An Early Mediation Intervention Brings Order Out of Chaos

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Order out of chaos?

By: Donald L. Swanson

Here’s a scenario where early mediation intervention works:

We’re at the beginning of a Chapter 11 case with lots of competing interests.  Everyone is in a fight-every-battle mode—and there are lots of battles to fight.  We’re past the initial flurry of motions for use of cash collateral and relief from stay, and it’s clear that debtor will continue in operation.  But creditors remain hostile, trying to undermine reorganization efforts.  And there is no clear path to a confirmable plan.

Now is the time, in this scenario, for an early mediation intervention.  It’s time for the parties to request, or the court to order, an early mediation!

An Example

I’ve seen early mediation intervention work in reorganization cases . . . and am surprised it isn’t used more often.

Here’s how it works successfully in a prior case:

The prior case has many creditors, a wide range of constituencies and a chaotic existence.  Efforts to bring order and structure to the case fail to gain traction.  So, a dozen-or-more parties and their attorneys show up one day for a mediation session in a large conference room.

The mediation session lasts all day.  It begins with an around-the-conference-room discussion: each party explains its position and view of the case.  Then groups of two and three disputing parties break into closed-door meetings, and not-included parties are wondering what-the-heck is going on.  They complain to the mediator, who assures them everything is okay and advises them to keep talking.

The mediator acts as an orchestrator (as opposed to a controller) of the mediation session.  As the day wears along, parties continue acting on their own initiative: grabbing a disputing party and holding an impromptu discussion, then adding in another party, and then breaking up and beginning anew with another group of parties.  The lines of communication, if diagrammed that day, would resemble movements on a chess board.

As the afternoon wears along, the mediation effort begins to bear fruit.  As everyone leaves the session that evening, the sense of chaos and confusion is gone.  Few issues are resolved, but an organization and a structure and a direction are beginning to emerge for solving the problems of the case.

Bringing Order Out of Chaos

This prior case shows that an early mediation intervention can bring order out of chaos and begin to provide solutions for a difficult case.  Many subsequent negotiations, mediations and court rulings are still needed in that case.  But the early mediation session starts the solution process.

Direct Communications With a Solutions Goal

The genius of early mediation intervention [it’s someone else’s idea, not mine] is in placing disputing parties into direct communication, early in the case, to seek solutions.

–I’m often amazed at what happens when one side hears the pros and cons of their own case from someone other than their own attorney: it can be an eye-opening experience.  I remember a client exclaiming to me during mediation, “We could lose this case!” (as if this were a new revelation), when I’d been telling them that for months.

–And having eyes opened sooner is better than having them opened later—especially in the fast-moving world of bankruptcy.

Conclusion

Early mediation intervention is a tool for, (i) moving a difficult case in a positive direction, and (ii) helping parties with unrealistic ideas get a better view of the case.

Proactive Mediation is Becoming Standard: The Syngenta Example

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Proactivity

By: Donald L. Swanson

In a remarkable demonstration of cooperation and coordination, three separate courts (both Federal and State) enter proactive mediation orders and appoint the same mediator in three related cases.

Fact Background

The cases involve a genetically modified strain of corn developed and marketed by Syngenta.  The new strain gets regulatory approval from the U.S. and other countries – but not from China.

Corn prices begin dropping when China begins rejecting U.S. corn shipments that contain even a trace of this new strain.

So, corn farmers begin suing Syngenta in state and Federal courts throughout the Corn Belt.

–Many of these cases are consolidated into a multi-district proceeding in the U.S. District Court in Kansas.

–Many of these cases are moving forward in a Minnesota state court, where Syngenta is located.

–And many of these cases are pending in the U.S. District Court for Southern Illinois.

The Kansas proceeding is now certified as a class action, though class certification is on appeal to the Tenth Circuit.  Ag Census data from 2012 counts 2.1 million farms in the U.S., many of which plant corn and would be covered by this class action.

Jury trials in the Syngenta cases are scheduled to begin this Spring on individual farmer cases, as class representative or bellweather trials.

[An interesting / ironic twist: Syngenta is being sold to a company from China, and the proposed sale is wending its way through regulatory scrutiny.]

Proactive Mediation Orders

Back in March of this year (2016), all three Syngenta judges enter similar mediation orders and appoint the same mediator (here are links to their respective mediation orders:  Kansas case, Minnesota case and Illinois case).

–Each order identifies the mediator as a “Special Master for Settlement,” because the mediator is appointed under civil procedure Rule 53 on special masters.

