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Mediating Disputes Involving Financially Shaky Defendants

Assume, in mediation, a fact pattern in which the parties agree that liability is likely to attach but defendant asserts a financial inability to pay even the amount defendant concedes is owed. My experience suggests that the mediator's toolbox contains techniques that can help the case settle.

In one case I mediated, plaintiff lender had doubts that defendant, a well-known hedge fund manager was as financially distressed as defendant asserted. Defendant claimed that the result of disastrous portfolio losses that led to a departure of clients and staff reductions plus an extraordinarily burdensome divorce settlement, he was unable to pay even the amount he agreed was owed. I suggested that plaintiff be allowed full access to defendant's tax and accounting professionals in support of defendant's contention. The parties agreed and plaintiff was satisfied that defendant's claim of impecunity was justified. After a long negotiation on settlement terms, the parties worked out a cash and two- year unsecured notes arrangement accompanied by a confession of judgment  in the agreed upon sum at a sharp discount from plaintiff's initial  demand.

In another case I mediated, plaintiff had advanced considerable sums to defendant to develop real property, a project that fell upon hard times. Defendant conceded that it might be liable although in an amount dramatically lower than that sought by plaintiff. Moreover, defendant claimed an inability to pay anywhere near what it agreed it might owe. Employing the same procedure described above, plaintiff became satisfied that defendant was indeed in seriously difficult financial shape. Unlike the above matter however, defendant's possible bankruptcy, made a confession of judgment filed or unfiled a confession of indebtedness or a first mortgage on defendant's residence (all broached during mediation discussions), likely not viable as possible preferential transfers. The net of the foregoing, was an all-cash settlement in a one-time payment of a de minimis sum.

I observe that both these cases were purely commercial in nature and not fraught with the emotional storm and stress so often seen when disputes involve family members on opposite sides of the v. 

                        author

Arthur Rosenbloom

Art Rosenbloom has long been commercial mediator in Supreme Court, New York County and in the United States District Court, Eastern District of New York and has been and arbitrator with the American Arbitration Association. After clerking for a United States District Court Judge, he practiced corporate law in Manhattan,… MORE >

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