In creditors’ rights mediation, the creditor is able to make an attempt to work with the debtor to receive some form of payment toward a debt that is owed without going through the judicial system.  However, in some cases, particularly when the debtor is in over his/her head, these mediation proceedings might only result in pushing the debtor closer toward bankruptcy.

A good case in point is Stockton.  Last year, Stockton, California became the largest American city to ever declare bankruptcy.  This filing came on the heels of heated mediation attempts between Stockton’s creditors and the city’s officials to restructure hundreds of millions in debt—mediation that was unsuccessful due to the realization that there was no way to resolve the vast amount of debt the city owed without filing bankruptcy.

Bob Deis, the city manager for the City of Stockton, stated, “Unfortunately we have no comprehensive set of agreements with our creditors that would eliminate the deficit and avoid insolvency.  We think Chapter 9 protection is the only choice left.  If we get any agreements, those will be honored in Chapter 9.”

In a 6-1 vote, the City Council approved a bankruptcy budget to deal with 2013’s estimated $26 million dollar deficit.  Included in the budget were provisions to reduce payments for retiree medical benefits and suspend debt payments.

The deficit and resulting bankruptcy came on the heels of a hard-hit housing market crash that was difficult for Stockton to recover from, despite the city’s efforts through cutting wages and medical benefits, laying off one-fourth of its police officers, one-third of its fire staff, and 40 percent of the rest of its employees.

While Stockton’s mediation negotiations with its creditors had been underway from March until June due to AB 506, a recent California law that requires mediation before a city can file bankruptcy, there was simply no leverage room.  The city had done everything in its power to cut it expenses, short of stopping necessary public services, however the Recession that hit in 2008 had already done its irreparable damage.  In addition to the city-wide layoffs of public employees, Stockton has dealt with a nearly 20 percent unemployment rate and has experienced one of the highest foreclosure rates in the country.  Wells Fargo, one of its lenders, just repossessed some city parking lots and the future city hall.

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The majority of construction disputes are settled during mediation sessions rather than in court proceedings.  If you find yourself in need of mediation for a construction dispute, consider the following tips:

Choose Your Counsel Carefully

While the main goal of mediation is to settle the dispute in a manner that is agreeable to both parties, you want to be sure to choose counsel that will most benefit you.  If the defendant is a large corporation, you can guarantee that the defendant’s counsel will be knowledgeable of all aspects of the field of construction, and you want your counsel to be experienced as well.

Choose the Mediator Carefully

When choosing a mediator, you’ll also want someone who is experienced with mediation directly related to not only construction but also the specifics of your case.  In addition, look for the following characteristics in your mediator.

• Able to establish rapport with both parties to put everyone at ease
• Willing to see the matter through without eyeing the clock if being paid by the day
• Interested in the details of the case rather than indifferent
• Committed to resolving the dispute

If you’re allowing the defendant to choose the mediator in an effort to make mediation go more smoothly, be sure to thoroughly research the mediator before the session begins.

Be Prepared With Excellent Fact Witnesses

As with any hearing, witnesses can make or break a mediation session.  Especially in cases when counsel on both sides is evenly matched, the side with the best witnesses wins.  Make sure that your fact witnesses are well prepared and able to present the evidence for your side in a compelling and believable manner.

Be Brief During the Joint Session

As most mediation sessions begin with a joint session during which both parties will present their side of the dispute, be brief and to the point during your turn.  The basic facts are already known by each party and its counsel, and you will have ample opportunity to present all of your facts and proof later during the session.