Local Bankruptcy Rules Without Mandatory Mediation Authority Are Like A Toolbox Without A Vise-Grip

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By Donald L. Swanson

Fix-it folks have tool boxes full of screw drivers, pliers, box-end and open-end wrenches, crescent and socket wrenches, etc., for handling nuts, bolts and screws. But when fix-it folks need a tool that grabs-and-holds and won’t-let-go, they pull a vise-grip from the toolbox. 

Similarly, judges have local rules [a toolbox] full of procedures to handle and resolve disputes in their courts. But when judges need a tool to grab-and-hold disputing parties and not-let-go, they pull a mandatory mediation order from the toolbox.

When vise-grips are missing from a toolbox, fix-it folks use ingenuity to handle vise-grip tasks in other ways.  But the other way is almost always more difficult, takes more time and can scratch-things-up a bit.

The same is true for judges and mandatory mediation: if mandating authority is needed-but-missing, judges use ingenuity to get disputes dispatched in other ways; but the other way is almost always more difficult, takes more time and can create collateral damage.

Caesars Entertainment bankruptcy illustrates some problems when a mandating tool is absent: efforts to resolve crucial disputes had been unsuccessful, the Judge agrees mediation is needed, but the Judge says he can’t order it. Instead, the Judge suggests in a metaphorical / Oz-related comment (i.e., click your heels and say, “There’s no place like mediation”) that the parties double-down on voluntary mediation.

However, pretending we are in the Land of Oz, even metaphorically, is probably not the best approach to resolving already-intractable disputes.

By contrast, local rules in both Delaware and S.D.N.Y. bankruptcy courts authorize mandatory mediation orders:

Delaware Rules provide: (1) “Notwithstanding any provision of law to the contrary, the Court may refer a dispute pending before it to mediation” [Rule 9019-3]; and (2) “The Court may assign to mediation any dispute arising in an adversary proceeding, contested matter or otherwise in a bankruptcy case” [Rule 9019-5].

S.D.N.Y’s Order on Mediation under Rule 9019-1 provides: “The Court may order assignment of a matter to mediation upon its own motion, or upon a motion by any party in interest or the U.S. Trustee.

Word is that both Delaware and S.D.N.Y. bankruptcy courts utilize such rules to good effect.

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