By: Karina Velter, Attorney
In May 2014, the Board of Judges of the United States Bankruptcy Court for the District of New Jersey adopted a comprehensive, Court-supervised mediation program for all contested matters and adversary proceedings. Local Ruel D.N.J. LBR 9019-2 sets forth the procedure for this program.
The rule provides that once an answer is filed, all adversary proceedings shall be referred to mediation. An exception has been carved out for pro se litigants, parties seeking a temporary restraining order or preliminary injunction, or for actions initiated by the US Trustee. These parties may submit to meditation at the request of the parties or by order of Court. Furthermore, any contested matter (non-adversary) may be referred to mediation either by joint request of the parties or by the Court.
Why is this important to our clients?
While in many instances the mediation process has a direct benefit for the parties (facilitating a resolution and settlement, saving time, and avoiding substantial litigating expenses), there is, however, a cost associated with this benefit. The Board of Judges has established a registry of approved mediators, whose rates range between $250 and $500 per hour. That means, a party may incur fees upwards of $10,000.00 before the case even gets to trial.
Some examples of how this new requirement has created an undue hardship for certain creditors:
The first instance is where a represented debtor files an adversary complaint pursuant to 11 USC 523(a)(8) seeking a hardship discharge of his/her student loans. The problem arises because defending a student loan adversary is costly enough, without adding several thousand dollars of mediator fees into the mix. On the other hand, when the loan amount in question is substantial enough, or the debtor’s case is strong in favor of discharge, an impartial third party may be in the best position to point out the strengths and weaknesses of each party’s case and propose a compromise that is acceptable to the litigants.
Another example is where a creditor files a complaint objecting to the dischargeability of certain debt pursuant to 11 USC 523(a)(2)(A) or (C) and the amount in controversy may not justify the cost of proceeding with mediation. The creditor may find itself in a position where the hourly fees to be paid to the mediator are double or triple those paid to the creditor’s counsel. Clearly, this is not a cost effect method for such creditor to proceed.
What to do?
The rule provides that where a party seeks to be excused from the mediation process, the party may file a motion pursuant to D.N.J. LBR 9013-1 seeking that relief, or notify all parties to the adversary proceeding and the Court, at least seven days prior to the pretrial conference to be held pursuant to D.N.J. LBR 7016-1, that an objection to mediation will be raised at the hearing. The court will then hear the party’s reasons for seeking to be excused from mediation and enter the appropriate order.
Where the parties are in agreement and do not seek to be excused from mediation, they must file Joint Mediation Order together with the Joint Order Scheduling Pretrial Proceedings and Trial. The parties must then confer and select a mediator. If the parties cannot agree on a mediator, the Court may designate a mediator.
The Mediation Process
Mediation must commence within sixty days after the entry of an order assigning a matter to mediation. Parties may seek an extension of time to conduct the mediation by Consent Order, or by motion, after notice and hearing.
Prior to the date scheduled for mediation, each party is required to submit a Mediation Statement, which should contain (1) legal or factual issues, (2) the history of any prior settlement discussions, and (3) an estimate of the cost and time to be expended for further discovery, pretrial motions and trial.
The parties are required to personally appear at the mediation. For corporations or governmental entities, a representative, who is not the party’s attorney, is required to attend, unless excused by the mediator or the Court. The representative appearing at the mediation must have full authority to negotiate and settle the matter on behalf of the party. Failure to appear at the mediation, without justifiable cause, may result in sanctions imposed by the Court.
Following the conclusion of the mediation, the mediator shall have seven days to report to the Court in writing whether the matter has been settled. If a settlement is reached, the written fully executed agreement (signed by all parties and counsel) must be presented to the court. If the matter is not resolved, a pretrial conference will be scheduled within thirty days.