Mandatory Mediation of Bankruptcy Court Appeals

District Of Delaware

I.  Introduction

            Through an order (Procedure to Govern Mediation) dated and signed on July 23, 2004 by the Honorable Chief Judge Sue L. Robinson of the United States District Court for the District of Delaware, all appeals from the Delaware Bankruptcy Court to the Federal District Court must follow mandatory mediation.  The procedures to govern the mandatory mediation of the Bankruptcy Appeals were also set forth in the order signed by Chief Judge Robinson also on July 23, 2004.  Illustrated below are the policies and procedures which shall govern this new use of alternative dispute resolution by the District Court. 

            A current uses of ADR measures by the District Court include ordering mediation in front of Magistrate Judge Mary Pat Thynge.  Separate Procedures have been set forth for this process.  Why though has the court turned to these alternative means to assist in adjudication?  The answer can be found in the second paragraph of the order of Procedure to Govern Mediation of the Bankruptcy appeals: “to more efficiently and expeditiously administer Justice”.

A.  Crisis of the Court

            The rising number of cases in our American court system has helped pave the way for new efficient procedures in the District Court.  The average case load for the court has been increasing on a continuous basis.  Where in the late 1990’s the yearly civil actions, including bankruptcy appeals, averaged around 900, the numbers have greatly increased.  In 2002, almost 1700 cases were filed in the court.  In 2003, over 1150 cases were filed and at the time this article was written in November of 2004, over 1450 cases had been filed in the District Court. 

            It is expected that through normal growth, the case loads of a court would follow.  However, the number of judges disposing of the cases in the District Court remains the same.  There are currently only four District Court judges; Chief Judge Sue L. Robinson, Judge Joseph J. Farnan, Judge Gregory M. Sleet, and Judge Kent A. Jordan.  This situation has lead to the median life span of a Delaware Federal Court civil action being 12.3 months (Table C-5) from initial filing to final disposition.  This number represents the second highest case length in the Third Circuit and the 5^th highest median of all district courts in the country. 

            The Courts must also deal with budgetary constraints in attempting to adjudicate cases.  In a Letter dated October 21, 2004 to the Honorable Judd Gregory, (Chairman of the Senate Appropriation Subcommittee on Commerce, Justice, State, The Judiciary, and Related Agencies), and a ranking member of the Subcommittee, The Honorable Ernest F. Hollings, John G. Heyburn, III, (Chairman of the Budget Committee at the Judicial Conference of the United States), described the shortfalls of the federal courts regarding budgetary needs.  As Heyburn quoted from his own prior remarks concerning the same topic, “the federal judiciary is at a crisis point.  The courts’ workload and the resources provided to handle that workload are headed in opposite directions.’” Letter

page 2. 

            Despite over 4 billion dollars in salaries and expense, the federal courts still lost over 900 employees in fiscal year 2004 due to lack of funds.  With the initial budget offering by the Senate for fiscal year 2005, the committee predicts to lose staffing by another 570 employees. 

            This reduction in employees, coupled with the average length of a civil action in all federal courts, provides the ideal setting for a court to utilize alternative dispute resolutions.  ADR is a great tool for the courts, as well as litigants, to “to more efficiently and expeditiously administer justice.” Procedure to Govern Mediation, paragraph 2.

B.  Basis for Authority

1.  Bankruptcy Appeals in General

            Several statutes provide the provisions which guide appeals in the Bankruptcy Courts.  All of these procedures must follow the Federal Rules of Appellate Procedure.  Rule 6(b) governs an “Appeal From a Judgment, Order, or Decree of a District Court or Bankruptcy Appellate Panel Exercising Appellate Jurisdiction in a Bankruptcy Case”.  Under section (b)(1) of the rule, authority is given to the appellate rules to govern the procedures of an appeal under 28 U.S.C. § 158 (d). 

            Appeals in the Bankruptcy Court can take one of two possible routes under Title 28 U.S.C. § 158.  The first option is for a Bankruptcy Appellate Panel to hear the appeal under § 158(b) of the statute.  All appeals in the Bankruptcy Court are originally placed in front of the Panel (if established).  The parties may elect though for the second route in deciding an appeal from the Bankruptcy Court.  The second option is for the District Court to hear the appeal.  Jurisdiction is given to the District Court under § 158(a) of the statute to hear the appeals.  The court of review for either the District Court judgment of an issue on appeal or a determination made by the Bankruptcy Appeal Panel is the Third Circuit Court of Appeals.  Section 158(d)

            A party may elect under § 158(c)(1) to have the District Court hear the appeal by filing a separate statement of election with the Clerk of the Bankruptcy Court.  The appellant may file the election at the time the appeal is filed.  If the appellee wishes to have the District Court hear the appeal, they must file the election with the Bankruptcy Court Clerk within 30 days after notice of the appeal is given. 

