Another Demonstration of Uncertainty Over Mediation Confidentiality in Bankruptcy

Uncertainty on what it is, what it means, and how it is to be used

By: Donald L. Swanson

“The court declines to adopt a new mediation privilege under the facts of this case.”

Judge Cynthia A. Norton, U.S. Bankruptcy Judge  — December 19, 2016

The case is In re Lake Lotawana Community Improvement District, a Chapter 9 municipale bankruptcy in the Western District of Missouri (Case No. 16-42357).  The issue is whether the municipal debtor satisfies this Chapter 9 eligibility requirement:

–“the debtor . . . has negotiated in good faith with creditors” (11 U.S.C. § 109(c)(5)(b)).

To evaluate the “negotiated in good faith” requirement, In re Lake Lotawana creditors request discovery of mediation statements from Debtor’s pre-bankruptcy mediation efforts.

Mediation Statements are Protected from Discovery

The Court denies the discovery request on December 19, 2016.  But it takes a 22-page opinion to do so because, (i) there is no “mediation privilege” under Federal law, and (ii) there is no local rule on mediation confidentiality in the Western Missouri Bankruptcy Court.

Here are the legal theories and rationales the judge goes through to prohibit discovery of the mediation statements.

  1. The “ordinary work product” privilege protects a mediation statement submitted to a mediator, because the statement is prepared in “anticipation of litigation.”  And the creditors in this case fail to demonstrate a “substantial need” or “undue hardship” to overcome this privilege.
  2. The “opinion work product” privilege protects the “mental impressions, conclusions, opinions, or legal theories of a party’s attorney.” While not “absolute,” this privilege can only be overcome in “rare and extraordinary circumstances,” which don’t exist in this case.
  3. The § 109(c)(5)(b) “negotiated in good faith” eligibility element is not a statutory waiver of confidentiality protections.  Judge Norton distinguishes these legal authorities:
    1. In re City of Stockton, 475 B.R. 720 (Bankr. E.D. Cal. 2012), authorized disclosure of mediation information to the Court – not to opposing parties.
    2. “Bad faith” claims against insurers, which focus on whether the insurance company “properly processed the insured’s claim,” allow for discovery of private information because the insurance company has a “virtual monopoly over” the evidence required to establish good faith. No such monopoly exists in this case.
  4. The “sword and shield doctrine” provides that “a party who raises a claim that will necessarily require proof by way of a privileged communication cannot insist that the communication is privileged.” The Judge explains the inapplicability of this doctrine to mediation statements in this case as follows:

–The mediation statement “is certainly not necessary to establish good faith negotiation. There is other evidence, including the District’s offers and counteroffers that establish whether the District negotiated in good faith.”

[Editorial Note:  From the foregoing quotation, it’s obvious that the Court intends to allow discovery and receive evidence on offers and counter offers made during the mediation session.  So . . . is other mediation information discoverable or admissible too?]

  1. “Third-party disclosure” of the mediation statement to the mediator and to the Court for in camera review is not a waiver of any privilege because the disclosing parties did not actually intend that an opposing party see the statement.

[Editorial Note:  Under this rationale, a mediating party who voluntarily discloses a mediation statement to an opposing party is waiving this protection.]

Does a Mediation Privilege Exit?

On the question of whether a “mediation privilege” or “settlement privilege” [these two terms are used interchangeably] exists, Judge Norton says:

–“The Eighth Circuit has not addressed the merits of recognizing a federal common law settlement privilege.”  [Note: The Western District of Missouri is part of the Eighth Circuit.]

–“Of the Circuits that have addressed the issue, only the Sixth Circuit has adopted a settlement privilege.”

–“The Seventh Circuit and Federal Circuit have declined to adopt the privilege.”

Should a New Mediation Privilege be Created?

Judge Norton identifies the following four factors for establishing a new privilege under Fed.R.Evid. 501:

–“(1) whether the asserted privilege is ‘rooted in the imperative need for confidence and trust’; (2) whether the privilege would serve public ends; (3) whether the evidentiary detriment caused by an exercise of the privilege is modest; and (4) whether denial of the federal privilege would frustrate a parallel privilege adopted by the states.”

On this new privilege issue, Judge Norton concludes:

–“Here, the District has failed to address the Supreme Court’s factors for recognizing a new privilege. The District has also failed to produce evidence to support why those factors are satisfied in this case. Thus, the court finds that the District has failed to ‘overcome the significant burden of establishing” a new privilege.'”


The absence of a rule on mediation confidentiality (Federal or local) is problematic for the In re Lake Lotawana Community Improvement District case:

–The Bankruptcy Judge goes to great reasoning lengths to keep the mediation statement confidential.

