“We, too, sympathize with the plight of the American farmer. Nevertheless, the solution proposed by the Ahlers majority is contrary to the Bankruptcy Code and a long line of case law.”
— U.S. Supreme Court in Norwest Bank Worthingtonb v. Ahlers, 485 U.S. 197, 209 (1988).
The 1980s are a financial disaster for farmers. The 1980s Farm Crisis, as it is known in the Midwest, put many farmers out of business.
Many farmers file Chapter 11 back then. But most find little assistance in bankruptcy because of Chapter 11’s absolute priority rule. This rule prohibits confirmation of a debtor’s plan of reorganization unless the unsecured creditors, (i) are paid in full, or (ii) agree to something different. The Supreme Court quotation above is from a ruling that the absolute priority rule applies (and cannot be circumvented) in farm cases.
In 1986, during the heart of the Farm Crisis, Congress enacts a bankruptcy provision expressly for farmers: Chapter 12. This enactment is a godsend for many farmers and solves financial problems for many of them.
Additionally, many state legislatures in the Midwest enact farm mediation laws, which require mediation before a creditor can enforce a delinquent farm loan.
The Mediation Response in Minnesota
In 1986, the Minnesota legislature adopts its “Farmer-Lender Mediation Act,” which is mandatory in character.
–This Act specifies that a secured creditor may not enforce a claim against the farmer until ”a mediation notice . . . is served on the debtor and . . . the debtor and creditor have completed mediation.”
A 1993 report on the effectiveness of the mandatory mediation Act in Minnesota says:
–54,828 people participate in mediations under this Act between 1986 and 1992;
–55.5% of mediation sessions result in an agreement between the farmer and the creditor;
–the “mandatory aspect” of the mediation requirement “encouraged many farmers to consider mediation who would not otherwise have done so”;
–there is “an overall high level of participants’ satisfaction with the process and its outcomes”; and
–mediations under this Act have been successful in “improving communications, keeping farmers in the community, and preventing serious personal crisis.”
A 2015 Fiscal Year report on the effectiveness of Minnesota’s Farmer-Lender Mediation program shows significant improvement from the late-1980s / early-1990s 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”
–97% of farm debtors who completed mediation reached a settlement with the creditor
A critical-and-creative element for the effectiveness of Minnesota’s Farmer-Lender Mediation program is a pre-mediation orientation session in which the debtor meets with a financial analyst. The analyst assists the farmer in assembling, developing and evaluating information on the farmers financial circumstances in preparation for the mediation session. This is, obviously, a valuable service.
The Minnesota Farmer-Lender Mediation Act is a creative use of mediation services. It has served a valuable and successful role for farmers and lenders in Minnesota and is another demonstration of how a mediation process, when tailored to the needs-at-hand, is an effect dispute resolution tool—even in the most-difficult of circumstances.
Accordingly, everyone involved in mediation of all types should continually look for ways to adjust mediation services to address the unique characteristics of each dispute.
And when an entire class of disputants (e.g., farmers and creditors in this Minnesota example) can benefit from a creative mediation approach, then creativity should be pursued!!