Innovative Bankruptcy Mediation Program Goes Live: A Look at How This Presumptive Mediation Program is Working

April 2, 2015Articles New Jersey Law Journal

Reprinted with permission from the April 2 issue of The New Jersey Law Journal. (c) 2015 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

The United States Bankruptcy Court for the District of New Jersey launched an ambitious presumptive mediation program on May 1, 2014. The genesis of the new mediation program was an evaluation of the preexisting mediation program, which was found to be rarely, if ever, used. The hope of the new program is that, by making mediation presumptive for all adversary proceedings, mediation will be utilized extensively to benefit litigants and the court through swifter, less costly resolution. The program is also available for any contested matter, such as a motion or confirmation of a plan of reorganization. Following are details about the new mediation program's implementation and focus. For more information, see the Bankruptcy Court's website www.njb.uscourts.gov.

First Steps Toward the Presumptive Mediation Program

Chief Judge Gloria M. Burns entered a "General Order Adopting Mediation Program Pending Adoption and Amendment of Local Rules" on Nov. 20, 2013. A Notice to the Bar and Public was provided by the clerk and posted on the Bankruptcy Court's website on Nov. 21, 2013. It set forth a schedule for implementation of the presumptive mediation program that initially envisioned a start date of April 1, 2014. That date was later extended to May 1, 2014. Prior to the effective date of the program, the Bankruptcy Court undertook to establish and train a roster of mediators and to inform the bar about the impending implementation of the mediation program. The previous register of mediators was dissolved.

The preamble to the General Order states: "By resolution of the Board of Judges of the United States Bankruptcy Court for the District of New Jersey, it is determined that a comprehensive, Court-supervised mediation program may facilitate resolution of contested matters and adversary proceedings for debtors, creditors and parties in interest." For several years, the judges of the Bankruptcy Court had been evaluating the pre-existing mediation program and determined that it was rarely, if ever, used and had become moribund. The clerk of the Bankruptcy Court surveyed the bar and found there was overwhelming support for mediation in adversary proceedings. In order to make the new program successful, the court determined to make mediation presumptive for all adversary proceedings in the hope that mediation would be utilized extensively to benefit litigants and the court by engendering swifter, less costly resolution. The program is also available for any contested matter, such as a motion or confirmation of a plan of reorganization.

The court also proposed new local rules, D.N.J. LBR 9019-1 and 9019-2, to implement the program and made the rules effective pursuant to the general order, pending formal adoption. These proposed rules on mediation have been included in a comprehensive revision of all of the local bankruptcy rules that are scheduled to be adopted and become effective Aug. 1.

Proposed D.N.J. LBR 9019-1 is entitled "Mediation—Mediator Qualifications and Compensation." The chief judge is authorized to appoint a judge to serve as the mediation program administrator. Bankruptcy Judge Michael B. Kaplan has been designated the initial administrator.

Mediator Qualification and Compensation

The court will establish a register of mediators who must have at least 10 years of experience in their profession and be in good standing in their field. Those who have little mediation experience must complete mediation training. The minimum requirements for training are an initial mediation skills course of 20 hours, followed by co-mediation with an experienced mediator and, finally, an advanced mediation skills course of an additional 20 hours. Mediators who have conducted at least 100 mediations but have little bankruptcy experience must be trained in basic bankruptcy principles and conduct co-mediation with bankruptcy professionals with less mediation experience. Applications for inclusion on the register of mediators were accepted by the court, and 58 bankruptcy professionals and experienced mediators have been selected. The Bankruptcy Court, in conjunction with the New Jersey Institute for Continuing Legal Education, conducted the mediation training for bankruptcy professionals and the basic bankruptcy training for experienced mediators in the spring of 2014. All mediators must continue mediation training of at least four hours per year and also accept at least one pro bono appointment each year. Appointment to the register of mediators is for an initial term of three years, after which the mediator may apply for reappointment.

