Mediation as a Remedy (or How to Hug It Out)

In a recent decision, a bankruptcy judge remarked that “the Court’s preferred remedy would be requiring the parties to ‘hug it out.’” [1] Sadly, the judge lamented that “jurisdictional limits restrict the Court to ruling only on the dischargeability of the debt,” and he did not force the estranged family members to embrace. [2] The case involved warring family members and the dischargeability of a state court judgment that two children obtained against their mother, so perhaps the judge was wrong to promptly discard his initial thought of having the family “hug it out.”

While every trained mediator knows that they cannot force either side to take any particular action, the dysfunctional family that had endured multiple rounds of litigation may have been ripe for a different approach. A mediator who simply would had gotten the family around a table to discuss their issues might have accomplished more than what will likely be another round of seemingly endless litigation in attempting to collect on a nondischargeable debt.

Taking a step back, the facts of In re Roach are fairly messy. [3] In 1992, Suzanne Roach (the mother) and her ex-husband created a land trust to hold their interest in a timeshare for the benefit of the mother and her two children. The mother and ex-husband were the co-trustees and were responsible for making alternating annual maintenance payments related to the timeshare. Under the land trust agreement, after 20 years the trustees were to convey the interest to the beneficiaries: 50% to the mother and 25% to each of the children.

In 2018, the ex-husband died, and the mother became the sole trustee. The children requested their share of the timeshare (which was supposed to be conveyed in 2012), but the mother refused, contending that she needed to be repaid for annual maintenance payments that she advanced on the ex-husband’s behalf. The children refused to reimburse the mother, and the mother in turn transferred the entire interest in the land trust to herself.

The children filed suit in state court in Florida, and the court granted summary judgment for the children finding that the mother breached her fiduciary duty. In addition to awarding the transfer of their share of the timeshare, the court was also poised to award fees and costs as required by Florida statute in cases of breaches of fiduciary duty. However, before the state court could determine the amount of damages, the mother filed a chapter 13 petition, which automatically stayed the state court action.

The children filed a proof of claim in the bankruptcy proceeding seeking $28,875.85 (presumably the amount of fees and costs of the state court litigation) and sought a determination that the debt arose from “defalcation while acting in a fiduciary capacity” and therefore was nondischargeable under Bankruptcy Code § 523(a)(4). In the opinion, the bankruptcy court held that the debt was nondischargeable. [4]

Following the decision, it seems inevitable that there will be continued litigation. First, the court noted that the claim filed by the children is subject to an objection by the mother. As the state court never determined the amount of liability, additional judicial findings will be required to determine the actual amount of debt that is owed to the children. Next, given the bankruptcy and the mother’s limited assets, it is likely that the children will have a difficult time in attempting to collect their nondischarged debt, which may lead to additional enforcement proceedings.

While dysfunctional family members who have spent years litigating may seem like unlikely candidates for a successful mediation, they may in fact be the perfect candidates for it. In all likelihood, the mother and children have not spoken to each other for years. Simply getting them in the same room and making each side listen to the other could lead to a significant breakthrough.

While the mediator would need to be skilled simply to keep everyone in the room, laying out the potential continued years of litigation that lay ahead for both sides absent settlement could perhaps encourage each side to reconsider its position. Moreover, as is often the case with family dynamics, the money at issue is not the primary reason for litigating. In fact, given the dollars at stake, there are probably much deeper wounds than money.

A mediator who could create a safe space for a dialog conceivably could achieve a more peaceful resolution than what looks to be years of continued litigation. Simply allowing each side to be heard and feel that they are being heard could be the key that has been lost through years of fighting. Perhaps next time the court should force the parties to “hug it out” and do so by ordering the parties to a mediation.