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There is a strong public policy in the U.S. favoring the settlement of disputes using alternative dispute resolution tools such as mediation.  This is so because mediating disputes before an impartial mediator allows for the confidential and expedient resolution of disputes and avoids costly, time consuming and uncertain in-court litigation.  Not surprisingly, therefore, mediation is one tool bankruptcy practitioners and tribunals increasingly avail themselves of to facilitate settlement of bankruptcy litigation.

That said, the mediation process is not without its pitfalls.  For instance, parties may mediate a dispute for hours and then at the 11th hour reach a resolution regarding the matter in dispute.  Though the parties agree to settle the dispute at the 11th hour, at that time, they may in haste only put together a handwritten agreement or term sheet to acknowledge their agreement.  Further, the parties may indicate that they will later draft more comprehensive settlement documents.  Before these additional settlement documents are drafted, one of the parties to the agreement may default or altogether renege on the deal.  If practitioners are not fully versed on the law governing enforcement of settlement agreements, they may fall victim to the unraveling of a mediation deal they thought was binding. 

The article discusses general federal, Texas, New York and Delaware law on the issue, select cases highlighting how 11th hour mediation deals may be challenged and provides best practices for ensuring 11th hour mediation deals withstand a challenge in court.  

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Camisha is the Founder and Managing Member of Simmons Legal. She is dedicated to assisting parties in protecting their interests in corporate restructuring, creditors’ rights, real estate transactions, other business transactions, and litigation matters.

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