Mediation Banca Rotta discusses issues and current events related to bankruptcy mediation. The word bankruptcy is derived from Italian banca rotta, meaning “broken bench.” Through this blog, I am inviting you to learn more about bankruptcy mediation, whether you are a mediator/neutral, bankruptcy practitioner or member of the public. Mediation Banca Rotta includes the following pages: (1) Roll Call: Recent Cases/Pending Matters; (2) The Neutral: Tips for the Mediator; (3) Advocate’s Corner: Tips for the Practitioner; (4) Speaking Engagements; and (5) Quotable.
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Mediators are often turned to only during the late stages of a case (i.e. the courthouse steps before trial, when the deal is falling apart), or after negotiations have failed. But there is great value in getting a mediator involved in the early stages of litigation and transactional matters. The bankruptcy world is blessed (or burdened!) with both types of matters. Mediators can assist with focused negotiation sessions, case management and overall case or deal pre-planning.
Here are a few more ideas on how a mediator can help your case or deal run smoothly, sooner rather than later:
- Plan for and collection of discovery, due diligence and informal exchange of information
- Negotiation of memorandum of understanding in transactional matters (i.e. M&A, 363 sales, distressed entity deals)
- Identification of other professionals, including experts (i.e. valuation experts, appraisers, crisis communication/PR firms) and neutrals that will be useful to the deal or future litigation
- Discussion of procedural needs
- Drafting boilerplate language for agreements (i.e. asset sale, closing documents, settlement agreements, cash collateral documents)
- Identifying key disputed issues and witnesses, or stakeholders
- Assessing strengths and weakness of a deal and case, or the parties interests and positions regarding same
- Pre-bankruptcy planning
- Resolving plan and disclosure statement disputes
- Resolving feasibility or budgeting disputes
- Management of dissolutions, wind downs and “going-out-of-business sales” (liquidations)
- Negotiations between the debtor-in-possession (DIP) and secured creditors prior to filing and at the inception of a case
- Negotiation of key employee retention plans (KERPs) and other compensation issues
- Identifying (an agreeable) “stalking horse bidder”
- Preparing for an auction process
So, start thinking outside of the box. The returns could be invaluable.
Want more information? Go to, http://www.thelegalfreeagent.com.
Post based on ideas expressed in:
Lande, John, Lawyering with Planned Early Negotiation: How You Can Get Good Results for Clients and Make Money, ABA (2011).
Jefferson County, Alabama has pushed back mediations scheduled with creditors in April until the end of May. On November 9, 2011, Jefferson County, Alabama filed a voluntary petition for relief under Chapter 9 of the United States Bankruptcy Code. The county’s goal, after nearly 18 months in bankruptcy related to $4 billion in debt, is to present an exit strategy to the court by June 1. The county has been working outside of court to resolve outstanding issues with “school warrant, general obligation and sewer creditors.” Such out-of-court negotiations will either need to result in settlement or an agreement to the county’s proposed exit strategy by at least one creditor class. The May mediations are scheduled to be conducted by a federal mediator in Atlanta.
Quotation from: Honora Gathings, “Jeffco bankruptcy mediation delayed,” http://www.wset.com/story/22058140/jeffco-bankruptcy-mediation-delayed, Apr. 23, 2013.
In re Jefferson County, Alabama, Case No. 11-05736 (TBB), U.S. Bankruptcy Court, N.D. Ala., KCC, http://www.kccllc.net/jeffersoncounty.
On March 14, 2013, Michigan Governor Rick Snyder, through the State of Michigan’s Local Emergency Financial Assistance Loan Board, named Kevyn Orr, a partner in Jones Day’s Business Restructuring & Reorganization Practice, to serve as Emergency Financial Manager for the City of Detroit. Orr has since issued a statement indicating that he is resigning from his practice at Jones Day, to avoid conflict of interest issues, given Mayor Dave Bing’s announcement earlier this week that “Jones Day [will serve] as the restructuring counsel for the city — if Detroit City Council approves the contract.” Reportedly Orr stated, “And people always ask me why would I do that, because I think this is the type of representation and restructuring that requires the highest degree of ethical conduct and remove any appearance of impropriety or my involvement with my firm’s representation of the city.”
Quotations from Gus Burns, Michigan Live, Kevyn Orr named Detroit EFM three days after former employer wins contract with city; no conflict, Snyder’s office says, http://www.mlive.com/news/detroit/index.ssf/2013/03/detroit_efm_kevyn_orr_quits_la.html (Mar. 15, 2013).
