Innovation by the Second Circuit: Creating a Mediation Pathway in the 1970s

The pathway is now well-used

By: Donald L. Swanson

“The civil Appeals Management Plan (CAMP), now operating in the United States Court of Appeals for the Second Circuit, is an innovative set of reforms in the appellate process. . . . This is the first time the [mediation] procedure has been implemented systematically.”

–1977 Report of the Federal Judicial Center, “An Experiment in Judicial Administration.”

Funding and Rationale for the Innovation

The CAMP mediation program began in 1974 as an experimental effort by the U.S. Second Circuit Court of Appeals.  The program got off the ground with initial financial support from the Federal Judicial Center.

A burgeoning caseload rationale for this experiment-in-mediation is explained in the 1977 Report like this:

“Today, it is common to point to the dramatic growth in the business of federal courts over the last fifteen years.  While growth in court business is nothing new, the increase in the business of the federal courts of appeals during the last two decades is unprecedented in the history of this institution.”

“Demands for the services of the federal appellate courts seem to have outstripped the available supplies.  There are strong suggestions that simply meeting the growth in demand with increased resources is unsatisfactory for the court of appeals. An increase in the number of active judgeships for a circuit is not without its own costs.”

Innovation Results

An initial evaluation of the mediation program in this 1977 Report found little to cheer or brag about:

“The results . . . suggest suspending judgment on CAMP. It seems clear that the plan does not yet live up to early expectations, but the evidence does not prove the CAMP idea ineffective.  . . . Rigorous evaluation is essential to any further work in this area. Without such research, effective reform of the appellate process will remain an elusive goal.”

However, a 1983 follow-up evaluation and Report contains these “strikingly more favorable” conclusions:

“The Second Circuit remained committed to the CAMP concept and maintained the program” after the 1977 Report.

“The findings in this second evaluation are strikingly more favorable. The benefits disclosed by the first study persisted into the period covered by this evaluation.”

“Of even greater significance, the hoped-for increase in settlements of appeals, which eliminated the need for full argument, was achieved at statistically significant levels.”

“A number of federal and state courts have launched programs reflecting the CAMP approach; still others are presently considering a variety of related programs.”

–“The measure of potential benefits identified in this study will certainly be encouraging to those courts.”

–“Indeed, the potential is so great that all persons sharing responsibility for the management of appellate caseloads should give these procedures serious consideration.”

See, 1983 Report of the Federal Judicial Center, “Reevaluation of the Civil Appeals Management Plan.”

Demonstration of Success

The success of the Second Circuit’s mediation experiment is demonstrated in the following information:

–by 2001, all U.S. Circuit Courts of Appeals “have well-established mediation programs” similar to the Second Circuit’s CAMP program.  There is, however, one exception and one variation:

–The exception.  “The U.S. Court of Appeals for the Federal Circuit is the only Circuit Court of Appeals that does not have a mediation program that provides third party assistance to parties seeking an alternative to appellate litigation. . . .  The Federal Circuit does not provide any form of mediation . . . leaving unassisted settlement negotiations or appellate litigation as the only options.

[Note:  Effective December 6, 2013, the Federal Circuit adopted a mediation program similar to that of other circuits.]

–The variation.  The Eighth Circuit’s mediation program is voluntary, while mediation programs in the other Circuits are mandatory.

The various Circuit Courts adopted mediation programs under Fed.R.App.P. 33 in the following years:

1974  —  Second Circuit (as discussed above)

1981  —  Sixth Circuit

1981  —  Eighth Circuit

1984  —  Ninth Circuit

1987  —  D.C. Circuit

1991  —  Tenth Circuit

1992  —  First Circuit

1992  —  Eleventh Circuit

1994  —  Fourth Circuit

1994  —  Seventh Circuit

1995  —  Third Circuit

1996  —  Fifth Circuit

See, Ginsburg, The Case for a Mediation Program in the Federal Circuit, 50 American University Law Review 1380 (2001).

The Federal Circuit adopts a similar mediation program in 2005.

Editorial Comment

The Second Circuit’s mediation program is seven-years to two-decades (and more) ahead of similar programs in the other Circuit Courts of Appeals.  Indeed, the other Circuit Courts followed the Second Circuits innovations and lead.

Obviously, we owe a debt of gratitude to the Second Circuit for its foresight, creativity and pioneering efforts on mediation and for blazing a now-well-used pathway toward mediation as a primary dispute-resolution tool for the Federal judicial system!


