PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL

AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION

BANKRUPTCY MULTIPARTY
NEGOTIATION SIMULATION

General Instructions

Three years ago, a company called NoDrink produced genetically modified soybean seeds, which
were sold to farmers who planted them in the state of Pablo. This soybean crop was harvested for
human consumption and found its way into a variety of consumer food products, ranging from soy
milk to soybean lecithin (an ingredient used in many popular chocolate snacks). These consumer
food products were sold to the general public in Pablo, although government regulation required that
all such products be designated as “GM” foods (an abbreviation for “genetically modified”) on the
products’ packaging. While no health warning ever accompanied the GM distinction, many Pablo
residents shied away from GM foods. Nevertheless, not everyone did so.

Recently, growing scientific evidence (including at least one robust study) suggests a link between
rising malignant stomach and throat cancer incidents among Pablo residents, as well as links to
benign tumor proliferation in the population. A number of Pablo residents filed suit against NoDrink
after the latest study on GM products was released. Some of these plaintiffs were suffering from the
aforementioned maladies, while others had no ill-health symptoms whatsoever. Some claimed,
however, to have consumed GM products in the past and have been worried about future health
problems and medical monitoring costs — scientific evidence implies that the latency period
between NoDrink soybean ingestion and adverse health conditions could be as long as a decade.

Although one of the largest suppliers of GM foods, NoDrink was not the only manufacturer of
“enhanced” soybeans, and does not believe its products are genuinely harmful — and even if they
are, NoDrink feels it would be unfair to place the entire blame for the population’s health problems
on this one company.. However, as a result of the bad publicity swirling around this controversy that
has made it almost impossible for NoDrink to continue to sell its products, the company had no
choice but to file for bankruptcy five days ago (with US$100B in assets at the time). Moreover,
because its soybean seeds have a very short shelf life, the value of NoDrink’s assets is plummeting
rapidly.

But perhaps there is some reason for hope: if NoDrink could emerge from bankruptcy, with a plan
that appears to the public to fairly compensate the injured parties, there is a chance the company can
survive. In fact, NoDrink has in the works a spray that the company claims can make its old soybean
seeds unquestionably safe, because the spray absorbs certain (suspected) carcinogens in the plant
matter, which can then be washed away with regular water. Laboratory tests on this spray have
yielded “very promising” results, a company representative told reporters yesterday.
This case was written by James Emerson with Ben Longoria, under the supervision of Professors Robert Mnookin and Lawrence Susskind. Copies are
available at reasonable cost from the Program on Negotiation Clearinghouse, and may be ordered online at www.pon.org or by telephone at 800-258-
4406 or fax at 617-495-7818. This case may not be reproduced, revised, or translated in whole or in part by any means without the written permission
of the Director of Curriculum Development, Program on Negotiation, Harvard Law School, 513 Pound Hall, Cambridge, MA 02138. Please help to
preserve the usefulness of this case by keeping it confidential. Copyright © 2003, 2005. Distributed with permission. All rights reserved. (rev. 8/05)
BANKRUPTCY MULTIPARTY NEGOTIATION SIMULATION: General Instructions 2

So far, the following classes of parties have filed claims against NoDrink, in the amounts shown
below:

Secured Creditors: $19B

Unsecured Creditors: $25B
Severely Harmed Tort Claimants: $45B
Slightly Harmed Tort Claimants: $30B
Possible Future Tort Claimants: $30B

Total amount claimed by creditors: $149B

Total value of company: $100B

All parties (tort claimants, and secured and unsecured creditors) are now going to have a chance to
negotiate with NoDrink as the company tries to formulate a reorganization plan, with the
understanding that until a reorganization plan is approved, NoDrink will hemorrhage value
according to the following asset-depreciation schedule:

Days (for us, minutes!) after negotiations begin: Amount of value lost at each milestone:

5 $2B
15 $4B
25 $8B
35 $16B
45 $32B

Note also that in the event that no bankruptcy plan is approved after 45 day-minutes, NoDrink will
not be able to reorganize under Chapter 11 of the Bankruptcy Code; instead, it will be liquidated in
accordance with Chapter 7 which will mean that all of its assets will be sold off in a fire sale — i.e.,
a public auction which typically yields low returns (because piecemeal assets generally have less
value than the collective assets of an entity that is a going concern). This would leave little for
NoDrink’s creditors and tort victims (in this case, $38B, to be divided among all of the creditors,
NOT necessarily apportioned equally).

Copyright © 2003, 2005. Distributed with permission. All rights reserved. (rev. 8/05)
 PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL
AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION

BANKRUPTCY MULTIPARTY
NEGOTIATION SIMULATION

Student Handout: Negotiating in the Shadow of Bankruptcy

Impact of a debtor’s bankruptcy filing on negotiations

Automatic stay:

o All claim collection activities and litigation against the debtor-tortfeasor must be
suspended.

All claims must be filed:

o “File it or lose it” after general discharge of debts.

Future claims question:

o Definition of “claim” is incredibly broad:

Depends on bankruptcy/state law — when did you have a “right to

payment?”

o Better file your claim now.

