ADR Act of 1998: Defiance in Chicago’s Bankruptcy Court?

By:  Donald L. Swanson

Here’s the local rule (adopted in November 2017) allowing mediation in Chicago’s Bankruptcy Court (emphasis added):

RULE 9060-1 MEDIATION AND ARBITRATION
Except to the extent required by the Bankruptcy Code or Federal Rules of Bankruptcy procedure, parties to an adversary proceeding or contested matter need not request court approval before pursuing mediation or arbitration. 

This rule is not exactly a mediation authorization.  It’s more of a, “Don’t bother us,” statement.

Chicago’s Bankruptcy Court formerly had a full set of mediation rules.  But it revoked those rules several years ago, and it had no local mediation rule thereafter of any sort—none—until November 2017.

The following is some history.

ADR Act of 1998

Twenty years ago, Congress enacted the Alternative Dispute Resolution Act of 1998 [codified at 28 U.S.C. § 651 et seq., the “ADR Act”]. The ADR Act directss that each U.S. district court and its bankruptcy court unit (see 28 U.S.C. § 151) adopt local rules “to encourage and promote the use” of mediation and other ADR processes.

Specifically, the ADR Act directs that each federal court:

–“shall devise and implement its own [ADR] program, by local rule” (§ 651(b));

–“shall, by local rule . . . , require that litigants in all civil cases consider the use of an [ADR] process at an appropriate stage in the litigation” (§ 652(a));

–“shall, by local rule . . . , provide for the confidentiality of [ADR] processes and to prohibit disclosure of confidential dispute resolution communications” (§ 652(d)); and

–“shall promulgate its own procedures and criteria for the selection of neutrals on its panels” (§ 653(a)).

Compliance

After 1998, the Bankruptcy Court in Chicago adopted an extensive set of local mediation rules that complied with ADR Act directives.

Defiance?

A8D8A445-4425-440A-B580-75305A4A6069
Chicago — Defiance?

But . . . thereafter, and for reasons unknown, the Chicago Bankruptcy Court decided it no longer wanted to have local mediation rules or to comply with ADR Act directives.

Why this change happened remains a mystery. And how the Bankruptcy Court decided to thumb its nose at ADR Act directives is a complete unknown.

Speculation says the judges became disenchanted with infrequent use of their mediation rules.  So they declared such rules unnecessary and revoked them.

And then there’s this famously-quoted comment at an In re Caesars hearing in the Chicago Bankruptcy Court:

“You don’t need my permission” to mediate, said the Judge. “Just click your heels together three times and say, ‘There is no place like mediation.’”

But what about practical issues identified by the ADR Act: like confidentiality of the mediation process? What about compensating a mediator from estate assets: isn’t advance court authorization required? And what about designating mediators: has the Court no interest in such things?

And what about legal issues like compliance with the ADR Act?  Are the Bankruptcy Code and Rules exceptions in Chicago’s Local Rule meaningful?

Perhaps the answers are as simple as this:

–No one is enforcing ADR Act directives, so courts can get away with defiance and noncompliance.

The 2017 Rule

Along the way, the Bankruptcy Court in Chicago decided to formalize its, “You don’t need my permission,” idea. And so it adopted the November 2017 local rule quoted at the beginning of this article.

Progress?

The new local mediation rule is insignificant.  But it represents progress, I suppose. For example:

–Of the 94 bankruptcy districts in the U.S. and its territories, 80% have a local mediation rule of some sort. The Bankruptcy Court in Chicago, at least, no longer adds to the 20% who have no mediation rule at all.

–The Bankruptcy Court in Chicago joins five other bankruptcy districts that have a one-or-two sentence local mediation rule. The other five are Maine, Minnesota, New Hampshire, Northern Texas, and Southern West Virginia.

Conclusion

It would be nice to have the Chicago Bankruptcy Court take a leadership role in complying with ADR Act directives. Seeing that Court take a defiant approach, instead, is disappointing.

Oh, well. Others are filling the leadership role.

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

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