“the Court finds that mediation may be an efficient and effective mechanism . . . to consensually resolve or narrow the objections to the plan.”
–Hon. Stuart M. Bernstein, U.S. Bankruptcy Judge, Southern District of New York, in Avaya Inc. mediation referral Order dated 9/13/2017 (emphasis added).
We can all take a lesson from Judge Bernstein’s Order. The lesson is this:
–The narrowing of issues is an important interim goal for a mediation effort.
Today’s litigation/mediation culture dictates that only one conclusion can be called a success in mediation: i.e., a complete settlement of all disputes.
But this cultural dictate is not only inaccurate – it’s also harmful, especially in multi-party and multi-issue disputes like Chapter 11 plan confirmation processes.
Here’s the harm: it puts unrealistic expectations and demands upon the mediation process.
Imagine, hypothetically, there are ten objecting constituencies to a Chapter 11 debtor’s proposed plan, and each is asserting a handful of different objection grounds. The Judge orders all the parties to mediation:
–The mediation resolves all issues raised by five constituencies. That is a success.
–The same mediation reduces issues raised by the other five to two each. That is also a success.
The five remaining parties go back to the same Judge, who hears their remaining objections, rejects some of the objection grounds, and orders the parties back to mediation on remaining issues.
–The second round of mediation resolves all issue but those of a single holdout creditor. That is a success.
–The holdout creditor’s remaining objections are then heard and rejected by the Judge, and the plan is confirmed. This is a final success.
All of the steps in this hypothetical are successful. And all steps lead to a final conclusion that resolves all disputes and achieves a final resolution that nearly everyone finds satisfactory.
–Had the goal of the initial mediation effort been limited to achieving a global settlement, the mediation would have been a failure from the beginning and would have never achieved a real success.
–Instead, including narrowing-the-issues as an interim goal allows for a multi-step process that achieves both interim and ultimate success.
The Avaya Inc. Case
The Avaya Inc. case has, undoubtedly, lots of activity behind the scenes that will never appear on the public record. But here’s what the record shows:
9/13/2017 – The Judge orders the parties to mediation “to consensually resolve or narrow the objections to the plan.” This Order (Doc. 1160) is upon the Judge’s initiative and without any written request by any of the constituencies.
10/6/2017 – The Judge enters a “Supplemental Order Regarding Assigned Mediation” (Doc. 1286) because “the Mediation Parties believe that the following order . . . will facilitate the mediation provided for by the Initial Mediation Order.” This Supplemental Order expands upon confidentiality provisions, adds greater flexibility and authority for the mediator, and requires good faith participation by the parties.
11/27/2017 – Notice of ultimate success (i.e., a global settlement) is provided by news reports.
Because of confidentiality requirements, we’ll never know exactly how all this worked out in actual practice. But Judge Bernstein adding “or narrow the objections” as a specified mediation goal is, undoubtedly, an important part of the ultimate success of the mediation effort.
Judge Bernstein’s articulation of both interim and ultimate goals for the mediation effort should be followed in all mediation efforts involving multiple parties and multiple issues.
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