How Mediation at the End of a Case is Wasteful

A Wasteland

By: Donald L. Swanson

When mediation occurs early-in-a-case, instead of late, “cases are more likely to settle, fewer motions are filed and decided, and case disposition time is shorter, even for cases that do not settle.”

–B. McAdoo, N. Welsh & R. Wissler, “What Do Empirical Studies Tell Us About Court Mediation?” (2004)

A lawsuit consists of these overlapping phases: (i) pleadings, (ii) discovery, (iii) dispositive motions, (iv) pretrial steps, and (v) trial with final verdict or judgment.

The study linked above concludes, obviously, that an early-in-the-case mediation is more effective than a late-in-the-case mediation.


Nevertheless, the customary time for mediation is late-in-the-case: as discovery winds down, pretrial steps are in process, and trial is in the offing. Unfortunately, this late-in-the-case time (without an early mediation effort first) is about as wasteful as can be imagined. Consider this:

–A huge amount of time, effort, energy and fees are spent before a late-in-the-case mediation begins, and avoiding many of such costs can be a powerful incentive to settle in an early-mediation; and

–If the optimum time for mediating is early-in-the-case, then all the time, effort, energy and fees spent between an unused early/optimum time and the late/customary time is a pure and unmitigated waste!

A Faulty Rationale: More Time is Needed

One faulty rationale for end-of-the-case mediation is that the parties need more time to, (i) recognize the risks of their legal position, and (ii) come to grips with the reality of what it takes to resolve the case. Here are two examples of how this rationale is faulty.

1. A lack of opportunity. I remember representing a business defendant who gives ten reasons why they are not responsible for the bad things that happened. The months-long discovery process turns into a ten-step effort that proves each and every one of the reasons wrong. No early-settlement overtures occur in the case from either side, and my client appears ready to engage in meaningful settlement discussions only after all ten reasons are refuted. In retrospect, however, I’m pretty sure that, (i) they knew or suspected, all along, that they were in the wrong, and (ii) would have jumped at the end-of-case settlement terms, had those terms been available early in the case.

2. A lack of imagination. I remember representing a plaintiff against a business defendant that had clearly breached standards of care. But defense counsel refuses, in numerous different contexts, all early settlement overtures (he blames his client for the refusals). We settle at the end with defendant paying much more than defendant would ever have had to pay in an early-stage settlement. The early-refusals cost defendant dearly! I’ve often wondered why all early olive branches were rebuffed . . . and attribute it to a lack of imagination from the other side.

Another Faulty Rationale: Exhaustion Helps

Another faulty rationale for end-of-the-case mediation is the exhaustion element: when parties are weary of paying fees, weary of the time and energy consumed by the lawsuit, and concerned about risks of losing, they become more-inclined to settle. But this exhaustion element bears an unreasonably high price to pay for getting into a better mood for settling the case.

Bankruptcy Experience 

This early-mediation idea is now institutionalized in the Delaware Bankruptcy Court. In 2013, the Delaware Court establishes an early-mediation program for preference cases (see this article).

And it should be noted that early-mediation benefits are particularly in-play for bankruptcy reorganization disputes. Reorganization cases are best served when many disputes are resolved as quickly as possible. The business needs of a debtor, typically, cannot survive long and protracted battles. A debtor, simply, cannot afford to fight every battle all the time. So, early-mediation can be critical to the success of the reorganization process.


Early-mediation is optimal for resolving legal disputes, especially in bankruptcy cases. But end-of-the-case mediation is what usually happens (without any attempt at early mediation).  This is wasteful and needs to change!

Can a Party to a Mediation Agreement Oppose Its Court Approval?

A Binding Arrangement

By: Donald L. Swanson

The plan confirmation process does not provide a party to the mediation “with a renewed opportunity to challenge the [mediated] settlement to which they are bound.” 

–In re RPP, LLC, 547 B.R.158, 164 (Bkrtcy.W.D.Pa. 2016).

The RPP, LLC bankruptcy case is a Chapter 11 reorganization, with plan confirmation occurring on June 2, 2016.

