the plurality opinion in Northern Pipeline.”

Although Justice Scalia is part of the majority, he writes a concurring opinion expressing his belief that the majority opinion is not, truly, a public rights decision.  He stands alone in denouncing the majority opinion on these grounds:

“I count at least seven different reasons given in the Court’s opinion for concluding that an Article III judge was required to adjudicate this lawsuit,” all of which “have nothing to do with the text or tradition of Article III.”

–Wellness International v. Sharif in 2015

Fast-forward to the Supreme Court’s 2015 Wellness International v. Sharif opinion, in which three dissenting justices (including the now-deceased Justice Scalia) are holding on to the public rights doctrine.  They provide this public rights basis for their dissenting view:

–Congress may “confer power to decide federal cases and controversies” upon non-Article III judges in only “three narrow exceptions: territorial courts, courts martial, and disputes over ‘public rights'” (citing, “Northern Pipeline, 458 U. S., at 64–70 (plurality opinion)”).

Public rights doctrine receives no support or reliance from any other justice in Wellness International. The majority opinion, in fact, doesn’t even mention “public rights.” Accordingly, such doctrine is held (in Wellness International) by only three Justices as a basis for bankruptcy court jurisdiction.

Problems with Public Rights Doctrine

Problems with public rights doctrine are that it, (i) has never been well defined, and (ii) leads to confusion. These problems existed in 1982 and still exist today. Here are illustrations:

–“The distinction between public rights and private rights has not been definitively explained in our precedents. Nor is it necessary to do so in the present cases.” [From the 1982 four-Justice plurality opinion in Northern Pipeline.]

–The “contours of the ‘public rights’ doctrine have been the source of much confusion and controversy.” [From the 2015 dissent in Wellness International.]

Public Rights Doctrine is Dead and Buried

Public rights doctrine, as a basis for bankruptcy court jurisdiction, is now dead and buried. Here’s why.

1. The Chief Justice’s description-in-dissent, back in 1982, of bankruptcy court jurisdiction foreshadows where today’s Supreme Court majority lands in Wellness International v. Sharif, including constitutional authority for bankruptcy court adjudication by consent of the parties.

2. The majority opinion in Wellness International does not discuss public rights doctrine — doesn’t even mention it.

3. The three dissenting Justices in Wellness International:

a. Were all part of the five-Justice majority in Stern v. Marshall, and
b. Include the now-deceased Justice Scalia, who previously championed public rights doctrine for bankruptcy court jurisdiction — so they are now down to two and without the former champion.

[Note:  For a review of Justice Scalia’s position, over the years, as champion of public rights doctrine for bankruptcy court jurisdiction, see this article.]

4.  I doubt that Justice Scalia’s replacement, Justice Gorsuch, will champion (or even support) public rights doctrine. Here are two reasons why.

i)  On the U.S. Circuit Court of Appeals, Judge Gorsuch wrote this about public rights doctrine as a basis for bankruptcy court jurisdiction (from In re Renewable Energy Development Corp.):

–Public rights doctrine “has something of ‘a potluck quality’ to it.”
–The “boundary between private and public rights has proven anything but easy to draw and some say it’s become only more misshapen in recent years thanks to seesawing battles between competing structuralist and functionalist schools of thought.”
–The Supreme Court has acknowledged that its treatment of public rights doctrine “has not been entirely consistent.”
–“Bankruptcy courts bear the misfortune of possessing ideal terrain for testing the limits of public rights doctrine and they have provided the site for many such battles. . . . Even today, it’s pretty hard to say what the upshot is.”

ii)  In his early career, Neil Gorsuch clerked for Justice Byron White who, as a Supreme Court Judge, wrote a dissenting opinion in Northern Pipeline v. Marathon and fought pitched battles against using public rights doctrine as a basis for deciding bankruptcy issues.

Conclusion

Public rights doctrine for bankruptcy court jurisdiction had a less-than-majority beginning.  And it is now surpassed by the dissenting opinion of the Chief Justice back then that foreshadows today’s post-Wellness reality.

And public rights doctrine has the support, today, of only two Justices.

In other words, public rights doctrine as a basis for bankruptcy court jurisdiction is dead and buried. RIP.

 

Mediation Confidentiality: Mediator’s Information and Testimony

 

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Mediator Confidentiality is Nearly-Sacred

By Donald L. Swanson

The basic rule is this: the confidentiality of information held by a mediator is nearly-sacred.

The case is In re Anonymous, 283 F.3d 627 (4th Cir. 2002).

The question is whether a mediator may divulge, or be compelled to divulge, information from a mediation session.

An underlying lawsuit is settled in mediation.  And a dispute arises between the plaintiff and plaintiff’s attorney over reimbursement of expenses.

The dispute is referred to an arbitration panel, and one of the parties wants the mediator to provide documents and testify.  The other party objects.

A lengthy opinion on the matter addresses the question of what information a mediator may divulge – or be required to divulge.

The following is a summary of the findings, analysis and conclusion on this question in the opinion.

Practical Problem

If a mediator were to divulge confidential information, that would “encourage perceptions of bias in future mediation sessions involving comparable parties and issues” and might “encourage creative attorneys to attempt to use our court officers and mediation program as a discovery tool.”

If mediators “testify about their activities” or are required to produce their “notes or reports of their activities,” the evidence would undoubtedly favor or seem to favor one side or the other. The “inevitable result” would seriously impair or destroy “the usefulness of the mediation program in the settlement of future disputes.”

The following from a California case is quoted in the opinion:

“Good mediators are deeply committed to being and remaining neutral and nonjudgmental, and to building and preserving relationships with parties. To force them to give evidence that hurts someone from whom they actively solicited trust . . . rips the fabric of their work and can threaten their sense of the center of their professional integrity.”

Legal Standard

The following legal standard is announced in the In re Anonymous opinion for a court’s consent to a mediator’s disclosure of information:

“We will consent for the Circuit Mediator to disclose confidential information only where such disclosure is mandated by manifest injustice, is indispensable to resolution of an important subsequent dispute, and is not going to damage our mediation program.”

Applying the Standard

The In re Anonymous Court applies its legal standard as follows:

–“In this situation, [plaintiff’s former attorney] has failed to establish that the expense dispute is incapable of resolution absent the Circuit Mediator’s involvement.”

