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S4 | MONDAY, MARCH 31, 2014 | Alternative Dispute Resolution
| NYLJ.COM

BY LESLIE BERKOFF
While many defendants often
W express concern over the use of
hile mediation is used a “litigation appointed plaintiff,”
in many forums, media- in the process, more often than
tion in the bankruptcy not the clinical and dispassion-
context at times offers some ate approach applied by this
very unique and key distinc- new party when balanced by
tions. One key difference is that need to justify fees more than
the party often acting as the tempers any lack of historical

plaintiff in the adversary pro- knowledge or personal history.
ceeding or contested matter1 Rather, plaintiffs feel constrained
is not necessarily the business to justify any actions they take
owner but rather a litigation more keenly than other tradition-
committee2 or trustee who is al plaintiffs do.13 So too, a credi-
running a court ordered pro- Mediating With a
tor’s committee has a fiduciary
cess long after the debtor has obligation to represent the inter-
failed.3 Thus, the procedural ests of all unsecured creditors.14

context is very different than Mediation is a delicate pro-
other traditional cases where Litigation Committee cess that works best when
both parties involved in the parties are committed to the
mediation were also involved resolution and keep their eye
in the original “dispute” and are on the end goal of achieving a
at the table resolving their own reasonable result that balances
personal issues and competing Or Trust
litigation risks and concerns.
claims. In these cases, the plain- The insertion of a new party into
tiff has no historical knowledge the factual dispute between busi-

of the facts, or underlying busi- ness entities that have a history
ness arrangements that relate as to which this new party may
to the dispute at hand. More- have no first hand familiarity
over, it is entirely possible that does not adversely affect that
the key employees or other dynamic.
parties with knowledge of the Given the considerations
history and facts are long since that one must draw upon as
gone—having lost their jobs guidelines in resolving matters
months or years prior during in mediation, i.e., costs, risks

the failed restructuring of the and closure, are the same kinds
corporate operations or having of concerns that underpin the
left for greener pastures when Bankruptcy cases offer key differences.
fiduciary obligations held by CK
things turned rocky or uncer- the plaintiff in these matters, TO
tain. Thus, the plaintiff has to the consistency of these con- BIGS
learn all of the key facts at a cerns only serves to facilitate
time when there may be no
a reasonable and expeditious
one with first-hand knowledge result. Overall, defendants should tion process in balancing costs and resolving within the bankruptcies cases were referred

to educate them.
appreciate that an increased level of objec- disputes has led bankruptcy courts to cham- to mediation, including claims objections,
The question is—does the process still tivity is brought to bear on the process and pion this process in the business context. efforts to recover assets, and declaratory
work? Can you successfully mediate with a recognize that the need to unemotionally bal- Although the Federal Rules of Bankruptcy judgment actions or specific discrete factual
new and unfamiliar party at the table? The ance these concerns may allow for a more Procedures are silent about the ability to and legal issues.9
answer, this author believes, is yes and by expeditious and efficient result that benefits
use mediation in the bankruptcy forum, At their core, bankruptcy courts are courts
experience, it works quite well. The absence them in the end.
51 bankruptcy courts have opted to create of “dispute resolution where qualified debtors
of a party with historical knowledge does not court rules that authorize the use of media- reapportion their debt allocation. Efficiency
preclude the usefulness or success rate for •••••••••••••••••••••••••••••
tion; other courts have used mediation on is the priority. Within this statutory frame-
the mediation process. Rather, the replace- an ad hoc basis.4
work, judges, trustees, and credit counselors
1. Adversary proceedings are litigations brought with- in the context of a bankruptcy case and involve discrete
ment at the table with a party whose primary issues that are being litigated in the bankruptcy forum, Bankruptcy courts derive the power to serve dispute resolution roles identifying the
obligation is to act as a fiduciary to maximize whereas contested matters arise when affirmative relief implement mediation from both statutory creditors that are to be involved, facilitating
assets, minimize and justify expenses, and sought by motion practice is opposed. In either context, and rule based authority. Specifically, Con- the development of the plan and deciding on
ensure a reasonable return for creditors may the rules of discovery come into play and mediation is gress passed the Authorization of Alterna- how the debt allocation will proceed.”10 Part
in fact allow for a more expeditious resolu- often utilized to resolve the issues. See Rules 7001 and 9014 of the Federal Rules of Bankruptcy Procedure.
tive Dispute Resolution in 1998 (Public Law of the impetus in all of these cases to using
tion of the case. In my experience, this new 2. See In re Commodore Int’l, 262 F.3d 96, 99 (2d Cir. 105-315-Oct. 30, 1998), which provides for mediation is the benefit of reducing costs,
plaintiff can oftentimes survey the facts 2001) (recognizing the ability for creditor’s committees the use of alternative dispute resolution in as bankruptcy litigation costs for the debtor
with more benign objectivity and can call to initiate adversary proceedings to pursue litigation in bankruptcy.5 Over time, many bankruptcy (or estate representative) or litigation com-
upon knowledge gleaned from other similar the name of the debtor); see also In re STN Enters., 779 F.2d 901, 904 (2d. Cir. 1985).
courts have established formal mediation mittee are paid from property of the estate.
3. Alternatively, it may be that the debtor is simply
businesses where they might have served out of the picture having divested itself of such claims programs and procedures and implemented Funds paid for litigation diminish and deplete
in a similar capacity in the past. Thus, these for the benefit of the unsecured creditor body under a local rules to govern the process.6 Moreover, creditor recoveries. Thus, plaintiffs bear the
plaintiffs are open to being educated on the plan or by other agreement. See Order Granting Motion most courts have now established mediation responsibility of carrying out their fiduciary
specific business facts, unique to the debtor’s of BGI Creditors’ Liquidating Trust and the Liquidating Trustee to Establish Procedures Governing Adversary panels comprised of pre-approved (and at duty to creditors and acting in a cost effective
business currently at play. Moreover, they Proceedings Brought Pursuant to Sections 547 and 550 times pre-vetted) panel mediators who can be manner that must at the end of the day serve
can, without emotional or historical baggage, of the Bankruptcy Code, In re BGI, f/k/a Borders Group, called upon to serve in a case. This is simply as a guiding force.11 As a general rule, trustees
analyze the pros and cons of the litigation Case No. 11-10614, Doc. No. 2922, and Order Establishing not a new process for the bankruptcy courts.
(including liquidating trustees) are guided by
risks that are before them and decide how Procedures Governing Adversary Procedures Brought In recent years, mediation has been their primary objective to maximize recovery
Pursuant to Sections 547 and 550 of the Bankruptcy Code, In re Oldco M Corporation (f/k/a Metaldyne Cor-
to proceed.
poration), Case No. 09-13412, Doc. No. 1726.
especially effective in the context of “mega- for the estate or specific classes of creditors.
Recognizing the usefulness of the media-
4. Elayne E. Greenberg, “ADR Meets Bankruptcy: bankruptcy” cases.7 Examples of these cases Their decisions are governed by the business
Cross-Purposes or Cross-Pollination?: We Can Work include both the Enron and the Adelphia judgment rule, which holds that the trustee’s
It Out: Entertaining a Dispute Resolution System De- Communications bankruptcy cases, each of decisions and actions are entitled to respect
sign for Bankruptcy Court,” 17 Am. Bankr. Inst. L. Rev. 545, 547 (2009) (noting that “[u]nbeknownst to many, which eventually found their way to judicial and deference, if the trustee can articulate a
LESLIE BERKOFF is a partner at Moritt Hock & Hamroff.
bankruptcy courts have been using me- » Page S11
mediators.8 In both cases, multiple disputes
sound business reason for the action taken.12