Mediation in China — Thousands of Years of Mediation History

By: Donald L. Swanson

There is nothing new under the sun.”

–Ecclesiastes 1:9

My first-hand knowledge of China is limited: I’ve traveled to Beijing a couple times, spent time (both there and here) with Chinese citizens, practiced law with a Chinese national, etc.

But here is something I’ve never understood:

–How are personal and business disputes handled in China?

China does not follow a “rule of law.”  And, therefore, they don’t have a bunch of lawyers or lots of lawsuits.  So . . . how do they handle business and personal disputes?  It’s always been a mystery to me.

Here’s an article with historical insights on the subject – written a half-century ago:

–S. Lubman, “Mao and Mediation: Politics and Dispute Resolution in Communist China,” 55 Cal. L. Rev. 1284 (Nov. 1967).

As it turns out, mediation has been the primary dispute resolution tool in China for a very long time.  This Mao and Mediation article provides the following information and explanations.

MEDIATION IN CONFUCIAN CHINA

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The China of Confucius (photo by Marilyn Swanson)

Confucianism idealizes “harmony” throughout heaven and earth, beginning with the emperor and extending downward to the lowest level of society.  The aim of all human relations is to preserve natural harmony.

Therefore, “mediation had been the primary mode of dispute settlement for thousands of years in traditional China”: 

“Confucianism, the dominant political philosophy in pre-Communist China, stressed the virtues of compromise, yielding, and nonlitigiousness. [The state], its governing institutions, and its traditional social nuclei . . . combined to create pressures and institutions for extrajudicial mediation.”

Here is an explanation of how mediation worked in traditional China:

“Often, mediators had to shuttle between the parties, talking separately with them and with other persons having knowledge of the matter in an effort to reach a mutually satisfactory compromise.”

“One observer described the process thus:

First, the invited or self-appointed village leaders come to the involved parties to find out the real issues at stake, and also to collect opinions from other villagers concerning the background of the matter.  Then they evaluate the case according to their past experience and propose a solution. In bringing the two parties to accept the proposal, the peacemakers have to go back and forth until the opponents are willing to meet halfway. Then a formal party is held either in the village or in the market town, to which are invited the mediators, the village leaders, clan heads, and the heads of the two disputing families.”

“Procedures akin to arbitration and adjudication were sometimes used if informal mediation had failed. Settlement of a dispute  . . . might involve a formal hearing . . . before a group of clan leaders and, perhaps, other respected members assembled for the occasion. . . .  parties and witnesses would give testimony, and then a decision would be reached [with the idea that] leaders should try to bring the parties to compromise without imposing a decision on them.”

MEDIATION UNDER MAO

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Mao’s China (photo by Marilyn Swanson)

The author of the Mao and Mediation article contrasts traditional mediation in China with mediation under Mao:

“[T]he Communists have sought to replace older values with their own, urging struggle where the Confucians counseled compromise . . . [and] weakening or totally abolishing family, clan, village, and guild, which were . . . the forums in which most disputes were resolved.”

“The Communists, while continuing to use mediation, have substantially altered the traditional mode of mediating disputes. They have redefined the identity and role of mediators and have partially succeeded in transforming the process and functions of mediation.”

“In short, the Communists have incorporated mediation into their effort to reorder Chinese society and mobilize mass support to implement Party policies.”

Here is a concrete example of how mediation worked (or was intended to work) in China under Mao:

“Model Mediation Committee Member Aunty Wu … If mediation isn’t successful once, then it is carried out a second, and a third time, with the aim of continuing right up until the question is decided. Once, while Aunty Wu was walking along the street, she heard a child being beaten and scolded in a house. She went immediately to the neighboring houses of the masses, inquired, and learned that it was Li Kuang-i’s wife, Li P’ing, scolding and beating the child of Li’s former wife. She also learned that Li P’ing often mistreated the child this way. After she understood, she went to Li’s house to carry out education and urge them to stop. At the time, Li P’ing mouthed full assent, but afterward she still didn’t reform. With the help of the masses, Aunty Wu went repeatedly to the house to educate and advise, and carry out criticism of the woman’s treatment of the child. Finally, they caused Li P’ing to repent and thoroughly correct her error, and now she treats the child well. Everyone says Aunty Wu is certainly good at handling these matters, but she says, ‘If I didn’t depend on everyone, nothing could be solved.’”