–Plaintiff “objects to the Circuit Mediator’s involvement,” contending that the Mediator “will be biased in her responses” to the former attorney’s inquiries.

–The mediation program “may be damaged when a party who has been assured of confidentiality subsequently faces a disclosure of confidential material by a mediator who is perceived, rightly or wrongly, as biased.”

–”This perception of bias is the type of damage against which our confidentiality rule, as applied to the Circuit Mediator, is attempting to protect.”

Conclusion

Accordingly, the Court reaches this final conclusion:

“We decline to consent for the Circuit Mediator to respond to the informal interrogatories . . . or to otherwise disclose confidential information in the expense dispute.”

What do you think about all this?

 

 

The Story of “The Last Bankrupt Hanged”

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London Tower and surrounding walls (Photo by Marilyn Swanson)

 

Hanging was a spectator sport in eighteenth-century England, and . . . the usual crowd turned out to watch [John Perrott] swing.  They came to see off not a murderer, rapist, or highwayman, but rather a bankrupt.”

E. Kadens, “The Last Bankrupt Hanged: Balancing Incentives in the Development of Bankruptcy Law,” 59 Duke L.J. 1229 (2010). All information and quotes herein are from this article.

–The Fateful Day

“Around eight o’clock in the morning on Wednesday, November 11, 1761, the condemned prisoner, John Perrott, was taken from his cell in London’s Newgate Prison. He spent some time praying with the prison chaplain and receiving the Sacrament; then his leg shackles were knocked off and his hands bound. At a quarter after ten, he appeared ‘pale and trembling’ in the prison yard.”

“A few minutes later the under sheriff came to transport Perrott to his execution. He was loaded onto a cart and carried the short distance to the scaffold erected at the ancient hanging place in West Smithfield. Once there, Perrott looked about anxiously, concerned to see his hearse. Reassured of its presence, he prayed fervently and at around eleven o’clock was ‘launched into eternity.’”

Professor Kadens

Professor Emily Kadens, in her article linked above, explores the historic role of punishment in compelling a bankrupt debtor’s cooperation and full disclosure of assets. In the article, Professor Kadens develops her original research into fascinating historical stories (like the one highlighted here) and creates a compelling argument about the role of punishment in bankruptcy.  Her article is a must-read!

John Perrott’s Story – As Told by Professor Kadens

John Perrott’s execution “captured the attention of the times” and became “so famous that a nineteenth-century editor of Blackstone’s Commentaries called Perrott the last bankrupt hanged.”  But he wasn’t.  “John Senior, a clothier from the village of Alverthope, outside Wakefield in Yorkshire,” in 1813 became the actual “last man hanged for fraudulent bankruptcy in England.”

Here are the facts of the John Perrot case – and how a bankrupt debtor goes about getting himself hanged for bankruptcy crimes in 1761.

–Background

John Perrott conducted business as a cloth merchant.

“Through 1758, Perrott had done business on a cash basis. In 1759, he suddenly began to buy on credit and in significantly larger quantities than before. But he had built a good reputation for honesty during the nearly thirteen years he had been trading for his own account, and his creditors let his debt mount.”

–Act of Bankruptcy

On January 17, 1760, John Perrott committed an act of bankruptcy: he “called his creditors together at the Half Moon Tavern in Cheapside, London to inform them that he could not pay his debts.”

Bankruptcy commissioners “found Perrott a bankrupt,” and he “surrendered himself as such.”  The commissioners “soon realized that a large sum of money was unaccounted for”: his books were in “total disorder,” his annual debt “suddenly and unaccountably increased from less than £300 in the years before 1758 to upwards of £27,000 in 1759,” and he had “begun to sell anonymously through a broker, Henry Thompson” — but neither Perrott nor Thompson “could produce records of these transactions.”

–Acts of Concealment

The commissioners also learned of “two potential acts of concealment”:

(i) “Perrott had his apprentice deliver a package to Thompson for safe keeping.” He told  Thompson “it contained personal papers unrelated to the bankruptcy,” but “two days before Thompson testified,” Perrott took the package back.  Perrott “later told the commissioners that the package contained ‘nothing but letters from the fair sex,’ which he had since destroyed.”

(ii) Patrick Donelly, a wigmaker, told the commission that “Perrott sent him two large boxes, claiming that the boxes contained his clothing and asking Donelly to hold onto them while he looked for lodging.”  Days later, “Perrott instructed Donelly to deliver the boxes” to “a house in the fashionable Queen Square” occupied by Mrs. Mary Anne Ferne, who acknowledged knowing Perrott “for about a year” but claimed she “had received no money, banknotes, or other effects from him.”

–Inadequate Explanation

Meanwhile, the commissioners could not account for “the whereabouts of £13,500,” which is “a very large sum” – “nearly twice the annual income of the highest paid barristers of the time.”  Here is Perrott’s explanation to the commissioners:

–he “lost about £2,000 on goods sold in the previous year”; and

–“for nine or ten years, I have, and am sorry to say it, been extremely extravagant, and spent large sums of money.”

The commissioners weren’t buying this explanation because, “Perrott had only been running up his credit for a year, and an amount like £13,500 was, they felt, too large to spend in so short a time, especially because Perrott claimed that he had never gambled and because his books showed him to be a man of frugal habits.”

–Commitment to Newgate Prison . . . and Back Again

“Exercising their statutory power, the commissioners had Perrott committed to Newgate Prison until he saw fit to provide a complete and reasonable account of the missing money.”

“After six weeks in Newgate,” Perrott “sent notice to the commissioners that he would answer their question.”  He then “presented the commissioners with an account” in “round numbers, totaling £15,030” for “such items as rent, food, clothing, travel expenses, wages, commissions paid to his agent, and sales losses,” including £920 for “Tavern expenses, coffee-house expenses, and places of diversion” and £5,500 for “Expenses attending the connection I had with the fair sex.”

He “submitted no evidence to support this accounting,” so the commissioners “sent him back” to Newgate Prison.

–A Servant as Witness

The commissioners “concluded that Perrott was engaged in some sort of fraud, but they lacked hard evidence.”  One witness, “a former maidservant of Mary Ann Ferne,” came forward “seeking the advertised reward of 20 percent of the bankrupt’s estate to anyone uncovering the missing assets.”  The only meaningful information she could provide is that, “before meeting Perrott, Ferne had been poor” but that “now she was flush with money.”

