Usual Formula [Unsecured Claim + Bankruptcy = You Lose] Doesn’t Apply (the Nortel Networks Bankruptcy, Part six)


By: Donald L Swanson

Unsecured Claim + Bankruptcy = You Lose.

I came up with this formula back in 1983, while preparing for a seminar presentation on basic bankruptcy law.  I was trying to come up with something creative to say.  And . . . I must confess . . . I thought it was pretty clever at the time.

And now . . . I’m more-than-a-little pleased and proud [or as people say these days, “humbled”] that the formula proves to be accurate in the vast majority of all bankruptcy cases.

But what’s true in the vast majority of all bankruptcy cases has little to do with the Nortel Networks bankruptcy.

And so it is with my little formula — it has nothing to do with the Nortel Networks bankruptcy case.  Nothing.

Get this!

Back in July of 2015 (when total professional fees expended in the battle are only $1.3 billion), the Bankruptcy Court makes this finding:

–“A pro rata distribution would result in all Creditors receiving an approximate 71% return on their Claims.”

Say what?!  A 71% return?!

All this fighting has now cost $2 billion in professional fees.  And it’s over the last 29% of recovery?!

. . . Oh, my.

Unsecured creditors in nearly all bankruptcy cases would exult over a 71% return.

But no.  Not for Nortel Networks creditors.  “A 71% return” are fighting words.

“Don’t be settling these disputes in mediation,” seems to have been the battle cry.

Nortel Networks creditors apparently hope to dissipate the entire pot of gold — or at least most (or a large percentage) of it — to prove a point . . .  of some sort or other . . .  that is known only to themselves.

Here’s guessing that the continuing fight has a net-negative impact on everyone.  No one will ultimately win.

Surely there is a lesson in this for the rest of us?



Two College Football Coaches and Two Rape Victims: Accountability / Forgiveness / Reconciliation v. A Mediation No-Show

By Donald L. Swanson

Here are two recent news articles on similar subjects and similar circumstances . . . but with dramatically different approaches and results.

  1.   The first is from Yahoo Sports, dated June 20, 2016, titled, Attorney: Art Briles was a no-show at mediation meeting with [rape] victim.
  1.   The second is from The Washington Post, dated three days later (June 23, 2016), titled, I hated this man more than my rapists”: Woman confronts football coach 18 years after alleged rape.

Each article describes the actions of a college football coach in dealing with rape allegations against his former players.

These two articles show two different approaches for dealing with human tragedy.

Let’s start with the article on accountability / forgiveness / reconciliation.

Back in 1998, four football players gang raped Brenda Tracy.  Two of them played on Coach Mike Riley’s college team.  Rape charges against Riley’s players were dropped, and each received a one-game suspension.  Mike Riley is quoted back then as saying the two players “are really good guys who made a bad choice.”

Because of such actions and words, Brenda says she “hated” Mike Riley “more than my rapists.”  She told a newspaper that Riley’s words had “scarred” her, that she “despised” him, and that she “hated him with every cell” in her body.

Since the ordeal, Brenda Tracy has become an advocate for survivors of sexual assault.

A third-party neutral intervenes 

In December 2014, Mike Riley leaves his college team and becomes head coach at another college team.

Around that time, a reporter asks Mike Riley about Brenda Tracy.

–Mike Riley asks the reporter if Brenda Tracy might be willing to talk to his team about rape and about “how things can change for everyone in a moment like that.”

–Brenda Tracey agrees to do so and travels to meet with Riley and his team.

The reporter in this context, it seems, fills the role of a third-party neutral in bringing Brenda Tracy and Mike Riley together in a mediation-type setting.

–Because of such intervention, these two people are able to meet face-to-face in a non-adversarial setting, where healing has a chance to happen.

The results

The Tracy/Riley article linked above is a must-read.  But here are some excerpts on what happened:

–“She took a deep breath and went inside to face the man she had hated for 18 years.  “Hi, Brenda,” Riley said with a smile.  “Then he hugged me . . . He allowed me to cry on his shoulder for a few minutes.”  The two talked for more than an hour.

–“I said everything I needed to say.  I asked everything I needed to ask. . . . He answered everything. . . . And he apologized” . . . Perhaps most important of all, Tracy believed him.

