Andrew Olejnik of Jenner & Block and Olivier André of the CPR Institute have co-authored an article that appears in Bankruptcy Law Reporter on the growing use of ADR tools in bankruptcy. Dating the trend from a 2009 conference convened by the American Bankruptcy Institute Law Review, the authors conclude that “many large, complex cases increasingly have turned to ADR tools as a means to resolve disputes.” The full article appears here.
In some cases the ADR phase is statutorily required. For example, the city of Stockton, California underwent a state-required “neutral evaluation process” before being eligible to file for bankruptcy in 2012. Some were quasi-contractual. It is understood that “the bankruptcy court generally does not have discretion to deny enforcement of a valid prepetition arbitration provision.” And some are aimed at judicial economy. Lehman Brothers requested and obtained ADR procedures to streamline the process of capturing the value of certain “in the money” derivatives contracts. And the court ordered mediation of certain tax disputes in the Ambac Financial Group Chapter 11 proceeding.
Along with precatory mediation plans in many federal bankruptcy courts, and the new presumptive mediation plan in the District of New Jersey, we can expect, as the authors observe, increased ADR activity in this field, which so centrally relies upon negotiated outcomes.
The City of Detroit Chapter 9 proceedings, the largest municipal bankruptcy in history, has relied significantly on mediation to achieve settlements of major claims and disputes.