Tag Archive: Discovery


You should

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).

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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:
        1. Generally, the date of the transfer is the standard for determination of whether the subject payment constitutes a preference.
        2. 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.

As of Monday, October 15, 2012, it was reported that the mediation in the Archdiocese of Milwaukee Chapter 11 has failed.  Apparently, the estimated 570 victims and archdiocese were unable to reach a settlement.  The parties, however, have not provided any additional details regarding the reasons for the impasse.  As a result, the parties continue to pursue several pieces of litigation related to: (1) reduction of the number of eligible claims, (2) increasing the assets available to pay creditors, (3) the recovery of funds related to a certain cemetery trust created by the archdiocese in 2007, and (4) procedural claims–some of which are on appeal–regarding alleged venue shopping and to make public various discovery, which is currently subject to a protective order.

Reading the new reports, it strikes me as ironic that this attempt at resolution and restoring peace among the parties, failed in a bankruptcy where the principal party involved is one that is frequently called as a mediator, or neutral.

What are your thoughts on why and how this attempted settlement and mediation failed?

Sources:

Annysa Johnson, Milwaukee Archdiocese victims fail to reach bankruptcy settlement, Journal Sentinel, http://www.jsonline.com/features/religion/milwaukee-archdiocese-victims-fail-to-reach-bankruptcy-settlement-ii77put-174278861.html (Oct. 15, 2012).

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Now that you know that bankruptcy and mediation can and do coexist, you may be wondering what benefits bankruptcy mediation yields.  Although not limited to just the following, I have identified six of the top benefits of bankruptcy mediation:

  1. Confidentiality Protected– “A firewall to protect confidentiality can be raised by the specific terms of a court order or by mediation rules under which it is agreed that the procedure is conducted.  If confidentiality is so protected, then the particular terms of the order, or specifics in the rules, govern the degree to which communications are privileged and not discoverable.”
  2. Cost Reduction– Reduces discovery, transactional and litigation costs.
  3. Efficiency– Bankruptcy cases are typically on a faster track than proceedings in other courts due to the necessity of streamlined estate administration to move the debtors closer to plan confirmation and/or discharge.  The use of mediation or other forms of alternative dispute resolution in adversary proceedings or contested matters may shorten the amount of time the bankruptcy estate is open.
  4. Judicial Econony– Mediation can reduce the number of pending matters in any given bankruptcy proceeding.  For example, in bankruptcy proceedings with multiple preference actions, a mediator can work with the court to approve the implementation of procedures allowing for mediation of pending preference actions on a rolling basis to resolve the more complex issues that the parties could not settle through negotiations by cousel.  Mediation has been used in bankruptcy cases involving anywhere from 250 to 1,500 preference actions.  Additionally, “[m]ediation in large bankruptcy cases may resolve disputes which otherwise would block confirmation (e.g., disputes resolving claims or plan negotiations). . . . Mediation can be employed in Chapter 11 plans where parties are at an impasse.”
  5. Settlement– Mediation allows parties to “retain control over the method of dispute resolution and the outcome.”   Because mediation is voluntary, the affected parties decide how their disagreement will be settled.
  6. Utility– For example, significant portions of discovery, or at a minimum, key documents will generally be exchanged in advance of the mediation.  Through mediation, the parties can determine what documents will provide information necessary to make informed decisions regarding settlement.  Mediators can also assist with the resolution of discovery disputes, guide the parties toward stipulations of fact, or point to additional documents for production prior to a trial or hearings on contested matters.

What are your top three benefits of using mediation in bankruptcy proceedings?

Sources:

Quotations from Thomas H. Oehmke, J.D. and Joan M. Brovins, J.D., Arbitration and Mediation of Bankruptcy Disputes, 105 Am. Jur. Trials 125 (2007).

Interview with Lester J. Levy, Esq., ABI Journal, Vol. XXII, No. 3 (April 2003).

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