Seven Findings about “Successful Mediation” — from a Study of Mediation in International Relations

International mediation (photo by Marilyn Swanson)

By: Donald L Swanson

I recently stumbled upon a fascinating report of a study on issues and trends called “Successful Mediation in International Relations.”  This study looks at 79 international disputes (of which 44 are mediated) occurring during a 45 year period, between 1945 and 1989.  The study makes multiple findings about these mediation efforts.

Question: Do any of the finding in this study also apply to the mediation of disputes between private parties?

This article identifies seven findings in the study.  For each finding, the foregoing question needs to be asked.

Finding # 1:  Regime Types – Autocracies Fare Poorly in Mediation

“A traditional hypothesis . . . posits that those states which are more democratic or pluralistic are less prone to initiate violent interactions than their non-democratic counterparts.  . . .  however . . . democratic states are no less prone to conflict than any other type of regime, although they rarely fight among themselves.

“In those conflicts where one of the disputants was a multiparty state, the average probability of successfully mediation was 24% (i.e. above the overall average of 22%).  In the 34 mediation attempts involving two multi-party states, 35% were successful.  The corresponding figure for the 36 mediation attempts between one-party state dyads was only 6%.

Question: Does this finding apply to the mediation of disputes between private parties?

Finding # 2:  Relative Power – Unequal Power Fares Poorly in Mediation

“[T]he smaller the power differences between the adversaries, the greater the effectiveness of international mediation.  . . .  The idea that mediation is most effective in disputes involving adversaries with equal power receives strong support” from the data.

“[A] clear pattern emerged showing a high mediation impact (that is, abatement or settlement of a dispute) when power capabilities are evenly matched, and low to no impact when power disparity is high.”

“No mediation occurred in 48% of disputes between countries of unequal power . . . And in those disputes that were mediated between unequal states, only 6% were successful.  Where both parties were of roughly equal power, the probability of mediating successfully was over five times as great (32%).”

“We found the probability of successful mediation to be highest when the parties were not only equal in power, but were both relatively weak states.

Question: Does this finding apply to the mediation of disputes between private parties?

Finding # 3:  Previous Relations – Friends Mediate Better than Enemies

“[P]arties with a history of friendship or cooperation will also approach a present conflict more cooperatively.”

“Not surprisingly, it appears significantly easier to mediate between friends.  A mediator entering this type of dyad has almost twice the chance of success compared to any other mediation (46% as opposed to an average of 22% for all others).”

“Furthermore, though adversaries with a past history of more than one dispute receive most mediation attempts, they also demonstrate the lowest probability of success (16%).”

Question: Does this finding apply to the mediation of disputes between private parties?

Finding # 4:  Duration of the Dispute – Timing is Everything (But Difficult to Discern)

“To be effective, mediation must take place at the right moment.  . . .   There is, however, little agreement as to what constitutes, or how to recognize, such a moment.”

“Generally, the longer a dispute goes on, the less amenable it is to mediation; but there does seem to be a minimum amount of time necessary before mediation is successful.  In those disputes that have continued for more than 12 months when mediation occurs, the probability of success is only 19%.  But mediation attempts taking place one to three months into a dispute show a greater chance of success (37%) than those initiated when the conflict is less than one month old (23%).

Question: Does this finding apply to the mediation of disputes between private parties?

Finding # 5:  Number of Mediation Attempts – Less is More

“Our data indicate a slight increase in probability of successful mediation after one or two previous attempts (32%).  After this point, however, the probability of success begins a long decline.”

“A mediator entering a conflict after three or four previous attempts at mediation will have no better chance of mediating successfully than one who is the first to attempt mediation (the probability of success in both instances is 23%).”

“If seven or more attempts at mediation have preceded a mediator’s intervention, the probability of success is just 13%.  Even the most persistently mediated conflicts (i.e. with  or more mediation attempts) only achieve average success (22%).”

“Though there may be some cumulative effects of mediation, they only seem to occur very early on.  A conflict that has resisted a few attempts at mediation will probably also resist several subsequent attempts.”

Question: Does this finding apply to the mediation of disputes between private parties?

Finding # 6:  Intensity – Low is Better than High

“Mediation is more likely to be accepted and to be successful, in low intensity disputes.”

“As the number of fatalities in a dispute increases, the likelihood that mediation initiatives will prove successful suffers a corresponding decline.  Only 17% of mediation attempts have any degree of success in disputes of more than 1,000 fatalities, compared with 42% in disputes of 100-500 fatalities.”

“Protracted and intense international disputes, though they receive far more attempts at mediation than less severe disputes, are not particularly amenable to mediation.  Such disputes have to be managed in a different manner.”

