The importance of alternate dispute resolution to resolve cases is enshrined in federal law, 28 U.S.C. §651(a), and is encouraged by most judges. However, one bankruptcy judge recently told lawyers in a case that they would mediate “over my dead body.” While the court’s ruling was triggered by the parties’ failure to request permission to expend estate funds, his comments expressed a high level of skepticism toward mediation in general. The case is In re Cody Smith, No. 12-32096 (Bankr. S.D. Tex. 9/3/14).
The Cody Smith case involves several different adversary proceedings. When the parties asked to abate various deadlines so that they could mediate, the following discussion took place. This is my attempt at transcription from the electronic recording of the proceeding. Any errors are unintentional.
The Court: As I understand it, the Second Joint Emergency Motion is being filed because you’re going to mediate.
Mr. Wentworth (Trustee’s attorney): That’s correct, your Honor.
The Court: Did I give you permission to go to mediation?
Mr. Wentworth: Your Honor, maybe I’ll defer to Mr. Lemmon on that. I didn’t file any motion.
The Court: Mr. Lemmon, did I give the Trustee permission to mediate?
Mr. Lemmon (Trustee’s Special Counsel): No, your Honor.
The Court: Does the Trustee have any intention of paying the mediator out of estate funds?
Mr. Lemmon: My firm is advancing . . . .
The Court: That’s not my question, not who’s advancing. Is the Trustee eventually going to be using estate funds to pay the mediator?
Male Speaker: I think that’s what we had envisioned.
The Court: Over my dead body. I do not like mediation. I think it is wasteful for the most part and you all needed to get my permission. I assume counsel for the Trustee is going to the mediation and I assume counsel for the Trustee’s going to ask me to approve those fees.
Mr. Lemmon: Yes, your Honor.
Male Speaker: For the mediatior . . .
The Court: Aint gonna happen. Don’t you ever do that again, Mr. Cage.
Mr. Cage (the Trustee): Yes, your Honor.
The Court: I’m going to do a general order to put all my chapter 7 cases (on notice). You are not to mediate without my approval. Or if you’re gonna do it, you’re going to get my approval or if you’re going to do it (without my approval), I’m not going to allow attorneys to be paid. I think for the most part mediation is a waste of time and money. You all are grown up big boy attorneys. You can talk settlement. You’ve been talking settlement. And I’m not going to allow more money to go to a mediator. Either you settle it or you don’t. But don’t ever do that again.
Mr. Cage: Understood, your Honor.
Mr. Lemmon: This is Steve Lemmon. I am sorry your Honor. The idea of doing a mediation was my idea, so I apologize.
The Court: Mr. Lemmon, I’ll grant you a lot of judges love mediation, but I don’t. I think mediation is undercutting the jury trial system in this country and I think it is making lawyers lazy and judges lazy and I also think it’s excess costs to pay for a mediator. Lawyers are supposed to do two things. They are supposed to get ready for trial and they are supposed to talk settlement professionally. And I think it is rare that I allow people to go to mediate so don’t do it ever again. If you want to mediate, then file a motion and come in here and explain to me why, but I’m not going to allow a mediation, not in this case certainly, so I’m going to deny the Second Joint Emergency Motion and with that you all are free to go.
Recording, 9/3/14, 3:04:01-3:07:22 (emphasis added).
I have not been involved in the Cody Smith case although I know most of the lawyers involved. None of them asked me to write this article. I heard about from an observer who happened to be in the courtroom that day. However, I have heard Judge Bohm express similar comments informally. The fact that the judge made the comments on the record and expressed an intent to issue a general order on the subject made it an appropriate subject for a blog article in my mind.
I am a trained mediator, although I use that experience as a participant in mediations much more than as a mediator. More importantly, I practice with an attorney who is an artist when it comes to mediation and has successfully settled many difficult cases. All of this gives me a bias in favor of mediation.
On the other hand, I have no problem with trying cases. I enjoy trying cases although my work is in bankruptcy court where juries are forbidden absent consent. In nearly twenty-eight years of practice, I have been second chair on two jury trials and I served on a jury once. As a result, the jury system is something I have heard about more than I have experienced.
Why the Hostility to Mediation?
Judge Bohm has a legitimate point that parties wishing to use estate funds to mediate should request court permission. However, in most courts, that request would be met with enthusiasm. Indeed, federal policy encourages mediation. 28 U.S.C. §651(b) provides that:
Each United States District Court shall authorize by local rule adopted under section 2071(a), the use of alternate dispute resolution processes in all civil actions, including adversary proceedings in bankruptcy in accordance with this chapter . . . .
Southern District of Texas Local Rule 16.4 states that mediation is approved for use in bankruptcy proceedings and goes on to state that:
If the parties agree upon an ADR method or provider, the judge will respect the parties’ agreement unless the judge believes another ADR method or provider is better suited to the case and parties.
Local Rule 16.4C.
Let’s look at the reasons given by Judge Bohm for his distaste for mediation.