The servant “mentioned that Ferne had hidden a paper package” containing banknotes and “claimed that Perrott had instructed her that if anyone came to search the house, she should show them his rooms and not Ferne’s.”  But such testimony was “considered insufficient” for legal action.  So, a dividend was then paid to creditors “of five shillings on the pound.”

–Writs of Habeas Corpus

Perrott then “brought writs of habeas corpus in King’s Bench” arguing that he “should be released” from Newgate Prison because “he had answered the commissioners’ questions.”  The petition resulted in “an important opinion that established the right of commissioners to keep bankrupts imprisoned even after they had answered the commission’s questions”:  “Rex v. Perrott, heard on February 10, 1761.”

Perrott lost this case because “Perrott’s answer to the commissioners was ‘very insufficient and unsatisfactory’” and because “bankruptcy statutes gave the commissioners the general power to examine and imprison the bankrupt . . . until he made a full answer.”

–Another Examination . . . and Back to Newgage

Perrott then submitted to “yet another examination by the commissioners.”  This time he explained about “a certain Sarah Powel, ” on whom he spent “for the first five years of their relationship £400 or £500.”  Then during 1759 “he had lavished money upon her to the amount of £5,000.”

“The commissioners were still not convinced” because, Perrott (i) couldn’t “provide any details” about expenditures on Powel or “remember where she had lived,” (ii) said none of  the money he sent to Powel came from “(traceable) bank notes,” and (iii) “could provide no proof” of sending large sums of money to Powel.  The commissioners found, instead, that “Powel had complained to others of Perrott’s parsimony” and that Powel “was a prostitute.”

Perrott went back to Newgate, and “once again he brought a habeas corpus petition before King’s Bench.”    Perrott lost, again, and the court “remanded Perrott to Newgate without opinion.”

–A Lodger / Maid as Witness

Next, Perrott “filed suit in Common Pleas for false imprisonment against the commissioners.”  But that proceeding “was halted when the commissioners made a ‘fatal discovery.’”  A creditor “was walking in the garden of Lincoln’s Inn when he saw a dejected-looking woman leaning against the wall.  He approached this stranger and asked her what was the matter (or at least so the ‘remarkably provindential’ [sic] story goes).   She told him that she had been fired by a certain Mrs. Ferne.”  The creditor recognized the name and directed her to his attorney.  Then, “she deposed as follows”:

She lodged with Ferne when “Ferne had very little money.”  Two years later, Ferne asked her to become Ferne’s maid.  She then lived with and worked for Ferne “from March 5 to June 4, 1761.”  During that time, “she saw banknotes worth £4,000 in Ferne’s possession.”  Ferne told Harris that “when she had met Perrott she had no money at all,” that “all her fortune was owing” to Perrott, and that “if she had known that . . . Perrott was going to fail, she would have got all she could from him . . . that his creditors should not have had any thing.”

–A Search Warrant

The commissioners “issued a warrant for Ferne’s house and Perrott’s rooms at Newgate.” At Ferne’s house they found “halves of five banknotes, dated February or March 1761, amounting to £185,” and they found the “other half of four of the notes turned up tied in a rag at the bottom of Perrott’s trunk in Newgate, along with half of a note for £1,000.”  These notes were traced to “Martin Mathias, a solicitor.”

–Tracing Bank Notes

Mathias testified that “Ferne had hired him . . . to work on Perrott’s case” and “brought him thirteen banknotes,” all of which “had been cut in half and glued back together with wax.”  Mathias said he believed the money “belonged to Ferne, whom he understood to be a lady of high birth and means.”

Ferne told the commissioners that she “acquired the money for granting favors” to two elderly gentlemen: “one who wore ‘a blue coat, and a star upon his breast, and a cockade in his hat’ and the other, a man of seventy, who wore ‘a white coat, with a star on it, and a light blue garter.’” She didn’t know their names but contacted them, when she needed money, at “coffee houses they frequented, and they would give her cash or notes.”  The half-notes “ended up in Perrott’s trunk for safe keeping because, ‘her Maid-servant being apt to drink, she, [Ferne], apprehended if she and her servant should both happen to be in liquor together, there would be some danger of setting the house on fire.’”

The commissioners traced back “most of the thirteen original banknotes to merchants who had paid Perrott’s agent for cloth.”

–“The Game Was Up”

In September 1761, creditors “preferred a bill of indictment against Perrot at the London criminal court, the Old Bailey, for concealing his effects,” and “Perrott was tried on October 21, 1761.”  Trial “lasted six hours as the prosecution painstakingly explored the money trail.”  Perrott in defense “could only say that he had sent all the money he received from Thompson to his mistress, Sarah Powel,” and that “the half banknotes in his trunk were Ferne’s.” She asked Perrott to keep them. ”He agreed to do so” because:

“I thought I should be very ungrateful, if I did not; and the reason she gave me was, her house had been attempted to have been broke open twice; and for the favours she was pleased to compliment me with, she said she thought she had some little right so to do.”

Perrott lost in court . . . again.  But this time the loss is fatal: the sentence is death!

–No Gallows Confession

“The day before his execution,” two creditors visited Perrott in prison. “They found him remorseful and willing to answer questions.”  Assuring him of their forgiveness, “they asked where the money was.”  Here’s the response:

“[A]fter a deep pause, Perrott said, I have this day received the Holy Sacrament, and will answer no more questions.”

The creditors “went away empty-handed.”

–Accomplice Prosecuted

Several days after Perrott’s execution, “Ferne was taken into custody.”  She then turned over “the half of two Bank notes; the other moiety of which were sometime since found in the possession of Perrott in Newgate.”  Certain other notes “were artfully concealed behind the backboard of Perrott’s picture, which was in this Lady’s apartment.”

In April 1762, Perrott’s creditors “unanimously agreed to prosecute the Celebrated Lady who was party in concealing the Bank-notes, with the utmost rigour.”

Conclusion

Bankruptcy laws, including bankruptcy crimes and punishments, have come a long way since the bankrupt-hanging days of two and three centuries ago.  But the underlying issues, and human nature, are still about the same.

Check out Professor Kadens’s article linked above for much more.

Seven Findings about “Successful Mediation” — from a Study of Mediation in International Relations

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International mediation (photo by Marilyn Swanson)

By: Donald L Swanson

I recently stumbled upon a fascinating report of a study on issues and trends called “Successful Mediation in International Relations.”  This study looks at 79 international disputes (of which 44 are mediated) occurring during a 45 year period, between 1945 and 1989.  The study makes multiple findings about these mediation efforts.

