A Mediator–ish Role: “Settlement Counsel”

Trevi Fountain — Bringing People Together (Photo by Marilyn Swanson)

By: Donald L. Swanson

Here’s an experience that’s common to all trial attorneys.

We’re working in our litigation War Room.  Trial is scheduled to begin in ten days.  Our focus on trial preparations is intense.

But then the phone rings.  It’s an attorney on the other side with a settlement offer.  The offer is a pretty good one – much better than their final offer at mediation.

So, now we have a problem:

–Our clients wants to settle the case, if possible, and wants us to focus our attentions on negotiations.

–But, if we focus on negotiations to settle the case — and the negotiations fail — we’ll then be scrambling with trial preparations.

The Settlement Counsel Solution – Bringing People Together

Here’s a solution to the problem:  “Settlement Counsel.”

–A disputing party hires “Settlement Counsel” to take the initiative, beginning in the earliest stages of the case, toward bringing parties together, identifying disputes that can be resolved, and focusing on settling those disputes.

–The same party also hires separate “Litigation Counsel” to fight the legal battles and to focus on winning the case.

So . . . when that call with a settlement offer arrives shortly before trial, Settlement Counsel steps in to handle the settlement negotiations, while Litigation Counsel continues preparing for trial.

But . . . better yet, Settlement Counsel would have been working since the earliest stages of the case to achieve a settlement long before trial is about to begin;

Settlement Counsel Information

“Settlement Counsel” is an actual thing.  There are lots of articles on the Settlement Counsel subject, such as:

–“Why Should Businesses Hire Settlement Counsel?” in the Journal of Dispute Resolution

–“In Their Own Words,” a publication of the Section of Litigation, American Bar Association, in the series called “50 Shades of Settlement Counsel—What Role is Best for Your Client?”

Settlement Counsel in Bankruptcy

The Settlement Counsel role seems to be perfectly-suited for bankruptcy cases, and especially those cases with multiple parties and high levels of complexity.

Here is an example of a division of labor in bankruptcy that makes perfect sense:

–-Debtor’s litigation team fights the legal battles:  prosecutes first day motions, defends motions for relief from stay, presents a plan and disclosure statement, etc.

–-Meanwhile, Debtor’s settlement team identifies disputes to be addressed and takes initiative to resolve as many disputes as quickly and efficiently as possible.

My guess is that nearly every attorney who’s made a career of representing bankruptcy debtors or committees or trustees is really-good at the “Settlement Counsel” function.  They’ve been doing “Settlement Counsel” types of things their entire career, while functioning as “Litigation Counsel” at the same time.

Mediator Role and Settlement Counsel Role are Similar

A two-part article (appearing here and here) connecting the mediator role with the Settlement Counsel role is by Mitchell Rose, a mediator and Settlement Counsel in Toronto, Ontario.  He writes:

–“In addition to practicing as a mediator, I regularly attend mediations of civil disputes as settlement counsel.”

–“As Settlement Counsel I approach mediation differently than when I was a conventional litigator. This is best reflected in how I participate in joint sessions and make opening statements at mediation –- two things that I used to loathe as a litigator, but have now (dare I say it) grown to love — or at least like on most days.”

A Basketball Analogy

Differences between a Mediator and a Settlement Counsel are like differences between a point guard and a shooting guard in basketball.

–A “point guard” must be really good at bringing the ball up the court, initiating and directing the offense, and assisting others to score.

–A “shooting guard” must be able to score off the drive and from mid- and long-range and must be able to create his/her own shot against defensive pressure.

–A “combo guard” performs equally well at both the point guard and the shooting guard functions.

A mediator is retained by all sides collectively, must be able to perform as a neutral, tries to help all sides find common ground, and usually performs in a passive manner (i.e., others bring disputes to him/her for mediation).

A Settlement Counsel is retained by one side, makes no pretense at neutrality, tries to help all sides find common ground, and usually performs in a proactive manner (i.e., identifies disputes to be resolved and initiates negotiation action).

I’m sure that many successful mediators, like Mr. Rose identified above, would also serve well as Settlement Counsel.  We might call them “combo” professionals.