Question: Does this finding apply to the mediation of disputes between private parties?

Finding # 7:  Issues – Territory and Security vs. Ideology, Honor and Existence

“Contrary to conventional wisdom, our data indicate that disputes involving territory or security are far more amenable to mediation than those over issues of ideology or independence.”

“When the issues are defined as honor, existence or ideology, the chances of successful mediation are reduced substantially.”

“The chances of successful mediation are enhanced considerably when security is the issue in dispute.”

For example, “the possibilities for successful mediation in cold war disputes are very low (only 1 out of 10 disputes in this category resulted in some success), but relatively high in non-ideological disputes (here mediation was effective in 13 out of 31 disputes).”

Question: Does this finding apply to the mediation of disputes between private parties?




Appeals of Bankruptcy (and Other Business) Disputes Take Too Long — Mediation and Other Remedies

This city wall remnant is useless with aging

By: Donald L. Swanson

Advertised Prices:

“Haircuts $10 (we add a 3% surcharge if you pay by credit card)”

“Sundaes $10 (with a $0.30 surcharge for credit card users)”

State Law Violation

The State of New York says these advertised prices violate New York General Business Law § 518, which provides:

“No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means.”

Anyone who violates this prohibition “shall be guilty of a misdemeanor punishable” by a fine “not to exceed” $500 or “imprisonment up to one year,” or “both.”

Supreme Court Ruling

In its March 29, 2017 ruling in Expressions Hair Design v. Schneiderman, Case No. 15-1391, the U.S. Supreme Court:

–determines that, “In regulating the communication of prices rather than prices themselves, § 518 regulates speech”; and

— remands the case to the Second Circuit Court of Appeals “to analyze § 518 as a speech regulation.”

A two-Justice concurring opinion adds that the true meaning of § 518 is unclear and should be certified to New York’s state appellate court for clarification: “§ 518 evades easy interpretation” and the Second Circuit “erred by not asking” the New York state appellate court “for a definitive interpretation of § 518.”

Case Timeline

Here’s a timeline of the progression of this case:

–June 4, 2013 – A Complaint is filed in the U.S. District Court.

–November 4, 2013 – Final Judgment is entered by the U.S. District Court, declaring that § 518 “violates the First Amendment.”

–December 2, 2013 – Final Judgment is appealed to the Second Circuit Court of Appeals.

–March 5, 2015 – Court of Appeals reverses the District Court, declaring that “§ 518 does not violate the First Amendment.”

–April 1, 2016 – First filing (a request for extension) is made with the U.S. Supreme Court.

–September 29, 2016 – Supreme Court grants Petition for a Writ of Certiorari.

–March 29, 2017 – Supreme Court issues its ruling and remands the case to the Second Circuit “for further proceedings consistent with this opinion.”

–June 6, 2016 – Second Circuit establishes July 13, 2017, as the “time for all parties to file their simultaneous letter briefs.”

So . . . this case has been wending its way through the Federal Courts for four years.  Three-and-a-half of those four years have been on appeal.  And the dispute is now back with the Circuit Court for another appellate round.  All this appellate activity is over a seemingly-minor question of how a merchant can post its prices.  Heck, by the time a final ruling is actually made on this dispute, we’ll probably have progressed to a cashless society – and the ruling won’t matter.

A Major Problem

This case illustrates a major problem for appeals of commercial disputes in general and of business bankruptcy disputes in particular.  They take too long!!

Every business bankruptcy case has two functions:  (1) maximizing the value of the business and its assets, and (2) deciding who gets the money.  Unless the maximizing value function is performed well in a particular case, you can forget about the distribution function.  And there is, typically, an overwhelming need for speed in efforts to maximize value.

And so, in an appeal of a business bankruptcy dispute, it’s a bad thing to hold up distributions while a dispute languishes on appeal.  But it’s a much worse thing when the issue languishing on appeal impairs or impedes the maximizing value function.

Moreover, bankruptcy cases, despite their need for speed, have an extra layer of appeals.  In a U.S. district court case, the appeal is a two-step process: appeal is taken, first, to the circuit court of appeals and goes from there to the U.S. Supreme Court.  A bankruptcy court appeal, however, must first go to the U.S. district court (or to the bankruptcy appellate panel), and then to the circuit court of appeals, and from there to the U.S. Supreme Court.  Accordingly, the appellate delays in bankruptcy cases (where the need for speed is paramount) can be maddeningly long.

