How are private practice mediators compensated in a bankruptcy case—procedurally?
We have a new court order providing guidance on how such procedures can work.
The new guidance is from Sears Holding Corp. v. Lampert (In re Sears Holdings Corp.), Adv. Pro. No. 19-08250, SDNY Bankruptcy Court.
On April 6, 2022, the SDNY Bankruptcy Court issues, in the Sears case, an “Order Appointing Mediators” (Doc. 270, the “Mediation Order”). The Mediation Order directs that the following issues be mediated:
- “Adversary Proceeding between the Plaintiffs, on the one hand, and the Defendants, on the other”; and
- “any other issues that are agreed upon by all of the Mediation Parties.”
The Mediation Order appoints three high-powered professionals as co-mediators:
- A sitting bankruptcy judge, who serves in the same Bankruptcy Court for the Southern District of New York;
- A former bankruptcy judge, who is retired from the same Bankruptcy Court for the Southern District of New York and serves as a private practice mediator; and
- A private practice mediator.
Compensation of Co-Mediators
–Sitting Bankruptcy Judge
The sitting bankruptcy judge, while serving as mediator, cannot receive compensation from the bankruptcy estate or from any of the other parties to the mediation.
Such judicial-mediator services are provided free-of-charge to the parties. That’s because mediation services provided by sitting judges are part of their judicial duties for which they receive a salary and benefits from the U.S. Government.
–Private Practice Mediators
The two private practice co-mediators, by contrast, do not work free-of-charge. They expect to be paid by the parties—and the Bankruptcy Court who appoints them has the same expectation.
So, the Mediation Order makes explicit provision for compensation of the private practice co-mediators as follows (see par. 4 of the Mediation Order):
- No further order required
“All costs, fees, and expenses incurred by [the private practice co-mediators] in connection with their service as Mediators (“Mediators Fees”) shall be”:
- “paid upon presentation of an invoice, without further order of the Court”;
- “split equally between Plaintiffs, on the one hand, and Defendants (and any applicable Insurers), on the other”; and
- “with the allocation among the Defendants of the 50% share of any such Mediators Fees charged to the Defendants to be the subject of further agreement among the Defendants.”
- Separate Mediation Agreements
The private practice co-mediators, “acting in their respective capacities as employees or representatives of” their respective firms:
- “are hereby authorized to enter into separate engagement letters or similar agreements with Plaintiffs and Defendants”; and
- such agreements “may contain supplemental mutually acceptable terms and conditions relating to the Mediation and the Mediators Fees.”
Getting paid is always an important concern for court-approved professionals serving in a bankruptcy case. The concern is for both, (i) satisfying procedural requirements, and (ii) assuring that funds are available for payment.
That importance is, of course, true for private practice mediators.
The Bankruptcy Court in the Sears case provides an example of how procedural concerns for mediator compensation can be handled.
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Hi Don –
Just want to point out for your readers that many courts have local rules specifying how payment procedures for mediators work that should be consulted, particularly when funds will be provided by an estate or debtor in possession. In Massachusetts, this requires approval of employment as well as a fee application, but judges routinely approve a fee in advance that covers the estimated mediation costs through the first session.
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Thanks, Jack, for your insights!