–Yet, in the same opinion, the Bankruptcy Judge offers up other types of information from the mediation session, itself, to be used as evidence.

This is a problem.   And the problem needs to be addressed:

–A Federal rule on mediation confidentiality needs to be adopted; and

–Every bankruptcy court needs to assure that its own local rules provide for mediation confidentiality.



Here’s a big “thank you” to Bill Rochelle of “Rochelle’s Daily Wire” (a publication of the American Bankruptcy Institute) for promptly bringing this new opinion to our attention.

Five Lessons From A New Court Ruling: How a Mediated Settlement Creates Further Disputes

Contemplating lessons to be learned

By: Donald L. Swanson

The Court’s opinion is new: entered December 23, 2016. The case is In re Hunt, Case No. 14-13109, in the New Mexico Bankruptcy Court.

The dispute is between the Chapter 13 Debtor and his home mortgage lender. Scheduled value of the home is $155,000, and the mortgage lien balance is $223,631 at bankruptcy filing (October 10, 2014).

Debtor’s Chapter 13 plan is confirmed on January 15, 2016, while Debtor’s objection is pending to various fees and costs included in the mortgage lender’s proof of claim.

Mediation and Preliminary Rulings

Debtor and the mortgage lender agree to mediate all disputes over the claim objection. The mediation session occurs on May 3, 2016. A Mediation Agreement is signed that day, which provides:

–Lender will pay Debtor’s attorney “the sum of $3,000.00”; and
–Lender will allow Debtor’s attorney “to continue to pursue her claim” for recovering attorney fees of approximately $24,000 from the mortgage lender.

A Motion to approve the Mediation Agreement is filed by the mortgage lender on May 31, 2016. On the same day, Debtor files his “Amended Motion for Determination of True Party in Interest and Application for Attorney Fees and Costs.” In this document Debtor:

–Seeks a determination of “which entity is true party in interest with standing”; and
–Claims a right to recover legal fees from the mortgage lender because they “have unnecessarily caused Mr. Hunt to incur substantial legal costs as a consequence of their actions and bad faith.”

Debtor also files, on the same day, an objection to the Motion to approve the Mediation Agreement.
Thereafter, the Court approves the Mediation Agreement and reserves Debtor’s fee requests for later resolution. And Debtor’s attorney files an updated request for fees in the sum of $67,235.34 (and counting).

Ruling of December 23, 2016

On December 23, 2016, the Bankruptcy Judge enters his ruling denying Debtor’s request to recover legal fees from the mortgage lender. The opinion itemizes each of Debtor’s numerous legal theories for recovery — and rejects them all.

Here is Debtor’s litany of now-rejected legal theories:

–Breach of the duty of good faith and fair dealing, under the bad faith exception to the “American Rule” that ordinarily disallows legal fees
–28 U.S.C. § 1927, which allows a federal court to sanction a party for vexatious litigation
–Fed. Rule of Bankr. P. 9001, which allows a court to sanction a party or attorney for filing papers for improper purposes and/or without suitable legal or factual foundation
–Fair Debt Collection Practices Act (15 U.S.C. § 1692 et seq.), which allows recovery of legal fees against a debt collector incurred in “any successful action to enforce” the Act
–Equal Credit Opportunity Act (15 U.S.C. § 1691 et seq.), which makes a lender who fails to comply with the Act liable to the borrow for legal fees
–New Mexico Unfair Practices Act (N.M.S.A. § 57-12-1 et seq.), which allows legal fees to a prevailing party
–The Mediation Agreement makes the losing party liable for legal fees of legal fees of the prevailing party
–Bankruptcy Rule 7054, which authorizes the court to “allow costs to the prevailing party”
–Pre-Judgment Interest (N.M.S.A. § 58-8-4), which provides for a 10% interest addition to a money judgment
–The Mortgage, which authorizes the lender to recover reasonable attorney fees in certain circumstances
–11 U.S.C. § 105, which authorizes an award of attorney fees when a person is sanctioned for contempt
–Discovery Sanctions (Fed. Rule of Bankr. P. 7037), which authorizes an attorney fee award if a motion to compel discovery is granted

The Bankruptcy Judge’s opinion has some less-than-favorable words for Debtor’s counsel, such as:

“The extent of litigation that has occurred over Debtor’s $223,000 home mortgage is extraordinary. . . . some of the fault must be laid at the feet of Debtor’s counsel. . . . the Court has formed the distinct impression that the result achieved . . . could have been accomplished much more easily and cheaply had Debtor’s counsel approached the matter differently.”