  1.  Many experienced mediators should be a perfect fit for the Settlement Counsel role.  Those two roles, it seems, go together like peas-and-carrots and are easily embodied in a single person.
  2. Settlement Counsel seems particularly helpful in disputes among multiple parties and with high complexity.  And since bankruptcy often has multiple disputing parties with complex disputes, bankruptcy is a perfect context for utilizing the Settlement Counsel role.

What do you think?



Mediation in China — Thousands of Years of Mediation History

By: Donald L. Swanson

There is nothing new under the sun.”

–Ecclesiastes 1:9

My first-hand knowledge of China is limited: I’ve traveled to Beijing a couple times, spent time (both there and here) with Chinese citizens, practiced law with a Chinese national, etc.

But here is something I’ve never understood:

–How are personal and business disputes handled in China?

China does not follow a “rule of law.”  And, therefore, they don’t have a bunch of lawyers or lots of lawsuits.  So . . . how do they handle business and personal disputes?  It’s always been a mystery to me.

Here’s an article with historical insights on the subject – written a half-century ago:

–S. Lubman, “Mao and Mediation: Politics and Dispute Resolution in Communist China,” 55 Cal. L. Rev. 1284 (Nov. 1967).

As it turns out, mediation has been the primary dispute resolution tool in China for a very long time.  This Mao and Mediation article provides the following information and explanations.


The China of Confucius (photo by Marilyn Swanson)

Confucianism idealizes “harmony” throughout heaven and earth, beginning with the emperor and extending downward to the lowest level of society.  The aim of all human relations is to preserve natural harmony.

Therefore, “mediation had been the primary mode of dispute settlement for thousands of years in traditional China”: 

“Confucianism, the dominant political philosophy in pre-Communist China, stressed the virtues of compromise, yielding, and nonlitigiousness. [The state], its governing institutions, and its traditional social nuclei . . . combined to create pressures and institutions for extrajudicial mediation.”

Here is an explanation of how mediation worked in traditional China:

“Often, mediators had to shuttle between the parties, talking separately with them and with other persons having knowledge of the matter in an effort to reach a mutually satisfactory compromise.”

“One observer described the process thus:

First, the invited or self-appointed village leaders come to the involved parties to find out the real issues at stake, and also to collect opinions from other villagers concerning the background of the matter.  Then they evaluate the case according to their past experience and propose a solution. In bringing the two parties to accept the proposal, the peacemakers have to go back and forth until the opponents are willing to meet halfway. Then a formal party is held either in the village or in the market town, to which are invited the mediators, the village leaders, clan heads, and the heads of the two disputing families.”

“Procedures akin to arbitration and adjudication were sometimes used if informal mediation had failed. Settlement of a dispute  . . . might involve a formal hearing . . . before a group of clan leaders and, perhaps, other respected members assembled for the occasion. . . .  parties and witnesses would give testimony, and then a decision would be reached [with the idea that] leaders should try to bring the parties to compromise without imposing a decision on them.”


Mao’s China (photo by Marilyn Swanson)

The author of the Mao and Mediation article contrasts traditional mediation in China with mediation under Mao:

“[T]he Communists have sought to replace older values with their own, urging struggle where the Confucians counseled compromise . . . [and] weakening or totally abolishing family, clan, village, and guild, which were . . . the forums in which most disputes were resolved.”

“The Communists, while continuing to use mediation, have substantially altered the traditional mode of mediating disputes. They have redefined the identity and role of mediators and have partially succeeded in transforming the process and functions of mediation.”

“In short, the Communists have incorporated mediation into their effort to reorder Chinese society and mobilize mass support to implement Party policies.”

