How to Mediate in Bankruptcy Courts Without Local Mediation Rules: 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.

AUTHORIZATION

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

—Federal Statute.  28 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

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!”