Mediation in Bankruptcy - Results of FJC Survey

Journal Issue

Sep 1999

Column Name

Feature

Journal HTML Content

About 30 bankruptcy courts have local rules or other procedures that govern referral of

bankruptcy matters to mediation. Given recent expansion of the use of mediation in bankruptcy

courts, the Judicial Conference Advisory Committee on Bankruptcy Rules asked the Federal

Judicial Center to conduct a survey to help the committee determine whether to consider

national rule changes to govern mediation. The purpose of the survey was to identify any

problems encountered in mediations conducted pursuant to judicial referral and to determine

the severity of any problems. The Center published its survey results in a report entitled <i>ADR in

Bankruptcy: The Federal Judicial Center Survey of Mediation Participants.</i> Earlier this year, the committee

decided not to take steps toward the adoption of national bankruptcy rules concerning mediation.

As a result, local rules will continue to govern the mediation process. More generally, the

committee has not taken a position on the use of mediation in bankruptcy.

</p><h3>The Survey</h3>

<p>For the survey, the

Center obtained names and addresses of counsel and mediators who had participated in the

mediation of one or more bankruptcy matters during a three-year period ending in 1997. These

were matters referred to mediation by a bankruptcy judge using local bankruptcy procedures.

The Center mailed a questionnaire to nearly all these counsel and mediators (1,992 recipients).

Because of the large number of matters referred to mediation in the Central District of

California, the Center surveyed only a 50 percent sample of practitioners who had participated

in mediation in that district during the study period. The response rate to the questionnaire was

64 percent.

</p><h3>Findings</h3>

<p>The survey data show that 1,043 counsel-respondents participated in somewhere between

1,054 and 2,108 mediated matters,<small><sup><a href="#2" name="2a">2</a></sup></small> and 440 mediator-respondents participated in 1,480

matters. The questionnaire listed several types of problems mediation participants might have

observed or perceived during the mediation process. Their responses indicate that problems

occurred in 2.5 percent or less of the matters referred to mediation. The breakdown of

occurrence rates by problem area is shown in Table I.

</p><center>

<h4>Table I: Problems Reported</h4>

<th>Rate of Occurrence, Counsel Responses<br>

(N=1,054-2,108 Matters)</th>

<th>Rate of Occurrence, Mediator Responses<br>

(N=1,480 Matters)</th>

</tr>

<tr>

<td>Mediator disclosure of confidential information</td>

0.9%-1.8%

</center>

</td>

0.4%<

</center>

/td></td></tr>

<tr>

<td>Party disclosure of confidential information</td>

1.2%-2.4%

</center>

</td>

0.6%

</center>

</td></tr>

<tr>

<td>Confidentiality affecting judicial approval of settlement</td>

0.8%-1.7%

</center>

</td>

2.3%

</center>

</td></tr>

<tr>

<td><i>Ex parte</i> contacts between mediator and judge</td>

0.4%-0.8%

</center>

</td>

0.3%

</center>

</td></tr>

<tr>

<td>Mediator failure to disclose conflict of interest</td>

0.5%-1.0%

</center>

</td>

0.1%

</center>

</td></tr>

<tr>

<td>Mediator bias or prejudice</td>

0.4%-0.7%

</center>

</td>

0.1%

</center>

</td></tr>

<tr>

<td>Mediator not a "disinterested person"</td>

1.2%-2.5%

</center>

</td>

2.3%

</center>

</td></tr>

<tr>

<td>Rule 5002(b) connections between mediator and judge</td>

0.9%-1.7%

</center>

</td>

0.1%

</center>

</td></tr>

<tr>

<td>Rule 5002(b) connections between mediator and U.S. Trustee</td>

0.5%-1.1%

</center>

</td>

0.3%

</center>

</td></tr>

</tbody></table></p></center>

<p>Although none of the problems occurred with great frequency, some types of problems

appear to occur relatively more frequently than others. According to counsel, the most frequent

problems were:

</p><ul>

<li>breaches of confidentiality

</li><li>mediators who were not "disinterested"

</li><li>confidentiality of the mediation process affecting judicial approval of settlement and

</li><li>perceived connections between mediators and judges.

</li></ul>

<p>According to mediators, the most frequent problems were:

</p><ul>

<li>confidentiality affecting judicial approval of settlement and

</li><li>mediators who were not "disinterested."

</li></ul>

<p>Two questions arise from these findings. Are observed or perceived problems in mediation of

little significance because they occur infrequently? Are some observed or perceived problems

so serious in nature that any occurrence of the problem, even though infrequent, warrants

attention?

