In re Jevic: Once Again, the Supreme Court Screws Up Our Bankruptcy World — And Justice Thomas is Wise in His Dissent

U.S. Supreme Court Opinion

By: Donald L. Swanson

I think it is unwise for the Court to decide” this issue because: (i) “Experience shows that we would greatly benefit from the view of additional courts of appeals on this question,” and (ii) “We also would have benefited from full, adversarial briefing.”

–Justice Clarence Thomas, dissenting in Czyzewski v. Jevic Holding Corp. (In re Jevic)., Case No. 15-649 in United States Supreme Court (March 22, 2017).

On March 22, 2017, the United States Supreme Court issues its ruling in the In re Jevic case that, once again, screws up our bankruptcy world.

The U.S. Supreme Court has a history of rulings that screw up everyday life for bankruptcy practitioners and judges. One example is Stern v. Marshall, 564 U.S. 462 (2011). Who would’ve ever guessed that a minor pop-culture celebrity (Vicki Lynn Marshall, aka Anna Nicole Smith) could wreak such havoc in our bankruptcy world. In a case with a long history of bizarre facts and procedural wrangling, the Supreme Court in Stern v. Marshall puts extreme limitations on the jurisdiction and role of the U.S. Bankruptcy Courts. The Supreme Court, in Stern v. Marshall, made a narrow and inflexible ruling about bankruptcy court jurisdiction. And it did so on constitutional grounds, which means that Congress is incapable of changing (or minimizing the impact of) the decision. We’ve all been struggling with the result ever since.

Here is the essence of the majority decision in the new In re Jevic case, penned by Justice Stephen Breyer:

“We turn to the basic question presented: Can a bankruptcy court approve a structured dismissal that provides for distributions that do not follow ordinary priority rules without the affected creditors’ consent? Our simple answer to this complicated question is ‘no.’”

Yikes! Therein lies the problem for bankruptcy practitioners and judges: the Supreme Court is providing a “simple answer” to a “complicated question.”

Here is some griping:

–None of the Supreme Court Justices has any significant experience in practicing under the Bankruptcy Code, which is a specialized area of the law. Perhaps that’s why they fall back on a simple answer to a complicated bankruptcy question. And, perhaps, that’s why they keep screwing things up for us.

–And the Supreme Court had to ignore some technical rules for getting to this In re Jevic decision: hence, Justice Thomas’s statement that rues the absence of “full, adversarial briefing.” Here’s my translation of his absence-of-full-briefing statement: “The Supreme Court doesn’t have adequate information or an adequate understanding to make this decision.”

So, what are we supposed to do with the Supreme Court’s simple – and simplistic – answer? Keep in mind that structured dismissals commonly arise in large and complex reorganization cases. There is nothing simplistic about such cases. A simple answer is not merely unhelpful . . . it’s harmful. Perhaps the Supreme Court Justices, in the bankruptcy context, could follow the words of the medical profession: “First do no harm.”

Justice Thomas is precisely correct in his comment that the Supreme Court would “greatly benefit” from an opportunity for additional courts of appeals to weigh-in on the question. Structured dismissals are a relatively new development in the bankruptcy world and apply only in exceptional circumstances. There are lots of smart judges out there in the Federal system: bankruptcy judges, district court judges, bankruptcy appellate panel judges, and court of appeals judges. One of the benefits of those many and multi-layer judges is that many smart judges can evaluate and address and explain and rule upon issues and facts relating to an important legal question before the question ever gets to the U.S. Supreme Court. Then, the Supreme Court Justices can draw on the words and wisdom of those other smart judges in reaching a decision. For the Supreme Court to jump-in at this early stage, without the benefit of a fully-developed multi-layer analysis of this In re Jevic question, is unfortunate in the extreme.

As a result, this new In re Jevic opinion creates major questions about basic bankruptcy practice that are hugely important to the administration of bankruptcy cases.  For example:

What about first day orders and early/interim distributions mentioned in the majority opinion (which also violate the Code’s distribution priorities)?

–Are they actually okay or merely cited as a point of reference?

–Did the Court actually intend to bless critical vendor orders?

And what about an under-secured creditor gifting a portion of its collateral to the unsecured class as part of a structured dismissal–is that now prohibited . . . seriously?!

And how is the essence of this “simple answer” going to spill over into other complex contexts?

Ok. I’m done. Sorry about this rant!

A PricewaterhouseCoopers Déjà Vu: Mediation, Then Trial, Then Settlement During Trial

Mediator’s report to the Court

By: Donald L. Swanson

The case is MF Global Holdings LTD. v. PricewaterhouseCoopers LLP, Case No. 14-cv-2197 in the U.S. District Court for the Southern District of New York.  Hon. Victor Marrero is the presiding Judge.

This case concludes by settlement, last week, in the middle of trial.

Claims Asserted

Plaintiff asserts in this lawsuit that PricewaterhouseCoopers, as auditor, failed to detect and report a financial scheme that ruined the business of MF Global.