Potential Remedies

It’s difficult to come up with appropriate remedies for this problem.  But here are a couple ideas:

–Expand the doctrine of equitable mootness, whenever value maximization would be impaired by delays on appeal; and

–Mandate mediation for every appeal of a bankruptcy dispute, with mediation to occur within 30 days after the notice of appeal is filed and while the briefing schedule progresses.  Circuit courts of appeals are already doing some mandatory mediation like this (and are achieving excellent results); such efforts should extend, for bankruptcy appeals, to the district courts and bankruptcy appellate panels as well.

Each of these two remedies would help address the delays-on-appeal problem.  Additional remedies need to be explored and pursued as well.          

Mediation “Dream Team” Appointed in Puerto Rico — But With a “Voluntary” Limitation and Impediment

Puerto Rico’s location on the map

By Donald L. Swanson

On May 21, 2017, the Financial Oversight and Management Board for Puerto Rico files its “Petition” initiating a proceeding under the Puerto Rico Oversight, Management, and Economic Stability Act. This proceeding is described as a pseudo-bankruptcy and is pending in the U.S. Bankruptcy Court for the District of Puerto Rico (Case No. 17 BK 3566).

Mediation Order Appointing “Dream Team”

On June 14, 2017, the presiding Judge in the Puerto Rico case enters an “Order and Notice of Preliminary Designation of Mediation Team” (Doc. 74). This Order appoints a five-member team of mediators that’s widely recognized as a mediation “Dream Team.”

This Dream Team “is led by Chief Judge Barbara Houser” of the U.S. Bankruptcy Court for the Northern District of Texas. The other four members are:

–Judge Thomas L. Ambro of the U.S. Court of Appeals for the Third Circuit;
–Judge Nancy Friedman Atlas of the U.S. District Court for the Southern District of Texas;
–Judge Christopher Klein of the U.S. Bankruptcy Court for the Eastern District of California; and
–Judge Victor Marrero of the U.S. District Court for the Southern District of New York.

The mediation Order appears to follow the approach, made famous by the City of Detroit bankruptcy, of appointing a mediator team to help shepherd along the bankruptcy proceeding of a governmental entity. The mediation Order appears to be a very good step!

“Voluntary” Limitation

To quibble on one point, however, the mediation Order contains this limiting provision:

–“Participation in mediation sessions will be voluntary.”

Why would a presiding Judge appoint a five-person mediation Dream Team but permit them to mediate only when disputing parties volunteer to do so?

Detroit Bankruptcy – A Contrasting Example

Participation in mediation efforts, back in the City of Detroit bankruptcy, are anything but “voluntary.” Consider these earliest mediation steps in the Detroit bankruptcy (Case No. 13-53846 in the U.S. Bankruptcy Court for the Eastern District of Michigan):

July 18, 2013 — Detroit files its Petition under Chapter 9 of the Bankruptcy Code.

August 13, 2013 – Presiding Bankruptcy Judge Steven Rhodes enters a “Mediation Order” (Doc. 322), which provides:

“After consultation with the parties involved, the Court may order the parties to engage in any mediation that the Court refers in this case”; and

The Judicial Mediator “is authorized to enter any order necessary for the facilitation of mediation proceedings” and “may, in his discretion, direct the parties to engage in facilitative mediation on substantive, process and discovery issues.”

August 16, 2013 – The Judicial Mediator, Chief Judge Gerald Rosen of the U.S. District Court for Eastern District of Michigan, issues his “Order to Certain Parties to Appear for First Mediation Session” (Doc. 334), which identifies 12 parties and says:

“IT IS HEREBY ORDERED the above-named parties shall appear for an initial mediation session before the Honorable Gerald E. Rosen, Chief Judge of the United States District Court for the Eastern District of Michigan, in his Courtroom, . . . on Tuesday, September 17, 2013 at 11:00 a.m.

The mediator team in the City of Detroit bankruptcy, led by Judge Rosen, aggressively and effectively exercises the broad authority granted to them. And their efforts prove to be successful.

Mandated Mediation – A Common Tool

Moreover, mandated mediation is a commonly-used tool in many courts, both state and Federal, throughout these United States. In the U.S. circuit courts of appeals, for example, every circuit but one has a mandatory mediation provision. And studies show these mandatory provisions to be highly successful in achieving settlements.

Empirical Studies – And Puerto Rico’s Experience

Furthermore, empirical studies show that “voluntary” mediation programs commonly suffer from limited use.  Such study results are consistent with Puerto Rico’s pre-filing experience: “voluntary” mediation initiatives made little-to-no headway.  So, the “voluntary” limitation in this case might even leave the Dream Team with little-to-do beyond imploring parties to mediate their disputes.


The presiding Judge in the Puerto Rico case takes a major step by establishing a mediation system and appointing a mediation Dream Team. But the Judge limits mediation efforts, at the outset, to “voluntary” participation. This “voluntary” limitation on the Dream Team’s efforts is likely to impede and impair the effectiveness of the Dream Team’s mediation efforts.

