Litigious People Are Going to Litigate—And Mediation Can’t Change That Fact (In re Butko)

By: Donald L Swanson

The opinion is In re Butko, Case No. 20-21255 in the Western Pennsylvania Bankruptcy Court (decided 2/10/2021, Doc. 91).

Litigious Parties

The parties have been at it for awhile.  You know the history is bad, when a Court opinion begins its “Background” explanation like this:

• “In Butko III, the Court set forth the long and tortured history of this dispute in excruciating detail.”

The In re Butko opinion of 2/10/2021, (which is, apparently, Butko IV) explains the parties’ most recent Bankruptcy Court fray like this:

• One month ago, the Court issued a 77-page Memorandum Opinion declining to reconsider its July 1, 2020 order granting Creditor relief from the automatic stay to pursue rights under an installment land contract, following Debtors’ default;
• Debtors have since filed an appeal of the Stay Relief Order, while Creditor has scheduled an eviction before the end of the month; and
• Debtors now seek a stay of that eviction pending their appeal, which Creditor opposes.

The Bankruptcy Court denies Debtor’s motion for a stay pending appeal.  Here is a summary of what happened, including a mediated settlement that falls apart.

Mediation: Settlement reached—then falls apart

At one point, the parties were seemingly able to break their litigious impasse through a mediated Settlement that gives Debtors one last chance to complete their purchase of the property from Creditor.

The Settlement requires Debtors to promptly pay or walk away.  Debtors agree that, if they are unable to cure a payment default within ten days:

• their rights to the property terminate;
• Creditor is entitled to stay relief;
• they will voluntarily leave within 30 days; and
• If they fail to do so, the Court will enter judgment for possession in favor of Creditor. 

Though concerned about the default procedures, the Court ultimately approves the Settlement at Debtors’ insistence.

Defaults and Subsequent Litigation

Shortly thereafter, Debtors default. 

But to everyone’s surprise, they demand that Creditor provide them with an “Act 6” notice (under Pennsylvania’s Loan Interest and Protection Law, 41 Pa. Stat. Ann. § 101 et seq.).

Creditor, in an outrage, briefly moves to vacate the Settlement before settling on moving to require its strict enforcement. 

When efforts at a consensual resolution of this new dispute fail, the Bankruptcy Court issues a Memorandum Opinion dated April 9, 2018 (“Butko I“), holding that Debtors are judicially estopped from asserting Act 6 to rewrite the terms of the Settlement but that Creditor had waived the defaults by retaining untimely payments. Neither party appeals Butko I.

Five months later, Debtors default again. This time, they muster only a flimsy procedural technicality in opposing Creditor’s request for stay relief. After the Bankruptcy Court grants stay relief, Debtors move for reconsideration, alleging that Butko I‘s judicial estoppel ruling is non-binding dicta and should be disregarded. The Court denies reconsideration, emphasizing its view that Butko I made clear the Court’s intent to hold the parties to the Settlement strictly as written and not as modified by Act 6.  Creditor then requests a judgment for possession, which the Court grants. Debtors do not appeal. 

Note: events in the two preceding paragraph are only at Butko I and II – and the 2/10/2021 opinion cited and discussed above is Butko IV.

In its 22-page opinion dated 2/10/2021, the Bankruptcy Court goes into extensive detail on how and why Debtors’ request for a stay pending appeal should be, and is, denied.

Conclusion

All of the foregoing occurs because a mediated and Court-approved Settlement proves to be difficult to enforce in the face of determined and sustained opposition by one of the parties.

The moral of the story is this: litigious parties are going to litigate—and mediation can’t change that fact.

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