The case begins on March 28, 2014, with the filing of a Complaint asserting three separate claims against PricewaterhouseCoopers and requesting the following relief: “a money judgment” in amounts “to be determined at trial but not less than,” (i) $1 billion on a professional malpractice claim, (ii) $1 billion on a breach of contract claim, (iii) $10.9 million on an unjust enrichment claim, plus (iv) related costs and expenses, including attorney fees.

Mediation, Trial and Settlement

On February 6, 2017, Judge Marrero reschedules the start of trial from February 13, 2017, to March 6, 2017 (Doc. 136), so the parties can engage in mediation.

The mediation fails to achieve a settlement.  And the mediator’s letter to the Court dated February 21, 2017, (a photo of this letter is above) says:

“I write to inform the Court that the parties have engaged in private mediation.  The mediation was unsuccessful.  At this time, the parties are planning to proceed with trial as scheduled on March 6, 2017.”

Trial begins on March 6, 2017.

On Thursday, March 23, 2017, as trial is still in process, the parties announce a settlement of this lawsuit on undisclosed terms that are to “the mutual satisfaction of the parties.”

Déjà Vu

Last year, PricewaterhouseCoopers is being sued in a State Court in Miami, Florida.

This Florida lawsuit alleges that PricewaterhouseCoopers provided clean audit opinions to a company for six years until that company collapsed, and the lawsuit claims $5.5 billion in damages plus punitives.  This suit is reported to be “the biggest accounting negligence lawsuit ever to go to trial.”

As in MF Global, this lawsuit settles in the middle of trial for a confidential sum that is “to the mutual satisfaction of the parties.”  The settlement occurs on August 26, 2016.

Although I can’t access records in a Florida State Court, I’m confident this Florida case went through mediation before trial began.


Accordingly, we see a two-in-a-row déjà vu, where PricewaterhouseCoopers settles the same types of cases in the same way: through a mediation that fails to achieve a settlement, then trial begins and progresses for a time, with settlement occurring in the middle of trial.

Fundamental Proposition

I suggest that these two déjà vu cases illustrate a fundamental proposition: that mediation can provide meaningful progress toward a consensual resolution of a lawsuit, even when the settlement comes after mediation concludes and while the parties are battling-it-out in trial.

What do you think about this proposition?

Note: Information in the déjà vu section of this article is from a Financial Times news report dated August 26, 2016..

How Mediation Confidentiality is Waived — A Ninth Circuit Decision

img_1628By: Donald L. Swanson

Can mediation confidentiality be waived?

The answer is, “Yes.”

–That’s according to the U.S. Ninth Circuit Court of Appeals, from an unpublished “Memorandum” decision in Milhouse v. Travelers Commercial Insurance Co., Case No. 13-56959, 13-57029 (9th Cir., Feb. 23, 2016).


The Milhouse residence, located in California, had been destroyed in a fire – a total loss. Disputes arose with Travelers over their home insurance policy, which resulted in a lawsuit and a jury trial.

The jury rules in favor of Mr. and Mrs. Milhouse on breach of contract. But the jury rejects their bad faith claim and their request for punitive dames.

Mediation Confidentiality Issues

–Trial Court Ruling

The trial court enters a final post-trial order (dated November 5, 2013) on multiple issues, from which both parties appeal to the Ninth Circuit.

Here is what the trial court says, in such order, about mediation confidentiality:

1. “At trial, evidence was presented regarding statements made during the course of the mediation proceeding between Dr. and Mrs. Milhouse and Travelers.”

–Such evidence includes this: “the Milhouses made a $7 million demand of payment” in mediation and “asked for nearly a million dollars of attorney’s fees when their attorney had only worked on the case for a few weeks.”

2. “The Milhouses now challenge the admissibility of such evidence, and argue that it resulted in prejudicial error that warrants a retrial on the issue of bad faith.” Such argument “fails on two independent grounds”:

–Waiver.  “First, the Milhouses failed to raise the issue with the Court at or before trial, and therefore waived their right to claim any privilege.”

–As to the mediation confidentiality agreement between the parties, the trial court says, “the Milhouses never presented” such an agreement as evidence and “incorrectly assume” that the court “can exclude testimony on the basis of a confidentiality agreement it has never seen.”

–Due Process.  “Second, to find evidence of statements made at the mediation proceeding inadmissible at trial would violate the due process right of Travelers to provide a complete defense to its alleged liability for bad faith and punitive damages.”

–Ninth Circuit Ruling

One of the Milhouse arguments on appeal is that the trial court (the U.S. District Court for the Central District of California) “erred” when it “admitted mediation communications at trial.”

The Ninth Circuit evaluates and rules on mediation communications issues in the following manner:

–Procedural Background Evaluation:

–Pretrial.  Initially, both parties file pre-trial motions to preserve mediation confidentiality and exclude mediation evidence. But both parties end up withdrawing those motions.

–Trial.  The Milhouse attorney does not object at trial, on mediation confidentiality grounds, to any evidence, nor does he alert the trial court to the requirements of California’s mediation privilege law.

–Post-Trial.  The Milhouse attorney raises mediation confidentiality issues for the first time in a post-trial request for new trial.

–Ninth Circuit Ruling:

“We therefore consider the [mediation confidentiality] issue waived.”