The Facts and Disputes

The case has intense and protracted litigation.  The disputes culminate in a mediated settlement agreement, following an 11-hour mediation session held on August 17, 2015.  The terms of the agreement are subject to approval by the Bankruptcy Court during the plan confirmation process.

Thereafter, a husband and wife party to the agreement, Mr. and Mrs. Ferrone, request Court clarification of certain issues.  In particular, the Forrones want the Bankruptcy Court to rule that the mediated arrangement includes a grant of security interest to them.

The Ferrones argue that the Bankruptcy Court approval requirement, in the settlement agreement, allows them to contest the terms of the mediated agreement that they signed.

The Bankruptcy Court finds that, (i) the mediated agreement makes no mention of a security interest for the Ferrones, and (ii) their request for one is “in the nature of ‘buyer’s remorse’” and “regret regarding the settlement.”

The Bankruptcy Court rules that the Ferrones are bound by the settlement agreement and cannot use court approval processes as an excuse to seek a better deal:

In questioning the settlement, the Ferrones also contend that the settlement was never approved in compliance with Fed.R.Bankr.P. 9019.  . . .  Although the plan confirmation process achieves the goals of providing complete disclosure to all parties and review by the Court, to be clear, it does not provide the Ferrones, or any party to the mediation, with a renewed opportunity to challenge the settlement to which they are bound.

On December 9, 2016, this ruling is affirmed on appeal by the U.S. District Court for the Western District of Pennsylvania.

The Rule of Law and a Question

The rule of law established in the RPP, LLC ruling is this:  When a mediated settlement agreement is subject to subsequent court approval, the parties to the mediation are still bound by their mediated agreement and may not oppose the required court approval.

A question:  Is this RPP, LLC ruling limited to the specific facts of the RPP, LLC case?

The specific facts of the RPP, LLC case include a judicial mediator who issues a “Final Judicial Mediation Consent Order,” instead of a regular agreement between mediating parties using a private mediator.

The Answer

I suggest that the answer to this question is, “No”: the ruling has broad and general application.

A mediation party is bound by the terms of the mediation settlement agreement until the required court approval is granted or denied, and such party may not directly or indirectly oppose the granting of such approval.  A mediation party cannot use the court approval requirement to renegotiate a better deal.

The RPP, LLC ruling, I suggest, is operative in a broad range of circumstances and is not limited to the “Final Judicial Mediation Consent Order” facts of that case.

Why Don’t Consumer Cases Mediate?

A wide gap

By: Donald L. Swanson

Mediation is firmly entrenched as a dispute resolution tool in bankruptcy.  Mediation is commonly and regularly used throughout the bankruptcy system.  And mediation’s value in bankruptcy is almost-universally recognized.

A Mediation Gap

But there are wide gaps in bankruptcy where mediation is still under-utilized.  One of the gaps is consumer cases.  Hardly anyone uses mediation to resolve disputes in consumer cases, unless mediation is required by local rule.

I don’t know why or how this gap exists in consumer cases.  But the gap’s existence is a shame because:

–There are mediators in nearly every bankruptcy district who would be more-than-happy to make consumer mediation work.

–Costs and time commitments can be minimized in consumer cases by, for example:

–agreeing to a reduced or flat fee for the mediator;

–eliminating mediation statements (the mediator can get information from the court’s online filings);

–limiting the time commitment for a mediation session to a couple hours or half-day; and

–meeting by telephone when distances are prohibitive.

Attorney Resistance

My experience is that bankruptcy judges would be more-than-happy to approve mediation in consumer-cases.  It’s the attorneys in such cases who are resistant to (or simply don’t think about) mediation.

A 2016 Example

Here’s an example of resistance.

In re Whittick, 547 B.R. 628 (Bankry. N.J. 2016), is an adversary proceeding brought by the Chapter 7 Trustee to recover $13,642 from the Chapter 7 Debtor and his spouse.  The spouse did not file bankruptcy.  Legal wrangling ensues.