In recent days, it has been reported that the City of Detroit may be next in line for a Chapter 9. The city’s top options are for Michigan Governor Rick R. Snyder to appoint a financial manager, file bankruptcy, or submit to neutral evaluation or mediation. Last week, a review team assembled by state Treasurer Andy Dillon said that all signs point to a Motor City financial emergency. As reported by The Huffington Post on Thursday:
With 700,000 residents, Detroit could become the largest city in American history ever to enter Chapter 9 municipal bankruptcy. But Snyder has stated that he’s reluctant to go down that path.
While the governor has several options under Michigan law for dealing with the city’s financial emergency, a major tug-of-war has revolved around Michigan’s emergency manager law, Public Act 4. The so-called PA4 replaced its predecessor Public Law 72 in 2011 under Snyder’s watch. PA4 was repealed by voters in November 2012. More recently, however, “Republican lawmakers . . . passed a new emergency manager law, known as Public Act 436, which goes into effect March 28 . . . . Much like PA4, the new law vests emergency managers with considerable powers over the municipalities they are appointed to run.”
PA436, however, provides for a neutral evaluation or mediation option. Although mediation has not been a top consideration thus far, it is available to leaders as an alternative to the appointment of a financial manager or Chapter 9. Governor Snyder has said he supports giving interested parties, including the local government, bondholders, unions, and pension funds, and the city’s creditors an opportunity to compromise.
The review team noted the severity of the city’s financial crisis:
Detroit’s unfunded pension liabilities and long-term debt total almost $15 billion, and without new budget cuts or an infusion of cash, the city’s short-term debt for the fiscal year ending in June will top $100 million. As soon as this summer, Detroit may not be able to pay city workers, staff fire engine rigs or mow the grass at the city’s under-maintained parks.
These projections apparently only underscore the city’s fiscal situation, as “auditing errors, operational dysfunction and systemic challenges [also] hamper reform.” Additionally, protestors, including mostly African-American activists, have “opposed state intervention . . . call[ing] the [emergency manager] law undemocratic . . . . [joining] hands [in the governor's office building] pray[ing] for local control. “
“Mayor Dave Bing . . . has insisted his administration is capable of solving the city’s financial problems without a state takeover.” The city’s other politicians and citizens, however, have voiced differing opinions regarding the financial manager and bankruptcy options. See
Letters: An emergency manager or bankruptcy for Detroit?, The Detroit Free Press, http://www.freep.com/article/20130301/OPINION04/303010036/Letters-An-emergency-manager-or-bankruptcy-for-Detroit-?odyssey=mod_sectionstories, Mar. 1, 2013.
Quotations from Ashley Woods, Detroit Financial Emergency: Is Mediation An Option For Michigan Gov. Rick Snyder?, The Huffington Post, http://www.huffingtonpost.com/2013/02/28/detroit-financial-emergency-neutral-evaluation_n_2741938.html, Feb. 28, 2013.
The maker of the “Girls Gone Wild” videos, Girls Gone Wild Brands LLC, has filed for Chapter 11 bankruptcy protection in an attempt to restructure its legal affairs and shield assets from creditor reach. “GGW Magazine and GGW Events also filed for protection.”
The Chapter 11 was filed on the heels of high-profile lawsuits. Girls Gone Wild founder, Joe Francis’ most high-profile “L” was to “casino mogul Steve Wynn [in the amount of] $10.3 million, including a $7.5 million slander award last year and a disputed $2 million gambling debt.” Formerly, a St. Louis woman was awarded $5.8 million, in her lawsuit against the company” after claiming someone exposed her breasts in a bar for the Girls Gone Wild Sorority Orgy series.” Other suits have been filed by women asserting that they were exploited in videos; one even asserts being exploited while she was underage. A company attorney has clarified, however, that none of the judgments are against the Girls Gone Wild entities.
Comparing the bankruptcy to those of American Airlines and General Motors, the company attorney has said that the Girls Gone Wild parent company is still strong financially, and plans to go forward with business as usual.
Spring Break, here they come!
Quotations from Michael Winter, ‘Girls Gone Wild’ goes bankrupt to dodge legal awards, USA Today, http://www.usatoday.com/story/news/nation/2013/02/28/girls-gone-wild-bankruptcy/1954419/, Feb. 28, 2013.
Susanna Kim, ‘Girls Gone Wild’ Files for Bankruptcy, ABC News, http://abcnews.go.com/blogs/business/2013/02/joe-francis-girls-gone-wild-bankrupt/, Feb. 28, 2013.
Girls Gone Wild Files for Bankruptcy, The Huffington Post, http://www.huffingtonpost.com/2013/02/28/girls-gone-wild-bankruptcy_n_2782645.html, Feb. 28. 2013.
“Anderson Christian School and the Lindberg Road Church of Christ have asked for mediation in a complicated bankruptcy case stemming from a failed financing plan, where church leaders took out life insurance policies on 11 of their older members.”
