Local Mediation Rules Revoked in Chicago Bankruptcy Court?! Insights From a Chicago Mediator (Updated 3/24/2016 with Responses)

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Co-chair of Bankruptcy, Reorganization and Creditors Rights Practice at Shaw Fishmen Glantz & Towbin LLC

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Robert M. Fishman mediates bankruptcy disputes across the entire U.S.A.

Mr. Fishman hails from Chicago and provides the following article on a recent revocation of Local Bankruptcy Rules on mediation in the Northern District of Illinois.

IT’S ALL ABOUT THE CULTURE

  By Robert M. Fishman

What makes mediation the “go to” approach to dispute resolution in some jurisdictions and an afterthought in others? Mediation is basically the same process in all places, with the same benefits and the same risks. Yet in certain jurisdictions, such as Florida, New York, Delaware and New Jersey, it is widely and successfully utilized, and in other jurisdictions, such as Illinois, it is available but not a mainstream part of the insolvency community culture.

     I think it starts and ends with the bankruptcy judges of each jurisdiction. When the judges recognize the benefits of mediation and openly support its utilization, it becomes ingrained in the local culture and becomes a natural part of the process. When the judiciary is indifferent or in certain cases, even somewhat hostile towards mediation, parties shy away from it and it becomes the exception and not the rule.

     Many bankruptcy courts in the United States do not have mediation rules. The Eastern District of Wisconsin is considering the adoption of local mediation rules. It appears to me that no local mediation rules exist in Arkansas, the Western District of Michigan, the Western District of New York or South Dakota.

     In the fall of 2015, the bankruptcy judges of the Northern District of Illinois (“ND Ill”) met in full session and proposed a series of amendments to the Local Rules. Shortly thereafter, the proposed changes were officially adopted. While the bulk of the changes were designed to conform the Local Rules to modern and current practice, one change caught my eye as being a significant (and unfortunate) statement about the local culture. The judges proposed revoking the Local Rules respecting mediation in their entirety. The comments accompanying the proposed changes, as set forth below, explain the thinking:

These Local Rules should be deleted as unnecessary. The rules established a mediation program that, in actual practice, parties have not employed. Rather, several of the bankruptcy judges have agreed to mediate matters for their colleagues, and each bankruptcy judge handles mediation requests as he or she deems most appropriate.

     I do agree with the bankruptcy judges that the mediation process as provided in the previously applicable Local Rules was seldom used. That lack of utilization was a product of several factors. First of all, there never has been a culture of mediation developed in the ND Ill. Additionally, the judges’ general reliance on their sitting bankruptcy judge colleagues as mediators is not universally seen as a positive thing and has often discouraged resort to mediation. Lastly, historically, several of the judges have not been advocates of mediation as a particularly useful or effective tool in resolving disputes in bankruptcy cases.

     I was very disappointed in the judges’ decision to abandon a formal mediation process. I think the trend across the country is toward more usage of mediation in bankruptcy cases. The existence of local mediation rules encourage the use of mediation and make it clear how parties can access the process. When you couple local mediation rules with a culture that encourages use of mediation, you have an environment where mediation has the best chance to flourish. I also think that most jurisdictions are shying away from primarily relying on sitting bankruptcy judges to conduct meditations .

     The first public “consequence” of the revocation of the Local Rules respecting mediation in the ND Ill. occurred in February in the In re Caesars Entertainment Operating Company, Inc., a large and complex chapter 11 case pending in the Bankruptcy Court of the ND Ill (the “Caesars Case”). The debtors in the Caesars Case filed a motion with the Bankruptcy Court, asking the court to “appoint” a mediator to conduct a mediation process in the case. While the Bankruptcy Judge was very supportive of the parties’ desire to use mediation, he refused to enter the order, citing to the recent revocation of the Local Rule that authorize such an appointment and concluding that he didn’t have the authority to order parties to mediation. He did remind the parties that, of course, they could agree to mediate anything that they wanted to mediate.

     This situation highlights both the lack of a mediation culture in Illinois and the fallacy of the parties simply agreeing to mediation. If only one party of consequence in the Caesars Case decides that it is in its strategic best interest to not participate in mediation, it is likely that mediation in such circumstances will not be capable of achieving the intended results, a global resolution of all of the significant issues. Often times, even unwilling mediation participants “come around” once the Court-ordered mediation starts and end up reaching a consensual resolution of its issues.

     It seems indisputable to me that a circumstance could arise in a bankruptcy case where the judge sees that mediation would likely be useful and one party obstructs the effort on a strategic basis. The court’s ability to direct that the parties engage in mediation is not guaranteed to cause the desired results, settlement, but it often seems to end up with that result. Sometimes just getting parties to the table is the key component of resolution. In the ND Ill, apparently, such a direction to mediate is no longer possible. One less arrow in the quiver of problem solving tools.

RESPONSES RECEIVED — as of 3/24/16 at 11:48 a.m. (central)

“Don,

     Local mediation programs work if the bench and the bar accept the process and willingly make use of it. I’ve been on the CDCA panel since its inception in 1995 and Delaware since 2003. These programs work. But it takes the lawyers to be willing to participate and then get their clients to buy into the process. Without that, no program will work.”

Geoffrey L. Berman, Sr. Managing Director at Development Specialists, Inc.

“I agree with Geoff. That’s what makes it work here in Delaware. In addition, we have required mediation in all of our preference cases since 2004. Mediation is part of our culture; and has allowed us to keep up with a very size-able caseload.”

David D. Bird, Clerk of Court/ADR Coordinator, U.S. Bankruptcy Court in the District of Delaware.

 

 

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