EXCLUSIVE: Teresa Giudice’s Malpractice Suit—Judge Halts $1K Per Day Contempt Penalty & Orders Mediation

A source close to the James Kridel Lawsuit involving Real Housewives of New Jersey’s Teresa Giudice telephoned me late Friday afternoon. I listened intently as the source, who was present in court at the hearing last week, recalled details in which the Trustee’s counsel and Teresa’s counsel debated the subpoena demanding that Teresa produce documents such as bank statements and tax returns. (The Trustee moved to hold Teresa in contempt for failing to produce said documents on July 13, 2016.) Spoiler alert: It looks like Teresa Giudice has something to celebrate.

“The Judge then said she was ordering mandatory mediation and that all discovery would be stayed including the contempt motion until after the mediation which she was hopeful would take place before the return date of the motion to hold Mrs. Giudice in contempt. This is August 16, 2016,” the source reported.

Teresa won’t immediately need to produce the documents demanded as discovery has been stayed, and she probably won’t have to pay the proposed penalty of $1,000 per day from July 13.  Read on.

Discovery

Why did the court stay all discovery? Courts have broad discretion to stay proceedings as an incident to its power to control its often-clogged docket. Though a stay of discovery is the exception and not the rule, excessive discovery is a common criticism of bankruptcy actions and the courts have been sympathetic to this concern. In some circumstances the courts want to protect the debtor from the onslaught of discovery. The rules authorize the court in which the action is pending to limit, condition or stay discovery proceedings to prevent “annoyance, embarrassment, or oppression.” 

The source noted that there was no mention at the hearing that Teresa intended to comply with the subpoena. The Trustee maintains that Teresa’s lawyers have refused to assist in producing Teresa pursuant to the Amended Rule 2004 Subpoena. Since the debtor has a duty to cooperate with the Trustee, why would Teresa not cooperate with special counsel in her own self-interest in pursuing the Kridel Lawsuit?

Michael S. Kopelman, the attorney for Trustee John W. Sywilok, alleged in motion papers that the Trustee agreed to seek to retain Carlos Cuevas and Anthony Rainone provided that any proceeds from the Kridel Lawsuit be administered by the Trustee “but Cuevas and Rainone refused.”

Timing Is Everything

The source noted that the judge did not find favor with the fact that the Trustee filed his motion to hold Teresa Giudice in contempt (dated July 13, 2016) on the same day discovery documents were due (July 13, 2016). 

The Trustee’s fast turnaround time on filing the contempt motion is not incorrect per se, but the source got the impression that the judge thinks the Trustee should have given Teresa more time to respond/produce documents before filing the motion to hold her in contempt for failure to comply with the subpoena.

Courts take kindly to parties who try and work with the other party in a legal dispute. Sending a warning letter to the offending party before actually filing for contempt is a sign of good faith. Such a letter could have included a section defining how the offender (Teresa) can specifically rectify the situation before it (Trustee) makes a motion. Courts like to see the accuser try to resolve the situation and evidence that the other party still did not comply.

Mediation

Courts do not regularly mandate mediation, as was the case here, although the process is generally encouraged. Even where mediation as outlined by the court is mandatory, the parties are not required to settle if they believe it is not in their best interests to do so. 

In mediation, parties and counsel meet with a neutral third party (the mediator) who is proficient in facilitating settlement discussions. The parties articulate their respective positions and craft options for a mutually agreeable resolution to the dispute. The mediator assists the parties by defining the issues, assessing the strengths and weaknesses of each party’s legal positions, and identifying areas of agreement and disagreement. If they cannot agree during mediation, the parties must show a good faith effort to mediate their dispute before asking the court to intervene and make a ruling.

In complex bankruptcy cases (or in contentious ones), mediation can serve a useful purpose by streamlining the issues, bring parties to agreement, ease the burden on busy bankruptcy courts, and help the parties see the weaknesses in their own case, thereby increasing the likelihood of settlement later. 

In this instance, the parties directed to mediation will need to resolve a whole host of issues, including the appointment of special counsel; what evidence/documents are discoverable; who owns the Kridel Lawsuit, meaning whether the malpractice suit should be an asset of the estate; and whether creditors’ claims have been fully satisfied. 

While Congress gave broad authority to the bankruptcy courts to implement mediation procedures in mandatory mediation, the procedural requirements are left to the local rules of the bankruptcy court.  Therefore, rules of evidence in mediation can be quite flexible.

As such, the major advantage to Teresa is that mediation can be confidential. Her lawyers can seek to protect the information shared during mediation, including settlement proposals, financial information, and admissions made during the mediation. Mediators can be granted immunity from discovery requests.

The court can require the parties to share the costs of mediation. According to the source, there is an issue of who will pay for mediation here.  There were allegedly discussions that a retired magistrate judge could serve as mediator at last week’s hearing.

Will Mediation Work?

Not everyone is cut out to be a compromiser. “The Trustee also opposes mediation to approve the settlement Cuevas alleges was reached concerning the Kridel Lawsuit. There was no settlement reached and Mediation is a waste of time and resources,” Kopelman declares in motion papers filed July 14, 2016.   

Since the mediator does not make a decision and has no power to impose a settlement, the final settlement agreement is one that must be acceptable to all parties.  I have found that in order for mediation to be successful, the parties must have an iota of trust amongst one another to engage in reasonable discussion.

Speaking of trust, the source tells me that when the Trustee’s counsel sent a letter to Cuevas asking him to substantiate claims and reveal who prepared the chart showing payment to creditors, there was allegedly no response from Cuevas.  According to the source, the Trustee’s position regarding the assertion that she paid creditors continues to be, “We need proof.” 

Grab your gavel, join the conversation, and tell us what you think about the judge staying discovery and ordering mandatory mediation.

 

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