Releasing the Albatross

To address the speedy resolution of such claims, debtors have increasingly turned to mandatory “alternative dispute resolution” or “ADR” procedures. Generally, such ADR procedures stay related non-bankruptcy court actions and require claimants to engage in mediation and/or non-binding arbitration with the debtors prior to seeking relief from the bankruptcy court to allow them to proceed with their case in a non-bankruptcy forum. It is clear that the bankruptcy court may institute voluntary ADR programs in lieu of state court actions, ie, where the affected creditors elect to participate. See Federal Rule of Bankruptcy Procedure 9019(c), which states that “On stipulation of the parties to any controversy affecting the estate the court may authorize the matter to be submitted to final and binding arbitration.” But there has been little consideration of the bankruptcy court's ability to require claimants to participate in mandatory ADR procedures. Recently, in Spierer v. Federated Department Stores, et al. (In re Federated Department Stores), 328 F. 3d 829 (6th Cir. 2003) (hereinafter, “Federated“), the Sixth Circuit affirmed the power of the bankruptcy courts to implement mandatory ADR procedures. Of importance, the Federated court confirmed that the constitutional authority of the bankruptcy court to oversee the expeditious resolution of claims includes utilization of a mandatory ADR procedure.

The Utilization of Mandatory ADR by Bankruptcy Courts