New Jersey’s Bankruptcy Court has a local rule mandating mediation.  N.J. LBR 9019-2(a)(1) provides:

–“Every adversary proceeding will be referred to mediation after the filing of the initial answer to the adversary complaint,” unless the parties decline.

The In re Whittick case is teed up for mediation under this local rule.  But the parties decline mediation.

So, the case moves forward on cross-motions, and supporting briefs, for judgment on the pleadings.

A hearing on the cross-motions results in a lengthy opinion from the court (the opinion covers fifteen pages — small type; single space; narrow margins; no pictures).  But the opinion resolves only one issue and sets a trial on remaining issues.  The ruling is as follows:

The Trustee’s “Motion for Judgment on the Pleadings is GRANTED IN PART only to the extent that the court finds that the loan proceeds/funds are property of the estate, but DENIED as to all other matters.

The Defendants’ “Cross Motion for Judgment on the Pleadings is DENIED.”

“A trial will be scheduled on the issue of whether the Debtor transferred the proceeds/funds with the intent to conceal (section 522(g)), and if not, if an exemption applies.”

Several months later, as trial approaches, the parties enter into a “Stipulation of Settlement,” under which the Defendants agree to pay $10,000 to the bankruptcy estate.

A Mystery

This is a mystery.  Why did the parties decline to mediate this dispute?  Declining mediation make no sense here:

–The economics of the case are terrible — who can afford to litigate anything where $13,642 is at stake?

–The parties decide to litigate instead of mediate, and they probably spend more in fees (on each side) than the amount that’s at stake in the dispute.

This is a shame!


Success of Mandatory Mediation Leads to an Expansion of its Role

This plant expanded successfully from one small shoot.

By: Donald L. Swanson

It’s always great to see an experiment produce successes that lead to an expansion of the experimental endeavor.

This success-and-expansion is exactly what’s happened with mandatory mediation experiments in the Delaware Bankruptcy Court.

Delaware’s Mandatory Mediation

The Delaware Bankruptcy Court began mandating mediation, by local rule, in preference cases back in 2004.

Nearly a decade later, the Delaware Bankruptcy Court expands its mandatory mediation program to include all adversary proceedings filed in Chapter 11 cases. The new language, appearing in Local Rule 9019-(5)(a), is this:

–“all adversary proceedings filed in a chapter 11 case . . . shall be referred to mandatory mediation.”

The Delaware Bankruptcy Court’s history with mandated mediation is positive.  One advantage of such a mandate-by-local-rule is this:

–attorneys know that a mediation must occur before trial, so they plan on the mediation and incorporate mediation into their case plans and strategies.

Mandatory Mediation Elsewhere

In addition to the history of success-and-expansion in Delaware preference actions, mandatory mediation has a long history of success-and-expansion elsewhere too.  For example:

–In the Second Circuit Court of Appeals, mediation experiments from the 1970s contain a mandatory mediation component — and those experiments became successful.

–Today, nearly all of the U.S. Circuit Courts of Appeals have mediation programs with a mandatory mediation component that are similar to the Second Circuit’s experiment efforts in the 1970s.

A Prediction

Here’s predicting that mediation-mandated-by-local-rule will become increasingly prominent in bankruptcy courts throughout the land.

Mediating Pre-Packaged Plan Disputes: a Recent Example

A different kind of pre-packaged plan (photo by Marilyn Swanson)

By Donald L. Swanson

Who would ever think that mediation could serve an important role in pre-packaged Chapter 11 cases?

–After all, the essence of a pre-packaged plan is speed: all major issues are supposed to be resolved in advance of the bankruptcy filing so the plan can move promptly to confirmation.

But disputes do arise in pre-packaged cases, despite best efforts to resolve all disputes before the bankruptcy filing.  And these disputes slow things down.

A Pre-Packaged Case — With Mediation

In a recent pre-packaged case, mediation plays a crucial role in confirming the pre-packaged plan. The case is In re Hercules Offshore, Inc., Case No. 16-11385, in the Delaware Bankruptcy Court.