Question: Do any of the finding in this study also apply to the mediation of disputes between private parties?

This article identifies seven findings in the study.  For each finding, the foregoing question needs to be asked.

Finding # 1:  Regime Types – Autocracies Fare Poorly in Mediation

“A traditional hypothesis . . . posits that those states which are more democratic or pluralistic are less prone to initiate violent interactions than their non-democratic counterparts.  . . .  however . . . democratic states are no less prone to conflict than any other type of regime, although they rarely fight among themselves.

“In those conflicts where one of the disputants was a multiparty state, the average probability of successfully mediation was 24% (i.e. above the overall average of 22%).  In the 34 mediation attempts involving two multi-party states, 35% were successful.  The corresponding figure for the 36 mediation attempts between one-party state dyads was only 6%.

Question: Does this finding apply to the mediation of disputes between private parties?

Finding # 2:  Relative Power – Unequal Power Fares Poorly in Mediation

“[T]he smaller the power differences between the adversaries, the greater the effectiveness of international mediation.  . . .  The idea that mediation is most effective in disputes involving adversaries with equal power receives strong support” from the data.

“[A] clear pattern emerged showing a high mediation impact (that is, abatement or settlement of a dispute) when power capabilities are evenly matched, and low to no impact when power disparity is high.”

“No mediation occurred in 48% of disputes between countries of unequal power . . . And in those disputes that were mediated between unequal states, only 6% were successful.  Where both parties were of roughly equal power, the probability of mediating successfully was over five times as great (32%).”

“We found the probability of successful mediation to be highest when the parties were not only equal in power, but were both relatively weak states.

Question: Does this finding apply to the mediation of disputes between private parties?

Finding # 3:  Previous Relations – Friends Mediate Better than Enemies

“[P]arties with a history of friendship or cooperation will also approach a present conflict more cooperatively.”

“Not surprisingly, it appears significantly easier to mediate between friends.  A mediator entering this type of dyad has almost twice the chance of success compared to any other mediation (46% as opposed to an average of 22% for all others).”

“Furthermore, though adversaries with a past history of more than one dispute receive most mediation attempts, they also demonstrate the lowest probability of success (16%).”

Question: Does this finding apply to the mediation of disputes between private parties?

Finding # 4:  Duration of the Dispute – Timing is Everything (But Difficult to Discern)

“To be effective, mediation must take place at the right moment.  . . .   There is, however, little agreement as to what constitutes, or how to recognize, such a moment.”

“Generally, the longer a dispute goes on, the less amenable it is to mediation; but there does seem to be a minimum amount of time necessary before mediation is successful.  In those disputes that have continued for more than 12 months when mediation occurs, the probability of success is only 19%.  But mediation attempts taking place one to three months into a dispute show a greater chance of success (37%) than those initiated when the conflict is less than one month old (23%).

Question: Does this finding apply to the mediation of disputes between private parties?

Finding # 5:  Number of Mediation Attempts – Less is More

“Our data indicate a slight increase in probability of successful mediation after one or two previous attempts (32%).  After this point, however, the probability of success begins a long decline.”

“A mediator entering a conflict after three or four previous attempts at mediation will have no better chance of mediating successfully than one who is the first to attempt mediation (the probability of success in both instances is 23%).”

“If seven or more attempts at mediation have preceded a mediator’s intervention, the probability of success is just 13%.  Even the most persistently mediated conflicts (i.e. with  or more mediation attempts) only achieve average success (22%).”

“Though there may be some cumulative effects of mediation, they only seem to occur very early on.  A conflict that has resisted a few attempts at mediation will probably also resist several subsequent attempts.”

Question: Does this finding apply to the mediation of disputes between private parties?

Finding # 6:  Intensity – Low is Better than High

“Mediation is more likely to be accepted and to be successful, in low intensity disputes.”

“As the number of fatalities in a dispute increases, the likelihood that mediation initiatives will prove successful suffers a corresponding decline.  Only 17% of mediation attempts have any degree of success in disputes of more than 1,000 fatalities, compared with 42% in disputes of 100-500 fatalities.”

“Protracted and intense international disputes, though they receive far more attempts at mediation than less severe disputes, are not particularly amenable to mediation.  Such disputes have to be managed in a different manner.”

Question: Does this finding apply to the mediation of disputes between private parties?

Finding # 7:  Issues – Territory and Security vs. Ideology, Honor and Existence

“Contrary to conventional wisdom, our data indicate that disputes involving territory or security are far more amenable to mediation than those over issues of ideology or independence.”

“When the issues are defined as honor, existence or ideology, the chances of successful mediation are reduced substantially.”

“The chances of successful mediation are enhanced considerably when security is the issue in dispute.”

For example, “the possibilities for successful mediation in cold war disputes are very low (only 1 out of 10 disputes in this category resulted in some success), but relatively high in non-ideological disputes (here mediation was effective in 13 out of 31 disputes).”

Question: Does this finding apply to the mediation of disputes between private parties?

 

 

 

Why Bankruptcy Judges Have a 14-Year Term, Instead of Life Tenure (From Justice White in Northern Pipeline v. Marathon)

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Specialization

By Donald L. Swanson

Have you ever wondered why Congress, when it adopted the Bankruptcy Code in 1978, limited the term of service for bankruptcy judges to fourteen years?

–This term limitation, established in 28 U.S.C. Sec. 157(a)(1), assures that bankruptcy judges are serving as Article I judges under the U.S. Constitution. Life tenure would have given them the same protections as Article III judges.

–Lifetime tenure would also have eliminated, in all probability, the limited-jurisdiction struggles that have enveloped bankruptcy courts and their appellate overseers for the past thirty five years (beginning with the Supreme Court’s 1982 Northern Pipeline decision).

I’ve often wondered why Congress did this: and have never received a satisfactory answer — until recently.

What happened recently is that I finally read (from beginning to end) all the plurality, concurring and dissenting opinions in the U.S. Supreme Court’s 1982 bankruptcy case of Northern Pipeline v. Marathon Pipe Line, 458 U.S. 50 (1982).

