A Federal Bankruptcy Rule is Needed for Mediation Authorization and Confidentiality: Four Reasons Why


Antiquated (photo by Marilyn Swanson)

By Donald L. Swanson

Mediation needs to be included — explicitly and by name — in the Federal Rules of Bankruptcy Procedure.  A new Rule is needed to cover two specific subjects: (i) mediation authorization, and (ii) mediation confidentiality.

All other areas of mediation practice and procedure can be addressed in local rules, provided that the essential elements of authorization and confidentiality are established in a Federal Bankruptcy Rule.  For a resource on preparing and adopting local mediation rules, see the Model Local Rules on mediation and related Commentary provided by the American Bankruptcy Institute.

The following are four non-exhaustive reasons why such a Federal rule is needed.

Reason # 1:  Bankruptcy Courts Are a Rare Mediation-Rules Exception

Every bankruptcy-related court has a Federal rule on mediation, except for the bankruptcy courts themselves. And mediation is a central dispute-resolution tool throughout all other Federal courts and all Federal agencies

Bankruptcy-Related Courts

–U.S. District Courts

Mediation appears in Fed.R.Civ.P.  16(c)(2), which authorizes “using special procedures to assist in resolving the dispute.” And mediation appears in Fed. R. Civ. P.  53, which authorizes the appointment of a mediator as a “settlement master.”

[Note: Fed.R.Civ.P. 16 is not included in the Fed.R.Bankr.P.  9014(c) list of incorporated rules. And Fed.R.Bankr.P.  9031 rejects Rule 53 special masters in bankruptcy.]

–Bankruptcy Appeals to BAP and to District Courts

Fed.R.Bankr.P. 8027 governs appeals from bankruptcy courts to a bankruptcy appellate panel or to a district court. It provides for “notice” to appealing parties of the requirements of the appellate court’s mediation procedure. This Rule 8027 is relatively new: adopted in 2014.

–U.S. Circuit Courts of Appeals

Fed.R.App.P. 33 provides that the circuit courts “may direct” parties “to participate in . . . a settlement conference.” All of the Circuit Courts of Appeals have adopted a local mediation rule. And they are serious about enforcing their mediation confidentiality rules. See, e.g., In re Anonymous, 283 F.3d 627 (4th Cir. 2002), and In re Teligent, 640 F.3d 53, 57-58 (2nd Cir. 2011).

Other Federal Courts

The U.S. Tax Court has a Federal mediation rule: see Rule 124(b) Tax Court Rules of Practice and Procedure.

The U.S. Court of Claims has a Federal mediation rule: see Appendix H, Rules of the United States Court of Federal Claims.

The U.S. Court of International Trade has a Federal mediation rule: see Rule 16.1 USCIT Rules, Forms, Guidelines and Administrative Orders.

Federal Agencies

The entire executive branch of the Federal government is subject to a broad policy favoring mediation and other ADR processes. The Administrative Dispute Resolution Act of 1996, provides:

–“Each agency shall adopt a policy that addresses the use of alternative means of dispute resolution and case management.”

The General Counsel of the Army reports:

–“Stemming from the Administrative Dispute Resolution Acts of 1990 and 1996, federal agencies have introduced ADR processes as a means of resolving just about every type of dispute, in just about every area of endeavor.”

The Office of Personnel Management’s “Alternate Dispute Resolution Handbook” indicates:

–“In the 1990s, Congress passed three statutes . . . which, collectively, required each agency to adopt a policy encouraging use of ADR in a broad range of decision making, and required the federal trial courts to make ADR programs available to litigants.”

Reason # 2:  Many Bankruptcy Courts Have No Local Mediation Rules

75 of 94 bankruptcy court districts in the U.S. and its territories have local rules, of one sort or another, on mediation.  The other 19 do not.

However, the existence of a local mediation rule does not mean the rule is adequate. The Bankruptcy Court in Minnesota, for example (like a handful of other districts), has a one-sentence local rule on mediation (Rule 9019-2). It reads:

“The court may refer any adversary proceeding or contested matter for mediation by any other federal judge or any mediator chosen by the parties.”

