Micromanaging the Mediation Process

 

By: Donald L. Swanson

In the case of In re Sabine Oil & Gas Corp., Case No. 15-11835 (Bankry. S.D.N.Y.), the bankruptcy judge authorizes and terminates two separate mediation efforts by the following orders:

–January 5, 2016 – “Order Selecting Mediator and Governing Mediation Procedures” (Doc. 669).

–May 2, 2016 – “Order Terminating STN Mediation” (Doc. 1057).

–May 19, 2016 – “Second Order Selecting Mediator and Governing Mediation Procedures” (Doc. 1113) — appointing a new mediator.

–June 7, 2016 – “Mediator’s Post-Mediation Memorandum” (Doc. 1236) – reporting the second mediator’s conclusion that “there is no prospect of a mediated settlement at this time.”

Contentious Context

The In re Sabine case is unusually contentious, with an Official Committee of Unsecured Creditors that is litigious and intractable.  The presiding Judge quickly loses patience with the Committee’s positions and actions, as shown in these two items in the Judge’s plan confirmation ruling:

1. The Court refers back to the Committee’s position on an early issue that the Court rejected, after “Nine days of live testimony, hundreds of exhibits, and five days of closing argument” that consumed “tens of millions of dollars” and diverted the attention of Debtors’ management away from “maintaining the stability of the business and the morale of their employees.”
2. The Committee’s plan opposition consumed ten days of live testimony and ten hours of closing argument and “took an enormous financial toll on the Debtors” and “visited further human capital costs” on Debtors’ management and employees. Yet, the Court ruled, “it is eminently clear that the plan should be confirmed.”

Dealing with Recalcitrant Behavior

Rewinding to the Court’s two mediation authorization orders and the one mediation termination order, it seems obvious that the Court’s intention is to control, or at least limit, the effect of the Committee’s recalcitrant and obstreperous bent.  So, the Court’s mediation orders have a micromanagement feel.  For example:

–The first mediation authorization order establishes, (i) the date and time for a meet-and-confer on procedures and timing, with a specification of matters to be discussed, (ii) a specification of materials to be submitted to the Mediator, and (iii) a directive on who “shall attend and participate” (unless “otherwise directed by the Mediator”).  This first order does, however, authorize the mediator to “schedule additional mediation sessions as necessary.”

–Termination of the first mediation order, four months later, is abrupt.

–And the next mediation order occurs less than three weeks after termination of the first mediation order.  It appoints a new and different mediator.  And it establishes the same types of micromanaging details as the first, only it adds a new detail: the second mediation is limited to “a single mediation session.”

All of this is understandable in the contentious context.

A Contrast: Healthier Contexts

By contrast, mediators in other, and healthier, cases exercise broad and proactive authority over the entire mediation process.

In the City of Detroit bankruptcy, for example, a mediator team is appointed with no restrictions whatsoever.  They take initiative throughout the case in identifying disputes for mediation, ordering parties to appear for mediation sessions, determining how each session is to be conducted, scheduling as many sessions as needed (there are hundreds of sessions), requiring disclosures of information, etc.  The mediation authorization order in the Detroit case is a one-pager containing less than ten lines, as opposed to the twelve-pages required for the first micromanaging order in the In re Sabine case

Similarly, mediators appointed as special settlement masters by U.S. district courts under Fed.R.Civ.P. 53 are commonly given broad and proactive powers over the mediation process, with little-to-no micromanaging conditions or restrictions.

Micromanagement = Negativity

Micromanagement is considered a bad practice in nearly every context, absent special circumstances like those in the In re Sabine case.  Mediation should be no different.

Here is a practical illustration of how negotiations typically work in Chapter 11, without micromanagement by the Court:

–In a Chapter 11 case where mediation does not occur, the parties fend for themselves on initiating and pursuing negotiations toward terms of an acceptable plan.  As they do so, the bankruptcy judge has little-to-no input or control over those negotiation efforts: the judge might set deadlines or rule on disputes the parties bring before the court — but that’s about it.

So, why would the interjection of a mediator into the negotiation process create a need for micromanagement by the court?  Wouldn’t mediation authorization be a sufficient effort by the court to assist negotiation efforts — without micromanaging?

Conclusion

“Micromanagement” is a negative term because it describes a type of poor management practice.  Why a court would want to micromanage a mediator, the mediating parties or the mediation process (absent extraordinary circumstances like In re Sabine) is a mystery.  It shouldn’t happen.

What do you think about this?

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