Hercules supplies offshore jackrigs and liftboats to the oil industry in the Gulf of Mexico and around the world. Hercules’s business has been suffering over the last couple years as crude oil prices drop from $100 per barrel in 2014, to $52 per barrel in July 2015, to just under $30 per barrel in early 2016.  Prices have since recovered to $50+ per barrel in December 2016.

Hercules files its first-of-two prepackaged Chapter 11 cases on August 13, 2015, and confirms its first pre-packaged plan on September 24, 2015.

With further declines in crude oil prices into 2016, Hercules needs a second reorganization and files its second pre-packaged Chapter 11 case on June 5, 2016.

The Mediation

Significant disputes surface in the second pre-packaged case, and the Bankruptcy Court refers the disputes to mediation on August 17, 2016. The mediation efforts resolve nearly all disputes, except that the equity class still wants to pursue claims against the Hercules directors for their actions in dealing with financial difficulties.  The plan releases such claims.

Following a confirmation trial, the Bankruptcy Judge confirms the mediated plan on November 15, 2016, and finds that the directors acted properly amid difficult circumstances. No appeal is filed, so confirmation of the mediated plan is final.

A Lesson from the Hercules Case

Even in a fast-paced pre-packaged plan context, mediation can be an effective tool for dealing with and resolving confirmation disputes.
In fact, the need-for-speed is precisely why mediation can be crucial and effective in pre-packaged contexts.

Mediators Just Want to Get Paid: A Recent Hiccup in Bankruptcy

“Your Procrastination is Not My Emergency!”

By Donald L. Swanson

“Girls just want to have fun,” according to Cyndi Lauper.
–And mediators just want to get paid!
We receive an important lesson for mediators getting paid out of bankruptcy from a recent mediation hiccup.  The lesson is this:
–If you want to get paid from bankruptcy estate funds, you need court approval in advance.
The case is In re Magleby (Case No. 16-15322) in the Bankruptcy Court for the Central District of California.  Mr. Magleby, the Chapter 11 Debtor, is having family law disputes with his wife / soon-to-be-ex.

The Chronology

Here’s what happened:

4/24/2016: Debtor files Chapter 11 bankruptcy.
9/27/2016: Bankruptcy Judge orders Debtor and spouse to mediate disputes over multiple bankruptcy/divorce issues.
10/10/2016: First mediation session occurs. Debtor had already paid an $6,500 up-front fee to the mediator but owes an additional $1,925 for this session.
10/12/2016: Mediator submits her $5,775 bill for the remaining $1,925 from the first session plus an additional $3,850 up-front fee for the second session (which is scheduled to occur on 11/2/2016).
10/28/16: Debtor files  “Emergency Ex Parte Application for Authority to Pay Post-Petition Fee of Family Law Mediator,” seeking authority to make the advance payment for the second mediation session.
10/31/2016: Bankruptcy Judge issues “Order Setting Hearing” on the Emergency Application for 11/29/2016.
11/2/2016: The previously-scheduled second mediation session does not occur.
11/8/2016: Debtor files and serves on all creditors an “Amended Application for Authority to Pay Post-Petition Fee of Family Law Mediator,” which requests, (i) after-the-fact approval of the first $6,500 payment, and (ii) advance approval for payment of the $5,775 bill.
11/29/2016: Hearing is held on the Amended Application.
12/5/2016: Bankruptcy Judge issues “Order Approving Debtor’s Amended Application,” which approval is based in part on the fact that no one filed an objection to the Amended Application.