The four-Justice plurality opinion in Northern Pipeline declares the entire Bankruptcy Code unconstitutional. Fortunately, however, the combined effect of the five other Justices, who write concurring and dissenting opinions, limits the ultimate reach of Northern Pipeline to a narrow jurisdiction issue.

The dissenting opinion in Northern Pipeline, authored by Justice White (joined by Chief Justice Burger and Justice Powell), answers the why-no-lifetime-tenure question. Justice White’s answer escapes notice because it appears in the very-last paragraph of his dissenting opinion, which is the last of four lengthy opinions printed in the case.

Justice White puts the 14-year term limitation question this way:

–“The real question is not whether Congress was justified in establishing a specialized bankruptcy court.” Rather, the question is whether Congress “was justified in failing to create a specialized, Art. III bankruptcy court.”

He then expresses his own view of what Congress had in mind. His view focuses on the specialized nature of bankruptcy courts and the fluctuating nature of their workload, along with an evolution-not-revolution approach. Here’s what he writes.

Specialization

–The “very fact of extreme specialization may be enough, and certainly has been enough in the past, to justify the creation of a legislative court.”

–“Congress may legitimately consider the effect on the federal judiciary of the addition of several hundred specialized judges”:

(i) “We are, on the whole, a body of generalists”; and
(ii) “The addition of several hundred specialists may substantially change, whether for good or bad, the character of the federal bench.”

Fluctuating Workload

–Congress wanted to “maintain some flexibility” in “future responses to the general problem of bankruptcy.”

–“There is no question that the existence of several hundred bankruptcy judges with life tenure” would have “severely limited Congress’ future options” because:

(i) the “number of bankruptcies may fluctuate, producing a substantially reduced need for bankruptcy judges”; and
(ii) if specialized bankruptcy judges don’t serve in the “countless nonspecialized cases that come before” the district courts, Congress “would then face the prospect of large numbers of idle federal judges.”

[Editorial note: The reduced caseloads, reduced budgets and reduced staff that characterize today’s bankruptcy courts are “Exhibit A” for this “Congress’ future options” point.]

Evolution-Not-Revolution

–Congress “believed that the change [in 1978] from bankruptcy referees to Art. I judges was far less dramatic, and so less disruptive of the existing bankruptcy and constitutional court systems, than would be a change to Art. III judges.”

Conclusion

Justice White’s view on this point is very interesting, indeed!

How a Creative Mediation Program Turns a Problem into Success

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Creativity

By Donald L. Swanson

We, too, sympathize with the plight of the American farmer. Nevertheless, the solution proposed by the Ahlers majority is contrary to the Bankruptcy Code and a long line of case law.”

— U.S. Supreme Court in Norwest Bank Worthingtonb v. Ahlers, 485 U.S. 197, 209 (1988).

The Problem

The 1980s are a financial disaster for farmers. The 1980s Farm Crisis, as it is known in the Midwest, put many farmers out of business.

Many farmers file Chapter 11 back then. But most find little assistance in bankruptcy because of Chapter 11’s absolute priority rule. This rule prohibits confirmation of a debtor’s plan of reorganization unless the unsecured creditors, (i) are paid in full, or (ii) agree to something different. The Supreme Court quotation above is from a ruling that the absolute priority rule applies (and cannot be circumvented) in farm cases.

In 1986, during the heart of the Farm Crisis, Congress enacts a bankruptcy provision expressly for farmers: Chapter 12. This enactment is a godsend for many farmers and solves financial problems for many of them.

Additionally, many state legislatures in the Midwest enact farm mediation laws, which require mediation before a creditor can enforce a delinquent farm loan.

The Mediation Response in Minnesota

In 1986, the Minnesota legislature adopts its “Farmer-Lender Mediation Act,” which is mandatory in character.

–This Act specifies that a secured creditor may not enforce a claim against the farmer until ”a mediation notice . . . is served on the debtor and . . . the debtor and creditor have completed mediation.”

Early-and-Modest Success

A 1993 report on the effectiveness of the mandatory mediation Act in Minnesota says:

–54,828 people participate in mediations under this Act between 1986 and 1992;

–55.5% of mediation sessions result in an agreement between the farmer and the creditor;

–the “mandatory aspect” of the mediation requirement “encouraged many farmers to consider mediation who would not otherwise have done so”;

–there is “an overall high level of participants’ satisfaction with the process and its outcomes”; and

–mediations under this Act have been successful in “improving communications, keeping farmers in the community, and preventing serious personal crisis.”

Later-and-Greater Success

A 2015 Fiscal Year report on the effectiveness of Minnesota’s Farmer-Lender Mediation program shows significant improvement from the late-1980s / early-1990s experience. In 2015:

–2,472 mediation notices were sent by creditors

–1097 farm debtors requested mediation, of which 917 completed mediation

–The total amount of debt reported and addressed in the mediation sessions is “approximately $180.6M”

–97% of farm debtors who completed mediation reached a settlement with the creditor

Creativity

A critical-and-creative element for the effectiveness of Minnesota’s Farmer-Lender Mediation program is a pre-mediation orientation session in which the debtor meets with a financial analyst. The analyst assists the farmer in assembling, developing and evaluating information on the farmers financial circumstances in preparation for the mediation session. This is, obviously, a valuable service.

Conclusion

The Minnesota Farmer-Lender Mediation Act is a creative use of mediation services. It has served a valuable and successful role for farmers and lenders in Minnesota and is another demonstration of how a mediation process, when tailored to the needs-at-hand, is an effect dispute resolution tool—even in the most-difficult of circumstances.

Accordingly, everyone involved in mediation of all types should continually look for ways to adjust mediation services to address the unique characteristics of each dispute.

And when an entire class of disputants (e.g., farmers and creditors in this Minnesota example) can benefit from a creative mediation approach, then creativity should be pursued!!

Justice Gorsuch’s First Supreme Court Dissent is Scaliaesque on Statute Construction but Non-Scalia on Public Rights Doctrine (Perry v. Merit Systems)

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Illumination

By Donald L. Swanson

On June 23, 2017, Neil Gorsuch issues his first dissenting opinion as a Supreme Court Justice. The case is Perry v. Merit Systems Protection Board (Supreme Court Case No. 16-399). It’s about statutory procedures for litigating Federal employee claims.  The dissent by Justice Gorsuch illuminates a comparison of ideas with those of his predecessor, the now-deceased Justice Antonin Scalia.