Here is a concrete example of how mediation worked (or was intended to work) in China under Mao:

“Model Mediation Committee Member Aunty Wu … If mediation isn’t successful once, then it is carried out a second, and a third time, with the aim of continuing right up until the question is decided. Once, while Aunty Wu was walking along the street, she heard a child being beaten and scolded in a house. She went immediately to the neighboring houses of the masses, inquired, and learned that it was Li Kuang-i’s wife, Li P’ing, scolding and beating the child of Li’s former wife. She also learned that Li P’ing often mistreated the child this way. After she understood, she went to Li’s house to carry out education and urge them to stop. At the time, Li P’ing mouthed full assent, but afterward she still didn’t reform. With the help of the masses, Aunty Wu went repeatedly to the house to educate and advise, and carry out criticism of the woman’s treatment of the child. Finally, they caused Li P’ing to repent and thoroughly correct her error, and now she treats the child well. Everyone says Aunty Wu is certainly good at handling these matters, but she says, ‘If I didn’t depend on everyone, nothing could be solved.’”

The cited source of this story is “Kuang-ming Daily (Peking), Oct. 14, 1955.”

Today’s China (photo by Marilyn Swanson)


This is fascinating stuff.  Here in the West, we refer to mediation as a “young profession”; whereas, in the East, it’s been around for millennia.  Perhaps we can learn something from them!

And I’d love to know how all this works in today’s China.  Can anyone help us out on this?

Professional Fees in Nortel Networks Bankruptcy are Massive, With a High Burn Rate Continuing

Fee Application Summary Page for One Professional Firm

By: Donald L. Swanson

Some not-surprising facts about professional fees in the Nortel Networks bankruptcy are:

–The total amount is massive; and

–The burn-rate continues without abatement.

Keep in mind that:

–The primary question in the Nortel Networks bankruptcy is this:

How should a $7.3 billion sale proceeds fund be distributed?

–Professional fees in the Nortel Networks bankruptcy are entitled to 100% payment before any general creditor ever sees a dime.

–Mediation efforts have been extensive . . . but largely ineffectual.

MASSIVE FEES AMOUNTS — As of April 30, 2016

A Law360 publication says that professional fees “paid” from that $7.3 billion fund (as of approximately April 30, 2016) total “at least $1.89 billion.”  Of such amount:

–35% ($671 million) is paid in the U.S.

–38% ($712 million) is paid in the UK

–27% ($507 million) is paid in the Middle East and Africa

Note:  Interim fee payments are 80% of allowed fees, because 20% of allowed fees are held back until the case ends.  So, for $1.89 billion fees paid, $2.36 billion are allowed.

$2.36 billion fees on a $7.3 billion fund is 32.33%.  That’s a hefty percentage of a very-large sum, as of April 30, 2016, with a long ways yet to go in the case.


The cash burn rate for professional fees, since April 30, 2016, is exceedingly high.   Many professional firms are being paid out of the $7.3 sales fund, and they are charging lots of money!  Here are some examples.

–Example:  “Consultant”

Consider, for example, the “Sixty-Eighth Monthly Application” for allowance of fees of a Nortel “Consultant” filed on January 19, 2017 (Doc. 17726).  This professional firm began working for Nortel on July 9, 2010, and has total allowed fees of $25.2 million thus far.

Monthly fee amounts approved for this firm during the 2016 calendar year (and being paid from the $7.3 billion fund) are as follows:

1/31/16 — $742,544

2/29/16 — $698,678

3/31/16 — $742,485

4/30/16 — $809,480

5/31/16 — $793,727

6/30/16 — $906,977

7/31/16 — $988,840

8/31/16 — $733,252

9/30/16 — $636,787

10/31/16 — $933,144

11/30/16 — $842,402

12/31/16 — $944,413

Such fees are billed at the rate of $590.00 per hour.  In their 12/31/16 Application, nine individuals worked a total of 1,600.7 billable hours that month to account for the $944,413 total.

[Editorial Comment:  The Delaware Bankruptcy Court issues an Order on May 12, 2015, determining how the $7.3 fund should be allocated among creditors (after payment of professional fees).  This Order is promptly appealed to the Third Circuit Court of Appeals.  One would assume that fee burn rates would diminish after such ruling and appeal.  This assumption, obviously, does not apply to the fees itemized above or below.]

