Mediating Bankruptcy Reorganization Disputes v. Mediating Commercial Lawsuit Disputes (In re Caesars)

By: Donald L Swanson

Mediating bankruptcy reorganization disputes is dramatically different from mediating commercial lawsuit disputes.  I’ll try to explain.

Mediating Commercial Lawsuit Disputes

Commercial litigation tends to go through these broad phases:

• pleadings;
• discovery;
• dispositive motions;
• mediation;
• trial; and
• appeal.

Mediation in commercial lawsuits tends to be a one-and-done affair: either settlement happens, or the disputes go to trial. 

Settlements, in commercial mediation contexts, tend to occur:

• as the lawsuit is nearing conclusion;
• after discovery is complete (or nearly so), and everyone is aware of (and fearful of) the risks involved;
• when everyone is emotionally exhausted by the process that has occurred thus far;
• when everyone is weary of fees already incurred and aware of the level of fees likely to be incurred at trial and on appeal; and
• when everyone is, therefore, highly-motivated to settle.  

Mediating Bankruptcy Reorganization Disputes

Bankruptcy reorganizations, by contrast, tend to go through these broad phases:

• petition filing and debtor’s first day motions;
• initial creditor motions (e.g., to dismiss or for relief from stay);
• plan filing (which can be as early as a first day filing), objections, and prosecution;
• reorganization mediation;
• resolving claims disputes;
• pursuing and resolving avoidance actions;
• plan confirmation;
• resolving post-confirmation issues; and  
• appeal.

Bankruptcy reorganization mediations tend to occur:

• early or in the middle of the case;
• when parties are relatively fresh to the disputes;
• when the economic realities of debtor’s circumstances are coming into focus through the filings of debtor’s schedules and creditors’ proofs of claim;
• when the nature and extent of the disputes involved are becoming apparent through initial creditor motions and through the filing of a plan and objections thereto; and
• as administration of the bankruptcy case is progressing and the bankruptcy judge is issuing rulings on a variety of issues and disputes.

Accordingly, bankruptcy reorganization mediations are rarely one-and-done affairs.

A Critical Distinction

But a critical distinction between commercial lawsuit mediation and bankruptcy reorganization mediation arises from this:

• the role of the bankruptcy judge.

In commercial lawsuits, mediation generally occurs without regard to actions of the judge—that’s because mediation commonly occurs during a pause in litigation activities.

In bankruptcy reorganizations, by contrast, mediation commonly occurs in the middle of the case’s administration, and judicial rulings may come down, while mediation efforts are in process, that affect the issues and disputes being mediated.  In fact, when the mediating parties reach an impasse, a ruling by the bankruptcy judge may well serve as a cudgel that breaks through.

An Illustration

Illustrating this critical distinction is the recently-closed case of In re Caesars Entertainment (Case No. 15-01145, Northern Illinois Bankruptcy Court).[ Fn.1]

The Caesars bankruptcy is filed on January 15, 2015, and becomes, reportedly, one of the most litigious large reorganizations ever. 

Multiple parties retain a private mediator “to mediate issues surrounding the development of a plan of reorganization.”  They hold their first mediation session on April 7, 2016 (see Doc. 3935), and by August 16, 2016, four more mediation sessions occur—without reaching resolution.

Meanwhile, action is occurring on the question of whether lawsuits in other courts against insider guarantors should be enjoined until 60 days after the court-appointed examiner issues a report.  A long story short is this: the Bankruptcy Judge enters a temporary injunction, then extends that injunction through the end of August 2016, and schedules a trial for August 24, 2016, on whether the injunction should be extended further.

At the conclusion of the August 24, 2016, trial, the Bankruptcy Judge refuses to extend the injunction further, based on such findings as:   

• “I’m no longer convinced . . . that an injunction is likely to enhance the success of a reorganization or that its denial will endanger that success”;
• “Most of the deal-making that has happened here has occurred when no injunction was in effect”;
• “Negotiations with the guaranty plaintiffs . . . have also proceeded at a pace that shows no real urgency on the part of the debtor’s camp”;
• “it isn’t injunctive relief that promotes settlement here but rather its absence”;
• “I’m no longer convinced that the denial of an injunction will endanger the reorganization”;
• extending the injunction would harm the other parties—they “will be stymied in their ability” to enforce the guarantees, and “the debtors have already been the beneficiaries of 5 months of injunctions”;
• “The § 105 injunction should not provide non-debtors with a comfortable ‘free ride” on the coattails of the debtor”; and
• “the non-debtors should continue to feel pressure to expedite the reorganization process.”

Further, on August 31, 2016, creditors file a motion to compel discovery from the guarantors “of information relating to their personal financial means” (see Doc. 4796, par. 9), and on September 14, 2016, the Bankruptcy Court grants that motion “in part” (Doc. 4925).  The guarantors seek leave to appeal, but no ruling thereon occurs because the parties promptly settle their bankruptcy reorganization disputes.

Within a few months after the Bankruptcy Judge grants the discovery motion and refuses to extend the injunction, the disputing parties complete the following process:  

• settle their disputes;
• document the terms of that settlement in an amended plan;
• go through the plan approval and balloting process on the amended plan; and
• achieve an Order (Doc. 6334; dated January 17, 2027) confirming the amended plan.  

And, notably, such resolution is achieved, after such rulings, without the services of a mediator—because the mediator resigns on September 9, 2016 (Doc. 4885).

Conclusion

The In re Caesars case illustrates how a bankruptcy judge’s orders can play a crucial role in resolving bankruptcy reorganization disputes and in breaking through impasses.  

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Footnote 1.  In re Caesars Entertainment Operating Company, Inc., et al, is one of the major-and-successful bankruptcy cases in the history of these United States.  The Caesars bankruptcy was filed in the Northern Illinois Bankruptcy Court with $18 billion of debt.  It achieved a confirmed plan on January 17, 2017.  The bankruptcy case was finally closed within the last six months (on December 3, 2025), and its last docket entry [No. 9968] is dated January 12, 2026.

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