Scaliaesque Moments – Statute Construction

There are certainly some Scaliaesque moments illuminated in Justice Gorsuch’s dissent. These are when Justice Gorsuch writes about applying statutes as written. Here are two examples from the Gorsuch dissent.

–“If a statute needs repair, there’s a constitutionally prescribed way to do it. It’s called legislation. To be sure, the demands of bicameralism and presentment are real and the process can be protracted. But the difficulty of making new laws isn’t some bug in the constitutional design: it’s the point of the design, the better to preserve liberty”; and

–“At the end of a long day, I just cannot find anything preventing us from applying the statute as written—or heard any good reason for deviating from its terms. Respectfully, Congress already wrote a perfectly good law. I would follow it.”

Non-Scalia Moments – Public Rights Doctrine

But we are beginning to see a gulf separating former-Justice Scalia and now-Justice Gorsuch on public rights doctrine.

Perry v. Merit Systems is a classic example of a public rights doctrine case: a suit against the Federal government based on rights created by Congress and decided by a non-Article III body with a deferential appellate review.  There is nothing controversial here.

Public rights doctrine, however, has a long history of hot-disputes in the bankruptcy context.

–A Scalia / Gorsuch Contrast

It’s difficult to imagine Justice Scalia allowing the Perry v. Merit Systems occasion to pass without at least mentioning public rights doctrine.  We’d expect Justice Scalia to write in such a case about public rights doctrine and explain how Perry’s claims fit nicely within its purview.

There is no such public rights reference from Justice Gorsuch in his Perry v. Merit Systems dissent.

–Scalia History on Public Rights Doctrine

Antonin Scalia became a Supreme Court Justice in 1986. So he missed the Supreme Court’s ruling in Northern Pipeline v. Marathon, 458 U.S. 50 (1982), where a four-Justice plurality nearly (but not quite) succeeded in declaring the entire Bankruptcy Code unconstitutional, based on distinctions between public rights and private rights (aka “public rights doctrine”).

After his appointment to the Supreme Court, Justice Scalia becomes the undisputed champion of public rights doctrine for bankruptcy issues.  Here are three examples of his position — and of its progressively-lesser levels of support as time goes along.

   1. In Granfinanciera v. Nordberg, 492 U.S. 33 (1989), Justice Scalia joins five other Justices in requiring jury trials for certain suits in bankruptcy, based on public rights doctrine.  Those five other Justices aren’t fond of the Bankruptcy Code: in footnote 16, for example, they (i) describe the Bankruptcy Code, enacted in 1978, as accomplishing “sweeping changes” and “radical reforms,” and (ii) accuse Congress of failing, in 1984 amendments, to consider constitutional implications of denying “the right to a jury trial in preference and fraudulent conveyance actions.”

Justice Scalia, in Granfinanciera, emphasizes a public rights doctrine element:

–“In my view a matter of ‘public rights,’ whose adjudication Congress may assign to tribunals lacking the essential characteristics of Article III courts, must at a minimum arise ‘between the government and others.'”

   2. In Stern v. Marshall, 564 U.S. 462 (2011), Justice Scalia joins the majority in limiting the authority of bankruptcy courts, based on public rights doctrine. Yet he chides them for a lack of purity on public rights:

“I adhere to my view . . . that—our contrary precedents notwithstanding—‘a matter of public rights . . . must at a minimum arise between the government and others.’”

“The sheer surfeit [i.e., excessive amount] of factors that the Court was required to consider in this case should arouse the suspicion that something is seriously amiss with our jurisprudence in this area.”

   3. In Wellness International v. Sharif (decided May 26, 2015), Justice Scalia is in the minority.  He joins a three-Justice dissent in declaring that an alter ego claim can be resolved by a bankruptcy court under the public rights doctrine.  In joining this dissent, Justice Scalia apparently abandons his former insistence that government-as-a-party is a “minimum” requirement of public rights doctrine.

–Gorsuch History on Public Rights Doctrine

Justice Gorsuch, on the other hand, is critical of public rights doctrine in bankruptcy contexts.

–Tenth Circuit Opinion

Here’s what Neil Gorsuch writes about public rights doctrine while serving as a Judge on the Tenth Circuit Court of Appeals (from In re Renewable Energy Development Corp., 792 F.3d 1274 (10th Cir. 2015)):

–Public rights doctrine “has something of ‘a potluck quality’ to it.”

–The “boundary between private and public rights has proven anything but easy to draw and some say it’s become only more misshapen in recent years thanks to seesawing battles between competing structuralist and functionalist schools of thought.”

–The Supreme Court has acknowledged that its treatment of public rights doctrine “has not been entirely consistent.”

–“Bankruptcy courts bear the misfortune of possessing ideal terrain for testing the limits of public rights doctrine and they have provided the site for many such battles. . . . Even today, it’s pretty hard to say what the upshot is.”

–Clerkship with Justice White

An interesting twist in the development of Neil Gorsuch’s view on public rights doctrine is this:

–At the beginning of his legal career, Neil Gorsuch served as judicial clerk for Byron White, right after White retired from the U.S. Supreme Court and sat by designation on the Tenth Circuit Court of Appeals.

–Notably, Justice White wrote the dissenting opinions in both Northern Pipeline v. Marathon and Granfinanciara v. Nordberg, where he fought pitched battles against “public rights” arguments made by plurality and majority opinions in those cases.

Conclusion

It seems clearly illuminated, at this early stage of Justice Gorsuch’s Supreme Court experience, that he will bear a close-resemblance to former Justice Scalia on statute construction issues but will break from Scalia on using public rights doctrine to resolve bankruptcy issues.

 

 

 

Appeals of Bankruptcy (and Other Business) Disputes Take Too Long — Mediation and Other Remedies

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This city wall remnant is useless with aging

By: Donald L. Swanson

Advertised Prices:

“Haircuts $10 (we add a 3% surcharge if you pay by credit card)”

“Sundaes $10 (with a $0.30 surcharge for credit card users)”

State Law Violation

The State of New York says these advertised prices violate New York General Business Law § 518, which provides:

“No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means.”

Anyone who violates this prohibition “shall be guilty of a misdemeanor punishable” by a fine “not to exceed” $500 or “imprisonment up to one year,” or “both.”