“Nothing Debtor’s counsel settles ever seems to stay settled. She settled the objection to Lender’s proof of claim, but now asks the Court to set the claim objection for final hearing. She negotiated the LMA, but now seeks to reform it. She signed the Mediation Agreement but immediately challenged Lender’s ownership of the subject note and mortgage.”

“[T]he jump in claimed fees from $27,000 on May 31, 2016 (after the matter had been settled!) to approximately $67,000 on September 12, 2016 is remarkable.”

Five Lessons

There should be many hard-knocks lessons from the foregoing circumstances. How about these five lessons for starters:

1. Never leave an issue for later resolution in a mediated settlement agreement when the opposition has already demonstrated a dogged persistence in pursuing litigation.

2. Never underestimate the capacity of a determined opponent to carry-on a fight beyond the realm of reasonableness.

3. When one of the mediating parties doesn’t want to settle, the mediation effort is doomed.

4. When the dispute is about legal fees claimed by one side from the other and is based on allegations of wrongful conduct, the degree of difficulty in reaching a mediated settlement increases.

5. Unreasonable positions aggressively pursued are a death-knell of mediation efforts.

ACTION ITEM on Mediating Without Local Rules

Action Item:  Every bankruptcy court should have its own set of local rules on mediation.  Every bankruptcy court without such rules needs to get them adopted.  In the words of a famous Nebraskan:  Let’s “git-r-done!”

How to Mediate in Bankruptcy Courts Without Local Mediation Rules: A Seldom-Used Pathway

A seldom-used pathway

By: Donald L. Swanson

Mediation is standard dispute resolution tool in many bankruptcy cases – especially in large and complex cases.

A limited number of bankruptcy courts, however, still haven’t adopted local mediation rules.  Reasons for the absence of such rules are diverse and range from:

–the somewhat-bizarre development in Chicago, where the Bankruptcy Court actually revoked its local mediation rules—but still encourages attorneys practicing in its court to utilize mediation;

–to a Bankruptcy Judge in Texas who is openly hostile to the use of mediation in his Court;

–to bankruptcy courts that, simply, don’t yet see a need for adopting local mediation rules.

By the way, the American Bankruptcy Institute has already prepared a set of model local rules on mediation.

Here’s a Seldom-Used Pathway for Mediating Without Local Mediation Rules

Mediation is seldom-used in bankruptcy courts that don’t have a local mediation rule.  But it’s still possible to mediate disputes in those courts.  Here is a pathway for doing so.


Mediation is already authorized in every bankruptcy court in the land—even in bankruptcy courts without local mediation rules!  Here’s the pathway:

Federal Statute28 U.S.C. § 651 provides: “Each United States district court shall authorize . . . the use of alternative dispute resolution processes [including mediation] in all civil actions, including adversary proceedings in bankruptcy.”

Local District Court Rules.  Because of this statute, enacted in 1988, every U.S. District court should have local rules on mediation, including rules for mediating bankruptcy disputes.

Unit / Judicial Officer.  Bankruptcy courts are a “unit” of the district courts, and each bankruptcy judge is a “judicial officer” of the district court, as provided in 28 U.S.C. §§ 151 & 152.

Nebraska’s U.S. District Court, for example, has adopted a “Mediation Plan” under 28 U.S.C. § 651, which includes bankruptcy judges in this provision: “Any district, bankruptcy, or magistrate judge may by order refer a case to mediation.”

§ 105.  Additionally, there is always the fall back position based on 11 U.S.C. § 105, which authorizes a bankruptcy court to “issue any order . . . that is necessary or appropriate to carry out the provisions of this title.”


Accordingly, any party wanting to pursue mediation in a bankruptcy court is authorized to do so – whether the bankruptcy court has adopted local mediation rules or not.

The pathway to pursue mediation of a dispute, absent local bankruptcy rules on mediation, is to cite and follow mediation procedures established by the District Court for that jurisdiction.

–Granted, the bankruptcy judge will still need to be be open to:

–authorizing a mediation under District Court rules (the bankruptcy judge has discretion to deny any mediation request); and

–approving the mediator’s employment and compensation, when bankruptcy estate funds are to be used for payment.


Confidentiality is a crucial part of every mediation session.  To assure the greatest-possible level of confidentiality:

–The parties and the mediator should enter into a mediation agreement that contains confidentiality terms and provisions; and

–When seeking bankruptcy court approval of the mediation, the parties should ask the bankruptcy court to explicitly adopt, for this mediation effort, the mediation confidentiality rules that have been adopted by the district court in that jurisdiction.

Let’s Get the Local Mediation Rules Adopted!