            This paper only covers the procedures surrounding appeals elected to be taken with the District Court.  Certain provisions in the statute cover the establishment of the Appellate Panel.  For more information, see 28 U.S.C. § 158(b)(1)-(6). 

2.  Appealable Decisions

            An appeal may be taken as of right from final judgments, orders, decrees, and from interlocutory orders under Title 11 U.S.C. § 1121(d).  See 28 U.S.C. § 158(a)(1)-(2) and Federal Rules of Bankruptcy Procedure 8001(a)  (“Fed. R. Bank. Proc.”)

            An appeal may also be taken with leave of the Bankruptcy Court from other interlocutory orders and decrees, along with the assignment of bankruptcy judges under 8 U.S.C. § 157.  See 28 U.S.C. § 158(a)(3) and Fed. R. Bank. Proc. 8001(b)

C.  Standard Bankruptcy Appeal Procedures

            Section 8000 of the Fed. R. Bank. Proc. supplies the general guidelines to be used by parties when filing appeals in the Bankruptcy Court.  These provisions may contain an addendum by the local rules of a specific bankruptcy court.  You should always consult the local rules of a court prior to initiating or responding to a complaint in a federal court.  Click Here to view the Delaware Bankruptcy Court Local Rules. 

            An appeal in a bankruptcy court must be filed with the Clerk of the Bankruptcy Court within 10 days of the entry date of an appealable court order.  (8002(a))  An extension of time to file an appeal may be granted by the court under (8002(c)) but with several exceptions listed in the statute.  The Clerk is responsible for notice to be sent to all parties in the action of the now pending appeal.  (8004)  The appellant and appellee must then prepare the appeal record by filing a designation of items on appeal and a designation of additional items to be included on the appeal, respectively.  (8006)  Both must be filed with the Court and served on the opposing parties.  The record on appeal shall contain copies of relevant pleadings previously filed in the case along with copies of transcripts of court proceedings. 

            Transmission of the completed record is then made to the District Court Clerk (or Clerk of the Bankruptcy Appellate Panel) by the Clerk of the Bankruptcy Court.  (8007(b))  The appeal is placed upon the District Court docket (or Bankruptcy Appellate Panel docket) for adjudication.

II.  Procedures for Mediation

A.  No Change In Bankruptcy Court Procedures

            The Procedures governing the treatment of appeals in the Bankruptcy Court will not change under the new mediation procedures.  Under Bankruptcy Court Local Rule 8001-1, the party filing the appeal must file a “Notice of Appeal” with an attached “Certificate of Service” showing service has been performed upon any official committee in the original action but not named as a party to the appeal.  Each party in the appeal may designate items from the Bankruptcy Court record to be included on the appeal record.  The designation of record on appeal is filed with the Bankruptcy Court Clerk and must be accompanied with one copy of each item from the record to be designated.  According to Bankruptcy Court Local Rule 8006-1, the designation must be served on all opposing counsel with a copy of each item to be placed on the appeal record.  A certification that service of the designated appeal record was performed on all counsel in the action must be filed with the bankruptcy court clerk for entry on the docket.

(The Delaware Bankruptcy Court currently uses an online filing system called ECF (Electronic Case Filing).  The Delaware District Court however continues to use a hard copy filing system.  The District Court is expected to convert to an online filing system in early 2005. For District Court website regarding ECF, click Here. This disparity between the courts may help explain the reason behind the Bankruptcy Court needing a copy of the designated record.  These procedures may change once both courts become electronic in their filings with the court.  Consult the local rules for any changes)

            The notice of appeal and designated record are then forwarded to the District Court Clerk to be opened as a new civil action.  See Bankruptcy Court institution and guideline #18.  An acknowledgment of receipt letter for the designated record accompanies the appeal package to the District Court.  Following case opening procedures of the District Court, the acknowledgment receipt is signed and returned to the Bankruptcy Court to be entered on the court docket. 

                        - Notice of Appeal filed and served

                        - Designation of Record filed with 1 copy and served

                        - BK forwards to DC

B.  District Court Initial Procedures

            No changes have been made to the procedures of the District Court in opening the appeal as a new civil action.  The appeal package from Bankruptcy Court is received by the District Court Clerk, assigned a new civil action number, and opened in the courts computer database.  Thus, the appeal becomes part of the official court docket.  The typical items included on the court docket report are the notice of appeal, the designated record on appeal, and the acknowledgment of receipt letter sent by the bankruptcy court clerk.  The District Court case opening clerk signs the acknowledgment of receipt letter and returns the original to the Bankruptcy Court as part of the case opening process.  A copy is retained by the clerk and kept with the new file jacket for the appeal. 