Supreme Court Ruling

In its March 29, 2017 ruling in Expressions Hair Design v. Schneiderman, Case No. 15-1391, the U.S. Supreme Court:

–determines that, “In regulating the communication of prices rather than prices themselves, § 518 regulates speech”; and

— remands the case to the Second Circuit Court of Appeals “to analyze § 518 as a speech regulation.”

A two-Justice concurring opinion adds that the true meaning of § 518 is unclear and should be certified to New York’s state appellate court for clarification: “§ 518 evades easy interpretation” and the Second Circuit “erred by not asking” the New York state appellate court “for a definitive interpretation of § 518.”

Case Timeline

Here’s a timeline of the progression of this case:

–June 4, 2013 – A Complaint is filed in the U.S. District Court.

–November 4, 2013 – Final Judgment is entered by the U.S. District Court, declaring that § 518 “violates the First Amendment.”

–December 2, 2013 – Final Judgment is appealed to the Second Circuit Court of Appeals.

–March 5, 2015 – Court of Appeals reverses the District Court, declaring that “§ 518 does not violate the First Amendment.”

–April 1, 2016 – First filing (a request for extension) is made with the U.S. Supreme Court.

–September 29, 2016 – Supreme Court grants Petition for a Writ of Certiorari.

–March 29, 2017 – Supreme Court issues its ruling and remands the case to the Second Circuit “for further proceedings consistent with this opinion.”

–June 6, 2016 – Second Circuit establishes July 13, 2017, as the “time for all parties to file their simultaneous letter briefs.”

So . . . this case has been wending its way through the Federal Courts for four years.  Three-and-a-half of those four years have been on appeal.  And the dispute is now back with the Circuit Court for another appellate round.  All this appellate activity is over a seemingly-minor question of how a merchant can post its prices.  Heck, by the time a final ruling is actually made on this dispute, we’ll probably have progressed to a cashless society – and the ruling won’t matter.

A Major Problem

This case illustrates a major problem for appeals of commercial disputes in general and of business bankruptcy disputes in particular.  They take too long!!

Every business bankruptcy case has two functions:  (1) maximizing the value of the business and its assets, and (2) deciding who gets the money.  Unless the maximizing value function is performed well in a particular case, you can forget about the distribution function.  And there is, typically, an overwhelming need for speed in efforts to maximize value.

And so, in an appeal of a business bankruptcy dispute, it’s a bad thing to hold up distributions while a dispute languishes on appeal.  But it’s a much worse thing when the issue languishing on appeal impairs or impedes the maximizing value function.

Moreover, bankruptcy cases, despite their need for speed, have an extra layer of appeals.  In a U.S. district court case, the appeal is a two-step process: appeal is taken, first, to the circuit court of appeals and goes from there to the U.S. Supreme Court.  A bankruptcy court appeal, however, must first go to the U.S. district court (or to the bankruptcy appellate panel), and then to the circuit court of appeals, and from there to the U.S. Supreme Court.  Accordingly, the appellate delays in bankruptcy cases (where the need for speed is paramount) can be maddeningly long.

Potential Remedies

It’s difficult to come up with appropriate remedies for this problem.  But here are a couple ideas:

–Expand the doctrine of equitable mootness, whenever value maximization would be impaired by delays on appeal; and

–Mandate mediation for every appeal of a bankruptcy dispute, with mediation to occur within 30 days after the notice of appeal is filed and while the briefing schedule progresses.  Circuit courts of appeals are already doing some mandatory mediation like this (and are achieving excellent results); such efforts should extend, for bankruptcy appeals, to the district courts and bankruptcy appellate panels as well.

Each of these two remedies would help address the delays-on-appeal problem.  Additional remedies need to be explored and pursued as well.          

A Unified Theory of Bankruptcy Court Jurisdiction: Wellness International v. Sharif

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A unified view

By Donald L. Swanson

Federal courts in the U.S. bankruptcy system have been struggling for decades with the extent and limits of bankruptcy court jurisdiction under the U.S. Constitution.

The difficulty begins with Articles I and III of the U.S. Constitution:

–Article I, Section 8, says:

“The Congress shall have power to . . . establish . . . uniform laws on the subject of bankruptcies throughout the United States.”

–Article III, Section 1, says:

“The judicial power of the United States, shall be vested in one Supreme Court, and in such inferior courts as the Congress may from time to time ordain and establish. The judges . . . shall hold their offices during good behaviour, and shall, at stated times, receive for their services, a compensation, which shall not be diminished during their continuance in office.”

The problem arises because bankruptcy courts are established under Article I (not under Article III), yet the end product of a bankruptcy court’s efforts is a judicial decision. So, we have an Article I judge serving an Article III – type role. This creates a separation-of-powers (between Congress and the judiciary) issue, and separation-of-powers is a crucial part of the constitutional system in these United States.

A Headache

This separation-of-powers issue has created, over many years, a headache for nearly everyone dealing with it. In the latest pronouncement on the issue by the U.S. Supreme Court (in Wellness International v. Sharif, decided May 26, 2015), we get a sense of that headache.

–The issue in Wellness is whether a bankruptcy court can hear and resolve the claim that a business entity is an alter ego of the bankruptcy debtor. The dissenting opinion authored by Chief Justice Roberts explains how the bankruptcy court, (i) has no constitutional authority to resolve a fraudulent transfer claim, but (ii) does have constitutional authority to resolve an alter ego claim.

[Editorial  Note: This minute distinction illustrates the technical difficulties involved.]

–The dissenting opinion authored by Justice Thomas emphasizes, (i) the difficulties and complexities of issues surrounding the constitutional authority of bankruptcy courts to issue judicial rulings, (ii) the need to grapple with and resolve these difficulties and complexities, and (ii) the failure of the majority opinion to do so in the Wellness case.

–The majority opinion rules that bankruptcy courts have authority to resolve all the types of disputes that Congress has assigned to it when the parties consent, either explicitly or by implication, to that authority.

–The majority opinion describes any constitutional concerns over its consent ruling as “de minimis”; while the dissenting opinion authored by Chief Justice Roberts sees great constitutional peril in the majority’s jurisdiction by consent ruling – it’s a slippery-slope type of concern he is expressing; and the dissenting opinion authored by Justice Thomas sees a middle ground in which the Supreme Court needs to grapple with and resolve the difficulties and complexities involved.

As a practical matter, the Wellness International ruling should resolve most constitutional issues on bankruptcy court authority. But it’s still troubling that there is no complete-consensus, on the U.S. Supreme Court, for a unified constitutional theory of bankruptcy court authority.