These orders establish an atypical mediation process.

— Typical mediation is passive: a mediator is hired to meet with the disputing parties (usually in a one-and-done session) and help them reach a settlement.

–These orders are highly proactive: it’s more like “mediation on steroids.” [I wish I could take credit for coining this phrase.]

Each of these orders provides that the mediator may:

–Order the parties to meet face-to-face and engage in serious and meaningful negotiations.

–Construct an efficient procedure to engage the parties in settlement negotiations.

–Order production of all necessary information.

–Order the appearance of any persons necessary to settle any claims completely.

–Make recommendations to the court concerning any issues that may require resolution in order to facilitate settlement or to efficiently manage the litigation.

–Direct, supervise, monitor, and report upon implementation and compliance with the Court’s orders, and make findings and recommendations on remedial action if required.

–Require the parties to appear in person, via video conference, or telephonically.

–Pursuant to Rule 53(b)(2)(B), communicate ex parte with the Court at any time.

Next Mediation Steps in Syngenta

It’s difficult, if not impossible, to predict when (or if) the Syngenta cases will become ripe for mediated settlements on ultimate/global/final disputes.  Perhaps such ripeness will occur before jury trials begin in the Spring—or maybe ripeness will await the conclusion of some of those trials.

But it seems safe to assume that the proactive mediator is, meanwhile, working diligently and behind-the-scenes to, (i) resolve interim disputes, and (ii) create a structure and organization for addressing and resolving ultimate/global/final disputes when they become ripe for settlement.

–Interim disputes example:  A recent Order (Doc. 2703) from the Kansas Court reveals that the mediator helped resolve disputes over language in the initial class action notice document.

Application to Bankruptcy Cases

Syngenta is not in bankruptcy.

But the proactive mediation established by the Syngenta courts in Kansas, Minnesota and Illinois is similar to the proactive mediation established, and utilized effectively, in the City of Detroit bankruptcy and in other large bankruptcy cases.

Here’s predicting that proactive mediation will (and should) become standard practice in Chapter 11 reorganization cases and in Chapter 9 municipal adjustment cases.

–Here’s why:  because proactive mediation works.

10 Practical Lessons for Cities Facing Bankruptcy – From a New Ninth Circuit Ruling

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Pointing the way

By: Donald L. Swanson

The Ninth Circuit Court of Appeals, in a new ruling, helps point-the-way for cities facing the complexities of Chapter 9 bankruptcy.

The Facts

On March 28, 2003, three citizens of Vallejo, California, have a violent encounter with two of Vallejo’s police officers.  A lawsuit ensues.

Then, the City of Vallejo files Chapter 9 bankruptcy and achieves a confirmed bankruptcy plan.

Then, the lawsuit results in a judgement for one of the plaintiffs.

The New Ninth Circuit Ruling

Legal wranglings about the judgment result in a September 8, 2016, ruling by the Ninth Circuit Court of Appeals in a case captioned Deocampo v. Potts (Case No. 14-16192).

The Ninth Circuit’s Deocampo v. Potts ruling addresses a narrow issue.  Yet, practical lessons for cities facing Chapter 9 bankruptcy can be gleaned from it.

10 Practical Lessons

Here are ten of such practical lessons.

Lesson # 1.  Mediation is an essential tool for resolving Chapter 9 cases.  As in other Chapter 9 cases, mediation plays a central role in achieving a confirmed plan in the City of Vallejo’s bankruptcy.

Lesson # 2.  There is no such thing as an “involuntary” Chapter 9 bankruptcy.  A Chapter 9 case can begin only by the municipality filing a voluntarily Chapter 9 petition, with authorization from the state and with a desire “to effect a plan to adjust” its debts (11 U.S.C. §§ 109(c)(4), 301 & 921).

Lesson # 3.  A city in bankruptcy, unlike a business debtor, cannot resolve its financial problems by liquidating its assets and terminating operations.  A city must continue operating and meeting the needs of its citizens.

Lesson # 4.  A city in bankruptcy can confirm it’s Chapter 9 plan without the consent of its creditors (11 U.S.C. §§ 109(c)(5) & 943).

Lesson # 5.  The primary plan confirmation standard in Chapter 9 is this: the plan must be, (i) “in the best interests of creditors,” and (ii) “feasible” (11 U.S.C. § 943(b)(7)).  This standard provides neither precision nor clarity.   The Ninth Circuit explains such imprecision and lack of clarity like this in Deocampo v. Potts:

“Our case law construing Chapter 9 is scant, and this appeal confronts us with a novel legal issue, of the kind that often surfaces when changing social and economic conditions awaken dormant statutes. But Chapter 9 has awakened, and we do not presume further disputes over its interpretive and practical complexities will remain long at rest.”