The 10/31/2016 “Order Setting Hearing”

The 10/31/2016 “Order Setting Hearing” contains a lengthy expression of dissatisfaction from the Judge.  Here is a flavor of his thoughts:
–“While the court had encouraged the parties to mediation, . . . the court does not sanction Debtor’s failure to make sure that the applicable rules are followed with respect to the authorization of use of estate funds out of the ordinary course of business.” This is the fault of Debtor’s counsel, he says, not of the Debtor or the Mediatior.
–“ There are several problems with this Application.”
–“First, Debtor . . . has already incurred the obligation . . . to pay the mediator . . . without complying with [advance-approval requirements].”
–“Second,” Debtor’s counsel procrastinated and now requests an emergency hearing.
[Editorial Note: The Court retains a sense of humor:  “Counsel’s procrastination brings to mind that T-shirts are available for purchase online that state: ‘Your Procrastination is Not My Emergency.’”]
–“It appears to this court that the Application is simply an attempt to flout” applicable rules.
–So, “the court hereby . . . sets the Application for hearing . . . on November 29, 2016 at 2:30 p.m.” and “Debtor must serve copies of a notice of the hearing, the Application and a copy of this order on all parties [as required by law].”

Editorial Comments

Whenever a mediator is to be paid from bankruptcy estate funds, everyone needs to remember that all such payments require advance approval from the bankruptcy court.
Everything may have turned out okay in the In re Magleby case for the mediator and the Debtor.
–But it didn’t turn out so well for Debtor’s attorney, who had to, (i) put in a bunch of additional work (undoubtedly, without additional compensation), and (ii) endure disparaging comments from the Bankruptcy Judge.

1899 Treatise (First Edition) on U.S. Bankruptcy Law

1899 Treatise (1st Edition)

By: Donald L. Swanson

Original-source documents from antiquity are always fascinating!  They provide a wealth of historical information and a wealth of insight into life in an earlier day.

It’s mind-boggling, for example, to read the words of an author, who lived in an ancient time, writing about events of “ancient days” from his/her perspective-in-time.

A treatise on U.S. bankruptcy laws, published in 1899, is one of these original-source documents from antiquity.  And it is a splendid illustration of the wealth of information and insight (and the mind-boggling historical information) that such documents can provide.

This is the 1899 treatise, with a link to an online copy:

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

This 1899 treatise explains its subject and purpose like this:

–The 1898 Act “is a departure, and, in some of its provisions, a radical departure from previous statutes upon that subject either in the United States or Great Britain.”

–“It is the purpose of this volume to give the text of the present law, and under each section syllabi of such decisions by the Supreme, Circuit and District courts of the United States as will aid in construing it. . . .  For the most part, these decisions were rendered under the Act of 1867.”

This 1899 treatise contains the following categories of information:

–45-pages (from vii to lii): “Table of Cases Cited,” with roughly 60 citations per page (that’s approximately 2,700 cases), followed by a one-page list of Abbreviations for legal authorities cited.

–Pages 3-19: Editor’s Note and Introductory, providing historical context for the 1898 Act.

–Pages 20 through 414:  A section-by-section discussion of the Act, with commentary and case annotations for each section.

–Pages 415-484: Rules of bankruptcy procedure and official bankruptcy forms adopted by the United States Supreme Court on November 28, 1898.

–Pages 485-506: Bankruptcy Act of 1800 and its 1803 repeal Act – full text of both.

–Pages 506-516: Bankruptcy Act of 1841 and its 1843 repeal Act – full text of both.

–Pages 517-872: Bankruptcy Act of 1867, its subsequent amendments, and its 1878 repeal Act – full text of all.

–Pages 873-610: The National Bankruptcy Act of 1898 – full text, without commentary or annotation.

–Pages 611-651: General Index.


Everyone reading this article should click on the link above and do a quick perusal of the treatise.  It will be well-worth the time spent.




Seven Reasons Why Mediation Mandates in Federal Statues Apply to Bankruptcy Courts

The whole includes its parts

By: Donald L. Swanson

Each United States district court shall,” by local rule:

–“authorize . . . the use of alternative dispute resolution processes in all civil actions, including adversary proceedings in bankruptcy”;

–“devise and implement its own alternative dispute resolution program “;

–“encourage and promote the use of alternative dispute resolution in its district”;

–“require that litigants in all civil cases consider the use of an alternative dispute resolution process at an appropriate stage in the litigation”;

–“provide litigants in all civil cases with at least one alternative dispute resolution process, including, but not limited to, mediation.”

–“provide for the confidentiality of the alternative dispute resolution processes” and “prohibit disclosure of confidential dispute resolution communications.”