So . . . why should a bankruptcy court even bother to adopt its own local mediation rules, if the District Court’s mediation rules already apply?  There are lots of reasons, including:

–Every bankruptcy court has its own local rules establishing procedures to be followed in its own court, and there is no reason to make an exception for mediation; and

–The existence of local mediation rules is a signal that the bankruptcy court is open to, and encourages, the use of mediation; conversely, the absence of such rules is a signal of the court’s indifference or hostility to mediation.

Every bankruptcy court should have its own set of local rules on mediation.  Every bankruptcy court without such rules needs to get them adopted.  In the words of a famous Nebraskan: Let’s “git-r-done!”

Structured Dismissals are Ripe for Mediation – But are They a Bridge Too Far?

A bridge too far?  (Photo by Justin Swanson)

By Donald L Swanson

A “structured dismissal” of a Chapter 11 bankruptcy involves a settlement agreement among major parties that liquidates substantially all of debtor’s assets, distributes the proceeds, grants releases, and dismisses the bankruptcy case—all as a negotiated package deal.

Most everyone will agree that a bankruptcy settlement with the following terms is a good thing and has become standard bankruptcy procedure:

–promptly turning debtor’s assets into cash (e.g., through a sale of assets or settlement of a lawsuit), followed by:

–distributing sale proceeds to claims of creditors under the Bankruptcy Code’s priority scheme.

A structured dismissal involves all of that.  Plus, it adds such bells and whistles as:

(i) carving-out and gifting portions of a secured creditor’s lien to unsecured creditors,

(ii) releasing the gifting party,

(iii) expediting the claims resolution process, and

(iv) dismissing the bankruptcy.

Will structured dismissals become generally accepted procedures in bankruptcy – just like standard sale and distribution processes?

–A structured dismissal is quick and efficient and maximizes recoveries for creditors.  Compared to the delays and costs of a plan confirmation process, these benefits are huge.

–But not everyone approves of structured dismissals.  Some believe such dismissals go too far in skirting protections established by the Bankruptcy Code.

A Structured Dismissal Example

A recent example is the Third Circuit’s In re Jevic Holding Corp. ruling that approves a structured dismissal — the U.S. Supreme Court granted certiorari on June 28, 2016, and held oral argument on December 7, 2016: we await a ruling.

The Appellant’s Petition for a Writ of Certiorari, in the In re Jevic  case contains an appeal-to-authority argument.  The Petition cites the Final Report and Recommendations of the American Bankruptcy Institute’s Chapter 11 Commission, that:

–“debtors should be able to sell all or substantially all of their assets under section 363(b) when that is the best and most efficient way to maximize value and potentially rehabilitate the business”;

–but structured dismissals are not recommended because they lack “strict compliance with the Bankruptcy Code” for “ending the chapter 11 case.”

It will be interesting to see how the Supreme Court handles the In re Jevic appeal.  Will the Supreme Court address the structured dismissal issue at all?  And if so, will it:

–approve the structured dismissal?

–or decide that a structured dismissal is a bridge too far?

Negotiations for a structured dismissal would be a perfect context for utilizing mediation.


Mediators Just Want to Get Paid: A Recent Hiccup in Bankruptcy

“Your Procrastination is Not My Emergency!”

By Donald L. Swanson

“Girls just want to have fun,” according to Cyndi Lauper.
–And mediators just want to get paid!
We receive an important lesson for mediators getting paid out of bankruptcy from a recent mediation hiccup.  The lesson is this:
–If you want to get paid from bankruptcy estate funds, you need court approval in advance.
The case is In re Magleby (Case No. 16-15322) in the Bankruptcy Court for the Central District of California.  Mr. Magleby, the Chapter 11 Debtor, is having family law disputes with his wife / soon-to-be-ex.

The Chronology

Here’s what happened:

4/24/2016: Debtor files Chapter 11 bankruptcy.
9/27/2016: Bankruptcy Judge orders Debtor and spouse to mediate disputes over multiple bankruptcy/divorce issues.
10/10/2016: First mediation session occurs. Debtor had already paid an $6,500 up-front fee to the mediator but owes an additional $1,925 for this session.
10/12/2016: Mediator submits her $5,775 bill for the remaining $1,925 from the first session plus an additional $3,850 up-front fee for the second session (which is scheduled to occur on 11/2/2016).
10/28/16: Debtor files  “Emergency Ex Parte Application for Authority to Pay Post-Petition Fee of Family Law Mediator,” seeking authority to make the advance payment for the second mediation session.
10/31/2016: Bankruptcy Judge issues “Order Setting Hearing” on the Emergency Application for 11/29/2016.
11/2/2016: The previously-scheduled second mediation session does not occur.
11/8/2016: Debtor files and serves on all creditors an “Amended Application for Authority to Pay Post-Petition Fee of Family Law Mediator,” which requests, (i) after-the-fact approval of the first $6,500 payment, and (ii) advance approval for payment of the $5,775 bill.
11/29/2016: Hearing is held on the Amended Application.
12/5/2016: Bankruptcy Judge issues “Order Approving Debtor’s Amended Application,” which approval is based in part on the fact that no one filed an objection to the Amended Application.