Riley and Tracy

–After their meeting, it was time for Tracy to talk to [Riley’s football] team.  She told the players about her six hellish hours in the apartment, about the pain, the humiliation, the death threats.  Every detail.  And when she told the players that she used to hate Riley “more than my rapists,” she could feel 150 faces turn from her to the coach and back again.

–“This is what accountability looks like,” she told the players. . . . This is what transparency looks like.  This is how we get things done.”

–“It’s OK to be accountable,” she told the team . . . “It’s OK to say you’re sorry.”

–Later, she would tell reporters that she was “very proud of coach Riley and his football team.”

–She snapped a photo with Riley.

Now for the contrasting article.   

Jasmin Hernandez was raped by a former college football player coached by Art Briles.  The player is convicted and sentenced to 20 years in prison for the rape.

The college fires Briles over the matter.

Jasmin Hernandez sues three parties:  Briles, the college where he coached, and the college’s former athletic director.

Meanwhile, Briles and the college are in a dispute over his firing, and they reportedly reach a settlement agreement.  Around the time of this settlement, however, the following events occur, according to an attorney for Hernandez:

–A mediation session is scheduled to occur among Hernandez, Briles, the college, and the former athletic director.

–Briles “promised” to come to the mediation session “to support Jasmin … And help her, and to apologize to her and her family.”

–Hernandez was “cautiously optimistic” about this promise and was “definitely appreciative that [Briles] wanted to help and that he wanted to apologize.”

–However, Briles fails to show up for the mediation session, and the session ends without a deal.

The Hernandez attorney characterizes Briles’s failure to attend the mediation session this way:

–“[Briles] used the threat of helping Jasmin in her lawsuit against [the college] as leverage to negotiate his wrongful termination claim.”

–“[Briles] doesn’t care about victims. He never cared about victims. He’s using victims. He used them to help build up his football program, and now he’s using Jasmin to leverage more money out of” the college.

–Hernandez “was hurt. … She was upset and she was offended” by Briles’s mediation no-show.

Briles’s attorney does not offer an explanation for the mediation no-show, other than they “decided not to come.”


There is an obvious difference between these two circumstances:  one occurs in the context of an ongoing lawsuit, while the other does not.

But still . . . the contrasts in what happened are dramatic.

–One approach brings estranged parties together in a mediation-type setting, and remarkable healing occurs.

–The other approach fails: the parties do not meet, and the existing hurt and bitterness continue on and grow in intensity.

Surely, there are many lessons to be learned about mediation from these contrasting stories of pain and suffering and reconciliation and forgiveness  . . .

. . . and about how adversarial processes can impede reconciliation prospects.


ACTION ITEM: From Preparing for Multiparty Mediation — Part Two

Action Item. Issues relating to settlement impediments, parties, information and discovery, use of joint sessions, and tax implications need to be discussed in advance by the mediator with parties and their attorneys to prepare for multiparty mediation sessions.


Preparing for Multiparty Mediation: A Checklist — Part Two, Items 1 – 5

Prepared for the Performance

By Donald L. Swanson

Advance communications among the mediator, the parties and their attorneys can be helpful in creating an organization, structure and efficiency for multiparty mediation sessions.

The following are items one through five in a ten-item checklist of the types of subjects that should be addressed in the advance communications:

Item One.  Settlement Impediments.

To help parties divert attention from their most-cherished arguments and toward settlement possibilities, each party should provide the mediator with written answers to the following questions:

(1) Why haven’t the parties settled already?,

(2) What settlement possibilities might reasonably be anticipated?,

(3) What impasses and impediments to settlement currently exist?,

(4) What are the costs and risks of failing to settle now?, and

(5) What settlement terms might be negotiated in a mediation that could not otherwise be obtained?

Item Two.  Parties.

Absent parties have torpedoed many a mediated settlement:

(1) Are all necessary parties included in the mediation?

(2) Are insurance or other indemnification rights implicated?

(3) Would a party’s absence from the mediation tend to undermine or create problems for any settlement that might be achieved?

Item Three.  Information and Discovery.

A mediation session is not the proper venue for fighting discovery battles:

(1) Do mediating parties have all the information they need?