Include “Settlement Document Preparation” in Pre-Mediation Checklist to Avoid Wasteful Litigation


By: Donald L. Swanson

More than three years of wasted litigation:  that’s what it looks like from the outside.

The parties had been fighting, in 2012 and early 2013, about a management agreement for operating a casino.

But in June of 2013 the fight changes from a dispute over the management agreement to a dispute over the terms of a mediated settlement agreement.

And they’re still fighting

Chronology of the Mediation Dispute:

–June 3, 2013: Mediation results in a signed memorandum of understanding (“MOU”).

Shortly thereafter, the deal falls apart.

–August 5, 2013: One party sues the other to enforce the terms of the MOU.

–April 21, 2015: The U.S. District Court for the Southern District of Iowa determines, on summary judgment, that “the MOU does not constitute a binding and enforceable contract.”

The losing party appeals.

–June 24, 2016: The Eighth Circuit Court of Appeals determines that “summary judgment was not warranted on the grounds stated by the district court” and remands the case for further proceedings.  Clarke County Development Corp. v. Affinity Gaming LLC, Case No. 15-2032 (8th Cir. June 24, 2016).

–September 13, 2016:  Back in the District Court, the parties file their “Joint Statement Regarding Issues Remaining for Pre-Trial Ruling.”

–January 9, 2017:  This is the scheduled date for trial on the MOU’s enforceability.

The MOU Problem:

The MOU discusses a need, after conclusion of the mediation session, to prepare “a formal settlement agreement” and to “present such agreement to the Iowa Racing & Gaming Commission for formal approval.”  The MOU also references future approvals by the City of Osceola, by the Osceola Water Works Board of Trustees, and by “the parties’ respective Boards.”

The U.S. District Court rules on summary judgment that the MOU “is not a binding and enforceable contract” because the parties did not formalize their agreement or obtain any of the required approvals.

The Eighth Circuit reverses and remands:

“We conclude that there are genuine issues of fact concerning whether board approval is a condition precedent that must be satisfied before the parties can enforce the memorandum of understanding.”

“The memorandum at issue here includes no provision stating expressly that ‘no contract shall be effective or binding’ until a particular condition is satisfied.”

Litigation Waste:

There is no shame in a mediated settlement agreement falling apart for lack of subsequent approvals.

The shame and waste is in a multi-year fight over whether the mediated settlement agreement is effective.  During such time, the parties aren’t dealing with the merits of the underlying dispute – at all.

So, what happens on remand, if the District Court rules again (this time after trial, instead of summary judgment) that the MOU is not enforceable?

–Another appeal?  Probably.  And that will create additional waste.

–My prediction is this: it looks like the MOU will not be enforced, leaving the parties back in their 2013 pre-mediation status.  The parties will then, undoubtedly, go back to fighting their underlying disputes from 2012—after a multi-year, litigation-filled hiatus.

The Pre-Mediation Checklist Need:

Here’s the lesson that this case reveals:

–Pre-mediation checklists need to contain an item for advance preparation of settlement agreement language.  This need is especially acute when the expectation is that mediation will consist of a one-and-done session.

–If, for example, one of the parties knows it will need post-settlement approvals and that such approvals are essential to any settlement, then that party ought to prepare in-advance the draft language for such approvals — and have such language in-hand when the mediation session begins.

–Better yet, the parties ought to be exchanging and discussing such draft language long-before the mediation session begins.

–Additionally, the mediator should be providing leadership for including this item in pre-mediation checklists and for assuring that the item is addressed.


The “Sporting Theory of Justice” and the Mediation Profession: Roscoe Pound

By: Donald L. Swanson

The response of the [American Bar] Association to that 1976 re-examination of Pound’s criticism was immediate . . . One very important program was aimed at developing alternative methods for resolving disputes.

            –Chief Justice Warren E. Burger, February 12, 1984.

Roscoe Pound, a young man from Nebraska

Roscoe Pound, a young man from Nebraska in 1906, became one of the great deans of the Harvard Law School.  As explained in this article, Chief Justice Warren Burger attributes the beginnings of the modern mediation profession to Roscoe Pound’s 1906 speech to the American Bar Association and a 1976 re-examination of that speech by that same Association.