The 10/31/2016 “Order Setting Hearing”

The 10/31/2016 “Order Setting Hearing” contains a lengthy expression of dissatisfaction from the Judge.  Here is a flavor of his thoughts:
–“While the court had encouraged the parties to mediation, . . . the court does not sanction Debtor’s failure to make sure that the applicable rules are followed with respect to the authorization of use of estate funds out of the ordinary course of business.” This is the fault of Debtor’s counsel, he says, not of the Debtor or the Mediatior.
–“ There are several problems with this Application.”
–“First, Debtor . . . has already incurred the obligation . . . to pay the mediator . . . without complying with [advance-approval requirements].”
–“Second,” Debtor’s counsel procrastinated and now requests an emergency hearing.
[Editorial Note: The Court retains a sense of humor:  “Counsel’s procrastination brings to mind that T-shirts are available for purchase online that state: ‘Your Procrastination is Not My Emergency.’”]
–“It appears to this court that the Application is simply an attempt to flout” applicable rules.
–So, “the court hereby . . . sets the Application for hearing . . . on November 29, 2016 at 2:30 p.m.” and “Debtor must serve copies of a notice of the hearing, the Application and a copy of this order on all parties [as required by law].”

Editorial Comments

Whenever a mediator is to be paid from bankruptcy estate funds, everyone needs to remember that all such payments require advance approval from the bankruptcy court.
Everything may have turned out okay in the In re Magleby case for the mediator and the Debtor.
–But it didn’t turn out so well for Debtor’s attorney, who had to, (i) put in a bunch of additional work (undoubtedly, without additional compensation), and (ii) endure disparaging comments from the Bankruptcy Judge.

What’s With Judges Wanting to Re-Write Settlement Agreements?!

Glaciers are re-writing the landscape.

By Donald L. Swanson

What’s with judges re-writing terms of bankruptcy settlement agreements?!

A Current Example

That’s exactly what the dissenting judge wants to do in the In re Jevic Holding Corp. case (certiorari granted by U.S. Supreme Court on June 28, 2016; oral argument held on December 7, 2016). This dissenting judge would:

(i) approve most of the terms in the settlement agreement, but

(ii) substitute terms the dissenting judge likes for terms he doesn’t like.

The context is an agreement for distribution of settlement proceeds in a bankruptcy case.  The dissenting judge says this:

–”I would not unwind the settlement entirely.”

–“Instead, I would” enforce most of the terms “for which they bargained.”

–As to the bargained-for terms the judge doesn’t like:

— “I would then have the court order any proceeds that were distributed” to creditors with a low priority “disgorged” and applied to higher priority claims.

–Then, to the extent funds are left over, “I would have the court redistribute them to the remaining creditors in accordance with the Code’s priority scheme.”

Where would this judge get authority to do such a thing?  Don’t settlement agreements (whether reached through mediation or otherwise) need to be either rejected or approved in their entirety?

It’s clear from the facts of the In re Jevic case that the parties would never have agreed to the dissenting judge’s re-write terms.  So, how can a judge re-write the agreement and impose terms the parties did not want and would not have bargained for?

–Whatever happened to “self-determination” in mediation and in settlements generally?

An Analogy

We already have a Bankruptcy Code context (i.e., assumption of executory contracts under § 365) where an agreement, if it is to be assumed at all, must be assumed in its entirety: as-is and without modification.

A glacier is re-writing the landscape.

And there is a solid economic reason for this requirement: because the parties are entitled to what they bargained for and can’t have different terms imposed upon them.

–To illustrate, imagine this: a debtor wants to assume all the terms of a lease agreement—except for the terms that require debtor to make lease payments.

–That’s ridiculous, of course.  And the debtor can’t do such a thing.  The debtor must assume all the contract terms—or none at all.

Similarly, in a bankruptcy settlement (whether mediated or not), where the agreement requires bankruptcy court approval, the agreement ought to be approved in its entirety—or not at all.

–It’s appropriate, of course, for a court to suggest differing terms to the parties that would make the agreement acceptable to the court — and allow the parties to accept such revisions (or not).

–But a court ought not revise the agreement at its own whim and impose those revisions upon the settling parties, against their will!