(2) If not, what specific information and documents (not merely generalized categories) need to be produced before the mediation session begins?

Item Four.  Use of Joint Sessions.

This is a truism: disputing parties don’t want to spend time together.  So:

(1) To what extent are the parties open to participating in joint sessions to streamline and facilitate communications?

(2) May the mediator exercise judgment on bringing some or all parties (or their attorneys only) together in joint sessions to communicate and discuss offers and information?

Item Five.  Tax Implications.

In business cases, taxes are almost always a bigger issue than initially anticipated:

(1) Are the parties aware of tax issues or consequences that might arise from a settlement?

(2) Will parties have advance discussions with their own tax advisers to anticipate potential tax issues and consequences?

(3) Will each party have a tax adviser standing by via telephone during the mediation session to address tax issues and concerns that might arise?

Action Item.  Issues relating to settlement impediments, parties, information and discovery, use of joint sessions, and tax implications need to be discussed in advance by the mediator with parties and their attorneys to prepare for multiparty mediation sessions.


Editorial Note: this article was originally published by the American Bankruptcy Institute in its October 2015 edition of the Mediation Committee Newsletter (Vol. 2, Num 3).

A 2011 Judicial Scolding Had No Discernible Effect on Mediation Efforts (Nortel Networks Bankruptcy, Part Five)

Chess Pieces — A Judicial Metaphor

By: Donald L Swanson

Back in 2011, the Third Circuit Court of Appeals wrote a scathing opinion about the behavior of the disputing parties in the Nortel Networks bankruptcy case.

The Third Circuit’s opinion is published at In re Nortel Networks, Inc., 669 F.3d 128 (3rd Cir. 2011).

However, the Third Circuit’s judicial scolding has had no discernible effect on the subsequent behavior of the parties.

Here is a portion of the Third Circuit’s scolding, which is also quoted in the “Conclusion” portion of the Bankruptcy Court’s allocation / distribution ruling:

Pensioner as Pawn

“We are concerned that the attorneys representing the respective sparring parties may be focusing on some of the technical differences governing bankruptcy in the various jurisdictions without considering that there are real live individuals who will ultimately be affected by the decisions being made in the courtrooms. It appears that the largest claimants are pension funds in the U.K. and the United States, representing pensioners who are undoubtedly dependent, or who will become dependent, on their pensions. They are the pawns in the moves being made by the Knights and the Rooks.

“Mediation, or continuation of whatever mediation is ongoing, by the parties in good faith is needed to resolve the differences. No party will benefit if the parties continue to clash over every statement and over every step in the process. This will result in wasteful depletion of the available assets from which each seeks a portion.”

[Bold face added for emphasis.]

[Editorial Note: This is the same Third Circuit Court of Appeals that will, ultimately, rule on the Bankruptcy Court’s allocation / distribution ruling, if the parties fail to reach a settlement first.

–Hmmmm, it’s not looking real good for the appellants right now.]

The Third Circuit Court’s worst-case prophecy is being fulfilled, as noted in the prior articles in this series.

Doesn’t everyone involved deserve better?


A “Mediation Order on Steroids” – The In re Syngenta Case

A Nebraska Cornfield

By: Donald L Swanson

Proactive mediation seems to be gaining traction in cases with large numbers of claimants and large amounts of money at stake.  Examples are the City of Detroit bankruptcy, the diocese bankruptcies, and the Argentina debt cases.

We can now add another example to the list: the multi-district case of In re Syngenta AG MIR 162 Corn Litigation, Case No. 14-md-2591, in the U.S. District Court for the District of Kansas.

The Judge in the Syngenta case recently entered a proactive mediation order.  It’s been called a “Mediation Order on Steroids!”

Growing Corn

The basic facts of the In re Syngenta case are these:

–Syngenta produces seed corn for farmers to plant.

–Syngenta developed a genetically modified strain of pest-resistant seed corn.  Syngenta placed this strain into the market, and farmers began planting it.

–Problems began when China started rejecting all corn shipments from the U.S. containing even a trace of this new strain.

–Corn prices in the U.S. began falling, and U.S. farmers began suing Syngenta to recover their losses.