The cited source of this story is “Kuang-ming Daily (Peking), Oct. 14, 1955.”

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Today’s China (photo by Marilyn Swanson)

CONCLUSION

This is fascinating stuff.  Here in the West, we refer to mediation as a “young profession”; whereas, in the East, it’s been around for millennia.  Perhaps we can learn something from them!

And I’d love to know how all this works in today’s China.  Can anyone help us out on this?

People in Conflict Avoid Spending Time Together: A Bad Idea in Mediation?

“Nothing will lower your credibility faster than avoiding conflict.”

–Morris Shechtman, 2003

By Donald L. Swanson

Conflict is difficult.  And conflict is uncomfortable.  So, the easiest and most comfortable way to handle conflict . . . is to avoid it.

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Caucus Room No. 3

That’s why caucus-only mediation has become standard practice in many mediations of business disputes.

In a caucus mediation, the disputing parties sit in separate rooms, and the mediator shuttles back and forth between them conveying negotiating messages.  In a caucus model, the disputing parties rarely talk to each other, rarely have to be in the same room together — heck, they don’t even have to see each other!

Some caucus mediation sessions begin with everyone in a single room, where the mediator explains what will happen and why the parties should get their disputes settled.  But this joint session appears to be trending out-of-fashion in business mediations—because the parties want to avoid spending time together.

In such beginning joint sessions, a representative of each party can give an opening statement.  But such opening statements have been out-of-favor for quite some time—because it’s uncomfortable.

Obviously, caucus-only mediation puts a heavy burden on the mediator to listen carefully and communicate faithfully between the disputing parties.

But there are, apparently, negative consequences from avoiding conflict via caucus-only mediation.

A Mediation Study

A 2016 report on a mediation study is published, in January of 2016, on the effectiveness of various mediation strategies.

Here are some of the findings and a recommendation from the study on the caucus mediation model.

Short-term effects

According to this study, the greater the percentage of time participants spend in caucus, the more likely the participants are to report that:

–the mediator “controlled the outcome”

–the mediator “pressured them into solutions”

–the mediator “prevented issues from coming out”

–they are dissatisfied “with the process and outcome”

–they do not believe “the issues were resolved” with a “fair” outcome

–they do not believe “the issues were resolved” with an “implemenable”               outcome

–they have a “sense of powerlessness”

–they have a belief that “conflict is negative”

–they have a residual desire to “better understand the other participant”

Long-term effects

According to this study, the greater the percentage of time participants spend in caucus, the more likely the participants are to report:

–a decrease in “consideration of the other person”

–a decrease in “one’s ability to talk and make a difference”

–a decrease in the sense that “the court cares about resolving conflict”

–an increase in “the likelihood of returning to court . . . for an enforcement action.”

Study Recommendation

Accordingly, the recommendations of the study include this:

to “discourage strategies that are heavily focused on caucus.”

Consistent With Experience

This recommendation seems to be well-taken, based on my experience.

As I look back over decades of mediation practice, on all sides of the table, items of regret from mediation often center on caucus-only situations.  Examples of such regret include these:

–a personal injury plaintiff wants to tell his story directly to the other side, but doesn’t get the chance.

–a fact dispute might be resolved in a face-to-face discussion of fact issues between the parties in a joint session, but the joint session doesn’t happen

–a credibility issue might be resolved in face-to-face discussions, but that possibility doesn’t get a chance.

What do you think?

 

 

How Mediation at the End of a Case is Wasteful

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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.

Wasteful

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.

Conclusion

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!