[Editorial Note:  It will be interesting to see how Justice Gorsuch fits into all of this.]

The Justice Thomas dissent describes the problem like this:

Modern bankruptcy courts “adjudicate a far broader array of disputes than their earliest historical counterparts. And this Court has remained carefully noncommittal about the source of their authority to do so.”

A Unified Theory

But it seems that the U.S. Supreme Court has, in fact, provided a unified theory of bankruptcy court jurisdiction in the Wellness International v. Sharif opinion. Here are the elements of that theory.

1. The source of authority is the specific “bankruptcies” reference in Article I of the Constitution;

2. Congress has properly expanded on the specific reference in Article I by making bankruptcy courts and bankruptcy judges a “unit” of the Article III district courts and subject to Article III control;

3. Congress has properly allocated the division of labor between Article III district courts and their bankruptcy court units, with the core/non-core and “related to” distinctions and the “proposed findings of fact and conclusions of law” mechanism; and

4. Stern v. Marshall issues are a limited exception to the proper allocation, but bankruptcy courts can still address these issues by consent of the parties or by “proposed findings and conclusions” to the district court.

Why wouldn’t these elements work as a unified theory? Answer: They should, according to the Supreme Court majority.

Why do we need to continue grappling with such history-based distinctions as public rights v. private rights that create confusion and difficulty? Answer: We don’t, according to the Supreme Court majority.

And how could this unified theory degenerate into the slippery-slope problem that Chief Justice Roberts envisions? Answer: It shouldn’t, according to the Supreme Court majority.

Remaining Constitutional Authority Question

The only remaining constitutional authority question is this:

–Which issues still require “de novo” review (absent consent of the parties) under Stern v. Marshall, rather than a deferential review as a final judicial order?

Surely this narrow question can be resolved with dispatch and efficiency.

Conclusion

It looks like a unified theory of bankruptcy court jurisdiction is now provided by the U.S. Supreme Court!

Mediation “Dream Team” Appointed in Puerto Rico — But With a “Voluntary” Limitation and Impediment

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Puerto Rico’s location on the map

By Donald L. Swanson

On May 21, 2017, the Financial Oversight and Management Board for Puerto Rico files its “Petition” initiating a proceeding under the Puerto Rico Oversight, Management, and Economic Stability Act. This proceeding is described as a pseudo-bankruptcy and is pending in the U.S. Bankruptcy Court for the District of Puerto Rico (Case No. 17 BK 3566).

Mediation Order Appointing “Dream Team”

On June 14, 2017, the presiding Judge in the Puerto Rico case enters an “Order and Notice of Preliminary Designation of Mediation Team” (Doc. 74). This Order appoints a five-member team of mediators that’s widely recognized as a mediation “Dream Team.”

This Dream Team “is led by Chief Judge Barbara Houser” of the U.S. Bankruptcy Court for the Northern District of Texas. The other four members are:

–Judge Thomas L. Ambro of the U.S. Court of Appeals for the Third Circuit;
–Judge Nancy Friedman Atlas of the U.S. District Court for the Southern District of Texas;
–Judge Christopher Klein of the U.S. Bankruptcy Court for the Eastern District of California; and
–Judge Victor Marrero of the U.S. District Court for the Southern District of New York.

The mediation Order appears to follow the approach, made famous by the City of Detroit bankruptcy, of appointing a mediator team to help shepherd along the bankruptcy proceeding of a governmental entity. The mediation Order appears to be a very good step!

“Voluntary” Limitation

To quibble on one point, however, the mediation Order contains this limiting provision:

–“Participation in mediation sessions will be voluntary.”

Why would a presiding Judge appoint a five-person mediation Dream Team but permit them to mediate only when disputing parties volunteer to do so?

Detroit Bankruptcy – A Contrasting Example

Participation in mediation efforts, back in the City of Detroit bankruptcy, are anything but “voluntary.” Consider these earliest mediation steps in the Detroit bankruptcy (Case No. 13-53846 in the U.S. Bankruptcy Court for the Eastern District of Michigan):

July 18, 2013 — Detroit files its Petition under Chapter 9 of the Bankruptcy Code.

August 13, 2013 – Presiding Bankruptcy Judge Steven Rhodes enters a “Mediation Order” (Doc. 322), which provides:

“After consultation with the parties involved, the Court may order the parties to engage in any mediation that the Court refers in this case”; and

The Judicial Mediator “is authorized to enter any order necessary for the facilitation of mediation proceedings” and “may, in his discretion, direct the parties to engage in facilitative mediation on substantive, process and discovery issues.”

August 16, 2013 – The Judicial Mediator, Chief Judge Gerald Rosen of the U.S. District Court for Eastern District of Michigan, issues his “Order to Certain Parties to Appear for First Mediation Session” (Doc. 334), which identifies 12 parties and says:

“IT IS HEREBY ORDERED the above-named parties shall appear for an initial mediation session before the Honorable Gerald E. Rosen, Chief Judge of the United States District Court for the Eastern District of Michigan, in his Courtroom, . . . on Tuesday, September 17, 2013 at 11:00 a.m.

The mediator team in the City of Detroit bankruptcy, led by Judge Rosen, aggressively and effectively exercises the broad authority granted to them. And their efforts prove to be successful.

Mandated Mediation – A Common Tool

Moreover, mandated mediation is a commonly-used tool in many courts, both state and Federal, throughout these United States. In the U.S. circuit courts of appeals, for example, every circuit but one has a mandatory mediation provision. And studies show these mandatory provisions to be highly successful in achieving settlements.

Empirical Studies – And Puerto Rico’s Experience

Furthermore, empirical studies show that “voluntary” mediation programs commonly suffer from limited use.  Such study results are consistent with Puerto Rico’s pre-filing experience: “voluntary” mediation initiatives made little-to-no headway.  So, the “voluntary” limitation in this case might even leave the Dream Team with little-to-do beyond imploring parties to mediate their disputes.

Conclusion

The presiding Judge in the Puerto Rico case takes a major step by establishing a mediation system and appointing a mediation Dream Team. But the Judge limits mediation efforts, at the outset, to “voluntary” participation. This “voluntary” limitation on the Dream Team’s efforts is likely to impede and impair the effectiveness of the Dream Team’s mediation efforts.