–Example: “Consulting Expert”

Also consider, for example, the “Eighty-First Monthly Application” for allowance of fees of a Nortel “Consulting Expert” filed on December 30, 2016 (Doc. 17646).  This professional firm began working for Nortel on March 4, 2010, and has total allowed fees of $20.2 million thus far.  This firm has been charging a flat $250,000 per month for the entire time of its engagement.

In its December 30, 2016, Application, this professional firm identifies (at page 5 of 14) two professionals working a total of 202 hours from November 1 through November 30 of 2016.  That’s an effective rate of $1,237.62 per hour.

Example: “Attorneys”

Also consider, for example, the “Ninety-Fifth Interim Application” for allowance of fees of a Nortel “Attorneys” firm filed on December 20, 2016 (Doc. 17604) (a photo of a chart from this Application appears above).  This professional firm began working for Nortel on February 4, 2009, and has total allowed fees of $299 million.

Monthly fee amounts approved for this firm for the 2016 calendar year (and being paid from the $7.3 billion fund) are as follows:

1/31/16 — $   730,815

2/29/16 — $   827,881

3/31/16 — $1,058,755

4/30/16 — $   723,962

5/31/16 — $   575,132

6/30/16 — $1,033,934

7/31/16 — $1,039,830

8/31/16 — $1,207,890

9/30/16 — $1,866,199

10/31/16 — $2,640,166

11/30/16 — $2,244,891

In the 11/30/16 Application, there are fifty two different professionals logging time that month, including partners, counsel, associates, temp. attorneys, paralegals and law clerks.


Professional fees approved and paid to date in the Nortel Networks bankruptcy are massive, and the burn rate continues without abatement.  In fact, it looks like the fee burn rate is ticking upward.

Can a Lender Encourage its Borrower to Mediate a Dispute With a Third Party, Without Incurring Lender Liability Risks?

An Issue of Control

By: Donald L. Swanson

Hypothetical: Bank’s borrower is in a lawsuit. Legal fees are mounting, with no end in sight. The attention of borrower’s management is consumed by it. Borrower’s business is suffering. And Bank wants borrower to get the case resolved.

Question: Can Bank suggest, insist, or even demand, that customer schedule a mediation session for the lawsuit as soon as possible and make every effort to get the case resolved?

Concern: Bank might be accused of exercising control over the customer and incurring lender liability risks.

Answer: Such a suggestion, insistence or demand should not create lender liability risks. However, if it occurs amid a series of other actions showing an improper level of control, the suggestion / insistence / demand will add weight to those other actions.

Legal Standards for Improper “Control”

Here is an overview of “control” issues for lender liability concerns:

–“There is no clear definition of what constitutes a creditor’s control over its borrower. Rather, the analysis is fact intensive and depends on the circumstances of an individual case.”

–“To establish domination and control by a lender, the allegations must indicate something more than a monitoring of a debtor’s operations and proffering advice to management, even where the lender threatens to withhold future loans should the advice not be taken.”

–“[L]enders should be aware that the more control they have and exert over their borrowers, the more likely it is that they will be held liable under any number of theories.”

–“On the other hand, lenders should generally feel comfortable that they are unlikely to be exposed to liability if they abide by the express terms of their agreements with their borrowers, do not misrepresent facts to their borrowers or other parties, and recognize that their borrowers’ property, even if that property constitutes the lenders’ collateral, is not their own.”

Quotes are from: R. Krasnow, M. Kessler, G. Fail and J. Sussberg, Lender Liability Considerations, a chapter of “Reorganizing Failing Businesses,” a 2006 publication by the American Bar Association.

Encouraging a borrower to mediate a dispute is like encouraging a borrower to see a lawyer or an accountant to resolve a tax issue. There is nothing about such encouragement that is an improper exercise of control. Indeed, giving such encouragement is prudent.

Insisting or demanding might not be the best idea. But it shouldn’t rise, in and of itself, to the level of improper control.


If at any time a bank or other lender senses that a mediation session might help its borrower resolve a dispute, lender should feel free to encourage the borrower to do the mediation.

People in Conflict Avoid Spending Time Together: A Bad Idea in Mediation?

“Nothing will lower your credibility faster than avoiding conflict.”

