By: Donald L Swanson
There is often a tension in mediation that goes something like this:
- Party of the first part says: We win on a technical legal issue—100% certainty!
- Party of the second part responds: You do not win on that issue—100% certainty!
- Party of the first part reacts: Do so!
- Party of the second part retorts: Do not!
Okay. It’s usually a little more sophisticated than than . . . but you get the picture.
How to deal with this tension is always difficult. Part of the difficulty is knowing whether the parties are actually serious . . . or merely puffing.
But let’s assume both parties truly believe what they are saying and can’t be convinced otherwise. In such an instance, there is no point continuing with mediation, and a court ruling is required.
Here’s how a Bankruptcy Court recently handled the tension.
The case is Dolfi v. Dolfi, Adv. No. 18-2018 in the Western Pennsylvania Bankruptcy Court. And the Court’s opinion is dated October 3, 2019 (Doc. 77).
Debtor files Chapter 13 bankruptcy, with March 23, 2018 as the deadline for filing a non-dischargeability complaint.
Debtor’s former spouse timely files a non-dischargeability complaint alleging:
- The couple purchased a vehicle by obtaining a $35,000 loan and signing a promissory note;
- Their divorce proceeding began seven months later, resulting in a Property Settlement Agreement under which Debtor received the vehicle and became solely responsible to repay the loan; and
- Later, Debtor traded-in the vehicle and then filed bankruptcy, intending to not repay the loan.
The complaint seeks relief, (i) under §523(a)(6) for willfully and maliciously trading-in the vehicle with the intent of causing harm, and (ii) under §523(a)(15) as an obligation between spouses other than a domestic support obligation.
The problem for the complaint is that §523(a)(6) and (15) claims do not qualify as discharge exceptions in a Chapter 13 case (see §1328(a))
So, former spouse amends the complaint to, (i) remove §523(a)(6) and (15) claims, and (ii) add a claim under § 523(a)(2), alleging that Debtor obtained money and property by false pretenses, false representations, or actual fraud.
Debtor responds with an affirmative defense: that the statute of limitations expired before the filing of a § 523(a)(2) claim.
–Mediation Order and Fallout
At a pretrial conference, the Court orders the former spouses to mediate various disputes between them, including the non-dischargeability issues described above.
Debtor files a Motion for Reconsideration, arguing that the statute of limitations prohibits a finding of non-dischargeability and that mediation on that issue should not occur.
In response, the Bankruptcy Court, (i) finds that the statute of limitations issue “created an impasse” between the parties, (ii) cancels the mediation, and (iii) orders briefing on the statue of limitations issue.
The Court describes the statute of limitations issue as:
whether the Amended Complaint can be found to “relate back” to the complaint as originally filed?
The Court rules:
- The “relation back” doctrine requires that the original pleading provide fair notice of the amended claim and of the grounds upon which it rests;
- Factual overlap alone is insufficient: the original complaint must have provided fair notice of the amended claim;
- Factual overlap is all that occurred in this case; consequently,
- “Plaintiffs cannot cure the §523(a)(2) claim through amendment, and dismissal shall be with prejudice.”
The Bankruptcy Court handled this matter effectively. The Court:
- attempted to require a mediation of multiple disputes;
- determined that impasse on a legal issue stood in the way of effective mediation;
- addressed the legal impasse directly; and
- resolved the impasse in favor of one party and against the other.
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