A federal district court judge has upheld approval of a $2.4 billion bankruptcy reorganization plan aimed at resolving tens of thousands of child sex abuse claims against the Boy Scouts of America.
The ruling filed Tuesday rejects arguments from non-settler insurance companies and attorneys representing dissident abuse survivors that the reorganization plan was not offered in good faith and improperly disenfranchises insurers and survivors. .
The decision follows a September ruling in which U.S. Bankruptcy Judge Laurie Selber Silverstein approved the plan. The plan would allow Boy Scouts of America, based in Irving, Texas, to continue operating while compensating tens of thousands of men who say they were sexually abused as children while involved in Scouting.
More than 80,000 men have filed complaints saying they were abused as children by troop leaders across the country. Opponents of the scheme say the sheer number of claims, when combined with other factors, suggests the bankruptcy process has been manipulated.
While upholding Silverstein’s description of the proceedings as “an extraordinary case in every way,” U.S. District Court Judge Richard Andrews found no fault in his decision.
“The appellants argue on many fronts that the plan failed to meet the requirements for confirmation, and I have carefully considered each of these arguments,” Andrews wrote. “Based on the record, the appellants have not presented evidence that would demonstrate a manifest error in the bankruptcy court’s careful findings of fact.”
The BSA released a statement describing the decision as “a crucial step” that “solidifies the way forward for survivors and Scouting”.
“We look forward to the organization’s emergence from bankruptcy in the near future and strongly believe that the mission of Scouting will be preserved for future generations,” the statement added.
A spokesperson for attorneys representing several unsettled insurance companies had no immediate comment, but attorneys have previously suggested the case could eventually reach the U.S. Supreme Court.
When it filed for bankruptcy protection in February 2020, the BSA had been named in around 275 lawsuits and told insurers it was aware of another 1,400 claims. The large number of claims filed in the bankruptcy was the result of a nationwide marketing effort by personal injury lawyers working with for-profit claims aggregators to attract clients, opponents say to the plan.
The largest BSA insurers negotiated settlements for a fraction of the billions of dollars of potential liability exposure they faced. Other insurers, many of which offered excess cover beyond the liability limits of the underlying primary policies, refused to settle. They argued that the procedures for distributing funds from a proposed compensation trust would violate their contractual rights to dispute claims, set a dangerous precedent for mass tort litigation and result in grossly inflated payouts.
They also noted that an attorney for the plaintiffs had acknowledged that some 58,000 claims could not likely be pursued in civil lawsuits due to the passage of time.
Under the plan, which the BSA describes as a “carefully calibrated compromise,” the BSA itself would contribute less than 10% of the proposed settlement fund. Local BSA councils, which manage day-to-day troop operations, have offered to contribute at least $515 million in cash and property, subject to certain protections for local troop-sponsoring organizations, including religious entities, civic associations and community groups.
The bulk of the compensation fund would come from the BSA’s two largest insurers, Century Indemnity and The Hartford, which have reached agreements calling on them to pay out $800 million and $787 million respectively. Other insurers have agreed to pay about $69 million.
Insurers opposed to the plan argue that the BSA is contractually obligated to help them investigate, defend and settle claims, as it did before the bankruptcy. They say the BSA, desperate to escape bankruptcy, colluded with plaintiffs’ attorneys to inflate both the volume and value of claims in order to pressure insurers for large settlements, then transferred his insurance rights to the settlement trust. The insurers argue that if the BSA transfers its rights under the insurance policies to the liquidation trustee, it must also transfer its obligations under those policies.
Lawyers for the Boy Scouts and supporters of the plan say the BSA’s obligations under the insurance policies are in effect transferred to the trustee – subject to both the bankruptcy plan and “applicable law”. Non-settlement insurers argue that such language creates too much uncertainty about their rights and the degree of discretion afforded to the retired bankruptcy judge who would oversee the settlement trust.
Another key legal issue in the case is whether third parties who are not themselves debtors in the bankruptcy can escape future liability in the tort system by contributing to a debtor’s plan of reorganization. of chapter 11.
These third-party releases, spawned by asbestos and product liability cases, have been criticized as an unconstitutional form of “bankruptcy grifting”, where non-debtor entities gain benefits by joining with a debtor to resolve mass tort litigation in the event of bankruptcy. Federal courts in some jurisdictions, including Delaware, have allowed third-party releases in certain circumstances, while courts in other jurisdictions have denied them.
Under the BSA plan, insurance companies, local scout councils and troop-sponsoring organizations would receive sweeping liability waivers protecting them from future lawsuits for sexual abuse in return for contributing to the compensation fund for victims. victims – or even simply not to oppose the plan.
Some victims of abuse have argued that releasing their claims against nondebtor third parties without their consent would violate their due process rights. The U.S. bankruptcy trustee, the government’s “watchdog” in Chapter 11 bankruptcies, argued that such releases are not permitted under the bankruptcy code and that the scope of the proposed releases in the BSA plan, potentially spanning tens of thousands of entities, was unprecedented.