–Morris Shechtman, 2003

By Donald L. Swanson

Conflict is difficult.  And conflict is uncomfortable.  So, the easiest and most comfortable way to handle conflict . . . is to avoid it.

Caucus Room No. 3

That’s why caucus-only mediation has become standard practice in many mediations of business disputes.

In a caucus mediation, the disputing parties sit in separate rooms, and the mediator shuttles back and forth between them conveying negotiating messages.  In a caucus model, the disputing parties rarely talk to each other, rarely have to be in the same room together — heck, they don’t even have to see each other!

Some caucus mediation sessions begin with everyone in a single room, where the mediator explains what will happen and why the parties should get their disputes settled.  But this joint session appears to be trending out-of-fashion in business mediations—because the parties want to avoid spending time together.

In such beginning joint sessions, a representative of each party can give an opening statement.  But such opening statements have been out-of-favor for quite some time—because it’s uncomfortable.

Obviously, caucus-only mediation puts a heavy burden on the mediator to listen carefully and communicate faithfully between the disputing parties.

But there are, apparently, negative consequences from avoiding conflict via caucus-only mediation.

A Mediation Study

A 2016 report on a mediation study is published, in January of 2016, on the effectiveness of various mediation strategies.

Here are some of the findings and a recommendation from the study on the caucus mediation model.

Short-term effects

According to this study, the greater the percentage of time participants spend in caucus, the more likely the participants are to report that:

–the mediator “controlled the outcome”

–the mediator “pressured them into solutions”

–the mediator “prevented issues from coming out”

–they are dissatisfied “with the process and outcome”

–they do not believe “the issues were resolved” with a “fair” outcome

–they do not believe “the issues were resolved” with an “implemenable”               outcome

–they have a “sense of powerlessness”

–they have a belief that “conflict is negative”

–they have a residual desire to “better understand the other participant”

Long-term effects

According to this study, the greater the percentage of time participants spend in caucus, the more likely the participants are to report:

–a decrease in “consideration of the other person”

–a decrease in “one’s ability to talk and make a difference”

–a decrease in the sense that “the court cares about resolving conflict”

–an increase in “the likelihood of returning to court . . . for an enforcement action.”

Study Recommendation

Accordingly, the recommendations of the study include this:

to “discourage strategies that are heavily focused on caucus.”

Consistent With Experience

This recommendation seems to be well-taken, based on my experience.

As I look back over decades of mediation practice, on all sides of the table, items of regret from mediation often center on caucus-only situations.  Examples of such regret include these:

–a personal injury plaintiff wants to tell his story directly to the other side, but doesn’t get the chance.

–a fact dispute might be resolved in a face-to-face discussion of fact issues between the parties in a joint session, but the joint session doesn’t happen

–a credibility issue might be resolved in face-to-face discussions, but that possibility doesn’t get a chance.

What do you think?



How Mediation at the End of a Case is Wasteful

A Wasteland

By: Donald L. Swanson

When mediation occurs early-in-a-case, instead of late, “cases are more likely to settle, fewer motions are filed and decided, and case disposition time is shorter, even for cases that do not settle.”

–B. McAdoo, N. Welsh & R. Wissler, “What Do Empirical Studies Tell Us About Court Mediation?” (2004)

A lawsuit consists of these overlapping phases: (i) pleadings, (ii) discovery, (iii) dispositive motions, (iv) pretrial steps, and (v) trial with final verdict or judgment.

The study linked above concludes, obviously, that an early-in-the-case mediation is more effective than a late-in-the-case mediation.


Nevertheless, the customary time for mediation is late-in-the-case: as discovery winds down, pretrial steps are in process, and trial is in the offing. Unfortunately, this late-in-the-case time (without an early mediation effort first) is about as wasteful as can be imagined. Consider this:

–A huge amount of time, effort, energy and fees are spent before a late-in-the-case mediation begins, and avoiding many of such costs can be a powerful incentive to settle in an early-mediation; and

–If the optimum time for mediating is early-in-the-case, then all the time, effort, energy and fees spent between an unused early/optimum time and the late/customary time is a pure and unmitigated waste!