Roscoe Pounds 1906 speech is titled, “The Causes of Popular Dissatisfaction with the Administration of Justice.”  A portion of the speech deals with “causes lying in the peculiarities of our Anglo-American legal system.”

Here are some of Pound’s observations on a “sporting theory of justice” that, undoubtedly, moved the American Bar Association, in 1976, to action and toward the beginning of today’s mediation profession:

Roscoe Pound’s Words . . .

“Sporting theory of justice”

“The sporting theory of justice, the ‘instinct of giving the game fair play,’ as Professor Wigmore has put it, is so rooted in the profession in America that most of us take it for a fundamental legal tenet.  But it is probably only a survival of the days when a lawsuit was a fight between two clans in which change of venue had been taken to the forum.  . . . With us, it is not merely in full acceptance, it has been developed and its collateral possibilities have been cultivated to the furthest extent.  . . .

The idea that procedure must of necessity be wholly contentious disfigures our judicial administration at every point.

–It leads the most conscientious judge to feel that he is merely to decide the contest, as counsel present it, according to the rules of the game, not to search independently for truth and justice.

–It leads counsel to forget that they are officers of the court and to deal with the rules of law and procedure exactly as the professional football coach with the rules of the sport.

–It leads to exertion to ‘get error into the record’ rather than to dispose of the controversy finally and upon its merits.

–It turns witnesses, and especially expert witnesses, into partisans pure and simple.

–It leads to sensational cross-examinations ‘to affect credit,’ which have made the witness stand ‘the slaughter house of reputations.’

–It prevents the trial court from restraining the bullying of witnesses and creates a general dislike, if not fear, of the witness function which impairs the administration of justice.  . . .

–It creates vested rights in errors of procedure, of the benefit whereof parties are not to be deprived.  The inquiry is not, What do substantive law and justice require?  Instead, the inquiry is: Have the rules of the game been carried out strictly?”

Still Ring True Today.

Roscoe Pound’s observations, in his 1906 speech, still have a ring of truth today—and continue pushing parties toward mediation.  For example:

Uncertainty, delay and expense, and above all the injustice of deciding cases upon points of practice, which are the mere etiquette of justice, direct results of the organization of our courts and the backwardness of our procedure, have created a deep-seated desire to keep out of court, right or wrong, on the part of every sensible business man in the community.

And the conclusion of Roscoe Pound’s speech still provide hope in today’s world:

We may look forward confidently to deliverance from the sporting theory of justice; we may look forward to a near future when our courts will be swift and certain agents of justice, whose decisions will be acquiesced in and respected by all.


It seems that the “sporting theory of justice” decried by Roscoe Pound in 1906 is still with us today – more than a century later.

And perhaps it is the persistence of this theory that accounts for the prominence of mediation today as a primary dispute resolution tool throughout our entire judicial system.





Mediation Without Confidentiality Rules: This Needs to Change

Caesars (photo by Marilyn Swanson)

By: Donald L. Swanson

“You don’t need my permission. Just click your heels together three times and say, ‘There is no place like mediation.’”

–U.S. Bankruptcy Judge Benjamin Goldgar, In re Caesars Entertainment hearing on 2/18/2016.

Despite such a statement, the Bankruptcy Court in Chicago had already, prior to February 2016, revoked its local rules on mediation.

Fast-forward to mid-September of 2016. This same Bankruptcy Court in the same In re Caesars case bemoans a mediator’s failure to provide evidence on usually-confidential mediation details.

–In response, the mediator resigns.

What these events reveal is the desperate need for a Federal Bankruptcy Rule on mediation with confidentiality requirements.

The reality, in Chicago’s Bankruptcy Court, is that no mediation rule exists: no local rule, no Federal rule, no statute . . . nothing. So, when a mediation session does occur in such Court, there is no basis for imposing confidentiality requirements on the process.

–The parties might agree to confidentiality. But such an agreement does not bind others or the Court.

Rule 408 of the Federal Rules of Evidence provides confidentiality protection for settlement discussions. But this protection is limited, and it is subject to significant exceptions: e.g., “The court may admit this evidence for another purpose” [Rule 408(b)].

–A state mediation statute might, arguably, be applicable. But the In re Caesars Judge gives no credence, whatsoever [not even a nod], to the Illinois Alternative Dispute Resolution Act, which provides for mediation confidentiality.

So . . . when the Judge in In re Caesars declares his expectation that the mediator should have provided substantive evidence on usually-confidential mediation details, the Judge is acting within existing rules.