Lesson # 6.  When a Chapter 9 plan is confirmed, the City is discharged from debts that aren’t “excepted from discharge”  by the confirmed plan (11 U.S.C. § 944(b), (c)(1)).

Lesson # 7.  At least two large municipalities, Detroit and San Bernardino, have expressly discharged  the claims of citizens against their police officers for misconduct.

Lesson # 8.  If a city wants to make an attempt at discharging its police officers from misconduct liability, the city must make explicit provision for such a discharge in its Chapter 9 plan.

Lesson# 9.  An ambiguity in a bankruptcy plan drafted by the city is construed against the city.

Lesson # 10.  A city’s commitment, made after confirmation of its Chapter 9 plan, to defend and indemnify a police officer is unimpaired by the terms of its confirmed plan.

Conclusion.

Thanks to the Ninth Circuit for pointing-the-way on various complexities of the newly-awakened Chapter 9 statutes.

Links to prior articles on this Chapter 9 city-bankruptcy subject are:

Part 1:  Police Abuse Claims and Municipal Bankruptcy — A New Report

Part 2:  Will Police Misconduct Liability Allow a City to File Bankruptcy? — “Insolvent” Eligibility Standard

Part 3:  Can a City File Bankruptcy to Deal With Police Misconduct Liability? — “Good Faith” Requirement

 

ACTION ITEM: From Preparing for Multiparty Mediation — Part Three

Action Item.  Issues relating to first offer arrangements, non-monetary terms, settlement documentation, number of sessions, and use of an assistant mediator need to be discussed in advance by the mediator with parties and their attorneys to prepare for multiparty mediation sessions.

Advance communications on subjects identified in this three-part series will significantly enhance the efficiency and effectiveness of multiparty mediation sessions.

 

Preparing for Multiparty Mediation: A Checklist — Part Three, Items 6-10

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Prepared for the Performance

By Donald L. Swanson

When preparing for a multiparty mediation, the following items 6 through 10 should be addressed by the mediator with the parties and their attorneys in advance communications.

Item Six.  First Offer Arrangements.

Common questions about the first offer in a mediation are:

(1) Which party will make the initial offer at the initial mediation session?

(2) A common practice is for the claimant to go first; should that practice be followed here?

(3) Could the first offer be prepared in advance and ready to present when the mediation session begins?

(4) Should the mediator work with the first-offer party and attorney in advance of the mediation session toward developing the offer?

Item Seven.  Non-Monetary Terms.

Non-monetary terms are often as important to a settlement as monetary terms — sometimes more so:

What non-monetary terms might be important in this mediation?

Item Eight.  Documenting the Settlement.

Once a settlement is reached:

(1) What document(s) will the parties use to confirm settlement details — a term sheet, a settlement agreement, something different?

(2) Will attorneys work together on an advance draft of such documentation (with blanks left open) to identify issues and focus discussions at the mediation session and to minimize drafting needs at the end when everyone is tired?

(3) Perhaps the attorneys could even resolve some issues — and fill in a few blanks — during the document-preparation process?

(4) Are the parties open to concluding the mediation with essential issues resolved but a comprehensive settlement agreement yet to be drafted?

Item Nine.  One or More Mediation Sessions.

If all issues cannot be resolved in a one-day mediation session and additional sessions are needed:

(1) Does the next session need to be in-person, or can it occur by telephone or video conference?

(2) What scheduling details need to be considered?

(3) Might a separate session be useful for parties who have related-but-separate issues that don’t materially affect other parties — i.e., no sense wasting everyone else’s time?

Item Ten.  Use of an Assistant Mediator.

Are the parties open to utilizing both a lead mediator and an assistant mediator to enhance the efficiency and effectiveness of the multiparty mediation process? If so, is the proposed mediator:

(1) Open to using an assistant mediator?

(2) Experienced in utilizing an assistant mediator and creating an efficient division of labor between them?

(3) Willing to negotiate an acceptable fee arrangement?

 

Action Item.  Issues relating to first offer arrangements, non-monetary terms, settlement documentation, number of sessions, and use of an assistant mediator need to be discussed in advance by the mediator with parties and their attorneys to prepare for multiparty mediation sessions.