Editorial Comments

1.  I understand the waiver finding by both the trial court and the Ninth Circuit. Waiver seems to make sense:

–The Milhouse attorney apparently forgets about the confidentiality objection at trial.  Or . . . perhaps he has a strategic reason for abandoning the objection, and he fails to raise the objection intentionally?  We’ll never know.

2.  But the District Court’s “due process” finding is a concern – for two reasons:

–California’s mediation privilege law is about as strict as they come, with exceptions being almost non-existent. And California law would probably not recognize the Court’s “due process” exception to its mediation privilege.

–The District Judge appears to be saying that a mediation confidentiality objection, if raised at trial, would have been overruled and the evidence admitted anyway.

The Ninth Circuit does not even mention the trial court’s due process ruling and bases it’s “affirmed” decision on waiver alone.

3.  In this diversity jurisdiction case, the courts wonder whether mediation confidentilaity is governed by California state law or by Federal Evidence Rule 408.  Why the U.S. District Court doesn’t reference its own Local Rule 16-15.8 on mediation Confidentiality is mentioned: but the probable reason is discussed here.

What do you think about the waiver issue?

If I Were a Bankruptcy Judge, I’d be Promoting Mediation Now



By: Donald L. Swanson

A Staffing/Caseload Problem

We have a staffing and caseload problem that’s waiting-to-happen in the bankruptcy world:

The number of bankruptcy filings is down, systemwide, and has been for several years. And budget pressures are on the increase.  As a result, bankruptcy vacancies (e.g., for judgeships, clerkships, panel trustee positions, clerk  of court positions, etc.) are not being filled.

So, when an economic recession recurs, we’ll have a staffing problem of major proportions throughout the entire bankruptcy system.  And this problem will manifest itself in burgeoning caseload pressures.

A Mediation Solution

Mediation is a time-honored and proven tool for dealing with caseload pressures.

About a year ago, I published a two-part article titled, “If I Were a Bankruptcy Judge, I’d be Promoting Mediation Now.” In light of the developing problem described above, I thought we should revisit the article. So, here it is.

Part One

If I were a bankruptcy judge [I’m not and have no aspirations to become one], I’d be doing everything in my power to promote mediation in my court—right now.

For example, I’d adopt local rules on mediation, establish mediation requirements for adversary proceedings and Chapter 11 plans, look for cases where mandatory mediation orders might be helpful–and issue such orders, etc. Here’s why: to manage my future workload when bankruptcy filings pick back up again.

Granted, we are currently in an off-season for bankruptcy cases—filings are at low levels—and we’ve been here for a while. During this off-season, bankruptcy court support staff numbers are declining throughout the system, and judge vacancies are remaining unfilled.

However, history shows that this off-season will not last forever. The day will come [and, perhaps, soon] when bankruptcy court workloads will return to heavy levels. When that day arrives, support staff hirings and new judge appointments will take time to ramp back up.

So, I’d be promoting mediation now and getting attorneys accustomed to mediation as a standard dispute resolution tool in my court. Then, I’ll be ready for an increased work load when the season changes.

My view on this point is intense because I’ve seen bankruptcy seasons change before—okay, okay, I’ve been at this bankruptcy thing long enough to have seen seasons change many times.

Action Item. We should all be encouraging our local bankruptcy courts to adopt local rules on mediation, establish mediation requirements for adversary proceedings and Chapter 11 plans, look for cases where mandatory mediation orders might be helpful–and issue such orders, and get the local bar accustomed to using mediation as a standard dispute resolution tool.

Part Two

Here’s how a season change worked, as I recall, in the early 1980s: we are at the early stages of an economic recession, back then. The local Bankruptcy Court has one judge, one secretary and a few people in the Clerk’s office.

As the economic recession intensifies, the local Court’s workload explodes. Motion days occur frequently and are filled with a dozen-or-so hearings scheduled for every hour, all day long. To deal with case-load pressures, the local Bankruptcy Judge takes to ruling from the bench on affidavit evidence, without written opinion, at the end of every hearing. He simply issues and explains his ruling orally and moves on to the next matter, with a terse “Motion granted” or “Objection overruled” journal entry to document the action. He rarely takes a motion day issue under advisement for writing an opinion. He simply doesn’t have time to do so.

The Judge takes occasional grief from appellate courts for lack of written explanations, but he continues doing what’s needed to keep pace with workload demands.

During those days, a mediation-ish process develops among attorneys in this Judge’s Court. All attorneys in a dispute must appear at a hearing—if you don’t show, you lose. So, we all spend lots of standing-around time at every motion day, which leads to hallway discussions among opposing attorneys, who start settling their disputes while waiting for their hearing.

As time moves forward, most disputes scheduled for hearing on a motion day actually resolve by settlement in this way. There’s no sense waiting who-knows-how-long for a hearing and a ruling from the bench on a dispute the Judge will know nothing about until we explain it to him at the hearing.

Ironically, the judge actually serves a mediator-type role during this time: he brings disputing parties together, gets them talking about their disputes, helps them recognize a need to settle, and encourages them toward settlement (albeit, he does so in an indirect and round-about sort of way). Let’s call this old process, “hallway mediation.”