Earlier this year (on March 23, 2016, at Doc. 1745), the In re Syngenta Judge enters his proactive mediation order titled, “Order Appointing Special Master for Settlement.”

Under this Order, the Judge grants a broad range of authority, “without limitation,” to the special master.  These items of authority are the steroids.  The special master (aka mediator) may, for example:

  1. “Order the parties to meet face-to-face and engage in serious and meaningful negotiations;
  2. “Construct an efficient procedure” for settlement negotiations, that includes “identifying” and “ordering” the production of information needed “to facilitate settlement”;
  3. Conduct “in-person settlement negotiations with the parties and their counsel in all cases”;
  4. “Order the appearance of any persons necessary to settle any claims completely”;
  5. “Make recommendations to the court concerning any issues that may require resolution in order to facilitate settlement or to efficiently manage the litigation”;
  6. “Direct, supervise, monitor, and report upon implementation and compliance with the court’s orders, and make findings and recommendations on remedial action if required”;
  7. “Schedule and hold conferences” and “regulate all proceedings”; and
  8. “Communicate ex parte with the court at any time.”

These are “proactive” provisions, indeed.  Proactive mediation is, obviously, alive and active in the In re Syngenta case.

ACTION ITEM: From Preparing for Multiparty Mediation– Part One

A learned-the-hard-way lesson for multiparty mediation is this:

Advance communications are needed to prepare multiple parties for final negotiations.


Preparing for Multiparty Mediation: A Checklist — Part One, Introduction


By Donald L. Swanson

Here’s a confession.

I’m in a four-party mediation.

It begins at 9:30 a.m. in a joint 30-minute meeting. The mediator then spends 30 minutes with each party. It’s now noon — we’re taking lunch orders — and the mediation process has only just begun!

At mid-afternoon, positions are far apart, and pressure mounts to make lots of progress in a hurry. At 4:30 p.m., one party meets with the mediator for only the second time — that’s after six hours of mostly twiddle-your-thumbs down-time!

However, all parties want to get a deal accomplished, and by 6:30 p.m. a settlement document is signed. Relief prevails.

But still, I’m thinking, “There has got to be a better way!”

During a three-decades-plus career representing bankruptcy committees and trustees, I’ve moderated the resolutions of many multiparty disputes (can’t say “mediated” on those because my client always had an interest in the outcome).

A learned-the-hard-way lesson for multiparty dispute resolution is this:

Advance communications are needed to prepare multiple parties for final negotiations.

The next two parts in this three-part series will provide a 10-item checklist of subjects to be covered in the advance communications.


Editorial Note: this article was originally published by the American Bankruptcy Institute in its October 2015 edition of the Mediation Committee Newsletter (Vol. 2, Num 3).

A Suggestion: Shut-Off-The-Spigot Plus Mandatory-Mediation (the Nortel Networks Bankruptcy, Part Four)

The “spigot” in the Nortel Networks Bankruptcy is huge.

By: Donald L Swanson

First of all, I know this suggestion will never happen.

But it should.

This suggestion, if implemented long ago, would have dramatically increased odds of a mediated settlement in the Nortel bankruptcy.  Such a settlement would have stopped the excessively-expensive and excessively-long-running legal battles in the Nortel Networks bankruptcy (Case No. 09-10138 in Delaware).

The suggestion is this:

–Shut off the spigot for payment of fees from the bankruptcy estate for non-debtor professionals; and

–Require another round of mediation.

This suggestion means, (i) disallowing all fee applications for committees and other non-debtor professionals, and (ii) continue disallowing such fees until a resolution of all pending disputes is reached.

For such period of time, each creditor and other constituency would be obliged to pay its own professional fees, instead of getting paid from the $7.3 billion pot of gold.

This approach would bring a more-realistic assessment of risks and benefits and costs to the mediation effort.

Wouldn’t this be a better way?


A New ABI Book on Bankruptcy Mediation!

By Donald L. Swanson

Last night I came across this new boBankruptcy Mediationok on bankruptcy mediation. 

I ordered it immediately!  And can’t wait to read it.

I know its authors.  They all have great legal minds and a depth of practical and scholarly experience in bankruptcy mediation.

This book is a must-have and can be ordered here.