Bankruptcy Mediation? “Over My Dead Body,” Says a Bankruptcy Judge (IN RE SMITH, Part One)

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By Donald L. Swanson

Not everyone is a fan of mediation. And one Texas Bankruptcy Judge is emphatically opposed.

Judicial Actions

Here is an unofficial transcription (from the official recording) of an in-court exchange occurring on September 3, 2014, as reported on this webpage:

“The Court: . . . Is the Trustee eventually going to be using estate funds to pay the mediator?

Male Speaker: I think that’s what we had envisioned.

The Court: Over my dead body. I do not like mediation. I think it is wasteful for the most part and you all needed to get my permission.

As to possibilities for compensating  the Trustee’s efforts in mediation, the Judge says:

Ain’t gonna happen. Don’t you ever do that again.”

The Judge explains:

I think for the most part mediation is a waste of time and money. You all are grown up big boy attorneys. You can talk settlement. You’ve been talking settlement And I’m not going to allow more money to go to a mediator. Either you settle it or you don’t. But don’t ever do that again. . . .

I think mediation is undercutting the jury trial system in this country and I think it is making lawyers lazy and judges lazy and I also think it’s excess costs to pay for a mediator. . . . And I think it is rare that I allow people to go to mediate so don’t do it ever again.”

Judicial Opinion

The Judge in this case also issues a written opinion on the matter (In re Smith, 524 B.R. 689 (Bkry.S.D.Tex. 2015)).  In this opinion, the Judge explains the concerns he holds about mediation, including these:

“Mediation is not free. The parties must pay not only the mediator, but also their respective counsel”

“Some clients do not want to be forced into mediation; rather, they simply want their day in court because they want vindication from a judge that their actions were legal, or at least not illegal.”

“Fear of trial by the attorney is another factor . . . Some attorneys who are not experienced in actually trying disputes in the courtroom push their clients into mediation by explicitly — and incorrectly — telling them that the judge insists that the parties undergo mediation or that the local rules require mediation.”

“Another factor to consider is whether the attorneys for the parties are able to communicate with each other as well as with their own clients.”

“The final factor to consider is the importance of having a hearing (or trial) so that one party will win and the other will lose. The losing party, by learning a hard lesson in the courtroom — including how unpleasant it can be to undergo cross-examination by opposing counsel — may stop behaving in the manner that created the dispute in the first place. However, if that same party does not lose in the courtroom, but rather settles at a mediation (without the embarrassment and sting that can come with a courtroom loss), the party is more likely to continue the same behavior and foment future disputes similar to the one that has settled in mediation. Thus, in certain instances, it is appropriate for a court to deny mediation in the interest of pushing a ‘winner take all’ scenario.”

So . . . there you have it.

Editorial Comments

I’m going out on a limb here:  I think the foregoing judicial actions and rationale are faulty — and more-than-a-little bizarre!

For starters, what’s with an “undercutting the jury trial system” rationale from a bankruptcy judge?   Jury trials are exceedingly rare in bankruptcy courts.

And the Judge’s “final factor to consider” is disturbing.

A function and purpose of a bankruptcy trial is to teach “a hard lesson” to bad actors through an “embarrassment and sting”?!

–Such a stereotype might have validity in a criminal case where the defendant actually committed a crime (yet, plea bargains are common in the criminal world).

–But in the bankruptcy world, this stereotype is downright awful!!  It’s an affront to all those innocents who get dragged into a difficult situation against their will.

–What about, for example, preference defendants who did nothing wrong?

–What about lien priority disputes over technical filing and notice rules?  Improprieties are nowhere involved.

–Or what about an injured party who wants a settlement as quickly and efficiently as possible and has no interest in teaching any kind of lesson to anyone?

–And whatever happened to the interests of judicial economy?  Trials are expensive.

Scheesh!!  I get irritated all-over-again every time I re-read that “final factor.”  . . . Which means it’s probably time for me to stop typing.

 

 

 

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