This Local Rule authorizes mediation to occur in Minnesota’s Bankruptcy Court. But where is a provision for confidentiality? A Federal rule could resolve such a deficiency.

Reason # 3:  Bankruptcy’s ADR Rules are Antiquated – Having Changed Little Over the Past Century

Alternative dispute resolution provisions (“ADR”) involving arbitration and compromise have been part of U.S. bankruptcy laws since at least 1898.

The U.S. “National Bankruptcy Act of 1898” provided for “Arbitration of Controversies” and for “Compromises” in consecutive sections as follows:

“§ 26. Arbitration of Controversies. – (a) The trustee may, pursuant to the direction of the court, submit to arbitration any controversy arising in the settlement of the estate.”

Ҥ 27. Compromises. Р(a) The trustee may, with the approval of the court, compromise any controversy arising in the administration of the estate upon such terms as he may deem for the best interests of the estate.

Today’s Fed. R. Bankr.P. 9019, similarly, provides:

“(a) Compromise. On motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement. Notice shall be given to creditors, the United States trustee, the debtor, and indenture trustees as provided in Rule 2002 and to any other entity as the court may direct.”

“(c) Arbitration. On stipulation of the parties to any controversy affecting the estate the court may authorize the matter to be submitted to final and binding arbitration.”

The compromise and arbitration provisions of today’s Rule 9019 have, obviously, been around in largely-the-same-form for more than a century as next-door-neighbor provisions. However, in today’s practice:

–Arbitration has been an infrequently-utilized ADR tool for resolving bankruptcy disputes, despite being explicitly authorized in the Federal Rules of Bankruptcy Procedure; and

–Mediation, on the other hand, is a frequently-utilized ADR tool for resolving bankruptcy disputes, but isn’t even mentioned in the Federal Rules of Bankruptcy Procedure.

Accordingly, bankruptcy’s ADR rule (Fed.R.Bankr.P. 9019) needs to be upgraded from its century-old provisions to include today’s primary ADR tool in bankruptcy – i.e., mediation.

Reason # 4:  Local Rules on Mediation Confidentiality are Intended by Congress as Interim-Only Provisions

The Alternative Dispute Resolution Act of 1998 clarifies the role of local rules on mediation confidentiality. 28 U.S.C. § 652(d) says:

“(d) Confidentiality Provisions.— Until such time as rules are adopted under chapter 131 of this title providing for the confidentiality of alternative dispute resolution processes . . . , each district court shall, by local rule adopted under section 2071(a), provide for the confidentiality of . . . dispute resolution communications.”

[Note:  The “chapter 131 of this title” reference is to statutes authorizing amendments of Federal Rules of Civil Procedure, Federal Rules of Bankruptcy Procedure, and Federal Rules of Evidence; and “section 2071(a)” is the statute authorizing both district courts and bankruptcy courts to adopt and amend local rules.]

Here’s what this § 652(d) is saying:

1. First, each district court (including it’s bankruptcy unit) is directed to adopt a local rule on mediation confidentiality, under 28 U.S.C. § 2071(a), as a first-and-interim step in a two-step process; and

2. Then, Federal rules need to be adopted on mediation confidentiality to complete the two-step process.

A District Court has confirmed the reality of this two-step process with these words (from Olam v. Congress Mortgage Co., 68 F.Supp.2d 1110, 1121 (N.D.Cal. 1999)):

“In § 652(d) of the Act, Congress directed each federal district court (until national rules are adopted under 28 U.S.C. § 2071 — a process not likely to be completed for years) to ‘provide . . . for the confidentiality of [mediation processes].'”

The first of the two steps has been completed for many district and bankruptcy courts. But the second step has never been completed for any Federal court.


For the four non-exhaustive reasons discussed above, an amendment to the Federal Rules of Bankruptcy Procedure is needed to add mediation authorization and mediation confidentiality provisions.

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