</p><p>The study also revealed several other interesting findings about mediation in bankruptcy

(see Table II):

</p><ul>

<li>Bankruptcy judges referred less than 24 percent of the matters <i>sua sponte.</i>

</li><li>Less than 7 percent of the matters were referred over the objection of one or more parties.

</li><li>The bankruptcy estate paid the mediator's fee in less than 21 percent of the mediated

matters.

</li><li>The mediator played a role in formulating a reorganization plan in approximately 9 percent

of the matters reported by the mediators.

</li></ul>

<center><h4>Table II: Other Issues</h4>

<th>Rate of Occurrence, Counsel Responses<br>

(N=1,054-2,108 Matters)</th>

<th>Rate of Occurrence, Mediator Responses<br>

(N=1,480 Matters)</th>

</tr>

<tr>

<td><i>Sua sponte</i> referrals to mediation</td>

11.6%-23.3%

</center>

</td>

not asked

</center>

</td></tr>

<tr>

<td>Referrals over objection of a party</td>

3.3%-6.6%

</center>

</td>

not asked

</center>

</td></tr>

<tr>

<td>Mediator fee paid by bankruptcy estate</td>

10.2%-20.3%

</center>

</td>

19.0%

</center>

</td></tr>

<tr>

<td>Mediator role in formulating reorganization plan</td>

not asked

</center>

</td>

9.4%

</center>

</td></tr>

</tbody></table></center>

<p>The report also includes a summary of respondent comments. The full report can be

downloaded from the Center's home page at <a href="http://www.fjc.gov" target="window2">http://www.fjc.gov</a>. For a hard copy, fax a request to

(202) 502-4077 or send an e-mail to <a href="mailto:msarago@fjc.gov">msarago@fjc.gov</a>.

</p><h3>ADR Act of 1998</h3>

<p>At its March 1999

meeting, the Advisory Committee discussed the effect on bankruptcy courts of the Alternative

Dispute Resolution Act of 1998. The committee took no action with respect to the act, which

requires each district court to authorize by local rule "the use of alternative dispute resolution

processes in all civil actions, including adversary proceedings in bankruptcy..." The act also

requires each district court to implement its own ADR program and provide at least one form of

ADR process. Each district court is also required to adopt local rules requiring litigants in civil

cases to consider the use of an ADR process and providing for the confidentiality of ADR

processes.

</p><p>There are varying interpretations of the extent to which the act applies to bankruptcy

matters. One interpretation is that the act applies only to bankruptcy cases where the reference

has been withdrawn. This interpretation rests on the act's repeated references to district

courts, with only two references to adversary proceedings. A second interpretation is that

parties to an adversary proceeding in a bankruptcy court may use the ADR program established

by the district court if the bankruptcy court does not have its own ADR program. It can be

argued that these first two interpretations are supported by the act's references to <a href="http://www.westdoc.com/find/default.asp?rs=CLWP1.1&vr=1.0&cite=… U.S.C.

§2071(a)</a>, which governs the district court local rule-making process, without any reference

to <a href="http://www.westdoc.com/find/default.asp?rs=CLWP1.1&vr=1.0&cite=… U.S.C. §2075</a>, which governs the promulgation of local bankruptcy rules. A third, and the

most liberal interpretation, is that the act's requirements, including setting up a separate ADR

program, apply to both bankruptcy and district courts because bankruptcy courts are units of

the district courts.

</p><p>Despite differing interpretations, the act does not prohibit bankruptcy courts from

establishing ADR programs. In fact, a substantial proportion of bankruptcy courts already have

set up their own programs, use the ADR programs of their respective district courts, or refer

bankruptcy matters to ADR on an ad hoc basis without the structure of an ADR program.

</p><hr>

<h3>Footnotes</h3>

<p><small><sup><a name="1">1</a></sup></small> The views expressed in this article are those of the author and not necessarily those of the Federal Judicial Center. <a href="#1a">Return to article</a>

</p><p><small><sup><a name="2">2</a></sup></small> An unknown number of matters identified by certain counsel-respondents are duplicates of matters identified by other counsel-respondents. To account for

these duplicates, the study presents a lower bound (which is 50 percent of the number of matters reported by counsel-respondents) and an upper bound

(which is the total number of matters reported by counsel-respondents). The confidentiality of the mediation process prevented the Center from including

information on the questionnaires that would identify particular matters. <a href="#2a">Return to article</a>

Journal Authors

Robert J. Niemic

Journal Date

Wednesday, September 1, 1999 - 12:00