–Such judicial expectation may be anathema to those who view mediation confidentiality as nearly-sacred.  But the Judge is, technically, acting appropriately.

–This needs to change!

Similarly, if there are 40 additional bankruptcy courts in the United States without local mediation rules, these 40 additional bankruptcy courts are in the same boat as the Bankruptcy Court in Chicago: they have no mediation rules.

–This also needs to change!

The way to accomplish the needed change is to adopt a Federal Bankruptcy Rule on mediation that imposes mediation confidentiality requirements upon all bankruptcy courts.

–Such a Rule needs to be adopted as quickly as possible.

–With such a Rule in place, the In re Caesars mediator-resignation flap could not have occurred–either in Chicago or in any other bankruptcy court in these United States.

How the Mediation Profession Began: from Chief Justice Warren E. Burger, 1984 (Part 1 of 2)

Chief Justice Warren E. Burger

By: Donald L. Swanson

In days-gone-by, civil lawsuits commonly end in a judgment after trial or an appeal.

Today, civil lawsuits commonly end in a mediated settlement.

On February 12, 1984, Chief Justice Warren E. Burger explains some early history for such change, to a meeting of the American Bar Association.  His speech begins like this:

The response of the American Bar Association in our time to the needs of the courts and the American people is in considerable contrast to its response to a speech given 78 years ago by Roscoe Pound, a young man from Nebraska, who later became one of the great deans of the Harvard Law School.

At the meeting of this Association in 1906, he addressed “The Causes of Popular Dissatisfaction with the Administration of Justice.”  At that time, this Association . . . was an establishment-oriented organization quite satisfied with the status quo.  The leaders of the Association rejected Pound’s criticisms to the point that the Association initially refused to publish his speech.  . . .

Now we know it as a classic—so much so that eight years ago, our Association joined [others] to sponsor one of the more significant legal meetings in recent times. By design, that conference, which came to be known as the Pound Conference, was held in St. Paul, Minn., and was convened in the very room of the State House of Representatives and at the very lectern where Pound made his 1906 speech.

The response of the Association to that 1976 re-examination of Pound’s criticism was immediate, and you are familiar with the various programs which it generated.  One very important program was aimed at developing alternative methods for resolving disputes which now inundate all the courts of this country.

(Emphasis added.)

Chief Justice Burger added the following explanation in his speech:

We Americans are a competitive people and that spirit has brought us to near greatness.  But that competitive spirit gives rise to conflicts and tensions.

Our distant forebears moved slowly from trial by battle and other barbaric means of resolving conflicts and disputes, and we must move away from total reliance on the adversary contest for resolving all disputes.  For some disputes, trials will be the only means, but for many, trials by the adversary contest must in time go the way of the ancient trial by battle and blood.

Our system is too costly, too painful, too destructive, too inefficient for a truly civilized people.  To rely on the adversary process as the principal means of resolving conflicting claims is a mistake that must be corrected.

(Emphasis added.)

The Chief Justice adds these observations toward the conclusion of his speech:

The entire legal profession—lawyers, judges, law teachers—has become so mesmerized with the stimulation of the courtroom contest that we tend to forget that we ought to be healers—healers of conflicts.  Doctors, in spite of astronomical medical costs, still retain a high degree of public confidence because they are perceived as healers.  Should lawyers not be healers?  Healers, not warriors?  Healers, not procurers?  Healers, not hired guns?

(Emphasis added.)

Part 2 of this series will highlight Roscoe Pound’s comments in his 1906 speech.

Bankruptcy’s “Mediation Desert” Needs to Bloom: The Eighth Circuit Example

Blooms in the desert — Bellagio (photo by Marilyn Swanson)

By: Don Swanson

I’m always hesitant to say something doesn’t exist . . . because I might have missed it.

–Nevertheless,  I’m going to give it a shot, knowing I can, later, edit-out any error brought to my attention.

My focus, here, is on whether bankruptcy courts within the Eighth Circuit Court of Appeals system (the Circuit where I reside) have local rules on mediation.

Bankruptcy Courts WITHOUT Local Mediation Rules

The following seven bankruptcy court districts within the Eighth Circuit system HAVE NOT adopted a local rule on mediation and, collectively, create a large swath of “mediation desert” (as defined here) across the central part of the United States:

Arkansas, Eastern District

Arkansas, Western District

North Dakota

South Dakota

Iowa, Northern District

Iowa, Southern District

Missouri, Western District.