Other Examples

Unfortunately, however, other courts dealing with circumstances similar to In re Jevic have imposed their own re-write terms on post-petition settlements.  Here are two examples:

  1. In SPM Manufacturing Corp., 984 F.2d 1305 (1st Cir. 1993), an under-secured creditor reached a settlement agreement with the creditors committee that, in exchange for a sale of its collateral, it would carve-out and gift a portion of its lien proceeds to unsecured creditors.

The bankruptcy judge doesn’t like the gifting portion of the deal.  So, he approves the over-all settlement but modifies the carve-out and requires payment of the gifted funds to the IRS instead.

However, the First Circuit Court of Appeals, on appeal, rectifies the error: it says the carve-out and gift are proper, reverses the Bankruptcy Court, and approves the settlement agreement as written.

  1. In In re On-Site Sourcing, Inc., 412 B.R. 817 (Bkrtcy.E.D.Va. 2009), the bankruptcy court deals with a bankruptcy settlement similar to the SPM Manufacturing case – a portion of the secured creditor’s lien is carved-out in the settlement and gifted to unsecured creditors. Here’s what the bankruptcy judge says:

“The issue before the court is the extent to which a chapter 11 debtor may substitute a § 363 sale for a chapter 11 plan. The debtor reached too far in this case. While the sale will be approved, those portions that are a substitute for a chapter 11 plan will be excised.”

A settlement agreement is “approved” but portions of it are “excised”?!  Seriously?!


This substituting of terms the court likes for terms the court doesn’t looks like judicial over-reach to me.

Mediation Confidentiality: The Second Circuit’s Sensible Standard for Disclosure

A Sensible Legal Standard?!

By: Donald L. Swanson

“Confidentiality is an important feature” of mediation, because it “promotes the free flow of information that may result in the settlement of a dispute.”

“We vigorously enforce the confidentiality provisions” of our own mediation system “because we believe that confidentiality is essential” to its “vitality and effectiveness.”

U.S. Second Circuit Court of Appeals, In re Teligent, Inc.

Mediation confidentiality requirements in bankruptcy courts can come from a variety of sources: local court rules, protective orders from the court, and agreements between the parties.  The legal standard identified and applied in the In re Teligent case appears to apply with equal effect to all such sources.


The facts of the In re Teligent, Inc., case are convoluted.  Here’s a simplified version of what happened:

–Teligent, Inc., fires its Chairman/CEO, Alex Mandl, and forgives the $12 million he owes.

–Then, Teligent, Inc., files bankruptcy in the Southern District of New York.

–The bankruptcy estate then sues Mandl, to set aside the $12 million debt forgiveness.

–A mediation session occurs in the lawsuit but does not result in a settlement.

–After trial, the Bankruptcy Court enters a $12 million judgment against Mandl.

–Then, Mandl fires his attorney, moves for a new trial in Bankruptcy Court, and asserts a malpractice claim against his former attorney.

–A second mediation occurs between Mandl and the judgment creditor.  The former attorney is invited to participate to address the malpractice claim—he declines.  This mediation does not produce a settlement.

–A settlement is later achieved with the judgment creditor, which requires Mandl to pursue the malpractice claim and share any recovery with the bankruptcy estate.

–Both mediation sessions occurred under the protection of confidentiality orders.

–A malpractice action is then filed by Mandl.

–During discovery Mandl seeks information from the mediation sessions.

–A request is made in the Bankruptcy Court for relief from the confidentiality protective orders.

–The Bankruptcy Court denies the request, the District Court affirms on appeal, and an appeal is taken to the Second Circuit.

The Legal Standard

The Second Circuit identifies a three-factor test to evaluate the request for relief from confidentiality requirements.

“A party seeking disclosure of confidential mediation communications must demonstrate:

(1) a special need for the confidential material,

(2) resulting unfairness from a lack of discovery, and

(3) that the need for the evidence outweighs the interest in maintaining confidentiality.”

“All three factors are necessary to warrant disclosure of otherwise non-discoverable documents.”

The Second Circuit, in the In re Teligent, Inc. case, decides to enforce confidentiality.  And it provides this analysis under the three-factor test:

(1) a special need for the confidential material.

The requesting party is seeking “a blanket lift” of confidentiality but has “failed to submit any evidence” to support a “special need” for “any specific communication.”

(2) resulting unfairness from a lack of discovery

There is no “unfairness from a lack of discovery” because the evidence sought “was available through other means, including through responses to interrogatories or depositions.”

(3) the need for the evidence outweighs the interest in maintaining confidentiality.

The failure to “demonstrate a special need” is also fatal under this third element.  .

