An Example of Mediation Success in Hostile and Difficult Circumstances (City of San Bernardino Bankruptcy)

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View from an Axis bunker at Omaha Beach:  Allied success in hostile and difficult circumstances

By Donald L. Swanson

Timeline for a Plan Confirmation Dispute

November 11:  Creditor requests an order requiring mediation
November 14 (a.m.):  Debtor objects to request for mediation order
November 14 (p.m.):  Court orders mediation
December 6:  Debtor and creditor reach a settlement agreement
February 7:  Debtor’s bankruptcy plan is confirmed

This timeline is from a year ago. The case is the Chapter 9 bankruptcy of In re City of San Bernardino, California, Case No. 12-28006, in the U.S. Bankruptcy Court for the Central District of California.

During this timeline, the case had been on file for more than four years, and plan confirmation processes are coming to a head. Most confirmation disputes are resolved, and one creditor is holding out. Tensions are running high.

Court Filings

Details from Court filings for the timeline noted above reveal a chasm that separates the positions of the parties. Here are some of those details.

Creditor’s Filing

The creditor files its “Notice of Intent to Request Mediation” (Doc. 2052, filed 11/11/2016), which contains these optimistic representations:

–“Mediation has been successfully and appropriately used” in this San Bernardino case and in Chapter 9 proceedings filed by other California cities. “Indeed, remarkable and beneficial results have been achieved through settlement, often assisted by a competent and able mediator.”

–“The Matters to to be dealt with” in the mediation are in most respects “issues of first impression and of great importance and interest” in the San Bernardino case and to “other potential debtor cities with similar issues.”

–“It seems likely that appeals will ensue no matter what the decision may be if these Matters” are tried and resolved by Court order. Further litigation on these Matters has the potential of “adversely impacting” the plan confirmation process.

–The City and the creditor “have met and attempted to settle these matters in good faith,” and “both sides have exchanged drafts of settlement proposals,” but they haven’t reached a resolution. The assistance of a mediator “would greatly increase the likelihood of settlement.”

–The creditor “is confident that settlement can be reached,” and it “sees multiple paths” to success. While a mediation session “may momentarily delay full confirmation,” it also might “prove to be the most expeditious path to final confirmation.”

–The creditor has invited the City “to voluntarily agree to” mediate, but the City “has politely declined.” So, the creditor intends to “invite the Court” to “order” the parties into mediation.

Debtor’s Filing

The City of San Bernardino then files its “Opposition” (Doc. 2056, filed 11/14/2016, a.m.) to the creditor’s mediation request. The City’s Opposition includes these representations:

–“The City and its stakeholders, including . . . the 95% of creditors that voted to accept the Plan,” seek prompt confirmation of the Plan, “not further delay.”

–The creditor’s “suggestion that the parties’ discussions . . . have closed the gap is false.”

–The discussions between the creditor and the City “have not been productive” and “more of the same will be of no benefit, with or without a mediator.”

–The creditor, (i) “could have sought mediation six months ago,” but (ii) “instead placed the legal dispute before the Court and pressed to block confirmation of the Plan unless it got its way.”

–The creditor “seeks delay.” The creditor “had plenty of time . . . to pursue mediation.” Instead, it pursued litigation. After “two and a half months” and “several rounds of briefs,” the creditor now, “on the eve of trial,” seeks to “delay this Court from making the rulings that are necessary to confirm the Plan.”

–The creditor’s statement of confidence in settlement “is belied by six months of intransigence. No further delay is justified.”

–“Caving in” to the creditor’s “intransigence and efforts at delay” would not be “in the best interests of the City’s creditor’s.”

–Accordingly, the City “respectfully requests” that the Court “ignore” the creditor’s request for mediation and, instead, “rule on the merits” of the disputes between creditor and the City.

–“It’s too late for mediation.”

Subsequent Filings

On the afternoon of the day the City files its “Opposition,” the Bankruptcy Court rules on the mediation request as follows: “Case being sent to mediation” (Doc. 2060, entered on 11/14/2016).

Then, the creditor and the City reach a settlement of their disputes, as shown by the Bankruptcy Court’s ruling that says, “Matter resolved by Stipulation” (Doc. 2100, entered on 12/06/2016).

The City’s Plan for the adjustment of debts is confirmed by order of the Bankruptcy Court on February 7, 2017 (Doc. 2164).

Moral of the Story

Mediation is a tool for resolving disputes. And it’s a tool that can be useful in many different contexts.

Sometimes, disputing parties want to mediate their disputes and volunteer to do so. Other times, one of them wants to mediate and the other doesn’t, so the court orders them to mediate anyway. On occasion, none of the disputing parties want to mediate but are required to mediate by court order or local rule.

In all such circumstances, mediation can be successful. The story above from the In re City of Sacramento, California, Chapter 9 case is but one example of mediation success amid hostile and difficult circumstances.

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