Tricky issues face Boy Scouts bankruptcy judge
DOVER, Del. (AP) — More than two years after the Boy Scouts of America filed for bankruptcy protection to avoid a flood of lawsuits alleging child sexual abuse by Scout leaders and volunteers, a Delaware judge is assessing whether it should confirm the reorganization of the BSA plan.
After a three-week hearing and nearly a week of closing arguments, the judge is expected to rule in the coming weeks. The issues facing Judge Laurie Selber Silverstein are controversial and complex. Regardless of how she rules, the case will head to federal district court, with appeals likely to follow. Here is a brief overview of bankruptcy cases.
The reorganization plan calls for the BSA and its 250 local councils, along with insurance companies and troop-sponsoring organizations, to contribute some $2.6 billion in cash and property to a fund for victims of abuse.
In exchange for these contributions, these entities would be released from further liability, meaning they could not be sued for allegations of Scout-related abuse. But the plan allows abuse plaintiffs to sue insurance companies and local troop-sponsoring organizations that don’t reach their own settlements within a year.
The settlement trust would be overseen by Barbara Houser, a retired Texas bankruptcy judge who served as lead mediator in the Puerto Rico bankruptcy. She would be assisted by retired federal judges Diane Welch and Michael Reagan, who would act as claims administrators. Houser would be required to consult with a 7-member advisory board made up of attorneys representing abuse plaintiffs.
When it filed for bankruptcy, the BSA was facing about 275 lawsuits and was aware of about 1,400 other pending claims, but more than 82,200 abuse claims are in bankruptcy court.
Lawyers for BSA insurers, including those who have since reached settlements and now support the plan, said the huge volume of claims is an indication of fraud and the result of aggressive customer solicitation by lawyers and aggregators for-profit claims.
Although there are more than 82,000 abuse claimants in the case, only 56,536 voted on the plan, 86% of whom voted to accept it.
THE SETTLEMENT FUND
The Boy Scouts of America is contributing less than 10% of the proposed settlement fund, offering property valued at approximately $80 million, an $80 million promissory note and approximately $20 million in cash.
The 250 local BSA councils, which manage day-to-day troop operations, would contribute at least $515 million in cash and property, and an interest-bearing note of at least $100 million.
The BSA’s two largest insurers, Century Indemnity and The Hartford, would contribute $800 million and $787 million respectively. Other insurers have agreed to pay about $69 million. The BSA’s former biggest troop sponsor, The Church of Jesus Christ of Latter-day Saints, is reportedly paying $250 million for abuse claims involving the Mormon church. Congregations affiliated with The United Methodist Church would contribute $30 million.
A key issue in the bankruptcy was the treatment of local troop-sponsoring organizations, known as “chartered organizations”, and their rights under BSA insurance policies. These organizations, which number in the tens of thousands, include religious entities, civic associations and community groups.
Under the plan, virtually all Roman Catholic entities in the country, including parishes, schools and dioceses, would be cleared of all liability for all Scouting-related abuse claims from 1976 to the present. They would also be protected against all pre-1976 claims covered by BSA settlement insurers and given 12 months to negotiate financial contributions to the settlement fund in exchange for a full discharge.
In exchange, the Catholic entities would waive their insurance rights and agree to work with the Boy Scouts until at least 2036 to improve and sustain Scouting and increase enrollment. A similar supporting provision was included in the United Methodist Settlement. These provisions could prove essential for the Boy Scouts after decades of steadily declining membership.
While some BSA insurers have negotiated settlements for a fraction of the billions of dollars in liability exposure they could face, other insurance companies continue to challenge the plan. They argue that the fund distribution procedures violate their rights and would result in grossly inflated payouts of abuse claims, including tens of thousands otherwise barred by the passage of time. Opposing insurers also say the findings plan supporters want the judge to make would bind them and make it difficult to challenge claims decisions. In an email, an attorney for the abuse plaintiffs described these binding trust distribution proceedings as a “holy grail” that mass tort attorneys have been pursuing for years. Insurers say the judge’s approval would set a dangerous precedent that tort attorneys would use to their advantage in future lawsuits.
THIRD PARTY RELEASES
Perhaps the most contentious, and legally complicated, issue in bankruptcy is whether third parties, including insurers, local BSA boards and troop sponsors, should be allowed to escape. to any future liability by contributing to the victims’ fund, or at least not to oppose the plan.
Some survivors argue that releasing their claims against nondebtor third parties without their consent violates their due process rights. The US bankruptcy trustee, the government’s “watchdog” in Chapter 11 bankruptcies, argues that such discharges are not permitted under the bankruptcy code.
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, while courts in other jurisdictions have denied them.
In December, a New York judge rejected a proposed settlement in the Purdue Pharma bankruptcy because members of the Sackler family, owners of the maker of OxyContin, would be protected from civil liability in exchange for payment of billions of dollars . A federal appeals court will hear arguments on that decision next week.
Unlike the Purdue case, however, the BSA plan provides broad, non-consensual releases to thousands of entities, many of whom have not contributed to the settlement trust, or even been identified.
“Thousands of strangers will receive participation trophies without even having to participate,” said David Buchbinder, attorney for the US Administrator.