Why Don’t Consumer Cases Mediate?

A wide gap

By: Donald L. Swanson

Mediation is firmly entrenched as a dispute resolution tool in bankruptcy.  Mediation is commonly and regularly used throughout the bankruptcy system.  And mediation’s value in bankruptcy is almost-universally recognized.

A Mediation Gap

But there are wide gaps in bankruptcy where mediation is still under-utilized.  One of the gaps is consumer cases.  Hardly anyone uses mediation to resolve disputes in consumer cases, unless mediation is required by local rule.

I don’t know why or how this gap exists in consumer cases.  But the gap’s existence is a shame because:

–There are mediators in nearly every bankruptcy district who would be more-than-happy to make consumer mediation work.

–Costs and time commitments can be minimized in consumer cases by, for example:

–agreeing to a reduced or flat fee for the mediator;

–eliminating mediation statements (the mediator can get information from the court’s online filings);

–limiting the time commitment for a mediation session to a couple hours or half-day; and

–meeting by telephone when distances are prohibitive.

Attorney Resistance

My experience is that bankruptcy judges would be more-than-happy to approve mediation in consumer-cases.  It’s the attorneys in such cases who are resistant to (or simply don’t think about) mediation.

A 2016 Example

Here’s an example of resistance.

In re Whittick, 547 B.R. 628 (Bankry. N.J. 2016), is an adversary proceeding brought by the Chapter 7 Trustee to recover $13,642 from the Chapter 7 Debtor and his spouse.  The spouse did not file bankruptcy.  Legal wrangling ensues.

New Jersey’s Bankruptcy Court has a local rule mandating mediation.  N.J. LBR 9019-2(a)(1) provides:

–“Every adversary proceeding will be referred to mediation after the filing of the initial answer to the adversary complaint,” unless the parties decline.

The In re Whittick case is teed up for mediation under this local rule.  But the parties decline mediation.

So, the case moves forward on cross-motions, and supporting briefs, for judgment on the pleadings.

A hearing on the cross-motions results in a lengthy opinion from the court (the opinion covers fifteen pages — small type; single space; narrow margins; no pictures).  But the opinion resolves only one issue and sets a trial on remaining issues.  The ruling is as follows:

The Trustee’s “Motion for Judgment on the Pleadings is GRANTED IN PART only to the extent that the court finds that the loan proceeds/funds are property of the estate, but DENIED as to all other matters.

The Defendants’ “Cross Motion for Judgment on the Pleadings is DENIED.”

“A trial will be scheduled on the issue of whether the Debtor transferred the proceeds/funds with the intent to conceal (section 522(g)), and if not, if an exemption applies.”

Several months later, as trial approaches, the parties enter into a “Stipulation of Settlement,” under which the Defendants agree to pay $10,000 to the bankruptcy estate.

A Mystery

This is a mystery.  Why did the parties decline to mediate this dispute?  Declining mediation make no sense here:

–The economics of the case are terrible — who can afford to litigate anything where $13,642 is at stake?

–The parties decide to litigate instead of mediate, and they probably spend more in fees (on each side) than the amount that’s at stake in the dispute.

This is a shame!


Mediation in the Early Stages of a Case: ABI’s “Bankruptcy Mediation” Book

Bankruptcy Mediation-FINAL-SM

By: Donald L. Swanson

The “early parts” of a case under the reorganization chapters of the Bankruptcy Code (chapters 9, 11, 12 and 13) involve many difficult battles.

Early battles are over such issues as relief from stay, cash collateral and DIP financing. The burden of litigation in such matters “can be tremendous,” and such litigation “rarely has any winners.”

–So says Scott K. Brown, Partner at Lewis Roca Rothgerber Christie, in a chapter of  “Bankruptcy Mediation” a book recently published by the American Bankruptcy Institute.Scott K. Brown

The appointment of a mediator for the early issues can have great value. Such early-stage value includes the following, according to Brown:

–“A mediator can help the parties set the stage for (and resolve) future issues regarding plan confirmation.”

