Refreshing A Concluded Mediation—Because Of Mediator’s Ethics Improprieties In Other Contexts (In re Tehum)

By: Donald L Swanson

Everyone knows by now of a problem in the Southern Texas Bankruptcy Court with a judge who resigned over ethics controversies.

That resignation did not solve anything for the cases in which that judge was involved.  Instead, the controversies continue to mushroom in a variety of ways and contexts.

Mediation Example

One case involves a Debtor that deals with prisoners (In re Tehum Care Services, Inc., Case No. 23-90086).  It’s a complex Chapter 11 proceeding. 

In In re Tehum, the now-resigned judge had been serving as the court-appointed, judicial mediator to address plan-related issues.  The mediation results in a “global settlement” that the Debtor incorporates into Debtor’s proposed Chapter 11 plan.

What happens next, in In re Tehum, is this:

• the U.S. Trustee objects (Doc. 1022) to Debtor’s disclosure statement on various grounds, including “inadequate information” on third-party releases for directors, officers and others;
• the same objection says (in par. 2), “recent admissions by the judicial mediator may raise issues about the propriety of the mediation that serves as the basis for the global settlement—and thus about the very propriety of the settlement and plan itself”; and
• the presiding judge declines to approve the disclosure statement and asks the parties to “rethink” the global settlement and plan,

In response, Debtor and the official creditors committee file a “Stipulation and Agreed Order” (at Doc. 1105) for appointing a new mediator to revisit the mediation effort.  Such document:

• references the U.S. Trustee’s expressed concern about “the propriety” of the prior mediation;
• says that “other parties in interest have echoed” the same concerns;
• identifies a new mediator—a retired bankruptcy judge; and
• describes the new mediator as “a well-known and respected jurist with no prior connections to this case, this district, or the parties involved in this matter.” 

The Bankruptcy Judge enters the agreed Order on November 15, 2023 (at Doc. 1109).

Notably, it does not appear that the law firm from which the ethics issue arose was ever involved in the case. 

It’s not even that anyone has any evidence of impropriety from the In re Tehum mediation.  It’s simply that the “propriety” concern exists . . . so everyone agrees that a look-again into the mediation effort, clean and fresh, will be helpful.

Conclusion

It will be interesting to see what happens in the refresh of the In re Tehum mediation effort.

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