1. Mediation is a waste of time and money. Judge Bohm expressed his opinion that “grown up big boy attorneys” should be able to “talk settlement professionally.” If you follow Judge Bohm’s logic, either the case should be able to settle, in which case the lawyers should be able to get there on their own, or it needs to go to trial, in which case mediation would be a waste of time. I think this logic is oversimplified. In my experience, there are plenty of cases where qualified, professional attorneys will be unable to settle a case without assistance from a third party. However, I do agree with Judge Bohm in part. Attempting to mediate with the wrong mediator at the wrong time can be a waste of time. As a result, it is important to carefully select a case for mediation and to pick the right mediator. I will give my opinions about which cases are good for mediation below.
2. Mediation undermines the jury system. This one baffles me. Judge Bohm is a bankruptcy judge. Juries are not allowed in bankruptcy without consent of both parties and are an extreme rarity. As a result, allowing mediation in bankruptcy cases could never have an effect on the jury system. However, beyond that, I wonder, what is so great about the jury system? I have to admit a bias here. No one ever comes to a Debtor’s lawyer and says I need to file bankruptcy because the jury got it right. It is my personal opinion that the jury system today is often used for tactical reasons, such as to delay trial or increase costs, or in cases where emotion can be counted on to overwhelm the facts. While juries are intended as a protection for the accused, they convict innocent people often enough to cause concern. Having said that, the only jury that I served on voted to acquit. Even if you acknowledge that juries serve a valuable function, they are expensive and not every case needs one. If every civil and criminal case resulted in a jury trial, the system would quickly collapse.
3. Mediation makes lawyers and judges lazy. I can’t speak for judges since I have never been one. However, in my experience, mediation does not make good lawyers lazy. Mediation forces a lawyer to prepare his case in order to persuade the other side that going to trial is a real option. It also forces lawyers to examine the weaknesses in their case and to find ways around them. Mediation also allows lawyers to spend focused time with their client talking about the case. Mediation is about finding a better alternative than trial, not for the unprepared lawyer to avoid trial Some cases are really difficult and will inevitably lead to a bad outcome for both sides if they go to court. I have witnessed mediation resolve disputes that had festered for a decade or more. As a result, I believe that dedicated, hard-working attorneys can use mediation as a tool. Obviously, mediation can be used as a crutch by the unprepared or unwilling, but that is the fault of the lawyer rather than the procedure.
What Makes for a Good Mediation?
Economics teaches that an efficient market depends upon a willing buyer and a willing seller with access to complete information. Lawsuits are similar. In order to settle, there have to be parties who are willing to negotiate in good faith and have good information. Mediation can change a party’s willingness to settle if the unwillingness was based on an unreasonable attorney or where the mediation process allows the party to save face. This is especially true where emotional considerations rather than money are driving the case. Otherwise, having an unwilling party probably means an unsuccessful mediation.
Mediation can be very successful when parties have been acting on incomplete information. Attorneys are supposed to be both counselors and advocates. However, the process of obtaining clients often depends on projecting strength and confidence rather than giving good counsel about the weaknesses of a case. Other times, a client will filter out information he doesn’t want to hear. A combination of a good lawyer and a good mediator can help a difficult client evaluate his case more accurately and reach an agreement.
There are also cases involving difficult situations which require a lot of creativity to solve. While the parties could theoretically resolve these cases on their own, the presence of a neutral third party can help the attorneys and the parties consider solutions they would not have thought of otherwise in a format allowing vigorous give and take. This is especially true of multi-party cases.
Finally, there are a few cases where both sides show up ready to make a deal and arrive at a sensible result within a short period of time. There is no reason that these cases should not have settled without mediation. However, sometimes the mediation process itself serves to focus a party’s attention on settling better than a series of calls with counsel.
I can agree with Judge Bohm to a very limited extent. Mediation can be a waste of time and money if the parties are doing it for the wrong reasons or are not prepared. I can also agree with Judge Bohm that a lazy attorney may seek out mediation if he is not ready for trial and is trying to stall. However, when good attorneys tell the court that they favor mediation, the Court should defer to their judgment, as I believe is required by Local Rule 16.4C.
I agree that it is a good practice to seek court approval for mediation on any number of grounds. First, it helps to keep the Court informed and allow the Court to ask questions as to the reasons for the mediation. Good lawyers should be prepared to give good answers to those questions. Second, I agree with Judge Bohm that paying a mediator is an expense not in the ordinary course of business which should be approved in advance. I don’t think it is necessary for attorneys who represent estates to get special permission to participate in a mediation. When an attorney is appointed in a case where litigation is involved, mediation is inherently part of that appointment. Finally, I think that mediation pursuant to court order is useful because it binds the parties to mediate in good faith. While the parties will ordinarily agree to mediation in advance, a court order makes it harder for parties to back out at the last minute to try to secure a tactical advantage. A court order also helps to impress the parties with the seriousness of the process.
Federal Rule of Civil Procedure 1 states that the rules "should be construed and administered to secure the just, speedy, and inexpensive determination of every action and proceeding." I believe that mediation is a valuable tool to achieve these goals in appropriate cases. I would encourage Judge Bohm to reconsider his hostility toward mediation, or at the very least, to discuss the issue in a public forum where a back and forth dialog can take place..