Follow this link for the entire story, http://www.wishtv.com/dpp/news/local/north_central/church-school-eye-bankruptcy-mediation.
To follow-up on my October post, “Could the NHL Lockout Benefit from a Mediator?,” as of Monday, November 26th, the parties reported an agreement to mediate. Three neutrals from Federal Mediation and Conciliation Service have been assigned. The sides met separately with the mediators on Wednesday, November 28th.
“Hockey players and management have not negotiated since last Wednesday [November 21, 2012]. The NHL has canceled more than one-third of its regular season, including all games through Dec. 14, the New Year’s Day outdoor Winter Classic and the All-Star weekend scheduled for Jan. 26-27 at Columbus, Ohio.” NHL Lockout 2012: Federal Mediators Set To Join Stalled Labor Talks, The Huffington Post, http://www.huffingtonpost.com/2012/11/26/nhl-lockout-2012-federal-mediators_n_2194463.html#slide=1663482 (Nov. 26, 2012).
Although many may be satisfied with what seems like progress between the parties in agreeing to mediate in the first instance, others note that the mediation may not guarantee a successful end to the lockout.
My guess is just based on past history and the tone of the way things are going right now is that this is probably not going to produce a settlement . . . . This isn’t like a hysterical couple doing divorces or a commercial dispute where one side or the other is just being totally unrealistic. These are two very sophisticated and experienced groups. I just don’t see how much a mediator can bring to the table other than to remind them of what’s at stake periodically. . . . Who knows how many seeds the mediator might plant that could eventually bear fruit . . . . It’s hard to predict. . . . Mediation tends to me a mechanism whereby tempers can be cooled, and people who are operating from unrealistic perspectives can be brought to see what reality is . . . . It sounds like they’re pretty much at an impasse . . . . Both sides have their perspectives and their objectives and neither side can accept a set of proposals that the other side insists is necessary. We really are at sort of a standstill.
“About $182 million apart on core economic issues, there’s further disagreement on matters such as contract length (players want none while owners want to institute a five-year limit) and arbitration rights.”
Can a mediator bring them together? What’s your take?
Part I of this preference action mini-series discussed preference basics, defining what constitutes a preference and outlining claims and defenses. This post sets forth tips for mediating preference actions from the standpoints of the mediator and practitioner.
For The Mediator
- Calculate whether the preference claim was brought within the relevant statute of limitations. In general, the statute of limitations for preference claims is 2 years from the date the bankruptcy was filed.
- Submit proposed mediation procedures to the bankruptcy court for approval, if necessary in your jurisdiction.
- Notice the mediation between 35 and 40 days before the hearing date:
“[T]he mere noticing of a case for hearing can cause parties to settle in advance in order to avoid the time and expense of attending the hearing.” -Interview with Lester J. Levy, Esq., ABI Journal, Vol. XXII, No. 3 (April 2003), http://www.jamsadr.com/faq-on-bankruptcy-mediation-04-01-2003/.
- Hold a pre-mediation conference and encourage the parties to exchange key pieces of discovery.
- Familiarize yourself with the claims and potential defenses available to the plaintiff and defendant, respectfully. Understand options for the settlement of preference claims (See example settlement options in Practitioner section below).
- Understand what transactions constitute a preference. If a transfer constitutes a preference, it is always a preference subject only to the establishment of certain defenses.
- Request that the parties submit claims analyses (if completed), including any ordinary course or new value analyses. This will help you assist the parties in whittling down preference exposure to establish an agreed upon preference amount and move toward settlement.
- Request copies of any stipulations to which the parties have agreed. For example, if the parties have agreed that 5 of 10 transactions are subject to the new value defense, that is significant to the mediation process. You can then help them focus on resolving the dispute surrounding the remaining 5 transactions instead of starting from all 10.
- During the mediation, use caucusing to address the strengths and weaknesses of plaintiff’s preference claims and defendant’s potential defenses.
- During the mediation, address and work through the relationship of the parties from inception through the date of the preference claim, including:
- Payment terms (i.e. was payment expected 30 days or 90 days from each invoice);
- The actual payment history (i.e. the payment terms may have been 30 days from invoicing, but debtor always actually paid 45 days from invoicing); and
- Any changed payment terms (i.e. the creditor implemented prepayment or cash-on-delivery terms, which are additional defenses to preference claims).
- If not already addressed and stipulated by the parties, assist them with establishing a timeline regarding key dates surrounding the subject transfers. Two pertinent standards relevant to timing issues follow:
- Generally, the date of the transfer is the standard for determination of whether the subject payment constitutes a preference.
- When the transfer is made by check, the date the check clears, rather than the date that the check is delivered to the creditor, is considered to be the transfer date. Barnhill v. Johnson, 503 U.S. 393, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992).