Advance communications on subjects identified in this three-part series will significantly enhance the efficiency and effectiveness of multiparty mediation sessions.

 

Editorial Note: this article was originally published by the American Bankruptcy Institute in its October 2015 edition of the Mediation Committee Newsletter (Vol. 2, Num 3).

Usual Formula [Unsecured Claim + Bankruptcy = You Lose] Doesn’t Apply (the Nortel Networks Bankruptcy, Part six)

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By: Donald L Swanson

Unsecured Claim + Bankruptcy = You Lose.

I came up with this formula back in 1983, while preparing for a seminar presentation on basic bankruptcy law.  I was trying to come up with something creative to say.  And . . . I must confess . . . I thought it was pretty clever at the time.

And now . . . I’m more-than-a-little pleased and proud [or as people say these days, “humbled”] that the formula proves to be accurate in the vast majority of all bankruptcy cases.

But what’s true in the vast majority of all bankruptcy cases has little to do with the Nortel Networks bankruptcy.

And so it is with my little formula — it has nothing to do with the Nortel Networks bankruptcy case.  Nothing.

Get this!

Back in July of 2015 (when total professional fees expended in the battle are only $1.3 billion), the Bankruptcy Court makes this finding:

–“A pro rata distribution would result in all Creditors receiving an approximate 71% return on their Claims.”

Say what?!  A 71% return?!

All this fighting has now cost $2 billion in professional fees.  And it’s over the last 29% of recovery?!

. . . Oh, my.

Unsecured creditors in nearly all bankruptcy cases would exult over a 71% return.

But no.  Not for Nortel Networks creditors.  “A 71% return” are fighting words.

“Don’t be settling these disputes in mediation,” seems to have been the battle cry.

Nortel Networks creditors apparently hope to dissipate the entire pot of gold — or at least most (or a large percentage) of it — to prove a point . . .  of some sort or other . . .  that is known only to themselves.

Here’s guessing that the continuing fight has a net-negative impact on everyone.  No one will ultimately win.

Surely there is a lesson in this for the rest of us?

 

 

ACTION ITEM: From Preparing for Multiparty Mediation — Part Two

Action Item. Issues relating to settlement impediments, parties, information and discovery, use of joint sessions, and tax implications need to be discussed in advance by the mediator with parties and their attorneys to prepare for multiparty mediation sessions.

 

Preparing for Multiparty Mediation: A Checklist — Part Two, Items 1 – 5

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Prepared for the Performance

By Donald L. Swanson

Advance communications among the mediator, the parties and their attorneys can be helpful in creating an organization, structure and efficiency for multiparty mediation sessions.

The following are items one through five in a ten-item checklist of the types of subjects that should be addressed in the advance communications:

Item One.  Settlement Impediments.

To help parties divert attention from their most-cherished arguments and toward settlement possibilities, each party should provide the mediator with written answers to the following questions:

(1) Why haven’t the parties settled already?,

(2) What settlement possibilities might reasonably be anticipated?,

(3) What impasses and impediments to settlement currently exist?,

(4) What are the costs and risks of failing to settle now?, and

(5) What settlement terms might be negotiated in a mediation that could not otherwise be obtained?

Item Two.  Parties.

Absent parties have torpedoed many a mediated settlement:

(1) Are all necessary parties included in the mediation?

(2) Are insurance or other indemnification rights implicated?

(3) Would a party’s absence from the mediation tend to undermine or create problems for any settlement that might be achieved?

Item Three.  Information and Discovery.

A mediation session is not the proper venue for fighting discovery battles:

(1) Do mediating parties have all the information they need?

(2) If not, what specific information and documents (not merely generalized categories) need to be produced before the mediation session begins?

Item Four.  Use of Joint Sessions.

This is a truism: disputing parties don’t want to spend time together.  So:

(1) To what extent are the parties open to participating in joint sessions to streamline and facilitate communications?

(2) May the mediator exercise judgment on bringing some or all parties (or their attorneys only) together in joint sessions to communicate and discuss offers and information?

Item Five.  Tax Implications.

In business cases, taxes are almost always a bigger issue than initially anticipated:

(1) Are the parties aware of tax issues or consequences that might arise from a settlement?

(2) Will parties have advance discussions with their own tax advisers to anticipate potential tax issues and consequences?

(3) Will each party have a tax adviser standing by via telephone during the mediation session to address tax issues and concerns that might arise?

