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.


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