How a Judge Makes Mediation Work: Judicial Oversight in Bankruptcy

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Oversight (photo by Marilyn Swanson)

By Donald L. Swanson

“Even if a plan emerged out of mediation that unfairly discriminated against financial creditors, it’s the court’s responsibility to block the deal.”

— Judge Steven Rhodes, as reported by Nathan Bomey in “Detroit Resurrected: to Bankruptcy and Back.”

Judge Rhodes is defending his mediators in the City of Detroit bankruptcy against allegations of bias, conflict and impropriety.  He believes the allegations to be unfounded and improper.

Judicial Oversight

Bomey reports, in his Detroit Resurrected book on the actions of Judge Rhodes in defending the mediators.  He reports the following:

–One of Judge Rhodes’s defenses for his mediators is this suggestion:

the court (not a mediator) is the final arbiter and protector of propriety in settlement results.

–The objecting creditors, in alleging mediator bias, argue that:

“mediators are supposed to be impartial, and what you can’t do is bring your own view of what matters—of what really matters—to the mediation.  You facilitate.”

–In response, Judge Rhodes refers to an earlier time in the case when lead mediator, a Federal Judge, supported a mediated settlement:

That deal, called the Christmas Eve Massacre, “tried to give a truckload of cash to UBS and Bank of America Merrill Lynch at [the lead Mediator’s] recommendation”; and

Judge Rhodes rejected the settlement, despite the support of the mediator he appointed.

This judicial-control argument is almost-always operative in bankruptcy settlements, where court approval of settlements is required.  Because of this, mediators can be given greater rein in bankruptcy, for a proactive mediation, than in other contexts.

Conclusion

Ultimate judicial control works.  It is one of the elements that makes a proactive mediation process effective in bankruptcy.

Good for Judge Rhodes in defending his mediators, in providing a strong defense, and in providing a rationale for proactive mediation in bankruptcy!

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