Mediating With A Litigation Committee Or Trust

While mediation is used in many forums, mediation in the bankruptcy context at times offers some very unique and key distinctions. One key difference is that the party often acting as the plaintiff in the adversary proceeding or contested matter1 is not necessarily the business owner but rather a litigation committee2 or trustee who is running a court ordered process long after the debtor has failed.3 Thus, the procedural context is very different than other traditional cases where both parties involved in the mediation were also involved in the original "dispute" and are at the table resolving their own personal issues and competing claims. In these cases, the plaintiff has no historical knowledge of the facts, or underlying business arrangements that relate to the dispute at hand. Moreover, it is entirely possible that the key employees or other parties with knowledge of the history and facts are long since gone—having lost their jobs months or years prior during the failed restructuring of the corporate operations or having left for greener pastures when things turned rocky or uncertain. Thus, the plaintiff has to learn all of the key facts at a time when there may be no one with first-hand knowledge to educate them.

The question is—does the process still work? Can you successfully mediate with a new and unfamiliar party at the table? The answer, this author believes, is yes and by experience, it works quite well. The absence of a party with historical knowledge does not preclude the usefulness or success rate for the mediation process. Rather, the replacement at the table with a party whose primary obligation is to act as a fiduciary to maximize assets, minimize and justify expenses, and ensure a reasonable return for creditors may in fact allow for a more expeditious resolution of the case. In my experience, this new plaintiff can oftentimes survey the facts with more benign objectivity and can call upon knowledge gleaned from other similar businesses where they might have served in a similar capacity in the past. Thus, these plaintiffs are open to being educated on the specific business facts, unique to the debtor's business currently at play. Moreover, they can, without emotional or historical baggage, analyze the pros and cons of the litigation risks that are before them and decide how to proceed.

Recognizing the usefulness of the mediation process in balancing costs and resolving disputes has led bankruptcy courts to champion this process in the business context. Although the Federal Rules of Bankruptcy Procedures are silent about the ability to use mediation in the bankruptcy forum, 51 bankruptcy courts have opted to create court rules that authorize the use of mediation; other courts have used mediation on an ad hoc basis.4

Bankruptcy courts derive the power to implement mediation from both statutory and rule based authority. Specifically, Congress passed the Authorization of Alternative Dispute Resolution in 1998 (Public Law 105-315-Oct. 30, 1998), which provides for the use of alternative dispute...