Secured claims:

o Secured creditors hold security interests in specific assets of the debtor or, under
applicable state law, have obtained a judicial or statutory lien against the property of
the debtor. Because these creditors have an interest in specific property, they have
priority in repayment over general unsecured creditors and tort victims with respect
to the proceeds from the sale of those specific assets.

o But may be “under-secured.”

“Cram down”:

This case was written by James Emerson with Ben Longoria, under the supervision of Professors Robert Mnookin and Lawrence Susskind. Copies are
available at reasonable cost from the Program on Negotiation Clearinghouse, and may be ordered online at www.pon.org or by telephone at 800-258-
4406 or fax at 617-495-7818. This case may not be reproduced, revised, or translated in whole or in part by any means without the written permission
of the Director of Curriculum Development, Program on Negotiation, Harvard Law School, 513 Pound Hall, Cambridge, MA 02138. Please help to
preserve the usefulness of this case by keeping it confidential. Copyright © 2003, 2005. Distributed with permission. All rights reserved. (rev. 8/05)
BANKRUPTCY MULTIPARTY NEGOTIATION SIMULATION: Student Handout

o All individual classes of parties must vote and agree to a plan, UNLESS the
consenting party or parties “cram down” the dissenter(s):

At least one creditor must approve the plan, or it fails and the debtor will be
liquidated.

If a plan is not approved unanimously, then the plan which is approved must
give any and all dissenters at least as much value as they would have
received in a liquidation (i.e., “fire sale”) of the company’s assets. This may
not be much.

Judicial approval required:

o Judge must be convinced that a plan is “fair” and that it gives any dissenters at least
what they would have received in a liquidation. The plan must also be “feasible.”

Holdout problem dissenters must be “bought out”:

o “We’re going to push you over the edge!” versus “I’m going to jump!”

Copyright © 2003, 2005. Distributed with permission. All rights reserved. (rev. 8/05)
 PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL
AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION

BANKRUPTCY MULTIPARTY
NEGOTIATION SIMULATION

Negotiation Summary Sheet

Was an agreement reached?

Yes No

If so, then fill out the rest of this sheet as described. If not, then fill out this sheet with respect to the
last offer that was on the table.

Was there a public apology?

Yes No

Briefly describe how tort claims will be satisfactorily proven before payment is made to a claimant:

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

Who got how much in the end?

NoDrink, Inc.: _______

Secured Creditors: _______

Unsecured Creditors: _______

Severely Harmed Tort Claimants: _______

This case was written by James Emerson with Ben Longoria, under the supervision of Professors Robert Mnookin and Lawrence Susskind. Copies are
available at reasonable cost from the Program on Negotiation Clearinghouse, and may be ordered online at www.pon.org or by telephone at 800-258-
4406 or fax at 617-495-7818. This case may not be reproduced, revised, or translated in whole or in part by any means without the written permission
of the Director of Curriculum Development, Program on Negotiation, Harvard Law School, 513 Pound Hall, Cambridge, MA 02138. Please help to
preserve the usefulness of this case by keeping it confidential. Copyright © 2003, 2005. Distributed with permission. All rights reserved. (rev. 8/05)
BANKRUPTCY MULTIPARTY NEGOTIATION SIMULATION: Negotiation Summary Sheet 2

Slightly Harmed Tort Claimants: _______

Possible Future Tort Claimants: _______

Duration of plan:

3 years 5 years

Copyright © 2003, 2005. Distributed with permission. All rights reserved. (rev. 8/05)
 PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL
AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION

BANKRUPTCY MULTIPARTY
NEGOTIATION SIMULATION

Confidential Instructions for: Unsecured Creditors

Interests:

Collect as much as you can, as soon as you can:

o As a class, you performed various high-quality services, including laboratory tests

and other scientific research for NoDrink. Many of you worked overtime and long
hours — even on weekends. To make matters worse, the company hasn’t yet paid
any of you for the expert services you rendered. You have waited for your money for
quite a while, but many of you really can’t wait any longer. Some in your class have
no other source of income and are in danger of having their mortgages foreclosed.

o The amount NoDrink actually owes your class is somewhat debatable. You believe
the company owes you more than $25B in back pay, but the company feels the real
number is lower. You’ll never see $25B if NoDrink goes belly up and its assets are
liquidated. Perhaps NoDrink is right — it might be in your interest to take what you
can get (maybe a lot less!). On the other hand, if you don’t believe that NoDrink is
offering you fair payment for your work, you may want to oppose any plan the
company proposes — that way you are sure to get at least what you would have
received in a liquidation of the company. But that may not be much.

This case was written by James Emerson with Ben Longoria, under the supervision of Professors Robert Mnookin and Lawrence Susskind. Copies are
available at reasonable cost from the Program on Negotiation Clearinghouse, and may be ordered online at www.pon.org or by telephone at 800-258-
4406 or fax at 617-495-7818. This case may not be reproduced, revised, or translated in whole or in part by any means without the written permission
of the Director of Curriculum Development, Program on Negotiation, Harvard Law School, 513 Pound Hall, Cambridge, MA 02138. Please help to
preserve the usefulness of this case by keeping it confidential. Copyright © 2003, 2005. Distributed with permission. All rights reserved. (rev. 8/05)