A Faulty Rationale: More Time is Needed

One faulty rationale for end-of-the-case mediation is that the parties need more time to, (i) recognize the risks of their legal position, and (ii) come to grips with the reality of what it takes to resolve the case. Here are two examples of how this rationale is faulty.

1. A lack of opportunity. I remember representing a business defendant who gives ten reasons why they are not responsible for the bad things that happened. The months-long discovery process turns into a ten-step effort that proves each and every one of the reasons wrong. No early-settlement overtures occur in the case from either side, and my client appears ready to engage in meaningful settlement discussions only after all ten reasons are refuted. In retrospect, however, I’m pretty sure that, (i) they knew or suspected, all along, that they were in the wrong, and (ii) would have jumped at the end-of-case settlement terms, had those terms been available early in the case.

2. A lack of imagination. I remember representing a plaintiff against a business defendant that had clearly breached standards of care. But defense counsel refuses, in numerous different contexts, all early settlement overtures (he blames his client for the refusals). We settle at the end with defendant paying much more than defendant would ever have had to pay in an early-stage settlement. The early-refusals cost defendant dearly! I’ve often wondered why all early olive branches were rebuffed . . . and attribute it to a lack of imagination from the other side.

Another Faulty Rationale: Exhaustion Helps

Another faulty rationale for end-of-the-case mediation is the exhaustion element: when parties are weary of paying fees, weary of the time and energy consumed by the lawsuit, and concerned about risks of losing, they become more-inclined to settle. But this exhaustion element bears an unreasonably high price to pay for getting into a better mood for settling the case.

Bankruptcy Experience 

This early-mediation idea is now institutionalized in the Delaware Bankruptcy Court. In 2013, the Delaware Court establishes an early-mediation program for preference cases (see this article).

And it should be noted that early-mediation benefits are particularly in-play for bankruptcy reorganization disputes. Reorganization cases are best served when many disputes are resolved as quickly as possible. The business needs of a debtor, typically, cannot survive long and protracted battles. A debtor, simply, cannot afford to fight every battle all the time. So, early-mediation can be critical to the success of the reorganization process.


Early-mediation is optimal for resolving legal disputes, especially in bankruptcy cases. But end-of-the-case mediation is what usually happens (without any attempt at early mediation).  This is wasteful and needs to change!

🎶 “This is the dawning of the Age of Aquarius [for Bankruptcy Mediation]”🎶 — A New Jersey Example

A Dawning

By Donald L. Swanson

🎶Harmony and understanding,  Sympathy and trust abounding, . . . Aquarious🎶

                —The Fifth Dimension

The year is 1968.  The musical “Hair” debuts on Broadway, with the self-assurance of those who have thrown off the norms of prior generations.  Aquarius is now here, we are assured.

I’m not sure what happened.  Perhaps Jupiter didn’t align quite-right with Mars.   Or maybe the moon couldn’t figure out where the “seventh house” might be.  

Whatever the explanation, the peace-love idealism of 1968 is confronted by five decades of reality.  The Age of Aquarius still seems far away.   

The Dawning of Mediation

But if, back in 1968, the “dawning” song had been talking about mediation, it would have been accurate–both as to, (1) creating harmony and sympathy, and (2) the beginning of extensive use. 

–As the 1970s and 1980s progress, mediation is beginning to be a common tool for resolving civil lawsuits. 

–Since then, mediation has become a primary means of resolving suits in a most courts.

Bankruptcy Mediation Catching Up

Bankruptcy is an exception to the history of mediation progression.  For the final two decades of the last century / millennium, bankruptcy courts had little use for mediation.

–But, since then, that has been changing.

–Mediation of bankruptcy disputes is starting to catch up with mediation in other civil courts.

A New Jersey Example

An example of this catch-up is in the New Jersey Bankruptcy Court.

For many years, non-bankruptcy courts in New Jersey have had “presumptive mediation” rules.  Here’s what that means: 

–rules of procedure require that mediation occur before a case is tried, unless an exception applies. 