🎶 “This is the dawning of the Age of Aquarius [for Bankruptcy Mediation]”🎶 — A New Jersey Example

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A Dawning

By Donald L. Swanson

🎶Harmony and understanding,  Sympathy and trust abounding, . . . Aquarious🎶

                —The Fifth Dimension

The year is 1968.  The musical “Hair” debuts on Broadway, with the self-assurance of those who have thrown off the norms of prior generations.  Aquarius is now here, we are assured.

I’m not sure what happened.  Perhaps Jupiter didn’t align quite-right with Mars.   Or maybe the moon couldn’t figure out where the “seventh house” might be.  

Whatever the explanation, the peace-love idealism of 1968 is confronted by five decades of reality.  The Age of Aquarius still seems far away.   

The Dawning of Mediation

But if, back in 1968, the “dawning” song had been talking about mediation, it would have been accurate–both as to, (1) creating harmony and sympathy, and (2) the beginning of extensive use. 

–As the 1970s and 1980s progress, mediation is beginning to be a common tool for resolving civil lawsuits. 

–Since then, mediation has become a primary means of resolving suits in a most courts.

Bankruptcy Mediation Catching Up

Bankruptcy is an exception to the history of mediation progression.  For the final two decades of the last century / millennium, bankruptcy courts had little use for mediation.

–But, since then, that has been changing.

–Mediation of bankruptcy disputes is starting to catch up with mediation in other civil courts.

A New Jersey Example

An example of this catch-up is in the New Jersey Bankruptcy Court.

For many years, non-bankruptcy courts in New Jersey have had “presumptive mediation” rules.  Here’s what that means: 

–rules of procedure require that mediation occur before a case is tried, unless an exception applies. 

–It’s presumed that mediation will occur in every case.

New Jersey attorneys, in courts other than bankruptcy, are accustomed to presumptive mediation rules, and they plan their case strategies around the mediation requirement.

So, in 2014, the New Jersey Bankruptcy Court decides to catch up with other courts and adopts “presumptive mediation” rules for adversary proceedings.       

 Here is the operative rule language:

“Every adversary proceeding will be referred to mediation,” unless an exception applies.

Specified exceptions are for cases involving pro se litigants, requesting a TRO or preliminary injunction, being initiated by the US Trustee, or involving requests to be excused.

In July of 2016, a New Jersey bankruptcy attorney / former bankruptcy judge (Raymond Lyons) reports that the New Jersey bankruptcy bar “has accepted” presumptive mediation, “after some initial grumbling,” and that “both the bench and bar are happy with” presumptive mediation.

What we see in New Jersey is an example of bankruptcy courts catching up, on use of mediation, with other courts that have, for many years, been using mediation as a primary case-resolution tool.

Conclusion

The Age of Mediation Aquarius has been around for decades in many non-bankruptcy courts.  The Age of Aquarius for bankruptcy mediation is dawning, as well.

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

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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?

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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!

 

Mediation in the Early Stages of a Case: ABI’s “Bankruptcy Mediation” Book

Bankruptcy Mediation-FINAL-SM

By: Donald L. Swanson

The “early parts” of a case under the reorganization chapters of the Bankruptcy Code (chapters 9, 11, 12 and 13) involve many difficult battles.

Early battles are over such issues as relief from stay, cash collateral and DIP financing. The burden of litigation in such matters “can be tremendous,” and such litigation “rarely has any winners.”

–So says Scott K. Brown, Partner at Lewis Roca Rothgerber Christie, in a chapter of  “Bankruptcy Mediation” a book recently published by the American Bankruptcy Institute.Scott K. Brown

The appointment of a mediator for the early issues can have great value. Such early-stage value includes the following, according to Brown:

–“A mediator can help the parties set the stage for (and resolve) future issues regarding plan confirmation.”

–“Having a neutral party guide the reorganization or liquidation efforts of a case from the beginning to the end”:

–“achieves the objective of saving clients significant money,”
–“gives continuity to the process,” and
–“lessens the burden of turning to a mediator on the eve of a confirmation hearing, for example, when it may be too late or too unbearable for the parties to reach middle ground.”