U.S. Congress and Supreme Court Support ADR — But Some Bankruptcy Courts Remain Nonconformist on Mediation


By Donald L. Swanson

There is “a kind of ‘hostility to arbitration’ that led Congress to enact” the Federal Arbitration Act.

Kindred Nursing Centers v. Clark, U.S. Supreme Court Case No. 16-32 (decided May 15, 2017).

Alternative dispute resolution processes (“ADR”) include arbitration and mediation.


Congress passed the Federal Arbitration Act (“Arbitration Act”) to promote the use of arbitration for resolving disputes that would, ordinarily, be filed in state and Federal courts and to eliminate opposition to arbitration. And in the Kindred Nursing Centers v. Clark opinion, the U.S. Supreme Court upheld, last month, the broad reach and effectiveness of the Arbitration Act against challenges under Kentucky’s State Constitution.


Similarly, Congress passed the Alternative Dispute Resolution Act of 1998 (“Mediation Act”) to promote the use of mediation in Federal courts and to eliminate opposition to mediation. The U.S Supreme Court has yet to rule upon the effectiveness of the Mediation Act, but the Supreme Court would, undoubtedly, support the Mediation Act’s statutory requirements for mediation in the same manner the Court is supporting statutory requirements for arbitration in Kindred Nursing Centers v. Clark.

The Mediation Act requires U.S. district courts, and their bankruptcy units, to establish local rules for, (i) promoting the use of mediation in their courts, and (ii) providing for mediation confidentiality.

Yet, some bankruptcy judges remain hostile to the use of mediation in their courts, or they are indifferent: seeing little value in mediation. Such hostility and indifference are reflected in the following three examples.

1.  A Bankruptcy Judge in Texas declares in open court that he does not like mediation, believes mediation is a waste of time and money, and is unlikely to approve mediation under any circumstances.

2.  The bankruptcy district in Northern Illinois (Chicago) recently revokes its existing local rules on mediation (including confidentiality provisions) as “unnecessary.”

3.  Approximately 70% of all bankruptcy districts have adopted some type of local rule on mediation. The rest, however, haven’t. And judges in the don’t-have districts often earn a reputation for being indifferent, or even hostile, to mediation.

In light of the requirements of the Mediation Act, each of these three examples seems out-of-place, at a minimum, and in violation of Federal law, when viewed in a less-generous light.

Moreover, the absence of local mediation rules in approximately 30% of all bankruptcy districts is particularly troubling because of the existence of such resources as the Model Local Rules on Mediation and the accompanying Commentary offered by the American Bankruptcy Institute.

How can this be!!

A History of Ancient Bankruptcy Laws

Ancient History   (photo by Marilyn Swanson)

By: Donald L. Swanson

Etymology of the word “Bankrupt”

According to the 1899 treatise linked below, the word “bankrupt” comes from the ancient days of Florence, Italy, when that city “occupied a prominent place among the commercial cities of the world.”

The word “bankrupt” arises from the Latin words, “banca rotta,” which mean “broken bench” or “broken counter.”  A creditor’s custom, for a debt-delinquent merchant in ancient Florence, is to break the merchant’s bench or counter.

The British later adopt this phrase in its own debtor/creditor laws but anglicized it like this:

–insert “bank” for “banca”; and

–replac “rotta” with “rupt,” which means “broken” (“rupture” is a derivative).

Hence, the word, “bankrupt.”

Ancient Bankruptcy History

Centuries before the rise of Rome, creditor/debtor remedies are harsh.  The Draconian code, for example, “permitted creditors to dismember the body of their debtor.”


As Rome rises to predominance, however, creditor/debtor laws improve.

–In Caesar’s time, the “distinguishing feature of modern bankruptcy” begins:

“the debtor who surrendered all of his goods to his creditors was relieved of the harsh penalties of the older systems.”

–And, over subsequent time, such penalties “were further mitigated by discharging him of his obligations.”

England Bankruptcy History

The first English law on debtor/creditor issues (enacted in 1542) is, essentially, a penal statute:

–“Debtors who fled the kingdom or concealed themselves were made criminals, and their effects were seized and distributed among their creditors without extinguishing their obligations.”

–These provisions applied “to all who ‘craftily obtaining into their hands great substance of other men’s goods, do suddenly flee to parts unknown, or keep their houses, not minding to pay, or return to pay, but at their own wills and pleasures consume the substance obtained by credit from other men for their own pleasure and delicate living, against all reason, equity and good conscience.’”

