Tag Archive: Mediator


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).

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.

Gary R. Roberts, dean and professor of law at Indiana University, and sports labor law specialist (and also my former Sports Law professor at Tulane), provides this take:

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.

Stephen Whyno, NHL lockout 2012: Reality is, mediation might not solve anything, The Washington Times, http://www.washingtontimes.com/news/2012/nov/27/nhl-lockout-2012-reality-mediation-might-not-solve/#ixzz2Dg1aKVWO  (Nov. 27, 2012).
“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.”
-Whyno (article link above).
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:
        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.

Below is an outline of the basic mediation process and the potential order of events during mediation:
•Beginning the Mediation
• Mediator allows for introductions and sets forth ground rules for the mediation
•Opening Statements by Parties (“Stories”)
•Mediator reviews process of mediation, strengths-weaknesses/cost-benefit analyses for each party
•Caucusing— a useful tool to allow:
• The parties to tell their stories with assumed confidentiality
• The mediator to play the “Devil’s Advocate”
• The mediator to understand party positions and interests
• The mediator to address uneven bargaining positions
•Process/Actual Mediation (“Getting to Yes”)
•Separating the people from the problem
•Focusing on interests, not positions
•Inventing options for mutual gain
•Insisting on using objective criteria
•Resolution/Agreement
•Impasse
•More Caucusing
•Continued Mediation
•Stop Mediation
  1. Be selective.  Choose “an effective, knowledgeable and reliable mediator, otherwise all parties involved will suffer.”  For bankruptcy mediation, specifically, it may be necessary to look for experienced bankruptcy attorneys and judges to serve as mediators.  Selection of a bankruptcy practitioner or judge, however, is dependent on the issue at hand.  For example, it is likely more crucial to seek a mediator with background knowledge of plan confirmation matters if that is the basis of the dispute, as opposed to the mediation of mass tort or personal injury claims.
  2. Explain the mediation process to your client prior to your first session. “Attorneys should explain to clients that they are not required to agree to any terms they are not comfortable with and that mediation involves a lot of give and take for all . . . parties involved.”
  3. Know your case, its strengths and weaknesses and explain same to your client.
  4. Familiarize yourself with the applicable law, procedures and local rules, so you “can comfortably resist any effort by a mediator [or the opposing side] to [suggest or] impose unfavorable terms on your client.”
  5. Know your settlement authority before beginning the mediation.  Better yet, bring a client representative with settlement authority.
  6. Know when and when not to use mediation.  Remember, a mediation “cannot establish legal precedent or deter future parties from bringing similar claims. . . .  Mediation may also draw out a process that may have been quickly adjudicated if before a bankruptcy judge.”  Also, if your client truly is not willing to mediate to attempt a settlement, then the process will be futile.

Source:

Quotations and excerpts from, Kim, Ji Hun and Nicholas M. McGrath, Mediation: Can’t We All Just Get Along?, ABI Journal (Sept. 2011), at 52-53, 61 (citations omitted) (some internal quotation marks omitted).

Consider this scenario:

Critical Vendor  (“Critical”) has been doing business with Great Expectations Theater of International Talent  (“GETIT”) for over 20 years.  Actually, Critical has been in the trenches with GETIT since its opening.  Over the years, Critical has supplied dance shoes (i.e. ballet slippers, tap shoes, jazz shoes), leotards, tutus (similar to the multitude of taffeta and mesh skirts trending now), stage make-up, lighting, props and music (on cassette, CD and MP3 formats).  There was never a time when Critical could not meet GETIT’s supply demands.  For the first 15 years of the business relationship, GETIT timely paid every invoice and used Critical for all theater and production-related needs.  GETIT provided Critical with so much business that GETIT was always Critical’s top customer and frequently its only customer.  The owners of each operation also became close friends and often took family vacations together.  Their children were around the same ages and attended the same schools.

The last five years, however, have not been as copacetic.  You see, with the combination of in-home entertainment, the nearly bottomed-out economy and sundry reality TV options, audiences were no longer flocking to GETIT’s productions.  Sales receipts and annual memberships were down.  GETIT went from nightly shows and matinees on each weekend day to three shows per week.  Then, eventually, one show per week.  During that phase, Critical’s owner donated supplies, heavily discounted bills and offered to invest in GETIT, all to save the company she essentially helped to build for 15-20 years.  Plus, she wanted to help her friend, to whom she attributed much faith and loyalty, and could not bare to see GETIT collapse.  Even in light of her willingness to help, Critical’s owner was still a “savvy” businesswoman and often felt foolish for financially helping a friend’s company.  She knew that could be a significant mistake and could negatively impact Critical.  But she did it anyway, while periodically asking GETIT’s owner if she was contemplating bankruptcy.  GETIT’s owner always shrugged off such inquiries, but offered a trifling bit of reassurance, saying, “If I do decide to file, you’ll be the first to know.”

Turns out, Critical’s owner was not the first to know.  Indeed, she did not learn of GETIT’s Chapter 11 filing until she received a copy of GETIT’s petition and schedules in the mail.  Critical was listed in GETIT’s schedules and a related motion as a critical vendor with a sizable prepetition unsecured claim.  Although the practical benefits of retaining a critical vendor in restructuring and reorganization proceedings is to avoid the disruption of the debtor’s business, Critical wanted out.  Critical’s owner knew that her prepetition unsecured claim could be zeroed out, or at best, receive only pennies on the dollar.  If GETIT’s motion was granted, Critical would have to continue to meet GETIT’s supply demands.

Therein lied the dispute.  Critical heavily objected to GETIT’s motion to approve its proposed critical vendor status, which led to thousands of dollars of motions practice and litigation.  Prideful and equally humiliated, the parties refused to speak during the contentious time, but eventually agreed to mediation.

The bankruptcy court-approved mediator worked diligently with the parties to guide them to a resolution.  Upon the parties’ impasse on several occasions, the mediator continued the mediation and followed up with the parties after the failed sessions, which brought the parties back to the table each time.  Frustrations, anger and even rising prejudices by Critical’s and GETIT’s counsel, stalled each attempted mediation session.  Not to be deterred, the mediator took one last shot at getting the parties to a potential resolution and pondered what method or tactic might work best.  Finally, she believed she knew the true basis of the contention.

She went into a caucus, or private meeting, with each party.  In the caucus with Critical’s owner and counsel, she looked Critical’s owner squarely in the eyes and said, “I think what you are seeking from this is something deeper yet more basic and personal than all of the legal issues you all have tossed back and forth for months.  Tell me what that is.”  Critical’s owner peered back at the mediator; her eyes revealed the competing emotions of perplexity, anger and relief.  Finally, she said, “All this time, I just wanted GETIT’s owner to apologize.  She never said, I’m sorry.  She drug me into this.  I asked many times if she was planning on a bankruptcy and she gave me no heads up.  She told me she would.  I took her word.  Now, my business is on the brink of collapse, and she never even said, ‘I’m sorry.'”

At the end of the day, GETIT’s owner delivered the long-awaited words, “I’m sorry,” and the parties moved forward to an agreement.
So, what’s the moral of the story?  Sometimes, the legalities, the substantive law, bankruptcy code and rules are not enough.  Often, the “Golden Rule” wins out.  When faced with these types of circumstances as a mediator, or practitioner representing emotionally torn, humiliated and embattled parties, start with that rule first.  You’re likely to avoid the complexities of pride and prejudice.  Get it?

Let me know how you would you have handled this situation.

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