Virtually all types of bankruptcy disputes are candidates for mediation, including avoidance actions, claim objections, asset ownership or lien disputes, plan confirmation objections, valuation issues, and post-confirmation litigation against a debtor's insiders.  The bankruptcy court provides a forum in which multiple settlements can contribute to the successful conclusion of the overall case.  A bankruptcy case in which no one agreed to compromise would founder and the expense of the case would substantially reduce what otherwise might be available for creditors. However, because bankruptcy practitioners and the courts appreciate that compromise is the "coin of the realm" in bankruptcy cases, litigation "to the death" is the exception rather than the rule.

Selection of a Mediator

Most state and federal courts (including bankruptcy courts) have court-connected mediation programs that include a roster of neutrals who are certified by virtue of their training and mediation experience. Parties usually are free to select a mediator from the roster or a mutually agreed upon third party.

In selecting a mediator, parties should inquire into the candidate's mediation style, knowledge of the subject matter the dispute, formal training in mediation, past experience in similar cases, and potential conflicts of interest.  Intangibles traits that may prove to be invaluable include interpersonal, deal-making, communication, listening, and analytical skills.

Mediator Styles

Mediators of commercial disputes typically employ one of two styles. The first is the evaluative style by which the mediator assists the parties in focusing upon the strengths and weaknesses of their cases, as well as the costs, delays and uncertainty of trials; encourages the parties to overcome optimistic biases in their case evaluation; and presses the parties to compromise. While some litigants prefer a mediator who adopts an evaluative approach, often selecting sitting or former judges who are perceived to have the necessary "gravitas" to coax parties to rethink their positions, the evaluative approach has a sizable pool of critics and the extreme use of evaluation (e.g., offering opinions as to the worth of a case) is often proscribed by local rules.

The second approach is facilitative by which the mediator views his or her role as facilitating party bargaining, assisting the parties in determining their best alternative to a negotiated agreement (their so-called "BATNA"), encouraging the parties to communicate clearly and directly to one another, and championing the process rather than settlement for its own sake.

In truth, most effective mediators use a combination of both approaches during the course of a mediation, often lapsing into an evaluative style as the time for conference adjournment draws near.

Mediation Process

After mediator selection and agreement on logistics (date and location of the mediation), parties typically submit to the mediator a mediation statement that usually addresses an overview of the dispute, a party's case assessment and view of controlling legal precedent, a summary of past settlement discussions (if any), and an estimate of litigation costs and timing.

On occasion, the mediator may attempt to meet with each side, by phone or preferably in person, to become acquainted with the participants, assess their settlement disposition and sophistication, and learn of any concerns they may have about the mediation conference.

The conference typically begins in joint session with the mediator making opening remarks and followed by opening remarks by the mediation participants, addressed to one another in a non-combative, conciliatory fashion.  It is not unusual for opening remarks to be made both by counsel and party representatives.

Attendees at the conference should include each party's primary litigation counsel, party representatives vested with authority to negotiate a deal, a representative of the carrier where insurance is involved, and other persons essential to case resolution (such as, in a bankruptcy case, representatives of  creditors' committees).

Following the joint session, the parties normally break into bargaining units and separately caucus with the mediator.  In these caucus sessions, the parties discuss with the mediator their monetary and non-monetary needs for a settlement, case evaluation, and proposed settlement offers to the opponent.

Preparing for the Mediation

Some parties and counsel take an "ad lib" approach to mediation, believing that the chances of settlement are slim and that they can "wing it" during the conference.  Experience demonstrates that well-prepared participants have a greater chance of achieving a favorable settlement.

Preparation for the mediation conference might include meeting with the mediator to clarify the mediator's approach to the mediation and disclose sensitive areas of bargaining; drafting the mediation statement; preparing an opening statement that is both firm and conciliatory and reflective of a willingness to compromise; providing a candid case evaluation to the client, including estimated expense and delays inherent in litigation; developing a bargaining strategy, including a prioritization of monetary and non-monetary goals for settlement; and assisting the client in effectively presenting himself/herself to the opponent at the conference.

Counsel should remind the client that settlements always entail giving up something to which the client believes it is entitled and that unconditional surrender by the opposition is highly unlikely.

Documenting the Settlement

If a settlement is reached, the parties should attempt to memorialize their agreement prior to leaving the mediation conference. In many jurisdictions, verbal settlements can be enforced and best practices dictate that the parties should at a minimum execute a detailed term sheet containing the essential settlement terms, even if a definitive agreement is to be prepared and executed later.

In advance of the mediation conference, the parties can prepare a form of settlement agreement that will include all of the salient terms, with the details to be completed based upon the ultimate settlement.  Advanced preparation of an agreement enables a party to focus on issues that are often overlooked during the bargaining process, such as the scope of releases, cooperation agreements, non-disparagement provisions, and confidentiality clauses.

ENDNOTES

(1) John Barkai, Elizabeth Kent & Pamela Martin, "A Profile of Settlement," 42 COURT REVIEW, Nos. 3-4 (2006).

(2) Michael G. Ornstil, "Nailing Down Mediation Agreements," 32 TRIAL 18 (June 1996); Richard M. Calkins, "Mediation: The Gentler Way," 41 S.D. L. REV. 277, 282 (1996).

(3) See James C. Duff, ADMIN. OFFICE OF THE U.S. COURTS, JUDICIAL BUSINESS OF THE UNITED STATES COURTS: 2010 ANNUAL REPORT OF THE DIRECTOR 172 (stating that of some 309,000 civil cases in federal courts terminated during a 12-month period ending in 2010, approximately 1.1% of them were terminated by trial, after taking into account both the granting of dispositive motions and settlements reached by the parties).

(4) See Theodore Eisenberg & Charlotte Lanvers, "Summary Judgment Rates Over Time, Across Case Categories, and Across Districts: An Empirical Study of Three Large Federal Districts," Cornell Law School Research Paper No. 08-022, prepared for The First International Conference on Empirical Studies of Judicial Systems (May 28, 2008 draft), at 1-4 (noting a 2007 study that concluded that in fiscal year 2006, about 4% of federal cases were terminated by summary judgment).

(5) See, e.g., Cumberland & York Distribs. v. Coors Brewing Co., 2002 U.S. DIST. LEXIS 1962 (D. Me. 2002) (declining to enforce mediation clause when one party refused to participate in mediation and clause did not impose outside time limit on mediation process).

(6) See, e.g., DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326 (7th Cir. 1986).