                        - Received by District Court Clerk

                        - Assigned Civil Action #

                        - Opened and placed onto court docket

C.  Prior Case Management in District Court

            Before the new mediation procedures, the appeal as a new case would be grouped with other cases filed during the same time period for random case assignment purposes.  This time period would run from Friday at 12:00 pm to the following Friday at 11:59 am.  Thus, there could be up to a two week delay before a Judge received the appeal.  Once the case was assigned, the assigned Judge’s chambers were now in control of the file and would include it with its other previously assigned actions for case management.  An initial briefing schedule would be ordered for the case.  As a judge may have several hundred active cases at any one time, resolution of the appeal may not be obtained for several months. 

                        (District Court procedures do allow for an expedited hearing    involving Bankruptcy Court appeals.  An emergency motion to stay a            Bankruptcy Court opinion pending appeal may be filed with the District          Court.  The motion is immediately opened as a new civil action and presented to the duty judge for review.  District Court judges alternate     assignment to the duty judge role on a random basis.  For more       information, please contact the District Court Clerk’s office at 302-573-         6170.  Fed. R. Bank. Proc. 8007(c) governs the record to be sent to the        District Court when an emergency motion to stay an appeal is made.)

D.  New District Court Procedures

            The efficiency of the new appeal procedures comes by sidestepping placement of the case on the chamber’s case management schedule.  The briefing of the case is delayed, unless otherwise ordered, until after the mediation has occurred.  See Order of Procedure at 2.  Now, after the case is assigned to a judge, the Clerk, who manages the mediation panel, assigns the appeal to a mediator.  The mediators are selected on a rotating basis.  Then, a mediation conference is held between the parties with the results relayed to the court.

             If an agreement is reached, the appeal is dismissed through a stipulation of dismissal.  Order of Procedure at 5(d).  Any agreement between the parties must be placed in writing.  The stipulation of dismissal must be filed with the Clerk within 30 days of any settlement agreement.

             If no agreement is reached between the parties, notification stating such must be filed with the Clerk.  A briefing schedule will be set for the case if one has not been previously ordered and the appeal will follow normal procedures of adjudication. 

                        - Assignment to judge

                        - Assignment to mediator

                        - Agreement reached: Stipulated dismissal within 30 days

                        - No agreement reached: continue normal procedures

III.  Administrative Guidelines Surrounding Mediation

A. Filings

            Upon selection of a mediator, the District Court Clerk will provide the mediator with copies of prior filings relevant to the appeal.  These prior filings may include any opinions issued by the Bankruptcy Court as well as outstanding motions filed in the District Court.  See Order of Procedures at 3. http://www.ded.uscourts.gov/AnnounceMain.htm

            Mediation Statements provided by counsel follow similar guidelines as those required by mediation in other District Court civil actions.  Under the Order of Procedure at 5(a), parties must submit a brief mediation statement to the mediator within 15 days after the selection is made.  The statement, limited to 10 pages, is to cover all items related to the mediation of the appeal.  These include key “facts, legal issues, settlement options, and the status o any motions filed in the District Court.”  The mediation statements do not become part of the appeal record so are not to be filed with the Clerk of the Court.  These statements are also confidential and should not be served on opposing counsel. 

                                    - 10 Page confidential mediation statement

                                    - 15 days after mediator assigned

                                    - Do not file with Court

B.  Mediation Session Time and Participants

            Section 5(b) of the Order of Procedure covers the setting of the mediation session.  Discretion is given to the mediator to determine the time and place of the mediation session.  The Court however requires senior counsel in the action for both sides to attend the session.  Senior counsel is described as the attorney “responsible for the appeal.”  Id.  Also required to attend by the court are the “person or persons with actual authority to negotiate a settlement of the case.”  At their discretion, the mediator may modify this requirement for expediency in resolving the matter. 

            If no agreement is reached during the initial mediation session, the mediator may order a second meeting between the parties if resolution is possible.  Again, the time and place of the mediation are determined by the mediator. 

                                    - Mediator sets time and place for session

                                    - Lead counsel must attend

                                    - Person with authority to settle must attend

            The Court is taking a controversial hard stance on encouraging parties to settle their dispute through mediation.  Having lead counsel present in the mediation along with an authorized person to settle the action will help the expediency of the mediation.  A good discussion will not be placed on hold because counsel must confer with their client back at the office and then arrange a second mediation session to continue negotiations.  Ideally, the attendant requirement will bolster the good faith effort in settlement sought by the Court.  But the question remains, how far should the Court go in forcing a settlement?