The term “acts of bankruptcy” is first found in The Charitable Uses Act of 1601 (a/k/a the Statute of Elizabeth).  Such “acts” allow a commission to seize and distribute a bankrupt’s property.

Upon enactment of the Statute of Anne in 1706, bankruptcy becomes a civil matter, instead of a statutory crime.

–A debtor can now surrender all his property to a commission and receive a “discharge” of “his person” and of “any property that he might subsequently acquire” from all existing debts.

The treatise linked below explains that this “humane enactment” of 1706, which is “followed in all subsequent legislation on the subject,” has a two-fold object:

“(1) To dedicate the property of an insolvent debtor to the ratable payment of his debts”; and

“(2) to grant him a discharge from his existing obligations, to the end that he may be restored to the activities of life, freed from the burdens visited upon him by previous misfortunes in business.”

The 1899 treatise adds this opinion on such two-fold object of the 1706 law:

“It may be justly remarked that there is nothing more to be accomplished by any law on the [bankruptcy] subject; all other provisions are matters of detail more or less effectively designed to accomplish these ends.”



Bush,   “The National Bankruptcy Act of 1898, with Notes, Procedure and Forms“, (1st Edition, 1899), The Banks Law Publishing Co.


How Mediation Can Be Effective – Even When it Doesn’t Happen

Evading the mediator

By: Donald L. Swanson

Arch Coal, Inc., files bankruptcy on January 11, 2016.

By the month of May 2016, the debtor and its creditors are in contentious negotiations over terms of a Chapter 11 plan.  At one point, the parties think they have an agreement in principal, but things fall apart when putting settlement details on paper.

On June 23, 2016, the Official Creditors Committee moves for a Bankruptcy Court order “directing the appointment of a mediator.”   In the Motion, the Committee says this:

–“all of the parties appear to agree that consensus should be reached” on confirmation issues and that “such consensus is in the best interests” of everyone;

–the Committee “remains hopeful that even before this Motion is heard by the Court, the parties may resolve their issues.”

–mediation “could yield enormous dividends and avoid the long delay that would certainly result from a litigation Armageddon.”

On June 24, 2016, various parties file a “Joinder” in support of the Motion, saying this:

–“the parties are heading toward a long and costly litigation, involving a host of complex issues,” so the parties need to “make a final good faith attempt to resolve their disputes amicably and in an expedited fashion.”

The Court schedules the Motion and Joinder for hearing on July 6, 2016.

By July 5, 2016, the parties reach an agreement on plan confirmation issues, and the hearing on mediator appointment does not occur.

Now . . . all of this would seem irrelevant in my world, except for the fact that I’ve had a similar experience:

–I’ve been appointed mediator in a court-mandated mediation, only to have the parties settle before the mediation could begin.

In my appointment-without-performance situation, I didn’t know whether to feel flattered or offended, or neither, by the prompt settlement.  In fact, while typing this, I’m not sure whether I’m bragging or complaining.

So . . . there you have it: two anecdotes showing how mediation can be effective – even when it doesn’t happen.





How a Judge Makes Mediation Work: Supporting Mediation with Timely Orders

Making it work: Shoulder-to-the-wheel support

By Donald L. Swanson

“We in bankruptcy impair contracts all day, every day . . . That is what we do.”

–Judge Steven Rhodes, as quoted by Nathan Bomey in “Detroit Resurrected: To Bankruptcy and Back.”

Michigan’s State Constitution provides that public pension rights cannot be impaired.  So, pensioners take the position, in Detroit’s bankruptcy, that pension rights are sacrosanct and cannot be touched.  Their positions in mediation are, therefore, inflexible.

An Initial Supporting Order

Judge Rhodes wrestles with the question of whether contract rights of pensioners can be impaired in bankruptcy.  And he issues an early order on that question.  He rules:

–The U.S. Bankruptcy Code takes precedence over pension provisions in Michigan’s Constitution; and

–Therefore, the contract rights of public pensioners can be modified and impaired in bankruptcy.

Bomey reports in Detroit Resurrected that this ruling, “delivered a blow to unions” and exposed “a serious crack in a financial foundation” previously believed “to be indestructible.”  This ruling brings unions and pensioners to the mediation bargaining table to negotiate the best deal possible–and they negotiate a very good deal.

Without this ruling, Detroit’s bankruptcy might still be slogging along in bankruptcy.  Instead, it creates an incentive for unions and pensioners to bargain for settlement.  And the ultimate results are invaluable for the pensioners—their decision to bargain, instead of fighting in court, proves to be well-taken.