A Presumption

The Court emphasizes, under the third factor, that mediation confidentiality requirements have a “presumptive entitlement to remain in force.”

Otherwise, if courts were to “cavalierly set aside” such confidentiality restrictions, parties might be “less frank and forthcoming” in mediation or might “limit their use of mediation altogether.”

Editorial Note:

This three-factor test, and its application by the Second Circuit, seems to be a wise and well-reasoned and sensible approach.





1899 Treatise (First Edition) on U.S. Bankruptcy Law

1899 Treatise (1st Edition)

By: Donald L. Swanson

Original-source documents from antiquity are always fascinating!  They provide a wealth of historical information and a wealth of insight into life in an earlier day.

It’s mind-boggling, for example, to read the words of an author, who lived in an ancient time, writing about events of “ancient days” from his/her perspective-in-time.

A treatise on U.S. bankruptcy laws, published in 1899, is one of these original-source documents from antiquity.  And it is a splendid illustration of the wealth of information and insight (and the mind-boggling historical information) that such documents can provide.

This is the 1899 treatise, with a link to an online copy:

Bush, “The National Bankruptcy Act of 1898, with Notes, Procedure and Forms,” (1st Edition, 1899), published by Banks Law Publishing Co.

This 1899 treatise explains its subject and purpose like this:

–The 1898 Act “is a departure, and, in some of its provisions, a radical departure from previous statutes upon that subject either in the United States or Great Britain.”

–“It is the purpose of this volume to give the text of the present law, and under each section syllabi of such decisions by the Supreme, Circuit and District courts of the United States as will aid in construing it. . . .  For the most part, these decisions were rendered under the Act of 1867.”

This 1899 treatise contains the following categories of information:

–45-pages (from vii to lii): “Table of Cases Cited,” with roughly 60 citations per page (that’s approximately 2,700 cases), followed by a one-page list of Abbreviations for legal authorities cited.

–Pages 3-19: Editor’s Note and Introductory, providing historical context for the 1898 Act.

–Pages 20 through 414:  A section-by-section discussion of the Act, with commentary and case annotations for each section.

–Pages 415-484: Rules of bankruptcy procedure and official bankruptcy forms adopted by the United States Supreme Court on November 28, 1898.

–Pages 485-506: Bankruptcy Act of 1800 and its 1803 repeal Act – full text of both.

–Pages 506-516: Bankruptcy Act of 1841 and its 1843 repeal Act – full text of both.

–Pages 517-872: Bankruptcy Act of 1867, its subsequent amendments, and its 1878 repeal Act – full text of all.

–Pages 873-610: The National Bankruptcy Act of 1898 – full text, without commentary or annotation.

–Pages 611-651: General Index.


Everyone reading this article should click on the link above and do a quick perusal of the treatise.  It will be well-worth the time spent.




A List of Bankruptcy Districts that HAVE and HAVE-NOT Adopted Local Mediation Rules

An old-time courtroom: hanging onto the past

By: Donald L. Swanson

I’ve been asked many times for the number of bankruptcy court districts who, (i) HAVE adopted local rules on mediation, and (ii) HAVE-NOT adopted such rules.

–The have-not courts, it seems, are hanging on to the past — for reasons that are unknown . . . and not readily apparent.

In response, I’ve offered information on what I’ve read — that it’s, roughly, a 50/50 split.  But such information is from several years ago and isn’t satisfactory.

So, I asked a legal assistant in our office, Sarah O’Callaghan, to do the research and come up with a list of districts that HAVE and HAVE-NOT adopted local mediation rules.

Here’s her list, consisting of 72 of 94 districts (76.6%) that HAVE adopted some type of such rules (listed as, “Yes”) and 22 of 94 districts (23.4%) that HAVE NOT adopted any such rules (listed as, “No”).

We are asking everyone who reads this article to review the following list for districts that are familiar to you and let us know of any corrections that need to be made — thanks!

