6 Reasons Why Bankruptcy Mediation is a Process, not a One-and-Done Session: PART TWO — NEED FOR QUICK RESOLUTION

By Donald L. Swanson

“You can’t fight every battle all the time,” and “You have to get as many settlements as you can—as fast as you can.”  These are truisms for debtor’s bankruptcy counsel.

In a Chapter 11 case, the debtor’s best-interest is to identify resolvable disputes promptly, get each of them settled as quickly as possible, and move on toward a final resolution of all disputes in a confirmed plan.

This best-interests lesson arrives in my early career: Debtor’s counsel in a Chapter 11 case resigns shortly after filing the case, and I step in.  A couple weeks later, a trial occurs on motions filed by many creditors to convert the case to Chapter 7.  The motions are based on all the usual grounds of continuing loss to the estate, gross mismanagement, etc.

The trial lasts a full day, with my client’s CEO the prime witness.  A dozen attorneys do a tag-team job of pummeling my guy into the ground.  It’s brutal.  And the gallery is filled with a couple dozen creditors—all of whom, I quickly learn, hate my guy . . . or, at least, think he’s a rat and wish him ill.

At the late-afternoon recess, my guy is feeling beat-up and bloodied.  He asks how I think it’s going.  “I’m not sure we can survive this,” is the most gracious-but-accurate response I can muster.

At trial’s conclusion, the Judge, (i) recites a long list of . . . let’s say . . . not-good findings about Debtor’s conduct, and (ii) lectures me on some of my deficiencies.

But, to my utter surprise, the Judge denies all conversion motions, without prejudice, for one reason: because we had already reached a settlement with one of the major creditors in the case.  And we deserve, he rules, a chance to pursue resolutions of other disputes.

Opposing attorneys are as stunned as I at this development.  And for the very first time, they begin to entertain a vague idea that settlements might be necessary and possible.

The next day would have been a perfect time to begin discussions about appointing a mediator.  Unfortunately, neither the Judge nor I are thinking about mediation possibilities back in those days.

As to the need for speed, keep in mind that this trial and ruling occur within the first 60 days of the case filing.  In non-bankruptcy cases, 60 days is barely beyond the service of process and answer day timeline—and a year or more will pass before a mediation is even considered.

Action Item.  At every significant development in a bankruptcy case, beginning at its earliest stages, parties should consider whether a mediation process might be helpful immediately in resolving remaining disputes.

This post is Part Two in a series of six articles explaining how and why bankruptcy mediation needs a different model from the one-and-done session commonly used in non-bankruptcy cases.