Another Example of Supporting Mediation with a Timely Order

Similarly, Judge Rhodes supports the mediation effort in another context by expressing his opinion on a contentious issue.  Bomey reports:

–Detroit is in a dispute with outlying counties over regionalization of Detroit’s water system, and the mediation is at impasse.

–Judge Rhodes addresses the dispute by declaring his “sense” that “a regional water authority” is “in the best interest” of the City and all its customers.

–Judge Rhodes adds that, “if we do not take advantage of this unique opportunity,” it will, in all likelihood, “be lost forever.”

–The result: “the counties caved” and reached a settlement, “rather than risk having one imposed” upon them by Judge Rhodes.


Such supportive-rulings work!

And they provide a model for other courts to follow.

–Judicial action addressing the merits of contentious issues can be useful, if not essential, in creating incentives for settlement.

Romance and “Insider” Status, with Other Oddities, at U.S Supreme Court (U.S. Bank v. Village at Lakeridge)

An Oddity

By Donald L. Swanson

On March 27, 2017, the U.S. Supreme Court grants certiorari in the case of U.S. Bank N.A. v. Village at Lakeridge, LLC, U.S. Supreme Court Case No. 15-1509.

The Facts

Kathie Bartlett is one of five owners of a company that owns the Debtor. So, both Kathie Bartlett and her company are “insiders” of the Debtor under § 101(31).

The bankruptcy Debtor proposes a plan of reorganization. The plan identifies only two impaired claims: (i) U.S. Bank’s $10 million, fully-secured claim, and (ii) a $2.76 million unsecured claim of the Debtor’s owner—i.e., Kathie Bartlett’s company. A problem for plan confirmation is the requirement that at least one impaired class of claims must vote to accept the plan – and insider claims aren’t counted in the vote (see § 1129(a)(10)). Since U.S. Bank opposes confirmation and the $2.76 million claim is held by an insider, the § 1129(a)(10) requirement for one-consenting-class is an impediment.

To get around this impediment, Kathie Bartlett’s company assigns its $2.76 million claim to Dr. Robert Rabkin for a payment of $5,000. This assignment gets dicey because Kathie Bartlett and Dr. Rabkin “share a close business and personal relationship.” Dr. Rabkin says he made this small, speculative investment for business reasons: for the chance to get a big payoff, since the plan provides a $30,000 dividend on this claim.  But U.S. Bank isn’t buying this reason: they think he’s conspiring with his girlfriend to evade a confirmation requirement.

From the Debtor’s perspective, the assignment to Kathie Bartlett’s close friend is a creative-but-legitimate way to satisfy a plan confirmation requirement. From the opposing creditor’s perspective, the assignment is the same as cheating—and the question is whether they’ll get away with it.

An Oddity

You’d think the primary issue discussed by the courts in this case would be:

Can an insider do that? Can an insider actually evade the non-insider acceptance requirement by assigning its claim to a friend who is not an insider?

As a bankruptcy practitioner, I want to know the answer to this question. I want to know how aggressive a debtor and its insiders might be in addressing plan confirmation requirements.

And you’d think we’d get a direct and clear explanation and answer for such a question in this case. But think again. Believe it or not, we probably won’t. Here’s why:

First, both the Ninth Circuit Court of Appeals and its Bankruptcy Appellate Panel focus on two questions in this case: (i) is Dr. Rabkin an insider, and (ii) did Dr. Rabkin act in good faith. They find in favor of Dr. Rabkin on both issues. And that, according to such courts, is the end of the inquiry and discussion.  But what about the good faith of the Debtor and the insider?

Second, in its Petition for a Writ of Certiorari to the U.S. Supreme Court, Appellant identifies three questions to be resolved. But the Supreme Court limits its grant of certiorari “to Question 2 Presented by the Petition.” And here is what Question 2 asks:

Whether the appropriate standard of review for determining non-statutory insider status is the de novo standard of review applied by the Third, Seventh and Tenth Circuit Courts of Appeal, or the clearly erroneous standard of review adopted for the first time by the Ninth Circuit Court of Appeal in this action?

Say what?! The Supreme Court is going to decide, in this case, only a “standard of review” question for determining who is/isn’t an insider?! Isn’t that question too narrow?  Now . . . I understand that standards for resolving insider/non-insider distinctions are important in a variety of contexts: as in the 90-days vs. one-year reach-back for preference liability. But still . . . I want a direct and clear explanation and answer on the how-aggressive-can-a-debtor-be question!!

The Ninth Circuit Court of Appeals had a clear opportunity to take on this how-aggressive question directly. In fact, the Ninth Circuit previously addressed this very question — and did so directly:

“[D]ebtors unable to obtain the acceptance of an impaired creditor simply could assign insider claims to third parties who in turn could vote to accept. This the court cannot permit.’”