Action Item.  Issues relating to settlement impediments, parties, information and discovery, use of joint sessions, and tax implications need to be discussed in advance by the mediator with parties and their attorneys to prepare for multiparty mediation sessions.

 

Editorial Note: this article was originally published by the American Bankruptcy Institute in its October 2015 edition of the Mediation Committee Newsletter (Vol. 2, Num 3).

A 2011 Judicial Scolding Had No Discernible Effect on Mediation Efforts (Nortel Networks Bankruptcy, Part Five)

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Chess Pieces — A Judicial Metaphor

By: Donald L Swanson

Back in 2011, the Third Circuit Court of Appeals wrote a scathing opinion about the behavior of the disputing parties in the Nortel Networks bankruptcy case.

The Third Circuit’s opinion is published at In re Nortel Networks, Inc., 669 F.3d 128 (3rd Cir. 2011).

However, the Third Circuit’s judicial scolding has had no discernible effect on the subsequent behavior of the parties.

Here is a portion of the Third Circuit’s scolding, which is also quoted in the “Conclusion” portion of the Bankruptcy Court’s allocation / distribution ruling:

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Pensioner as Pawn

“We are concerned that the attorneys representing the respective sparring parties may be focusing on some of the technical differences governing bankruptcy in the various jurisdictions without considering that there are real live individuals who will ultimately be affected by the decisions being made in the courtrooms. It appears that the largest claimants are pension funds in the U.K. and the United States, representing pensioners who are undoubtedly dependent, or who will become dependent, on their pensions. They are the pawns in the moves being made by the Knights and the Rooks.

“Mediation, or continuation of whatever mediation is ongoing, by the parties in good faith is needed to resolve the differences. No party will benefit if the parties continue to clash over every statement and over every step in the process. This will result in wasteful depletion of the available assets from which each seeks a portion.”

[Bold face added for emphasis.]

[Editorial Note: This is the same Third Circuit Court of Appeals that will, ultimately, rule on the Bankruptcy Court’s allocation / distribution ruling, if the parties fail to reach a settlement first.

–Hmmmm, it’s not looking real good for the appellants right now.]

The Third Circuit Court’s worst-case prophecy is being fulfilled, as noted in the prior articles in this series.

Doesn’t everyone involved deserve better?

 

A “Mediation Order on Steroids” – The In re Syngenta Case

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A Nebraska Cornfield

By: Donald L Swanson

Proactive mediation seems to be gaining traction in cases with large numbers of claimants and large amounts of money at stake.  Examples are the City of Detroit bankruptcy, the diocese bankruptcies, and the Argentina debt cases.

We can now add another example to the list: the multi-district case of In re Syngenta AG MIR 162 Corn Litigation, Case No. 14-md-2591, in the U.S. District Court for the District of Kansas.

The Judge in the Syngenta case recently entered a proactive mediation order.  It’s been called a “Mediation Order on Steroids!”

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Growing Corn

The basic facts of the In re Syngenta case are these:

–Syngenta produces seed corn for farmers to plant.

–Syngenta developed a genetically modified strain of pest-resistant seed corn.  Syngenta placed this strain into the market, and farmers began planting it.

–Problems began when China started rejecting all corn shipments from the U.S. containing even a trace of this new strain.

–Corn prices in the U.S. began falling, and U.S. farmers began suing Syngenta to recover their losses.

Earlier this year (on March 23, 2016, at Doc. 1745), the In re Syngenta Judge enters his proactive mediation order titled, “Order Appointing Special Master for Settlement.”

Under this Order, the Judge grants a broad range of authority, “without limitation,” to the special master.  These items of authority are the steroids.  The special master (aka mediator) may, for example:

  1. “Order the parties to meet face-to-face and engage in serious and meaningful negotiations;
  2. “Construct an efficient procedure” for settlement negotiations, that includes “identifying” and “ordering” the production of information needed “to facilitate settlement”;
  3. Conduct “in-person settlement negotiations with the parties and their counsel in all cases”;
  4. “Order the appearance of any persons necessary to settle any claims completely”;
  5. “Make recommendations to the court concerning any issues that may require resolution in order to facilitate settlement or to efficiently manage the litigation”;
  6. “Direct, supervise, monitor, and report upon implementation and compliance with the court’s orders, and make findings and recommendations on remedial action if required”;
  7. “Schedule and hold conferences” and “regulate all proceedings”; and
  8. “Communicate ex parte with the court at any time.”

These are “proactive” provisions, indeed.  Proactive mediation is, obviously, alive and active in the In re Syngenta case.