–“Having a neutral party guide the reorganization or liquidation efforts of a case from the beginning to the end”:

–“achieves the objective of saving clients significant money,”
–“gives continuity to the process,” and
–“lessens the burden of turning to a mediator on the eve of a confirmation hearing, for example, when it may be too late or too unbearable for the parties to reach middle ground.”

–“A mediator is uniquely positioned to resolve disputes with multiple creditors:

–“These [multi-party] issues are often complex and can sap the limited resources of a debtor (and a court) early in a case.”
–“A mediator can act as the hub that holds the many spokes of the various creditors’ interests together in an effort to temper the ‘burn rate’ that vexes the early stages of many bankruptcy cases.”

 Brown’s elaboration on such matters in the  “Bankruptcy Mediation” book is a must-read.

The book can be ordered here.


A Surprisingly Successful Pre-Lawsuit Mediation

Nebraska Pastureland

By Donald L. Swanson

Nebraska statutes contain a Farm Mediation Act (Neb. Rev. Stat. § 2-4801 et seq).

This Act requires a creditor to send notice of a mediation opportunity before attempting to collect a defaulted farm loan.  The statute says:

“At least thirty days prior to the initiation of a proceeding on an agricultural debt in excess of forty thousand dollars, a creditor . . . shall provide written notice directly to the borrower of the availability of mediation.”

What happens after the notice is entirely voluntary.

A Surprising Development

In my early career, I view this mediation notice requirement as a mere formality: a compliance detail creditors must satisfy before suing on a delinquent farm debt.  I do not, back then, see mediation as a viable, problem-solving tool.

But my view on this changes – all in a single day.  The change happens like this.

I am retained (back in 1987 or so) by a rural bank to, (i) file a lawsuit against a farmer to collect a delinquent farm loan, and (ii) then represent the bank in the bankruptcy proceeding that will undoubtedly be filed in response.

I send the mediation notice, as required by the above-quoted statute.  The farmer responds and wants to mediate.  A mediation session is scheduled.

In discussing the upcoming mediation with my client, I express doubts about the effectiveness of mediation.  And I opine that the mediation session will be a mere formality, with an exceedingly-low probability of achieving any resolution.

So, we agree that a bank officer will attend the mediation session with the bank’s home-town attorney – and that I won’t make the several-hour trip to attend.

Late in the afternoon of the mediation session day, I receive a telephone call from the bank officer (the call comes as a surprise because I did not calendar — and forgot about — the mediation session).

His first words are: “We settled the case!”

I remember being amazed . . . and baffled . . . and more-than-a-little embarrassed.  I say, in response, “That’s great!”  But what I’m really thinking is: “Oops!”  and “How did I miss this so badly?”


From that moment on, I’ve been a believer in mediation and its possibilities – even when prospects for settlement appear to be almost nil.  And this belief has proven, on multiple subsequent occasions, to be well-founded.



Pre-Lawsuit Mediation is Highly Effective Under Farm Mediation Laws

Nebraska Farmland

By Donald L. Swanson

Who would guess that pre-lawsuit mediation would work well in resolving credit disputes between creditors and farmers in stressed financial circumstances?  But this is  precisely what has happened in farm states under farm mediation statutes.

Mandatory v. Voluntary Pre-Lawsuit Mediation Statutes

Many farm states have established mediation prerequisites for a creditor to file a lawsuit on a defaulted farm obligation.  Some state statutes require a notice of mediation, but mediation developments thereafter are entirely voluntary.  Other state statutes require much more.

Mandatory Mediation Statutes

Iowa Code § 654A.7(1) provides:

“A creditor . . . desiring to initiate a proceeding to enforce a debt against agricultural property . . . shall file a request for mediation with the farm mediation service.  The creditor shall not begin the proceeding . . . until the creditor receives a mediation release. . . [Such requirements] are jurisdictional prerequisites to a creditor filing a civil action.

Minn. Stat. § 583.26 provides:

“A creditor desiring to start a proceeding to enforce a debt against [a farmer] . . . must serve an applicable mediation notice . . . on the debtor . . .  The creditor may not begin the proceeding until [certain mediation requirements are satisfied].”

Voluntary Statutes

Farm mediation statutes in other states merely require that a creditor provide notice of mediation possibilities to the farm debtor before pursuing collection of a farm debt.