Wake Forest Inc. v. Transamerica Title Ins. Co. (In re Greer West Inv. Ltd. P’ship), 81 F.3d 168, 1996 WL 134293, at *2 (9th Cir. Mar. 25, 1996) (unpublished) (emphasis added).

Instead of addressing the issue directly, however, the Ninth Circuit Court in the present case merely scolds the Appellant (in footnote 10) for citing an unpublished opinion.

Another Oddity

The courts in this case are struggling with how a romantic relationship fits into the insider v. non-insider analysis. The Ninth Circuit courts decide that Dr. Rabkin is NOT an insider, despite his romantic relationship with Kathie Bartlett. Here are details of their relationship, enumerated by the courts in this case and used to reach the non-insider decision:

–they see each other “regularly” but don’t “cohabitate”
–they pay their own bills and living expenses
–they’ve “never purchased expensive gifts” for each other
–she doesn’t “exercise control over” him
–he had “little knowledge of, and no relationship” with her business interests before the Debtor’s bankruptcy

Here’s hoping the courts can devise a better way to scrutinize romantic relationships for insider status, than trying to distinguish between “seeing regularly” vs. “cohabitating” or trying to decide if one party “exercises control” over the other. If they can’t, deposition and trial testimonies on the “insider” question could start resembling episodes of Seinfeld or Big Bang Theory.

A Third Oddity

One standard for evaluating an “insider” status is whether the transaction in question occurred at arms-length.

Dr. Rabkin testifies that his reasons for purchasing the $2.76 million claim are strictly business. However, the Bank believes his motives include helping his girlfriend. In an effort to prove as much, the Bank makes an offer—in its deposition of Dr. Rabkin—to purchase the same claim from him for a payment of $50,000. And then, in the same deposition, they increase the offer amount to $60,000. Dr. Rabkin doesn’t accept either offer or attempt any negotiations with the Bank—either during or after the deposition.

Here’s the oddity:

–The Bankruptcy Court apologizes to Rabkin “on behalf of the legal profession” for the “offensive conduct” of the Bank’s attorney in the deposition (see footnote 7 in BAP opinion).

–And the Bankruptcy Judge’s Order describes the conduct for which he apologized as an “offensive offer” to purchase Dr. Rabkin’s claim during his deposition “for twice as much as Dr. Rabkin could recover under the Debtor’s Plan.”

Seriously?! Offering twice-as-much is conduct worthy of an apology “on behalf of the legal profession”?! There must be something more about the manner-of-delivery – although none is identified. Otherwise, the twice-as-much offer seems like a clever attempt at exposing the existence of ulterior motives.


Here’s hoping that the U.S. Supreme Court will find a way to address the how-aggressive-can-a-debtor-be question in this case, despite its professed limitation to Question 2.

Mandating Mediation to Develop a Mediation Culture

A glaring contradiction? (Photo by Marilyn Swanson)

By:  Donald L. Swanson

[T]he full benefits of mediation are not reaped when parties are left to participate in it voluntarily.

D. Quek, Mandatory Mediation: An Oxymoron? Examining the Feasibility of Implementing a Court-Mandated Mediation Program, Cardozo Journal of Conflict Resolution, Vol 11:479, at 483 (Spring 2010).

The article linked above is written by Dorcas Quek, whose resume includes this:

“L.L.B. (National University of Singapore); L.L.M. (Harvard Law School); Visiting Researcher at Harvard Law School (2008-2009); Assistant Registrar and Magistrate in the Singapore High Court (2005-2007) and District Judge in the Primary Dispute Resolution Centre in the Singapore Subordinate Courts (June 2009 onwards).”


Ms. Quek’s article examines “the current debate in the United States concerning court-mandated mediation.” Here are some of her findings:

Mediation “may well be under-utilized in certain jurisdictions” because parties and attorneys “are still accustomed to treating litigation as the default mode of dispute resolution” and because “initiating mediation” may be “perceived as a sign of weakness.”

“In many jurisdictions, the rates of voluntary usage of mediation have been low.”

Where the “reticence towards mediation is due to unfamiliarity with or ignorance of the process,” court-mandated mediation “may be instrumental” in overcoming “prejudices or lack of understanding.”

“Studies show that parties who have entered mediation reluctantly still benefited from the process even though their participation was not voluntary.”

Observation / Recommendation

Ms. Quek draws this interesting observation / recommendation:

The “most compelling reason” for a court to mandate mediation is “to increase awareness and the usage of mediation services.” So, court-mandated mediation:

–should be utilized “only” as “a short-term measure” in courts where mediation “is relatively less well developed”; and

–is an expediency that “should be lifted as soon as” the awareness and utilization of mediation “has reached a satisfactory level.”