The hallway mediation days are gone. Telephone hearings and electronic filings killed them. While shortcomings in the hallway mediation circumstances are obvious, those of us who practiced there have a respect and nostalgia for the mediation-ish processes that flourished in that environment.

Action Item. We should all be encouraging every bankruptcy judge to promote bankruptcy mediation now, as a way to prepare for future days when the bankruptcy season arrives again.

What do you think about this developing problem and about mediation as a solution?

Mediator Neutrality: An “I believe . . . ” Test

No neutrality here — she’s on their side

By Donald L. Swanson

A mediator is, by definition, a “neutral.”

Neutrality seems to be a straight-forward concept: it means not-taking-sides.

But not-taking-sides is, apparently, not all that simple. Check out this excellent article and this fine series of essays on the subject.

Efforts to define or explain “neutrality” often get bogged down. Sometimes, new explanations of what “neutral” means create more ambiguity or uncertainty than already exist.

Non-Neutral Behavior

Here are some examples of behavior that run afoul of the neutrality standard.

–Mediator: “My law partner is an expert in this area. So I’ve asked him to critique your expert’s report. Here’s how he says your expert’s opinion is faulty.”

–Mediator: “Here’s a list of terms that everyone else has agreed upon. This is a great deal, and you must accept these terms.”

–Mediator: “Your legal position is way off base on this issue, and you are going to lose at trial.”

Each of these examples is from an actual anecdote from attorneys talking about bad experiences in mediation.  In each of these examples, the mediator is viewed as taking the other party’s side.

An “I believe …” Test for Mediator Neutrality

Whenever a mediator says something like the following quote, the mediator’s neutrality is compromised:

“Here’s what I believe about the merits of your case: [___fill in blank____].”

An expression of personal opinion on the merits of the dispute is “taking-sides.”

There are probably a million-or-so ways a mediator can convey the same type of message, while still maintaining position of neutrality: i.e., without giving a personal opinion on the merits.

For example, a mediator could say:

–“The other side’s position is . . . [then fully and faithfully explain that position].”

–“The other side says this about your expert’s opinion: . . . ”

–“Here’s one of the risks you run–that the judge will accept the other side’s version of the facts. And here is the evidence they’ve identified . . . ”

–“If you lose on that issue, here are the range of results that have been identified . . .”

–“I know you are confident in your case at trial. But your opponent is also confident. And here’s why . . .

–“Here is a risk that each side runs: that the judge will get it wrong, from your perspective. And ‘getting it wrong’ happens, as reflected by reversals that commonly occur on appeal.”

All of these examples are neutral responses that don’t take sides.

A mediator might even say to a party in caucus something like: “My experience is that judges rarely . . . ”

–Such a statement can be a neutral observation that helps the parties but doesn’t take sides: it’s talking about objective experiences, and not about the mediator’s opinion.

Such responses can be used by a mediator to clearly and effectively convey hard truths, without the mediator injecting his/her own opinion on the merits of the dispute.


The following are some analogies that illustrate neutrality (good analogies) or provide a contrast with neutrality (bad analogies).

Good Analogies

The best analogies for what mediator “neutrality” means are from informal contexts. For example:

–a parent handling a squabble between siblings, when the parent avoids taking sides in the spat, is a good neutrality analogy.

–a friend trying to help solve a misunderstanding between two buddies, without taking sides, is also a good analogy.

Bad Analogies

Judges, referees and umpires, however, are bad analogies for mediator neutrality.  Here’s why:

–because the job of every judge, referee and umpire is to make decisions on the merits of disputes, and every decision on the merits favors one side over the other

Hopefully, every judge, over the course of a bench trial, will leave an impression of impartiality, even-handedness, and good judicial temperament.  But it won’t be an impression of neutrality.

–At the end of trial, the judge will make a decision that is anything but neutral.  A judge’s judgment will almost always favor one side over the other.

Similarly, every basketball referee will make decisions on who fouled whom.  None of such calls is neutral.

–Some of the decisions will be close calls: e.g., when a violent collision occurs during a drive to the rim.  Is that a charge on the offense, a foul on the defender, or a no-call?

–Hopefully, over the course of a game, the cumulative effect of a referee’s calls will leave an impression of impartiality and consistency, but every call favors one side over the other.

Likewise, every strike / ball call by an umpire favors one team over the other.  It’s not a neutral call.

–But consistency on the location of the strike zone will leave an impression of impartiality and fairness.

Mediator Neutrality

A mediator makes many decision and many communications over the course of a mediation. Most of such decisions and communications are about handling the mediation process and managing the parties, their conflict, and their negotiations.  And some decisions and communications will convey hard truths to the parties.

But a neutral mediator must not convey an impression of taking-sides by offering an “I believe . . . ” opinion on the merits of the dispute.

An  often-perceived exception occurs when a party asks, in caucus, for the mediator’s candid opinion on the merits of the dispute. But even in this context, the mediator who weighs-in with such an opinion is on dangerous ground.  See, e.g., this article.


Neutrality is an essential quality of a mediation. A mediator can be active and forceful and convey hard truths– and still remain neutral. It’s the “I believe…” input on the merits of the dispute that compromises neutrality.