–It’s presumed that mediation will occur in every case.

New Jersey attorneys, in courts other than bankruptcy, are accustomed to presumptive mediation rules, and they plan their case strategies around the mediation requirement.

So, in 2014, the New Jersey Bankruptcy Court decides to catch up with other courts and adopts “presumptive mediation” rules for adversary proceedings.       

 Here is the operative rule language:

“Every adversary proceeding will be referred to mediation,” unless an exception applies.

Specified exceptions are for cases involving pro se litigants, requesting a TRO or preliminary injunction, being initiated by the US Trustee, or involving requests to be excused.

In July of 2016, a New Jersey bankruptcy attorney / former bankruptcy judge (Raymond Lyons) reports that the New Jersey bankruptcy bar “has accepted” presumptive mediation, “after some initial grumbling,” and that “both the bench and bar are happy with” presumptive mediation.

What we see in New Jersey is an example of bankruptcy courts catching up, on use of mediation, with other courts that have, for many years, been using mediation as a primary case-resolution tool.


The Age of Mediation Aquarius has been around for decades in many non-bankruptcy courts.  The Age of Aquarius for bankruptcy mediation is dawning, as well.

Can a Party to a Mediation Agreement Oppose Its Court Approval?

A Binding Arrangement

By: Donald L. Swanson

The plan confirmation process does not provide a party to the mediation “with a renewed opportunity to challenge the [mediated] settlement to which they are bound.” 

–In re RPP, LLC, 547 B.R.158, 164 (Bkrtcy.W.D.Pa. 2016).

The RPP, LLC bankruptcy case is a Chapter 11 reorganization, with plan confirmation occurring on June 2, 2016.

The Facts and Disputes

The case has intense and protracted litigation.  The disputes culminate in a mediated settlement agreement, following an 11-hour mediation session held on August 17, 2015.  The terms of the agreement are subject to approval by the Bankruptcy Court during the plan confirmation process.

Thereafter, a husband and wife party to the agreement, Mr. and Mrs. Ferrone, request Court clarification of certain issues.  In particular, the Forrones want the Bankruptcy Court to rule that the mediated arrangement includes a grant of security interest to them.

The Ferrones argue that the Bankruptcy Court approval requirement, in the settlement agreement, allows them to contest the terms of the mediated agreement that they signed.

The Bankruptcy Court finds that, (i) the mediated agreement makes no mention of a security interest for the Ferrones, and (ii) their request for one is “in the nature of ‘buyer’s remorse’” and “regret regarding the settlement.”

The Bankruptcy Court rules that the Ferrones are bound by the settlement agreement and cannot use court approval processes as an excuse to seek a better deal:

In questioning the settlement, the Ferrones also contend that the settlement was never approved in compliance with Fed.R.Bankr.P. 9019.  . . .  Although the plan confirmation process achieves the goals of providing complete disclosure to all parties and review by the Court, to be clear, it does not provide the Ferrones, or any party to the mediation, with a renewed opportunity to challenge the settlement to which they are bound.

On December 9, 2016, this ruling is affirmed on appeal by the U.S. District Court for the Western District of Pennsylvania.

The Rule of Law and a Question

The rule of law established in the RPP, LLC ruling is this:  When a mediated settlement agreement is subject to subsequent court approval, the parties to the mediation are still bound by their mediated agreement and may not oppose the required court approval.

A question:  Is this RPP, LLC ruling limited to the specific facts of the RPP, LLC case?

The specific facts of the RPP, LLC case include a judicial mediator who issues a “Final Judicial Mediation Consent Order,” instead of a regular agreement between mediating parties using a private mediator.

The Answer

I suggest that the answer to this question is, “No”: the ruling has broad and general application.

A mediation party is bound by the terms of the mediation settlement agreement until the required court approval is granted or denied, and such party may not directly or indirectly oppose the granting of such approval.  A mediation party cannot use the court approval requirement to renegotiate a better deal.

The RPP, LLC ruling, I suggest, is operative in a broad range of circumstances and is not limited to the “Final Judicial Mediation Consent Order” facts of that case.