Effectiveness of Farm Mediation

A Tulsa Law Review article from 1993 provides an assessment of the effectiveness of such farm mediation requirements during the 1980s Farm Crisis.  The article refers to a “report prepared by Leonard Riskin for the Administrative Conference of the United States” that evaluates the effectiveness of farm mediation requirements in eight states.  The article says this (at 175-76, emphasis added):

Nebraska Farmland

“The Riskin report includes data detailing the number of mediations in eight states. . . . [The study] solicits information on the number of requests for mediation, the number of cases, and the disposition of cases. While all eight states had an agreement rate of higher than 50%, the percentages range from a low of 55.5% in Minnesota to a high of 93% in Montana. One assumes that the differences in agreement rates are due, in part, to whether a state has a mandatory or voluntary mediation program, and to the disparities in the number of cases each state processes.”

It should be noted that U.S. Census data show that Minnesota and Iowa are high-population states with many farms (Iowa has 3.1 million people and 2.1 million farms; Minnesota has 5.5 million people and 74,500 farms), while Montana is a low-population state with fewer farms (1.0 million people and 27,800 farms).

A 2015 Fiscal Year report of mediation effectiveness of Minnesota’s Farmer-Lender Mediation program shows significant improvement from the 1980s experience.  in 2015:

–2,472 mediation notices were sent by creditors

–1097 farm debtors requested mediation, of which 917 completed mediation

–The total amount of debt reported and addressed in the mediation sessions is “approximately $180.6M”

79% of farm debtors who completed mediation reached a settlement with the creditor


  1. Pre-lawsuit mediation can be highly effective.  A mediation agreement rate between 55.5% and 79% is pretty-darn-good!
  2. Again, let’s emphasize that we are talking here about pre-lawsuit mediations.  These aren’t cases where everyone has been fighting in court for a long time, is weary of the fight and is, therefore, highly motivated to get disputes settled.  These are before-the-legal-fight-begins mediations.
  3. Whether pre-lawsuit mediation statutes provide for voluntary mediation or mandate mediation, settlement rates are strong.




An Early Mediation Intervention Brings Order Out of Chaos

Order out of chaos?

By: Donald L. Swanson

Here’s a scenario where early mediation intervention works:

We’re at the beginning of a Chapter 11 case with lots of competing interests.  Everyone is in a fight-every-battle mode—and there are lots of battles to fight.  We’re past the initial flurry of motions for use of cash collateral and relief from stay, and it’s clear that debtor will continue in operation.  But creditors remain hostile, trying to undermine reorganization efforts.  And there is no clear path to a confirmable plan.

Now is the time, in this scenario, for an early mediation intervention.  It’s time for the parties to request, or the court to order, an early mediation!

An Example

I’ve seen early mediation intervention work in reorganization cases . . . and am surprised it isn’t used more often.

Here’s how it works successfully in a prior case:

The prior case has many creditors, a wide range of constituencies and a chaotic existence.  Efforts to bring order and structure to the case fail to gain traction.  So, a dozen-or-more parties and their attorneys show up one day for a mediation session in a large conference room.

The mediation session lasts all day.  It begins with an around-the-conference-room discussion: each party explains its position and view of the case.  Then groups of two and three disputing parties break into closed-door meetings, and not-included parties are wondering what-the-heck is going on.  They complain to the mediator, who assures them everything is okay and advises them to keep talking.

The mediator acts as an orchestrator (as opposed to a controller) of the mediation session.  As the day wears along, parties continue acting on their own initiative: grabbing a disputing party and holding an impromptu discussion, then adding in another party, and then breaking up and beginning anew with another group of parties.  The lines of communication, if diagrammed that day, would resemble movements on a chess board.

As the afternoon wears along, the mediation effort begins to bear fruit.  As everyone leaves the session that evening, the sense of chaos and confusion is gone.  Few issues are resolved, but an organization and a structure and a direction are beginning to emerge for solving the problems of the case.

Bringing Order Out of Chaos

This prior case shows that an early mediation intervention can bring order out of chaos and begin to provide solutions for a difficult case.  Many subsequent negotiations, mediations and court rulings are still needed in that case.  But the early mediation session starts the solution process.