            The distinction between these new procedures and mediation ordered in original proceedings in District Court is that these cases are on appeal.  They are not original proceedings.  The parties have already been in court for a period of time and a judgment has been issued.  Unless cross appeals were filed, at least one party is content with the result of the Bankruptcy Court. 

            This scenario has a potentially negative impact on the court’s attempt at good faith settlement negotiations.  The prevailing party in the Bankruptcy Court has little incentive in negotiating with a judgment already in their favor.  Given their perspective, why should they agree to negotiate and perhaps sign an agreement worth less than they were originally given?  Unless the price of defending the appeal will be too costly for the prevailing party to handle, or there is a chance the decision of the Bankruptcy Court will be overturned, the respondent will have no incentive to participate in the mediation.  Instead, the mediation will seemingly give the petitioner a third chance to argue the case they have recently lost.  Should the mediation fail, petitioner may still rely upon the appeal process, the second chance at their argument. 

            Two questions surrounding the mediation process remain unanswered by the court in the public order and should be addressed by legal system as a whole.  First, how is the court able to interfere with the normal appeal process by adding a procedure which would tend to benefit the petitioner.  Second, how is the court able to force mediation on potentially unwilling parties?  Mediation is traditionally used as an alternative dispute method by willing parties. 

C. Confidentiality

            As with most, if not all other mediations, the Court protects the content of the mediation and holds all parts of the proceeding confidential.  See Order of Procedure at 5(c).  If no agreement is reached, the parties are excluded from using any information disclosed at the session in future filings.  The mediator is also bared from disclosing the proceedings.  The court considers the proceedings to fall under Federal Rules of Evidence 408.  This rule states in part that evidence offered “in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability. . . “

                                                - The proceedings are confidential

            The policy reasons for maintaining the mediation session confidential are consistent with requiring lead counsel and persons with settling power to attend the mediation.  The Court is looking for a good faith effort by both parties to settle the dispute.  Keeping the mediation confidential allows the parties to avoid any fear of future repercussions for what they may say during the conference. 

D. The Mediators

            A standing order issued on July 27, 2004 by Chief Judge Robinson, in congruence with the order outlining the procedures surrounding the mandatory mediation, announced the Initial panel members appointed by the Court.  The initial mediation panel members include:

                                    Kevin F. Brady, Esq.

                                    Kevin Gross, Esq.

                                    Vincent J. Poppiti, Esq.

                                    David B. Stratton, Esq.

                                    William H. Sudell, Jr., Esq.

            Recent additions have been made to the mediation panel.  Richard G. Elliott, Jr., Esq. and Ian Connor Bifferato, Esq. were named to the panel by Order dated October 22, 2004 and signed by Chief Judge Robinson.  See Additional Panel Members

            Per the Order of Procedure at 1(b) governing procedures of the mandatory mediation, any person who seeks inclusion on the mediation panel must submit the request to the Clerk’s Office of the District Court.  To accompany the letter is a Curriculum Vitae outlining their qualifications and notice of the person’s normal hourly fee rate.  Though all current members of the mediation panel are attorneys, there is no restriction that a panel member must be a lawyer.  The order only refers to a “person” wanting to become a mediator.  This provision allows for the possibility of experts in the bankruptcy field to act as mediators instead of attorneys.  The expertise concerning the financial implications of bankruptcy that a non lawyer may bring to the mediation table could be more beneficial for both parties involved in the dispute.  Practical rather than legal solutions have a greater chance of being facilitated by an expert as the mediator. 

            Compensation for the mediators is to be delegated evenly between the parties without regard to prevailing parties.  Thus, per the Order of Procedure

at 5(e), one half of the total mediator fees are allocated to each party. 

IV. Conclusion

            The mandatory mediation of Bankruptcy Appeals by the District Court is unprecedented among the several other district courts in the Third Circuit.  Neither the District of New Jersey, the Western, Eastern, or Middle District of Pennsylvania, nor the Virgin Islands offers a mandatory mediation of these appeals.   The mandatory mediation of any appeal though is not a new concept in the Third Circuit.  The Third Circuit Court of Appeals provides for referral of all appeals presented to the court to the Appellate Mediation Program.  The program falls under Third Circuit Local Rule 33.  For more information, please visit the Mediation website. 

            Whether it is mandatory mediation or just referral to a mediation panel of an appeal or any type of case still raises the question; how far can the Court go to force settlement between disputing parties?  The effectiveness of these new procedures will only be determined after use over time.  However, any acceptance should not be taken without some criticism.  Parties do not file actions with the hope of mediation.  Any settlement should not be taken that compromises the goal of the party, to win by decision of the Court.