Bankruptcy Courts Who HAVE Adopted Local Mediation Rules

The following three bankruptcy court districts within the Eighth Circuit system HAVE adopted local rules on mediation:

Minnesota (Rule 9019-2 Mediation)

Nebraska (Local Rules 7016-1 & 9014(C))

Missouri, Eastern District (L.R. 9019 – Mediation)

Mediation Authority and a Confidentiality Standard are Needed

Blooms in the desert — Bellagio (photo by Marilyn Swanson)

The foregoing “mediation desert” information demonstrates the need for a Federal rule on mediation that covers all bankruptcy courts in the entire system.  Here’s what such a Federal rule needs to address:

  1. We need a clear and unambiguous authorization for the mediation of bankruptcy disputes in every bankruptcy court.

Seven of ten bankruptcy court districts in the Eighth Circuit system don’t currently have any such authorization!

  1. We need a clear and unambiguous confidentiality requirement for mediation in every bankruptcy court.

Eight of ten bankruptcy court districts in the Eighth Circuit system are operating without any mediation confidentiality rule!

–The Minnesota Example

Minnesota’s Bankruptcy Court has a one-sentence local rule on mediation.  Its Local Rule 9019-2 is titled, “Mediation,” and provides, in its entirety, as follows:

“The court may refer any adversary proceeding or contested matter for mediation by any other federal judge or any mediator chosen by the parties.”

This Local Rule 9019-2, obviously, authorizes mediation to occur within the Minnesota Bankruptcy Court.  But where is the provision for confidentiality?

–Confidentiality requirements aren’t contained in its local mediation rule.

–Perhaps the Minnesota Bankruptcy Court looks to State law for such confidentiality requirements?

–Or maybe the Minnesota Bankruptcy Court relies on mediation confidentiality rules adopted by the U.S. District Court in Minnesota?

The reality (as recently demonstrated in Chicago) is that mediation confidentiality requirements probably don’t exist in any bankruptcy court, unless the court has its own confidentiality rule.


A large “mediation desert” exists within the Eighth Circuit system, consisting of bankruptcy courts that don’t have local mediation rules.

This desert reveals an immediate and pressing need for a Federal bankruptcy rule on mediation that:

  1. authorizes mediation in every bankruptcy court; and
  2. establishes mediation confidentiality requirements for the entire bankruptcy system.

The “mediation desert” needs to bloom!

Bankruptcy’s ADR Rules Have Changed Little Over the Past Century

Little has changed here over the past century

By: Donald L. Swanson

Alternative dispute resolution provisions (“ADR”) involving arbitration and compromises have been part of U.S. bankruptcy laws since at least 1898.

ADR Bankruptcy History – From 1898

An 1899 publication of the U.S. “National Bankruptcy Act of 1898” provides for “Arbitration of Controversies” and for “Compromises” in consecutive sections as follows:

–“§ 26.  Arbitration of Controversies.–(a) The trustee may, pursuant to the direction of the court, submit to arbitration any controversy arising in the settlement of the estate.”

–“§ 27.  Compromises.– (a)  The trustee may, with the approval of the court, compromise any controversy arising in the administration of the estate upon such terms as he may deem for the best interests of the estate.

So . . . arbitration and compromise provisions have been a part of bankruptcy law in the U.S. for a very long time.

ADR Bankruptcy Rule — Current

Today’s Fed. R. Bankr.P. 9019 provides:

Rule 9019. Compromise and Arbitration

(a) Compromise. On motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement. Notice shall be given to creditors, the United States trustee, the debtor, and indenture trustees as provided in Rule 2002 and to any other entity as the court may direct.  . . .

(c) Arbitration. On stipulation of the parties to any controversy affecting the estate the court may authorize the matter to be submitted to final and binding arbitration.

Now, isn’t that amazing!  The compromise and arbitration provisions of today’s Rule 9019 have been around in largely-the-same-form for more than a century (since at least 1898) as next-door-neighbor provisions.

ADR Irony

In today’s practice:

–Arbitration is an infrequently-utilized ADR tool for resolving bankruptcy disputes, despite being explicitly authorized in the Federal Rules of Bankruptcy Procedure.

–Mediation, on the other hand, is a frequently-utilized ADR tool for resolving bankruptcy disputes, but isn’t even mentioned in the Federal Rules of Bankruptcy Procedure.