For The Practitioner
- Seek agreement on the use of a neutral or mediator early in the litigation process:
Use of a neutral in the early phases (when the claim is first asserted by a trustee or debtor-in-possession) has many advantages. A respected neutral can be an agent of reality. Necessary discovery can be accomplished in an effective, less costly manner. Preparing for the session can cause the parties to focus on the likelihood of prevailing as weighed against the cost of trial sooner than court adjudication would promote. Costs and delay are factored into any mediated settlement. Mediation may bring a quick end to the dispute. Even when used at a later date, mediation may help to avoid the delay and expense of a trial or to minimize the disputed issues to be tried.
MWI, Bankruptcy & Finance FAQs, http://www.mwi.org/bankruptcy-faqs.html#1 (citing to ABI Guide to Bankruptcy Mediation, Second Edition (ABI, 2009), written by Jack Esher, Lisa Fenning and Erwin Katz).
- Understand what transactions constitute a preference. If a transfer constitutes a preference, it is always a preference subject only to the establishment of certain defenses.
- Complete and know your client’s and the opposing party’s defenses and positions. For example, it is important to know whether additional discovery will be necessary. If the exchange of an additional canceled check or wire transfer would help to narrow the disputed amounts or your client’s preference exposure, this could likely positively impact the mediation process.
- Understand your client’s ordinary course and new value analyses, and then analyze the opposing party’s responses. You do not want to be caught off guard with new information presented by the other side during the mediation that your client had not factored into its analysis.
- Request that a default provision be included in any order establishing mediation procedures, which will detail how the parties and bankruptcy court will proceed if a party does not appear for the mediation.
- Attempt to negotiate stipulations with the opposing party, regarding timing issues (i.e. relevant transfer dates), ordinary course of business issues (including standards for industry and relationship between the parties), key transfer dates, amount of new value provided (i.e. contemporaneous exchanges and subsequent new value), and any remaining preference exposure.
- Know whether the parties agreed to any new terms at any point in the payment relationship. For example, if the alleged preferential transfers were made on a prepayment or cash-on-delivery basis that is an additional defense to a preference claim.
- Know your settlement options and authority. The following are options:
- Dismissal with prejudice based on establishment of reduced or no remaining preference exposure;
- Payment of portion of alleged preference at outset (i.e. 30-50% of claim);
- Negotiation for payment of portion of remaining preference exposure after performing ordinary course or new value analysis;
- Offering waiver of prior filed proof of claim or claim for settlement amount for dismissal of preference claim; and
- Including proof of claim for any settlement amount as required settlement term in exchange for higher payment on alleged claim.
Although not exhaustive, I hope these tips are helpful to the mediation of your next preference action. Please share your thoughts or favorite tips for settling preference actions.
Actually, for me, it was a Suzy Q. You see, I had a “friend” that I frequently shared lunch with in elementary school. She bought the school lunch and I packed my lunch (except Thursdays–pizza day!). My parents filled our lunches with healthy, nutritious foods. But, occasionally, we received a treat in our lunches as well. When my mom brought home that Suzy Q, I lost it. Oh, the decadence.
Well, by “lost it,” I don’t mean that I jumped for joy, or sang my mom’s praises. I sat down on the steps leading from our kitchen to our family room and burst into tears. I just couldn’t bare to share my delectable treat. So, I spilled all the beans. Finally, my mom understood why I was so hungry after school. Half of my lunch had been someone else’s midday nourishment. That stopped the very next day. MY Suzy Q gave me the power to take back all of my lunch!
Similar to my tale, the current news on the Hostess Brands, Inc. financial demise, mediation and imminent liquidation has sparked up nostalgia. Across the country (and likely the world), people are remembering their favorite Hostess treats, with several reclaiming them in hoards at local stores last week. Suzy Qs are even being sold on eBay! I haven’t had a Hostess treat in years, but I remember the taste well.
It’s been said that Twinkies have a shelf life of 20 years or more–a common urban legend, I suppose. Our Twinkies survived the days of being tossed in paper sacks or metal lunch boxes with the likes of ET, Care Bears, GI Joe or Barbie gracing the outside. They were kept in our paper lunch sacks or boxes, with a collection of other lunches, in our classrooms or classroom coat rooms. There was no refrigeration for our lunches or cold packs to keep them at the right temperature until the school bells signaled the start of the lunch hour. Indeed, the closest thing we had to a cold pack was a thermos that frequently allowed us to carry warm soup to school for lunch, or better yet, “lukecold” milk.
So, if our Twinkies could survive all of that, I am certain they will survive this.
What was your favorite Hostess treat?
B) Ding Dongs
C) Crumb Cakes
Be sure to follow current events on the Hostess Brands, Inc. bankruptcy under the Roll Call tab.
My definition of bankruptcy mediation is below. What’s yours?