What do you think about this “I believe . . . ” test?


Is Offering Opinions and Solutions a Bad Idea for Mediators?

When conflict management gets out of control (photo by Marilyn Swanson)

By: Donald L. Swanson

“Leadership is a perpetual exercise in managing conflict.”

–Morris Shechtman, 2003

A 2016 report on a mediation study evaluates and compares the effects on conflict of:

(i) mediators who elicit solutions from parties in conflict, and

(ii) mediators who offer opinions and solutions to the parties in conflict.

Mediator Eliciting Solutions from Parties in Conflict

This “eliciting” characterization refers to mediators who:

–ask parties what solutions they would suggest
–summarize the solutions being considered
–check in with parties to see how they think these ideas might work for their conflict circumstances

Parties in conflict who work with an “eliciting” mediator tend to give positive reports on:

–listening and understanding each other in the mediation
–jointly controlling the outcome
–the other side taking responsibility and apologizing
–changing their own approach to conflict
–the mediator acting properly by not,

–controlling the outcome
–pressuring them into a solution
–preventing issues from coming out

The study finds that an “eliciting” strategy works better than other strategies in,

–achieving settlement agreements between parties in conflict
–avoiding a return to court for agreement enforcement.

Mediator Offering Opinions and Solutions

This characterization refers to mediators who,

–offer their own opinions
–offer their own legal analysis
–advocate for their own solutions

Parties in conflict who work with an “offering” mediator tend to give negative reports, that:

–the agreement does not work well
–they are not satisfied with the outcome
–they would not recommend mediation to others
–they have not changed their own approach to conflict.

A Study Conclusion

Accordingly, the study offers this conclusion:

–Mediators who offer their own opinions and advocate for their own solutions run counter to the goals of self-determination and better understanding between parties in conflict.

Consistent With Experience

As I reflect back upon my own experience as counsel for mediating parties, this finding seems well-founded.

I remember, for example, many years ago when a mediator begins a multi-party mediation with a declaration of how a certain issue should be handled and how an agreement on that issue should be structured.

–The other parties agree.  But my client and I do not agree — we view the mediator’s suggestion as a bad idea.

–However, the mediator dismisses our view out-of-hand, ignores our expressions of concern, and pressures us at-the-end to go along with his approach.

I am still irritated — to this day [I’m pressing harder on the keys as I type right now!] — with the memory of that experience. I view the mediator as out-of-line in presenting and pushing his solution without any concern or regard for what we thought [not that I’m bitter about it or anything . . . ].

What do you think about these findings and conclusion of the study?


Lessons From a Defective Settlement Agreement: Being Approved . . . and Then Falling Apart

A defective document

By: Donald L. Swanson

There is “no mutual meeting of the minds concerning the terms” of the mediated and Court-approved settlement agreement. Therefore, the agreement “is not an enforceable contract.”

In re Singh, Case No. 15-02159, Doc. 33 (Bankry. N.J., Oct. 5, 2016).

Procedural Background

Two adversary proceedings are filed in the Chapter 7 case of In re Bhavesh Singh, Case No. 15-20348 in the New Jersey Bankruptcy Court. One adversary is a dischargeability action filed by a creditor against the Debtor (Case No. 15-02085), and the other is a fraudulent transfer action filed by the Chapter 7 Trustee against both the Debtor and his spouse (Case No. 15-02159).

A mediation occurs on June 15, 2016, and results in a global settlement of all issues in the two adversary proceedings. The settlement provides for, (i) periodic payments by Debtor and his spouse, (ii) a release upon completion of such payments, and (iii) entry of a $152,000 non-dischargeable judgment in favor of the creditor and against Debtor, if payments aren’t made as agreed.

On July 8, 2016, the Bankruptcy Court enters a “Consent Order” approving the settlement.

The Default and Further Litigation

Initial payments under the settlement aren’t made when due. So, the creditor files a Motion for entry of the $152,000 judgment. Debtor responds by making initial payments and filing a Motion to enforce the settlement agreement. Debtor argues that the causes for payment delays were out of his control and that any delinquencies are de minimus.

The Bankruptcy Court cites New Jersey contract law that, (i) mutual assent is a primary requisite to formation of a contract, and (ii) when a misunderstanding between contracting parties on a material term of agreement exists, there is no mutual assent and, therefore, no contract.

The Ruling

The Bankruptcy Court determines that language of the settlement document is simplistic, containing neither a cure provision nor a default provision. And the Court concludes that the settlement document is unworkable:

–“There was no mutual meeting of the minds concerning the terms” of the mediated and Court-approved settlement agreement. Therefore, it “is not an enforceable contract.”

–“Accordingly, this Court will enter an Order vacating” the prior Order that approves the settlement agreement.

Such conclusion is based upon the following findings:

–“All of the parties urge this Court to accept certain terms of the agreement and discard others. . . . To do so, would require this Court to re-write the parties’ agreement for them.  This Court cannot provide the material terms to the parties’ agreement.”

–“The parties made too many mistakes” in preparing their settlement agreement, “without fleshing out more of the material terms.”

–“The Court recognizes the difficult situation this decision puts the Trustee in . . . but unfortunately that benefit cannot override the deficiencies” in the settlement agreement.

