Settlor’s Regret in Mediation — After It’s Too Late to Back Out


By: Donald L. Swanson

There was a settlement . . . many arguments have been constructed to get around that unfortunate fact, but it’s a fact.”

–Bankruptcy Judge, during hearing on Motion to enforce a mediated settlement in Lehman Brothers bankruptcy.

It’s common in business bankruptcies for the estate to pursue preference and fraudulent transfers claims.  Sometimes, hundreds of such claims are filed in a single bankruptcy, with mediation procedures established.

In such circumstances, defendants often face strategic choices like, whether to settle quickly or to await resolution of disputed issues before settling.  Here are the risks:

–If we wait and the resolution is in our favor, we could get off scot-free; but if it goes against us, we lose negotiating leverage.

Here’s an example of a defendant who settled too soon . . . and tried to back out, after it was too late:  Bank of Shinhan in the Lehman Brothers bankruptcy.

Bank of Shinhan Example

Bank of Shinhan reaches a settlement agreement, through mediation, in the Lehman Brothers bankruptcy.

But before formal settlement documents could be signed, the Bankruptcy Court dismisses the claims being asserted—in their entirety.  So, Bank of Shinhan tries to back out of the deal, to no avail.

A review of the chronology is instructive.


09/14/2010—Lehman Brothers sues 250 defendants (including Bank of Shinhan), in a single lawsuit, to recover a total of $1 billion (Case No. 10-03547 in the Bankruptcy Court for Southern New York), asserting similar claims against all defendants.

06/11/2013—Lehman Brothers initiates mediation procedures with Bank of Shinhan, under an ADR Order.

–Settlement Happens Through Mediation

04/06/2016—During mediation, the Mediator proposes that Shinhan pay Lehman a certain amount in exchange for a release.

04/20/2016—Shinhan responds with an email saying, “Shinhan has agreed to accept”; the Mediator reports that same day—“the parties have agreed to settle this dispute.”

–Documenting the Settlement

04/21/2016—Lehman sends Shinhan’s counsel a draft settlement agreement.

05/11/2016—Shinhan proposes two changes to the agreement: (i) 10 days, instead of 5, to pay the settlement amount, and (ii) requiring hard copies, instead of electronic signatures.

05/12/2016—Lehman accepts Shinhan’s proposed changes.

05/19/2016—Shinhan makes additional requests on details for executing the settlement documents.

05/26/2016—Lehman signs a “Release Agreement” document and sends it to Shinhan’s counsel for signature.

06/14/2016—Shinhan’s attorney assures Lehman that “the week of June 27” is the likely date for signature and payment.

–A New Development and Problem


MorningLehman follows up with Shinhan’s counsel, who assures that Shinhan’s “internal approval process” is complete and that settlement documents “will be signed by Thursday”; and

Afternoon—Bankruptcy Court enters an Order dismissing the bankruptcy estate’s Complaint against all defendants (including Bank of Shinhan) for failure to state a claim.

Now . . . there is a problem.  Had the mediated settlement not occurred, the claims against Bank of Shinhan would be gone. So, the Bank refuses to proceed with settlement, advising Lehman that it, (i) does not believe an enforceable agreement exists, and (ii) will not pay the settlement amount.

The Mediator tries to resolve the new problem but is unsuccessful.

01/30/2017—Lehman files a Motion to enforce the settlement (Doc. 54675, Case No. 08-13555, in Bankruptcy Court for Southern New York).

–Court Hearing and Discussions

03/21/2017—A hearing is held in Bankruptcy Court on Lehman’s enforcement Motion. Here are exchanges between the Bankruptcy Court and Shinhan’s attorney:

Attorney: “They’re asking you to enforce what they’re calling a settlement that they say occurred on April 20th. . . . “

Court: [Interrupting] “Yeah, there was an agreement. There was a settlement. There’s going to be a payment of money. And there’s going to be a release—Period.”

Attorney: “The problem with that, Your Honor, it is absolutely clear that there were a lot of essential terms they forget about not having been agreed to –“

Court: “No, there weren’t. . . . it is the simplest settlement that there could possibly be. Pay money. Get released. . . . There’s not a lot of moving parts here.”

Attorney: “But let me ask you about one. Pay money. When? Five years from now? Two days from now? Ten years from now? . . . ”

Court: “Could we just be forthcoming here?”

Attorney: “Please.”

Court: “Okay. There was a settlement. And then, incredibly, against all odds, the [dismissal] ruling was issued right at the moment of truth. That’s what happened. It’s not about anything else but that. So I appreciate that many arguments have been constructed to get around that unfortunate fact, but it’s a fact.”

–Bankruptcy Court Order

03/29/2017—Bankruptcy Court’s written Order (Doc. 55126) enforcing the settlement agreement, includes these provisions:

“the Settlement, and the Release Agreement . . . are enforceable”; and
“Shinhan shall pay [to Lehman] the agreed-upon Settlement Amount within ten (10) days after this Order becomes final and non-appealable.”


04/11/2017—Shinhan appeals to the U.S. District Court for the Southern District of New York (Case No. 17 Civ. 03424).

08/02/17—U.S. District Court affirms the Bankruptcy Court’s ruling, with findings such as these:

“The terms of this uncomplicated agreement” were announced “in an April 6 mediation session, and the April 20 emails between the parties and the Mediator. There is nothing about the terms of their agreement that suggests it could not or should not be enforced without a formal document signed by the parties.”

While it is “prudent” to put “this type of settlement agreement into a formal writing, as the parties in this case endeavored to do. The parties drafted a written agreement that was unsigned by Shinhan only because of its own delay and the court’s issuance of the dismissal order.”

“Allowing Shinhan to back out of the April 20 agreement because the parties took steps to record their agreement in a writing would frustrate the important goal of committing to writing already-agreed-to settlements.”

08/12/2017—Shinhan appeals to the U.S. Second Circuit Court of Appeals (Case No. 17-27001).

07/18/2018—U.S. Second Circuit Court of Appeals, in a “Summary Order,” affirms the District Court’s ruling.


Settlor’s regret is a tough thing.

But settlements, once they occur, are enforceable like any other contract. It’s too late to back out.

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