6 Reasons Why Bankruptcy Mediation is a Process, Not a One-and-Done Session: PART THREE — DISCOVERY VACUUM

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The Mime Artist: An information vacuum

By Donald L. Swanson

I’m mediating a bankruptcy valuation dispute between a bank secured creditor and debtor. The asset is a building in need of repair. The dispute has been pending for a short while, and a hearing on declaration evidence is to occur soon.

During the mediation, the banker says: “We need to see the building. We can’t settle without seeing the building.”

These words may not seem like a major problem. But I know, in real time, that we have a problem: this mediation is at a crossroads—and the problem is probably insurmountable.

I know that, as soon as the parties walk out my door, the mediation is over. Period. No matter what I say or do, when they leave to inspect the property, all parties will view the mediation as a failed effort and will not come back.

Here’s why:

–The mediation experience of the attorneys is in non-bankruptcy cases. In their experience, mediation commonly occurs after they’ve been through a year or more of interrogatories, requests for admission, requests for production, inspections of property, depositions and disputes over all such discovery things.

–In their experience, mediation rarely happens when a large discovery vacuum exists. So, they view mediation as a one-and-done session: if a settlement doesn’t happen during the one session, the mediation is over. Period.

–In bankruptcy, by contrast, the discovery vacuum is often huge. The timeline for bankruptcy disputes is often measured in weeks or a few months . . . not the one-or-more-years commonly seen in other courts.  In fact, traditional discovery is often nonexistent in contested matters and many adversary proceedings.

Back to the mediation session: I suggest, in multiple and varying ways, that we recess for a time so the bank can inspect the building with an appraiser—and then reconvene the mediation session.

“Sure. We’ll call back and reschedule after the inspection is accomplished,” I’m assured.

“Yeah . . . Right,” I’m thinking. “That’ll never happen.”

The mediation session ends. They all walk out the door. And, sure enough, that’s the end of the mediation.

Action Item. All participants in a bankruptcy mediation need to understand, in advance, that a discovery vacuum, (1) might require a recess in the mediation session until the discovery vacuum can be filled, or (2) needs to be identified and addressed in pre-session communications..

This post is Part Three 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.

 

6 thoughts on “6 Reasons Why Bankruptcy Mediation is a Process, Not a One-and-Done Session: PART THREE — DISCOVERY VACUUM

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  1. Fascinating to read, Don. While my workplace mediations are typically in a single session (of one or more consecutive days) restarting labor negotiations can take place in separate sessions broken up by sometimes weeks of silence. I would presume the best you can do is to keep checking in?

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  2. Thanks, Thornton.
    I’ve always wondered what lessons we might learn for bankruptcy mediation from labor negotiations.
    “Keep checking in,” sounds like good advice. Persistence often pays off.

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  3. I have always believed that when selected to mediate one of my responsibilities was to follow-up until resolution was implemented. I think that is appreciated and often surfaces some misunderstanding about a detail that I can then give additional guidance on. Pragmatically? Good for repeat clients. Hang in there, Don. Looking forward to #4 on Tuesday.

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  4. Depending upon the specific facts at issue in bankruptcy, the mediation could be structured in advance to accommodate more than one mediation session. Obviously, this would require a buy in by the parties to such a process. However, there is precedent for multiple mediation sessions in such areas as construction, IP, estate and family law disputes among others.

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  5. Very good information from all. I did not realize bankruptcy mediation was either being ordered or requested by the attorneys and/or banks and other creditors. I have 35 years of commerial banking experience at a high level before retiring. I have been mediating and consulting for 6 years since. I would appreciate any additional information.

    I believe Tennessee will soon join VA and NC with regards to foreclosure mediation also.

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