We Need Regional Mediation Hubs for Mega-Case Avoidance Actions — Part Three, a West Coast Example

Coast-to-coast travel costs and troubles are serious impediments to mediations that must occur on the East Coast

By Donald L. Swanson

The proposal for mega-case avoidance actions is to hold mediation sessions in regional hub cities near where multiple defendants reside (instead of Wilmington or New York City) and include trained mediators from those regions on the panel of mediators.

A West Coast example of how the proposal could help is In re WL Homes LLC, Case No. 09-10571 in Delaware.  WL Homes involves a builder of luxury home developments in Southern California that files bankruptcy in 2009 amid the housing market collapse.  Most creditors in WL Homes are from California—and few are from anywhere near Delaware.

The Chapter 7 Trustee files 388 adversary proceedings to recover preference claims.  Most defendants in these proceedings are from California.

In each of the WL Homes adversaries, the defendant is notified of a mediation process. However, a mediation session occurs in only 6 of the 388 adversaries.  For these 6, the amounts at issue are between $92,000 and $500,000

The distance between Los Angeles and Wilmington, Delaware, is 2,700 miles.  Travel costs and troubles are commensurately high.  Accordingly, establishing a Regional Mediation Hub in California would be helpful in the  WL Homes case.

An assumption behind this post and the prior two parts of this Regional Mediation Hubs series is this: using mediation to resolve bankruptcy disputes is a good thing. Some professionals might debate the value of this assumption. But here is something we can all agree on: because a mediation system exists, it needs to be accessible to all—including far-away defendants.

Action Item.  This Regional Mediation Hubs proposal would mitigate many concerns of far-away defendants, improve efficiency of preference processes, and increase the number of cases actually mediated.  Accordingly, it should be adopted and implemented as soon as possible.

Note: An expanded version of this article was originally published here: in the March 2016 edition of the ABI Business Reorganization Committee Newsletter (Vol. 15, Num 1).

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