–Alternative Dispute Resolution Act of 1998, 28 U.S.C. §§ 651(a) & 652(a)&(d) (the “1998 ADR Act”). 

Here are Seven Reasons Why These Statutory Requirements Apply to Bankruptcy Courts

 1.  1984 Statutes — The whole includes its parts.

“In each judicial district, the bankruptcy judges in regular active service shall constitute a unit of the district court to be known as the bankruptcy court for that district.”

“Each bankruptcy judge, as a judicial officer of the district court, may exercise the authority conferred under this chapter.”

28 U.S.C. § 151.

“Bankruptcy judges shall serve as judicial officers of the United States district court established under Article III of the Constitution.”

28 U.S.C.§ 152.

These two statutes, when adopted in 1984, (i) “reconstituted” the bankruptcy courts “as a unit of the district courts,” and (ii) “created the bankruptcy court structure and jurisdictional scheme in force today.”  See Collier on Bankruptcy, 1.02[2] (1998).

It is difficult to imagine that Congress intended in the 1998 ADR Act  (14 years after enacting 28 U.S.C. §§ 151 & 152) to exclude the bankruptcy court “units” from its mediation directives to “district courts.”  If Congress intended such an exclusion, it would have expressly so-provided.

 2.  Responsibility for adopting local bankruptcy rules belongs to the district courts

Under Fed.R.Bankr.P. 9029(a), district courts hold local rule-making responsibility and authority for the bankruptcy courts:

“(a) Local Bankruptcy Rules.

(1) Each district court . . . may make and amend rules governing practice and procedure . . . within the district court’s bankruptcy jurisdiction.

Rule 9029(a)(1) allows for delegation by district courts of such rule-making power to the bankruptcy courts:

–“A district court may authorize the bankruptcy judges of the district . . . to make and amend rules of practice and procedure.”

But it is still the district courts who hold such power.

 3.  Some district courts include bankruptcy in their local mediation rules

Some U.S. district courts have determined that the 1998 ADR Act applies to their bankruptcy court units and to their judicial officers in bankruptcy.   The U.S. District Court’s Mediation Plan in Nebraska, for example, contains this operative provision:

–“Any district, bankruptcy, or magistrate judge may by order refer a case to mediation.”

 4.  Court opinions include bankruptcy courts, automatically, in statutory references to district courts 

Multiple court opinions are consistent with the idea that a statutory reference to “district court” includes, automatically, the district court’s bankruptcy unit.  For example:

In Browning v. Levy, 283 F.3d 761, 779 (6th Cir.2002), the Sixth Circuit explains:

“[T]he exclusive jurisdiction of the district courts over certain ERISA claims does not preclude such claims from being brought in bankruptcy proceedings, because the ‘bankruptcy court is not a free standing court,’ but rather a ‘unit’ of the district court.”

In In re Gianakas, 56 B.R. 747 (N.D.Ill. 1985), the District Court determines:

28 U.S.C. § 1452(a) allows “in plain language” a “removal to ‘the district court’”; and

–removal “‘to the district court’ implies the corollary, ‘including the bankruptcy “unit” of the district court, as defined in 28 U.S.C. §§ 151 and 157(a).’”

 5.  Bankruptcy cases are explicitly referenced in the 1998 ADR Act

The 1998 ADR Act explicitly references “adversary proceedings in bankruptcy” as one type of “all civil actions” that is included in its mediation directives.

 6.  Mediation authority is granted to bankruptcy courts by the 1998 ADR Act — bankruptcy courts don’t need the general authority of § 105

If the Alternative Dispute Resolution Act of 1998 applies exclusively to district courts, and not to their bankruptcy court “units” or to their bankruptcy “judicial officers,” where does a bankruptcy court get its power to authorize mediation or to require mediation confidentiality by local rule?

Surely, the general authority of 11 U.S.C. § 105 would authorize mediation.  But why rely on the generality of § 105 when the specific grant of authority already exists under the 1998 ADR Act?.