1st Circuit District of Maine Yes – Rule 9019-02
District of Massachusetts Yes – Rule 7016-1 & Appendix 7
District of New Hampshire Yes – LBR 7016-1(c)
District of Puerto Rico No
District of Rhode Island Yes – Alternative Dispute Resolution Plan (Amended March 1, 2006)
2nd Circuit District of Connecticut Yes – LBR 9019-2
Eastern District of New York Yes – Rule 9019-1
Northern District of New York Yes – Rule 9019-1 & Appendix IV
Southern District of New York Yes – Rule 9019-1
Western District of New York No
District of Vermont Yes – Rule 16.1 (ENE)
3rd Circuit District of Delaware Yes – Rule 9019 (1-7)
District of New Jersey Yes – LBR 9019-1 & LBR 9019-2
Eastern District of Pennsylvania Yes – Rule 9019-3
Middle District of Pennsylvania Yes – Rule 9019-02 & Rule 9019-3 (Mortgage Modification Mediation Program)
Western District of Pennsylvania Yes – Rule 9019 (2-7)
District Court of the Virgin Islands Yes – Rule 9019-2
4th Circuit District of Maryland Yes – Rule 9019-2
Eastern District of North Carolina Yes – Rule 9019-2
Middle District of North Carolina Yes – LR 9019-2 (Mediation Settlement Conference)
Western District of North Carolina Yes – LR 9019-2 (Mediated Settlement Conference)
District of South Carolina Yes – LR 9019-2
Eastern District of Virginia Yes — LR 9019-1 (adopting District Court Rule 83.6)
Western District of Virginia No
Northern District of West Virginia No
Southern District of West Virginia Yes – 9019-2 (a one-sentence Rule)
5th Circuit Eastern District of Louisiana No
Middle District of Louisiana No
Western District of Louisiana Yes – Voluntary Mediation Program Order
Northern District of Mississippi Yes – Rule 9019-1
Southern District of Mississippi Yes – Rule 9019-1
Eastern District of Texas Yes – LR 9019
Northern District of Texas Yes – L.B.R. 9012-2(a) (a one-sentence Rule)
Southern District of Texas Yes — Adopts District Court LR 16.4
Western District of Texas Yes – L. Rule 1001(h) & Appendix L-1001-h
6th Circuit Eastern District of Kentucky No
Western District of Kentucky No
Eastern District of Michigan Yes – Rule 7016-1(h)(13) & 7016-2
Western District of Michigan Yes – LBR 9016-1
Northern District of Ohio Yes – Rule 9019-2 (Governed by L.C.R. 16.4 – 16.7)
Southern District of Ohio Yes – Rule 9019-2
Eastern District of Tennessee Yes –Rule 9019-2
Middle District of Tennessee Yes – Rule 9019-2
Western District of Tennessee Yes — Rule 9019-1
7th Circuit Central District of Illinois Yes — Adopts District Court Rule 16.4
Northern District of Illinois No
Southern District of Illinois No
Northern District of Indiana Yes – B-9019-2
Southern District of Indiana Yes – B-9019-2
Eastern District of Wisconsin No — But does have MMM
Western District of Wisconsin No — But does have MMM
8th Circuit Eastern District of Arkansas No
Western District of Arkansas No
Northern District of Iowa Yes — District Court LR 72B applies
Southern District of Iowa Yes — District Court LR 72B applies
District of Minnesota Yes – Rule 9019-2 (a one-sentence Rule)
Eastern District of Missouri Yes – Rule 9019
Western District of Missouri No
District of Nebraska Yes – Rule 7016-1 & 9014-1(C)
District of North Dakota No
District of South Dakota No
9th Circuit District of Alaska Yes — BDRP
District of Arizona Yes – Rule 9072
Central District of California Yes – LBR Appendix III
Eastern District of California Yes — BDRP
Northern District of California Yes – 9040-1 through 9050-1 (Bankruptcy Dispute resolution Program)
Southern District of California Yes – 7016-11
District  of Hawaii Yes – LBR 9019-2
District of Idaho No
District of Montana Yes – 9019-1
District of Nevada Yes – LR 9019 & LR 3015 (Mortgage Modification Mediation)
District of Oregon Yes – Rule 9019-2
Eastern District of Washington Yes – Rule 9019-2
Western District of Washington Yes – Rule 9040-1 (Honorable Thomas T. Glover Mediation Program)
District of Guam Yes — District Court CVLR 16-2 applies
District of the Northern Mariana Islands No
10th Circuit District of Colorado Yes – LBR 9019-2
District of Kansas Yes – LBR 9019.2
District of New Mexico Yes — Form Mediation Order
Eastern District of Oklahoma Yes – Rule 9019-2
Northern District of Oklahoma Yes – Rule 9019-2
Western District of Oklahoma Yes – Rule 7016(f)
District of Utah Yes – Rule 9019-2
District of Wyoming Yes – 9019-2
11th Circuit Middle District of Alabama No
Northern District of Alabama No
Southern District of Alabama No
Middle District of Florida Yes – Rule 9019-2
Northern District of Florida Yes – Rule 7016-1 & Addendum B
Southern District of Florida Yes – Rule 9019-2
Middle District of Georgia Yes — Mediation Procedures
Northern District of Georgia Yes — Mediation Procedures
Southern District of Georgia Yes — Mediation Procedures
D.C. Circuit District of Columbia Yes — District Court LCvR 84.4(e) applies