The Lessons

Language used to memorialize the terms of a mediated settlement agreement is exceedingly important. And great care must go into the preparation of such language.

I’ve argued for many years that all parties to a mediation should begin, in advance of the mediation session, to prepare a settlement document. They should not wait for the conclusion of a long and arduous mediation session, when everyone is tired and grumpy, to begin drafting that document.

Surely, all parties to every mediation have an idea, in advance of the session, what the general outline and structure of a settlement might look like—or, at least, some of the provisions they will want to have. So, they should be considering and evaluating and preparing those critical provisions, in advance, to assure that all are included and the language is adequate.

In fact, each party should have a preliminary draft of a settlement agreement, with critical terms already prepared, in-hand when their side walks into the mediation session.

–And even better-yet, they should have initiated discussions with opposing parties about such a document.

Such advance actions and preparations might have prevented difficulties in the In re Bhavesh Singh case.


More recently, the parties reached a new settlement agreement, which was approved last week by a Bankruptcy Court Order dated February 28, 2017 (Doc. 41, Case No. 15-02159).

Even “Failed” Mediations Have Value

Playing the Hand That’s Dealt

By: Donald L. Swanson

The concepts of “failure” and “success” in a mediation typically refer to whether a settlement agreement is achieved during the mediation session.

I’ve always felt uneasy about the use of such “failure” and “success” terms in this way.

–I can’t quite put a finger on the source of unease.  But it’s like hearing a “litigator” claiming to have “never lost a case.”  It’s not that I doubt the accuracy of such a claim [ . . . okay, maybe I do].  But the claim doesn’t quite seem to tell the entire story.  After all, lawsuits are high-risk exercises, and litigators are usually stuck playing the hand they’re dealt.

–Similarly, I have an unease about the concept of a “success rate” for mediators.  All mediators play the hand they are dealt—and there are some bad hands out there.

Beneficial Mediation “Failures”

My experience, from all sides of the mediation table, is that some of the most-beneficial mediations are the ones that do not reach a resolution in the mediation session (i.e., the “failures”).

–Reasons for the mediation “failures” I have experienced as attorney for a party have nothing to do with the mediator’s performance.   The “failures” have had everything to do with the parties and the nature of their disputes.

One common reason for mediation “failures” is this: the positions of the parties are simply too far apart.  The parties see the facts or applicable law differently in-the-extreme, and they can’t seem to recognize the other side’s perspective.  It’s in these circumstances that a mediation can be beneficial—even in “failure” with a settlement to come later.

Here are some examples:

–The parties have each hired experts who give contradictory opinions on a complex set of facts.  The mediation turns into an effort to understand the reasons for their differing opinions.  Settlement will occur later.

–The parties have differing ideas about a party’s capacity to pay a settlement.  The mediation turns into an effort to deal with that issue.  Settlement will occur later.

–The parties each attribute bad motives to the other.  The mediation turns into an effort to deal with mistrust.  Settlement will occur later.

All of the foregoing is anecdotal and intuitive.

Empirical Data

Fortunately, we have empirical data to support the idea that a mediation session has value, even if it does not result in a settlement during the mediation session.

Back in 1999, California establishes five “Early Mediation Pilot Programs.”  In 2004, The Administrative Office of the Courts issue an “Evaluation” of these five programs.  Among the conclusions of the Evaluation is this: “all five of the Early Mediation Pilot Programs were successful, resulting in substantial benefits to both litigants and the courts.”

The Evaluation includes findings from a survey of attorneys who participated in the Pilot Programs.  The report for each of the five Pilot Programs contains this finding:

A certain “percent of attorneys whose cases did not settle at mediation indicated that the mediation was important to the ultimate settlement of the case.”

Here are the percentages for each Pilot Program:

–74% in San Diego

–78% in Los Angeles

–67% in Fresno

–75% in Contra Costa

–90% in Sonoma.

Such findings are strong evidence, indeed, of the value of mediation in a “failed” context.







Seven Practice Lessons That Enhance Mediation

Moose and Eagle: a life-enhancing experience

By: Donald L. Swanson

What do empirical studies tell us about court mediation”?

This question is asked and answered in a 2004 article. The authors of the article are examining “empirical data” and looking for “best practices” in programs that mediate non-family civil matters.  The practices they identify as “best” are those that promote “regular and significant use” of mediation “to resolve cases.”  Here are seven lessons from the best practices hat enhance mediation.

Practice Lesson # 1. Mandatory mediation outperforms voluntary mediation.

If the goal is to have a “regular and significant use” of mediation to resolve cases, then mandatory mediation is much better than voluntary mediation. The authors find:

–Voluntary mediation programs “rarely meet this goal” because they “suffer from consistently small caseloads”;

–By contrast, mandatory mediation programs “have dramatically higher rates of utilization”; and

–“Judicial activism” in mandating mediation “triggers increased voluntary use of the process, as lawyers begin to request it themselves in anticipation of court referral.”

Mandatory mediation outperforms voluntary mediation in other ways as well. The empirical data shows, for example, that mandatory mediation referrals do not adversely affect either “litigants’ perceptions of procedural justice” or “settlement rates.”