  7.  The 1998 ADR Act requires adoption of local mediation rules under 28 U.S.C. § 2071(a), which is the statute authorizing the amendment of local bankruptcy rules.

The 1998 ADR Act specifies in 28 U.S.C. § 651(b) that “district court” rules are to be amended under the authority of 28 U.S.C. § 2071(a):

“Each United States district court shall authorize, by local rule adopted under section 2071(a), the use of alternative dispute resolution processes in all civil action.”

This section 2071(a) is precisely the authority under which local bankruptcy rules are amended — even though § 2071(a) refers exclusively to “district courts” and makes no mention of bankruptcy courts.

In fact, when local bankruptcy rules are amended, the amending document commonly references the following laws as authority for the amendment:

–28 U.S.C. § 2071;

–Fed.R.Bank.P. 9029; and

–Fed.R.Civ.P. 83, which is incorporated by reference into Fed.R.Bankr.P. 9029.


It seems clear that mediation mandates in the 1998 ADR Act apply to both the district courts and their bankruptcy court units.



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

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.


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


U.S. Circuit Courts of Appeals: Above-and-Beyond Examples of How a Federal Mediation Rule Works (Part 2)

Above and Beyond

By: Donald L. Swanson

How can this be?!

Federal rules of procedure contain mediation provisions for every bankruptcy-related court, except for the bankruptcy courts themselves.

Why this discrimination against bankruptcy courts??!!

[By bankruptcy-related courts, I’m referring to:

–the bankruptcy courts themselves;

–the U.S. district courts, in both their trial and bankruptcy-appeal capacities;

–the bankruptcy appellate panels; and

–the U.S. courts of appeals.]

Federal Rule of Appellate Procedure 33

The U.S. circuit courts of appeals are governed by Federal Rules of Appellate Procedure.  Fed.R.App.P. 33 provides, in part, as follows (emphasis added):

The court may direct the attorneys—and, when appropriate, the parties—to participate in one or more conferences to address any matter that may aid in disposing of the proceedings, including simplifying the issues and discussing settlement. . . . Before a settlement conference, the attorneys must consult with their clients and obtain as much authority as feasible to settle the case.

Local Rules

In response to this Rule 33, the circuit courts have each adopted a local Rule 33 on settlement discussions and conferences (i.e., mediation).

Mandatory Mediation

Surprisingly [to me, at least], a large majority of the U.S. courts of appeals have gone above-and-beyond by adopting local rules for mandatory mediation!

The Sixth Circuit Court of Appeals, for example, has its own local mediation rules and processes for mandatory mediation.  A blog article describes the Sixth Circuit’s mandatory mediation program like this:

–“The four mediation attorneys in the Sixth Circuit (and their staff) select about 1000 appeals each year for mediation.”

–“Cases are usually chosen at random”:

“[T]he mediators moved to random selection when they found that cases that appeared to be amenable to mediation were not actually more likely to settle than any other case.”

–“The Sixth Circuit’s mediation program has an impressive success rate”:

–“[T]he program settles about 40% of appeals that participate in mediation.”

–“In 2011, the . . . 400 cases resolved by the circuit mediators . . . represent about a third of all of the civil cases resolved on the merits.”

Overall Success

An article examining mediation programs operating in the U.S. courts of appeals, under Fed.R.App.P. 33, reaches this conclusion (emphasis added):

“The mediation programs established in the vast majority of the circuit courts of appeals work well to reduce the caseload burdens on their respective courts and to resolve litigants’ cases.”

–“This appears to be due in large measure to the mandatory aspects of those programs.”


So . . . why should all the courts in the bankruptcy-related system have a Federal rule on mediation, except for the bankruptcy courts?  This is wrong!!


  1. The Federal Rules of Civil Procedure provide for mediation in U.S. district court trial proceedings, as noted in this article [the first article of this three-part series].
  2. The third article in this three-part series will focus on how the U.S. district courts (in their appellate capacity) and the bankruptcy appellate panels operate under federal rules of procedure on mediation; as do other courts and agencies throughout the entire Federal system.