A Cool Play from the Litigation / Mediation Playbook

By: Donald L Swanson

“[T]he parties should be prepared to engage in mediation before the Court fixes any evidentiary hearing.”

Bankruptcy Judge Kevin J. Carey, In re AWI Delaware, Inc., Case No. 14-12092 (Bankry. Del., opinion dated 6/28/2017).

Did you ever see a play in a sporting event that’s both imaginative and effective? And your reaction is, “That’s cool!”

–Maybe it’s a well-executed on-side kick play in football; or an alley-oop dunk in basketball; or a squeeze play in baseball. It’s slightly out of the ordinary, but still fundamentally sound. And it’s in the playbook to be drawn upon at any opportune time.

Well . . . that’s my reaction to how the parties and the Bankruptcy Judge are working together to resolve a dispute in the bankruptcy case referenced above. Their approach is imaginative and timely and (thus far) effective.

Here’s what’s happening.

Creditor files an Application for allowance of administrative claims totaling $748,076.18, with interest and setoff rights. The bankruptcy debtors file an objection.

The Bankruptcy Judge identifies three issues.

–First, there’s a threshold issue of contract construction that can be resolved from the face of the contract, without further evidence, if the contract language is unambiguous.

–The other two issues will then require an extensive evidentiary record for a ruling on the merits by the Court.

With agreement of the parties, the Bankruptcy Judge holds a preliminary hearing on the threshold issue, takes the issue under advisement, and (on June 28, 2017) rules in favor of the claimant on that issue.

The Court’s ruling on the threshold issue specifies that,

–the “two remaining issues” will “necessitate an evidentiary hearing”;

–a “status hearing” will be held on July 10, 2017, to schedule an evidentiary hearing on the two remaining issues; and

–the parties “should be prepared to engage in mediation before the Court fixes any evidentiary hearing.”

On July 5, 2017, attorneys for the parties inform the Judge in writing as follows:

–“[B]oth parties would benefit” from “additional time” to, (i) “analyze our respective positions in light of the Court’s Opinion,” and (ii) engage in “constructive settlement negotiations” before the matter “is formally referred to mediation.”

–The parties also, (i) ask the Court to delay the July 10, 2017, status hearing until September 2017, and (ii) advise the court that the parties will either “resolve this matter” without a mediator or “proceed with formal mediation.”

This approach by the Bankruptcy Court and the parties seems both imaginative and effective. It’s cool! And it’s a play from the litigation / mediation playbook that can be employed by others at opportune times.

Elements of the Play

Here are the elements of this play from the litigation / mediation playbook:

1. The dispute has multiple issues that must be resolved in reaching a final decision;

2. A threshold issue can be decided as a matter of law without an extensive evidentiary record; and

3. The Court,

a. makes an initial ruling on the threshold issue; and

b. requires mediation before scheduling trial on the remaining issues.

Conclusion

Bankruptcy Judge Kevin J. Carey, and the parties in the In re AWI Delaware, Inc., case are employing a litigation / mediation play that we can all tuck away in our bankruptcy playbooks and utilize at appropriate and opportune times.

**  If you find this article of value, please feel free to share.  If you’d like to discuss, let me know.