“Progress” As “Success” In Mediation: The Subchapter V Experience, & A Study

By: Donald L Swanson

Very positive.  That’s the experience in Subchapter V so far, with the “facilitate” role of a trustee in achieving consensual or uncontested plan confirmations. 

What the Subchapter V experience demonstrates is this: early involvement of an independent person, focused on achieving a consensual resolution of disputes, is both effective and efficient in producing settlements.

The standard mediation model could learn a thing or two from the Subchapter V experience—and from the study discussed below.  

Standard Mediation Model

The standard mediation model for resolving civil lawsuits is this:

• The parties thoroughly and zealously litigate their case toward trial; and
• Once trial is about to occur, the parties make a last-ditch effort to settle in a mediation session.

This standard model has worked effectively for litigants across the entirety of the U.S. legal system—in all states and territories and across all types of courts—for a long time.  So, no one is going to mess with that model. 

There is, however, room for improvement.  For example, the standard mediation model:

• puts great pressure on a single mediation session—either the case settles during that session, or the mediation is a failure; and
• has limited effectiveness in minimizing litigation time and expense—the only thing saved by a successful mediation is the time and expense of a trial and appeal (litigation time and expenses already incurred are, typically, huge).  

Subchapter V Experience

Subchapter V requires appointment of a trustee in every case and imposes upon the trustee this statutory duty:

• To “facilitate the development of a consensual plan of reorganization” (§ 1183(b)(7)).

The “facilitate” duty is a new thing in our bankruptcy world: such a statutory duty has never before existed.

Subchapter V trustees are, of course, taking this “facilitate” duty to heart.  At the beginning of each Subchapter V case, Subchapter V trustees are injecting themselves into the plan development process, and they continue their facilitation efforts as they case moves along. 

Such facilitation efforts are proving both effective and efficient.  Subchapter V trustees are:

• successful in seeing consensual or uncontested plans confirmed; while
• incurring modest fees. 

Comparison to Standard Mediation Model

What Subchapter V trustees are doing would be like a mediator, in the standard mediation model, stepping into a lawsuit as soon as the pleadings are filed to help the parties find a solution—then continuing to help the parties as the case moves along.

Under such an early-and-continuing approach, the expectation and goal for each step is to make progress toward a final resolution.  That removes pressure to achieve a full and final resolution of all issues in a single session.

The Power of Progress—A Study

A study on the power of incremental progress is explained by a publication in the Harvard Business Review. [Fn. 1]

The study identifies a Progress Principle, which it summarizes like this:

• Of all the things that can boost emotions, motivation, and perceptions during a workday, the single most important is making progress in meaningful work;
• When we compared our research participants’ best and worst days, we found that the most common event triggering a “best day” was any progress in the work by the individual or the team, and the most common event triggering a “worst day” was a setback; and
• If a person is motivated and happy at the end of the workday, it’s a good bet that he or she made some progress, but if the person drags out of the office disengaged and joyless, a setback is most likely to blame.

The study describes a “model manager” in the following points [I suggest that every mediator and trustee replace the word “manager,” in what follows, with “mediator” or “trustee”]:

1. The manager establishes a positive climate, one event at a time, which sets a behavioral norm for the entire team—responds to a setback by, not panicking or pointing fingers, but identifying the problems and their causes, and developing a coordinated action plan;
2. The manger stays attuned to the team’s everyday activities and progress and maintains a nonjudgmental climate;
3. The manager, each day, anticipates what type of intervention will have the most impact on team members’ lives and progress;
4. The manager becomes a resource for team members, rather than a micromanager—checks in while never seeming to check up on the team; and
5. The manager needn’t fret about reading the psyches of their workers, or manipulating complicated incentive schemes—focusing, instead, on showing basic respect and consideration that supports the work itself.

Conclusion

Congress stumbled onto something, when it enacted Subchapter V, by establishing the “facilitate” role for a Subchapter V trustee.  That something is this:

• Early involvement of an independent person, focused on achieving a consensual resolution of disputes, is both effective and efficient in producing settlement results.

The standard mediation model might learn a thing or two from Subchapter V.  

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Footnote 1.  The study is, The power of Small Wins, by Teresa M. Amabile and Steven J. Kramer.  It evaluates twenty-six project teams from seven companies, comprising 238 individuals and nearly 12,000 diary entries.

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