Back in 1898 (and even at the 1978 enactment of today’s Bankruptcy Code), mediation did not exist as a frequently-used ADR tool.  “Compromises” were achieved (back in those days) exclusively through non-mediation means.

Accordingly, the old-and-new compromise/arbitration provisions of bankruptcy laws (§§ 26 & 27 of the 1898 Act; and Rule 9019 of the 1978 Bankruptcy Rules) were/are the alternative dispute resolution provisions of U.S. Bankruptcy Code and Federal Rules of Bankruptcy Procedure.

The ADR irony is that today’s compromise/arbitration provisions in bankruptcy laws have not substantively changed over the past century, even though ADR practices have shifted dramatically toward mediation as the dominant ADR tool in bankruptcy.


U.S. bankruptcy law needs to be upgraded from its century-old provisions to include today’s primary ADR tool in bankruptcy – i.e., mediation.

In light of the history noted above, Fed.R.Bankr.P. 9019 is already bankruptcy’s Rule for alternative dispute resolution – it simply needs to be updated to reflect, and explicitly authorize, current mediation practices.

So, Fed.R.Bankr.P. 9019 could be a logical place to include an explicit mediation authorization.




City of Detroit Withstands Another Challenge to Its Confirmed Bankruptcy Plan

Detroit (photo from Wikipedia)

By: Donald L. Swanson

Who knew that the City of Detroit’s confirmed bankruptcy plan is still in legal jeopardy?

Well . . . it is.  But the jeopardy today is much-less than it was two days ago.

Several Detroit pensioners had challenged the City of Detroit’s plan confirmation order because the plan reduced their benefits.  The U.S. District Court in Detroit had dismissed their challenge, and the pensioners appealed.

On October 3, 2016, a three-judge panel of the U.S. Sixth Circuit Court of Appeals issues its decision affirming the District Court’s dismissal.

But get this: the decision of the three-judge panel is not unanimous.  There is a dissent!

How can this be?


Detroit’s Chapter 9 plan confirmation occurs on November 7, 2014, following extensive and successful mediation efforts.

Thereafter, huge sums of money change hands to effectuate the terms of the plan.  And many, many people take action in reliance on the confirmed plan.  All such actions are irreversible.  The effects of the confirmation order cannot be undone.

Yet . . . these pensioners are still trying to undo what happened – nearly two years later.

–The Ruling

But it’s precisely because of the irreversible realities that the two-judge majority from the Sixth Circuit upholds the dismissal of these challenges.

The technical legal theory the two judges utilize is “equitable mootness.”  This theory allows an appealed-from plan-confirmation order to stand, without a ruling on the merits of the appeal, if,

(i) a stay has not been obtained,

(ii) the plan is substantially consummated, and

(iii) the requested relief would “significantly and irrevocably disrupt the implementation of the plan” or “disproportionately harm the reliance interests of other parties.”

The Sixth Circuit majority applies this three-part test and affirms dismissal, explaining:

–“In this case, all three factors favor the application of equitable mootness.”

–“This is not a close call. In fact, the doctrine of equitable mootness was created and intended for exactly this type of scenario, to ‘prevent a court from unscrambling complex bankruptcy reorganizations’ after ‘the plan has become extremely difficult to retract.’”

The pensioners argue that the “equitable mootness” theory, if it exists at all, applies only to businesses in Chapter 11 cases and not to cities in Chapter 9 cases.  The two-judge majority disagrees, explaining:

–“Equitable mootness is the law of the Sixth Circuit, . . . and we continue to apply it.”

–“We conclude that equitable mootness applies to Chapter 9 cases just as it applies to Chapter 11. In fact, considering the particular facts of this case, equitable mootness likely applies ‘with greater force to the City’s Chapter 9 Plan, which affects thousands of creditors and residents.’”

The one-judge dissent disagrees on all these points.

–Still in Jeopardy.

So . . . the City of Detroit’s plan confirmation order survives another challenge.  But even this survival is not final:

–These pensioners will, undoubtedly, seek a rehearing and a ruling from the entire panel of Sixth Circuit judges, followed by a Petition for a Writ of Certiorari to the United States Supreme Court if such efforts are unsuccessful.


It’s a little hard to have a lot of sympathy for these litigating pensioners.

