Mediation Plays Increasing Role in Bankruptcy Cases

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April 19 — Mediation plays an increasing role in both consumer and business bankruptcy cases, and it is important that parties are prepared for mediation, according to panelists speaking April 15 at the American Bankruptcy Institute's Annual Spring Meeting in Washington, D.C.

Virtually “any type of dispute can be mediated,” Eric D. Madden of Reid Collins & Tsai LLP, Dallas, said. Some examples include avoidance actions, including preference actions, disputes regarding claims, disputes over assets, valuation disputes, priority of liens, confirmation issues, and post-confirmation litigation, he said.

The list is “endless,” according to Madden, and depends on the party and the case. He also noted that even pre-lawsuit cases can be worth mediating to avoid costs.

C. Edward Dobbs of Parker, Hudson, Rainer & Dobbs LLP, Atlanta, cautioned against mediating too early, however. Starting too early can inhibit the discovery process, he said.

Government Agency Involvement

“If a party wants to establish a precedent, the case is unlikely to settle,” according to Dobbs. This is an issue when a government regulator is involved, he said.

“Whenever a government agency is involved in the mediation, it changes things,” Judge Gregg W. Zive of the U.S. Bankruptcy Court for the District of Nevada said. Political factors typically take precedent, according to Zive. “Government agencies have different agendas than private parties,” he said.

According to Zive, it is critical to have people with the right expertise at the mediation. “Make sure whoever is needed or who has the authority to settle the case is there at the mediation” in case an agreement is reached, he said.

Preparation

Zive said he frequently finds that counsel and the client aren't adequately prepared for mediation. “You have to have a plan on how to achieve a goal,” he said.

Counsel should be prepared to give a short presentation at the mediation, Zive said. “Practice and rehearse it,” he said.

Zive also finds it helpful if the client has a pre-mediation session with their own lawyer to talk about what might come up at the mediation.

“We are all biased,” Dobbs said. However, he encouraged counsel to engage in a “debiasing process” before entering a mediation session.

‘Only Winning Move Is Not to Play.'

“There are exceptional litigators who aren't good mediators,” Dobbs said. He finds it helpful to “consult with someone who isn't so involved with the case to gain another perspective” before entering mediation.

When parties are having a pre-mediation call or meeting, the mediator should “stand down” and let the parties talk if they are getting along and having a “dialogue,” Dobbs said. “Let them solve their own problem by standing down,” he said, comparing the situation to a scene from the 1983 movie “WarGames” where after analyzing all of the possible moves, the computer declares that the “only winning move is not to play” so that both parties aren't annhilated in a nuclear war.

In pre-mediation settlement conferences, Zive said that he likes to have settlement conference statements from the parties beforehand. He also reminds the parties before the mediation that he's not there as a judge to resolve the issue. “I'm not sitting there as a judicial officer,” he said.

Zive said he also wants to know what the parties perceive as their weaknesses in the case.

Knowing about the interpersonal dynamics of the situation and who has “bad blood between parties” is important to know, Dobbs said.

Do Your Research

“It's also important to know who is the ‘litigation funding source' and who has veto rights over a settlement,” according to Dobbs.

“The best mediation is where the attorneys are as invested in the process as in the litigation,” Dobbs said. “They are likely to have a good result,” he said.

Make sure you research your mediator, Dobbs said, and “know their temperament, past experience, training, open mindedness, and past experience with references.”

“I use the pebble theory,” Zive said. He gets the parties to agree to the smallest thing then goes to larger things. “Just get the conversation flowing,” Zive said.

Report Unethical Behavior

Lawyers have a duty to report unethical behavior in settlements, such as making false statements, Dobbs said. “Puffing” is okay, but attorneys can't lie or even say “white lies,” he said.

Lawyers have an ethical duty to point out if a glaring paragraph is missing in a settlement, Dobbs said.

“Make sure you look at the local bankruptcy rules,” Dobbs said because some of them prohibit evaluative mediation and there may be a question of whether the local rules trump state rules.

Dobbs recommended the 2002 American Bar Association Litigation Section's “Ethical Guidelines for Settlement Negotiations,” as a great resource on ethical rules.

To contact the reporter on this story: Diane Davis in Washington at ddavis@bna.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bna.com

For More Information

The ABI Mediation Committee's Model Guidelines for Mediation in Bankruptcy Cases are available at: http://src.bna.com/efo and http://src.bna.com/efp