Value Judgment

And she bases such conclusion, in part, on this value judgment:

The term “mandatory mediation” is “a glaring contradiction.” Mediation emphasizes “self-determination, collaboration and creative ways” of resolving disputes and concerns, and “attempts to impose” a mediation process may “undermine the raison d’ˆetre” of mediation. Accordingly, “there must be compelling reasons to introduce mandatory mediation.”

While we can quibble with the idea of limiting mandated mediation, her point on using it to jump-start mediation where it’s struggling to get traction is sound.


In most state and Federal trial courts these days, mediation is firmly entrenched. In such courts, mandatory mediation isn’t improper: it’s, simply, not needed. Here’s why:

If you listen to litigators (who practice in such courts) talking about their cases, about what they have coming-up-next, and about their successes and disappointments, mediation will be a focal point of those discussions. No one needs to suggest mediation to these litigators or to encourage its use: they’ve already factored mediation into their case strategies – and mediation will always play a role. So, discussions of “mandating” mediation, for these litigators, is more of a redundancy than anything else.

Changing the Culture

But for many bankruptcy courts, mediation is still an unfamiliar and little-used process. In these courts, efforts to mandate mediation would be helpful in changing the culture.

Studies show that practitioners with little-or-no experience in mediation are reluctant to use it—and are uncertain on how it can be used effectively. And it shouldn’t be a surprise that mediation is a seldom-used process among these practitioners.

And my experience is that, (i) the adoption of local mediation rules will not, in and of itself, create a demand for mediation: “build it and they will come” does not work for mediation rules; but (ii) a local judge can change things by ordering cases into mediation. Once the judge starts requiring mediation, either by direct order in specific disputes or by local rule, the culture starts to change: practitioners start to become comfortable with mediation and start using it.


So . . . a major initiative in courts where mediation is little-used would be to start ordering specific cases into mediation and to mandate mediation by local rule.

How a Judge Makes Mediation Work: Minimizing Risks in Close-Call and Winner-Take-All Disputes

Mediterranean Cruise 6-12 425
Minimizing Risks (Photo by Marilyn Swanson)

By Donald L. Swanson

“The decision here is most likely all or nothing.  One side is going to win and the other side is going to lose—and that’s going to be very happy on one side and very tough on the other side.”

–Judge Steven Rhodes, encouraging parties to reach a settlement, as quoted in “Detroit Resurrected: To Bankruptcy and Back,” by Nathan Bomey.

This statement from Judge Rhodes is a powerful argument for insisting that parties mediate their disputes in close-call / winner-take-all circumstances.  Such circumstances create a moment, if ever one exists, for judicial activism in moving the parties into a mediation process.

Actions, like the quotation above from Judge Rhodes, meet an essential need:

–Imagine you are a party in a lawsuit.  Mediation has not occurred and is not being considered.  Trial day is approaching.  And imagine the judge believes this:

–the decision-after-trial is likely to be a close call; and

–the result is likely to be all-or-nothing for both sides.

–Wouldn’t you want to know this?  And, armed with such information, wouldn’t you appreciate one-last-chance to consider settlement possibilities?

A Duty

I suggest, in such circumstances, that the judge has a duty and obligation to communicate such beliefs to the parties and to direct them into mediation.

A Reason Why

Attorneys who’ve been working a case for an extended period of time often start to believe their arguments!

This is neither cynicism nor a joke.  Here’s how it works in the day-to-day grind of managing a case:

–Upon learning about a case from the client, the attorney’s first impression is of a weak case; but the client is in a difficult position and desperately needs to win.

–The attorney’s research identifies several legal theories, each of which, on its own, seems a bit of a stretch; but the attorney keeps developing the theories—which, collectively, begin after a while to seem plausible.

–After extensive work on the case, the attorney now has a carefully-crafted set of arguments that have an aura, in the attorney’s mind, of weightiness.

–The attorney and the party are beginning to believe they can actually win this case and need to forge ahead.

–They now believe their arguments.

This is one of the reasons why statements, like Judge Rhodes’s quotation above, need to be made to the parties in a close-call / winner-take-all situation.  And this is why the parties must, armed with such knowledge, have one last chance to mediate their case.


In such circumstances, every effort must be made by the judge to fully-inform the parties of the risks and to move the parties into mediation.  Then the parties can:

–take and receive a fresh-look at their arguments and assess anew the risks of their position; and

–take the resolution of their dispute into their own hands – rather than letting a stranger tell them what the resolution is going to be.

Because of Judge Rhodes’s efforts, like his quotation above, mediation worked well in the City of Detroit bankruptcy.