Bad Faith Conduct At Mediation: One Judge Knows It When She Sees It
It is common for experienced mediators to hear from a party in mediation that the other side is not negotiating in “good faith.” Such comments are usually driven by frustration at an opponent’s stated economic position. In a recent case, however, a U.S. Bankruptcy Judge in New York sanctioned a party for bad faith mediation conduct and attempted to objectify “bad faith.”
A mediation was ordered in In re A.T. Reynolds & Sons, Inc. , a proceeding in United States Bankruptcy Court , Southern District Of New York (Case No. 08-37739). One of the parities ordered to attend and participate was Wells Fargo Bank, N.A., the entity in possession of the debtor’s cash collateral. Other parties included the debtor, committee of unsecured creditors and Boreal, Inc., the court-approved purchaser of the debtor.
The mediation was conducted pursuant to a long-standing local court procedure in the Southern District of New York, General Order M-211, and required good faith participation of the parties. Section 3.2 of the General Order required the mediator to report willful failure of a party to attend or participate in good faith.
Wells Fargo sent a mid-level manager and outside counsel with 10 years experience to the mediation. According to the mediator, who reported to the court that these individuals failed to participate in good faith, the Wells Fargo representatives were disruptive, refused at any time to even attempt to engage in any risk analysis and threatened to blacklist the mediator throughout Wells Fargo if he reported his impressions to the court.
U.S. Bankruptcy Judge Cecelia Morris found that attendance at mediation without the ability to adjust pre-existing settlement or a refusal to engage in risk assessment constituted bad faith. Wells Fargo was ordered to pay the mediator’s expenses and the costs of the other parties in preparing for and attending the mediation.
To what extent, if any, does this ruling contribute to the development of objective “bad faith?”