Mediation: The Go-To Process for Large-Scale Sexual Abuse Claims in Bankruptcy

By: Donald L. Swanson

Mediation has become the go-to process for dealing with large-scale sexual abuse claims in bankruptcy.

The latest example is the Chapter 11 case of In re USA Gymnastics, filed on December 5, 2018, at Case No. 18-09108, in the Southern Indiana Bankruptcy Court.

Background

USA Gymnastics is where Larry Nassar volunteered as national medical coordinator from 1996 until 2014. Larry Nassar also held team physician and professor positions at Michigan State University for many years, beginning in 1997.

An early bankruptcy filing in the USA Gymnastics case (Doc. 8) says:

• “Presently hundreds of individuals have asserted claims in Michigan, California, and elsewhere” against Michigan State University and other defendants “as a result of Nassar’s abuse”;
• “over 350 of those individuals have also asserted claims” against USA Gymnastics;
• “The Michigan and California lawsuits were mediated as a consolidated group” with Michigan State University, in which the plaintiffs “reached a $500 million settlement.”

The same document also says:

• “As a result of the misconduct of Larry Nassar,” USA Gymnastics “has been named as a defendant in approximately 100 lawsuits brought by survivors of Nassar’s abuse”;
• USA Gymnastic’s “first priority is to ensure that these survivors are treated fairly and respectfully”; and
• “The survivors’ claims, in the aggregate, may exceed the available resources,” including all insurance policies available to USA Gymnastics.

Allegations against USA Gymnastics, in those “approximately 100 lawsuits” involving Larry Nassar, assert such claims as fraud; negligent hiring, retention and supervision; negligent failure to warn, train, or protect; intentional infliction of emotional distress; and violations of the Racketeering Influenced Corrupt Organizations Act.

In many of the lawsuits against USA Gymnastics, other parties are also named as defendants. Those other parties sued USA Gymnastics, too, for indemnification from costs and liabilities arising out of such lawsuits against them.

The Role of Mediation

An early Bankruptcy Court filing in the USA Gymnastics case, says:

• Once certain procedural safeguards are in place, USA Gymnastics “will have a straightforward path to reaching a full and fair settlement and confirming a chapter 11 plan”; and
• Once the claims filing deadline expires, interested parties “will engage in a court-approved mediation process that will hopefully result in a consensual plan of reorganization.”

Moreover, attorneys retained by the various parties appear to have extensive experience in similar types of cases, and they commonly utilize mediation for achieving resolutions in such cases.

Referral to Mediation

So . . . it is anything but a surprise when, on May 2, 2019, USA Gymnastics files a Motion with the Bankruptcy Court (Doc. 452) seeking entry of an order referring the sexual abuse claims to mediation.

Nor is it a surprise that the Bankruptcy Judge enters an Order on May 17, 2019, (Doc. 514) granting the Motion, appointing a mediator, specifying the mediator’s authority, identifying the parties who will participate in mediation, requiring confidentiality, etc.  [Note: the photo above is of this Order.]

Conclusion

Hopefully, the mediation process will achieve a favorable result.

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