Relativity: Defining “Success” for Multi-Party Mediation in Chapter 11

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A railway carriage — “relativity” illustration

By: Donald L. Swanson

“I stand at the window of a railway carriage which is traveling uniformly, and drop a stone on the embankment . . . I see the stone descend a straight line. A pedestrian who observes the misdeed from the footpath notices that the stone falls to the earth in a parabolic curve. I now ask: Do the ‘positions’ traversed by the stone lie ‘in reality’ on a straight line or on a parabola?

—Albert Einstein explaining “the theory of Relativity” in this linked book (see page 11).

Legal Relativity

A theory of relativity also applies to definitions of “success” in the legal world.  I first became aware of success relativity as a law clerk, while in law school. Here’s how:

An attorney returns from opposing a workers comp claim in trial, all excited over a “victory”;

I assume the excitement means a $0.00 result—in reality, it means an obligation to pay “only” $XXX (which seems like a lot of money to me); and

I remember thinking: “Hmmm . . . It’s all relative!”

Mediation Relativity

And so it is in the mediation world: “success” is relative. For example:

For a two-party lawsuit with discovery nearly complete and trial in the offing, mediation “success” probably requires a full and complete settlement of all issues; but

For an early, multi-party mediation of Chapter 11 plan issues, a full and complete settlement of all issues is unlikely: mediation “success” might mean a narrowing of disputes and identification of preliminary issues the court must decide.

–A Chapter 11 Illustration

I’ll try to illustrate Chapter 11 relativity in Mediation with this example:

  • I’m mediating multiple Chapter 11 issues for a proposed plan, among six parties in the same room;
  • A one-day joint-session results in, (i) a full understanding by each party of what the others are thinking, (ii) a common understanding on multiple issues remaining, and (iii) a narrowed focus on what actually needs to be resolved by the Court;
  • On a critical legal issue, the parties cannot agree—final discussions thereon, between attorneys, go something like this: (i) “You are going to lose!” and (ii) “I disagree!”; and
  • Final realizations at the mediation become this: the Bankruptcy Court will need to decide the critical legal issue before further negotiations can bear fruit.

“Success”?

So . . . is this Chapter 11 mediation example a “success,” a “failure,” or something different?

I say it is an unqualified “success!” Here are some relativity reasons why:

  • Multi-party disputes are inherently complex, and it’s difficult / unrealistic to resolve all disputes in a single session;
  • Narrowing the disputed facts and legal issues to be resolved, through joint-session discussions, is a benefit that’s often unrecognized and almost-always undervalued; and
  • Identifying one legal issue as pivotal provides a huge benefit—once the Court decides that issue, many disputes can fall in line.

A narrowing of disputed issues creates direction and efficiencies for moving the case forward.

City of Detroit Example

The City of Detroit bankruptcy provides an example of how mediation relativity works:

  • In the early stages of that case, retirees insisted that their pension rights could not be impaired in bankruptcy, because of a State Constitution provision;
  • Disputes over that legal issue could not be resolved in mediation, and such disputes hampered the progress of the case;
  • So, the parties brought the issue before the Bankruptcy Judge, who promptly ruled that pension rights could be impaired in bankruptcy; and
  • Such ruling helped parties break through their impasse and achieve mediated settlements that proved to be of great value to retirees.

Accordingly, early mediations in the City of Detroit bankruptcy were, (i) “unsuccessful” in achieving prompt resolution, but (ii) “highly successful” in identifying a pivotal issue for judicial action, which ultimately achieved resolution.

This is relativity at work!

Conclusion

Relativity is operative in defining mediation “success.” A focus on prompt resolution of all disputes, as the only—or primary—measure of “success” in multi-party Chapter 11 mediations, is faulty and should be jettisoned.

** 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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