Incongruity = What’s With Bankruptcy Courts Ignoring Federal Mediation Law? (Part 2)

By: Donald L Swanson

“Each United States district court shall authorize . . . the use of alternative dispute resolution processes in all civil actions, including adversary proceedings in bankruptcy.“

—28 U.S.C. § 651.

To date, many bankruptcy courts are still without local mediation rules, despite such statutory language.

How can this be?

An Explanation

One explanation is that, many years ago, the Administrative Office of the United States Courts determined that the above quoted language (“all civil actions, including adversary proceedings in bankruptcy”) applies “only to adversary proceedings where the reference has been withdrawn” by the district court.

This explanation is faulty.

Here are some reasons why it’s a faulty explanation.

Statutory Construction.  

1.  The “adversary proceeding in bankruptcy” phrase is a term of art under Part VII of the Federal Rules of Bankruptcy Procedure:  it refers to a lawsuit pending in a bankruptcy court under Fed.R.Bankr.P. 7001 et seq.

Upon withdrawal of the reference of a case to bankruptcy court by a U.S. district court, the case is no longer an “adversary proceeding in bankruptcy.”  Instead, it becomes a lawsuit pending in the U.S. district court under the Federal Rules of Civil Procedure.

When a case is pending in a U.S. district court, it is automatically covered by the U.S. district court rules.  So the “adversary proceeding” reference, if it only applies to cases pending in the U.S. district court, would be nothing more than surplusage and redundancy.

2. Formal findings in the Alternative Dispute Resolution Act of 1998 include this reference to all “Federal trial courts,” without distinguishing between district courts and bankruptcy courts—both of which qualify as “Federal trial courts”:

–“the continued growth of Federal appellate court-annexed mediation programs suggests that this form of alternative dispute resolution can be equally effective in resolving disputes in the Federal trial courts.“

Broad Federal Policy

In the late 1990s, the U.S. Government adopted alternative dispute resolution policies and practices throughout the entire Federal system.  For example:

1. Congress adopted the Administrative Dispute Resolution Act of 1996, which provides:

“Each agency shall adopt a policy that addresses the use of alternative means of dispute resolution and case management.”

2.   The Federal Sector Alternative Dispute Resolution Fact Sheet indicates:

“As of January 1, 2000, all federal agencies were required to establish or make available an ADR program during the pre-complaint and formal complaint stages of the EEO process.”

3. The General Counsel of the Army reports as follows:

“Stemming from the Administrative Dispute Resolution Acts of 1990 and 1996, federal agencies have introduced ADR processes as a means of resolving just about every type of dispute, in just about every area of endeavor.”

4.     The Office of Personnel Management’s “Alternate Dispute Resolution Handbook” indicates:

“In the 1990s, Congress passed three statutes . . . which, collectively, required each agency to adopt a policy encouraging use of ADR in a broad range of decision making, and required the federal trial courts to make ADR programs available to litigants.”

5. On May 1, 1998, the President of the United States issued this statement in his “Memorandum for Heads of Executive Departments and Agencies”:

“As part of an effort to make the Federal Government operate in a more efficient and effective manner, and to encourage, where possible, consensual resolution of disputes and issues in controversy involving the United States, including the prevention and avoidance of disputes, I have determined that each Federal agency must take steps to:

1. promote greater use of mediation, arbitration, early neutral evaluation, agency ombuds, and other alternative dispute resolution techniques, and

2. promote greater use of negotiated rulemaking.”

CONCLUSION

Based on the statutory language and broad statements of public policy noted above, the reference to “adversary proceedings in bankruptcy” in the Alternative Dispute Resolution Act of 1998 requires that mediation rules be adopted in each and every bankruptcy court.

–Bankruptcy courts without such rules are ignoring and violating this Federal statute.

Here is a link to Part 1 of this series.