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.
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.
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!