Lesson:  Don’t be afraid of mandated mediation.

Practice Lesson # 2. All types of cases are amenable to mediation — none should be excluded.

A common misstatement of mediation reality, over the years, is this:

“Some types of cases are ill-suited to mediation.”

Specific types of cases often assumed to be ill-suited for mediation include, (i) complex cases; and (ii) cases with high levels of acrimony between parties.

But empirical data shows that all such assumptions are wrong. The reality is this:

“there is no empirical support” for the notion that some cases are ill-suited to mediation.

Instead, empirical data shows that mediated settlement rates do not vary based on case types or on levels of acrimony (in non-family cases).

[Here’s an experience-based editorial note: Whenever a dispute is between family members and is characterized by acrimony and bitterness, mediation is almost always a hopeless proposition—as are all other forms of consent-based resolution tools.]

Empirical data also reveals that perceptions by the parties of procedural-justice within a mediation do not vary by case type.

Lesson: “[B]ecause no case characteristics have been identified for which mediation has detrimental effects, mediation programs do not need to exclude certain types of cases.”

Practice Lesson # 3. Early mediation is better than later mediation.

Typically, mediation occurs “late in the life of a case and often after all discovery is completed.” The empirical data shows, however, that this is not the best approach.

Holding mediation sessions “sooner after cases are filed” will yield these benefits:

–“cases are more likely to settle”;
–“fewer motions are filed and decided”; and
–“case disposition time is shorter, even for cases that do not settle.”

A challenge for early mediation is this: a “lack of critical information” will diminish the chances of settlement. However, empirical data shows that discovery “does not have to be completed” for cases to settle. Instead, what’s needed for meaningful mediation is a comfort, for all parties, in their knowledge and understanding of the essential facts of the case.

On mediation timing, the authors find that a pending motion on critical issues (e.g., a motion to dismiss or for summary judgment) will decrease the “likelihood of settlement in mediation.”

Lesson: A mediation should be scheduled as soon as initial discovery is accomplished and the initial flurry of motions is resolved.

Practice Lesson # 4. Local litigation customs, culture and judicial support should affect the design of a mediation program.

In two separate instances, the authors focus on local litigation customs and cultures as critical factors in the success of a mediation program.

The first instance is this:

“The local legal and mediation cultures influence which program design features are acceptable. Thus, mediation programs that obtain the input and support of the bench and the bar . . . are more likely” to be successful.

The second instance is this:

“Local litigation customs and case management practices affect lawyers’ comfort with” a mediation program.

The authors offer this example:

“some courts require lawyers to discuss the potential use of mediation or other ADR processes and report the results of that discussion to the court early in the life of a case.  Other courts require lawyers to discuss ADR with their clients.”

“These court rules face less lawyer opposition than does mandatory case referral and can give lawyers more control over the logistics of mediation.”

“Adopting these rules, combined with active judicial support, tends to increase requests to use mediation.”

Lesson:  Local cultures and customs, and support from both the bench and the bar, are important in the effective use of mediation.

Practice Lesson # 5. Mediator effectiveness is dependent on levels of expertise and experience.

Here are mediator qualities that enhance mediation effectiveness:

–“Mediation is most likely” to be successful “if the mediators are drawn from the pool that is preferred by lawyers: litigators with knowledge in the substantive areas being mediated.”

–“One characteristic of the mediators, namely having more mediation experience, is related to more settlements.”

–“Thus, program design options that maximize each mediator’s level of experience may enhance the success of the program.”

Here are mediator qualities that have little or no impact on mediation effectiveness:

–“the number of years” a mediator has practiced law has no relationship to settlement or to a litigant’s “perceptions of procedural justice.”

–“several aspects of mediator training, such as the number of hours of training or whether it included role-play, tend not to affect settlement or litigants’ perceptions of the procedural justice of mediation.”

Lesson:  Experience is important to a mediator’s effectiveness.

Practice Lesson # 6. Mediation works best when the parties, their attorneys and the mediator are all active and cooperative.

Here are specific findings in the article:

–“Both active facilitation and some types of evaluative interventions tend to produce more settlements as well as heighten perceptions of procedural justice.”

–“But when mediators recommend a particular settlement, litigants’ ratings of the procedural fairness of the process suffer.”

–“When litigants or their lawyers participate more during mediation, cases are more likely to settle and the litigants evaluate the mediation process as more fair than when they participate less.”

–“[W]hen the lawyers behave more cooperatively during mediation, both the likelihood of settlement and litigant perceptions of procedural fairness increase.”

Lesson: “Thus, mediation programs should encourage mediators to facilitate participation and enhance the amount of cooperation, but discourage them from recommending particular settlements.”

Practice Lesson # 7. Preparation and presence at a mediation session are important.

Here are specific findings in the article.

–“In civil mediation sessions, lawyers generally speak on their clients’ behalf and do more of the talking.”

–“Neither settlement nor litigants’ perceptions of procedural justice tend to be harmed by this allocation of responsibility between the lawyer and client.”