Direct Communications With a Solutions Goal

The genius of early mediation intervention [it’s someone else’s idea, not mine] is in placing disputing parties into direct communication, early in the case, to seek solutions.

–I’m often amazed at what happens when one side hears the pros and cons of their own case from someone other than their own attorney: it can be an eye-opening experience.  I remember a client exclaiming to me during mediation, “We could lose this case!” (as if this were a new revelation), when I’d been telling them that for months.

–And having eyes opened sooner is better than having them opened later—especially in the fast-moving world of bankruptcy.


Early mediation intervention is a tool for, (i) moving a difficult case in a positive direction, and (ii) helping parties with unrealistic ideas get a better view of the case.

Mediation at the Beginning of a Lawsuit — How it Works in Delaware

Innovation: A great idea

By: Donald L. Swanson

It’s always great to see the leaders in any realm continue to innovate.

The Bankruptcy Court in Delaware is, most definitely, a leader on such matters as bankruptcy mediation. And this Court continually innovates.

In 2004, for example, the Delaware Bankruptcy Court adopts mandatory mediation for preference actions.  And a telephone-participation option is provided for cases with less than $75,000 at stake.

The Early-Mediation Innovation

In 2013, the Delaware Bankruptcy Court innovates  on mediation again.  This time the innovation includes an early-mediation authorization for preference cases.

Here are the early-mediation arrangements, which are contained in Local Rule 9019-5(j):

–In a preference adversary where the amount in controversy is less-than $75,000, a defendant may elect early-mediation within 30 days after an answer to the preference Complaint is due.

–The parties in larger preference cases may agree to participate in this early-mediation program.

–The mediation will include all non-preference claims asserted in the Complaint against the defendant as well.

–The local rules an mediation confidentiality apply to this process.

–All discovery and other proceedings in the adversary are stayed until conclusion of the early-mediation effort. If the mediation concludes without a settlement, the parties must meet and confer on details for a scheduling order.

–Prior to the mediation, each of the parties must submit a mediation statement to the mediator and opposing parties. This statement:

–must contain whatever information the mediator requires; and

–is not to be filed with or provided to the court.

–The mediator’s fee and other costs will be paid by the plaintiff (i.e., the bankruptcy estate, in most instances).

–A willful failure to attend a mediation conference, and any other material rule violation, may result in sanctions by the Court.


As times go by, it will be interesting to see what the impact of this early-mediation innovation might be on the disputes involved.

How a Contrarian Gets its “Motion to Compel Mediation” Denied

A Contrarian

By Donald L. Swanson

“for the reasons set forth on the record at the Hearing, the [Motion to Compel Mediation] is DENIED without prejudice.”

U.S. Bankruptcy Judge, Delaware, July 20, 2016

Energy Future Holdings Corp. files Chapter 11 bankruptcy in 2014.  Along the way, it engages in a mediation process that resolves nearly all objections to confirmation of its plan of reorganization.

As the plan confirmation hearing approaches, only a few hold-out creditors remain.

The name of one hold-out creditor is “Contrarian Capital Management, LLC.”

–You can’t make this stuff up.

Mediation Motion

Contrarian files its “Motion to Compel Mediation of Disputes.”  It wants to mediate the issues raised in its objection to confirmation.

Contrarian should get an easy-win on its mediation Motion, right?

–Not hardly.

The Debtor and a Committee object to Contrarian’s mediation Motion.  They say Contrarian’s plan objections are “meritless” and will be rejected at trial.  They also say the mediation Motion is nothing more than an attempt to “derail” and “stall” the plan confirmation process.

The Bankruptcy Court hears the mediation Motion and accepts the “meritless” and “derail” and “stall” arguments.  So, the Bankruptcy Court denies Contrarian’s mediation Motion (the quotation above is the denial order).

Hard-Knocks Rules

In this situation, the following two hard-knocks rules (i.e., rules learned the hard way) seem to be operative:

1.  When a party’s odds of prevailing at trial are viewed by the opposition as 0%, mediation is a waste of time.

–This rule appears to explain part of the Court’s rationale for denying the mediation Motion.