–“A mediator is uniquely positioned to resolve disputes with multiple creditors:

–“These [multi-party] issues are often complex and can sap the limited resources of a debtor (and a court) early in a case.”
–“A mediator can act as the hub that holds the many spokes of the various creditors’ interests together in an effort to temper the ‘burn rate’ that vexes the early stages of many bankruptcy cases.”

 Brown’s elaboration on such matters in the  “Bankruptcy Mediation” book is a must-read.

The book can be ordered here.

 

A Surprisingly Successful Pre-Lawsuit Mediation

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Nebraska Pastureland

By Donald L. Swanson

Nebraska statutes contain a Farm Mediation Act (Neb. Rev. Stat. § 2-4801 et seq).

This Act requires a creditor to send notice of a mediation opportunity before attempting to collect a defaulted farm loan.  The statute says:

“At least thirty days prior to the initiation of a proceeding on an agricultural debt in excess of forty thousand dollars, a creditor . . . shall provide written notice directly to the borrower of the availability of mediation.”

What happens after the notice is entirely voluntary.

A Surprising Development

In my early career, I view this mediation notice requirement as a mere formality: a compliance detail creditors must satisfy before suing on a delinquent farm debt.  I do not, back then, see mediation as a viable, problem-solving tool.

But my view on this changes – all in a single day.  The change happens like this.

I am retained (back in 1987 or so) by a rural bank to, (i) file a lawsuit against a farmer to collect a delinquent farm loan, and (ii) then represent the bank in the bankruptcy proceeding that will undoubtedly be filed in response.

I send the mediation notice, as required by the above-quoted statute.  The farmer responds and wants to mediate.  A mediation session is scheduled.

In discussing the upcoming mediation with my client, I express doubts about the effectiveness of mediation.  And I opine that the mediation session will be a mere formality, with an exceedingly-low probability of achieving any resolution.

So, we agree that a bank officer will attend the mediation session with the bank’s home-town attorney – and that I won’t make the several-hour trip to attend.

Late in the afternoon of the mediation session day, I receive a telephone call from the bank officer (the call comes as a surprise because I did not calendar — and forgot about — the mediation session).

His first words are: “We settled the case!”

I remember being amazed . . . and baffled . . . and more-than-a-little embarrassed.  I say, in response, “That’s great!”  But what I’m really thinking is: “Oops!”  and “How did I miss this so badly?”

Conclusion

From that moment on, I’ve been a believer in mediation and its possibilities – even when prospects for settlement appear to be almost nil.  And this belief has proven, on multiple subsequent occasions, to be well-founded.

 

 

Pre-Lawsuit Mediation is Highly Effective Under Farm Mediation Laws

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Nebraska Farmland

By Donald L. Swanson

Who would guess that pre-lawsuit mediation would work well in resolving credit disputes between creditors and farmers in stressed financial circumstances?  But this is  precisely what has happened in farm states under farm mediation statutes.

Mandatory v. Voluntary Pre-Lawsuit Mediation Statutes

Many farm states have established mediation prerequisites for a creditor to file a lawsuit on a defaulted farm obligation.  Some state statutes require a notice of mediation, but mediation developments thereafter are entirely voluntary.  Other state statutes require much more.

Mandatory Mediation Statutes

Iowa Code § 654A.7(1) provides:

“A creditor . . . desiring to initiate a proceeding to enforce a debt against agricultural property . . . shall file a request for mediation with the farm mediation service.  The creditor shall not begin the proceeding . . . until the creditor receives a mediation release. . . [Such requirements] are jurisdictional prerequisites to a creditor filing a civil action.

Minn. Stat. § 583.26 provides:

“A creditor desiring to start a proceeding to enforce a debt against [a farmer] . . . must serve an applicable mediation notice . . . on the debtor . . .  The creditor may not begin the proceeding until [certain mediation requirements are satisfied].”

Voluntary Statutes

Farm mediation statutes in other states merely require that a creditor provide notice of mediation possibilities to the farm debtor before pursuing collection of a farm debt.