–“Litigants’ presence during the session, however, is important”: (i) “Litigants who are not present view the dispute resolution process as less fair”; and (ii) “lawyers feel their clients’ presence influences ultimate outcomes.”

–“Preparation for the mediation session is important”:

–“The more lawyers prepare their clients, the greater the likelihood of settlement in mediation and the greater the litigants’ perception of procedural fairness.”

Lesson: “mediation programs should encourage litigants to attend and participate in mediation sessions and should provide information to assist lawyers’ preparation.”


Active judicial support for mandatory and early mediation of all types of cases before experienced mediators, by actively engaged parties and well-prepared and cooperative attorneys, who are familiar with and supportive of the process, will achieve the best mediation program results.

What do you think about this?

A Mediator–ish Role: “Settlement Counsel”

Trevi Fountain — Bringing People Together (Photo by Marilyn Swanson)

By: Donald L. Swanson

Here’s an experience that’s common to all trial attorneys.

We’re working in our litigation War Room.  Trial is scheduled to begin in ten days.  Our focus on trial preparations is intense.

But then the phone rings.  It’s an attorney on the other side with a settlement offer.  The offer is a pretty good one – much better than their final offer at mediation.

So, now we have a problem:

–Our clients wants to settle the case, if possible, and wants us to focus our attentions on negotiations.

–But, if we focus on negotiations to settle the case — and the negotiations fail — we’ll then be scrambling with trial preparations.

The Settlement Counsel Solution – Bringing People Together

Here’s a solution to the problem:  “Settlement Counsel.”

–A disputing party hires “Settlement Counsel” to take the initiative, beginning in the earliest stages of the case, toward bringing parties together, identifying disputes that can be resolved, and focusing on settling those disputes.

–The same party also hires separate “Litigation Counsel” to fight the legal battles and to focus on winning the case.

So . . . when that call with a settlement offer arrives shortly before trial, Settlement Counsel steps in to handle the settlement negotiations, while Litigation Counsel continues preparing for trial.

But . . . better yet, Settlement Counsel would have been working since the earliest stages of the case to achieve a settlement long before trial is about to begin;

Settlement Counsel Information

“Settlement Counsel” is an actual thing.  There are lots of articles on the Settlement Counsel subject, such as:

–“Why Should Businesses Hire Settlement Counsel?” in the Journal of Dispute Resolution

–“In Their Own Words,” a publication of the Section of Litigation, American Bar Association, in the series called “50 Shades of Settlement Counsel—What Role is Best for Your Client?”

Settlement Counsel in Bankruptcy

The Settlement Counsel role seems to be perfectly-suited for bankruptcy cases, and especially those cases with multiple parties and high levels of complexity.

Here is an example of a division of labor in bankruptcy that makes perfect sense:

–-Debtor’s litigation team fights the legal battles:  prosecutes first day motions, defends motions for relief from stay, presents a plan and disclosure statement, etc.

–-Meanwhile, Debtor’s settlement team identifies disputes to be addressed and takes initiative to resolve as many disputes as quickly and efficiently as possible.

My guess is that nearly every attorney who’s made a career of representing bankruptcy debtors or committees or trustees is really-good at the “Settlement Counsel” function.  They’ve been doing “Settlement Counsel” types of things their entire career, while functioning as “Litigation Counsel” at the same time.

Mediator Role and Settlement Counsel Role are Similar

A two-part article (appearing here and here) connecting the mediator role with the Settlement Counsel role is by Mitchell Rose, a mediator and Settlement Counsel in Toronto, Ontario.  He writes:

–“In addition to practicing as a mediator, I regularly attend mediations of civil disputes as settlement counsel.”

–“As Settlement Counsel I approach mediation differently than when I was a conventional litigator. This is best reflected in how I participate in joint sessions and make opening statements at mediation –- two things that I used to loathe as a litigator, but have now (dare I say it) grown to love — or at least like on most days.”

A Basketball Analogy

Differences between a Mediator and a Settlement Counsel are like differences between a point guard and a shooting guard in basketball.

–A “point guard” must be really good at bringing the ball up the court, initiating and directing the offense, and assisting others to score.

–A “shooting guard” must be able to score off the drive and from mid- and long-range and must be able to create his/her own shot against defensive pressure.

–A “combo guard” performs equally well at both the point guard and the shooting guard functions.

A mediator is retained by all sides collectively, must be able to perform as a neutral, tries to help all sides find common ground, and usually performs in a passive manner (i.e., others bring disputes to him/her for mediation).

A Settlement Counsel is retained by one side, makes no pretense at neutrality, tries to help all sides find common ground, and usually performs in a proactive manner (i.e., identifies disputes to be resolved and initiates negotiation action).

I’m sure that many successful mediators, like Mr. Rose identified above, would also serve well as Settlement Counsel.  We might call them “combo” professionals.


  1.  Many experienced mediators should be a perfect fit for the Settlement Counsel role.  Those two roles, it seems, go together like peas-and-carrots and are easily embodied in a single person.
  2. Settlement Counsel seems particularly helpful in disputes among multiple parties and with high complexity.  And since bankruptcy often has multiple disputing parties with complex disputes, bankruptcy is a perfect context for utilizing the Settlement Counsel role.

What do you think?