Every creditor in the City of Detroit bankruptcy experienced considerable loss.

But great efforts were made to minimize losses for pensioners: the entire “Grand Bargain,” for example, occurred to prefer pensioners, dramatically, over all other creditors.

–Footnote 2 of the Sixth Circuit decision says the pensioners received a “4.5% reduction in benefits.”  That’s far, far better than any other group of creditors.

The Sixth Circuit majority finds that a contrary ruling — in favor of these pensioners – would:

–“necessarily rescind the Grand Bargain, its $816 million in outside funding, and the series of other settlements and agreements contingent” upon settlements with pensioners,

–“thereby unravelling the entire Plan and adversely affecting countless third parties, including among others, the entire City population.”


Here’s hoping, and expecting, that this Sixth Circuit ruling holds-up under further judicial scrutiny.



How the Mediation Privilege Works, with an “Opened the Door” Exception: a New Bankruptcy Court Ruling

Opened the Door

By: Donald L. Swanson

Four law firms are squabbling over how to divide a $20 million attorney fees fund in a bankruptcy case.  [Insert your own derisive epithet here.]

The Facts

A two-year and multi-session mediation results in settlements of asbestos-related claims.  One such settlement involves a $90 million payment from an insurance company, $70 million of which goes to asbestos claimants and the remaining $20 million is the attorney fees fund in question.  The Bankruptcy Court approves the settlement and finds the $20 million attorney fees provision to be “fair, equitable and reasonable in light of the complexity of the litigations and the size of the recoveries.”

However, the mediated settlement does not allocate the $20 million fund among the claiming attorneys.  So, the Bankruptcy Court is asked to resolve the $20 million division squabble.

The Bankruptcy Court Ruling

The Bankruptcy Judge from the Southern District of New York rules, in a “Memorandum Decision” dated August 26, 2016, that the $20 million fund is to be divided equally between the four squabbling law firms: $5 million to each firm.

In an interesting twist, the Bankruptcy Judge’s ruling makes two observations about the $20 million amount:

–“This Court has already found the $20 million award to Settlement Counsel to be fair and reasonable.”

–“It is highly unlikely any such award could be sustained as reasonable on the basis of quantum meruit” because:

“that would mean roughly 22 months of compensable work.  Assuming each individual member of Settlement Counsel worked 100 hour weeks dedicated solely to this mediation, never taking any vacation for almost two years, working a constant four weeks a month, totaling a whopping 8,800 hours for 22 months, Settlement Counsel would have to bill at an hourly rate of $568 just to merit an award of $5 million.

To no one’s surprise: this ruling is now on appeal.

The Mediation Privilege

Prior mediation discussions could be relevant and highly significant evidence for the resolution of this $20 million attorney fees dispute.

Yet the parties and the Court, at trial, take the mediation privilege seriously and apply it with force.  The Bankruptcy Court explains:

“The only evidence the Court has is that the mediation sessions took place, and that Settlement Counsel participated in those discussions. Both Plaintiffs and Defendants vociferously objected to the admission of any substantive evidence from the mediation discussions.”

In footnote no. 8, the Court provides some detail on how the mediation privilege worked at trial (emphasis added):

“Q: So your testimony is that Mr. Bogdan agreed that you and Mr. Madeksho should have $20 million to split. Is that correct?

A: That our compensation should be $20 million, yes.

Q: And when did that occur?

A: That happened while we were in mediation negotiating the fee portion of this.


DUFFY: Move to strike, Your Honor.

        THE COURT: It’s stricken.

MR. DUFFY: Thank you.

Mr. HADDAD: Your Honor, I think he was asked a question –

THE COURT: He was asked a question, but he said what was going on in mediation.

The “Opened the Door” Exception

After trial, however, the Court rules that the above-quoted testimony would be admitted to show that authority to send a significant email had been received “during mediation.”   Such testimony is admissible, the Court rules, because counsel had “opened the door” to such testimony in prior questioning.

Notably, the opened-door does not swing wide-open.  It swings open only a little–allowing a narrow item of information to slip through and into the record of the case.

Unfortunately, the Court’s ruling does not provide any detail of the prior testimony or provide any legal analysis on this exception.  So, I suggest you go to the opinion (it’s linked above) and read footnote no. 8 and the corresponding text of the ruling.

The Conclusion

This ruling provides an excellent example of how the mediation privilege can be given full weight and application, while still subject to limited exception.