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Highlights from the May 2022 “Mediation in Bankruptcy” Roundtable

Ann Holland Hughes

Highlights from the May 2022 “Mediation in Bankruptcy” Roundtable
ferrantraite via Getty Images

On May 20, 2022, the ABA Litigation Section’s Bankruptcy and Insolvency Committee held a roundtable discussion focused on the increased use of mediation within the bankruptcy setting to resolve disputes in adversary proceedings, as well as the main bankruptcy case, including disputes arising during confirmation. Panelists included Hon. Kevin Carey, a mediator and retired U.S. bankruptcy judge and senior counsel at Hogan Lovells US LLP; Hon. Kevin Gross, a mediator and retired U.S. bankruptcy judge and director at Richards, Layton & Finger, P.A.; and Curtis Miller, a bankruptcy attorney and partner at Morris Nichols Arsht & Tunnell. Jeff Ganz, a litigation and bankruptcy partner at Riemer & Braunstein LLP, served as moderator.

The panel had a vibrant discussion of a variety of topics that affect mediation and the role of the mediator. Summarized below are some of the key insights from that conversation.

The Work of Good Mediators: Building Rapport and Setting Ground Rules

The panel highlighted the importance of building rapport with both sides to encourage open and clear communication. A mediator should make clear that he or she will not reveal anything that either of the parties wishes to be concealed. Both mediators underscored the importance of setting ground rules. For example, mediators have different views about which aspects of the mediation (if any) should be reported back to the court. They each stressed that the content of any report to the court from the mediator should be established up front and agreed upon by all the parties, ideally in the engagement letter with the mediator.

How a Practitioner Can Be More Persuasive

The panel stressed that candor will earn credibility with mediators and that a thorough knowledge of both sides of the case makes a practitioner a more persuasive advocate.

The Usefulness of Financial Advisors in the Mediation

The panel highlighted that it can be very helpful to have financial advisors present in the mediation to get to the bottom of financial issues quickly, especially in valuation issues that arise in bankruptcy. The panel observed that financial advisors frequently are more familiar with the intricacies of any financial analysis than counsel. Moreover, financial advisors frequently exhibit less advocacy and are more practical about developing resolutions that are acceptable to both parties. Having financial advisors discuss points of difference in the presence of the mediator can also tease out the nuances of certain issues in a way that is very informative.

The Role of Confidentiality

The panel noted that jurisdictions vary and that it is important for practitioners to understand the rules applicable to their case. The Delaware Bankruptcy Court, for example, has a detailed local rule (Rule 9019-5) addressing the mediation process and, more specifically, the associated confidentiality provisions (Rule 9019-5(d)). Judge Carey highlighted the tension that exists between a party’s legitimate interest in obtaining discoverable information and the benefits to all parties of maintaining the confidentiality of communications made in the context of a mediation, citing his experience in the Tribune and Boy Scouts of America cases. The panelists also noted that Federal Rule of Evidence 408, which limits the use of certain statements made in the context of settlement, is not often broad enough to provide an umbrella of confidentiality for all statements made to a mediator or in connection with a mediation—particularly if those statements refer to facts that are discoverable. The panel observed that, where confidentiality is likely to be a critical concern in any mediation, it is helpful to incorporate the parties’ expectations regarding confidentiality into the engagement letter with the mediator.

The Usefulness of Mediation Statements

The panel noted that mediation statements were generally of limited usefulness because it was rare to receive an honest assessment of the case from either of the parties. Stacks of pleadings were considered particular unhelpful; a thoughtful assessment of the issues, the parties’ positions, and proposed areas for settlement were much preferred. For these reasons, Judge Carey indicated that he found a conversation with the parties helpful prior to the preparation of mediation statements. Judge Gross indicated that he has stopped using confidential mediation statements and instead asks the parties to exchange statements and follow up with a private statement to the mediator.

Mediating a Confirmation Plan

Mediation can often be more effective in resolving competing interests during the negotiation of a confirmation plan than adversary proceedings, in which the parties have firmly held views that may be difficult to reconcile. Mediation can also help identify common ground on which to build a settlement. An effective mediation does not have to involve all parties at once, but it is important to keep all constituents meeting together and informed, even if they are not actively participating.

In summary, the panel noted that a good mediation can’t be hurried—it must be developed and built, sometimes brick by brick, by building trust between the mediator and the parties. The panel also stressed that mediators do not endorse settlements but are instead there to bring the parties to the table to permit them to reach an agreement. Unlike a ruling from a judge, which reflects the judge’s decision, a settlement in mediation reflects the combined decisions of the parties and allows the parties to control the outcome of their dispute.

This summary highlights a subset of the many insights offered by the panel, and I encourage everyone to listen to the roundtable in its entirety. It is available on both the Bankruptcy and Insolvency Committee's Multimedia page and on YouTube.