Compensation for mediators is to be at reasonable hourly rates as agreed with the parties. This is to be contrasted with other court-annexed mediation programs that require mediators to serve some time for free. The bankruptcy court recognized that mediation is now a specialty and a primary area of practice for some professionals, whereas in the past court-annexed mediation was viewed as a volunteer public service to the court. The proposed local rules envision that some parties may not be able to afford the mediation fees and, in light of this, provide for the appointment of a willing pro bono mediator in such situations. Mediation fees are to be shared equally unless otherwise ordered or agreed by the parties. If the bankruptcy estate is to be charged with mediation expenses, the mediator must seek court approval, following the same procedures as other estate professionals.

Mediation Procedures

D.N.J. LBR 9019-2 is entitled "Mediation Procedures." All adversary proceedings will be referred to mediation presumptively upon the filing of an answer unless: a party is pro se; a temporary restraining order or preliminary injunction is sought; or the action is initiated by the United States Trustee. Any party may file a motion to be excused from mediation. If such a motion is filed, the mediation will be stayed pending resolution of the motion. Parties may consent to mediation in any adversary proceeding that otherwise would be exempt from presumptive mediation or in any contested matter. The court may also order the parties to mediation.

Whether the mediation is by consent, presumptive or court-ordered, the parties may select the mediator of their choice, either from the register of mediators or other sources. Initial reports show that the parties are selecting mediators both on and off the register, including nonbankruptcy mediators with other expertise. If the parties fail to agree on a mediator, the court will designate a mediator from the register or other sources. The court has promulgated local forms such as "Joint Application Requesting Referral of Matter to Mediation" and "Consent Order for Mediation" that the parties may use.

A mediator who has been selected must make an inquiry to determine if there is a basis for disqualification, such as a conflict of interest. The mediator must also disclose any connection to the parties or their professionals, and either state that there is no basis for disqualification or withdraw from the mediation. Any party may bring to the attention of the mediator any basis for disqualification; if the mediator fails to withdraw, the party may bring the matter before the court.

Referral to mediation will stay discovery, but not the initial disclosures required by Federal Rule of Civil Procedure 26. However, a party may move to proceed with discovery or stay the Rule 26 disclosures pending mediation.

The proposed local rules call for a pre-mediation organizational telephone conference and submission and exchange of written mediation statements. The parties may decide not to exchange mediation statements but submit them to the mediator in confidence. Each party must attend the mediation session in person. Organizations must send a representative, other than the attorney of record, with authority to settle or to recommend settlement to the appropriate authority. If a party is represented by an attorney, the attorney must also attend the mediation. Other interested parties, such as insurance carriers, may attend the mediation session. Willful failure to attend may result in sanctions.

Confidentiality

All communications connected to the mediation are confidential. The only exceptions are where disclosure is required by law or to prevent commission of a crime or other illegal act that is likely to result in death or serious bodily injury. The proposed rules also provide an evidentiary privilege that is much more extensive than Federal Rule of Evidence 408. Mediation communications are not subject to discovery and are not admissible in evidence.

Post-Mediation Procedures

Following conclusion of the mediation, the mediator must file a written report with the court stating only whether the matter was resolved or not. If an agreement has been reached, it must be in writing and signed by all parties.

Hopes for Presumptive Mediation Program

The mediation program administrator will track and compile reports on the program. With the first anniversary of the mediation program on May 1, the court will be in a position to evaluate its effectiveness to date. There is great hope on the part of the bankruptcy judges that this new presumptive mediation program will lead to more efficient and cost-effective service to parties in bankruptcy cases, a change that will benefit not only the litigants, but also the legal professionals and the court as a whole.

Lyons is counsel at Fox Rothschild in Princeton, and a retired U.S. Bankruptcy Judge for the District of New Jersey.

Reprinted with permission from the April 2 issue of The New Jersey Law Journal. (c) 2015 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.