Effectiveness of Farm Mediation

A Tulsa Law Review article from 1993 provides an assessment of the effectiveness of such farm mediation requirements during the 1980s Farm Crisis.  The article refers to a “report prepared by Leonard Riskin for the Administrative Conference of the United States” that evaluates the effectiveness of farm mediation requirements in eight states.  The article says this (at 175-76, emphasis added):

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Nebraska Farmland

“The Riskin report includes data detailing the number of mediations in eight states. . . . [The study] solicits information on the number of requests for mediation, the number of cases, and the disposition of cases. While all eight states had an agreement rate of higher than 50%, the percentages range from a low of 55.5% in Minnesota to a high of 93% in Montana. One assumes that the differences in agreement rates are due, in part, to whether a state has a mandatory or voluntary mediation program, and to the disparities in the number of cases each state processes.”

It should be noted that U.S. Census data show that Minnesota and Iowa are high-population states with many farms (Iowa has 3.1 million people and 2.1 million farms; Minnesota has 5.5 million people and 74,500 farms), while Montana is a low-population state with fewer farms (1.0 million people and 27,800 farms).

A 2015 Fiscal Year report of mediation effectiveness of Minnesota’s Farmer-Lender Mediation program shows significant improvement from the 1980s experience.  in 2015:

–2,472 mediation notices were sent by creditors

–1097 farm debtors requested mediation, of which 917 completed mediation

–The total amount of debt reported and addressed in the mediation sessions is “approximately $180.6M”

97% of farm debtors who completed mediation reached a settlement with the creditor

Conclusions 

  1. Pre-lawsuit mediation can be highly effective.  A mediation agreement rate between 55.5% and 97% is pretty-darn-good!
  2. Again, let’s emphasize that we are talking here about pre-lawsuit mediations.  These aren’t cases where everyone has been fighting in court for a long time, is weary of the fight and is, therefore, highly motivated to get disputes settled.  These are before-the-legal-fight-begins mediations.
  3. Whether pre-lawsuit mediation statutes provide for voluntary mediation or mandate mediation, settlement rates are strong.

 

 

 

How a Contrarian Gets its “Motion to Compel Mediation” Denied

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A Contrarian

By Donald L. Swanson

“for the reasons set forth on the record at the Hearing, the [Motion to Compel Mediation] is DENIED without prejudice.”

U.S. Bankruptcy Judge, Delaware, July 20, 2016

Energy Future Holdings Corp. files Chapter 11 bankruptcy in 2014.  Along the way, it engages in a mediation process that resolves nearly all objections to confirmation of its plan of reorganization.

As the plan confirmation hearing approaches, only a few hold-out creditors remain.

The name of one hold-out creditor is “Contrarian Capital Management, LLC.”

–You can’t make this stuff up.

Mediation Motion

Contrarian files its “Motion to Compel Mediation of Disputes.”  It wants to mediate the issues raised in its objection to confirmation.

Contrarian should get an easy-win on its mediation Motion, right?

–Not hardly.

The Debtor and a Committee object to Contrarian’s mediation Motion.  They say Contrarian’s plan objections are “meritless” and will be rejected at trial.  They also say the mediation Motion is nothing more than an attempt to “derail” and “stall” the plan confirmation process.

The Bankruptcy Court hears the mediation Motion and accepts the “meritless” and “derail” and “stall” arguments.  So, the Bankruptcy Court denies Contrarian’s mediation Motion (the quotation above is the denial order).

Hard-Knocks Rules

In this situation, the following two hard-knocks rules (i.e., rules learned the hard way) seem to be operative:

1.  When a party’s odds of prevailing at trial are viewed by the opposition as 0%, mediation is a waste of time.

–This rule appears to explain part of the Court’s rationale for denying the mediation Motion.

2.  When a party recognizes that its own odds of prevailing at trial are slim-to-none, it’s time to exit the battle as graciously and painlessly as possible (even though the pain of exit will, sometimes, be intense).

–It appears that Contrarian’s mediation Motion may be such an exit attempt, but the attempt isn’t working very well.