Chicago Bankruptcy Court v. Mediation: Making News . . . Again!

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Chicago    (photo by Grant Swanson)

By Donald L. Swanson

Back in February, 2016, we learn that the Bankruptcy Court in Chicago has revoked its local rules on mediation, while still encouraging parties to mediate their disputes.

This development seems a bit . . . well . . . bizarre. After all, for example, such an approach appears to violate Federal statutes and raises concerns over mediation confidentiality.

The latest news-heavy mediation item in this Chicago Court is the mediator’s resignation (dated September 9, 2016) in the Caesars Entertainment bankruptcy case (Doc. 4885, in Case No. 15-01145). A photo of the mediator’s resignation letter is here.

“Atypical” views on mediation confidentiality . . .

This Chicago Court makes statements in a Caesars bankruptcy hearing that the resigning mediator describes as:

–“atypical views of a mediation process” that would require the mediator to “breach the confidentiality of the mediation.”

Here are some of those judicial statements that ignore or disregard mediation confidentiality concerns:

“The debtors [point to] the mediator’s assertion in a written statement that the parties have made ‘material progress.’ Again, however, the mediator didn’t testify, so there was no opportunity to probe that assertion. His written statement seems to assume that progress consists primarily of frequent meetings and discussions, since that takes up the majority of his statement. . . . but meeting and discussing alone, without more, isn’t progress. His statement fails to describe the discussions themselves, the dates or locations when they took place, any proposals exchanged, or any distance remaining between the parties.”

[Quotation taken from page 10 of the “Transcript of Proceedings” dated August 26, 2016.]

The mediator takes umbrage at such mediation-confidentiality statements and responds, in his resignation letter, with this:

“as I read the recent hearing transcripts and the Court’s August 26 bench ruling, I was struck by the extent my Mediation Statement regarding the progress of the mediation – a standard report to a supervising Court – was the focus of the hearing and the Court’s observations. Apparently the Court did not find my progress report helpful because I didn’t breach the confidentiality of the mediation and testify in open court or describe the discussions and proposals exchanged, and detail the status of the differences among the parties.”

[Quotation taken from the mediator’s resignation letter dated September 9, 2016.]

Moreover, the mediator takes pains in his resignation letter to note that his mediation-confidentiality views are based on experience in complex Chapter 11 cases as both a bankruptcy judge and a mediator – he’s no neophyte:

“in my experience presiding over many complex Chapter 11 cases and mediating high profile Chapter 11 matters to successful conclusions, I believe . . . “

On the other hand . . .

There’s gotta’ be some empathy for the Judge on this:

–The Judge is making an important ruling; but he makes a mistake in using the mediation-related words quoted above as part of the rationale for his ruling.

The important ruling is a denial of the request by Caesars for an extension of the soon-to-expire injunction that had “halted civil actions” against its parent company.  The mediation-confidentiality words are only a portion of the Judge’s ruling:

–The ruling is made orally from-the-bench, and the mediation-confidentiality words are contained in 2 transcript pages of a ruling that covers 20 transcript pages.

–The mediation-confidentiality words are one of multiple grounds for denying the injunction.

The essence of the Court’s rationale in denying the extension is this: the injunction is, actually, an impediment to settlement efforts. The Court explains the impediment like this:

“The pace of discussions does not show that the current injunction is helping or that its expiration gives the parties much cause for concern. Given this history, in fact, it appears that it isn’t injunctive relief that promotes settlement here but rather its absence. The deadlines in the underlying guaranty litigation are what prompt the parties to act.”

This explanation appears to be well-founded and astute. So, it’s unfortunate that the Judge chose to use the mediation-confidentiality rationale to support his ruling.

Editorial Comments:

This Bankruptcy Judge would probably [or should] acknowledge, in retrospect, that his mediation-confidentiality words quoted above are a mistake.

If that happened, the mediator would probably retract his resignation. Existing settlement discussions could then go forward under the additional pressure provided by the injunction’s expiration.

The bigger problem, however, is that this Bankruptcy Court in Chicago is already on-record as antagonistic to mediation:

E.g., revocation of its local mediation rules is perceived as a highly-demonstrative show of contempt for that process; and

–The Judge’s above-quoted words on mediation-confidentiality are precisely-consistent with this perception of antagonism and contempt.

It’s all unfortunate.

Transcript:

Here is a link to the transcript of the Court hearing.  Mediation-related comments are on pages 9 and 10.

Follow-Up Article:

The Judge’s follow-up response to the mediator’s resignation is discussed here.

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