2.  When a party recognizes that its own odds of prevailing at trial are slim-to-none, it’s time to exit the battle as graciously and painlessly as possible (even though the pain of exit will, sometimes, be intense).

–It appears that Contrarian’s mediation Motion may be such an exit attempt, but the attempt isn’t working very well.


Success of Mandatory Mediation Leads to an Expansion of its Role

This plant expanded successfully from one small shoot.

By: Donald L. Swanson

It’s always great to see an experiment produce successes that lead to an expansion of the experimental endeavor.

This success-and-expansion is exactly what’s happened with mandatory mediation experiments in the Delaware Bankruptcy Court.

Delaware’s Mandatory Mediation

The Delaware Bankruptcy Court began mandating mediation, by local rule, in preference cases back in 2004.

Nearly a decade later, the Delaware Bankruptcy Court expands its mandatory mediation program to include all adversary proceedings filed in Chapter 11 cases. The new language, appearing in Local Rule 9019-(5)(a), is this:

–“all adversary proceedings filed in a chapter 11 case . . . shall be referred to mandatory mediation.”

The Delaware Bankruptcy Court’s history with mandated mediation is positive.  One advantage of such a mandate-by-local-rule is this:

–attorneys know that a mediation must occur before trial, so they plan on the mediation and incorporate mediation into their case plans and strategies.

Mandatory Mediation Elsewhere

In addition to the history of success-and-expansion in Delaware preference actions, mandatory mediation has a long history of success-and-expansion elsewhere too.  For example:

–In the Second Circuit Court of Appeals, mediation experiments from the 1970s contain a mandatory mediation component — and those experiments became successful.

–Today, nearly all of the U.S. Circuit Courts of Appeals have mediation programs with a mandatory mediation component that are similar to the Second Circuit’s experiment efforts in the 1970s.

A Prediction

Here’s predicting that mediation-mandated-by-local-rule will become increasingly prominent in bankruptcy courts throughout the land.

Mediating Pre-Packaged Plan Disputes: a Recent Example

A different kind of pre-packaged plan (photo by Marilyn Swanson)

By Donald L. Swanson

Who would ever think that mediation could serve an important role in pre-packaged Chapter 11 cases?

–After all, the essence of a pre-packaged plan is speed: all major issues are supposed to be resolved in advance of the bankruptcy filing so the plan can move promptly to confirmation.

But disputes do arise in pre-packaged cases, despite best efforts to resolve all disputes before the bankruptcy filing.  And these disputes slow things down.

A Pre-Packaged Case — With Mediation

In a recent pre-packaged case, mediation plays a crucial role in confirming the pre-packaged plan. The case is In re Hercules Offshore, Inc., Case No. 16-11385, in the Delaware Bankruptcy Court.

Hercules supplies offshore jackrigs and liftboats to the oil industry in the Gulf of Mexico and around the world. Hercules’s business has been suffering over the last couple years as crude oil prices drop from $100 per barrel in 2014, to $52 per barrel in July 2015, to just under $30 per barrel in early 2016.  Prices have since recovered to $50+ per barrel in December 2016.

Hercules files its first-of-two prepackaged Chapter 11 cases on August 13, 2015, and confirms its first pre-packaged plan on September 24, 2015.

With further declines in crude oil prices into 2016, Hercules needs a second reorganization and files its second pre-packaged Chapter 11 case on June 5, 2016.

The Mediation

Significant disputes surface in the second pre-packaged case, and the Bankruptcy Court refers the disputes to mediation on August 17, 2016. The mediation efforts resolve nearly all disputes, except that the equity class still wants to pursue claims against the Hercules directors for their actions in dealing with financial difficulties.  The plan releases such claims.

Following a confirmation trial, the Bankruptcy Judge confirms the mediated plan on November 15, 2016, and finds that the directors acted properly amid difficult circumstances. No appeal is filed, so confirmation of the mediated plan is final.

A Lesson from the Hercules Case

Even in a fast-paced pre-packaged plan context, mediation can be an effective tool for dealing with and resolving confirmation disputes.
In fact, the need-for-speed is precisely why mediation can be crucial and effective in pre-packaged contexts.